##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 
 FORM 10-Q
 QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the Quarterly Period Ended July 4, 2009
 Commission File Number: 0-18602
 ATS MEDICAL, INC.
  Minnesota
    
    41-1595629(State or Other Jurisdiction of 
Incorporation or Organization)
    
    (I.R.S. Employer Identification No.)3905 Annapolis Lane N., Suite 105
Minneapolis, Minnesota
    
    55447(Address of Principal Executive Offices)
    
    (Zip Code)
 (763) 553-7736
  Not Applicable
   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 þ
  Common Stock, $.01 par value
    
    71,944,983 shares




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TABLE OF CONTENTS







Page(s)PART I.
    
    FINANCIAL INFORMATIONITEM 1.
    
    Financial Statements (Unaudited):Consolidated Balance Sheets as of July 4, 2009 and December 31, 2008
    
    3Consolidated Statements of Operations for the
three and six month periods ended July 4, 2009 and June 28, 2008
    
    4Consolidated Statements of Cash Flow for the six month periods ended July 4, 2009 and June 28, 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
    
    22ITEM 4.
    
    Controls and Procedures
    
    22  23PART II.
    
    OTHER INFORMATIONITEM 1.
    
    Legal Proceedings
    
    24  25ITEM 1A.
    
    Risk Factors
    
    25ITEM 4
    
    Submission of Matters to a Vote of Security Holders
    
    25ITEM 6.
    
    Exhibits
    
    25  26SIGNATURES
    
    
    
    27EXHIBIT INDEX
    
    
    
    28EX-10.1EX-12.1EX-31.1EX-31.2EX-32.1EX-32.2




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PART I. FINANCIAL INFORMATION
 
 ITEM 1.
    
    Financial Statements
 ATS
Medical, Inc.
 
 Consolidated Balance Sheets
 July 4,
    
    
    December 31,2009
    
    
    2008(Unaudited)AssetsCurrent assets:Cash and cash equivalents
    
    $
    11,322
    
    
    $
    20,895Accounts receivable, net
    
    
    15,343
    
    
    
    14,532Inventories, net
    
    
    21,227
    
    
    
    20,208Prepaid expenses
    
    
    1,746
    
    
    
    958Total current assets
    
    
    49,638
    
    
    
    56,593Leasehold improvements, furniture and equipment, net
    
    
    6,792
    
    
    
    7,031Goodwill
    
    
    17,016
    
    
    
    17,016Other intangible assets
    
    
    30,514
    
    
    
    32,115Other assets
    
    
    1,455
    
    
    
    2,226Total assets
    
    $
    105,415
    
    
    $
    114,981Liabilities and shareholders equityCurrent liabilities:Current maturities of bank notes payable
    
    $
    2,646
    
    
    $
    2,646Accounts payable
    
    
    4,233
    
    
    
    4,054Accrued compensation
    
    
    2,001
    
    
    
    3,537Payable to CryoCath Technologies, Inc.
    
    
    
    
    
    
    1,910Payable to CarboMedics, Inc.
    
    
    
    
    
    
    4,500Other accrued liabilities
    
    
    2,319
    
    
    
    2,257Total current liabilities
    
    
    11,199
    
    
    
    18,904Convertible senior notes payable, net of unamortized discounts
and bifurcated derivatives of $4,807 at July 4, 2009 and
$4,867 at December 31, 2008
    
    
    17,593
    
    
    
    17,533Bank notes payable
    
    
    2,426
    
    
    
    3,969Shareholders equity:Common stock, $.01 par value:Authorized shares - 150,000,000Issued and outstanding shares - 71,783,599 at July 4, 2009
and 71,077,458 at December 31, 2008
    
    
    718
    
    
    
    711Additional paid-in capital
    
    
    227,004
    
    
    
    225,657Accumulated deficit
    
    
    (153,773
    )
    
    
    (151,916
    )Accumulated other comprehensive income
    
    
    248
    
    
    
    123Total shareholders equity
    
    
    74,197
    
    
    
    74,575Total liabilities and shareholders equity
    
    $
    105,415
    
    
    $
    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 July 4 (June 28)
    
