UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

(Mark One)

þ	Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended January 28, 2005 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 0-19806

CYBERONICS, INC.

(281) 228-7200

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes þ No o

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

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CYBERONICS, INC.

INDEX

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PART I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CYBERONICS, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

See accompanying Notes to Consolidated Financial Statements (Unaudited).

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CYBERONICS, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

See accompanying Notes to Consolidated Financial Statements (Unaudited).

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CYBERONICS, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

See accompanying Notes to Consolidated Financial Statements (Unaudited).

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CYBERONICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

January 28, 2005

Note 1 – Basis of Presentation:

     The accompanying unaudited consolidated financial statements of Cyberonics, Inc. (Cyberonics) have been prepared in accordance with accounting principles generally accepted in the United States of America (U.S.) for interim financial information, and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the U.S. for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the thirteen and thirty-nine weeks ended January 28, 2005 are not necessarily indicative of the results that may be expected for any other interim period or the full year ending April 29, 2005. The financial information presented herein should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the period ended April 30, 2004.

Note 2 – Stock Incentive and Purchase Plan:

     Stock Incentive and Purchase Plans. As of January 28, 2005, Cyberonics has reserved an aggregate of 13,850,000 shares of Common Stock, for issuance pursuant to its Amended 1988 Incentive Stock Option Plan, 1996 Stock Option Plan, 1997 Stock Option Plan, 1998 Stock Option Plan and New Employee Equity Inducement Plan (collectively, the Stock Option Plans). Options granted under the Stock Option Plans generally vest ratably over four or five years following their date of grant. The vesting of certain options occurs up to seven years from the grant date. Options granted under the Stock Option Plans have maximum terms of 10 years. The Amended 1988 Incentive Stock Option Plan and the 1997 Stock Option Plan allow issuance of either nonstatutory or incentive stock options, while the 1996 and the 1998 Stock Option Plans provide for issuance of nonstatutory stock options exclusively. For the thirty-nine weeks ended January 28, 2005, Cyberonics has granted approximately 1,137,400 options issued at fair market value at a weighted average exercise price of approximately $17.74 per share. All grants were made at market prices as of the date of the grant. Stock options to purchase approximately 7.4 million shares at a weighted average exercise price of $16.52 per share were outstanding as of January 28, 2005.

     The following table illustrates the effect on net income and earnings per share if Cyberonics had applied the fair value recognition provision of Statement of Financial Accounting Standards Board (SFAS) No. 123, “Accounting for Stock-Based Compensation” and SFAS No. 148, “Accounting for Stock-Based Compensation — Transition and Disclosure” to stock-based employee compensation.

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Note 3 – Inventories:

     Inventories consist of the following:

Note 4 – Line of Credit:

     We have a revolving credit facility of $20,000,000 with a one-year term ending in September 2005. The credit facility is collateralized by accounts receivable, inventory, equipment, documents of title, general intangibles, subsidiary stock and other collateral. The amount available to borrow under the facility is limited to 80% of eligible accounts receivable and a portion of eligible inventory. As of January 28, 2005, the eligible balance of our accounts receivable was approximately $13,700,000. We had borrowings of $3,000,000 outstanding under the credit facility and an available borrowing capacity of approximately $7,993,000. Interest is payable in the amount of the Chase bank rate of 5.25% on the greater of $3,000,000 or the average of the net balance owed by Cyberonics at the close of each day during the period. Under the terms of the revolving credit facility, we agree to maintain liquidity (being the aggregate of availability under the credit facility and Cyberonics’ cash on hand) equal to or greater than $10,000,000. An unused line of credit fee is payable at the rate of 0.5%.

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Note 5 – Accrued Liabilities:

     Accrued liabilities are as follows:

Note 6 – Warranties:

     Product Warranty. Cyberonics offers warranties on its leads and generators for one to two years from the date of implant. Cyberonics provides at the time of shipment for costs estimated to be incurred under its product warranties. Provisions for warranty expense are made based upon projected product warranties. Changes in Cyberonics’ liability for product warranties during the thirteen and thirty-nine weeks ended January 28, 2005 and January 23, 2004 are as follows:

Note 7 – Stockholders’ Equity:

     Deferred Compensation. In June 2000, the Board of Directors granted 450,000 options at $18.00 per share to purchase shares of Common Stock under a proposed modification to the 1997 Stock Option Plan that was subject to shareholder approval. On December 29, 2000, the shareholders approved the modification to the plan and Cyberonics recorded approximately $2.4 million in deferred compensation expense relating to these options. The charge reflects the difference between the exercise price and the fair market value of the stock on the date shareholder approval was received. The deferred compensation is being amortized to expense over the five-year vesting period of the options. Approximately $118,000 and $354,000 of compensation expense has been recognized for the vested portion of this option grant during the thirteen and thirty-nine weeks ended January 28, 2005 and January 23, 2004, respectively.

     In fiscal year 2004, the Board of Directors granted 30,844 shares of restricted stock at market rates that vest in one year and the Company has recorded total compensation expense of approximately $713,000 in deferred compensation. For the thirteen weeks ended January 28, 2005 and January 23, 2004, compensation expense was $0 and $178,000, respectively. For the thirty-nine weeks ended January 28, 2005 and January 23, 2004, compensation expense was $240,000 and $284,000, respectively.

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Note 8 – Comprehensive Income (Loss):

     Cyberonics follows Financial Accounting Standard Board (FASB) Statement No. 130, “Reporting Comprehensive Income,” in accounting for comprehensive income (loss) and its components. The comprehensive income (loss) for the thirteen weeks ended January 28, 2005 and January 23, 2004 was ($799,399) and $1,427,021, respectively. Comprehensive income (loss) for the thirty-nine weeks ended January 28, 2005 and January 23, 2004 was ($5,630,089) and $7,738,977, respectively.

Note 9 – Earnings Per Share:

     SFAS No. 128, “Earnings Per Share,” requires dual presentation of earnings per share (EPS): basic EPS and diluted EPS. Basic EPS is computed by dividing net earnings or loss applicable to common shareholders by the weighted average number of common shares outstanding for the period. Diluted EPS includes dilutive stock options and unvested restricted stock that are considered common stock equivalents using the treasury stock method.

