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 9, 2005

ASPECT MEDICAL SYSTEMS, INC.

(Exact name of registrant as specified in charter)

Delaware	000-24663	04-2985553
(State or other juris- diction of incorporation)	(Commission File Number)	(IRS Employer Identification No.)

141 Needham Street Newton, Massachusetts	02464-1505
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (617) 559-7000

(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 (see General Instruction A.2. below):

o Written communication pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

TABLE OF CONTENTS

	Item 2.02. Results of Operations and Financial Condition
	Item 9.01. Financial Statements and Exhibits
SIGNATURE
EXHIBIT INDEX
EX-99.1 Press Release dated February 9, 2005

Item 2.02. Results of Operations and Financial Condition

     On February 9, 2005, Aspect Medical Systems, Inc. announced its financial results for the fiscal quarter ended December 31, 2004. The full text of the press release issued in connection with the announcement is attached as Exhibit 99.1 to this Current Report on Form 8-K.

     The information in this Form 8-K and the exhibit attached hereto shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 (the “Exchange Act”) or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933 or the Exchange Act, except as expressly set forth by specific reference in such a filing.

Item 9.01. Financial Statements and Exhibits

     (c) Exhibits

          See Exhibit Index attached hereto.

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 hereunto duly authorized.

Date: February 9, 2005	ASPECT MEDICAL SYSTEMS, INC.
	By:	/s/ J. Neal Armstrong
		Name:	J. Neal Armstrong
		Title:	Vice President and Chief Financial Officer

EXHIBIT INDEX

Exhibit No.	Description
99.1	Press release dated February 9, 2005

EX-99.1

Aspect Medical Systems, Inc.
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FOR FURTHER INFORMATION:

AT THE COMPANY:	AT THE FINANCIAL RELATIONS BOARD:
J. Neal Armstrong	Diane Hettwer	Tim Grace
Vice President & CFO	Analyst Inquiries	Media Inquiries
(617) 559-7162	(312) 640-6760	(312) 640-6667

FOR IMMEDIATE RELEASE
Wednesday, February 9, 2005

ASPECT MEDICAL SYSTEMS, INC. REPORTS OPERATING RESULTS
FOR FOURTH QUARTER AND YEAR ENDED DECEMBER 31, 2004;

COMPANY ACHIEVES FULL YEAR PROFIT

Highlights of the Quarter Compared with Q4 2003

•   Worldwide revenue increased 30%

•   Worldwide monitor and module unit sales increased by 67% and total placements at end users exceeded 1,700 units

•   Worldwide installed base of monitors and modules increased 24% compared to year end 2003

•   Net income was $955,000 in Q4 compared with a net loss of ($817,000) and net income per diluted share was $0.04 compared with a net loss per share of ($0.04) enabling us to achieve full year profitability

Newton, Mass., February 9, 2005—Aspect Medical Systems, Inc. (NASDAQ: ASPM), reported today that revenue was $15.7 million for the fourth quarter of 2004, an increase of 30% over revenue of $12.1 million for the fourth quarter of 2003, and $55.6 million for the year ended December 31, 2004, an increase of 26% over revenue of $44.1 million for the year ended December 31, 2003.

Net income for the quarter was $955,000, or $0.04 per share on 23.0 million diluted shares outstanding, compared with a net loss of ($817,000) or ($0.04) per share on 19.5 million basic and diluted shares outstanding in the fourth quarter of 2003. Net income for the year ended December 31, 2004 was $303,000, or $0.01 per share on 22.3 million diluted shares outstanding, compared with a net loss of ($6.5) million, or ($0.34) per share on 19.4 million basic and diluted shares outstanding for the year ended December 31, 2003.

“The fourth quarter was our second consecutive quarter of profitability and established 2004 as our first full year of profitability. Equally significant, over 1,700 BIS sockets were placed at customer sites during the quarter, the largest number for any quarter in our history, and double the number of sockets placed in Q4 2003. Capping a great year, in November, Aspect was honored by being named the small company Medical Device Manufacturer of the Year by the Medical Device and Diagnostic magazine,” said Nassib Chamoun, president and chief executive officer.

Aspect Medical Systems, Inc.
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“Publication of the awareness data, FDA clearance of an awareness indication for BIS monitoring, and most recently, JCAHO’s Sentinel Event Alert, have combined to create great momentum for the Company. We are now focused on sustaining this momentum, and we believe that the substantial increase in our installed base in 2004, and the acceleration in new installations in Q4, bodes well for sensor sales in 2005 and beyond.”

Revenue Analysis — (see attached unaudited consolidated revenue data)

Domestic revenue was $12.3 million for the fourth quarter and $43.6 million for the year ended December 31, 2004, an increase of 22% and 21%, respectively, over comparable periods in the prior year. Domestic sensor revenue increased 23% from Q4 2003 to Q4 2004. The increase resulted from a 16% increase in sensor unit volume combined with a 6% increase in sensor average unit price.

