<PAGE>
================================================================================



                                  UNITED STATES

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                              --------------------

                                    FORM 10-Q

    X     Quarterly report pursuant to Section 13 or 15(d) of the
  -----              Securities Exchange Act of 1934

                  FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2003
                           COMMISSION FILE NO. 0-18602

                                ATS MEDICAL, INC.
             (Exact name of registrant as specified in its charter)

          MINNESOTA                                           41-1595629
(State or other jurisdiction of                            (I.R.S. Employer
 incorporation or organization)                           Identification No.)

   3905 ANNAPOLIS LANE N., SUITE 105
        MINNEAPOLIS, MINNESOTA                                   55447
(Address of principal executive offices)                      (Zip Code)

Registrant's telephone number, including area code: (763) 553-7736

Securities registered pursuant to Section 12(b) of the Act:  None

Securities registered pursuant to Section 12(g) of the Act:  Common Stock
                                                             $.01 par value

         Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

                                  Yes   X   No
                                      ----     ----

          Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Act).

                                  Yes   X   No
                                      ----     ----

         The number of shares outstanding of each of the registrant's classes of
common stock as of August 5, 2003, was:

         Common Stock, $.01 par value           22,326,240 shares


================================================================================
<PAGE>




                                ATS MEDICAL, INC.

                                      INDEX

<TABLE>
<CAPTION>
                                                                                                             PAGE
<S>               <C>                                                                                        <C>
PART I.           FINANCIAL INFORMATION

Item 1.           Statements of Financial Position --                                                          3
                  June 30, 2003 (unaudited) and
                  December 31, 2002

                  Statements of Operations -                                                                   4
                  Three and Six Months Ended June 30, 2003 and
                  2002 (unaudited)

                  Statements of Cash Flows -                                                                   5
                  Six Months Ended June 30, 2003 and
                  2002 (unaudited)

                  Notes to Financial Statements                                                                6

Item 2.           Management's Discussion and Analysis of                                                      8
                  Financial Condition and Results of Operations

Item 3.           Quantitative and Qualitative Disclosures About                                               12
                  Market Risk

Item 4.           Controls and Procedures                                                                      13

PART II.          OTHER INFORMATION

Item 1.           Legal Proceedings                                                                            14

Item 2.           Changes in Securities and Uses of Proceeds                                                   14

Item 3.           Default Upon Senior Securities                                                               14

Item 4.           Submission of Matters to a Vote of                                                           14
                  Security Holders

Item 5.           Other Information                                                                            14

Item 6            Exhibit and Reports on Form 8-K                                                              15

                  Signatures                                                                                   16
</TABLE>



                                       2

<PAGE>




ITEM 1. FINANCIAL STATEMENTS

ATS MEDICAL, INC.

CONSOLIDATED CONDENSED STATEMENTS OF FINANCIAL POSITION

<TABLE>
<CAPTION>
                                                                                 June 30,                December 31,
                                                                                   2003                      2002
                                                                   --------------------------------------------------
<S>                                                                              <C>                      <C>
ASSETS                                                                          (Unaudited)                 (Note)

Current assets:
   Cash and cash equivalents                                                     $8,535,573               $7,472,219
   Short-term investments                                                           997,947                2,501,669
                                                                   --------------------------------------------------
                                                                                  9,533,520                9,973,888
   Accounts receivable, less allowance of $430,000
      in 2003 and $420,000 in 2002                                                3,915,928                3,557,055
   Inventories                                                                   16,699,190               15,876,324
   Prepaid expenses                                                                 603,710                  382,107
                                                                   --------------------------------------------------
Total current assets                                                             30,752,348               29,789,374

Furniture, machinery and equipment, net                                           6,030,642                6,025,962

Inventories                                                                      31,000,000               37,000,000

Technology license                                                               18,500,000               18,500,000

Other assets                                                                        437,681                  440,362
                                                                   --------------------------------------------------
Total assets                                                                    $86,720,671              $91,755,698
                                                                   ==================================================

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
   Accounts payable                                                                $710,544                 $510,135
   Due to related party                                                             204,960                  192,904
   Accrued reorganization charges                                                   152,721                  492,572
   Accrued payroll and expenses                                                     720,783                  321,521
   Accrued distributor liabilities                                                  526,288                1,597,323
   Notes payable                                                                  5,175,000                5,000,000
                                                                   --------------------------------------------------
Total current liabilities                                                         7,490,296                8,114,455

Due to related party                                                                325,525                  434,033
Long-term debt                                                                    9,400,000                9,080,000