     The following table sets forth the computation of basic and diluted net earnings per share of common stock:

     Excluded from the computation of diluted EPS for the thirteen and thirty-nine weeks ended January 28, 2005 were outstanding options to purchase approximately 7.4 million common shares, because to include them would have been anti-dilutive. Excluded from the computation of diluted EPS for the thirteen and thirty-nine weeks ended January 23, 2004 were outstanding options to purchase approximately 119,500 and 371,500 common shares, respectively, because to include them would have been anti-dilutive due to the option exercise price exceeding fair market value.

Note 10 – New Accounting Pronouncements:

     In November 2004, the FASB issued SFAS No. 151, “Inventory Costs – an Amendment to ARB No. 43, Chapter 4.” This Statement amends the guidance in ARB No. 43, Chapter 4, “Inventory Pricing,” to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material (spoilage). Paragraph 5 of ARB 43, Chapter 4, previously stated that ”. . .under some circumstances, items such as idle facility expense, excessive spoilage, double freight, and rehandling costs may be so abnormal as to require treatment as current period charges. . . .” This Statement requires that those items be recognized as current period charges regardless of whether they meet the criterion of “so abnormal.” In addition, this Statement requires that allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities. The provisions of this Statement shall be effective for inventory costs incurred during fiscal years beginning after June 15, 2005. The adoption of SFAS No. 151 when effective should not have a material impact on Cyberonics’ consolidated operating results or financial condition.

     In December 2004, the FASB issued SFAS No. 152, “Accounting for Real Estate Time-Sharing Transactions.” This Statement amends FASB Statement No. 66, “Accounting for Sales of Real Estate,” to reference the financial accounting and reporting guidance for real estate time-sharing transactions that is

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provided in AICPA Statement of Position (SOP) 04-2, “Accounting for Real Estate Time-Sharing Transactions.” This Statement also amends FASB Statement No. 67, “Accounting for Costs and Initial Rental Operations of Real Estate Projects,” to state that the guidance for (a) incidental operations and (b) costs incurred to sell real estate projects does not apply to real estate time-sharing transactions. The accounting for those operations and costs is subject to the guidance in SOP 04-2. This Statement is effective for financial statements for fiscal years beginning after June 15, 2005. Because Cyberonics does not engage in real estate time-sharing transactions, the adoption of SFAS No. 152 will not have a material impact on Cyberonics’ consolidated operating results or financial condition.

     In December 2004, the FASB issued SFAS No. 153, “Exchange of nonmonetary assets” an amendment to APB No. 29. The guidance in APB Opinion No. 29 “Accounting for Nonmonetary Transactions,” is based on the principle that exchanges of nonmonetary assets should be measured based on the fair value of the assets exchanged. The guidance in that Opinion, however, included certain exceptions to that principle. This Statement amends Opinion 29 to eliminate the exception for nonmonetary exchanges of similar productive assets and replaces it with a general exception for exchanges of nonmonetary assets that do not have commercial substance. A nonmonetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. The provisions of this statement are effective for nonmonetary asset exchanges occurring in fiscal periods beginning after June 15, 2005. Because Cyberonics does not engage in exchanges of nonmonetary assets, the adoption of SFAS No. 153 will not have a material impact on Cyberonics’ consolidated operating results or financial condition.

     In December 2004, the FASB issued SFAS No. 123 (revised 2004), “Share-Based Payment.” This Statement is a revision of FASB Statement No. 123, “Accounting for Stock-Based Compensation.” This Statement supersedes APB Opinion No. 25, “Accounting for Stock Issued to Employees,” and its related implementation guidance. This Statement establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services. It also addresses transactions in which an entity incurs liabilities in exchange for goods or services that are based on the fair value of the entity’s equity instruments or that may be settled by the issuance of those equity instruments. This Statement focuses primarily on accounting for transactions in which an entity obtains employee services in share-based payment transactions. This Statement does not change the accounting guidance for share-based payment transactions with parties other than employees provided in Statement 123 as originally issued and EITF Issue No. 96-18, “Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services.” This Statement does not address the accounting for employee share ownership plans, which are subject to AICPA SOP 93-6, “Employers’ Accounting for Employee Stock Ownership Plans.” This Statement is effective for public entities that do not file as small business issuers as of the beginning of the first interim or annual reporting periods starting after June 15, 2005. This Statement applies to all awards granted after the required effective date and to awards modified, repurchased or cancelled after that date. The cumulative effect of initially applying this statement, if any, is recognized as of the required effective date. Cyberonics is currently evaluating the effect that the adoption of SFAS No. 123 (revised 2004) will have on Cyberonics’ consolidated operating results or financial condition.

     ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These statements can be identified by the use of forward-looking terminology, including “may.” “believe” “will,” “expect,” “anticipate,” “estimate,” “plan,” “intend,” and “forecast,” or other similar words. Actual results could differ materially from those projected in the forward-looking statements as a result of a number of important factors.

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For a discussion of important factors that could affect our results, please refer to the financial statement line item discussions set forth in Management’s Discussion and Analysis of Financial Condition and Results of Operations and to the section entitled “Factors Affecting Future Operating Results,” included herein. Readers are also encouraged to refer to our Annual Report on Form 10-K for the period ended April 30, 2004 for a further discussion of our business and its risks and opportunities.

Overview

     We are a neuromodulation company founded to design, develop and bring to market medical devices that provide a unique therapy, Vagus Nerve Stimulation (VNS), for the treatment of epilepsy and other debilitating neurological and psychiatric diseases and other disorders. VNS Therapy is currently approved in the United States for use as an adjunctive therapy in patients over the age of 12 years in reducing the frequency of partial onset seizures that are refractory or resistant to antiepileptic drugs and without age restriction or seizure-type limitations in Canada, Europe, Australia and certain countries in Eastern Asia. Currently, substantially all of our product sales are in the epilepsy market.

