<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, 2002
                           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 Identification No.)
      incorporation or organization)

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

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


Former name, if changed since last report: N/A

     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 [ ]

     The number of shares outstanding of each of the registrant's classes of
common stock as of August 9, 2002 was:

                  Common Stock $.01 par value 22,281,325 shares




<PAGE>


                                ATS MEDICAL, INC.

                                      INDEX
<TABLE>
<CAPTION>

<S>                <C>                                                               <C>

PART I.           FINANCIAL INFORMATION                                              PAGE

Item 1.           Statements of Financial Position -
                  June 30, 2002 (unaudited) and                                        3
                  December 31, 2001

                  Statements of Operations -                                           4
                  Three and Six Months Ended June 30, 2002 and
                  2001 (unaudited)

                  Statements of Cash Flows -                                           5
                  Three and Six Months Ended June 30, 2002 and
                  2001 (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                      15
                  Market Risk

PART II.          OTHER INFORMATION

Item 1.           Legal Proceedings                                                   15

Item 2.           Changes in Securities                                               15

Item 3.           Default Upon Senior Securities                                      15

Item 4.           Submission of Matters to a Vote of                                  15
                  Security Holders

Item 5.           Other Information                                                   16

Item 6            Exhibit and Reports on Form 8-K                                     16

                  Signatures                                                          17

</TABLE>


                                       2
<PAGE>


ITEM 1.        FINANCIAL STATEMENTS

ATS MEDICAL, INC.

CONSOLIDATED CONDENSED STATEMENTS OF FINANCIAL POSITION
<TABLE>
<CAPTION>

                                                                                 June 30,                December 31,
                                                                                   2002                      2001
                                                                                -----------              -----------
                                                                                (Unaudited)                  (Note)
<S>                                                                             <C>                      <C>

ASSETS
Current assets:
   Cash and cash equivalents                                                    $ 5,966,491              $ 5,078,750
   Short-term investments                                                         2,485,760                7,698,290
                                                                                -----------              -----------
                                                                                  8,452,251               12,777,040
   Accounts receivable, less allowance of $410,000
      in 2002 and $400,000 in 2001                                                4,588,409                4,082,992
   Inventories                                                                   17,505,720               17,348,901
   Prepaid expenses                                                                 380,473                  570,716
                                                                                -----------              -----------
Total current assets                                                             30,926,853               34,779,649

Furniture, machinery and equipment, net                                           6,278,115                6,753,483

Inventories                                                                      40,000,000               40,000,000

Technology license                                                               18,500,000               13,000,000

Other assets                                                                        437,075                  438,100
                                                                                -----------              -----------
Total assets                                                                    $96,142,043              $94,971,232
                                                                                ===========              ===========


LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
   Accounts payable                                                             $   991,523              $ 1,345,780
   Notes payable                                                                  2,500,000                        0
   Accrued liabilities                                                            2,085,871                1,402,203
                                                                                -----------              -----------
Total current liabilities                                                         5,577,394                2,747,983

Long-term debt                                                                   11,100,000                        0

Shareholders' equity:
   Common Stock, $.01 par value:
     Authorized 40,000,000 shares; Issued and
      outstanding 22,251,621 and 22,203,940 shares at
      June 30, 2002 and December 31, 2001, respectively                             222,516                  222,039
   Additional paid-in capital                                                   111,446,623              111,354,615
   Accumulated deficit                                                          (32,204,490)             (19,353,405)
                                                                                -----------              -----------
Total shareholders' equity                                                       79,464,649               92,223,249
                                                                                -----------              -----------
Total liabilities and shareholders' equity                                      $96,142,043              $94,971,232
                                                                                ===========              ===========

</TABLE>


Note: The balance sheet at December 31, 2001 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles 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,
                                                  --------------------------------         ----------------------------
                                                      2002                2001                 2002             2001
                                                  ------------         -----------         ------------     -----------
<S>                                               <C>                  <C>                 <C>              <C>

