##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 Or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 For the Quarterly Period Ended October 3, 2009
 Commission File Number: 0-18602
 ATS MEDICAL, INC.
  Minnesota
    
    41-1595629(State or Other Jurisdiction of
    
    (I.R.S. Employer Identification No.)Incorporation or Organization)3905 Annapolis Lane N., Suite 105Minneapolis, Minnesota
    
    55447(Address of Principal Executive Offices)
    
    (Zip Code)
 (763) 553-7736  (Registrants Telephone Number, Including Area Code)
 Not Applicable  (Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)
 þ o
 o o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o Yes þ No
  Common Stock, $.01 par value
    
    72,077,040 shares




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##### 



TABLE OF CONTENTS
 Page(s)PART I. FINANCIAL INFORMATIONITEM 1. Financial Statements (Unaudited):Consolidated Balance Sheets as of October 3, 2009 and December 31, 2008
    
    
    3Consolidated Statements of Operations for the three and
nine month periods ended October 3, 2009 and September
27, 2008
    
    
    4Consolidated Statements of Cash Flows for the nine
month periods ended October 3, 2009 and September 27, 2008
    
    
    5Notes to Consolidated Financial Statements
    
    
    6  13ITEM 2. Managements Discussion and Analysis of
Financial Condition and Results of Operations
    
    
    14  22ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    22  23ITEM 4. Controls and Procedures
    
    
    23PART II. OTHER INFORMATIONITEM 1. Legal Proceedings
    
    
    24  25ITEM 1A. Risk Factors
    
    
    25ITEM 6. Exhibits
    
    
    25SIGNATURES
    
    
    26EXHIBIT INDEX
    
    
    27Exhibit 12.1Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2
   2




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PART I. FINANCIAL INFORMATION
 
 ITEM 1.
    
    Financial Statements
 ATS Medical, Inc.
 
 Consolidated Balance Sheets
  October 3,
    
    
    December 31,2009
    
    
    2008(Unaudited)AssetsCurrent assets:Cash and cash equivalents
    
    $
    12,092
    
    
    $
    20,895Accounts receivable, net
    
    
    14,416
    
    
    
    14,532Inventories, net
    
    
    21,352
    
    
    
    20,208Prepaid expenses
    
    
    2,160
    
    
    
    958Total current assets
    
    
    50,020
    
    
    
    56,593Leasehold improvements, furniture and equipment, net
    
    
    6,613
    
    
    
    7,031Goodwill
    
    
    17,016
    
    
    
    17,016Other intangible assets
    
    
    29,722
    
    
    
    32,115Other assets
    
    
    1,526
    
    
    
    2,226Total assets
    
    $
    104,897
    
    
    $
    114,981Liabilities and shareholders equityCurrent liabilities:Current maturities of bank notes payable
    
    $
    2,646
    
    
    $
    2,646Accounts payable
    
    
    3,780
    
    
    
    4,054Accrued compensation
    
    
    2,349
    
    
    
    3,537Payable to CryoCath Technologies, Inc.
    
    
    
    
    
    
    1,910Payable to CarboMedics, Inc.
    
    
    
    
    
    
    4,500Other accrued liabilities
    
    
    2,648
    
    
    
    2,257Total current liabilities
    
    
    11,423
    
    
    
    18,904Convertible senior notes payable, net of unamortized discounts
and bifurcated derivatives of $4,774 at October 3, 2009 and
$4,867 at December 31, 2008
    
    
    17,626
    
    
    
    17,533Bank notes payable
    
    
    1,764
    
    
    
    3,969Shareholders equity:Common stock, $.01 par value:Authorized shares  150,000,000Issued and outstanding shares  72,047,421 at October 3,
2009 and 71,077,458 at December 31, 2008
    
    
    721
    
    
    
    711Additional paid-in capital
    
    
    227,768
    
    
    
    225,657Accumulated deficit
    
    
    (154,748
    )
    
    
    (151,916
    )Accumulated other comprehensive income
    
    
    343
    
    
    
    123Total shareholders equity
    
    
    74,084
    
    
    
    74,575Total liabilities and shareholders equity
    
    $
    104,897
    
    
    $
    114,981
 The accompanying notes are an integral part of the consolidated financial statements.
  3




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ATS Medical, Inc.
 
