<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 MARCH 31, 2005

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

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

                                 Not Applicable
            -------------------------------------------------------
            (Former name, former address and former fiscal year, if
                           changed since last report)

      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 Exchange Act).

                                    Yes [X] No [ ]

      The number of shares outstanding of each of the registrant's classes of
common stock as of April 29, 2005, was:

            Common Stock, $.01 par value       30,974,354 shares

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

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                  Page(s)
                                                                                  -------
<S>                                                                               <C>
PART I.   FINANCIAL INFORMATION

ITEM 1.   Financial Statements (Unaudited)

              Consolidated Balance Sheets as of
              March 31, 2005, and December 31, 2004                                  3

              Consolidated Statements of Operations for the three
              months ended March 31, 2005 and 2004                                   4

              Consolidated Statements of Cash Flows for the three
              months ended March 31, 2005 and 2004                                   5

              Notes to Consolidated Financial Statements                           6 - 7

ITEM 2.   Management's Discussion and Analysis of
          Financial Condition and Results of Operations                            8 - 18

ITEM 3.   Quantitative and Qualitative Disclosures About Market Risk                19

ITEM 4.   Controls and Procedures                                                   19

PART II.  OTHER INFORMATION

ITEM 6.   Exhibits                                                                  20

SIGNATURES                                                                          21

EXHIBIT INDEX                                                                       22
</TABLE>

                                       2

<PAGE>

                          PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

                                ATS MEDICAL, INC.

                           CONSOLIDATED BALANCE SHEETS

                 (in thousands, except per share and share data)

<TABLE>
<CAPTION>
                                                          MARCH 31,    DECEMBER 31,
                                                            2005           2004
                                                         -----------   ------------
                                                         (unaudited)
<S>                                                      <C>           <C>
ASSETS
Current assets:
   Cash and cash equivalents                             $     5,364   $      8,302
   Short-term investments                                      4,296          7,692
   Accounts receivable, net                                    8,049          7,893
   Other receivables                                             300              -
   Inventories                                                26,982         24,303
   Prepaid expenses                                            1,050          1,053
                                                         -----------   ------------

Total current assets                                          46,041         49,243

Leasehold improvements, furniture and equipment, net           7,865          7,650
Inventories                                                        -          3,000
Intangible assets                                             18,713         18,720
Other assets                                                     436            438
                                                         -----------   ------------

Total assets                                             $    73,055   $     79,051
                                                         ===========   ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
   Accounts payable                                      $     2,811   $      4,049
   Accrued compensation                                        1,208          1,797
   Accrued distributor liabilities                               560            527
   Other accrued liabilities                                     341            430
   Due to related party                                          217            217
   Current maturities of note payable                            833            764
                                                         -----------   ------------

Total current liabilities                                      5,970          7,784

Due to related party                                              36             90
Note payable                                                   1,528          1,736
Shareholders' equity:
   Common stock, $.01 par value:
     authorized 40,000,000 shares; issued and
     outstanding 30,924,254 and 30,889,637 shares at
      March 31, 2005 and December 31, 2004                       309            309
   Additional paid-in capital                                136,648        136,562
   Deferred compensation                                         (14)           (24)
   Accumulated other comprehensive income                         38             95
   Accumulated deficit                                       (71,460)       (67,501)
                                                         -----------   ------------

Total shareholders' equity                                    65,521         69,441
                                                         -----------   ------------

Total liabilities and shareholders' equity               $    73,055   $     79,051
                                                         ===========   ============
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.

                                       3

<PAGE>

                                ATS MEDICAL, INC.

                      CONSOLIDATED STATEMENTS OF OPERATIONS

                                   (unaudited)
                     (in thousands, except per share data)

<TABLE>
<CAPTION>
                                                    THREE MONTHS ENDED MARCH 31,
                                                    ----------------------------
                                                      2005                2004
                                                    --------            --------
<S>                                                 <C>                 <C>
Net sales                                            $ 7,063             $ 6,694
Cost of goods sold                                     4,301               4,766
                                                    --------            --------
Gross profit                                           2,762               1,928

Operating expenses:
   Sales and marketing                                 4,731               3,666
   Research and development                              302                 187
   General and administrative                          1,689               1,381
                                                    --------            --------

Total operating expenses                               6,722               5,234
                                                    --------            --------
Operating loss                                        (3,960)             (3,306)

Net interest income (expense)                              1                   1
                                                    --------            --------

Net loss                                            ($ 3,959)           ($ 3,305)
                                                    ========            ========
Net loss per share:
   Basic and diluted                                ($  0.13)           ($  0.12)
                                                    ========            ========
Weighted average number of shares
      used in calculation:
   Basic and diluted                                  30,913              26,802
                                                    ========            ========
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.

                                       4

<PAGE>

                                ATS MEDICAL, INC.

                      CONSOLIDATED STATEMENTS OF CASH FLOW

                                   (unaudited)
                                 (in thousands)

<TABLE>
<CAPTION>
                                                            THREE MONTHS ENDED MARCH 31,
                                                            ----------------------------
                                                              2005                2004
                                                            --------            --------
<S>                                                         <C>                 <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss                                                    ($ 3,959)           ($ 3,305)
Adjustments to reconcile net loss to net cash
   used in operating activities:
   Depreciation                                                  369                 265
   Loss on disposal of equipment                                  17                   -
   Compensation expense on stock options                           4                  25
   Non-cash interest expense                                       7                   -
   Changes in operating assets and liabilities:
     Accounts and other receivables                             (456)               (920)
     Inventories                                                 321               3,688
     Prepaid expenses                                              5                (209)
     Other assets                                                  -                   4
     Accounts payable and accrued expenses                    (1,937)                (36)
                                                            --------            --------

Net cash used by operating activities                         (5,629)               (488)

CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of short-term investments                              (497)               (996)
Sale of short-term investments                                 3,893               1,246
Purchases of furniture, machinery and equipment                 (601)               (108)
                                                            --------            --------

Net cash provided by investing activities                      2,795                 142

CASH FLOWS FROM FINANCING ACTIVITIES
Repayments of note payable                                      (139)                  -
Net proceeds from sales of common stock                           92                 118
                                                            --------            --------
Net cash provided by (used in) financing activities              (47)                118
                                                            --------            --------

Effect of exchange rate changes on cash                          (57)                (11)
                                                            --------            --------
Decrease in cash and cash equivalents                         (2,938)               (239)

Cash and cash equivalents at beginning of period               8,302               6,472
                                                            --------            --------

Cash and cash equivalents at end of period                   $ 5,364             $ 6,233
                                                            ========            ========
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.