Shareholders' equity:
   Common Stock, $.01 par value:
     Authorized 40,000,000 shares; Issued and
      outstanding 22,324,990 and 22,305,920 shares at
      June 30, 2003 and December 31, 2002, respectively                             223,250                  223,059
   Additional paid-in capital                                                   111,484,582              111,473,528
   Accumulated other comprehensive loss                                               5,220                  (3,706)
   Accumulated deficit                                                         (42,208,202)             (37,565,671)
                                                                   --------------------------------------------------
Total shareholders' equity                                                       69,504,850               74,127,210
                                                                   --------------------------------------------------
Total liabilities and shareholders' equity                                      $86,720,671              $91,755,698
                                                                   ==================================================
</TABLE>

Note: The balance sheet at December 31, 2002 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by accounting principles generally accepted in the United
States for complete financial statements.

     See notes to condensed financial statements.



                                       3

<PAGE>




ATS MEDICAL, INC.

CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS

(Unaudited)

<TABLE>
<CAPTION>
                                                    Three months ended June 30,             Six months ended June 30,
                                                       2003              2002                  2003             2002
                                                ---------------  ------------------     --------------------------------

<S>                                             <C>                 <C>                  <C>             <C>
Net sales                                           $4,246,074          $2,475,241           $8,210,923      $6,377,504
Less cost of goods sold                              3,248,279           2,324,011            5,996,450       5,014,922
                                                ---------------  ------------------     --------------------------------
Gross profit                                           997,795             151,230            2,214,473       1,362,582

Expenses:
  Research, development and engineering                442,542             668,690              828,310       1,594,350
  Sales and marketing                                2,387,575           1,143,273            3,541,422       2,302,205
  General and administrative                         1,042,752             780,325            2,030,344       1,454,568
  Impairment of technology license                           -           8,100,000                    -       8,100,000
  Reorganization expenses                                    -             865,184                    -         865,184
                                                ---------------  ------------------     --------------------------------
Total expenses                                       3,872,869          11,557,472            6,400,076      14,316,307
                                                ---------------  ------------------     --------------------------------
Operating loss                                      (2,875,074)        (11,406,242)          (4,185,603)    (12,953,725)

Net interest income (expense)                         (228,065)             38,529             (456,927)        102,640
                                                ---------------  ------------------     --------------------------------
Net loss                                           ($3,103,139)       ($11,367,713)         ($4,642,530)   ($12,851,085)
                                                ===============  ==================     ================================

Net loss per share:
    Basic and diluted                                  ($0.14)             ($0.51)              ($0.21)         ($0.58)

Weighted average number of shares outstanding:
    Basic and diluted                              22,324,990          22,244,178           22,321,687      22,232,607
</TABLE>

     See notes to condensed financial statements.



                                       4

<PAGE>




ATS MEDICAL, INC.

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS


<TABLE>
<CAPTION>
                                                                                    SIX MONTHS ENDED JUNE 30,
                                                                                  2003                      2002
                                                                   -------------------------  -----------------------
<S>                                                                            <C>                     <C>
OPERATING ACTIVITIES
Net loss                                                                       ($4,642,530)            ($12,851,085)
Adjustment to reconcile net loss to net cash
   Used in operating activities:
     Depreciation                                                                   378,731                  361,656
     Loss on disposal of equipment                                                    1,696                   19,981
     Compensation expense on stock options                                            3,464                        -
     Imputed interest long-term debt                                                320,000                        -
     Impairment of technology license                                                     -                8,100,000
     Changes in operating assets and liabilities:
        Accounts receivable                                                       (358,874)                (505,417)
        Prepaid expenses                                                          (221,602)                  190,243
        Other assets                                                                  2,681                    1,025
        Inventories                                                               5,177,134                (156,819)
        Accounts payable and accrued expenses                                     (732,668)                  329,411
                                                                   -------------------------  -----------------------
Net cash used in operating activities                                              (71,968)              (4,511,005)

INVESTING ACTIVITIES
Purchase of short-term investments                                              (2,490,065)              (2,674,401)
Sale of short-term investments                                                    3,993,787                7,886,931
Net purchases of furniture, machinery and equipment                               (385,107)                 (65,145)
Proceeds on disposal of equipment                                                         -                  158,876
                                                                   -------------------------  -----------------------
Net cash provided by investing activities                                         1,118,615                5,306,261

FINANCING ACTIVITIES
Net proceeds from sale of common stock                                                7,781                   92,485
                                                                   -------------------------  -----------------------
Net cash provided by financing activities                                             7,781                   92,485

Effect of exchange rate changes on cash                                               8,926                        -
                                                                   -------------------------  -----------------------
Increase in cash and cash equivalents                                             1,063,354                  887,741
Cash and cash equivalents at beginning of period                                  7,472,219                5,078,750
                                                                   -------------------------  -----------------------
Cash and cash equivalents at end of period                                       $8,535,573               $5,966,491
                                                                   =========================  =======================
</TABLE>


See notes to condensed financial statements.