 Consolidated Statements of Operations
 (Unaudited)
  Three months ended
    
    
    Nine months endedOctober 3,
    
    
    September 27,
    
    
    October 3,
    
    
    September 27,2009
    
    
    2008
    
    
    2009
    
    
    2008Net sales
    
    $
    18,827
    
    
    $
    16,044
    
    
    $
    57,011
    
    
    $
    47,789Cost of goods sold
    
    
    6,983
    
    
    
    6,570
    
    
    
    20,153
    
    
    
    19,077Gross profit
    
    
    11,844
    
    
    
    9,474
    
    
    
    36,858
    
    
    
    28,712Operating expenses:Sales and marketing
    
    
    6,950
    
    
    
    7,059
    
    
    
    21,976
    
    
    
    20,693Research and development
    
    
    2,226
    
    
    
    1,843
    
    
    
    6,087
    
    
    
    6,351General and administrative
    
    
    2,438
    
    
    
    2,431
    
    
    
    7,345
    
    
    
    8,199Amortization of intangibles
    
    
    812
    
    
    
    891
    
    
    
    2,412
    
    
    
    2,672Total operating expenses
    
    
    12,426
    
    
    
    12,224
    
    
    
    37,820
    
    
    
    37,915Operating loss
    
    
    (582
    )
    
    
    (2,750
    )
    
    
    (962
    )
    
    
    (9,203
    )Net interest expense
    
    
    (644
    )
    
    
    (700
    )
    
    
    (2,057
    )
    
    
    (1,976
    )Other income (expense), net
    
    
    383
    
    
    
    (241
    )
    
    
    501
    
    
    
    637Net loss before income taxes
    
    
    (843
    )
    
    
    (3,691
    )
    
    
    (2,518
    )
    
    
    (10,542
    )Income tax expense
    
    
    (132
    )
    
    
    (55
    )
    
    
    (314
    )
    
    
    (284
    )Net loss
    
    $
    (975
    )
    
    $
    (3,746
    )
    
    $
    (2,832
    )
    
    $
    (10,826
    )Net loss per share:Basic and diluted
    
    $
    (0.01
    )
    
    $
    (0.06
    )
    
    $
    (0.04
    )
    
    $
    (0.18
    )Weighted average number of shares outstanding:Basic and diluted
    
    
    71,941
    
    
    
    62,300
    
    
    
    71,626
    
    
    
    60,691
 The accompanying notes are an integral part of the consolidated financial statements.
  4




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ATS Medical, Inc.
 
 Consolidated Statements of Cash Flows
 (Unaudited)
  Nine months endedOctober 3,
    
    
    September 27,2009
    
    
    2008Operating activities:Net loss
    
    $
    (2,832
    )
    
    $
    (10,826
    )Adjustments to reconcile net loss to net cash used in operating activities:Depreciation and amortization
    
    
    3,828
    
    
    
    4,331Stock-based compensation expense
    
    
    1,885
    
    
    
    1,184Deferred income taxes
    
    
    201
    
    
    
    144Non-cash interest expense
    
    
    601
    
    
    
    499Change in value of warrant liability and derivative liability bifurcated from
convertible senior notes
    
    
    (26
    )
    
    
    (286
    )Changes in operating assets and liabilities:Accounts receivable, net
    
    
    192
    
    
    
    (652
    )Inventories, net
    
    
    (1,092
    )
    
    
    (1,436
    )Prepaid expenses
    
    
    (1,150
    )
    
    
    211Accounts payable and accrued expenses
    
    
    (5,995
    )
    
    
    710Net cash used in operating activities
    
    
    (4,388
    )
    
    
    (6,121
    )Investing activities:Purchases of short-term investments
    
    
    
    
    
    
    (938
    )Maturities of short-term investments
    
    
    
    
    
    
    5,127Liquidation of long-term restricted cash investment
    
    
    479
    
    
    
    Payments for licenses and other intangibles
    
    
    (19
    )
    
    
    Payments for business acquisitions
    
    
    (2,000
    )
    
    
    (2,000
    )Purchases of leasehold improvements, furniture and equipment
    
    
    (990
    )
    
    
    (1,208
    )Net cash provided by (used in) investing activities
    
    
    (2,530
    )
    