                                       5

<PAGE>

                                ATS MEDICAL, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

NOTE 1. BASIS OF PRESENTATION

The consolidated financial statements included in this Form 10-Q have been
prepared by ATS Medical, Inc. (hereinafter the "Company," "ATS," "we," "us," or
"our") without audit, pursuant to the rules and regulations of the Securities
and Exchange Commission (SEC). The consolidated financial statements include the
accounts of the Company and its subsidiaries, and all significant inter-company
accounts and transactions are eliminated in consolidation. Certain information
and footnote disclosures normally included in financial statements prepared in
accordance with accounting principles generally accepted in the United States
have been condensed or omitted pursuant to these rules and regulations. The
year-end balance sheet was derived from audited financial statements, but does
not include all disclosures required by accounting principles generally accepted
in the United States. These unaudited consolidated interim financial statements
should be read in conjunction with the Company's consolidated financial
statements and related notes included in its Annual Report on Form 10-K for
2004.

These statements reflect, in management's opinion, all adjustments (which
include only normal, recurring adjustments) necessary for a fair presentation of
the financial position and the results of operations and cash flows for the
periods presented. The results of operations for any interim period may not be
indicative of results for the full year.

NOTE 2. STOCK-BASED COMPENSATION

The Company accounts for its stock-based employee compensation plan under the
recognition and measurement principles of APB Opinion No. 25, Accounting for
Stock Issued to Employees, and related interpretations. The exercise price of
the Company's employee stock options generally equals the market price of the
underlying stock on the date of grant for all options granted, and thus, under
APB 25, no compensation expense is recognized. Stock options granted to
non-employees are valued and accounted for in accordance with Financial
Accounting Statement No. 123, Accounting for Stock-Based Compensation (FAS 123).
Accordingly, these costs are charged to operating expenses over the vesting
period of the option.

The following table illustrates the effect on net loss and net loss per share if
the Company had applied the fair value recognition provisions of FAS 123 to
stock-based employee compensation.

<TABLE>
<CAPTION>
                                                              Three months ended
                                                                   March 31,
                                                              ------------------
   (in thousands, except per share data)                        2005      2004
----------------------------------------------                --------  --------
<S>                                                           <C>       <C>
Net loss, as reported                                         ($ 3,959) ($ 3,305)

Less:  Total stock-based employee compensation
     expense determined under fair value based
     method for all awards                                        (519)     (673)
                                                              --------  --------

Pro forma net loss                                            ($ 4,478) ($ 3,978)
                                                              ========  ========

Net loss per share:
     As reported
         Basic and diluted                                    ($  0.13) ($  0.12)
     Pro forma
         Basic and diluted                                    ($  0.14) ($  0.15)
</TABLE>

                                       6

<PAGE>

NOTE 3. INVENTORIES

Inventories consist of the following:

<TABLE>
<CAPTION>
                                        March 31,        December 31,
       (in thousands)                     2005               2004
----------------------------            ---------        ------------
<S>                                     <C>              <C>
Raw materials                           $   7,010        $      7,780
Work in process                             7,280               7,258
Finished goods                             12,857              12,465
Obsolescence reserve                         (165)               (200)
                                        ---------        ------------

Total, net                              $  26,982        $     27,303
                                        =========        ============

Balance sheet classification
Current assets                          $  26,982        $     24,303
Non-current assets                              -               3,000
                                        ---------        ------------

Total, net                              $  26,982        $     27,303
                                        =========        ============
</TABLE>

At December 31, 2004, the Company maintained significant levels of inventory
that exceeded current demand. Therefore, the Company classified $3.0 million of
inventories as non-current assets at December 31, 2004.

NOTE 4. COMPREHENSIVE INCOME

Comprehensive income for the Company includes net income from foreign currency
translation which is charged or credited to the cumulative translation account
within shareholders' equity. Gains and losses from foreign currency translation
are not material.

NOTE 5. NEW PRONOUNCEMENTS

On December 16, 2004, the Financial Accounting Standards Board (FASB) issued
FASB Statement No. 123 (Revised 2004), Share-Based Payment, which is a revision
of FASB Statement No. 123, Accounting for Stock-Based Compensation. Statement
123(R) supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees,
and amends FASB Statement No. 95, Statement of Cash Flows. Generally, the
approach in Statement 123(R) is similar to the approach described in Statement
123. However, Statement 123(R) requires all share-based payments to employees,
including grants of employee stock options, to be recognized in the income
statement based on their fair values. Pro forma disclosure is no longer an
alternative.

The effective date of Statement 123(R) has been delayed and must now be adopted
by the Company no later than January 1, 2006. Early adoption will be permitted
in periods in which financial statements have not yet been issued. Management
expects to adopt Statement 123(R) on January 1, 2006. Management is evaluating
which methodology to use in adopting Statement 123(R) and has not determined
what effect it will have on its financial statements.

In December 2004, the Financial Accounting Standards Board issued FASB Statement
No. 151, Inventory Costs. Statement 151 requires abnormal amounts of inventory
costs related to idle facility, freight handling, and wasted material expenses
to be recognized as current period charges. Additionally, SFAS 151 requires that
allocation of fixed production overheads to the costs of conversion be based on
the normal capacity of the production facilities. The standard is effective for
fiscal years beginning after June 15, 2005. The Company believes the adoption of
SFAS 151 will not have a material impact on its consolidated financial results.