                                       5

<PAGE>




ATS MEDICAL, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

June 30, 2003

Note A -- BASIS OF PRESENTATION

The accompanying unaudited financial statements have been prepared in accordance
with accounting principles generally accepted in the United States for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by accounting principles generally accepted in the United
States for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for a
fair presentation have been included. Operating results for the three and six
months ended June 30, 2003 are not necessarily indicative of the results that
may be expected for the year ending December 31, 2003.

Note B -- IMPAIRMENT OF TECHNOLOGY LICENSE

At the end of first quarter of 2002, the Company evaluated the carrying value of
its technology license asset of $13 million in accordance with the provisions of
FASB Statement 142 (FASB No. 142), Goodwill and Other Intangible Assets, which
were effective for the Company as of January 1, 2002. Utilizing a discounted
cash flow model, that analysis indicated the asset's carrying value was
recoverable and the Company recognized no impairment as a result of the adoption
of FASB No. 142. In the second quarter of 2002, the Company experienced
decreased sales volumes, decreased average selling prices and initiated certain
restructuring activities pertaining to its executive team and the manner in
which it sells its product from a direct sales force to a hybrid sales force of
a few direct salespeople and several independent manufacturers representatives.
In response to these conditions, the Company modified its pricing strategy and
sales volume estimates in conjunction with the reorganization plan implemented
and the increased competitive pressures in the European market. As a result of
these conditions and changes, the Company reviewed its future cash flow analysis
and changed its expectations of the sales volume estimates and its selling
prices of the heart valve in the cash flow model to evaluate the recoverability
of its technology license. When compared to the revised fair value as calculated
by discounting the changed future cash flows at June 30, 2002, the Company
determined a non-cash charge representing an impairment of this asset needed to
be recognized in the amount of $8.1 million in the second quarter. This charge
also reflected in part the effect of the amended milestone payments in the early
years of the technology transfer agreement relative to the benefits of lower
cost carbon not being realized until future years after the depletion of
inventories on hand at the time of the analysis. There was no additional
impairment of the technology license at June 30, 2003.

Note C -- SUBSEQUENT EVENT

On July 21, 2003 the Company entered into an agreement with Centerpulse USA
Holdings Co.(Centerpulse) under which the Company would pay Centerpulse $12
million in exchange for cancellation of all of the Company's payment obligations
under its carbon technology agreement with Carbomedics Inc. and the Company will
own the technology license. Prior to this agreement, the Company was obligated
to pay Centerpulse an aggregate of $28.2 million under



                                       6
<PAGE>



the technology agreement over a period of approximately four years. These
payments were accrued as milestones were met. Of the total $28 million, there
were two uncompleted milestones totaling $12 million not accrued as of June 30,
2003. Since the amount accrued exceeds the amount due by approximately $2.6
million, we will realize a non-cash gain of approximately $2.6 million in the
quarter ending September 30, 2003. Carbomedics' right to payments under the
technology agreement were assigned to Centerpulse in January 2003 in connection
with the sale by Centerpulse of its Carbomedics subsidiary to SNIA S.p.A.

On August 8, 2003, the company completed a private placement of Common Stock
selling 4.4 million shares at $2.80 a share for gross proceeds of $12.3 million
that will be used to settle the Centerpulse agreement.

Note D -- STOCK BASED COMPENSATION

The Company accounts for stock based compensation in accordance with the
provision of APB. Opinion No. 25. The following table summarizes relevant
information as if the fair value recognition provisions of SFAS 123, "Accounting
for Stock Based Compensation", had been applied to all stock-based awards:

<TABLE>
<CAPTION>
------------------------------------------- -------------------------------- --- ---------------------------------
                                              Three months ended June 30             Six months ended June 30
------------------------------------------- --------------- ---------------- --- --------------- -----------------
                                                 2003             2002                 2003             2002
------------------------------------------- --------------- ---------------- --- --------------- -----------------
<S>                                          <C>             <C>                  <C>              <C>
Net loss, as reported                         ($3,103,139)    ($11,367,713)        ($4,642,530)     ($12,851,085)
------------------------------------------- --------------- ---------------- --- --------------- -----------------
Deduct: Stock-based employee
  compensation  expense determined
  under fair-value method for all awards         (333,414)        (146,408)           (436,060)         (535,205)
------------------------------------------- --------------- ---------------- --- --------------- -----------------
Adjusted net loss, assuming fair value
  method for all stock-based awards           ($3,436,553)    ($11,514,121)        ($5,078,590)     ($13,386,290)
------------------------------------------- --------------- ---------------- --- --------------- -----------------
Basic and diluted loss per share --
  as reported                                      ($0.14)           ($051)             ($0.21)           ($0.58)
------------------------------------------- --------------- ---------------- --- --------------- -----------------
Basic and diluted loss per share --
  SFAS No. 123 adjusted                            ($0.15)          ($0.52)             ($0.23)           ($0.60)
------------------------------------------- --------------- ---------------- --- --------------- -----------------
</TABLE>




                                       7

<PAGE>




ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

ATS Medical manufactures and markets a mechanical bileaflet heart valve with our
patented open pivot design. Our heart valve is used to treat valvular heart
disease caused by the natural aging process, rheumatic heart disease and
congenital defects. We have received regulatory approvals to market the ATS
heart valve in the United States and most international markets, principally
Europe, Japan, China, Canada and Australia.

We commenced selling the ATS heart valve in international markets in 1992.
Internationally, we sell the valve to independent distributors with assigned
territories (generally a specific country or region) who in turn sell the valve
to hospitals or clinics. Most of our sales to international distributors are
denominated in U.S. dollars so currency risk is borne by the distributor. In
December 2002, we formed ATS Medical France, a foreign subsidiary to sell our
valves directly to hospitals in France. In France, we have commenced the
consignment of valves to hospitals and invoice in euros when the valve is
implanted.

In the U.S. market and in France, our revenue is the selling price to the
hospital. In other non-U.S. markets, our revenue is the selling price to the
distributor. As U.S. sales increase as a percentage of overall sales, the
overall average selling price may increase, even though the average selling
prices in some non-U.S. markets may be steady or declining. Hospital
administrators continue to apply pressure for lower prices, and the willingness
of competitors to reduce prices will continue to put pressure on revenue growth
and margins.

To date we have purchased all of the pyrolytic carbon components for the ATS
heart valve from Carbomedics, a division of Snia S.p.A. (formerly a division of
Centerpulse (formerly Sulzer Medica)) pursuant to a multi-year supply agreement
entered into in 1990. The cost of the pyrolytic carbon components represents
approximately 80% of the total cost of the ATS heart valve. Under the supply
agreement, the cost of the pyrolytic carbon components has varied according to
annual volume purchases and is adjusted annually by reference to increases in
the U.S. Department of Labor Employment Cost Index.

In December 1999, we renegotiated the supply agreement with Carbomedics
resulting in significant reductions in our minimum purchase requirements and
unit costs beginning in 2001. In late June 2002, we again amended the supply
agreement such that our purchase obligations for the remainder of 2002 (with the
exception of approximately eight weeks of work in process) would be suspended
along with 100% of our purchase obligations for 2003, 2004, 2005 and 2006. In
January of 2007, the purchase obligations for 2003 would resume, with the
obligations for 2004 through 2006 to follow in each subsequent year.

See our Form 10-K filed with the Securities and Exchange Commission for the year
ended December 31, 2002, for a discussion of the critical accounting policies
and estimates relevant to our business. There have been no material changes to
the critical accounting polices and estimates since that time.

Results of Operations

Net sales for the quarter ended June 30, 2003 increased 72% to $4,246,074
compared to $2,475,241 for the quarter ended June 30, 2002. Net sales for the
six months ended June 30, 2003 totaled $8,210,923 compared to $6,377,504 for the
six months ended June 30, 2002, an


                                        8
<PAGE>




increase of 29%. Revenue in the North America increased 38% in the quarter ended
June 30, 2003 compared to the quarter ended June 30, 2002 and increased 23%
compared to the quarter ended March 31, 2003. Looking forward, we believe that
ATS will be able to grow 2003 total revenue by 25% versus 2002. In North
America, we believe we can grow revenue by at least 60% compared to 2002, based
on current productively trends.

Cost of sales for the three months ended June 30, 2003 totaled $3,248,279 or 77%
of sales compared to $2,324,011 or 94% of sales for the three months ended June
30, 2002. Cost of sales for the six months ended June 30, 2003 totaled
$5,996,450 or 73% compared to $5,014,922 or 79% for the six months ended June
30, 2002. During the second quarter of 2002, there was a lower cost or market
charge taken against certain inventories and included in the cost of goods in
the amount of $200,000.