Net sales                                         $  2,475,241         $ 4,415,222         $  6,377,504     $ 8,668,795
Less cost of goods sold                              2,324,011           2,872,188            5,014,922       5,480,348
                                                  ------------         -----------         ------------     -----------
Gross profit                                           151,230           1,543,034            1,362,582       3,188,447

Expenses:
  Research, development and engineering                668,690           1,090,962            1,594,350       1,848,876
  Sales and marketing                                1,143,273           1,231,375            2,302,205       2,299,087
  General and administrative                           780,325             853,609            1,454,568       1,669,287
  Impairment of technology license                   8,100,000                   0            8,100,000               0
  Reorganization expenses                              865,184                   0              865,184               0
                                                  ------------         -----------         ------------     -----------
Total expenses                                      11,557,472           3,175,946           14,316,307       5,817,250
                                                  ------------         -----------         ------------     -----------
Operating loss                                     (11,406,242)         (1,632,912)         (12,953,725)     (2,628,803)

Interest income                                         38,529             285,149              102,640         705,723
                                                  ------------         -----------         ------------     -----------
Net loss                                          $(11,367,713)        $(1,347,763)        $(12,851,085)    $(1,923,080)
                                                  ============         ===========         ============     ===========



Net loss per share:
    Basic and diluted                             $      (0.51)        $     (0.06)        $      (0.58)    $     (0.09)

Weighted average number of shares outstanding:
    Basic and diluted                               22,244,178          22,139,168           22,232,607      22,128,522
</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,
                                                                                   2002                      2001
                                                                               ------------              -----------
<S>                                                                             <C>                       <C>

OPERATING ACTIVITIES
Net loss                                                                       $(12,851,085)             $(1,923,080)

Adjustment to reconcile net loss to net cash
   used in operating activities:
     Depreciation                                                                   361,656                  322,397
     Loss on disposal of equipment                                                   19,981                    9,811
     Impairment of technology license                                             8,100,000                        0
     Changes in operating assets and liabilities:
        Accounts receivable                                                        (505,417)              (1,275,253)
        Prepaid expenses                                                            190,243                   57,520
        Other assets                                                                  1,025                   (7,631)
        Inventories                                                                (156,819)                (925,644)
        Accounts payable and accrued expenses                                       329,411               (1,283,209)
                                                                               ------------              -----------

Net cash used in operating activities                                            (4,511,005)              (5,025,089)

INVESTING ACTIVITIES
Purchase of short-term investments                                               (2,674,401)              (6,576,903)
Sale of short-term investments                                                    7,886,931               17,171,174
Net purchases of furniture, machinery and equipment                                  93,731               (2,563,985)
                                                                               ------------              -----------

Net cash provided by investing activities                                         5,306,261                8,030,286

FINANCING ACTIVITIES
Net proceeds from sale of common stock                                               92,485                  391,375
                                                                               ------------              -----------

Net cash provided by financing activities                                            92,485                  391,375

Increase in cash and cash equivalents                                               887,741                3,396,572
Cash and cash equivalents at beginning of period                                  5,078,750               14,804,195
                                                                               ------------              -----------

Cash and cash equivalents at end of period                                     $  5,966,491              $18,200,767
                                                                               ============              ===========

</TABLE>



See notes to condensed financial statements.

                                       5

<PAGE>


ATS MEDICAL, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

June 30, 2002

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, 2002 are not necessarily indicative of the results that
may be expected for the year ending December 31, 2002.

Note B - COMMITMENTS

In late-June, 2002 the Company amended the supply and technology transfer
agreements it has with Carbomedics. The amendment to the supply agreement
suspends component set purchases until January 2007, except the current work in
process. This postpones component purchases totaling approximately $3 million in
2002 and approximately $18 million for the years 2003 to 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. In addition, the technology
transfer fee of $5,000,000 due at the end of 2002 will be paid in two
installments in June and December of 2003. The company will pay interest at the
rate of 7% on this note from the original due date until the payment date.
Furthermore, the technology payments due in 2003, 2004, 2005 and 2006 totaling
$23 million begin to be paid based on a percentage of the value of the inventory
drawn down starting in January of 2005 with the first payment in June 2005 and
subsequent payments every six months based on a percent of the inventory drawn
down during the previous six months. As part of this agreement, the Company has
provided Carbomedics a security interest in its inventory covering all of its
material obligations under its agreements with Carbomedics.

