<PAGE>

================================================================================

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   ----------

                                   FORM 10-Q/A
                                (AMENDMENT NO. 1)

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

                  FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2006

                           COMMISSION FILE NO. 0-18602

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

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

<TABLE>
<S>                                                            <C>
    3905 ANNAPOLIS LANE N., SUITE 105
         MINNEAPOLIS, MINNESOTA                                     55447
(Address of principal executive offices)                         (Zip Code)
</TABLE>

       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 a large accelerated
filer, an accelerated filer, or a non-accelerated filer. See definition of
"accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange
Act (Check One):

     Large accelerated filer     Accelerated filer  X  Non-accelerated filer
                             ---                   ---                       ---

     Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act).

                                 Yes     No  X
                                     ---    ---

     The number of shares outstanding of each of the registrant's classes of
common stock as of July 5, 2006, was:

     Common Stock, $.01 par value 31,231,891 shares

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

                                EXPLANATORY NOTES

OVERVIEW. This Amendment No. 1 on Form 10-Q/A (the "Form 10-Q/A") to our
Quarterly Report on Form 10-Q for the quarter ended March 31, 2006, initially
filed with the Securities and Exchange Commission ("SEC") on May 9, 2006 (the
"Original Filing"), is being filed to restate our first quarter 2006
consolidated financial statements, certain notes to our first quarter 2006
consolidated financial statements and other financial information to give effect
to derivative accounting treatment required for the Company's Convertible Senior
Notes issued in October, 2005 (the "Notes").

The information contained in this Form 10-Q/A, including the financial
statements and notes thereto, amends Items 1, 2 and 4 of Part I, and Items 1A
and 6 of Part II of our Original Filing, in each case to reflect only the
adjustments described herein, and no other information in our Original Filing is
amended hereby. Except for the foregoing amended information, the Original
Filing, as amended, continues to describe conditions as of May 9, 2006, the date
of the Original Filing, and does not reflect events occurring after May 9, 2006,
or modify or update those disclosures that may have been affected by subsequent
events.

FINANCIAL STATEMENT RESTATEMENT. As stated above, we are filing this Form 10-Q/A
to restate our first quarter 2006 consolidated financial statements and other
financial information to give effect to derivative accounting treatment required
for the Notes. The determination to restate these financial statements was made
after an error was discovered in June 2006 in the accounting for embedded
derivatives related to the Notes under Financial Accounting Standards Board
(FASB) Statement No.133, Accounting for Derivative Instruments and Hedging
Activities and related Emerging Issues Task Force (EITF) interpretations and SEC
rules.

The following table summarizes the effect of the restatement on the statement of
operations (dollars in thousands):

<TABLE>
<CAPTION>
                                                  Three Months Ended March 31, 2006
                                              -----------------------------------------
                                              As Previously
                                                 Reported     Adjustments   As Restated
                                              -------------   -----------   -----------
<S>                                           <C>             <C>           <C>
Operating loss                                   $(2,449)           --        $(2,449)
Interest expense, net of interest income            (299)          (12)          (311)
Change in value of derivative liability
   bifurcated from convertible senior notes           --         1,185          1,185
Net loss                                         $(2,748)       $1,173        $(1,575)
Net loss per share-basic and diluted             $ (0.09)       $ 0.04        $ (0.05)
</TABLE>

The restatement does not have an impact on cash flow.

IMPACT ON MANAGEMENT'S EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES. In
connection with the restatement, we reevaluated our disclosure controls and
procedures. We concluded that our failure to correctly apply FASB Statement
No.133 and its related interpretations and rules with respect to the embedded
derivative accounting treatment required for the Notes constituted a material
weakness in our internal control over financial reporting. Solely as a result of
this material weakness, we concluded that our disclosure controls and procedures
were not effective as of March 31, 2006.

We have performed a thorough analysis of all of the provisions in the Notes and
related agreements for embedded derivatives under FASB Statement No.133 and the
related EITF interpretations and SEC rules, in an effort to ensure that this
Amendment reflects all necessary adjustments.