     Since 1998, we have been conducting clinical studies of the VNS Therapy System for the adjunctive treatment of depression in patients with major depressive episodes that have not responded to standard treatments. The depression study program includes acute and long-term clinical studies, acute and long-term mechanism of action research and clinical and economic outcome studies in patients with treatment-resistant depression (TRD) receiving standard medical treatment that does not include VNS. The VNS Therapy System is approved in the European Union countries and in Canada for the treatment of chronic or recurrent depression in patients who are in a treatment-resistant or treatment-intolerant depressive episode. We have also been conducting small pilot studies for the treatment of Alzheimer’s Disease, anxiety and chronic migraine headache. These studies are being conducted to determine the safety and effectiveness of VNS Therapy and are a principal component of our clinical research activities.

     On February 2, 2005, the United States Food and Drug Administration (FDA) deemed VNS Therapy approvable as a long-term adjunctive treatment for patients over the age of 18 with chronic or recurrent treatment-resistant depression in a major depressive episode that has not responded to at least four adequate antidepressant treatments. In the approvable letter, FDA indicated that final approval was conditional on agreement on final labeling, final protocols for a post-approval comparative dosage study and patient registry, satisfactory compliance with Quality System Regulations (QSR) and satisfactory resolution of any outstanding bioresearch monitoring issues. QSR conditions to be resolved include resolution of any remaining issues contained in FDA’s Warning Letter to us dated December 22, 2004 identifying nonconformities in our quality system. We submitted our response to this letter on January 21, 2005. We are working with FDA to satisfy the conditions for approval and are preparing our organization for a possible approval and launch of VNS Therapy for the treatment of TRD in late May.

     Since inception, we have incurred substantial expenses primarily for research and development activities that include product and process development and clinical trials and related regulatory activities, sales and marketing activities, manufacturing start-up costs and systems infrastructure. We have also made significant investments in recent periods in connection with the sales and marketing activities in the U.S., clinical research and regulatory costs associated with new indications development and regulatory approval activities, most notably in treatment-resistant depression. For the period from inception through January 28, 2005, we incurred a cumulative net deficit of approximately $123.6 million. Over the next year, beginning as early as the fourth quarter of fiscal 2005, we anticipate significant increases in operating expenses as we devote significant human and financial resources towards the expansion of our organization to support a possible U.S. approval and launch into the TRD market in late May as well as continue to focus on strengthening our epilepsy business. We also expect increasing investments in clinical studies in epilepsy, depression and other new indications.

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Critical Accounting Policies

     We have adopted various accounting policies to prepare the Consolidated Financial Statements in accordance with accounting principles generally accepted in the U.S.

     The preparation of the Consolidated Financial Statements in conformity with accounting principles generally accepted in the U.S. requires us to make estimates and assumptions that affect the amounts reported in the Consolidated Financial Statements and accompanying notes. Our estimates and assumptions are updated as appropriate, which in most cases is at least quarterly. We base our estimates on historical experience or various assumptions that are believed to be reasonable under the circumstances and the results form the basis for making judgments about the reported values of assets, liabilities, revenues and expenses. Actual results may differ materially from these estimates.

     We consider the following accounting policies as the most critical because, in management’s view, they are most important to the portrayal of our consolidated financial condition and results and most demanding in terms of requiring estimates and other exercises of judgment.

     Accounts Receivable. We provide an allowance for doubtful accounts based upon specific customer risks and a general provision based upon historical trends. An increase in losses beyond that expected by management or historically experienced by us would reduce earnings when it becomes known.

     Inventories. We state our inventories at the lower of cost, first-in, first-out (FIFO) method or market. Cost includes the acquisition cost of raw materials and components, direct labor and overhead. Management considers potential obsolescence at each balance sheet date. An acceleration of obsolescence could occur if consumer demand should differ from expectations.

     Property and Equipment. Property and equipment are carried at cost, less accumulated depreciation. Maintenance, repairs and minor replacements are charged to expense as incurred; significant renewals, improvements and expansions are capitalized. For financial reporting purposes, we compute depreciation using the straight-line method over useful lives ranging from two to nine years. An unanticipated change in the utilization or expected useful life of property and equipment could result in acceleration in the timing of the expenses.

     Revenue Recognition. We sell our products through a combination of a direct sales force in the U.S. and certain European countries and through distributors elsewhere. Cyberonics recognizes revenue when title to the goods and risk of loss transfer to customers, providing there are no remaining performance obligations required of Cyberonics or any matters requiring customer acceptance. We record estimated sales returns and discounts as a reduction of net sales in the same period revenue is recognized. Our revenues are dependent upon sales to new and existing customers pursuant to our current policies. Changes in these policies or sales terms could impact the amount and timing of revenue recognized.

     Research and Development. All research and development costs are expensed as incurred. We have entered into contractual obligations for the conduct of clinical studies. Costs are incurred primarily at the time of enrollment and paid under the terms of the contracts. Research and development expenses could vary significantly with changes in the timing of clinical activity.

     Stock Options. We have adopted the disclosure-only provisions of SFAS No. 123, “Accounting for Stock-Based Compensation” and SFAS No. 148, “Accounting for Stock-Based Compensation — Transition and Disclosure,” which disclosures are presented in Note 2, “Stock Incentive and Purchase Plan.” Because of this election, we continue to account for our employee stock-based compensation plans under Accounting Principles Board (APB) Opinion No. 25 and the related interpretations. No stock-based compensation cost is reflected in net income for employee option grants for options granted under those plans having an exercise price equal to the market value of the underlying common stock on the date of grant. In December, 2004, the FASB issued

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SFAS No. 123 (revised 2004) “Share Based Payment.” This statement is a revision of FASB No. 123, “Accounting for Stock-Based Compensation.” This Statement is effective for public entities that do not file as small business issuers as of the beginning of the first interim or annual reporting periods starting after June 15, 2005. This statement applies to all awards granted after the required effective date and to awards modified, repurchased or cancelled after that date. The cumulative effect of initially applying this statement, if any, is recognized as of the required effective date. Cyberonics is currently evaluating the effect that the adoption of SFAS No. 123 (revised 2004) will have on Cyberonics’ consolidated operating results or financial condition.