Gross profit totaled $997,795 for the quarter ended June 30, 2003 or 23% of
sales, compared to gross profit of $151,230 or 6% of sales for the quarter ended
June 30, 2002. For the six months ended June 30, 2003 gross profit totaled
$2,214,473 or 27% of sales compared to gross profit for the six months ended
June 30, 2002 of $1,362,582 or 21% of sales. Gross margins will remain low
during the next couple of years until we sell off our higher price carbon
components and begin manufacturing our own carbon components.

Research, development and engineering expenses totaled $442,542 for the quarter
ended June 30, 2003 versus $668,690 for the quarter ended June 30, 2002, a
decrease of 34%. For the six months ended June 30, 2003 research, development
and engineering expenses totaled $828,310 a decrease of 48% when compared to the
$1,594,350 research, development and engineering expense reported for the six
months ended June 30, 2002. Approximately 65% of research and development
expenses for the six months ended June 30, 2003 were related to our own carbon
manufacturing facility compared to 79% for the six months ended June 30, 2002.
On May 29, 2002, we received notification from the FDA of full approval of our
carbon manufacturing plant. As our existing inventory is depleted over the next
few years, components from this facility are expected to allow for significant
reduction in the cost of goods of our valve.

Sales and marketing expenses increased in the quarter ended June 30, 2003 to
$2,387,575 compared to $1,143,273 in the quarter ended June 30, 2002. During the
three months ended June 30, 2002, we were converting from a direct sales force
in the U.S. to more reliance upon independent sales representatives as compared
to the quarter ended June 30, 2003, when we increased our domestic direct sales
force. There was a charge of approximately $180,000 associated with the
termination of an international distributor for the quarter ended June 30, 2003.
For the six months ended June 30, 2003 sales and marketing expenses totaled
$3,541,422, an increase of 54%, compared to $2,302,205 for the six months ended
June 30, 2002. The majority of the increase is due to the building of our new
sales organization. We plan to substantially complete the hiring and training of
our sales and marketing organization by the end of the 4th quarter 2003.

General and administrative expenses totaled $1,042,752 for the three months
ended June 30, 2003 an increase from the $780,325 reported for the three months
ended June 30, 2002. For the six months ended June 30, 2003 general and
administrative expenses totaled $2,030,344, up 40% from the $1,454,568 general
and administrative expense reported for the six months ended June 30, 2002. For
both three and six months ended June 30, 2003, the increase is attributable to
an increase in professional fees, higher travel expenses and a management bonus
accrual.


                                       9
<PAGE>




For the quarter ended June 30, 2002, we took an impairment charge on our
technology license in the amount of $8,100,000. In the second quarter of 2002,
we reached three additional milestones in conjunction with our license agreement
with Carbomedics, which caused an additional $13.6 million of long-term
obligations to be recognized on our balance sheet. At the end of our first
quarter of 2002, we evaluated the carrying value of our technology license asset
of $13 million in accordance with the provisions of FASB Statement 142 (FASB No.
142), Goodwill and Other Intangible Assets, which were effective for the Company
as of January 1, 2002. Utilizing a discounted cash flow model, that analysis
indicated the asset's carrying value was recoverable and we recognized no
impairment as a result of the adoption of FASB NO. 142. In the second quarter of
2002, we experienced decreased sales volumes, decreased average selling prices
and initiated certain restructuring activities pertaining to our executive team
and the manner in which we sell our product from a direct sales force to a
hybrid sales force of a few direct salespeople and several independent
manufacturers representatives. In response to these conditions, we modified our
pricing strategy and sales volume estimates in conjunction with the
reorganization plan implemented and the increased competitive pressures in the
European market. As a result of these conditions and changes, we reviewed our
future cash flow analysis and changed our expectations of the sales volume
estimates and selling prices of the heart valve in the cash flow model to
evaluate the recoverability of our technology license. When compared to the
revised fair value as calculated by discounting the changed future cash flows at
June 30, 2002, we determined a non-cash charge representing an impairment of
this asset needed to be recognized in the amount of $8.1 million in the second
quarter. This charge also reflected in part the effect of the amended milestone
payments in the early years of the technology transfer agreement relative to the
benefits of lower cost carbon not being realized until future years after the
depletion of inventories on hand at the time of the analysis. We have not
experienced any additional impairment to the technology license subsequent to
that write-off.