CERTIFICATIONS. Pursuant to the rules of the SEC, Item 6 of Part II of the
Original Filing has been amended to contain currently-dated certifications from
our Chief Executive Officer and Chief Financial Officer, as required by Sections
302 and 906 of the Sarbanes-Oxley Act of 2002. The certifications of our Chief
Executive Officer and Chief Financial Officer are attached to this Form 10-Q/A
as Exhibits 31.1, 31.2, 32.1 and 32.2.


                                        2

<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, 2006 (Restated) and December 31, 2005
              (Restated)                                                       3

              Consolidated Statements of Operations for the three
              months ended March 31, 2006 (Restated) and 2005                  4

              Consolidated Statements of Cash Flows for the three
              months ended March 31, 2006 (Restated) and 2005                  5

              Notes to Consolidated Financial Statements (Restated)       6 - 15

ITEM 2.    Management's Discussion and Analysis of
           Financial Condition and Results of Operations (Restated)      15 - 21

ITEM 4.    Controls and Procedures (Restated)                                 22

PART II.   OTHER INFORMATION

ITEM 1A.   Risk Factors (Restated)                                            23

ITEM 6.    Exhibits (Restated)                                                23

SIGNATURES                                                                    24

EXHIBIT INDEX                                                                 25
</TABLE>


                                        3
<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,
                                                                          2006           2005
                                                                     -------------   ------------
                                                                     (RESTATED AND    (RESTATED)
                                                                       UNAUDITED)
<S>                                                                  <C>             <C>
ASSETS
Current assets:
   Cash and cash equivalents                                           $ 11,235        $ 16,620
   Short-term investments                                                 7,237           5,089
   Accounts receivable, net                                              11,667          10,453
   Inventories                                                           20,157          21,286
   Prepaid expenses                                                       1,956           1,204
                                                                       --------        --------
Total current assets                                                     52,252          54,652
Leasehold improvements, furniture and equipment, net                      7,983           8,330
Intangible assets                                                        21,943          22,015
Other assets                                                                444             446
                                                                       --------        --------
Total assets                                                           $ 82,622        $ 85,443
                                                                       ========        ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
   Accounts payable                                                    $  2,881        $  3,598
   Accrued compensation                                                   1,497           2,394
   Accrued distributor liabilities                                          567             752
   Other accrued liabilities                                                890             568
   Due to related party                                                      36              90
   Current maturities of notes payable                                      983             833
                                                                       --------        --------
Total current liabilities                                                 6,854           8,235
Convertible senior notes payable, net of unamortized
   discounts and bifurcated derivatives of $4,773 (restated) and
   $3,624 (restated) at March 31, 2006 and December 31 ,2005             17,627          18,776
Notes payable                                                             2,044             903
Shareholders' equity:
   Common stock, $.01 par value:
      Authorized shares - 40,000,000
      Issued and outstanding shares- 31,206,461 and 31,114,131
         at March 31, 2006 and December 31, 2005                            312             311
   Additional paid-in capital                                           139,366         139,743
   Deferred compensation                                                     --            (566)
   Accumulated other comprehensive income (loss)                           (111)            (64)
   Accumulated deficit                                                  (83,470)        (81,895)
                                                                       --------        --------
Total shareholders' equity                                               56,097          57,529
                                                                       --------        --------
Total liabilities and shareholders' equity                             $ 82,622        $ 85,443
                                                                       ========        ========
</TABLE>

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


                                        4

<PAGE>

                                ATS MEDICAL, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (unaudited)
                      (in thousands, except per share data)