International revenue was $3.4 million for the fourth quarter and $11.9 million for the year ended December 31, 2004, an increase of 74% and 47%, respectively, over comparable periods in the prior year. The growth in international revenue in Q4 2004 from Q4 2003 reflects a 44% increase in sensor revenue and a 117% increase in equipment revenue.

Liquidity and Capital Resources

At December 31, 2004, the Company had cash, cash equivalents and investments of $43.7 million, stockholders’ equity of $45.6 million and total debt of $497,000. At December 31, 2003, the Company had cash, cash equivalents and investments of $31.2 million, stockholders’ equity of $31.0 million and total debt of $1.2 million.

Outlook for the First Quarter of 2005

For the first quarter of 2005, the Company believes that revenue will be within a range of $16.0 million to $16.5 million and net income per diluted share will be within a range of $0.03 to $0.04.

Conference Call Set for 10AM ET Today

Aspect will hold a conference call to discuss fourth quarter results and management’s outlook for the first fiscal quarter of 2005 at 10:00 a.m. Eastern Time today, Wednesday, February 9, 2005. The call can be accessed live by dialing 1-888-202-2422 (domestic), 1-913-981-5592 (international), or access the webcast at http://www.aspectmedical.com on the Investor page or http://ccbn.com. It also will be available for replay from February 9, 2005, until February 16, 2005, by dialing 1-888-203-1112 (domestic), or 1-719-457-0820 (international), access code 2294092. The webcast replay will also be available on Aspect’s website at http://www.aspectmedical.com on the news releases page under investor information.

Aspect Medical Systems, Inc.
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About the Company

Aspect Medical Systems, Inc. (NASDAQ: ASPM) is a global market leader in brain monitoring technology. To date, the Company’s Bispectral Index (BIS) technology has been used to assess more than 10.4 million patients worldwide and has been the subject of more than 1,800 published articles and abstracts. BIS technology is installed in approximately 36 percent of all domestic operating rooms and is available in more than 160 countries. Aspect Medical Systems has OEM agreements with seven leading manufacturers of patient monitoring systems.

Safe Harbor Statement

Certain statements in this release are forward-looking and may involve risks and uncertainties, including statements with respect to the expected increase in sales of BIS sensors, the impact of the October 2004 Sentinel Event Alert, the Company’s expected results of operations for future periods, our ability to maintain profitability, the worldwide market acceptance of the Company’s products and our ability to maintain market momentum. There are a number of factors that could cause actual results to differ materially from those indicated by these forward-looking statements. For example, the Company may not be able to achieve widespread market acceptance of its BIS monitoring technology or to compete with new products or alternative techniques that may be developed by others, including third-party anesthesia monitoring products approved by the FDA, and also faces competitive and regulatory risks relating to its ability to successfully develop and introduce enhancements and new products, including regulatory approval of its XP technology in Japan. In addition, the Company has limited sales and marketing experience both in the U.S. and internationally, and if it is unable to develop and implement a successful sales and marketing strategy, including with respect to its own sales force, domestic and international distributors, original equipment manufacturers and other direct and indirect sales channels, it will not be able to generate meaningful product revenue. In addition, the Company’s ability to remain profitable will depend upon its ability to promote frequent use of the BIS system so that sales of its BIS sensors increase. The Company will not remain profitable if hospitals and anesthesia providers do not buy and use its BIS systems in sufficient quantities. Cases of awareness with recall during monitoring with the BIS system and significant product liability claims are among the factors that could limit market acceptance. There are other factors that could cause the Company’s actual results to vary from its forward-looking statements, including without limitation those set forth under the heading “Factors Affecting Future Operating Results” in the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended October 2, 2004, as filed with the Securities and Exchange Commission.

In addition, the statements in this press release represent the Company’s expectations and beliefs as of the date of this press release. The Company anticipates that subsequent events and developments may cause these expectations and beliefs to change. However, while the Company may elect to update these forward-looking statements at some point in the future, it specifically disclaims any obligation to do so. These forward-looking statements should not be relied upon as representing the Company’s expectations or beliefs as of any date subsequent to the date of this press release.

For further information regarding Aspect Medical Systems, Inc.,
visit the Aspect Medical Systems, Inc. website at www.aspectmedical.com

...FINANCIAL TABLES FOLLOW...