    
    Six months ended July 4 (June 28)2009
    
    
    2008
    
    
    2009
    
    
    2008Net sales
    
    $
    19,781
    
    
    $
    16,900
    
    
    $
    38,184
    
    
    $
    31,745Cost of goods sold
    
    
    7,040
    
    
    
    6,610
    
    
    
    13,170
    
    
    
    12,507Gross profit
    
    
    12,741
    
    
    
    10,290
    
    
    
    25,014
    
    
    
    19,238Operating expenses:Sales and marketing
    
    
    7,525
    
    
    
    7,147
    
    
    
    15,026
    
    
    
    13,634Research and development
    
    
    1,817
    
    
    
    2,302
    
    
    
    3,861
    
    
    
    4,508General and administrative
    
    
    2,431
    
    
    
    2,764
    
    
    
    4,907
    
    
    
    5,768Amortization of intangibles
    
    
    812
    
    
    
    890
    
    
    
    1,600
    
    
    
    1,781Total operating expenses
    
    
    12,585
    
    
    
    13,103
    
    
    
    25,394
    
    
    
    25,691Operating income (loss)
    
    
    156
    
    
    
    (2,813
    )
    
    
    (380
    )
    
    
    (6,453
    )Net interest expense
    
    
    (694
    )
    
    
    (657
    )
    
    
    (1,413
    )
    
    
    (1,276
    )Other income (expense), net
    
    
    471
    
    
    
    (1,040
    )
    
    
    118
    
    
    
    878Net loss before income taxes
    
    
    (67
    )
    
    
    (4,510
    )
    
    
    (1,675
    )
    
    
    (6,851
    )Income tax expense
    
    
    (119
    )
    
    
    (159
    )
    
    
    (182
    )
    
    
    (229
    )Net loss
    
    
    ($186
    )
    
    
    ($4,669
    )
    
    
    ($1,857
    )
    
    
    ($7,080
    )Net loss per share:Basic and diluted
    
    
    ($0.00
    )
    
    
    ($0.08
    )
    
    
    ($0.03
    )
    
    
    ($0.12
    )Weighted average number of
shares outstanding:Basic and diluted
    
    
    71,688
    
    
    
    60,018
    
    
    
    71,471
    
    
    
    59,877
 The accompanying notes are an integral part of the consolidated financial statements.
 4




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ATS Medical, Inc.
Consolidated Statements of Cash Flow
(Unaudited)
 Six months endedJuly 4,
    
    
    June 28,2009
    
    
    2008Operating activities:Net loss
    
    
    ($1,857
    )
    
    
    ($7,080
    )Adjustments to reconcile net loss to net cash used in operating activities:Depreciation and amortization
    
    
    2,540
    
    
    
    2,946Stock-based compensation expense
    
    
    1,197
    
    
    
    769Deferred income taxes
    
    
    141
    
    
    
    96Non-cash interest expense
    
    
    431
    
    
    
    317Change in value of warrant liability and derivative liability bifurcated from
convertible senior notes
    
    
    (18
    )
    
    
    (273
    )Changes in operating assets and liabilities:Accounts receivable
    
    
    (822
    )
    
    
    (1,631
    )Inventories
    
    
    (1,013
    )
    
    
    (1,267
    )Prepaid expenses
    
    
    (782
    )
    
    
    (22
    )Accounts payable and accrued expenses
    
    
    (5,825
    )
    
    
    1,642Net cash used in operating activities
    
    
    (6,008
    )
    
    
    (4,503
    )Investing activities:Purchases of short-term investments
    
    
    
    
    
    
    (938
    )Maturities of short-term investments
    
    
    
    
    
    
    5,121Payments for business acquisitions
    
    
    (2,000
    )
    
    
    (1,000
    )Purchases of leasehold improvements, furniture and equipment
    
    
    (699
    )
    
    
    (886
    )Net cash provided by (used in) investing activities
    
    
    (2,699
    )
    
    
    2,297Financing activities:Payments on bank notes payable
    
    
    (1,543
    )
    
    
    (662
    )Net proceeds from issuance of common stock
    
    
    158
    
    
    
    3,381Other
    
    
    508
    
    
    