<TABLE>
<CAPTION>
                                                          THREE MONTHS ENDED MARCH 31,
                                                          ----------------------------
                                                                2006         2005
                                                             ----------   ---------
                                                             (RESTATED)
<S>                                                       <C>             <C>
Net sales                                                    $   9,730    $  7,063
Cost of goods sold                                               4,998       4,301
                                                             ---------    --------
Gross profit                                                     4,732       2,762
Operating expenses:
   Sales and marketing                                           4,834       4,731
   Research and development                                        405         302
   General and administrative                                    1,942       1,689
                                                             ---------    --------
Total operating expenses                                         7,181       6,722
                                                             ---------    --------
Operating loss                                                  (2,449)     (3,960)
Net interest income (expense)                                     (311)          1
Change in value of derivative liability bifurcated from
   convertible senior notes                                      1,185          --
                                                             ---------    --------
Net loss                                                      ($1,575)     ($3,959)
                                                             =========    ========
Net loss per share:
   Basic and diluted                                           ($0.05)      ($0.13)
                                                             =========    ========
Weighted average number of shares used in calculation:
   Basic and diluted                                            31,187      30,913
                                                             =========    ========
</TABLE>

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


                                        5
<PAGE>

                                ATS MEDICAL, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOW
                                  (unaudited)
                                 (in thousands)

<TABLE>
<CAPTION>
                                                      THREE MONTHS ENDED MARCH 31,
                                                      ----------------------------
                                                             2006        2005
                                                          ----------   -------
                                                          (RESTATED)
<S>                                                   <C>              <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss                                                    ($1,575)   ($3,959)
Adjustments to reconcile net loss to net cash
   used in operating activities:
   Depreciation                                                 439        369
   Loss on disposal of equipment                                  5         17
   Stock compensation expense                                   199          4
   Non-cash interest expense                                    115          7
   Change in value of convertible senior notes
      derivative liability                                   (1,185)        --
   Changes in operating assets and liabilities:
      Accounts and other receivables                         (1,214)      (456)
      Inventories                                             1,129        321
      Prepaid expenses                                         (752)         5
      Other                                                    (100)        --
      Accounts payable and accrued expenses                  (1,531)    (1,937)
                                                           --------    -------
Net cash used in operating activities                        (4,470)    (5,629)

CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of short-term investments                           (3,842)      (497)
Maturities of short-term investments                          1,694      3,893
Purchases of furniture, machinery and equipment                 (97)      (601)
                                                           --------    -------
Net cash provided by (used in) investing activities          (2,245)     2,795

CASH FLOWS FROM FINANCING ACTIVITIES
Advances on notes payable                                     1,500         --
Repayments of notes payable                                    (209)      (139)
Net proceeds from sales of common stock                          86         92
                                                           --------    -------
Net cash provided by (used in) financing activities           1,377        (47)
                                                           --------    -------
Effect of exchange rate changes on cash                         (47)       (57)
                                                           --------    -------
Decrease in cash and cash equivalents                        (5,385)    (2,938)
Cash and cash equivalents at beginning of period             16,620      8,302
                                                           --------    -------
Cash and cash equivalents at end of period                 $ 11,235    $ 5,364
                                                           ========    =======
</TABLE>

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


                                        6

<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/A 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 the Company's Annual Report on Form
10-K (as amended) for the fiscal year ended December 31, 2005.

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.

2. RESTATEMENT OF FINANCIAL STATEMENTS

The Company has restated its financial statements as of and for the three months
ended March 31, 2006. In addition, certain disclosures in note 7 of the notes to
the consolidated financial statements in this report have been revised to
reflect the restatement adjustments. The determination to restate these
financial statements was made after an error was discovered in June 2006 in the
accounting for embedded derivatives related to its Convertible Senior Notes (the
Notes) under Financial Accounting Standards Board (FASB) Statement No.133,
Accounting for Derivative Instruments and Hedging Activities and related
Emerging Issues Task Force (EITF) interpretations and Securities and Exchange
Commission (SEC) rules.

The Convertible Senior Notes agreement permits Note holders to exchange their
debt instruments for common stock at a conversion rate of $4.20 per share. The
Company had insufficient authorized common shares as of the closing date, which
requires this embedded instrument to be bifurcated from the debt agreement and
classified as a liability in accordance with EITF 00-19. In addition, certain
other features have been identified as derivatives and included in the liability
as described in Note 7. The adjustments made to restate the financial statements
as of and for the three months ended March 31, 2006 were:

     (a)  Establish the beginning value ($5.5 million) of the derivative
          liability bifurcated from the Notes and the offsetting discount.