                                       7

<PAGE>

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

The following Management's Discussion and Analysis of Financial Condition and
Results of Operations contains forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995. Words such as "may,"
"expect," "believe," "anticipate," or "estimate," identify such forward-looking
statements. These statements by their nature involve substantial risks and
uncertainties, and actual results may differ materially from those expressed in
such forward-looking statements. Some of the factors that could cause such
material differences are identified in "Cautionary Statement." below. We
undertake no obligation to correct or update any forward-looking statements,
whether as a result of new information, future events, or otherwise. You are
advised, however, to consult any future disclosures we make on related subjects
in future filings with the SEC.

EXECUTIVE OVERVIEW

We develop, manufacture, and market medical devices. Our primary interest lies
with devices used by cardiovascular surgeons in the cardiac surgery operating
theater. Currently, we participate in the mechanical bileaflet portion of the
replacement heart valve market and in the market for the surgical treatment of
atrial fibrillation. We also are engaged in a development project for
autotransfusion products.

Carbomedics, Inc. (f/k/a Sulzer Carbomedics, Inc.) developed the basic design
from which the ATS heart valve evolved. Carbomedics is a large and experienced
manufacturer of pyrolytic carbon components used in mechanical heart valves.
Carbomedics has also designed and patented numerous mechanical valves.
Carbomedics offered to license a patented and partially developed valve to us if
we would complete the development of the valve and agree to purchase carbon
components from Carbomedics. We hold an exclusive, royalty-free, worldwide
license to an open pivot, bileaflet mechanical heart valve design owned by
Carbomedics from which the ATS heart valve has evolved. In addition, we have an
exclusive, worldwide right and license to use Carbomedics' pyrolytic carbon
technology to manufacture components for the ATS heart valve.

We commenced selling the ATS heart valve in international markets in 1992. In
October 2000, we received FDA approval to sell the ATS Open Pivot(R) MHV and
commenced sales and marketing of our valve in the United States. The original
sales forecasts as well as the pricing models that were used when the original
supply agreement was signed with Carbomedics proved to be too optimistic.
Accordingly, to keep the supply agreement active and the license to sell the
valve exclusive, we purchased quantities of inventory far in excess of demand.

From 1990 through 2002, we paid Carbomedics approximately $125 million for the
development of our valve, the technology to manufacture our pyrolytic carbon
components, and for pyrolytic valve components manufactured by Carbomedics. On
December 31, 2002, we had remaining payments due under our technology agreement
with Carbomedics that totaled $28 million. This led us in 2003 to negotiate an
accelerated but reduced payment for all outstanding debts to Carbomedics related
to the technology agreement. In August 2003 we paid $12 million to satisfy all
future obligations under this agreement.

With inventory purchases exceeding sales through the years, we built up
significant inventories. The drawing down of these inventories since 2002 has
provided a source of cash for operations. During 2004, we started manufacturing
our own carbon components. In 2005 our manufacturing levels will approach our
sales and in 2006 our inventory levels will flatten with manufacturing and sales
being more in balance.

We have been steadily building both our domestic and international sales and
marketing infrastructure since 2003. This rebuilding is the most significant
factor in our expense levels since that time. Because sales prices in the United
States exceed selling prices elsewhere, we feel that our future success will
depend on achieving increased market share in the United States. Our U.S. sales
as a percentage of our overall sales have grown from 4% in 2000 to 41% during
the first quarter of 2005.

During 2004, we made our first ventures outside the mechanical heart valve
market by completing two business development agreements. The first, signed in
April 2004, is with ErySave AB (ErySave), a Swedish research firm, for exclusive
worldwide rights to ErySave's PARSUS filtration technology for cardiac surgery
procedures. We had no revenues in 2004 nor do we expect any for 2005 from this
technology. In November, we completed a global partnership agreement with
CryoCath Technologies, Inc. (CryoCath) to market CryoCath's surgical cryotherapy
products for the ablation of cardiac arrhythmias. We realized revenue from the
CryoCath agreement starting in the first quarter of 2005.

                                       8

<PAGE>

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

We base our estimates on historical experience and on various other assumptions
that we believe to be reasonable under the circumstances. Management's
discussion and analysis of financial condition and results of operations are
based upon the consolidated financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States.
The preparation of these financial statements requires us to make estimates and
judgments that affect (1) the reported amounts of assets, liabilities, revenues,
and expenses; and (2) the related disclosure of contingent assets and
liabilities. At each balance sheet date, we evaluate our estimates and
judgments. The critical accounting policies that are most important to fully
understanding and evaluating the financial condition and results of operations
are discussed in our most recent Annual Report on Form 10-K on file with the
SEC.

RESULTS OF OPERATIONS

The following table compares the dollar and percentage change in the Statements
of Operations for the three month periods ended March 31, 2005 and 2004.

<TABLE>
<CAPTION>
                                      Three months ended March 31,
                                ---------------------------------------
                                                      Increase
                                  2005       2004    (Decrease)     %
                                --------   -------   ----------   -----
<S>                             <C>        <C>       <C>          <C>
Net sales                        $ 7,063    $6,694    $     369     5.5%
Cost of goods sold                 4,301     4,766         (465)   -9.8%
                                --------   -------   ----------   -----
Gross profit                       2,762     1,928          834    43.3%
Gross profit %                      39.1%     28.8%
Operating expenses:
  Sales and marketing              4,731     3,666        1,065    29.1%
  Research and development           302       187          115    61.5%
  General and administrative       1,689     1,381          308    22.3%
                                --------   -------   ----------   -----
Total operating expenses           6,722     5,234        1,488    28.4%
                                --------   -------   ----------   -----
Operating loss                    (3,960)   (3,306)        (654)  -19.8%

Net interest income (expense)          1         1            -     0.0%
                                --------   -------   ----------   -----

Net  loss                       ($ 3,959)  ($3,305)  ($     654)  -19.8%
                                ========   =======   ==========   =====
</TABLE>