Aspect Medical Systems, Inc.
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ASPECT MEDICAL SYSTEMS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In Thousands Except Per Share Amounts)

	Three Months Ended						Year Ended
	December 31,			December 31,			December 31,			December 31,
	2004			2003			2004			2003
	(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)
Revenue	$	15,716		$	12,066		$	55,564		$	44,091
Costs of revenue		3,705			2,871			12,992			10,898
Gross profit margin		12,011			9,195			42,572			33,193
% of revenue		76.4	%		76.2	%		76.6	%		75.3	%
Operating expenses:
Research and development		1,975			1,917			7,470			7,287
Sales and marketing		7,333			6,793			26,776			25,321
General and administrative		2,041			1,481			8,946			7,833
Total operating expenses		11,349			10,191			43,192			40,441
Income (loss) from operations		662			(996	)		(620	)		(7,248	)
Interest income		314			222			1,029			924
Interest expense		(21	)		(43	)		(106	)		(199	)
Net income (loss)	$	955		$	(817	)	$	303		$	(6,523	)
Net income (loss) per share:
Basic	$	0.05		$	(0.04	)	$	0.02		$	(0.34	)
Diluted	$	0.04		$	(0.04	)	$	0.01		$	(0.34	)
Shares used in computing net income (loss) per share:
Basic		20,622			19,454			20,142			19,413
Diluted		23,034			19,454			22,286			19,413

Aspect Medical Systems, Inc.
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ASPECT MEDICAL SYSTEMS, INC.

CONSOLIDATED REVENUE DATA

(In Thousands Except Unit Amounts)

	Three Months Ended							Year Ended
	December 31,		December 31,		%			December 31,		December 31,		%
	2004		2003		Change			2004		2003		Change
	(Unaudited)		(Unaudited)					(Unaudited)		(Unaudited)
REVENUE
WORLDWIDE
Sensors	$	10,904	$	8,655		26	%	$	39,585	$	30,391		30	%
Monitors		3,028		1,928		57	%		9,551		6,942		38	%
Modules		914		638		43	%		3,008		3,229		(7	%)
Other Equipment		870		845		3	%		3,420		3,529		(3	%)
Equipment		4,812		3,411		41	%		15,979		13,700		17	%
Total Worldwide	$	15,716	$	12,066		30	%	$	55,564	$	44,091		26	%
DOMESTIC
Sensors	$	9,292	$	7,534		23	%	$	34,116	$	26,981		26	%
Monitors		2,151		1,573		37	%		6,187		5,196		19	%
Modules		238		280		(15	%)		672		781		(14	%)
Other Equipment		658		743		(11	%)		2,663		3,010		(12	%)
Equipment		3,047		2,596		17	%		9,522		8,987		6	%
Total Domestic	$	12,339	$	10,130		22	%	$	43,638	$	35,968		21	%
INTERNATIONAL
Sensors	$	1,612	$	1,121		44	%	$	5,469	$	3,410		60	%
Monitors		877		355		147	%		3,364		1,746		93	%
Modules		676		358		89	%		2,336		2,448		(5	%)
Other Equipment		212		102		108	%		757		519		46	%
Equipment		1,765		815		117	%		6,457		4,713		37	%
Total International	$	3,377	$	1,936		74	%	$	11,926	$	8,123		47	%
UNITS
WORLDWIDE
Sensors		772,000		635,000		22	%		2,820,000		2,244,000		26	%
Monitors		636		347		83	%		1,948		1,340		45	%
Modules (a)		783		501		56	%		2,239		2,259		(1	%)
Installed Base (b)									24,133		19,517		24	%
DOMESTIC
Sensors		584,000		504,000		16	%		2,187,000		1,846,000		18	%
Monitors		386		226		71	%		999		801		25	%
Modules (a)		160		175		(9	%)		438		553		(21	%)
Installed Base (b)									15,405		12,831		20	%
INTERNATIONAL
Sensors		188,000		131,000		44	%		633,000		398,000		59	%
Monitors		250		121		107	%		949		539		76	%
Modules (a)		623		326		91	%		1,801		1,706		6	%
Installed Base (b)									8,728		6,686		31	%

(a)	Represents module shipments to OEM customers
(b)	Includes end-user module placements by OEM customers

Aspect Medical Systems, Inc.
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ASPECT MEDICAL SYSTEMS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In Thousands)

	December 31,		December 31,
	2004		2003
	(Unaudited)		(Unaudited)
ASSETS
Current assets:
Cash, cash equivalents and investments (A)	$	32,295	$	31,162
Accounts receivable, net		7,835		5,773
Current portion of investment in sales-type leases		1,698		1,797
Inventory, net		2,224		1,515
Other current assets		1,192		1,147
Total current assets		45,244		41,394
Property and equipment, net		2,662		2,996
Long-term investments (A)		11,439		—
Long-term investment in sales-type leases		2,320		2,613
Other long-term assets		25		737
Total assets	$	61,690	$	47,740
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current portion of long-term debt	$	311	$	679
Accounts payable and accrued liabilities		9,752		9,060
Deferred revenue		957		975
Total current liabilities		11,020		10,714
Long-term portion of deferred revenue		4,898		5,533
Long-term debt		186		525
Stockholders’ equity		45,586		30,968
Total liabilities and stockholders’ equity	$	61,690	$	47,740

(A) Investments with maturities beyond twelve months are included in long-term investments.

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