8-K

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of Earliest Event Reported): February 18, 2009

ATS Medical, Inc.
__________________________________________
(Exact name of registrant as specified in its charter)

Minnesota	0-18602	41-1595629
_____________________ (State or other jurisdiction	_____________ (Commission	______________ (I.R.S. Employer
of incorporation)	File Number)	Identification No.)
3905 Annapolis Lane North, Minneapolis, Minnesota		55447
_________________________________ (Address of principal executive offices)		___________ (Zip Code)

Registrant’s telephone number, including area code: 763-553-7736

Not Applicable
______________________________________________
Former name or former address, if changed since last report

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

[  ]  Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
[  ]  Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
[  ]  Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
[  ]  Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 2.02 Results of Operations and Financial Condition.

On February 23, 2009, ATS Medical, Inc. ("ATS" or the "Company") issued a press release to report final financial results for its three month and fiscal year periods ended December 31, 2008. The full text of the press release is furnished as Exhibit 99.1 hereto and is incorporated by reference. The information under Item 2.02 in this current report, including the exhibit thereto, is not deemed "filed" for purposes of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or otherwise subject to the liabilities of that section, nor shall it be deemed to be incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as expressly set forth by specific reference in such filing.

Item 5.02 Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.

On February 18, 2009, the Personnel and Compensation Committee of the Company's Board of Directors (the "Committee") approved the Company's 2009 Management Incentive Compensation Plan ("MICP"), which is an annual cash incentive program for Company management and key employees. Under the MICP, the Company's management and key employees will be eligible, upon attaining certain corporate financial and personal performance goals, to receive a cash bonus with a target amount equal to a stated percentage of his or her annual base salary. For 2009, 60% of a participant’s target MICP award will be based on the Company's achievement of corporate financial objectives relating to operating income and the remaining 40% of each participant's target MICP bonus will be based on personal performance goals. The 2009 MICP is furnished as Exhibit 99.2 hereto and is incorporated by reference.

Item 9.01 Financial Statements and Exhibits.

(c) Exhibits

The following Exhibits are filed as part of this Form 8-K:

99.1 Press Release of ATS Medical, Inc. dated February 23, 2009.

99.2 ATS Medical, Inc. 2009 Management Incentive Compensation Plan.

SIGNATURES

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 hereunto duly authorized.

	ATS Medical, Inc.
February 23, 2009	By:	Michael R. Kramer
		Name: Michael R. Kramer
		Title: Chief Financial Officer

Exhibit Index

Exhibit No.	Description
99.1	Press Release of ATS Medical, Inc. dated February 23, 2009
99.2	ATS Medical, Inc. 2009 Management Incentive Compensation Plan

EX-99.1

EXHIBIT 99.1

Contacts:	Investors:
Michael Dale, President/CEO 763-553-7736 Michael Kramer, CFO 763-557-2222	Parice Halbert, CFA Westwicke Partners 443-213-0500

ATS Medical Announces Fourth Quarter 2008 Results

• Company generates non-GAAP operating profit excluding litigation settlement

• Fourth quarter 2008 vs. fourth quarter 2007:

• Revenue increases 27% to $18.0 million

• Heart valve therapy revenue rises 26%

• CryoMaze cryoablation revenue grows 30%

• Record gross profit margin of 65.7% vs. 58.2%

MINNEAPOLIS, MN, February 23, 2009 — ATS Medical, Inc. (Nasdaq: ATSI), manufacturer and marketer of state-of-the-art cardiac surgery products and services, today reported financial results for the fourth quarter ended December 31, 2008.

Fourth Quarter 2008 Results

Revenue from the Company’s heart valve therapy products, consisting of mechanical valves, tissue valves and repair products, was up 26% on a year-over-year basis to $13.0 million. The growth reflected a 23% increase in mechanical valve revenue, a 164% increase in tissue valve revenue and a 57% increase in valve repair revenue. Revenue from the Company’s ATS CryoMaze^™ cryoablation products for the treatment of cardiac arrhythmias grew 30% to $4.6 million. Total revenue growth excluding the impact of foreign currency fluctuations was approximately 30%.

Gross profit margin for the fourth quarter of 2008 was a record of 65.7%, representing significant improvement from 58.2% in the fourth quarter of 2007. Year-over-year gross profit margin improvements were due to lower mechanical valve product costs resulting from increased production as well as growth in the Company’s surgical ablation business.