    
    981Financing activities:Payments on bank notes payable
    
    
    (2,205
    )
    
    
    (1,323
    )Net proceeds from issuance of common stock
    
    
    236
    
    
    
    4,002Other
    
    
    29
    
    
    
    108Net cash provided by (used in) financing activities
    
    
    (1,940
    )
    
    
    2,787Effect of foreign exchange rate changes on cash
    
    
    55
    
    
    
    (615
    )Decrease in cash and cash equivalents
    
    
    (8,803
    )
    
    
    (2,968
    )Cash and cash equivalents at beginning of period
    
    
    20,895
    
    
    
    10,480Cash and cash equivalents at end of period
    
    $
    12,092
    
    
    $
    7,512Significant non-cash transactions:Transfer of warrant liability to additional paid-in capital
    
    $
    
    
    
    $
    3,670
 The accompanying notes are an integral part of the consolidated financial statements .
  5




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ATS Medical, Inc.
 
 Notes to Consolidated Financial Statements
 (Unaudited)
 Note 1. Basis of Presentation
    Note 2. Stock-Based Compensation and Equity Plans
 Stock-Based Compensation
 Stock Compensation
  Three months ended
    
    
    Nine months endedOctober 3,
    
    
    September 27,
    
    
    October 3,
    
    
    September 27,(in thousands, except per share data)
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008Stock compensation expense included
in:Cost of goods sold
    
    $
    19
    
    
    $
    
    
    
    $
    66
    
    
    $
    Sales and marketing expenses
    
    
    362
    
    
    
    258
    
    
    
    982
    
    
    
    701Research and development expenses
    
    
    74
    
    
    
    
    
    
    
    223
    
    
    
    General and administrative expenses
    
    
    233
    
    
    
    157
    
    
    
    614
    
    
    
    483Total stock compensation expense
    
    $
    688
    
    
    $
    415
    
    
    $
    1,885
    
    
    $
    1,184Stock compensation expense per share
    
    $
    0.01
    
    
    $
    0.01
    
    
    $
    0.03
    
    
    $
    0.02
   6




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Equity Plans
   WeightedStock Options Outstanding
    
    
    
    
    
    
    
    
    
    
    Average OptionUnder the Plans
    
    
    Non-Plan
    
    
    
    
    
    
    Exercise PriceISO
    
    
    Non-ISO
    
    
    Options
    
    
    Total
    
    
    Per ShareOutstanding at December 31,
2008
    
    
    642,650
    
    
    
    299,000
    
    
    
    1,493,200
    
    
    
    2,434,850
    
    
    $
    2.89Options granted
    
    
    157,250
    
    
    
    
    
    
    
    
    
    
    
    157,250
    
    
    
    2.64Options exercised
    
    
    (3,100
    )
    
    
    
    
    
    
    
    
    
    
    (3,100
    )
    
    
    1.05Options canceled
    
    
    (67,500
    )
    
    
    (10,000
    )
    
    
    
    
    
    
    (77,500
    )
    
    
    4.57Outstanding at October 3, 2009
    
    
    729,300
    
    
    
    289,000
    
    
    
    1,493,200
    
    
    
    2,511,500
    
    
    $
    2.82
   Weighted
    
    
    WeightedAverage
    
    
    AverageNumber of
    
    
    Award Date
    
    
    RemainingShares
    
    
    Fair Value
    
    
    Contractual TermOutstanding (unvested ) at December 31, 2008
    
    
    3,391,743
    
    
    $
    2.00
    
    
    2.14 yearsAwards granted
    
    
    1,929,273
    
    
    
    2.26Awards vested
    
    
    (873,286
    )
    
    
    2.08Awards forfeited
    
    
    (239,956
    )
    
    
    1.87Outstanding (unvested) at October 3, 2009
    
    
    4,207,774
    
    
    $
    2.11
    
    
    2.10 years
  Note 3. Private Placements of Common Stock
   7




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(in thousands)Warrant liability balance on January 1, 2008
    
    $
    3,913Total losses (gains) included in other expense (income):First quarter 2008
    