For the quarter ended June 30, 2002, we had $865,184 in reorganization expenses.
In June 2002, the Board of Directors decided to implement the new measures and
to seek a new management team to lead the business. As part of these cost
reduction measures, one half of the workforce, including the executive officers
of the Company, were released from employment.

Net interest income (expense) totaled a net expense of $228,065 for the quarter
ended June 30, 2003 compared to interest income of $38,529 for the quarter ended
June 30, 2002. Net interest income (expense) for the six months ended June 30,
2003 totaled a net expense of $456,927 compared to interest income of $102,640
for the six months ended June 30, 2002. The interest expense is primarily
attributable to imputed interest on our long-term debt owed to Centerpulse
(formerly Carbomedics).

ATS recorded a net loss of $3,103,139 or ($0.14) per share for the quarter ended
June 30, 2003 compared to a net loss of $11,367,713 or ($0.51) per share for the
quarter ended June 30, 2002. For the six months ended June 30, 2003, the company
recorded a net loss of $4,642,530 or ($0.21) per share compared to a net loss of
$12,851,085 or ($0.58) per share for the six months ended June 30, 2002.
Included in the net loss for the quarter ended June 30, 2002 was an impairment
of technology license charge of $8,100,000. We are working to increase sales,
particularly in the United States, in order to return to profitability in future
years.

ATS has accumulated approximately $33 million of net operating loss (NOL)
carryforwards for U.S. tax purposes. ATS believes that its ability to fully
utilize the existing net operating loss carryforwards could be restricted on a
portion of the NOL for changes in control that may have


                                       10
<PAGE>




occurred or may occur in the future. We have not accrued any tax benefits for
such tax loss benefit.

LIQUIDITY AND CAPITAL RESOURCES

Cash, cash equivalents and short-term investments decreased by approximately
$440,000 from $9,973,888 at December 31, 2002 to $9,533,520 at June 30, 2003.
During the first quarter of 2003, we paid approximately $890,000 in conjunction
with the termination of our French distributor. Our cash position at the end of
the second quarter 2003 is essentially the same balance we had at March 31,
2003.

Accounts receivable increased from $3,557,055 at December 31, 2002 to $3,915,928
at June 30, 2003. The majority of the receivable balances are amounts owing from
our international customers, where payments terms are 60 days or longer.

Current liabilities decreased $624,159 from $8,114,455 at December 31, 2002 to
$7,490,296 at June 30, 2003. The majority of the decrease is in the accrued
distributor liabilities, where we paid our terminated French distributor the
amount owed during the first quarter 2003. Accrued interest of $175,000 was
added, during the first half of 2003, to the $5 million short-term note on the
technology transfer payment. The balance in accrued reorganization charges
totaling $152,721 consist of severance payments that will be paid out almost
entirely during 2003.

For the quarter ended June 30, 2003, we recorded imputed interest in the amount
of $160,000; this added to the $160,000 accrued during the first quarter,
increased the long-term debt amount to $9,400,000. In June 2002, long-term debt
was set up for the discounted amounts owing to Centerpulse for milestones
achieved on the technology transfer agreement that are payable in semi-annual
installments beginning June 2005 and beyond

Subsequent to the quarter ended June 30, 2003, we entered into an agreement with
Centerpulse USA Holdings Co. under which we would pay Centerpulse $12 million in
exchange for cancellation of all of our payment obligations under its carbon
technology agreement with Carbomedics Inc. Prior to this agreement, we were
obligated to pay Centerpulse an aggregate of $28.2 million under the technology
agreement over a period of approximately four years. These payments were accrued
as milestones were met. Of the total $28 million, there were two uncompleted
milestones totaling $12 million not accrued as of June 30, 2003. Carbomedics'
right to payments under the technology agreement were assigned to Centerpulse in
January 2003 in connection with the sale by Centerpulse of its Carbomedics
subsidiary to SNIA S.p.A. Upon the closing of this agreement, we will have no
remaining payment obligations under the carbon technology agreement, we will own
the technology and we will have a non-cash gain on the extinguishment of debt of
almost $2.6 million. On August 8, 2003, we completed a private placement of
Common Stock selling 4.4 million shares at $2.80 a share for gross proceeds of
$12.3 million that will be used to settle the Centerpulse agreement.

Based upon the current forecast of sales and our operating expenses we
anticipate having cash to fund our operations through 2005. However, as
identified under the heading of "Cautionary Statements Pursuant to the Private
Litigation and Securities Reform Act of 1995" below, any adverse change that
affects our revenue, access to the capital markets or future demand for our
products will affect our long term viability. Maintaining adequate levels of
working capital depends in part upon the success of our products in the
marketplace, the relative profitability of those products and our ability to
control operating and capital expenses. Funding of our


                                       11
<PAGE>




operations in future periods may require additional investments in ATS in the
form of equity or debt. There can be no assurance that we will achieve desired
levels of sales or profitability, or that future capital infusions will be
available.