     (b)  Amortize the discount to interest expense from the date of issuance of
          the Notes and adjust amortization on the discount related to warrants
          issued with the Notes, resulting in a net increase to interest
          expense.

     (c)  Adjust the Notes bifurcated derivative liability to fair value at
          March 31, 2006, resulting in non-operating other income of $1.2
          million.


                                        7

<PAGE>

The following table presents the effect of the restatement on the balance sheet
(dollars in thousands):

<TABLE>
<CAPTION>
                                                              AT MARCH 31, 2006
                                           -------------------------------------------------------
                                           AS PREVIOUSLY                  ADJUSTMENT
                                              REPORTED     ADJUSTMENTS   DESCRIPTION   AS RESTATED
                                           -------------   -----------   -----------   -----------
<S>                                        <C>             <C>           <C>           <C>
Convertible senior notes payable, net of
   unamortized discounts and bifurcated
   derivatives of $4,773 (restated) and
   $3,624 (restated) at March 31, 2006
   and December 31 ,2005                     $ 20,969        $(3,342)     (a)(b)(c)     $ 17,627
Accumulated deficit                          $(86,812)       $ 3,342         (b)(c)     $(83,470)
</TABLE>

The following table presents the effect of the restatement on the statement of
operations (dollars in thousands):

<TABLE>
<CAPTION>
                                                            THREE MONTHS ENDED MARCH 31, 2006
                                                 -------------------------------------------------------
                                                 AS PREVIOUSLY                  ADJUSTMENT
                                                    REPORTED     ADJUSTMENTS   DESCRIPTION   AS RESTATED
                                                 -------------   -----------   -----------   -----------
<S>                                              <C>             <C>           <C>           <C>
Operating loss                                      $(2,449)           --                      $(2,449)
Net interest income (expense)                          (299)          (12)          (b)           (311)
Change in value of derivative liability
   bifurcated from convertible senior notes              --         1,185           (c)          1,185
                                                    -------        ------                      -------
Net loss                                            $(2,748)       $1,173                      $(1,575)
                                                    =======        ======                      =======
Net loss per share:
   Basic and diluted                                $ (0.09)       $ 0.04                      $ (0.05)
Weighted average number of shares outstanding:
   Basic and diluted                                 31,187            --                       31,187
</TABLE>

The following table presents the effect of the restatement on the statement of
cash flows (dollars in thousands):

<TABLE>
<CAPTION>
                                                         THREE MONTHS ENDED MARCH 31, 2006
                                              -------------------------------------------------------
                                              AS PREVIOUSLY                  ADJUSTMENT
                                                 REPORTED     ADJUSTMENTS   DESCRIPTION   AS RESTATED
                                              -------------   -----------   -----------   -----------
<S>                                           <C>             <C>           <C>           <C>
OPERATING ACTIVITIES
Net loss                                         $(2,748)       $ 1,173        (b)(c)       $(1,575)
Adjustments to reconcile net loss to net
   cash used in operating activities:
      Depreciation                                   439             --                         439
      Loss on disposal of equipment                    5             --                           5
      Stock compensation expense                     199             --                         199
      Non-cash interest expense                      103             12           (b)           115
      Change in value of convertible senior
         notes derivative liability                   --         (1,185)          (c)        (1,185)
      Changes in operating assets and
         liabilities:
         Accounts and other receivables           (1,214)            --                      (1,214)
         Inventories                               1,129             --                       1,129
         Prepaid expenses                           (752)            --                        (752)
         Other                                      (100)            --                        (100)
         Accounts payable and accrued
            expenses                              (1,531)            --                      (1,531)
                                                 -------        -------                     -------
Net cash used in operating activities            $(4,470)            --                     $(4,470)
</TABLE>


                                        8
<PAGE>

NOTE 3. STOCK-BASED COMPENSATION

The Company accounts for its stock-based employee compensation plans under the
recognition and measurement principles of Financial Accounting Standards Board
(FASB) Statement No. 123 (Revised 2004), Share-Based Payment (Statement 123(R)),
which revises FASB Statement No. 123, Accounting for Stock-Based Compensation,
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 No. 123.
However, Statement 123(R) requires all share-based payments to employees to be
recognized in the income statement based on their fair values. Pro forma
disclosure is no longer an alternative.