    
    (1,521
    )Second quarter 2008
    
    
    1,278Transfer to additional-paid-in-capital
    
    
    (3,670
    )Warrant liability balance on October 3, 2008
    
    $
    
  Note 4. Inventories
  October 3,
    
    
    December 31,2009
    
    
    2008Raw materials
    
    $
    2,780
    
    
    $
    4,712Work-in-process
    
    
    6,122
    
    
    
    4,880Finished goods
    
    
    13,450
    
    
    
    11,416Total inventories
    
    
    22,352
    
    
    
    21,008Less: non-current inventories
    
    
    (1,000
    )
    
    
    (800
    )Inventories, net
    
    $
    21,352
    
    
    $
    20,208
  Note 5. Comprehensive Income (Loss)
   8




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Note 6. Intangible Assets
 Indefinite-lived Intangible Assets
 Intangibles-Goodwill and Other,
 Definite-lived Intangible Assets
  Note 7. Debt and Borrowings
 Convertible Senior Notes Payable
  Derivatives and Hedging,
  Nine months endedOctober 3,
    
    
    September 27,(in thousands)
    
    2009
    
    
    2008Derivative liability balance at beginning of period
    
    $
    90
    
    
    $
    141Change in valuation gain included in other income:First quarter
    
    
    (9
    )
    
    
    (15
    )Second quarter
    
    
    (9
    )
    
    
    (15
    )Third quarter
    
    
    (8
    )
    
    
    (13
    )Derivative liability balance at end of period
    
    $
    64
    
    
    $
    98
  Bank Notes Payable
   9




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Subordinated Credit Agreement
     10




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##### Table of Contents



Note 8. Income Taxes
  Note 9. Fair Value Measurements
 Fair Value Measurements and
Disclosures .
  
    
    Level 1  quoted prices in active markets for identical assets and liabilities.
 
    
    Level 2  observable inputs other than quoted prices in active markets for identical
assets and liabilities.
 
    
    Level 3  unobservable inputs in which there is little or no market data available,
which require the reporting entity to develop its own assumptions.
    Note 10. Recently Issued Accounting Pronouncements
   11




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Subsequent Events
 1.
    
    The period after the balance sheet date during which management of a reporting entity
should evaluate events or transactions that may occur for potential recognition or
disclosure in the financial statements.
 2.
    
    The circumstances under which an entity should recognize events or transactions
occurring after the balance sheet date in its financial statements.
 3.
    
    The disclosures that an entity should make about events or transactions that occurred
after the balance sheet date.
  Business Combinations
 11. Litigation
 Abbey Litigation
   12




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13




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ITEM 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
 This document contains forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. Words such as may, expect, believe, anticipate or
estimate identify such forward-looking statements. These statements by their nature involve
substantial risks and uncertainties, and actual results may differ materially from those expressed
in such forward-looking statements. The factors that could cause such material
differences are identified in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year
ended December 31, 2008. We undertake no obligation to correct or update any forward-looking
statements, whether as a result of new information, future events or otherwise. You are advised,
however, to consult any future disclosures we make on related subjects in future filings with the
SEC.
 Executive Overview
   .
 ® ®
    14




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®
  Critical Accounting Policies and Estimates
    15




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Results of Operations
  Three months ended
    
    
    Nine months endedOctober 3 (September 27)
    
    
    October 3 (September 27)Increase (Decrease)
    
    
    
    
    
    
    
    
    
    
    Increase (Decrease)(in thousands)
    
    2009
    
    
    2008
    
    
    $
    
    
    %
    
    
    2009
    
    
    2008
    
    
    $
    
    
    %Net sales
    
    $
    18,827
    
    
    $
    16,044
    
    
    $
    2,783
    
    
    
    17.3
    %
    
    $
    57,011
    
    
    $
    47,789
    
    
    $
    9,222
    
    
    
    19.3
    %Cost of goods sold
    
    
    6,983
    
    
    
    6,570
    
    
    
    413
    
    
    
    6.3
    %
    
    
    20,153
    
    
    
    19,077
    
    
    
    1,076
    
    
    
    5.6
    %Gross profit
    
    
    11,844
    
    
    
    9,474
    
    
    
    2,370
    
    
    
    25.0
    %
    
    
    36,858
    
    
    
    28,712
    
    
    
    8,146
    
    
    
    28.4
    %Operating expenses:Sales and marketing
    
    
    6,950
    
    
    
    7,059
    
    
    