     Income Taxes. We account for income taxes under the asset and liability method. Under this method, deferred income taxes reflect the impact of temporary differences between financial accounting and tax bases of assets and liabilities. Such differences relate primarily to the deductibility of certain accruals and reserves and the effect of tax loss and tax credit carryforwards not yet utilized. Deferred tax assets are evaluated for realization based on more-likely-than-not criteria in determining if a valuation allowance should be provided.

Results of Operations

   Net Sales

     During the thirteen weeks ended January 28, 2005, U.S. net sales decreased by 9% as compared to the thirteen weeks ended January 23, 2004. Unit sales volume declines of 17% were partially offset by an increase of 10% in average system prices resulting from changes in product mix and price increases. During the thirty-nine weeks ended January 28, 2005, U.S. net sales decreased by 12% as compared to the thirty-nine weeks ended January 23, 2004. Unit sales volume declines of 18% were partially offset by an increase of 7% in average system prices resulting from changes in product mix and price increases. During the fourth quarter of fiscal 2005, we intend to devote approximately 15% of our U.S. field sales organization’s time toward recruiting, training and development activities to prepare for a potential approval and launch into the TRD market in late May. Accordingly, we anticipate a sequential decline in U.S. and Worldwide quarterly sales for the fourth quarter.

     International sales for the thirteen weeks ended January 28, 2005 increased by 4% over the same period last year due to an increase of 10% in average system prices, largely due to favorable currency impact and changes in country and product mix. International sales for the thirty-nine weeks ended January 28, 2005 increased by 24% over the same period last year due to a 14% increase in unit sales volume and an increase of 9% in average system prices largely due to favorable currency impact and changes in country and product mix.

     On February 2, 2005, FDA deemed VNS Therapy approvable as a long-term adjunctive treatment for patients over the age of 18 with chronic or recurrent treatment-resistant depression in a major depressive episode that has not responded to at least four adequate antidepressant treatments. In the approvable letter, FDA indicated that final approval was conditional on final labeling, final protocols for a post-approval dosing optimization study and patient registry, satisfactory compliance with Quality System Regulations (QSR) and satisfactory resolution of any outstanding bioresearch monitoring issues. We anticipate satisfying the conditions for approval and are preparing our organization for a possible approval and launch in depression in late May. However, we can provide no assurance as to the actual time it will take us to satisfy FDA’s conditions nor of an ultimate approval date. We do not anticipate significant U.S. sales in depression during fiscal 2005. If we receive final approval in late May, we expect annual sales to increase significantly in fiscal 2006, the magnitude of which will be determined by the conditions and timing of final approval, the timing and effectiveness of our U.S. sales launch and future market conditions.

   Gross Profit

     Gross profit margin for the thirteen weeks ended January 28, 2005 was 85.7%, representing an increase of 100 basis points over the same period last year. Increases in average system prices provided an improvement of approximately 130 basis points in gross profit margin, offset by a reduction of 30 basis points relating to a net increase in average product costs due to lower production levels. Gross profit margin for the thirty-nine weeks

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ended January 28, 2005 was 84.0% as compared to 84.9% for the same period last year. The decrease in gross profit margin includes a 200 basis point reduction due to a net increase in average product costs associated with lower annual production volumes and the adverse impact of scale-up production exercises conducted during the first quarter, offset by a 110 basis point improvement relating to higher average system prices.

     Cost of sales consists primarily of direct labor, allocated manufacturing overhead, third-party contractor costs, royalties and the acquisition cost of raw materials and components. We are obligated to pay royalties at rates of about 3% of net sales in future periods. Gross margins can be expected to fluctuate in future periods based upon the mix between U.S. and international sales, direct and distributor sales, the VNS Therapy System selling price, applicable royalty rates, and the levels of production volume.

   Operating Expenses

     Selling, General and Administrative (SG&A) Expenses. SG&A expenses are comprised of sales, marketing, development, general and administrative activities. As compared to prior year, SG&A expenses decreased by 0.4% and increased by 10% for the thirteen and thirty-nine weeks ended January 28, 2005, respectively. Increases for the thirty-nine week period related to additional expenses associated with market shaping and recruiting initiatives supporting depression development activities and expanded corporate administrative functions associated with increasing compliance requirements and costs of doing business for publicly traded companies.

     Research and Development (R&D) Expenses. R&D expenses are comprised of expenses related to our product and process development, product design efforts, clinical trials programs and regulatory activities. As compared to prior year, R&D expenses increased by 13% for the thirteen and thirty-nine weeks ended January 28, 2005 due to expanded clinical and regulatory activities supporting the completion of the U.S. regulatory process for obtaining approval of VNS Therapy in TRD, ongoing product development activities and expanded clinical and regulatory activities in epilepsy and new indications programs.

     As a result of FDA’s favorable approvable determination of VNS Therapy in TRD subject to conditions, we are continuing our ongoing efforts to work with the Center for Devices and Radiological Health to obtain final FDA approval, and expanding our organization to prepare for a possible late May U.S. final approval and launch in TRD. We expect that the amount of our operating expenses will increase significantly, beginning in the fourth quarter of fiscal 2005, as we intend to spend at least $7 million in incremental depression launch expenses in the fourth quarter. Furthermore, we expect quarterly operating expenses to increase significantly in fiscal 2006 to support incremental sales generated by a possible U.S. approval in TRD.

   Interest Income and Expense

     Interest income for the thirteen and thirty-nine weeks ended January 28, 2005 increased by 119% and 101%, respectively, over the same periods last year as a result of higher invested cash balances and slightly higher interest rates. Interest expense for the thirteen and thirty-nine weeks ended January 28, 2005 decreased by 32% and 21%, respectively, over the same periods last year due to the reduced borrowings and lower interest rates against our $20 million credit facility and reductions in interest expense on capital leases for manufacturing equipment.