The following table presents the statement of operations as a percentage of net
sales for the three month periods ended March 31, 2005 and 2004:

<TABLE>
<CAPTION>
                                 Three months ended
                                     March 31,
                                 ------------------
                                 2005         2004
                                 -----        -----
<S>                              <C>          <C>
Net sales                        100.0%       100.0%
Cost of goods sold                60.9%        71.2%
                                 -----        -----
Gross profit                      39.1%        28.8%
Operating expenses:
  Sales and marketing             67.0%        54.8%
  Research and development         4.3%         2.8%
  General and administrative      23.9%        20.6%
                                 -----        -----
Total operating expenses          95.2%        78.2%
                                 -----        -----
Operating loss                   -56.1%       -49.4%

Net interest income (expense)      0.0%         0.0%
                                 -----        -----

Net  loss                        -56.1%       -49.4%
                                 =====        =====
</TABLE>

                                       9

<PAGE>

Net Sales. The following tables compare net sales between the three month
periods ended March 31, 2005 and 2004:

<TABLE>
<CAPTION>
                                 Three months ended March 31,
                            ---------------------------------------
                                                   Increase
   (in thousands)             2005       2004     (Decrease)    %
---------------------       --------   --------   ----------   ----
<S>                         <C>        <C>        <C>          <C>
United States               $  2,870   $  2,390   $      480   20.1%

Outside United States          4,193      4,304         (111)  -2.6%
                            --------   --------   ----------   ----

Total net sales             $  7,063   $  6,694   $      369    5.5%
                            ========   ========   ==========   ====
</TABLE>

<TABLE>
<CAPTION>
                            Three months ended
                                 March 31,
                            ------------------
                            2005         2004
                            -----        -----
<S>                         <C>          <C>
Share of total net sales:

United States                40.6%        35.7%

Outside United States        59.4%        64.3%
                            -----        -----

Total net sales             100.0%       100.0%
                            =====        =====
</TABLE>

<TABLE>
<CAPTION>
                                    2005 change in
                            Mechanical Heart Valve sales
                            ----------------------------
                            Average
                             Sales       Unit
                             Price       Sales     Total
                            -------      -----     -----
<S>                         <C>          <C>       <C>
United States                -0.1%       10.1%     10.1%

Outside United States        -9.6%        4.4%     -5.6%
                             ----        ----      ----

Total change                 -5.0%        5.3%      0.0%
                             ====        ====      ====
</TABLE>

Our U.S. sales organization in 2005 consists of four area directors managing 31
sales territories, compared to 27 territories in early 2004. Our representation
within these territories consists of both direct sales representatives and
independent agents. This new sales organization and overall greater sales
efforts contributed to our increase in sales for the first three months of 2005
and to our sales within the U.S. accounting for a larger percentage of overall
sales. Also contributing to our net sales growth in the first quarter of 2005
was initial commission income and direct sales revenue from CryoCath's surgical
cryotherapy products under the global partnership agreement entered into in
November 2004.

Since 2003, we have aggressively entered several international markets that
represent opportunities for greater sales unit growth but at prices lower than
our other markets. Prices in some of these territories are lower than our
current manufacturing costs. We feel this strategy is reasonable because it
allows us to increase our market share while reducing our high priced but
paid-for inventories. Once we have exhausted our high priced components, we
expect to have lower manufacturing costs per valve which will allow us to
realize gross profit in these international markets.

Cost of goods sold. Our cost of goods sold as a percentage of net sales has
varied due to changes in average selling price. Our gross profit is anticipated
to improve as sales within the Unites States increase as a percentage of total
sales and as we start selling valves that have been entirely manufactured in our
facilities. Our inventories of high priced carbon components currently exceed
our expected sales during 2005.

The ATS valve is made of materials that do not deteriorate. Other than the need
to resterilize the valves periodically, there is no risk of perishability.
Pyrolytic carbon, which is the substrate used in manufacturing our valves, has
been the only material used to manufacture mechanical heart valves for humans
for many years and remains the most advanced raw material for our products. The
other sources of prosthetic heart valves for humans are cadaver, bovine and
porcine tissues. Inventory obsolescence issues are remote because of certain
advantages offered by mechanical heart valves, including superior durability.
Similarly, we believe that, given the lead time that would be required, there is
no material risk that there would be the introduction and FDA

                                       10

<PAGE>

approval of another substrate that would replace pyrolytic carbon prior to the
end of the period over which we expect to sell our inventory of valves.

Before 2004, all purchased pyrolytic carbon components for the ATS heart valve
came from Carbomedics 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 has been adjusted annually by reference to increases in the U.S.
Department of Labor Employment Cost Index. The supply agreement with Carbomedics
is still in effect but has been re-negotiated several times. Our current
obligations under the supply agreement call for future purchase obligations
starting in 2007 and continuing through 2011.

We maintain significant levels of carbon components in inventory due to past
purchase requirements under the supply agreement. In addition, the cost of these
components has been high and at times exceeded selling prices, necessitating
lower of cost or market write-downs of inventories.

Pyrolytic carbon purchases after 2000 were at a lower cost than previous
purchases. As these lower priced carbon sets are manufactured into finished
valves and sold, our gross profit increased. Also contributing to the higher
gross profit for the first three months of 2005 was the initial commission
revenue and direct sales from sales of CryoCath's surgical cryotherapy products
discussed above. Without the CryoCath revenue, gross profit as a percent of net
sales for the three months ended March 31, 2005 would have been 2.7% lower than
the actual gross profit of 39.1%.

Sales and Marketing. Cost increases in the first three months of 2005 over the
same period in 2004 were for further development, mostly increased personnel
costs, of our worldwide sales and marketing organization. Our U.S. sales and
marketing costs increased approximately $0.6 million to support an increase in
sales territories, the development of marketing programs in support of the new
CryoCath products, and new marketing programs directed at increasing the U.S.
market share of our mechanical heart valves. Internationally, our costs
increased approximately $0.5 million to support efforts to go direct in China
and Germany, and increased sales management.