Note C - IMPAIRMENT OF TECHNOLOGY LICENSE

At the end of our 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


                                      6
<PAGE>


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 volumes 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 reflects
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 currently
on hand.

Note D - REORGANIZATION OF THE COMPANY

In June 2002, the Board of Directors decided to implement new cost containment
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 all of the
executive officers of the Company with the exception of the Company's current
CEO, have been released from employment. The Company had 41 employees at June
30, 2002 compared to 131 employees at June 30, 2001. For the quarter ended June
30, 2002 the Company had $865,184 in reorganization expenses. The reorganization
expenses consist of approximately $655,000 of severance pay and benefits, and
$211,000 of rent that was expensed for the vacated portion of the Company's
leased facility. Of the total reorganization expenses approximately $401,000 has
not been paid as of June 30, 2002.

Note E - STOCK OPTIONS CANCELLED

With the reduction in personnel, stock options totaling 244,374 were cancelled
as of June 30, 2002 in the current plan. The stock options outstanding at June
30, 2002 were 1,830,366 at a weighted exercise price of $7.92. Another 79,285
stock options will be subject to cancellation by the end of the year. There are
520,416 shares available for grant at June 30, 2002.


                                      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, 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;
however, as the dollar increases in value relative to the distributor's local
currency, the cost of the valve increases for the distributor even though ATS
does not change the selling price. From time to time, this has caused us to
adjust the selling price to the affected distributors to help offset a portion
of the currency loss.

During 2001 we hired a direct sales force and began selling the ATS heart valve
in the United States. As a result of these efforts, our U.S. sales as a
percentage of our overall sales increased from 4% in 2000 to 12% in 2001 and 23%
as of the second quarter 2002. Due to the cost of maintaining a full direct
sales force, however, we decided in mid-June 2002 to switch to a hybrid sales
force consisting of our top performing direct sales people plus independent
manufacturers representatives who are now being recruited.

To date we have purchased all of the pyrolytic carbon components for the ATS
heart valve from Carbomedics, 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.

We also renegotiated the timing of the technology fee payments due under the
carbon agreement with Carbomedics, such that, the $5 million payment that would
have been due in December of this year will now be paid in two parts; one half
in June 2003 and the other half in December 2003. ATS will pay interest at the
rate of 7% on this note from the original due date until the payment date.
Furthermore, the technology payments due in 2003, 2004, 2005 and 2006 totaling
$23 million will begin to be paid based on a percentage of the value of the
inventory drawn down starting in January of 2005 with the first payment in June
2005 and subsequent payments every six months based on a percent of the
inventory draw down during the previous six months. These


                                      8
<PAGE>

adjustments to the timing of cash disbursements, relative to our two agreements
with Carbomedics, together with our reduced operating costs are projected to
provide working capital through 2005. As a part of this agreement, the Company
has provided Carbomedics a security interest in its inventory covering all of
its material obligations under its agreement with Carbomedics.

In our Form 10-K filed with the Securities and Exchange Commission for the year
ended December 31, 2001, we identified critical accounting policies and
estimates for our business.