CAUTIONARY STATEMENTS PURSUANT TO THE PRIVATE SECURITIES LITIGATION REFORM ACT
OF 1995

The Private Securities Litigation Reform Act of 1995 (the "Act") provides a
"safe harbor" for forward-looking statements to encourage companies to provide
prospective information about their business, 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 discussed in the statement. ATS desires to take
advantage of the safe harbor provisions with respect to any forward-looking
statements it may make in this filing, other filings with the Securities and
Exchange Commission and any public oral statements or written releases. The
words or phrases "will likely," "is expected," "will continue," "is
anticipated," "estimate," "projected," "forecast," or similar expressions are
intended to identify forward-looking statements within the meaning of the Act.
Such statements are subject to certain risks and uncertainties that could cause
actual results to differ materially from those projected. ATS cautions readers
not to place undue reliance on any such forward-looking statements, which speak
only as of the date made.

In accordance with the Act, the Company identifies the following important
general factors which, if altered from the current status, could cause the
Company's actual results to differ from those described in any forward-looking
statements: the continued acceptance of the Company's mechanical heart valve in
international markets, the rate of increase of acceptance of the Company's valve
in the United States, the continued listing of our stock on The Nasdaq Stock
Market, our ability to successfully implement our sales strategy in the United
States, the continued clinical performance of the Company's mechanical heart
valve, the actions of the Company's competitors including pricing changes and
new product introductions, the continued performance of the Company's
independent distributors in selling the valve, the actions of the Company's
supplier of pyrolytic carbon components for the valve and difficulties we may
encounter in operating our own pyrolytic carbon manufacturing capability as well
as the matters discussed on our "Cautionary Statements" filed as Exhibit 99.1 to
our form 10-Q for the quarter ended March 31, 2003. This list is not exhaustive
and the Company may supplement this list in any future filing or in connection
with the making of any specific forward-looking statement.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

The primary objective of our investment activities is to preserve principal
while at the same time maximizing the income we receive from our investments
without significantly increasing risk. Some of the securities that we invest in
may have market risk. This means that a change in prevailing interest rates may
cause the fair market value of the principal amount of the investment to
fluctuate. For example, if we hold a security that was issued with a fixed
interest rate at the then-prevailing rate and the prevailing interest rate later
rises, the fair value of the principal amount of our investment will probably
decline. To minimize this risk our portfolio of cash equivalents and short-term
investments may be invested in a variety of securities, including commercial
paper, money market funds, government and non-government debt securities. The
average duration of all of our investments has generally been less than one
year. Due to the short-term nature of these investments, we believe we have no
material exposure to interest rate risk arising from our investments.


                                       12
<PAGE>




In the United States and France, we sell our products directly to hospitals.
Revenue is recognized when the valve is implanted. In international markets
outside of France, we sell our products to independent distributors who, in
turn, sell to medical hospitals. In these markets, revenue is recognized upon
shipment of product to customers. Loss, termination or ineffectiveness of
distributors to effectively promote our product would have a material adverse
effect on our financial condition and results of operations.

Transactions with U.S. and non-U.S. customers and distributors, other than in
France, are entered into in U.S. dollars, precluding the need for foreign
currency hedges on such sales. Sales through our French subsidiary, which was
established in 2002 to replace a distributor, are being recorded in euros, thus
we are now subject to profitability risk arising from exchange rate movements.
We have not used foreign exchange contracts or similar devices to reduce this
risk. We will evaluate the need to use foreign exchange contracts or similar
devices, if sales in France increase substantially.

ITEM 4. CONTROLS AND PROCEDURES

The Company carried out an evaluation, under the supervision and with the
participation of the Company's management, including the Company's Chief
Executive Officer, Michael Dale, and Chief Accounting Officer, Deborah Chapman,
of the effectiveness of the design and operation of the Company's disclosure
controls and procedures (as defined in Exchange Act Rule 13a-15) as of the end
of the period covered by this report. Based upon that evaluation, the Company's
Chief Executive Officer along with the Company's Chief Accounting Officer
concluded that the Company's disclosure controls and procedures are effective in
timely alerting them to material information relating to the Company (including
its consolidated subsidiaries) required to be included in the Company's periodic
SEC filings. There were no significant changes made in the Company's internal
control over financial reporting (as defined in Exchange Act Rule 13a-15) during
the period covered by this report that materially affected or are reasonably
likely to materially affect our internal control over financial reporting.