Research and development. Research and development expenses increased $0.1
million for the first three months of 2005 over the same period in 2004 and
include the costs to develop and improve current and future products and the
costs for regulatory and clinical activities for these products. The increase in
R & D spending reflects staff additions as well as an increase in the number of
R & D programs.

General and administrative. G & A expenses increased $0.3 million for the first
three months of 2005 over the same period in 2004. Major cost increases were for
employee salary and benefits of $0.1 million and outside consulting services
relating primarily to our costs of documenting and testing internal controls of
$0.1 million.

Net interest income (expense). Interest income is primarily attributable to the
investment of our cash balances. In July 2004, we entered into an agreement for
a credit facility consisting of a $2.5 million term note and a $6.0 million line
of credit, and we fully drew down the term note. Interest expense will be higher
in future periods if we borrow funds under the line of credit.

Income taxes. At the end of 2004, we had accumulated approximately $62 million
of net operating loss (NOL) carryforwards for U.S. tax purposes. We believe that
our ability to fully utilize the existing NOL 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 conducted a formal study of whether a change in
control of ATS has occurred in the past that impairs our NOL carryforwards
because we are unable to utilize such NOL carryforwards until we achieve
profitability and because this study would be very expensive to complete. When
we attain profitability, we will conduct a formal study of any restrictions on
our carryforwards. We have not recorded any net assets related to our NOL
carryforwards and other deferred items as we currently cannot determine that it
is reasonably likely that this asset will be realized and we, therefore, have
provided a valuation allowance for the entire asset.

Net loss. Our net loss increased $0.7 million to $4.0 million for the first
three months of 2005 from a net loss of $3.3 million for the same period in the
prior year. The increase in net loss resulted from changes in sales offset by
changes in operating costs, all of which are described above.

                                       11

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LIQUIDITY AND CAPITAL RESOURCES

Cash, cash equivalents and short-term investments were $9.7 million as of March
31, 2005, compared to $16.0 million as of December 31, 2004. This decrease in
cash, cash equivalents, and short-term investments is discussed below.

Operating activities. During the first three months of 2005, we received cash
payments from customers of approximately $6.6 million. We made cash payments to
employees and suppliers of approximately $12.2 million. Our operating loss
during the first three months of 2005 of $4.0 million was substantially funded
through existing cash and investment balances. We have incurred significant
expenses commercializing the ATS heart valve in the United States. As we build
sales in future periods and our cost of inventories decreases, our operating
losses will decrease, and we expect to move steadily towards a cash flow
breakeven on sales and eventually to profitability. We believe our current cash
and investment balances are adequate to fund our operating activities during
2005.

Investing activities. During the first three months of 2005, we purchased
equipment, machinery and furniture totaling $0.6 million. For the remainder of
2005, we expect to purchase approximately $2.0 million of additional equipment.
Capital purchases during 2005 have been mainly in support of increasing
production in our pyrolytic carbon facility.

Financing Activities. During each of the first three months of 2005 and 2004, we
raised approximately $0.1 million through the issuance of common stock through
stock options and our employee stock purchase plan.

In July 2004, we entered into a secured credit facility consisting of a $2.5
million term note and a $6.0 million line of credit, and we fully drew down the
$2.5 million term note. The term note calls for equal installment payments over
36 months which commenced in February 2005. Accordingly, during the first three
months of 2005, we repaid $0.14 million on the note.

Under the secured credit facility, we are subject to certain financial
covenants, including a liquidity ratio of not less than 2.25 to 1 and a net
tangible net worth of at least $46 million through March 31, 2005. At March 31,
2005, the Company was in violation of its liquidity ratio covenant, which was
waived by the bank in a letter dated May 6, 2005. Effective April 1, 2005, the
credit facility agreement was amended to change the liquidity ratio covenant to
2.0 to 1, and the net tangible net worth covenant to $39 million through June
30, 2005, and $36 million thereafter.

CASH MANAGEMENT

During 2005 and into 2006, we will deplete our high priced but paid-for
inventories of pyrolytic carbon components. We have started increasing
production of these components in our own factory. This will require the use of
cash as we purchase raw materials and incur employee costs and overhead to
manufacture the inventory. We estimate that operating costs will remain high in
comparison to sales during 2005 and will require the use of cash to fund
operations. We will draw down cash balances to build inventories and fund
operations during 2005.

In April 2004 we signed an exclusive development and licensing agreement with
ErySave AB and made an initial milestone payment of approximately $0.2 million.
Future payments under this agreement, based upon the attainment of developmental
milestones, could total an additional $1.1 million. These payments are expected
to occur during 2005 and 2006.

In November 2004 we signed a global partnership agreement with Canadian-based
CryoCath Technologies, Inc. to market CryoCath's surgical cryotherapy products
for the ablation of cardiac arrhythmias. For certain customers to which we will
market, we have agreed to make a payment to CryoCath representing a portion of
the prior year's sales to these customers and future payments of a certain
percentage of the sales occurring over the following three-year period. These
payments are refundable to us upon cancellation of the agreements. We expect
that these payments will occur during the second quarter of 2005.

Based upon the current forecast of sales and operating expenses, we anticipate
having cash to fund our operations through 2005. However, as identified under
the heading of "Cautionary Statements" 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

                                       12

<PAGE>

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.

OFF-BALANCE SHEET ARRANGEMENTS

We do not have any "off-balance sheet arrangements" (as such term is defined in
Item 303 of Regulation S-K) that are reasonably likely to have a current or
future effect on our financial condition, changes in financial condition,
revenues or expenses, results of operations, liquidity, capital expenditures or
capital resources.

CAUTIONARY STATEMENTS

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

IF OUR HEART VALVE DOES NOT ACHIEVE WIDESPREAD MARKET ACCEPTANCE IN THE UNITED
STATES, OUR OPERATING RESULTS WILL BE HARMED AND WE MAY NOT ACHIEVE
PROFITABILITY.