    (109
    )
    
    
    (1.5
    )%
    
    
    21,976
    
    
    
    20,693
    
    
    
    1,283
    
    
    
    6.2
    %Research and development
    
    
    2,226
    
    
    
    1,843
    
    
    
    383
    
    
    
    20.8
    %
    
    
    6,087
    
    
    
    6,351
    
    
    
    (264
    )
    
    
    (4.2
    )%General and administrative
    
    
    2,438
    
    
    
    2,431
    
    
    
    7
    
    
    
    0.3
    %
    
    
    7,345
    
    
    
    8,199
    
    
    
    (854
    )
    
    
    (10.4
    )%Amortization of intangibles
    
    
    812
    
    
    
    891
    
    
    
    (79
    )
    
    
    (8.9
    )%
    
    
    2,412
    
    
    
    2,672
    
    
    
    (260
    )
    
    
    (9.7
    )%Total operating expenses
    
    
    12,426
    
    
    
    12,224
    
    
    
    202
    
    
    
    1.7
    %
    
    
    37,820
    
    
    
    37,915
    
    
    
    (95
    )
    
    
    (0.3
    )%Operating loss
    
    
    (582
    )
    
    
    (2,750
    )
    
    
    (2,186
    )
    
    
    (78.8
    )%
    
    
    (962
    )
    
    
    (9,203
    )
    
    
    (8,241
    )
    
    
    (89.5
    )%Net interest expense
    
    
    (644
    )
    
    
    (700
    )
    
    
    (56
    )
    
    
    (8.0
    )%
    
    
    (2,057
    )
    
    
    (1,976
    )
    
    
    81
    
    
    
    4.1
    %Other income (expense), net
    
    
    383
    
    
    
    (241
    )
    
    
    624
    
    
    
    258.9
    %
    
    
    501
    
    
    
    637
    
    
    
    (136
    )
    
    
    (21.4
    )%Net loss before income taxes
    
    
    (843
    )
    
    
    (3,691
    )
    
    
    (2,848
    )
    
    
    (77.2
    )%
    
    
    (2,518
    )
    
    
    (10,542
    )
    
    
    (8,024
    )
    
    
    (76.1
    )%Income tax expense
    
    
    (132
    )
    
    
    (55
    )
    
    
    77
    
    
    
    140.0
    %
    
    
    (314
    )
    
    
    (284
    )
    
    
    30
    
    
    
    10.6
    %Net loss
    
    $
    (975
    )
    
    $
    (3,746
    )
    
    $
    (2,771
    )
    
    
    (74.0
    )%
    
    $
    (2,832
    )
    
    $
    (10,826
    )
    
    $
    (7,994
    )
    
    
    (73.8
    )%
  Three months ended
    
    
    Nine months endedOctober 3 (September 27)
    
    
    October 3 (September 27)2009
    
    
    2008
    
    
    2009
    
    
    2008Net sales
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Cost of goods sold
    
    
    37.1
    %
    
    
    40.9
    %
    
    
    35.3
    %
    
    
    39.9
    %Gross profit
    
    
    62.9
    %
    
    
    59.1
    %
    
    
    64.7
    %
    
    
    60.1
    %Operating expenses:Sales and marketing
    
    
    36.9
    %
    
    
    44.0
    %
    
    
    38.5
    %
    
    
    43.3
    %Research and development
    
    
    11.8
    %
    
    
    11.5
    %
    
    
    10.7
    %
    
    
    13.3
    %General and administrative
    
    
    12.9
    %
    
    
    15.2
    %
    
    
    12.9
    %
    
    
    17.2
    %Amortization of intangibles
    
    
    4.3
    %
    
    
    5.6
    %
    
    
    4.2
    %
    
    
    5.6
    %Total operating expenses
    
    
    66.0
    %
    
    
    76.2
    %
    
    
    66.3
    %
    
    
    79.3
    %Operating loss
    
    
    (3.1
    )%
    
    
    (17.1
    )%
    
    
    (1.7
    )%
    
    
    (19.3
    )%Net interest income (expense)
    
