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                                                                    EXHIBIT 99.1

                                ATS MEDICAL INC.
                               REPORT ON FORM 10-K
                                DECEMBER 31, 2001

CAUTIONARY STATEMENTS FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995.

      The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements to encourage companies to provide
prospective information without fear of litigation so long as those statements
are identified as forward-looking and are accompanied by meaningful cautionary
statements identifying important factors that could cause actual results to
differ materially from those projected in the statement. We desire to take
advantage of these "safe harbor" provisions and are filing this Exhibit 99 in
order to do so. Accordingly, we hereby identify the following important factors
which could cause our actual results to differ materially from any such results
which may be projected, forecast, estimated or budgeted by us in forward-looking
statements made by us from time to time in reports, proxy statements,
registration statements and other written communications, or in oral
forward-looking statements made from time to time by the Company's officers and
agents. We do not intend to update any of these forward-looking statements after
the date of this Form 10-K to conform them to actual results.

OUR HEART VALVE MAY NEVER ACHIEVE MARKET ACCEPTANCE.

      Our success will depend, in large part, on the medical community's
acceptance of the ATS heart valve. The medical community's acceptance of the ATS
heart valve will depend upon our ability to demonstrate the safety and efficacy,
advantages, long-term clinical performance and cost-effectiveness of the ATS
heart valve as compared to other prosthetic heart valves. We cannot predict
whether the medical community will accept the ATS heart valve or, if accepted,
the extent of its use. Negative publicity resulting from isolated incidents
involving the ATS heart valve or other prosthetic heart valves could have a
significant adverse effect on the overall acceptance of our heart valve. If we
encounter difficulties developing a market for the ATS heart valve in the United
States, our business and results of operations will be seriously harmed.

WE CURRENTLY RELY ON THE ATS HEART VALVE AS OUR SOLE SOURCE OF REVENUE.

      We have developed only one product, which is currently being sold
primarily outside the United States. Even if we were to develop additional
products, regulatory approval would likely be required to sell them. Clinical
testing and the approval process itself are very expensive and can take many
years. Therefore, we do not expect to be in a position to sell additional
products in the foreseeable future. As a result, if we fail to achieve
widespread market acceptance for the ATS heart valve, our business and results
of operations will be seriously harmed.

INCURRENCE OF COSTS IN CONNECTION WITH FDA APPROVAL OF OUR VALVE IS EXPECTED TO
ADVERSELY AFFECT EARNINGS.
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      In connection with the FDA approval of the ATS heart valve which we
received on October 13, 2000, we have taken, and will be taking in the near
term, a number of important steps that we believe will facilitate
commercialization of our valve in the United States market and enhance our
profitability in international markets. These steps include:

      -     the establishment of a licensing arrangement with Sulzer
            Carbomedics, Inc. ("Carbomedics") to permit us to manufacture
            pyrolytic carbon components;

      -     the leasing, construction, equipping, staffing and commercialization
            of a facility to manufacture pyrolytic carbon components; and

      -     the employment and training of a direct sales force to market our
            valve in the United States.

      These actions involve incurring significant costs. The timing of these
expenditures is expected to adversely affect quarter-to-quarter comparisons of
our earnings. As there is no assurance of commercial success of our valve in the
United States, the commitment of our resources to these matters at this time
entails, in addition to the adverse effects on earnings for at least the next
three years, substantial uncertainty and business risk.

WE CURRENTLY DEPEND SOLELY ON THE MARKETING AND SALES EFFORTS OF INDEPENDENT
DISTRIBUTORS, AND OUR SALES HAVE BEEN CONCENTRATED IN THREE COUNTRIES.

      The ATS heart valve is sold internationally through independent
distributors. The loss of an international distributor could seriously harm our
business and results of operations if a new distributor could not be found on a
timely basis in the relevant geographic market. Sales to our Japanese, German
and French distributors have accounted for approximately 43% of our net sales in
fiscal year 2001 and 50% of our net sales in fiscal years 2000. We do not
control the amount and timing of marketing resources that these third parties
devote to our product. Furthermore, to the extent we rely on sales through
independent distributors, any revenues we receive will depend primarily on the
efforts of these parties. In addition, as part of our agreement with our
distributors, we allow for the return of unopened valves for credit. If a
distributor(s) were to terminate their distributorship agreement with us, we
could be obligated to buy back their inventory of valves as well as valves on
consignment at hospitals. Such a buyback could have an adverse impact on our
results of operations for the quarter and/or year in which it occurs.

WE ARE DEPENDENT UPON SALES OUTSIDE THE UNITED STATES, WHICH ARE SUBJECT TO A
NUMBER OF RISKS THAT COULD HARM OUR BUSINESS.