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

WE CURRENTLY RELY ON THE ATS HEART VALVE AS OUR PRIMARY SOURCE OF REVENUE. IF WE
ARE NOT SUCCESSFUL IN SELLING THIS PRODUCT, OUR OPERATING RESULTS WILL BE
HARMED.

      We have developed only one product, which is currently being sold
primarily outside the United States. Even if we were to develop additional
products, regulatory approval would likely be required to sell them. Clinical
testing and the approval process itself are very expensive and can take many
years. Therefore, we do not expect to be in a position to sell additional
products in the foreseeable future. Adverse rulings by regulatory authorities,
product liability lawsuits, the failure to achieve widespread U.S. market
acceptance, the loss of market acceptance outside of the United States, or other
adverse publicity may significantly and adversely affect our sales of the ATS
heart valve, and, as a result, would adversely affect our business, financial
condition and results of operations.

IN 2002, WE BEGAN USING A COMBINATION OF DIRECT SALES PERSONS AND INDEPENDENT
MANUFACTURING REPRESENTATIVES TO SELL OUR VALVES IN THE UNITED STATES. IF OUR
U.S. SALES STRATEGY IS NOT SUCCESSFUL, WE WILL NOT BE ABLE TO CONTINUE OUR
OPERATIONS AS PLANNED.

      Our sales approach for the sale of the ATS valve in the United States
consists primarily of direct salespersons with a few independent manufacturer's
representatives. We will need to continue to expend significant funds and
management resources to develop and maintain this hybrid sales force. We believe
there is significant competition for sales personnel and independent
manufacturing representatives with the advanced sales skills and technical
knowledge we need. If we are unable to recruit, retain and motivate qualified
personnel and representatives, U.S. sales of the ATS valve could be adversely
affected. The loss of key salespersons or independent manufacturer's
representatives could have a material adverse effect on our sales or potential
sales

                                       13

<PAGE>

to current customers and prospects serviced by such salespersons or
representatives. Further, we cannot assure the successful expansion of our
network of independent manufacturer's representatives on terms acceptable to
ATS, if at all, or the successful marketing of our products by our hybrid sales
force. To the extent we rely on sales through independent manufacturer's
representatives, any revenues we receive will depend primarily on the efforts of
these parties. We do not control the amount and timing of marketing resources
that these third parties devote to our product. If our U.S. sales strategy is
not successful, we may be forced to change our U.S. sales strategy again. Any
such change could disrupt sales in the United States. Further, any change in our
U.S. sales strategy could be expensive and would likely have a material adverse
impact on our results of operations.

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

      The ATS heart valve is sold internationally through independent
distributors. The loss of an international distributor could seriously harm our
business and results of operations if a new distributor could not be found on a
timely basis in the relevant geographic market. We do not control the amount and
timing of marketing resources that these third parties devote to our product.
Furthermore, to the extent we rely on sales through independent distributors,
any revenues we receive will depend primarily on the efforts of these parties.

WE ARE DEPENDENT UPON SALES OUTSIDE THE UNITED STATES, WHICH ARE SUBJECT TO A
NUMBER OF RISKS INCLUDING A DROP IN SALES DUE TO CURRENCY FLUCTUATIONS.

      For the three months ended March 31, 2005, almost 60% of our net sales
were derived from international operations. We expect that international sales
will account for a substantial majority of our revenue until the ATS heart valve
receives wider market acceptance from U.S. customers. Accordingly, any material
decrease in foreign sales may materially and adversely affect our results of
operations.

      We sell in U.S. dollars to most of our customers abroad. An increase in
the value of the U.S. dollar in relation to other currencies can and has
adversely affected our sales outside of the United States. In prior years, the
decrease in sales was due primarily to the change in the value of the U.S.
dollar against the Euro, as well as competitor price pressure. Our dependence on
sales outside of the United States will continue to expose us to U.S. dollar
currency fluctuations for the foreseeable future.

      Our future results of operations could also be harmed by risks inherent in
doing business in international markets, including:

      -     unforeseen changes in regulatory requirements and government health
            programs;

      -     weaker intellectual property rights protection in some countries;

      -     new export license requirements, changes in tariffs or trade
            restrictions;

      -     political and economic instability in our target markets; and

      -     greater difficulty in collecting payments from product sales.

      Slow payment of receivables by our international distributors, or the
occurrence of any of the other factors listed above, could harm our ability to
successfully commercialize our product internationally and could harm our
business.

WE HAVE A HISTORY OF NET LOSSES. IF WE DO NOT HAVE NET INCOME IN THE FUTURE, WE
MAY BE UNABLE TO CONTINUE OUR OPERATIONS.

      We are not currently profitable and have a very limited history of
profitability. As of March 31, 2005, we had an accumulated deficit of $71.5
million. We expect to incur significant expenses over the next several years as
we continue to devote substantial resources to the commercialization of the ATS
heart valve in the United States. We will not generate net income unless we are
able to significantly increase revenue from U.S. sales. If we continue to
sustain losses, we may not be able to continue our business as planned.

THE MARKET FOR PROSTHETIC HEART VALVES IS HIGHLY COMPETITIVE, AND A NUMBER OF
OUR COMPETITORS ARE LARGER AND HAVE MORE FINANCIAL RESOURCES. IF WE DO NOT
COMPETE EFFECTIVELY, OUR BUSINESS WILL BE HARMED.

      The market for prosthetic heart valves is highly competitive. We expect
that competition will intensify as additional companies enter the market or
modify their existing products to compete directly with us. Our primary
competitor, St. Jude Medical, Inc., currently controls approximately 50% of the
worldwide mechanical heart valve market. Many of our competitors have
long-standing FDA approval for their valves and extensive

                                       14

<PAGE>

clinical data demonstrating the performance of their valves. In addition, they
have greater financial, manufacturing, marketing and research and development
capabilities than we have. For example, many of our competitors have the
ability, due to their internal carbon manufacturing facilities and economies of
scale, to manufacture their heart valves at a lower cost than we can manufacture
our ATS heart valve. Our primary competitor has recently used price as a method
to compete in several international markets. If heart valve prices decline
significantly we might not be able to compete successfully, which would harm our
results of operations.