Results of Operations

Net sales for the quarter ended June 30, 2002 decreased 44% to $2,475,241
compared to $4,415,222 for the quarter ended June 30, 2001. Net sales for the
six months ended June 30, 2002 totaled $6,377,504 compared to $8,668,795 for the
six months ended June 30, 2001. The decrease from last year's second quarter was
largely attributable to Europe and was due to several factors. First, we went to
distributor accounting for Italy in the fourth quarter of 2001, so we reported
sales in Italy the second quarter 2001, but not in the second quarter of 2002.
Second, our German distributor accelerated his plans to phase out of the market
when the reorganization of ATS was announced and as a result did not place his
usual order at the end of the quarter. Third, due to special circumstances, we
made an agreement with our Spanish distributor to forgo any order in the second
quarter to bring down the amount of inventory he was carrying and certain costs
associated with that inventory. Finally, our distributor covering France and
Belgium defaulted on its contract by failing to place a second quarter order.
The impact of each of these items was significant, and taken together with a
decrease in average selling prices in other international markets, resulted in
the 44% decline in revenue. Unit sales for the quarter ended June 30, 2002
decreased 38% compared to unit sales for the quarter ended June 30, 2001 also
for the reasons given above. Revenue in the United States increased 27% in the
quarter ended June 30, 2002 compared to the quarter ended June 30, 2001 and
increased 10% compared to the quarter ended March 31, 2002. Non-U.S. revenue in
the quarter ended June 30, 2002 decreased 55% compared to the quarter ended June
30, 2001. This was primarily due to European sales as explained above.

In the U.S. market, ATS reports the selling price to the hospital. In non-U.S.
markets, ATS reports 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.

In the United States, we had established a direct sales force to sell the valve
during the first several months of 2001. In mid-June 2002, we took certain cost
savings measures including a reduction in work force which included the majority
of our direct sales people. Independent manufacturers representatives are being
recruited to take the place of the former direct territories affected by the
reduction in force. ATS expects to have independent manufacturers
representatives covering all of the United States by the end of 2002. Valves are
consigned to hospitals desiring to use the ATS valve and a sale is recorded once
the valve is implanted. The "sales cycle" for new accounts can take from one to
three months and we anticipate additional

                                       9

<PAGE>

delays caused by the transition from direct sales to sales through independent
representatives. We feel that we have a superior product, however, our
competitors have larger sales staffs and greater financial resources so they are
currently able to reach more potential customers. The rate at which we will open
new accounts and realize new implants with our hybrid sales force is difficult
to forecast from quarter to quarter.

Cost of sales for the three months ended June 30, 2002 totaled $2,324,011 or 94%
of sales compared to $2,872,188 or 65% of sales for the three months ended June
30, 2001. Cost of sales for the six months ended June 30, 2002 totaled
$5,014,922 or 79% compared to $5,480,348 or 63% for the six months ended June
30, 2001. Adjustments taken against the cost of goods in the second quarter of
2002, including a $200,000 charge relating to the lower cost or market,
increased the cost of goods sold from 66% to 94% and lowered the gross margin
from 34% to 6%.

Gross profit totaled $151,230 for the quarter ended June 30, 2002 or 6% of
sales, compared to gross profit of $1,543,034 or 35% of sales for the quarter
ended June 30, 2001. For the six months ended June 30, 2002 gross profit totaled
$1,362,582 or 21% of sales compared to gross profit for the six months ended
June 30, 2001 of $3,188,447 or 37% of sales. The average selling price per unit
decreased by 6% for the three months and six months ended June 30, 2002 compared
to three months and six months ended June 30, 2001.

Research, development and engineering expenses totaled $668,690 for the quarter
ended June 30, 2002 versus $1,090,962 for the quarter ended June 30, 2001, a
decrease of 39%. For the six months ended June 30, 2002 research, development
and engineering expenses totaled $1,594,350 a decrease of 14% over the
$1,848,876 research, development and engineering expense reported for the six
months ended June 30, 2001. Approximately 79% of research and development
expenses for the six months ended June 30, 2002 were related to our own carbon
manufacturing facility. Our focus during 2001 and the first quarter of 2002 was
making qualification and verification coating runs, training ATS personnel on
the new carbon manufacturing equipment installed during the period, and
documenting procedures. This culminated with the submissions at the end of the
first quarter 2002 to the T.U.V., who we use as a notified body for our European
approval, and to the U.S. Food and Drug Administration. 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 will allow for significant reduction in the cost of goods
sold. With the development phase of our carbon facility essentially complete,
ongoing R&D costs associated with this project will decrease substantially.