The GAAP operating loss for the fourth quarter of 2008 was $7.3 million compared with a GAAP operating loss of $4.9 million in the fourth quarter of 2007. The GAAP operating loss in the fourth quarter of 2008 includes a one-time charge of $7.5 million related to the Company’s settlement of long standing litigation. Excluding the litigation settlement the Company earned a non-GAAP operating profit of $171,000. The GAAP net loss for the fourth quarter of 2008 was $8.5 million, or $0.13 per share, compared with $6.2 million, or $0.10 per share in the fourth quarter of 2007. Excluding the impact of the litigation settlement, the non-GAAP net loss per share for the fourth quarter would have been $0.02.

“The fourth quarter was a milestone quarter for ATS Medical as strong revenue growth and record gross profit margin performance enabled us to generate a non-GAAP operating profit excluding non-recurring charges,” said Michael Dale, Chairman, President and Chief Executive Officer. “Over the last six years the ATS team has worked tirelessly to build a strategically relevant, high growth, diversified, and ultimately profitable cardiac surgery franchise. Every ATS employee deserves credit and can take great pride in the achievement of this important accomplishment.”

Recent and Upcoming Product Highlights

Tissue Heart Valves

• During the fourth quarter of 2008 the Company received FDA approval of the ATS 3f Aortic Bioprosthesis, the Company’s first tissue valve offering in the United States. The Company is conducting a limited commercial launch of the valve in the United States beginning in the first quarter of 2009.

• The Company expects its sutureless tissue valve, the ATS 3f Enable Aortic Bioprosthesis, to receive a CE Mark in 2009. The Enable valve is designed to allow less invasive surgery for the general population of aortic valve replacement patients.

Surgical Ablation

• The Company announced the formation of its Cryoablation Scientific Advisory Board in January this year. This board met for the first time in December 2008 to develop a consensus around the preferred procedural approach to perform a complete Cox Maze III procedure. The objective was to recommend a standard set of lesions that would yield the best possible, reproducible patient outcomes. In January, the board publicly unveiled their recommended procedural steps at the ATS Frontiers in Cryoablation Symposium at the annual meeting of the Society of Thoracic Surgery in San Francisco. The board’s procedural recommendations will be the basis for clinical studies, training and marketing programs.

2008 Full Year Results

For the full year 2008 revenue increased 32.7% to $65.8 million compared to $49.6 million in 2007. Heart valve therapy revenue increased 23.4% and CryoMaze revenue increased 74.3%. Gross profit margin was 61.6% for the full year 2008 compared to 56.9% for 2007. The Company reported a GAAP net loss for 2008 of $19.3 million, or $0.31 per share, compared to a GAAP net loss of $23.0 million, or $0.44 per share, in 2007. The net loss for 2008 included a charge of $7.5 million related to the Company’s settlement of longstanding litigation. The net loss for 2007 included charges of $3.5 million for acquired in-process research and development related to the acquisition of our surgical cryoablation business and $0.8 million related to discontinuing our PARSUS development program.

2009 Guidance

For the full year 2009 the Company expects:

• Revenue growth of 17.0% to 21.5% which translates into a revenue range of $77 to $80 million. The Company’s revenue guidance includes an unfavorable impact of approximately 2% related to declining foreign exchange rates.

• Gross margin in the range of 64% to 66%

• The Company expects to generate an operating profit on an annual basis.

• The Company expects to generate net income in the fourth quarter of 2009.

Conference Call Today

ATS management will host a conference call today, February 23, 2009, at 5:00 p.m. ET to discuss its 2008 fourth quarter and full year financial results and current corporate developments. The dial-in number for the conference call is 866-953-6851 for domestic participants and 619-399-3475 for international participants. A live webcast of the call can also be accessed at www.atsmedical.com by clicking on the Investors icon.

A taped replay of the conference call will also be available beginning approximately one hour after the call’s conclusion and will remain available for seven days. The replay can be accessed by dialing 888-286-8010for domestic participants and 617-801-6888 for international callers, using the passcode 88772935#.

Disclosure of Non-GAAP Financial Measures

ATS reports its financial results in accordance with generally accepted accounting principles (“GAAP”). In addition, from time to time, we include other measures in our releases which are not prepared in accordance with GAAP. Investors should consider these non-GAAP measures in addition to, not as a substitute for or as superior to, financial reporting measures prepared in accordance with GAAP.  In this release we have included adjusted versions of our operating profit (loss), net loss and net loss per share for the fourth quarter of 2008. These non-GAAP measures do not reflect the impact of a $7.5 million charge related to the Company’s settlement of long standing litigation because we believe that this charge will not be incurred on a regular basis. We use the adjusted operating loss, adjusted net loss and adjusted net loss per share measures in our internal analysis and review of our operational performance. We believe that these non-GAAP measures provide investors with useful information in comparing our performance over different periods, particularly when comparing one of these periods to a period in which we did not incur this kind of charge. By using these non-GAAP measures we believe investors get a better picture of the performance of our underlying business. We have also included as an attachment to this release a schedule which reconciles our operating loss, net loss and net loss per share prepared in accordance with GAAP to our adjusted operating loss, adjusted net loss and adjusted net loss per share presented above.