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

      Our business could suffer if the use of mechanical heart valves declines.
Historically, mechanical heart valves have accounted for over two-thirds of all
heart valve replacements. Recently, there has been an increase in the use of
tissue valves. We estimate that mechanical heart valves are currently being used
in 40% to 65% of all heart valve replacements, depending on the geographic
market, down from 65 to 75% about ten years ago. We believe the tissue
manufacturers' claims of improvements in tissue valve longevity and an increase
in the average age of valve patients have contributed to the recent increase in
the use of tissue valves.

NEW PRODUCTS OR TECHNOLOGIES DEVELOPED BY OTHERS COULD RENDER OUR PRODUCT
OBSOLETE.

      The medical device industry is characterized by significant technological
advances. Several companies are developing new prosthetic heart valves based on
new or potentially improved technologies. Significant advances are also being
made in surgical procedures, which may delay the need for replacement heart
valves. A new product or technology may emerge that renders the ATS heart valve
noncompetitive or obsolete. This could materially harm our results of operations
or force us to cease doing business altogether.

WE MAINTAIN A LARGE VOLUME OF INVENTORY, WHICH EXCEEDS THE CURRENT DEMAND FOR
THE ATS HEART VALVE. IF SALES OF OUR PRODUCT DO NOT INCREASE, THE VALUE OF OUR
INVENTORY COULD DECREASE SUBSTANTIALLY.

      We purchased pyrolytic carbon components under a long-term supply
agreement with Carbomedics through June 2002, and we are required to resume
purchases of such components in 2007. To date, our purchases of pyrolytic carbon
components have exceeded our sales of the ATS heart valves. We currently have in
inventory enough pyrolytic carbon components to satisfy our projected
requirements through 2005. If we are unable to achieve widespread acceptance for
the ATS heart valve or if competitive pressures result in price reductions, the
value of the excess inventory would likely decrease, which could seriously harm
our results of operations and financial condition. Because the pyrolytic carbon
components are made to meet the unique specifications of the ATS heart valve,
our inventory may have little, if any, value in the open market.

WE LICENSE PATENTED TECHNOLOGY AND OTHER PROPRIETARY RIGHTS FROM CARBOMEDICS. IF
THESE AGREEMENTS ARE BREACHED OR TERMINATED, OUR RIGHT TO MANUFACTURE THE ATS
HEART VALVE COULD BE TERMINATED.

      Under our carbon technology agreement with Carbomedics, we have obtained a
license to use Carbomedics' pyrolytic carbon technology to manufacture
components for the ATS heart valve. If this agreement is breached or terminated,
we would be unable to manufacture our own product. If our inventory is exhausted
and we do not have any other sources of carbon components, we would be forced to
cease doing business.

A DELAY OR INTERRUPTION IN THE SUPPLY OF PYROLYTIC CARBON COMPONENTS COULD DELAY
PRODUCT DELIVERY OR FORCE US TO CEASE OPERATIONS.

      We cannot be certain that, after our current inventory is exhausted,
sufficient quantities of pyrolytic carbon components will be available to
assemble the ATS heart valve. Other than our carbon facility, the only other
FDA-approved alternate supplier of our pyrolytic carbon components is
Carbomedics. Although we have a supply agreement with Carbomedics under which it
agrees to supply us with a minimum annual number of pyrolytic carbon components
during 2007 through 2011, the amounts available under this agreement are not
expected to be sufficient to supply all of our needs for components in those
years. If our inventory is exhausted and we are unable to manufacture carbon
components or obtain them from other sources, we could be forced to reduce or
cease operations.

BECAUSE WE LACK MANUFACTURING EXPERIENCE, WE MAY NOT REALIZE EXPECTED SAVINGS
FROM MANUFACTURING OUR OWN PRODUCT. IN ADDITION, WE COULD EXPERIENCE PRODUCTION
DELAYS AND SIGNIFICANT ADDITIONAL COSTS.

      Under our agreement with Carbomedics, we have been granted an exclusive
worldwide license to manufacture pyrolytic carbon components for the ATS heart
valve. We cannot be certain that our strategy to

                                       15

<PAGE>

establish internal manufacturing capabilities will result in a cost-effective
means for manufacturing the ATS heart valve. We have limited experience in
manufacturing pyrolytic carbon. Although we have an FDA-approved carbon
manufacturing facility, we have only just started increasing production to
higher levels. In the future as we continue to increase production at the plant,
we may encounter difficulties in maintaining and expanding our manufacturing
operations, including problems involving:

      -     production yields;

      -     quality control;

      -     per unit manufacturing costs;

      -     shortages of qualified personnel; and

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

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

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

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

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

WE MAY FACE PRODUCT LIABILITY CLAIMS, WHICH COULD RESULT IN LOSSES IN EXCESS OF
OUR INSURANCE COVERAGE AND WHICH COULD NEGATIVELY AFFECT OUR ABILITY TO ATTRACT
AND RETAIN CUSTOMERS.

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

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

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

                                       16

<PAGE>

WE MAY BE SUED BY THIRD PARTIES WHICH CLAIM THAT OUR PRODUCT INFRINGES ON THEIR
INTELLECTUAL PROPERTY RIGHTS. ANY SUCH SUITS COULD RESULT IN SIGNIFICANT
LITIGATION OR LICENSING EXPENSES OR WE MIGHT BE PREVENTED FROM SELLING OUR
PRODUCT.

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

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

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

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

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

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

      -     maintain the approval of the FDA and international regulatory
            agencies to continue selling the ATS heart valve;

      -     obtain the approval of international regulatory agencies in
            countries where the ATS heart valve is not yet marketed;

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

      -     comply with manufacturing and reporting requirements; and

      -     undergo rigorous inspections by these agencies.