Sales and marketing expenses decreased in the quarter ended June 30, 2002 to
$1,143,273 compared to $1,231,375 in the quarter ended June 30, 2001. For the
six months ended June 30, 2002 sales and marketing expenses totaled $2,302,205
compared to $2,299,087 for the six months ended June 30, 2001. We had 17 U.S.
salespeople and four regional managers employed at June 30, 2001. For the
majority of the second quarter 2002, we had 11 salespeople and four regional
managers. After the restructuring that took place in June 2002, we have three
salespeople and one national sales manager. Our sales and marketing expenses
will be approximately 60% lower, in the last half of this year, compared to the
first half of 2002. We are currently recruiting independent manufacturers
representatives to cover the open U.S. territories.

                                       10

<PAGE>

General and administrative expenses totaled $780,325 for the three months ended
June 30, 2002 a decrease from the $853,609 reported for the three months ended
June 30, 2001. For the six months ended June 30, 2002 general and administrative
expenses totaled $1,454,568, down 13% from the $1,669,287 general and
administrative expense reported for the six months ended June 30, 2001. The
decrease is due to fewer personnel and lower travel expenses in the general and
administrative departments.

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 resulted in 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 sells 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 volumes
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 reflects 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 currently on hand.

For the quarter ended June 30, 2002, we also had $865,184 in reorganization
expenses. In June 2002, management proposed new cost containment measures and
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 all of the executive officers of the
Company with the exception of the Company's current CEO, have been released from
employment. As a result, we had 41 employees at June 30, 2002 compared to 131
employees at June 30, 2001. The reorganization expenses consist of approximately
$655,000 of severance pay and benefits, and $211,000 of rent that was expensed
for the vacated portion of the Company's leased facility. Of the total
reorganization expenses approximately $401,000 has not been paid as of June 30,
2002.

Interest income totaled $38,529 for the quarter ended June 30, 2002 compared to
$285,149 for the quarter ended June 30, 2001. Interest income for the six months
ended June 30, 2002 totaled $102,640 compared to $705,723 for the six months
ended June 30, 2001. The decrease in

                                       11

<PAGE>

interest income in the first half of 2002 was the result of lower average
investable cash balances and lower interest rates.

ATS recorded a net loss of $11,367,713 or ($0.51) per share for the quarter
ended June 30, 2002 compared to a net loss of $1,347,763 or ($0.06) per share
for the quarter ended June 30, 2001. For the six months ended June 30, 2002, the
company recorded a net loss of $12,851,085 or ($0.58) per share compared to a
net loss of $1,923,080 or ($0.09) per share for the six months ended June 30,
2001. The decreases in gross margin and interest income, coupled with the
impairment charge and reorganization expenses, were the reasons for the
increased loss. We are recruiting independent manufacturers representatives in
the United States and making some changes in our international representation to
increase sales and to return to profitability in future quarters.

ATS has accumulated approximately $24 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 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 $4,324,789 from
$12,777,040 at December 31, 2001 to $8,452,251 at June 30, 2002. Inventory
purchases and operating losses including the reorganization expenses were
responsible for the used cash during fiscal 2002. With the reductions in
personnel and spending enacted by ATS last fall and in June 2002, our expenses
will be significantly lower in future quarters.

Accounts receivable increased from $4,082,992 at December 31, 2001 to $4,588,409
at June 30, 2002. The majority of the receivable balances are amounts owing from
our international customers, where payments terms are 60 days or longer.

Current liabilities increased $2,829,411 from $2,747,983 at December 31, 2001 to
$5,577,394 at June 30, 2002. The majority of this increase is a $2.5 million
short-term note on the technology transfer payment due in June 2003. The
remaining increase is related to accrued severance and other reorganization
costs.