    31Net cash provided by (used in) financing activities
    
    
    (877
    )
    
    
    2,750Effect of foreign exchange rate changes on cash
    
    
    11
    
    
    
    (117
    )Increase (Decrease) in cash and cash equivalents
    
    
    (9,573
    )
    
    
    427Cash and cash equivalents at beginning of period
    
    
    20,895
    
    
    
    10,480Cash and cash equivalents at end of period
    
    $
    11,322
    
    
    $
    10,907Significant 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
 Share-Based Payment
  Three months ended

    Six months endedJuly 4,
    
    June 28,
    
    July 4,
    
    June 28,(in thousands, except per share data)
    
    2009
    
    2008
    
    2009
    
    2008Stock compensation expense included in:Cost of goods sold
    
    $
    47
    
    
    $
    
    
    
    $
    47
    
    
    $
    Sales and marketing expenses
    
    
    349
    
    
    
    251
    
    
    
    620
    
    
    
    443Research and development expenses
    
    
    78
    
    
    
    
    
    
    
    149
    
    
    
    General and administrative expenses
    
    
    239
    
    
    
    191
    
    
    
    381
    
    
    
    326Total stock compensation expense
    
    $
    713
    
    
    $
    442
    
    
    $
    1,197
    
    
    $
    769Stock compensation expense per share
    
    $
    0.01
    
    
    $
    0.01
    
    
    $
    0.02
    
    
    $
    0.01
   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
    
    
    (1,900
    )
    
    
    
    
    
    
    
    
    
    
    (1,900
    )
    
    
    0.73Options canceled
    
    
    (59,500
    )
    
    
    (10,000
    )
    
    
    
    
    
    
    (69,500
    )
    
    
    4.83Outstanding at July 4, 2009
    
    
    738,500
    
    
    
    289,000
    
    
    
    1,493,200
    
    
    
    2,520,700
    
    
    $
    2.82
   WeightedWeighted Average
    
    
    AverageNumber of
    
    
    Award Date
    
    
    RemainingShares
    
    
    Fair Value
    
    
    Contractual TermOutstanding (unvested ) at December 31, 2008
    
    
    3,391,743
    
    
    $
    2.00
    
    
    2.14 yearsAwards granted
    
    
    1,875,990
    
    
    
    2.23Awards vested
    
    
    (643,971
    )
    
    
    1.90Awards forfeited
    
    
    (51,447
    )
    
    
    1.87Outstanding (unvested) at July 4, 2009
    
    
    4,572,315
    
    
    $
    2.11
    
    
    2.25 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 June 28, 2008
    
    $
    
  Note 4. Inventories
  July 4,
    
    December 31,2009
    
    2008Raw materials
    
    $
    3,262
    
    
    $
    4,712Work-in-process
    
    
    6,389
    
    
    
    4,880Finished goods
    
    
    12,376
    
    
    
    11,416Total inventories
    
    
    22,027
    
    
    
    21,008Less: non-current inventories
    
    
    (800
    )
    
    
    (800
    )Inventories, net
    
    $
    21,227
    
    
    $
    20,208
  Note 5. Comprehensive Income (Loss)
  Note 6. Intangible Assets
 Goodwill and Other Intangible Assets,
 8




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Note 7. Long-Term Debt
 Convertible Senior Notes Payable
  Accounting for Derivative Instruments and Hedging Activities,
  Six months ended(in thousands)
    
    July 4, 2009
    
    
    June 28, 2008Derivative liability balance at beginning of period
    
    $
    90
    
    
    $
    141Change in valuation gain included in other income:First quarter
    
    
    (9
    )
    
    
    (15
    )Second quarter
    
    
    (9
    )
    
    
    (15
    )Derivative liability balance at end of period
    
    $
    72
    
    
    $
    111
  Bank Notes Payable
    9




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Subordinated Credit Agreement
    Note 8. Income Taxes
  Note 9. Fair Value Measurements
 Fair Value Measurements , .
 10




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
    
    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
 The FASB Accounting Standards Codification
 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




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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 July 4 (June 28)
    

    Six months ended July 4 (June 28)Increase (Decrease)
    
    
    
    
    
    
    
    
    