      Most of our commercial sales to date have been outside the United States,
and we expect that international sales will account for a substantial majority
of our revenue until we fully develop our sales force for sale of the ATS heart
valve in the United States and until the ATS heart valve receives wider market
acceptance from U.S. customers.

      There are risks inherent in doing business in international markets,
including:


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      -     unforeseen changes in regulatory requirements and government health
            programs;

      -     weaker intellectual property rights protection in some countries;

      -     potentially adverse tax consequences;

      -     political and economic instability; and

      -     greater difficulty in collecting payments from product sales.

      These factors could harm our ability to successfully commercialize our
product internationally and could harm our business.

      The value of the U.S. dollar in relation to other currencies may also harm
our sales to customers outside the United States because we sell in U.S. dollars
to all of our customers abroad. For the year ended December 31, 2001, sales
outside the United States decreased by about 11% compared to the same period for
2000. The decrease in sales was due primarily to the increase in value of the
U.S. dollar against the Euro and competitor price pressure. Our sales in Europe
declined 19% for the year ended December 31, 2001 as compared to the year ended
December 31, 2000. Our dependence in sales outside of the United States will
continue to expose us to U.S. dollar currency fluctuations for the foreseeable
future.

THE MARKET FOR PROSTHETIC HEART VALVES IS HIGHLY COMPETITIVE.

      The market for prosthetic heart valves is highly competitive. We expect
that competition will intensify as additional companies enter the market or
modify their existing products to compete directly with us. Our primary
competitor, St. Jude Medical, Inc., currently controls approximately 50% of the
worldwide mechanical heart valve market. Many of our competitors have
long-standing FDA approval for their valves and extensive clinical data
demonstrating the performance of their valves. In addition, they have greater
financial, manufacturing, marketing and research and development capabilities
than we have. For example, many of our competitors have the ability, due to
their internal carbon manufacturing facilities and economies of scale, to
manufacture their heart valves at a lower cost than we can manufacture our ATS
heart valve. Our primary competitor has recently used price as a method to
compete in several markets, including the United States. We might not be able to
compete successfully.

WE MAY NEED TO RAISE CAPITAL AND WE CANNOT BE CERTAIN THAT ADDITIONAL FINANCING
WILL BE AVAILABLE.

      We have cash in hand to support our operations and capital requirements
through 2002. After that we may need to raise additional capital. Our future
liquidity and capital requirements will depend upon several factors, including
actions related to regulatory matters, our progress in establishing our
pyrolytic carbon manufacturing operations and the extent to which the ATS heart
valve gains market acceptance.


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NEW PRODUCTS OR TECHNOLOGIES DEVELOPED BY OTHERS COULD HARM OUR BUSINESS AND
RESULTS OF OPERATIONS.

      The medical device industry is characterized by significant technological
advances. Several companies are developing new prosthetic heart valves based on
new or potentially improved technologies. Significant advances are also being
made in surgical procedures, which may delay the need for replacement heart
valves. A new product or technology may emerge that renders our ATS heart valve
noncompetitive or obsolete.

OUR FUTURE RESULTS WILL BE HARMED IF THE USE OF MECHANICAL HEART VALVES
DECLINES.

      Our business could suffer if the use of mechanical heart valves declines.
Historically, mechanical heart valves have accounted for over two-thirds of all
heart valve replacements. Recently, there has been an increase in the use of
tissue valves. We estimate that mechanical heart valves are currently being used
in 50 to 70% of all heart valve replacements, depending on the geographic
market, down from 65 to 75% about ten years ago. We believe the tissue
manufacturers' claims of improvements in tissue valve longevity and an increase
in the average age of valve patients have contributed to the recent increase in
the use of tissue valves.

WE CURRENTLY MAINTAIN A LARGE VOLUME OF INVENTORY, WHICH EXCEEDS THE CURRENT
DEMAND FOR THE ATS HEART VALVE.

      We currently purchase pyrolytic carbon components under a long-term supply
agreement with Carbomedics. To date, our purchases of pyrolytic carbon
components have exceeded our sales of the ATS heart valve. We currently have in
inventory enough pyrolytic carbon components to satisfy our projected
requirements for over two years. In addition, we expect that our minimum
purchase requirements in 2002 under the supply agreement will exceed our product
sales in 2002. If we are unable to achieve widespread acceptance for the ATS
heart valve or if competitive pressures result in price reductions, the value of
the excess inventory would likely decrease, which could seriously harm our
results of operations and financial condition. Because the pyrolytic carbon
components are made to meet the unique specifications of the ATS heart valve,
our inventory may have little, if any, value in the open market.