Statement 123(R) was adopted by the Company on January 1, 2006. The Company
adopted Statement 123(R) using the modified prospective transition method. In
accordance with the modified prospective transition method, the Company has not
restated its consolidated financial statements for prior periods. Under this
transition method, stock-based compensation expense for the first quarter of
2006 includes stock-based compensation expense for all of the Company's
stock-based compensation awards granted prior to, but not yet vested as of,
January 1, 2006, based on the grant-date fair value estimated in accordance with
the provision of Statement No. 123. Stock-based compensation expense for all
stock-based compensation awards granted on or after January 1, 2006 will be
based on the grant-date fair value estimated in accordance with the provisions
of Statement 123(R).

The Company uses the Black-Scholes-Merton (Black-Scholes) option pricing model
as its method for determining fair value of stock option grants, which was also
used by the Company for its pro forma information disclosures of stock-based
compensation expense as required under Statement No. 123, prior to the adoption
of Statement 123(R). The fair value of restricted stock unit awards (RSUs) is
determined based on the closing market price on the date of the award.

The Company uses the single option (i.e. straight-line) method of attributing
the value of stock-based compensation expense for all stock option grants. Upon
adoption of Statement 123(R), the Company changed its method of attributing the
value of stock-based compensation expense on RSUs from the multiple-option (i.e.
accelerated) approach to the single option method. Compensation expense for RSUs
awarded prior to January 1, 2006 will continue to be subject to the accelerated
multiple option method specified in FASB Interpretation No. 28 (FIN 28),
Accounting for Stock Appreciation Rights and Other Variable Stock Option or
Award Plans, while compensation expense for RSUs awarded or granted on or after
January 1, 2006 will be recognized using the single option method. Stock
compensation expense for all stock-based grants and awards is recognized over
the service or vesting period of each grant or award.

Statement 123(R) requires forfeitures to be estimated at the time of grant and
revised, if necessary, in subsequent periods if actual forfeitures differ from
those estimates in order to derive the Company's best estimate of awards
ultimately expected to vest. Forfeitures represent only the unvested portion of
a surrendered option and are typically estimated based on historical experience.
Based on an analysis of the Company's historical data, the Company applied an
11.85% forfeiture rate to stock options outstanding in determining its Statement
123(R) stock compensation expense for the quarter ended March 31, 2006, which it
believes is a reasonable forfeiture estimate for the period. In the Company's
pro forma information required under Statement No. 123 for the periods prior to
2006, the Company accounted for forfeitures as they occurred.

The Company has an Stock Incentive Plan (the Plan) under which stock options to
purchase Common Stock of the Company may be granted or restricted stock units
may be awarded to employees and non-employees of the Company. Stock options may
be granted under the Plan as incentive stock options (ISO) or as non-qualified
stock options (non-ISO). The Company also has stock options outstanding from a
previous equity compensation plan as well as free-standing options not under any
plan. In addition, the Company has an Employee Stock Purchase Plan (ESPP) under
which employees are eligible to purchase Common Stock of the Company on a
quarterly basis at 85% of the lesser of the market price of the Common Stock on
the first day of the quarter or the last day of the quarter. Effective February
1, 2006, the ESPP was temporarily suspended pending proposed reservation of
additional shares. All stock issued under options exercised, RSUs awarded or
ESPP shares purchased are new shares of the Company's Common Stock.