   Other Income, Net

     Other income, net, primarily includes transaction gains and losses associated with the impact of changes in foreign currency exchange rates.

   Income Taxes

     We estimate that our effective tax rate for the thirty-nine weeks ended January 28, 2005 to be a benefit of less than 1%, due primarily to the change in the balance of our valuation allowance combined with the tax on foreign

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operations. The effective tax rate represents our estimate of the rate expected to be applicable for the full fiscal year. In August 2004, Cyberonics experienced an ownership change as defined in Section 382 of the Internal Revenue Code (IRC). Cyberonics’ ability to utilize certain net operating losses to offset future Company taxable income in any particular year may be limited pursuant to IRC Section 382. Due to our operating loss history and possible limitations pursuant to IRC Section 382, we have established a valuation allowance that fully offsets our net deferred tax assets, including those related to tax loss carry-forwards, resulting in no regular U.S. federal income tax expense or benefit for financial reporting purposes.

Liquidity and Capital Resources

     Key performance indicators used by management to assess our liquidity are as follows:

     During thirty-nine weeks ended January 28, 2005, cash on hand decreased by $3,105,000 to $55,259,000. Net cash used by operating activities was $893,000 compared to cash provided of $3,722,000 during the same period last year. The change in cash provided by operating activities to a use of cash in operating activities was primarily the result of operating losses, and gain on disposal of assets, unrealized gain on foreign currency transactions and increase in other current assets, during the period, partially offset by decreases in inventories, accounts receivable and other assets, net and decreases in accounts payable and accrued liabilities in the current year as compared to the same period last year. Cash generated from our stock option and employee stock purchase plans continues to provide a major source of funds. We received approximately $6,650,000 in connection with the issuance of shares pursuant to these plans during the thirty-nine weeks of fiscal 2005. We also reduced borrowings against the revolving credit facility by $7,031,000 during the same period.

     We are party to a number of contracts pursuant to which we are paying for clinical studies for current operating obligations payable totaling $1.2 million as of January 28, 2005. Although we have no firm commitments, we expect to make capital expenditures of approximately $6.3 million during fiscal year 2005 primarily to expand manufacturing capabilities and to enhance business infrastructure and facilities. Our current projections indicate that we have sufficient cash and cash equivalents, net of the line of credit and cash flow resources to fund anticipated business activities through fiscal year 2006.

     The chart below reflects our current obligations under our material contractual obligations.

     We believe our current cash, cash equivalents and cash generated from operations will be sufficient to fund our current levels of operating needs and capital expenditures for the foreseeable future. Our liquidity could, however, be adversely affected by the “Factors Affecting Future Operating Results” discussed below.

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Impact of New Accounting Pronouncements

     See Note 10 of Notes to Consolidated Financial Statements for a discussion of the impact of new accounting pronouncements.

Factors Affecting Future Operating Results

     In addition to the factors described above in this section, the following additional factors could affect our future results and, as a result, our common stock price.

     Our common stock price constantly changes. Our common stock is traded on the NASDAQ National Market under the ticker symbol “CYBX.” The price of stock on that trading market fluctuates, and we expect that the market price of common stock will continue to fluctuate. For instance, during the period from January 23, 2004 to January 28, 2005 our stock has traded from a high of $40.07 to a low of $12.78 per share. The fluctuation in our stock price is caused by a number of factors, some of which are beyond our control, including:

	•	quarterly variations in our sales and operating results;
	•	regulatory activities and announcements, including FDA announcements;
	•	results of studies regarding the efficacy of our VNS Therapy treatment for other indications including depression, Alzheimer’s Disease, anxiety, migraine headaches and other disorders;
	•	announcements of significant contracts, acquisitions or capital commitments;
	•	changes in financial estimates by securities analysts;
	•	changes in market valuations of medical device companies;
	•	additions or departures of key personnel;
	•	sales or purchases of common stock by Cyberonics, its officers and members of its Board of Directors;
	•	changes in the general conditions of the economy; and
	•	changes in ownership of large shareholders.

     In addition, the stock market in recent years has experienced broad price and volume fluctuations that have often been unrelated to the operating performance of companies. These broad market fluctuations have also adversely affected, and may continue to adversely affect the market price of our common stock.

     Our quarterly operating results may fluctuate in the future, which may cause our stock price to decline. Our consolidated results of operations may fluctuate significantly from quarter to quarter and may be below the expectations of security analysts. If so, the market price of our shares may decline. Our quarterly revenues, expenses and operating results may vary significantly from quarter to quarter for several reasons, including the extent to which the VNS Therapy System gains market acceptance, the timing of obtaining marketing approvals for the VNS Therapy System for other indications, the timing of any approvals for reimbursement by third-party payers, the rate and size of expenditures incurred as we expand our clinical, manufacturing, sales and marketing efforts, our ability to retain qualified sales personnel and the availability of key components, materials and contract services, which may depend on our ability to forecast sales.

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     We rely on only one product for our revenues and if sales of this product are not achieved, our operating results will be severely harmed. We have only one product, the VNS Therapy System, which has received final approval by FDA for a single indication: as an adjunctive therapy in reducing the frequency of seizures in adults and adolescents over 12 years of age with partial onset seizures that are refractory to antiepileptic drugs. We do not expect to have any other product and possibly no other approved indication for the VNS Therapy System in the U.S. in fiscal 2005, if at all. We cannot assure you that epilepsy sales will increase. We do not have the regulatory or reimbursement approvals necessary to commercialize the VNS Therapy System for the treatment of depression in the U.S. On February 2, 2005, FDA deemed VNS Therapy System approvable, subject to us satisfying specific conditions for final approval. We cannot assure you that final approval for the treatment of depression with the VNS Therapy System will be granted, nor can we assure you that even if U.S. approval is granted, we will be successful in commercializing the VNS Therapy System for the treatment of depression. The same uncertainty surrounds our efforts in anxiety disorders, Alzheimer’s Disease and other indications. Our inability to successfully commercialize the VNS Therapy System for depression and other indications will severely harm our future growth.