About ATS Medical

ATS Medical, Inc. is dedicated to ‘Advancing The Standards’ of cardiac surgery through the development, manufacturing and marketing of innovative products and services for the treatment of structural heart disease. ATS Medical serves the cardiac surgery community by focusing on two distinct but operationally synergistic market segments: heart valve disease therapy and surgical ablation of cardiac arrhythmias.

ATS was originally founded to develop the ATS Open Pivot^® heart valve as a new mechanical heart valve standard of care. Today the Open Pivot heart valve is the preferred mechanical heart valve in many markets around the world and the fastest growing mechanical prosthesis in the market. Building on this legacy and addressing the largest market segment in heart valve therapy, the ATS 3f^® brand encompasses an innovative tissue heart valve portfolio to address conventional open surgery requirements as well as the growing demand for less invasive, sutureless procedures. The ATS 3f^® portfolio includes offerings at various stages including early product development, pivotal clinical trials, and market commercialization. Completing the portfolio in heart valve therapy is the ATS Simulus^® annuloplasty product line. Simulus products assist the surgeon in repairing a patient’s native heart valve as an alternative to replacement. Continuing ATS Medical’s focus on serving the cardiac surgery community are the ATS CryoMaze^™ products for surgical cryoablation of cardiac arrhythmias. ATS CryoMaze^™ products are used by surgeons to treat patients suffering from cardiac arrhythmias, the largest and fastest growing form of structural heart disease in populations over 60 years of age. The ATS Medical web site is http://www.atsmedical.com.

Safe Harbor

This Press Release contains forward-looking statements that may include statements regarding intent, belief or current expectations of the Company and its management. Actual results could differ materially from those projected in the forward looking statements as a result of a number of important factors, including the results of clinical trials, the timing of regulatory approvals, the integration of 3f Therapeutics, the Enclose product line and the surgical cryoablation business of CryoCath Technologies, Inc., regulatory actions, competition, pricing pressures, supplier actions and management of growth. For a discussion of these and other risks and uncertainties that could affect the Company’s activities and results, please refer to the Company’s filings with the Securities and Exchange Commission, including its Form 10-K for the year ended December 31, 2007 and its most recent quarterly report on Form 10-Q.

ATS Medical, Inc.
Condensed Consolidated Statements
of Operations
(in thousands except per share amounts)
	Quarter Ended						Year Ended
	December 31,			December 31,			December 31,			December 31,
	2008			2007			2008			2007
Net sales	$	18,032		$	14,217		$	65,821		$	49,587
Cost of goods sold		6,190			5,937			25,267			21,348
Gross profit		11,842			8,280			40,554			28,239
Operating expenses:
Sales and marketing		6,680			7,019			27,373			24,633
Research and development		1,864			2,173			8,215			7,546
In-process research and development		—			—			—			3,500
General and administrative		2,310			3,099			10,509			10,417
Litigation settlement		7,500			—			7,500			—
Amortization of intangibles		817			885			3,489			2,516
Intangible asset impairment		—			—			—			755
Total operating expenses		19,171			13,176			57,086			49,367
Operating loss		(7,329	)		(4,896	)		(16,532	)		(21,128	)
Interest expense, net		(763	)		(555	)		(2,739	)		(1,822	)
Other income (expense), net		(224	)		(594	)		413			61
Net loss before income taxes		(8,316	)		(6,045	)		(18,858	)		(22,889	)
Income tax expense		(197	)		(116	)		(481	)		(119	)
Net loss		($8,513	)		($6,161	)		($19,339	)		($23,008	)
Net loss per share:
Basic and diluted		($0.13	)		($0.10	)		($0.31	)		($0.44	)
Weighted average number of shares outstanding:
Basic and diluted		63,580			59,412			61,440			52,589