    
    (3.4
    )%
    
    
    (4.4
    )%
    
    
    (3.6
    )%
    
    
    (4.1
    )%Other income (expense), net
    
    
    2.0
    %
    
    
    (1.5
    )%
    
    
    0.9
    %
    
    
    1.3
    %Net loss before income taxes
    
    
    (4.5
    )%
    
    
    (23.0
    )%
    
    
    (4.4
    )%
    
    
    (22.1
    )%Income tax expense
    
    
    (0.7
    )%
    
    
    (0.3
    )%
    
    
    (0.6
    )%
    
    
    (0.6
    )%Net loss
    
    
    (5.2
    )%
    
    
    (23.3
    )%
    
    
    (5.0
    )%
    
    
    (22.7
    )%
  16




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##### Table of Contents



Net Sales.
 Three months ended
    
    
    Nine months endedOctober 3 (September 27)
    
    
    October 3 (September 27)Increase
    
    
    
    
    
    
    
    
    
    
    Increase(in thousands)
    
    2009
    
    
    2008
    
    
    $
    
    
    %
    
    
    2009
    
    
    2008
    
    
    $
    
    
    %United States
    
    $
    7,040
    
    
    $
    5,847
    
    
    $
    1,193
    
    
    
    20.4
    %
    
    $
    22,553
    
    
    $
    18,274
    
    
    $
    4,279
    
    
    
    23.4
    %Outside United States
    
    
    11,787
    
    
    
    10,197
    
    
    
    1,590
    
    
    
    15.6
    %
    
    
    34,458
    
    
    
    29,515
    
    
    
    4,943
    
    
    
    16.7
    %Total
    
    $
    18,827
    
    
    $
    16,044
    
    
    $
    2,783
    
    
    
    17.3
    %
    
    $
    57,011
    
    
    $
    47,789
    
    
    $
    9,222
    
    
    
    19.3
    %
  Three months ended
    
    
    Nine months endedOctober 3 (September 27)
    
    
    October 3 (September 27)2009
    
    
    2008
    
    
    2009
    
    
    2008United States
    
    
    37.4
    %
    
    
    36.4
    %
    
    
    39.6
    %
    
    
    38.2
    %Outside United States
    
    
    62.6
    %
    
    
    63.6
    %
    
    
    60.4
    %
    
    
    61.8
    %Total
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
  Three months ended
    
    
    Nine months endedOctober 3 (September 27)
    
    
    October 3 (September 27)Increase (Decrease)
    
    
    
    
    
    
    
    
    
    
    Increase (Decrease)(in thousands)
    
    2009
    
    
    2008
    
    
    $
    
    
    %
    
    
    2009
    
    
    2008
    
    
    $
    
    
    %Heart valve therapy
    
    $
    14,163
    
    
    $
    11,755
    
    
    $
    2,408
    
    
    
    20.5
    %
    
    $
    42,144
    
    
    $
    34,529
    
    
    $
    7,615
    
    
    
    22.1
    %Surgical arrhythmia
    
    
    4,491
    
    
    
    4,011
    
    
    
    480
    
    
    
    12.0
    %
    
    
    14,117
    
    
    
    12,245
    
    
    
    1,872
    
    
    
    15.3
    %Surgical tools and
accessories
    
    
    173
    
    
    
    278
    
    
    
    (105
    )
    
    
    (37.8
    )%
    
    
    750
    
    
    
    1,015
    
    
    
    (265
    )
    
    
    (26.1
    )%Total
    
    $
    18,827
    
    
    $
    16,044
    
    
    $
    2,783
    
    
    
    17.3
    %
    
    $
    57,011
    
    
    $
    47,789
    
    
    $
    9,222
    
    
    
    19.3
    %
    17




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##### Table of Contents



Cost of Goods Sold and Gross Profit.
   Sales and Marketing.
  Research and Development.
   18




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##### Table of Contents



General and Administrative.
  Amortization of Intangibles.
 Net
Interest Expense .
   Other
Income (Expense) .
 Three months ended
    
    
    Nine months endedOctober 3 (September 27)
    
    
    October 3 (September 27)(in thousands)
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008Alta warrant liability gain
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    243Convertible Senior Notes derivative liability gain
    
    
    8
    
    
    
    13
    
    
    
    26
    
    
    
    43Net foreign currency transaction gain (loss) related
to intercompany balances with foreign subsidiaries:Realized
    
    
    222
    
    
    
    86
    
    
    