     We may not obtain FDA approval to use our VNS Therapy System as an adjunctive therapy for depression. On February 2, 2005 FDA deemed VNS Therapy approvable as a long-term adjunctive treatment for patients over the age of 18 with chronic or recurrent treatment-resistant depression in a major depressive episode that has not responded to at least four adequate antidepressant treatments. In the approvable letter, FDA indicated that final approval was conditional on agreement on final labeling, final protocols for a post-approval comparative dosage study and patient registry, satisfactory compliance with Quality System Regulations (QSR) Warning Letter dated December 22, 2004 and satisfactory resolution of any outstanding bioresearch monitoring issues. QSR conditions to be resolved include resolution of any remaining issues contained in FDA’s Warning Letter to us dated December 22, 2004 identifying nonconformities in our quality system. We submitted our response to this letter on January 21, 2005. We currently expect to satisfy the conditions for approval and receive final approval by late May 2005. However, we cannot assure you that FDA will find satisfactory our response to the Warning Letter or that we will be able to resolve the issues raised in the Warning Letter in a timely manner, and we cannot assure you that we will ultimately receive FDA approval for the use of our product to treat depression. In addition, FDA may initiate an enforcement action against Cyberonics if it deems our responses to the Warning Letter to be inappropriate. Even if we receive final approval, the approval may contain additional conditions that we have not anticipated or the approval may occur later than our expectations. If we do not receive such approval, or if we receive approval with additional conditions, or if final approval is delayed considerably, we may not be able to capture additional revenues for our device through the treatment of depression.

     If we obtain FDA’s approval, we may experience difficulties and delays inherent in the development, manufacturing, marketing and sale of our VNS Therapy System for the treatment of depression. If we receive approval to use our VNS Therapy System as adjunctive therapy for depression, we will be subject to extensive and rigorous ongoing regulation of the research, development, testing, manufacture, labeling, promotion, advertising, distribution and marketing of our product. Our failure to comply with these requirements or the identification of manufacturing or safety problems during commercial marketing could lead to the need for product marketing restrictions, product withdrawal or recall or other voluntary or regulatory action, which could delay further marketing until the product is brought into compliance. Our failure to comply with these requirements may also subject us to stringent penalties.

     In addition to regulatory obstacles, we may need significant additional capital in the event FDA approval in TRD is received. These capital requirements may be substantial and will depend on many factors, including market acceptance of our product. A large portion of our expenses is currently fixed, including expenses related to our facilities, equipment and personnel, and we expect to spend significant amounts to market our product for the treatment of depression. As a result, we expect that our operating expenses will continue to increase in the event of final FDA approval in TRD and, consequently, we will need to generate significant additional revenues to maintain profitability. Even if we do sustain profitability, we may not be able to increase profitability on a quarterly or annual basis. Furthermore, if additional capital is required, we may not be able to access sufficient sources or to access capital on terms which are acceptable to us.

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     We may not be successful in our efforts to develop VNS Therapy for the treatment of anxiety or any other indications. We are in the process of conducting studies to help us evaluate, and potentially obtain FDA approval for the use of VNS Therapy as a treatment for depression, anxiety and other neurological disorders. We cannot assure you that our study results will be positive or that we will receive FDA approval for the use of our product for the treatment of any other indication. Even if we receive FDA approval for another indication, we can provide no assurances with respect to market acceptance. If our study results are not favorable or if we receive no additional FDA approvals or if alternative indications do not prove to be commercially viable, our revenues may not experience the growth that we would anticipate with the successful development of any of these indications.

     We may not be able to expand or maintain market acceptance of the use of the VNS Therapy System to treat epilepsy, which could cause our sales to decrease. Continued market acceptance of the VNS Therapy System for the treatment of epilepsy will depend on our ability to convince the medical community of the clinical efficacy and safety of vagus nerve stimulation and the VNS Therapy System. We believe that existing antiepileptic drugs and surgery are the only other approved and currently available therapies competitive with the VNS Therapy System in the treatment of epileptic seizures. These therapies may be more attractive to patients or their physicians than the VNS Therapy System in terms of efficacy, cost or reimbursement availability. While we are investing in epilepsy Phase IV clinical studies, which may be expected to increase clinical experience with VNS Therapy, we cannot assure you that these studies will result in a significant change in physicians’ opinions or usage of our product. We cannot assure you that epilepsy sales will increase. We cannot assure you that the VNS Therapy System will achieve expanded market acceptance for the treatment of epilepsy or for any other indication. Failure of the VNS Therapy System to gain additional market acceptance would severely harm our business, financial condition and results of operations.

     We may not be successful in our marketing and sales efforts, which could severely harm our business. We endeavor to structure and staff our sales organization appropriately to maximize resources and to respond to changes in the territory markets. While we believe the structure of our sales organization should ultimately improve productivity and performance going forward, we cannot assure you that those outcomes will be achieved. Recent changes or personnel turnover in our sales organization could delay improvements in productivity and efficiency longer than expected. The time necessary for personnel to establish new territories and relationships of trust with new physicians may take longer than projected, which could substantially delay improvements in U.S. sales performance or jeopardize attainment of quarterly revenue goals. Our inability to achieve annual or quarterly revenue targets could substantially harm our consolidated results of operations and financial condition.