ATS had contracted to purchase $8.4 million of components during 2002 in
accordance with the terms of its supply agreement with Carbomedics. On July 2,
2002 this agreement was amended to suspend carbon component purchases until
January 2007, except for the current work in process that we will receive in the
third quarter 2002. This suspension of component purchases will reduce cash
expenditures for the Company by approximately $3 million dollars in 2002. For
the years 2003 to 2006, the total deferred expenditures will be approximately
$18 million.

Under the carbon agreement entered into in December 1999, ATS agreed to pay
Carbomedics a license fee of $41 million in annual installments ending in
December 2006. In addition to granting ATS an exclusive worldwide right and
license to use its carbon coating technology to manufacture pyrolytic carbon
components for the ATS valve under this agreement, Carbomedics agreed to assist
ATS in designing, building and commencing operations in its own pyrolytic

                                       12

<PAGE>

carbon production facility in Minneapolis, Minnesota. In May 2002, the Company
received notice of approval of its carbon plant from the U.S. Food and Drug
Administration. In July 2002, the timing of the technology fee payments was
delayed. The $5 million payment that was due in December 2002 will be paid in
two installments in June and December of 2003. The technology transfer fees due
in subsequent years will be paid in semi-annual installments beginning in June
2005 in amounts equal to a percentage of the reduction in inventory occurring in
the previous six months. These adjustments to the timing of cash disbursements,
relative to our two agreements with Carbomedics, will defer cash expenditures of
approximately $8 million dollars in 2002.

Long-term debt in the amount of $11,100,000 was set up in June 2002 for the
discounted amounts owing to Carbomedics for milestones achieved on the
technology transfer agreement that are payable in December 2003 and semi-annual
installments beginning June 2005 and beyond. The total amount owing for
milestones already achieved is $16 million, of which, $2.5 million is a
short-term note in current liabilities due in June 2003, $2.5 million is due in
December 2003, and the remaining $11 million is due starting in June 2005 and
continuing in semi-annual installments based on inventory reduction until the
total amount is paid in full. There is no interest being charged to the Company
on the $11 million portion, so a present value calculation was done using a 7%
interest rate and this amount was discounted $2.4 million to determine the long
term liability. These adjustments to the timing of cash disbursements, relative
to our two agreements with Carbomedics, together with our reduced operating
costs have significantly strengthened our present and projected cash position.

Based upon the current forecast of sales and our reduced operating expenses,
along with the adjustments to the timing of our payments to Carbomedics, 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 and in Exhibit 99.1 to this
Report, 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
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.

THE SINGLE EUROPEAN CURRENCY

A significant portion of our sales occur in Europe. We sell to all of our
customers in U.S. dollars. Our selling prices are similar to most of our
European distributors and therefore should not cause significant disruption
whether in U.S. dollars or Euros. From its introduction in January 1999, the
rate of exchange for the Euro versus the U.S. dollar declined by as much as 34%,
although it has recovered approximately half of that decline in the last 60
days. Several of our European distributors were unable to increase their local
currency selling price for the valve, and, as a result, they informed us that
their profits were being significantly reduced and we adjusted our pricing to
give them some relief. Europe is a very important market for us. Disruption or
loss of a portion of the European business could have a material and adverse
impact on our financial position.

                                       13


<PAGE>

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, ATS identifies the following important general
factors which if altered from the current status could cause our actual results
to differ from those described in any forward-looking statements: the continued
acceptance of our mechanical heart valve in international markets, the rate of
increase of acceptance of the valve in the United States, our ability to engage
a new management team and the performance of such team, our ability to recruit
and manage an independent manufacturers representatives sales force in the
United States, the continued performance of our mechanical heart valve without
structural failure, the actions of our competitors including pricing changes and
new product introductions, the continued performance of our independent
distributors in international markets selling the valve, the risk of product
returns in connection with distributor terminations, the actions of our supplier
of pyrolytic carbon components for the valve and difficulties we may encounter
operating our own pyrolytic carbon manufacturing capability. This list is not
exhaustive, and we may supplement this list in filings with the Securities and
Exchange Commission (including Exhibit 99.1 to this Form 10-Q) or in connection
with the making of any specific forward-looking statement.