    
    Increase (Decrease)(in thousands)
    
    2009
    
    
    2008
    
    
    $
    
    
    %
    
    
    2009
    
    
    2008
    
    
    $
    
    
    %Net sales
    
    $
    19,781
    
    
    $
    16,900
    
    
    $
    2,881
    
    
    
    17.0
    %
    
    $
    38,184
    
    
    $
    31,745
    
    
    $
    6,439
    
    
    
    20.3
    %Cost of goods sold
    
    
    7,040
    
    
    
    6,610
    
    
    
    430
    
    
    
    6.5
    %
    
    
    13,170
    
    
    
    12,507
    
    
    
    663
    
    
    
    5.3
    %Gross profit
    
    
    12,741
    
    
    
    10,290
    
    
    
    2,451
    
    
    
    23.8
    %
    
    
    25,014
    
    
    
    19,238
    
    
    
    5,776
    
    
    
    30.0
    %Operating expenses:Sales and marketing
    
    
    7,525
    
    
    
    7,147
    
    
    
    378
    
    
    
    5.3
    %
    
    
    15,026
    
    
    
    13,634
    
    
    
    1,392
    
    
    
    10.2
    %Research and development
    
    
    1,817
    
    
    
    2,302
    
    
    
    (485
    )
    
    
    (21.1
    )%
    
    
    3,861
    
    
    
    4,508
    
    
    
    (647
    )
    
    
    (14.4
    )%General and administrative
    
    
    2,431
    
    
    
    2,764
    
    
    
    (333
    )
    
    
    (12.0
    )%
    
    
    4,907
    
    
    
    5,768
    
    
    
    (861
    )
    
    
    (14.9
    )%Amortization of intangibles
    
    
    812
    
    
    
    890
    
    
    
    (78
    )
    
    
    (8.8
    )%
    
    
    1,600
    
    
    
    1,781
    
    
    
    (181
    )
    
    
    (10.2
    )%Total operating expenses
    
    
    12,585
    
    
    
    13,103
    
    
    
    (518
    )
    
    
    (4.0
    )%
    
    
    25,394
    
    
    
    25,691
    
    
    
    (297
    )
    
    
    (1.2
    )%Operating income (loss)
    
    
    156
    
    
    
    (2,813
    )
    
    
    (2,969
    )
    
    
    (105.5
    )%
    
    
    (380
    )
    
    
    (6,453
    )
    
    
    (6,073
    )
    
    
    (94.1
    )%Net interest expense
    
    
    (694
    )
    
    
    (657
    )
    
    
    37
    
    
    
    5.6
    %
    
    
    (1,413
    )
    
    
    (1,276
    )
    
    
    137
    
    
    
    10.7
    %Other income (expense), net
    
    
    471
    
    
    
    (1,040
    )
    
    
    (1,511
    )
    
    
    (145.3
    )%
    
    
    118
    
    
    
    878
    
    
    
    (760
    )
    
    
    (86.6
    )%Net loss before income taxes
    
    
    (67
    )
    
    
    (4,510
    )
    
    
    (4,443
    )
    
    
    (98.5
    )%
    
    
    (1,675
    )
    
    
    (6,851
    )
    
    
    (5,176
    )
    
    
    (75.6
    )%Income tax expense
    
    
    (119
    )
    
    
    (159
    )
    
    
    (40
    )
    
    
    (25.2
    )%
    
    
    (182
    )
    
    
    (229
    )
    
    
    (47
    )
    
    
    (20.5
    )%Net loss
    
    
    ($186
    )
    
    
    ($4,669
    )
    
    $
    (4,483
    )
    
    
    (96.0
    )%
    
    
    ($1,857
    )
    
    
    ($7,080
    )
    
    $
    (5,223
    )
    
    
    (73.8
    )%
  Three months ended
    
    Six months endedJuly 4 (June 28)
    
    July 4 (June 28)2009
    
    2008
    
    2009
    
    2008Net sales
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Cost of goods sold
    