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

THE PRICE OF OUR COMMON STOCK HAS BEEN VOLATILE, WHICH MAY RESULT IN LOSSES TO
INVESTORS.

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

      -     the success of our management in operating ATS effectively;

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

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

      -     the status of component supply arrangements;

      -     changes in reimbursement policies;

      -     government regulation;

      -     developments in patent or other proprietary rights;

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

      -     general market conditions.

      In addition, due to one or more of the foregoing factors, in future years
our results of operations may fall below the expectations of securities analysts
and investors. In that event, the market price of our common stock could be
materially and adversely affected. Finally, in recent years the stock market has
experienced extreme price and volume fluctuations. This volatility has had a
significant effect on the market prices of securities issued by many companies
for reasons unrelated to their operating performance. These broad market
fluctuations may materially adversely affect our stock price, regardless of our
operating results.

                                       17

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OUR CHARTER DOCUMENTS AND MINNESOTA LAW MAY DISCOURAGE AND COULD DELAY OR
PREVENT A TAKEOVER OF OUR COMPANY.

      Provisions of our articles of incorporation, bylaws and Minnesota law
could make it more difficult for a third party to acquire us, even if doing so
would be beneficial to our shareholders. These provisions include the following:

      -     No cumulative voting by shareholders for directors;

      -     The ability of our board to set the size of the board of directors,
            to create new directorships and to fill vacancies;

      -     The ability of our board, without shareholder approval, to issue
            preferred stock, which may have rights and preferences that are
            superior to our common stock;

      -     The ability of our board to amend the bylaws; and

      -     Restrictions under Minnesota law on mergers or other business
            combinations between us and any holder of 10% or more of our
            outstanding common stock.

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<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 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, and both government and non-government debt
securities. The average duration of all 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.

In the United States, Canada, France and Germany, we sell our products directly
to hospitals. In other international markets, we sell our products to
independent distributors who, in turn, sell to medical hospitals. 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 and Germany, are entered into in U.S. dollars, precluding the need for
foreign currency hedges on such sales. Sales through our French and German
subsidiaries are in Euros, so we are 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.

We do not believe that inflation has had a material effect on our results of
operations in recent years and periods. There can be no assurance, however, that
our business will not be adversely affected by inflation in the future.

ITEM 4. CONTROLS AND PROCEDURES

(a) Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including
our Chief Executive Officer and our Chief Financial Officer, we evaluated the
effectiveness of the design and operation of our disclosure controls and
procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of
1934, as amended (the Exchange Act)). Based upon that evaluation, the Chief
Executive Officer and Chief Financial Officer concluded that, as of the end of
the period covered by this report, our disclosure controls and procedures were
effective.

(b) Changes in Internal Control over Financial Reporting

As previously reported, in connection with our assessment of the effectiveness
of our internal control over financial reporting at the end of our last fiscal
year, we identified a material weakness in our internal control over financial
reporting. The deficiency in our internal control related to ineffective
application of inventory verification procedures, including cycle count
procedures. Historically, we have relied on cycle counting procedure to
substantiate inventory quantities in lieu of taking physical inventories. During
our evaluation of internal control over our cycle counting procedures, we
determined that our processes in place during 2004 were neither sufficient nor
documented adequately to rely upon. We therefore conducted a physical inventory
after year end which confirmed the accuracy of our inventory as recorded in our
financial statements for the year ended December 31, 2004.

Other than as described in the preceding paragraph, there has been no change in
our internal control over financial reporting (as defined in Rule 13a-15(f)
under the Exchange Act) during the most recent fiscal quarter that has
materially affected, or is reasonably likely to materially affect, our internal
control over financial reporting.


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<PAGE>

                           PART II. OTHER INFORMATION

ITEM 6.  EXHIBITS

         3.1   Restated Articles of Incorporation, as amended to date
               (Incorporated by reference to Exhibit 3.1 to the Company's Annual
               Report on Form 10-K for the year ended December 31, 1993)

         3.2   Bylaws of the Company, as amended to date (Incorporated by
               reference to Exhibit 3.2 to the Company's Annual Report on Form
               10-K for the year ended December 31, 1996)

         4.1   Specimen certificate for shares of Common Stock of the Company
               (Incorporated by reference to Exhibit 4.1 to the Company's Annual
               Report on Form 10-K for the year ended December 31, 1997)

         10.1  Amendment Agreement, dated March 24, 2005, to the Credit
               Agreement between Silicon Valley Bank and the Company, dated July
               28, 2004 (Incorporated by reference to Exhibit 10.1 to the
               Company's Current Report on Form 8-K filed on March 30, 2005)

         10.2  2005 ATS Medical Management Incentive Compensation Plan (MICP)

         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)

                                       20

<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: May 9, 2005              ATS MEDICAL, INC.

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

                                    By: /s/ John R. Judd
                                        -----------------
                                        John R. Judd, Chief Financial Officer
                                        (Principal Accounting Officer)

                                       21

<PAGE>

                                  EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT NUMBER    DESCRIPTION
<S>               <C>
3.1               Restated Articles of Incorporation, as amended to date
                  (Incorporated by reference to Exhibit 3.1 to the Company's
                  Annual Report on Form 10-K for the year ended December 31,
                  1993)

3.2               Bylaws of the Company, as amended to date (Incorporated by
                  reference to Exhibit 3.2 to the Company's Annual Report on
                  Form 10-K for the year ended December 31, 1996)

4.1               Specimen certificate for shares of Common Stock of the Company
                  (Incorporated by reference to Exhibit 4.1 to the Company's
                  Annual Report on Form 10-K for the year ended December 31,
                  1997)

10.1              Amendment Agreement, dated March 24, 2005, to the Credit
                  Agreement between Silicon Valley Bank and the Company, dated
                  July 28, 2004 (Incorporated by reference to Exhibit 10.1 to
                  the Company's Current Report on Form 8-K filed on March 30,
                  2005)

10.2              2005 ATS Medical Management Incentive Compensation Plan (MICP)

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)
</TABLE>

                                       22