ATS Medical, Inc.
Condensed Consolidated Balance Sheets
(in thousands)
	December 31,		December 31,
	2008		2007
Assets
Cash and short-term investments	$	20,895	$	14,669
Accounts receivable		14,532		11,186
Inventories, net		20,208		18,743
Prepaid expenses		958		1,143
Total current assets		56,593		45,741
Property and equipment, net		7,031		7,739
Intangible assets		49,131		50,779
Other assets		2,226		1,638
Total assets	$	114,981	$	105,897
Liabilities & shareholders’ equity
Accounts payable	$	4,054	$	4,794
Accrued compensation		3,537		2,361
Other accrued liabilities		2,257		2,095
Current maturities of bank notes payable		2,646		2,457
Payable to CryoCath Technologies Inc.		1,910		—
Payable to CarboMedics Inc.		4,500		—
Warrant liability		—		3,913
Total current liabilities		18,904		15,620
Convertible senior notes payable		17,533		17,436
Bank notes payable		3,969		6,143
Payable to CryoCath Technologies Inc.		—		1,742
Shareholders’ equity		74,575		64,956
Total liabilities & shareholders’ equity	$	114,981	$	105,897

ATS Medical, Inc.
Consolidated Condensed Statements of Cash Flow
(in thousands)
	Year Ended
	December 31,			December 31,
	2008			2007
Operating activities
Net loss		($19,339	)		($23,008	)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization		5,623			4,622
Stock based compensation expense		1,676			1,454
Acquired in-process research and development		—			3,500
Impairment of intangibles		—			755
Deferred income taxes		192			95
Non-cash interest expense		743			546
Change in value of common stock appreciation rights and convertible senior notes derivative liabilities		(294	)		554
Changes in operating assets and liabilities		(1,005	)		1,939
Net cash used in operating activities		(12,404	)		(9,543	)
Investing activities
Maturities of short-term investments, net of purchases		4,189			1,903
Payments for business acquisitions		(2,000	)		(21,074	)
Business acquisition costs		—			(1,791	)
Payments for technology licenses and other intangibles		—			(277	)
Purchases of furniture, machinery and equipment		(1,440	)		(748	)
Other		—			(36	)
Net cash provided by (used in) investing activities		749			(22,023	)
Financing activities
Advances on bank notes payable		—			8,600
Repayments on notes payable		(1,985	)		(2,327	)
Net proceeds from sales of common stock and warrants		23,943			31,196
Other		162			168
Net cash provided by financing activities		22,120			37,637
Effect of foreign exchange rate changes		(50	)		(203	)
Increase in cash and cash equivalents	$	10,415		$	5,868

ATS Medical, Inc.
Selected Revenue Information
(in thousands)
	Quarter Ended				Year Ended
	December 31,		December 31,		December 31,		December 31,
	2008		2007		2008		2007
Heart valve therapy	$	13,047	$	10,336	$	47,576	$	38,560
Surgical arrhythmia		4,643		3,576		16,888		9,690
Surgical tools & accessories		342		305		1,357		1,337
Total revenue	$	18,032	$	14,217	$	65,821	$	49,587

ATS Medical, Inc.
Reconciliation of GAAP Financial Measures
to Non-GAAP Financial Measures
(in thousands except per share amounts)
(unaudited)
	Quarter ended
	December 31,
	2008
Operating loss, as reported	$	(7,329	)
Adjustments to operating loss:
Litigation settlement		7,500
Operating income, as adjusted	$	171
Net loss, as reported	$	(8,513	)
Adjustments to net loss:
Litigation settlement		7,500
Net loss, as adjusted	$	(1,013	)
Net loss per share, as reported:
Basic and diluted	$	(0.13	)
Adjustments to net loss per share:
Litigation settlement		0.12
Net loss per share, as adjusted:
Basic and diluted	$	(0.02	)
Weighted average number of shares outstanding, basic and diluted		63,580

* * * *

EXHIBIT 99.2

2009 ATS Medical Management Incentive Compensation Plan (MICP)

The 2009 ATS Medical Management Incentive Compensation Plan (MICP or Plan) is designed to pay, in addition to performance based annual salaries, incentive cash compensation to management and other “key employees” who by their assigned responsibilities contribute to the success of the Company. Incentive payments will be based on corporate funding and achievement of individual Objectives/Smart Goals.

1. DEFINITION OF TERMS

Goals
The Individual Objectives, as set forth at the beginning of each program year and referred to as Smart Goals, must be specific, measurable, achievable, related to Corporate Goals and time bound. The Personnel and Compensation Committee of the Board of Directors (the Committee) may amend the goals to reflect material adjustments in or changes to the Company’s accounting policies; to reflect major corporate changes such as mergers, acquisitions, or divestitures; and to reflect such other events having a significant impact on the goals.

Base Salary
The annual salary rates effective on the first day of the program year.