     Patient confidentiality and federal and state privacy laws and regulations may adversely impact our patient pull-through selling model. The HIPAA Privacy Rule became effective in April 2003. In addition, virtually every state has enacted laws and regulations to safeguard privacy, and these laws vary significantly from state to state and change frequently. The HIPAA Privacy Rule preempts a state privacy law only if the state privacy law is narrower in scope than the HIPAA Privacy Rule. Consequently, the applicable privacy rules can vary state by state, and the determination of the privacy rules applicable in any one state can be very difficult. The operation of our business involves the collection and use of substantial amounts of “protected health information,” including patient information provided by physicians to assist in the treatment of patients, information provided by patients themselves to assist them in scheduling surgery and confirming their eligibility for third-party reimbursement, patient information provided by hospitals in connection with their efforts to obtain third-party reimbursement, patient information collected by our Regulatory Affairs Department in the investigation of product complaints and the voluntary tracking of implanted devices and patient information collected by our Clinical Affairs Department as part of a patient registry. We endeavor to conduct our business as a “covered entity” under the HIPAA Privacy Rule and consistent with the Texas privacy laws, obtaining HIPAA-compliant patient authorizations where required to support the collection and use of patient information, including in connection with our Patient Identification and Qualification (PIQ) pull-through selling model. We also sometimes act as a “business associate” for a covered entity. For example, we sometimes provide assistance to hospitals (covered entities) in connection with their claims for third-party reimbursement of VNS Therapy Systems and procedures. Even if our business model is compliant with the HIPAA Privacy Rule and the Texas

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privacy laws, it may not be compliant with the privacy laws of all states. In addition, despite extensive efforts to conduct our business as a covered entity under the HIPAA Privacy Rule and the Texas privacy laws, the Office of the Inspector General of the Department of Health and Human Services or another government enforcement agency may determine that we are obligated to comply with the HIPAA Privacy Rule or another law and that our business model or operations are not in compliance, which could subject us to penalties and could severely limit our ability to market and sell VNS Therapy under our existing business model and could harm our business growth and financial condition.

     We may be unable to expand or maintain adequate third-party reimbursement of our product. Our ability to commercialize the VNS Therapy System successfully depends in part on whether third-party payers, including private healthcare insurers, managed care plans, the U.S. government’s Medicare and Medicaid programs and others, agree both to cover the VNS Therapy System and associated procedures and services and to reimburse at adequate levels for the costs of the VNS Therapy System and the related services we have in the U.S. or internationally. If we fail to expand or maintain favorable coverage decisions for the VNS Therapy System in a timely manner, patients and their physicians could be deterred from using the VNS Therapy System, which could reduce our sales and severely harm our business.

     Our current and future expense estimates are based, in large part, on estimates of future sales, which are difficult to predict. We may be unable to, or may elect not to, adjust spending quickly enough to offset any unexpected sales shortfall. If increased expenses are not accompanied by increased sales, our consolidated results of operations and financial condition for any particular quarter could be harmed.

     If our suppliers and manufacturers are unable to meet our demand for materials, components and contract services, we may be forced to qualify new vendors or change our product design which would impair our ability to deliver products to our customers on a timely basis. We rely upon sole source suppliers for certain of the key components, materials and contract services used in manufacturing the VNS Therapy System. We periodically experience discontinuation or unavailability of components, materials and contract services, which may require us to qualify alternative sources or, if no such alternative sources are identified, change our product design. We believe that pursuing and qualifying alternative sources and/or redesigning specific components of the VNS Therapy System, if or when necessary, could consume significant resources. In addition, such changes generally require regulatory submissions and approvals. Any extended delays in or an inability to secure alternative sources for these or other components, materials and contract services could result in product supply and manufacturing interruptions, which could significantly harm our business.

     Our products may be found to have defects that result in product recalls. The VNS Therapy System includes a complex electronic generator device and lead device designed to be implanted in the human body. Component failures, manufacturing or shipping problems or design defects could result in the product not delivering the therapy for which it is indicated. The occurrence of such problems or other adverse clinical reactions could result in a recall of our products, possibly requiring explantation and potential reimplantation of the VNS Therapy System, which may increase risk to the patient. Any product recall could severely harm our business and our consolidated financial condition and results of operations.

     We may not be able to protect our technology from unauthorized use, which could diminish the value of our products and impair our ability to compete. Our success depends on our ability to obtain and maintain patent and other intellectual property protection for the VNS Therapy System and its improvements and for vagus nerve stimulation therapy. To that end, we have acquired licenses under certain patents and have patented and intend to continue to seek patents on our own inventions used in our products and treatment methods. The process of seeking patent protection can be expensive and time consuming, and we cannot assure you that patents will be issued from our currently pending or future applications or that, if patents are issued, they will be of sufficient scope or strength to provide meaningful protection for our technology or any commercial advantage to us. Further, the protection offered by our international patents is not as strong as that offered by our U.S. patents due to differences in patent laws. In particular, the European Patent Convention prohibits patents covering methods for treatment of the human body by surgery or therapy.

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     We may engage in litigation to protect our proprietary right, or defend against infringement claims by third parties, causing us to suffer significant expenses and perhaps preventing us from selling our products. There has been substantial litigation regarding patent and other intellectual property rights in the medical device industry. Litigation, which could result in substantial cost to and diversion of effort by us, may be necessary to enforce patents issued or licensed to us, to protect trade secrets or know-how owned by us or to defend ourselves against claimed infringement of the rights of others and to determine the scope and validity of the proprietary rights of others. Adverse determinations in litigation could subject us to significant liabilities to third parties, could require us to seek licenses from third parties and could prevent us from manufacturing, selling or using the VNS Therapy System, any of which could severely harm our business.

     Intense competition and rapid technological changes could reduce our ability to market our products and achieve sales. We believe that existing and future antiepileptic drugs will continue to be the primary competition for the VNS Therapy System. We may also face competition from other medical device companies that have the technology, experience and capital resources to develop alternative devices for the treatment of epilepsy. Medtronic, Inc., for example, continues to assess clinically an implantable signal generator used with an invasive deep brain probe, or thalamic stimulator, for the treatment of neurological disorders and has received FDA approval for the device for the treatment of essential tremor, including that associated with Parkinson’s Disease. Many of our competitors have substantially greater financial, manufacturing, marketing and technical resources than we do and have obtained third-party reimbursement approvals for their therapies. In addition, the healthcare industry is characterized by extensive research efforts and rapid technological progress. Our competitors may develop technologies and obtain regulatory approval for products that are more effective in treating epilepsy than our current or future products. In addition, advancements in surgical techniques may make surgery a more attractive therapy for epilepsy. The development by others of new treatment methods with novel antiepileptic drugs, medical devices or surgical techniques for epilepsy could render the VNS Therapy System non-competitive or obsolete. We may not be able to compete successfully against current and future competitors, including new products and technology, which could severely harm our business and our consolidated financial condition and results of operations.