WE LICENSE PATENTED TECHNOLOGY AND OTHER PROPRIETARY RIGHTS FROM CARBOMEDICS. IF
THESE AGREEMENTS ARE TERMINATED, OUR BUSINESS AND RESULTS OF OPERATIONS COULD BE
SERIOUSLY HARMED.

      If our agreements with Carbomedics are breached or terminated, our
business and results of operations could be seriously harmed. We have licensed
from Carbomedics an exclusive right to the basic design of an open pivot,
bileaflet mechanical valve from which our ATS heart valve has been developed.
Termination of this agreement would prevent or delay us from manufacturing and
selling the ATS heart valve.

      In addition, under our carbon technology agreement with Carbomedics, we
have obtained a license to use Carbomedics' pyrolytic carbon technology to
manufacture components for the ATS heart valve. Carbomedics also has agreed to
assist us in establishing our pyrolytic carbon


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manufacturing facility. If this agreement is breached or terminated, our
business and results of operations could be seriously harmed.

A DELAY OR INTERRUPTION IN THE SUPPLY OF PYROLYTIC CARBON COMPONENTS COULD
SERIOUSLY HARM OUR BUSINESS.

      We cannot be certain that, after our current inventory is exhausted,
sufficient quantities of pyrolytic carbon components will be available to
assemble the ATS heart valve. We currently purchase pyrolytic carbon components
from a single source, Carbomedics, on an exclusive basis. There is currently no
other FDA-approved alternate supplier of our pyrolytic carbon components. While
Carbomedics has granted to us the right to manufacture pyrolytic carbon
components, we agreed to continue to purchase a minimum annual number of
pyrolytic carbon components from Carbomedics through 2006. Failure to purchase
these minimum annual amounts would cause us to lose our right to manufacture the
pyrolytic carbon components. We anticipate that our carbon manufacturing
facilities should be operational in 2002 but may not receive all the necessary
regulatory approvals until at least 2003. Consequently, any interruption in our
supply from Carbomedics could seriously harm our business.

OUR DIRECT SALES EFFORTS MAY NOT BE SUCCESSFUL.

      We intend to market the ATS heart valve directly in the United States. We
will need to continue to expend significant funds and management resources to
develop and maintain an internal sales force. We believe there is significant
competition for direct sales personnel with the advanced sales skills and
technical knowledge we need. We may not be able to hire, retain and motivate
qualified personnel. Our business and results of operations may suffer if we do
not establish or maintain an effective direct sales force.

BECAUSE WE LACK MANUFACTURING EXPERIENCE, WE MAY ENCOUNTER DIFFICULTIES IN
MANUFACTURING PYROLYTIC CARBON COMPONENTS FOR OUR HEART VALVE.

      Under our agreement with Carbomedics, we have been granted an exclusive
worldwide license to manufacture pyrolytic carbon components for the ATS heart
valve. We cannot be certain that our strategy to establish internal
manufacturing capabilities will result in a cost-effective means for
manufacturing the ATS heart valve. We have no experience in manufacturing
pyrolytic carbon. We may encounter difficulties in establishing and maintaining
our manufacturing operations, including problems involving:

      -     equipping the facility;

      -     production yields;

      -     quality control;

      -     per unit manufacturing costs;

      -     shortages of qualified personnel; and


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      -     compliance with FDA and international regulations and requirements
            regarding good manufacturing practices.

      Difficulties encountered by us in establishing or maintaining a
commercial-scale manufacturing facility may limit our ability to manufacture our
heart valve and therefore could seriously harm our business and results of
operations.

OUR BUSINESS COULD BE SERIOUSLY HARMED IF THIRD-PARTY PAYORS DO NOT REIMBURSE
THE COSTS FOR OUR HEART VALVE.

      Our ability to successfully commercialize the ATS heart valve depends on
the extent to which reimbursement for the cost of our product and the related
surgical procedure is available from third-party payors, such as governmental
programs, private insurance plans and managed care organizations. Third-party
payors are increasingly challenging the pricing of medical products and
procedures that they consider are not cost-effective or are used for a
non-approved indication. The failure by physicians, hospitals and other users of
our product to obtain sufficient reimbursement from third-party payors would
seriously harm our business and results of operations.

      In recent years, there have been numerous proposals to change the health
care system in the United States. Some of these proposals have included measures
that would limit or eliminate payment for medical procedures or treatments. In
addition, government and private third-party payors are increasingly attempting
to contain health care costs by limiting both the coverage and the level of
reimbursement. In international markets, reimbursement and health care payment
systems vary significantly by country. In addition, we have encountered price
resistance from government-administered health programs. Significant changes in
the health care system in the United States or elsewhere, including changes
resulting from adverse trends in third-party reimbursement programs, could have
a material adverse effect on our business and results of operations.