                                       14

<PAGE>


ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES 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 in which we invest
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 we maintain our portfolio of cash equivalents and
short-term investments 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.

We do not use derivatives and, therefore, do not face market risk from currency
or interest rate changes on these types of instruments. If we were required to
finance future operations with debt, we would have exposure to increases in
interest rates or borrowings.

PART II.          OTHER INFORMATION

Item 1.           Legal Proceedings
                  N/A

Item 2.           Changes in Securities
                  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
                  May 2, 2002 at which time (i) four nominees were elected to
                  the Board of Directors for one-year terms and (ii) 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                          14,403,197             4,376,339                   0
         Richard W. Kramp                             15,010,893             3,768,643                   0
         David L. Boehnen                             18,686,847                92,689                   0
         A. Jay Graf                                  18,684,927                94,609                   0
</TABLE>
                                       15


<PAGE>

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

Approval of Independent
   Auditors                                           18,677,030                15,516                   0
</TABLE>


Item 5.                    Other Information


                  On July 31, 2002, the Company received a written notification
                  from Nasdaq that it currently does not comply with the minimum
                  bid price continued listing standard of The Nasdaq National
                  Market and thus may be delisted from The Nasdaq National
                  Market. The letter states, "For the last 30 consecutive
                  trading days, the price of the Company's common stock has
                  closed below the minimum $1.00 per share requirement for
                  continued inclusion under Marketplace Rule 4450(a)(5)." The
                  Company has 90 calendar days, or until October 29, 2002, to
                  demonstrate compliance by having the bid price of the
                  Company's common stock close at $1.00 per share or more for a
                  minimum of 10 consecutive trading days. Otherwise, Nasdaq will
                  provide notification to the Company that the Company will be
                  delisted, subject to any Company appeal. The Company is
                  currently reviewing its options to either attempt to maintain
                  its listing on The Nasdaq National Market or apply to transfer
                  its common stock listing to The Nasdaq SmallCap Market.



Item 6.                    Exhibits and Reports on Form 8-K

                  (a)      Exhibits

         10.1       Letter Agreement dated June 27, 2002 with Sulzer Carbomedics
                    Inc. amending the O.E.M. Supply Agreement dated September
                    24, 1990 and the Carbon Agreement dated December 29, 1999

         99.1       Cautionary Statements

         99.2       Certification of the Chief Executive Officer pursuant to 18
                    U.S.C. Section 1350 as adopted pursuant to Section 906 of
                    the Sarbanes -Oxley Act of 2002

         99.3       Certification of the Chief Financial Officer pursuant to 18
                    U.S.C. Section 1350 as adopted pursuant to Section 906 of
                    the Sarbanes -Oxley Act of 2002

                  (b)      Reports on Form 8-K

                           None


                                       16

<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 14, 2002              ATS MEDICAL, INC.



                                      By:      /s/ Richard W. Kramp
                                               --------------------
                                               Richard W. Kramp
                                               (Principal Financial Officer and
                                               Authorized Signatory)

                                       17

<PAGE>


                                  EXHIBIT INDEX
<TABLE>
<CAPTION>

EXHIBIT NUMBER            DESCRIPTION
<S>                       <C>

10.1                      Letter Agreement dated June 27, 2002 with Sulzer Carbomedics Inc. amending the O.E.M.
                          Supply Agreement dated September 24, 1990 and the Carbon Agreement dated December 29, 1999

99.1                      Cautionary Statements

99.2                      Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted
                          pursuant to Section 906 of the Sarbanes - Oxley Act of 2002

99.3                      Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted
                          pursuant to Section 906 of the Sarbanex - Oxley Act of 2002

</TABLE>
                                       18