     We are subject to claims of product liability and we may not have the resources or insurance to cover the cost for losses under these claims. As an implantable medical device, the manufacture and sale of the VNS Therapy System entails the risk of product liability claims, which we have received from time to time in the ordinary course of business. We are currently named as a defendant in several product liability suits. We maintain product liability insurance that we believe is adequate to protect against material losses, but we are responsible for a large deductible for each lawsuit, and it is possible that our product liability coverage may not be adequate to cover any judgment that may result from these lawsuits. Product liability insurance is expensive and in the future may only be available at significantly higher premiums or not be available on acceptable terms, if at all. A successful claim brought against us in excess of our insurance coverage could significantly harm our business and financial condition.

     If we do not continue to comply with changing government laws and regulations, we could lose our ability to market and sell our product or be subject to substantial fines or other penalties. The preclinical and clinical testing, manufacturing, labeling, sale, distribution and promotion of the VNS Therapy System are subject to extensive and rigorous federal and state laws and regulations, including regulations from the Department of Health and Human Services (related to Medicare, HIPAA and FDA) and from comparable state agencies. In the future, it will be necessary for us to obtain additional government approvals for other applications of the VNS Therapy System and for modified or future-generation products. It will also be necessary for us to ensure that our marketing and sales practices comply with all laws and regulations. Commercial distribution in certain foreign countries is also subject to obtaining regulatory approvals from the appropriate authorities in such countries. The process of obtaining FDA and other required regulatory approvals is lengthy, expensive and uncertain. Moreover, regulatory approvals may include regulatory restrictions on the indicated uses for which a product may be marketed. Failure to comply with applicable legal and regulatory requirements can result in, among other things, fines, suspension or withdrawal of approvals, confiscations or recalls of products, operating restrictions, loss of reimbursement and criminal prosecution. Furthermore, changes in existing laws and regulations or adoption of new laws and regulations could prevent us from obtaining, or affect the timing of,

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future regulatory approvals. We may not be able to obtain additional future regulatory approvals on a timely basis or at all. Delays in receipt of or failure to receive such future approvals, suspension or withdrawal of previously received approvals or recalls of the VNS Therapy System could severely harm our ability to market and sell our current and future products and improvements.

     Our international operations are subject to risks not generally associated with commercialization efforts in the U.S. We may not be successful in increasing our international market sales or in obtaining reimbursement or any regulatory approvals required in foreign countries. The anticipated international nature of our business is also expected to subject us and our representatives, agents and distributors to laws and regulations of the foreign jurisdictions in which we operate or where the VNS Therapy System is sold. The regulation of medical devices in a number of such jurisdictions, particularly in the European Union, continues to develop and new laws or regulations may impair our ability to market and sell our products in those jurisdictions.

     If we fail to manage our growth effectively, our ability to maintain our costs or capture new business could suffer. In connection with the commercialization of the VNS Therapy System in the U.S., we may need to expand significantly the scope of our operations. An expansion of our operations may place a significant strain on our resources and operations. Our ability to manage such growth effectively will depend upon our ability to attract, hire and retain highly qualified employees and management personnel. We compete for such personnel with other companies, academic institutions, government entities and other organizations and we may not be successful in hiring or retaining qualified personnel. Our success will also depend upon the ability of our officers and key employees to continue to implement and improve our operational, management information and financial control systems. If we fail to manage our growth effectively, our business will suffer.

     ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     We are exposed to limited market risk on interest rates and foreign currency exchange rates.

     Our exposure to market risk for changes in interest rates relates primarily to our short-term investments in commercial paper and our line of credit. We do not hedge interest rate exposure or invest in derivative securities. Based upon the average outstanding balances in cash, cash equivalents and our line of credit, a 100-basis point change in interest rates would not have a material impact on our financial results.

     Due to the global reach of our business, we are also exposed to market risk from changes in foreign currency exchange rates, particularly with respect to the U.S. dollar compared to the Euro. Our wholly owned foreign subsidiary is consolidated into our financial results and is subject to risks typical of an international business including, but not limited to, differing economic conditions, changes in political climate, differing tax structures, other regulations and restrictions and foreign exchange rate volatility. Accordingly, our future results could be materially impacted by changes in these or other factors. At this time, we have not deemed it to be cost effective to engage in a program of hedging the effect of foreign currency fluctuations on our operating results using derivative financial instruments. A sensitivity analysis indicates that, if the U.S. dollar uniformly weakened 10% against the Euro, the effect upon net income for the thirty-nine weeks ended January 28, 2005 would have been favorable by approximately $132,000 or 2.3%. Conversely, if the U.S. dollar uniformly strengthened 10% against the Euro, the impact on net income for the thirty-nine weeks ended January 28, 2005 would have been unfavorable by approximately $108,000 or 1.9%.

     ITEM 4. CONTROLS AND PROCEDURES

     We maintain a system of disclosure controls and procedures (as defined in Rule 13a-15(e) of the Securities and Exchange Act of 1934) designed to ensure that we are able to record, process, summarize and report, within the applicable time periods, the information required in our annual and quarterly reports under the Securities Exchange Act of 1934.

     As of the end of the period covered by this report, an evaluation was performed under the supervision and with the participation of our management, including the Chief Executive Officer and the Chief Financial Officer,

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of the effectiveness of our disclosure controls and procedures. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures are effective. In addition, there have been no changes in our internal controls over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that occurred during our last fiscal year that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.

PART II — OTHER INFORMATION

     ITEM 6. EXHIBITS

     (a) Exhibits

	31.1	Certification of the Chief Executive Officer of Cyberonics, Inc. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
	31.2	Certification of the Chief Financial Officer of Cyberonics, Inc. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
	32	Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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SIGNATURE

     Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Date: March 4, 2005

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INDEX TO EXHIBITS

Exhibits

31.1	Certification of the Chief Executive Officer of Cyberonics, Inc. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of the Chief Financial Officer of Cyberonics, Inc. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32	Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.