WE MAY FACE PRODUCT LIABILITY CLAIMS.

      The manufacture and sale of mechanical heart valves entail significant
risk of product liability claims and product recalls. A mechanical heart valve
is a life-sustaining device and the failure of any mechanical heart valve
usually results in the patient's death. A product liability claim or product
recall, regardless of the ultimate outcome, could require us to spend
significant time and money in litigation or to pay significant damages and could
seriously harm our business. We currently maintain product liability insurance
coverage in an aggregate amount of $25 million. However, we cannot assure you
that our current insurance coverage is adequate to cover the costs of any
product liability claims made against us. Product liability insurance is
expensive and does not cover the costs of a product recall. In the future,
product liability insurance may not be available at satisfactory rates or in
adequate amounts.


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WE DEPEND ON THE CONTINUED SERVICE OF OUR KEY PERSONNEL.

      Our future success depends on the continued services of our officers and
other key personnel. We are also dependent on our ability to attract and retain
technically qualified personnel in the future. The loss of the technical
knowledge and industry expertise of these officers and other personnel could
seriously impede our success.

OUR BUSINESS WOULD BE ADVERSELY AFFECTED IF WE ARE NOT ABLE TO PROTECT OUR
INTELLECTUAL PROPERTY RIGHTS.

      Our success depends in part on our ability to maintain and enforce our
patents and other proprietary rights. We rely on a combination of patents, trade
secrets, know-how and confidentiality agreements to protect the proprietary
aspects of our technology. These measures afford only limited protection and
competitors may gain access to our intellectual property and proprietary
information. The patent positions of medical device companies are generally
uncertain and involve complex legal and technical issues. Litigation may be
necessary to enforce our intellectual property rights, to protect our trade
secrets and to determine the validity and scope of our proprietary rights. Any
litigation could be costly and divert our attention from the growth of the
business. We cannot assure you that our patents and other proprietary rights
will not be successfully challenged, or that others will not independently
develop substantially equivalent information and technology or otherwise gain
access to our proprietary technology.

WE MAY BE SUED BY THIRD PARTIES WHICH CLAIM THAT OUR PRODUCT INFRINGES ON THEIR
INTELLECTUAL PROPERTY RIGHTS.

      We may be exposed to future litigation by third parties based on
intellectual property infringement claims. Any claims or litigation against us,
regardless of the merits, could result in substantial costs and could harm our
business. In addition, intellectual property litigation or claims could force us
to:

      -     cease manufacturing and selling our product, which would seriously
            harm us;

      -     obtain a license from the holder of the infringed intellectual
            property right, which license may not be available on reasonable
            terms, if at all; or

      -     redesign our product, which could be costly and time-consuming.

WE ARE SUBJECT TO EXTENSIVE GOVERNMENTAL REGULATION, WHICH IS COSTLY, TIME
CONSUMING AND CAN SUBJECT US TO UNANTICIPATED DELAYS.

      The ATS heart valve and our manufacturing activities are subject to
extensive regulation by a number of governmental agencies, including the FDA and
comparable international agencies. We are required to:

      -     obtain the approval of the FDA and international regulatory agencies
            before we can market and sell the ATS heart valve;

      -     satisfy content requirements for all of our labeling, sales and
            promotional materials;


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      -     comply with manufacturing and reporting requirements; and

      -     undergo rigorous inspections by these agencies.

      Compliance with the regulations of these agencies may delay or prevent us
from introducing the ATS heart valve in the United States or introducing any new
or improved products. Violations of regulatory requirements may result in fines,
marketing restrictions, product recall, withdrawal of approvals and civil and
criminal penalties.

THE PRICE OF OUR COMMON STOCK HAS BEEN VOLATILE.

      Historically, the market price of our common stock has fluctuated over a
wide range and it is likely that the price of our common stock will fluctuate in
the future. The market price of our common stock could be impacted by the
following:

      -     the failure of the ATS valve to gain market acceptance in the United
            States;

      -     announcements of technical innovations or new products by our
            competitors;

      -     the status of component supply arrangements;

      -     changes in reimbursement policies;

      -     government regulation;

      -     developments in patent or other proprietary rights;

      -     public concern as to the safety and efficacy of products developed
            by us or others; and

      -     general market conditions.

      In addition, due to one or more of the foregoing factors, in future years,
our results of operations may fall below the expectations of securities analysts
and investors. In that event, the market price of our common stock could be
materially and adversely affected.

OUR CHARTER DOCUMENTS AND MINNESOTA LAW MAY DISCOURAGE A TAKEOVER OF OUR
COMPANY.

      Provisions of our certificate of incorporation, bylaws and Minnesota law
could make it more difficult for a third party to acquire us, even if doing so
would be beneficial to our stockholders.


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