                                       13
<PAGE>






PART II.          OTHER INFORMATION

Item 1.           Legal Proceedings
                  N/A

Item 2.           Changes in Securities and Use of Proceeds
                  N/A

Item 3.           Defaults Upon Senior Securities
                  N/A

Item 4.           Submission of Matters to a Vote of Security Holders
                  The annual meeting of shareholders of the Company was held on
                  April 30, 2003 at which time (i) five nominees were elected to
                  the Board of Directors for one-year terms, (ii) the 2000 Stock
                  Incentive Plan was amended, (iii) the 1998 Employee Stock
                  Purchase Plan was amended and (iv) Ernst & Young LLP was
                  approved as the independent auditors of the Company. Proxies
                  for the Company were solicited pursuant to Section 14(a) of
                  the Securities Exchange act of 1934, as amended, and there was
                  no solicitation in opposition to management's solicitations.
                  All nominees for directors as listed in the proxy statement
                  were elected. The voting results were as follows:

<TABLE>
<CAPTION>
                                                                                                  Broker
                                                        For                 Withheld            Non-Votes
                                                        ---                 --------            ---------

<S>                                                   <C>                       <C>                      <C>
Election of Directors
         Manual A. Villafana                          19,807,480                93,156                   0
         Michael D. Dale                              19,811,842                88,794                   0
         A. Jay Graf                                  19,792,430               108,206                   0
         David L. Boehnen                             19,795,942               104,694                   0
         Eric W. Sivertson                            19,801,630                99,006                   0

Amendment of the 2000
    Stock Incentive Plan                               5,754,913             1,021,065          13,124,658

Amendment of the 1998
    Employee Stock Purchase Plan                       5,925,147               850,831          13,124,658

Approval of Independent
    Auditors                                          19,781,687               118,949                   0
</TABLE>


Item 5.           Other Information
                  On July 24, 2003 the Company transferred back to the Nasdaq
                  National Market. The Company was eligible to transfer back to
                  the National Market, without paying the initial listing fees,
                  if its bid price was at least $1.00 for more than 30
                  consecutives days by July 28, 2003. The Company's stock price
                  has been above $1.00 for more than 90 consecutive days. The
                  Company moved to the Nasdaq



                                       14
<PAGE>


                  SmallCap Market on November 21, 2002 because it did not meet
                  the minimum $1.00 bid price requirement for the National
                  Market.


Item 6.           Exhibits and Reports on Form 8-K

                  (a)      Exhibits

         31.1     Certification of Chief Executive Officer pursuant to Rules
                  13a-15(e)/15d-15(e) (Section 302 Certification)

         31.2     Certification of Chief Financial Officer pursuant to Rules
                  13a-15(e)/15d-15(e) (Section 302 Certification)

         32.1     Certification of the Chief Executive Officer pursuant to
                  18 U.S.C. Section 1350 (Section 906 Certification)

         32.2     Certification of the Chief Financial Officer pursuant to
                  18 U.S.C. Section 1350 (Section 906 Certification)

         99.1     Cautionary Statements

                  (b)      Reports on Form 8-K

                           Form 8-K was filed on July 30, 2003 to report under
                  Item 7 the issuance of a press release to report the Company's
                  results of operations and financial condition for the
                  completed fiscal quarter ended June 30, 2003. No financial
                  statements were required to be filed with the Form 8-K.



                                       15
<PAGE>




                                   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 thereunto duly authorized.

Date:    August 13, 2003                   ATS MEDICAL, INC.



                                           By: /s/ Michael D. Dale
                                               ------------------------------
                                               Michael D. Dale, Chief Executive
                                               Officer (Principal Executive
                                               Officer and Authorized Signatory)


                                           By: /s/ Deborah K. Chapman
                                               ---------------------------------
                                               Deborah K. Chapman, Controller
                                               (Principal Accounting Officer)



                                       16
<PAGE>




                                    EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT NUMBER            DESCRIPTION

<S>                       <C>
31.1                      Certification of the Chief Executive Officer pursuant to Rules 13a-15(e)/15d-15(e)
                          (Section 302 Certification)

31.2                      Certification of the Chief Financial Officer pursuant to Rules 13a-15(e)/15d-15(e)
                          (Section 302 Certification)

32.1                      Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350 (Section
                          906 Certification)

32.2                      Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350 (Section
                          906 Certification)

99.1                      Cautionary Statements
</TABLE>



                                       17