Participant
Any employee or position which has been designated by the Committee as a participant in the Plan for the year or during the year. If a particular employee is not covered by the MICP and has been recognized for extraordinary achievement, he/she may be eligible to participate in the Plan for that particular year at the discretion of the President/CEO.

Eligibility
Only regular full time employees may be designated as a participant in the Plan.

Program Year
The fiscal year of the Company.

Funding
The total dollar amounts accrued for payment in any program year. The bonus pool will be funded by achievement of the Company’s annual operating plan and will be tied to bottom line results.

Payout
The actual amount to be paid to a participant based on operating results achievement rate combined with individual Smart Goals performance. The maximum payout each participant is eligible to receive will be communicated by his/her Manager.

2. DESIGNATION OF PARTICIPANTS

The Committee, upon the recommendation of the management of the Company, shall make all determinations as to the eligibility of employees and positions to participate in the MICP. Following the Committee’s determination of eligible participants, each participant shall be notified of eligibility to participate in the 2009 MICP and will be provided with a copy of the Plan. The 2009 Plan is designed to include officer, director, and manager level positions as well as employee designated as “key employees.”

3. CALCULATION AND PAYMENT OF INCENTIVE AWARDS

Individual incentives will not be paid unless the President/CEO and the Committee approve each participant’s individual incentive awards with payout contingent upon completion of the Company’s year-end financial audit for the program year.

PLAN CRITERIA

Achievement of Smart Goals

(40% weight)

Operating Income Results=Operating Income (including bonus expense) before non-operating expenses and taxes (60% weight)

PAYOUT RATES

Achievement of Smart Goals

Payout is based on individual’s performance in relation to specifically identified smart goals. Payout range is based on percentage of attainment from 0% to 100%.

Payout of smart goal bonus is subject to obtaining at least 80% of operating income goal

Obtainment of Operating Income Results

Plan Performance	Ratio
121% 110% 100% 95% 90% 85%	182% 141% 100% 69% 36% 6%

Operating Income Adjustments

The Committee may, at its discretion, adjust the operating income results for certain items that were not originally contemplated in the operating plan (i.e., a major change in business such as an acquisition or divestiture) or other expense or income items that are not directly related to daily commercial activities of the Company (i.e., litigation expenses, settlements or windfalls).

4. PROMOTIONS

For individuals promoted from a non-bonus to a bonus position during the program year, the effective salary upon assuming the new position will be used in calculating eligible incentive payout. Any payout will be pro rated beginning the first day of the month in which the individual is promoted into the position.

5. DEMOTIONS

For individuals demoted to a non-bonus position during the program year, MICP payout will be pro rated based on the number of months in the bonus position.

6. TERMINATION OF EMPLOYMENT

In the event that any participant shall cease to be a full time employee during any year in which he/she is participating in the Plan, such participant shall be entitled to receive no incentive compensation for such year. If he/she terminates after the program year but prior to the payout, the participant remains entitled to receive incentive compensation. An exception would be if the individual were subject to termination “for cause” if such “cause” took place during the period covered by the MICP.

7. AMENDMENT OF THE PLAN

The Committee may, from time to time, make amendments to the Plan as it believes appropriate and may terminate the Plan at any time, provided that no such amendment or termination will affect the right of any participant to receive incentive compensation in accordance with the terms of the Plan for the portion of any year up to the date of the amendment or termination.

8. MISCELLANEOUS

Nothing contained in the MICP shall be construed to confer upon any employee any right to continue in the employ of the Company or restrict the Company’s right to terminate his/her employment at any time.

Establishment of Individual Objectives/Smart Goals

(Specific, Measurable, Achievable,
Related to Corporate Goals and Time Bound.)

In establishing individual objectives, the following guidelines shall be used:

• Each objective should be clear, concise, and measurable (time, cost, and task accomplishment).

• Each objective should be a precise written statement, which is discussed and agreed to by the individual and the manager.

• Individual objectives should measure accomplishment and not effort.

• Individuals will have four (4) Objectives/Smart Goals.

Before a participant may receive an incentive award, it will be necessary for his/her immediate manager to:

• Submit written measurable objectives on the appropriate form prior to the commencement of the program year. These objectives will be reviewed and approved by the President/CEO and Director of Human Resources.

• Submit a documented evaluation of results, on a quarterly basis, to the President/CEO.

Ÿ Modifications or adjustments to the original objectives must be reviewed by the participant and his/her manager and then submitted to the President/CEO.

• Submit the year-end results against objectives within one month following the end of the program year. The President/CEO and the Director of Human Resources will approve these.