    
    35.6
    %
    
    
    39.1
    %
    
    
    34.5
    %
    
    
    39.4
    %Gross profit
    
    
    64.4
    %
    
    
    60.9
    %
    
    
    65.5
    %
    
    
    60.6
    %Operating expenses:Sales and marketing
    
    
    38.0
    %
    
    
    42.3
    %
    
    
    39.4
    %
    
    
    42.9
    %Research and development
    
    
    9.2
    %
    
    
    13.6
    %
    
    
    10.1
    %
    
    
    14.2
    %General and administrative
    
    
    12.3
    %
    
    
    16.4
    %
    
    
    12.9
    %
    
    
    18.2
    %Amortization of intangibles
    
    
    4.1
    %
    
    
    5.3
    %
    
    
    4.2
    %
    
    
    5.6
    %Total operating expenses
    
    
    63.6
    %
    
    
    77.5
    %
    
    
    66.5
    %
    
    
    80.9
    %Operating Income (loss)
    
    
    0.8
    %
    
    
    (16.6
    )%
    
    
    (1.0
    )%
    
    
    (20.3
    )%Net interest income (expense)
    
    
    (3.5
    )%
    
    
    (3.9
    )%
    
    
    (3.7
    )%
    
    
    (4.0
    )%Other income (expense), net
    
    
    2.4
    %
    
    
    (6.2
    )%
    
    
    0.3
    %
    
    
    2.8
    %Net loss before income taxes
    
    
    (0.3
    )%
    
    
    (26.7
    )%
    
    
    (4.4
    )%
    
    
    (21.6
    )%Income tax expense
    
    
    (0.6
    )%
    
    
    (0.9
    )%
    
    
    (0.5
    )%
    
    
    (0.7
    )%Net loss
    
    
    (0.9
    )%
    
    
    (27.6
    )%
    
    
    (4.9
    )%
    
    
    (22.3
    )%
 16




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##### Table of Contents



Net Sales.
 Three months ended July 4 (June 28)
    

    Six months ended July 4 (June 28)Increase
    
    
    
    
    
    
    
    
    
    
    Increase(in thousands)
    
    2009
    
    
    2008
    
    
    $
    
    
    
    %
    
    

    2009
    
    
    2008
    
    
    $
    
    
    %United States
    
    $
    7,581
    
    
    $
    6,598
    
    
    $
    983
    
    
    
    14.9
    %
    
    $
    15,513
    
    
    $
    12,427
    
    
    $
    3,086
    
    
    
    24.8
    %Outside United States
    
    
    12,200
    
    
    
    10,302
    
    
    
    1,898
    
    
    
    18.4
    %
    
    
    22,671
    
    
    
    19,318
    
    
    
    3,353
    
    
    
    17.4
    %Total
    
    $
    19,781
    
    
    $
    16,900
    
    
    $
    2,881
    
    
    
    17.0
    %
    
    $
    38,184
    
    
    $
    31,745
    
    
    $
    6,439
    
    
    
    20.3
    %
  Three months ended
    
    Six months endedJuly 4 (June 28)
    
    July 4 (June 28)2009
    
    2008
    
    2009
    
    2008United States
    
    
    38.3
    %
    
    
    39.0
    %
    
    
    40.6
    %
    
    
    39.1
    %Outside United States
    
    
    61.7
    %
    
    
    61.0
    %
    
    
    59.4
    %
    
    
    60.9
    %Total
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
  Three months ended July 4 (June 28)
    
    
    Six months ended July 4 (June 28)Increase (Decrease)
    
    
    
    
    
    
    
    
    
    
    Increase (Decrease)(in thousands)
    
    2009
    
    
    2008
    
    
    $
    
    
    
    %

    
    
    2009
    
    
    2008
    
    
    $
    
    
    %Heart valve therapy
    
    $
    14,736
    
    
    $
    12,093
    
    
    $
    2,643
    
    
    
    21.9
    %
    
    $
    27,981
    
    
    $
    22,774
    
    
    $
    5,207
    
    
    
    22.9
    %Surgical arrhythmia
    
    
    4,722
    
    
    
    4,386
    
    
    
    336
    
    
    
    7.7
    %
    
    
    9,626
    
    
    
    8,234
    
    
    
    1,392
    
    
    
    16.9
    %Surgical tools and accessories
    
    
    323
    
    
    
    421
    
    
    