    111
    
    
    
    774Unrealized
    
    
    153
    
    
    
    (340
    )
    
    
    364
    
    
    
    (423
    )Net other income (expense)
    
    $
    383
    
    
    $
    (241
    )
    
    $
    501
    
    
    $
    637
  19




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##### Table of Contents



.
  Income
Taxes .
  Net
Loss .
 Liquidity and Capital Resources
  Operating Activities.
  Investing Activities.
   20




---



##### Table of Contents



Financing Activities.
      21




---



##### Table of Contents



Cash Management and Funding of Future Operations
   Off-Balance Sheet Arrangements
  
 ITEM 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
     22




---



##### Table of Contents



ITEM 4.
    
    Controls and Procedures
 Evaluation of Disclosure Controls and Procedures
   Changes in Internal Control over Financial Reporting
   23




---



##### Table of Contents



PART II. OTHER INFORMATION
 
 ITEM 1.
    
    Legal Proceedings
 Abbey Litigation
     24




---



##### Table of Contents



ITEM 1A.
    
    Risk Factors
  
 ITEM 6.
    
    Exhibits
 3.1
    
    
    Third Restated Articles of Incorporation of ATS Medical, Inc. (Incorporated by reference to
Exhibit 3.1 to the Companys Quarterly Report on Form 10-Q for the quarterly period ended June
28, 2008).3.2
    
    
    Bylaws of the Company, as amended February 13, 2007 (Incorporated by reference to Exhibit
10.2 to the Companys Current Report on Form 8-K filed on February 20, 2007).4.1
    
    
    Specimen certificate for shares of common stock of the Company (Incorporated by reference to
Exhibit 4.1 to the Companys Annual Report on Form 10-K for the year ended December 31, 1997).12.1
    
    
    Computation of Ratio of Earnings to Fixed Charges.31.1
    
    
    Certification of Principal Executive Officer pursuant to Rules 13a-15(e)/15d-15(e) of the
Securities Exchange Act, as amended (Section 302 Certification).31.2
    
    
    Certification of Principal Financial Officer pursuant to Rules 13a-15(e)/15d-15(e) of the
Securities Exchange Act, as amended (Section 302 Certification).32.1
    
    
    Certification of the Principal Executive Officer pursuant to 18 U.S.C. Section 1350 (Section
906 Certification).32.2
    
    
    Certification of the Principal Financial Officer pursuant to 18 U.S.C. Section 1350 (Section
906 Certification).
  25




---



##### Table of Contents



SIGNATURES
  Date:      November 12, 2009
    ATS MEDICAL, INC.By:
    /s/ Michael D. DaleMichael D. DaleChief Executive Officer
(Principal Executive Officer)By:
    /s/ Michael R. KramerMichael R. KramerChief Financial Officer
(Principal Financial Officer)  26




---



##### Table of Contents



EXHIBIT INDEX
 ExhibitNumber
    
    Description3.1
    
    
    Third Restated Articles of Incorporation of ATS Medical, Inc. (Incorporated by reference to Exhibit 3.1 to the
Companys Quarterly Report on Form 10-Q for the quarterly period ended June 28, 2008).3.2
    
    
    Bylaws of the Company, as amended February 13, 2007 (Incorporated by reference to Exhibit 10.2 to the
Companys Current Report on Form 8-K filed on February 20, 2007).4.1
    
    
    Specimen certificate for shares of common stock of the Company (Incorporated by reference to Exhibit 4.1 to
the Companys Annual Report on Form 10-K for the year ended December 31, 1997).12.1
    
    
    Computation of Ratio of Earnings to Fixed Charges.31.1
    
    
    Certification of the Principal Executive Officer pursuant to Rules 13a-15(e)/15d-15(e) of the Securities
Exchange Act, as amended (Section 302 Certification)31.2
    
    
    Certification of the Principal Financial Officer pursuant to Rules 13a-15(e)/15d-15(e) of the Securities
Exchange Act, as amended (Section 302 Certification)32.1
    
    
    Certification of the Principal Executive Officer pursuant to 18 U.S.C. Section 1350 (Section 906 Certification)32.2
    
    
    Certification of the Principal Financial Officer pursuant to 18 U.S.C. Section 1350 (Section 906 Certification)
  27