    (98
    )
    
    
    (23.3
    )%
    
    
    577
    
    
    
    737
    
    
    
    (160
    )
    
    
    (21.7
    )%Total
    
    $
    19,781
    
    
    $
    16,900
    
    
    $
    2,881
    
    
    
    17.0
    %
    
    $
    38,184
    
    
    $
    31,745
    
    
    $
    6,439
    
    
    
    20.3
    %
    17




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##### Table of Contents



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




---



##### Table of Contents



Amortization of Intangibles.
 Net Interest Expense .
  Other Income (Expense)
 Three months ended
    
    
    Six months endedJuly 4 (June 28)
    

    
    July 4 (June 28)(in thousands)
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008Alta warrant liability gain (loss)
    
    $
    
    
    
    
    ($1,277
    )
    
    $
    
    
    
    $
    243Convertible Senior Notes derivative liability gain
    
    
    9
    
    
    
    15
    
    
    
    18
    
    
    
    30Net realized foreign currency transaction gain (loss)
    
    
    118
    
    
    
    441
    
    
    
    (110
    )
    
    
    688Unrealized foreign currency gain (loss) related to short-term intercompany balances with foreign subsidiaries
    
    
    344
    
    
    
    (219
    )
    
    
    210
    
    
    
    (83
    )Net other income (expense)
    
    $
    471
    
    
    
    ($1,040
    )
    
    $
    118
    
    
    $
    878
  .
  19




---



##### Table of Contents



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




---



##### Table of Contents



Cash Management
  21




---



##### Table of Contents



Off-Balance Sheet Arrangements
  
 ITEM 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
 ITEM 4.
    
    Controls and Procedures
 Evaluation of Disclosure Controls and Procedures
   22




---



##### Table of Contents



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 4.
    
    Submission of Matters to a Vote of Security Holders
  1)
    
    The election of seven directors to our Board of Directors to hold office for the ensuing year
and until their successors are elected and qualified;
 2)
    
    The ratification of the selection of Grant Thornton LLP as the Companys independent
registered public accounting firm for the year ending December 31, 2009.
  BrokerFor
    
    Withhold
    
    Against
    
    Abstain
    
    Non-VotesElection of Directors:Michael D. Dale
    
    
    61,680,764
    
    
    
    287,038
    
    
    
    
    
    
    
    
    
    
    
    Steven M. Anderson
    
    
    56,461,856
    
    
    
    5,505,946
    
    
    
    
    
    
    
    
    
    
    
    Robert E. Munzenrider
    
    
    56,332,890
    
    
    
    5,634,912
    
    
    
    
    
    
    
    
    
    
    
    Guy P. Nohra
    
    
    61,719,137
    
    
    
    248,665
    
    
    
    
    
    
    
    
    
    
    
    Eric W. Sivertson
    
    
    56,354,202
    
    
    
    5,613,600
    
    
    
    
    
    
    
    
    
    
    
    Theodore C. Skokos
    
    
    61,660,430
    
    
    
    307,372
    
    
    
    
    
    
    
    
    
    
    
    Martin P. Sutter
    
    
    61,494,608
    
    
    
    473,194
    
    
    
    
    
    
    
    
    
    
    
    Ratification of Grant Thornton LLP
    
    
    61,739,540
    
    
    
    
    
    
    
    191,418
    
    
    
    36,844
    
    
    
    
 
 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).
 10.1
    
    Amendment, dated June 2, 2009, to the Loan and Security Agreement between Silicon Valley Bank
and the Company dated July 28, 2004.
 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
 25




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##### Table of Contents



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).
 26




---



##### Table of Contents



SIGNATURES
  Date: August 12, 2009
    ATS MEDICAL, INC.By:
    /s/ Michael D. DaleMichael D. DaleChief Executive Officer
(Duly Authorized Officer)By:
    /s/ Michael R. KramerMichael R. KramerChief Financial Officer
(Principal Financial Officer) 27




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##### 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 theCompany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).10.1
    
    
    Amendment, dated June 2, 2009, to the Loan and Security Agreement between Silicon Valley Bank and the Company
dated July 28, 2004.12.1
    
    
    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)
 28