                                        9

<PAGE>

The following table summarizes the changes in stock options outstanding under
the Company's stock-based compensation plans during the quarter ended March 31,
2006:

<TABLE>
<CAPTION>
                                  Stock Options
                                   Outstanding
                                 Under the Plans                 Weighted Average
                               -------------------    Non-Plan    Option Exercise
                                  ISO      Non-ISO    Options     Price Per Share
                               ---------   -------   ---------   ----------------
<S>                            <C>         <C>       <C>         <C>
Balance at December 31, 2005   1,006,700   350,000   2,897,902         3.09
   Options granted                    --        --          --           --
   Options exercised              (2,750)       --      (5,286)        1.82
   Options canceled              (44,450)  (18,500)         --         5.58
                               ---------   -------   ---------         ----
Balance at March 31, 2006        959,500   331,500   2,892,616         3.06
                               =========   =======   =========
</TABLE>

The following table summarizes the ranges of exercise prices for outstanding and
exercisable stock options as of March 31, 2006:

<TABLE>
<CAPTION>
                         Options Outstanding at          Options Exercisable at
                             March 31, 2006:                 March 31, 2006:
                  ------------------------------------   ----------------------
                                  Weighted
                                  Average     Weighted                 Weighted
                                 Remaining     Average                  Average
    Range of         Number     Contractual   Exercise      Number     Exercise
Exercise Prices   Outstanding       Life        Price    Exercisable     Price
---------------   -----------   -----------   --------   -----------   --------
<S>               <C>           <C>           <C>        <C>           <C>
$0.37 - $ 0.52       787,541     6.65 years    $ 0.44       563,416      $0.44
 0.79 -   2.51       891,750     7.04 years    $ 1.71       510,250      $1.58
 2.70 -   3.60       796,700     7.65 years    $ 3.35       736,700      $3.36
 3.64 -   3.80       878,250     7.45 years    $ 3.74       878,250      $3.74
 3.99 -   8.50       764,375     6.24 years    $ 5.62       764,375      $5.62
 9.00 -  12.44        65,000     3.66 years    $10.33        65,000      $9.37
--------------     ---------     ----------    ------     ---------      -----
$0.37 - $12.44     4,183,616     6.97 years    $ 3.06     3,517,991      $3.35
                   =========                              =========
</TABLE>

As of March 31, 2006, the weighted average remaining contractual life of options
outstanding and exercisable was 6.97 years and the aggregate intrinsic value of
options outstanding and exercisable was $2.3 million and $1.6 million,
respectively. The total intrinsic value of options exercised during the quarter
ended March 31, 2006 was not significant. The aggregate intrinsic value
represents the total pre-tax intrinsic value (the difference between the closing
price of the Company's Common Stock on March 31, 2006 of $2.48 per share and the
exercise price of each-in-the-money option) that would have been received by the
option holders had all option holders exercised their options on March 31, 2006.

The following table summarizes the changes in RSU awards outstanding under the
Stock Incentive Plan during the quarter ended March 31, 2006:

<TABLE>
<CAPTION>
                                                         Weighted
                                           Weighted      Average
                                            Average     Remaining
                                 No. of   Grant Date   Contractual
                                 Shares   Fair Value       Term
                                -------   ----------   -----------
<S>                             <C>       <C>          <C>
Unvested at December 31, 2005   348,000      $3.25      1.53 years
   Awards granted                    --         --              --
   Awards vested                (87,000)        --              --
   Awards forfeited                  --         --              --
                                -------      -----      ----------
Unvested at March 31, 2006      261,000      $3.25      1.78 years
                                =======
</TABLE>

At March 31, 2006, the Company had a total of 6,366,116 shares of Common Stock
reserved for issuance of stock option grants and RSU awards, of which 1,921,500
shares were available for future grants or awards under the Stock Incentive
Plan.


                                       10

<PAGE>

There were no stock options or RSUs granted or awarded during the quarters ended
March 31, 2006 and 2005. The Company recognized $0.1 million in stock
compensation expense in connection with the adoption of Statement 123(R) during
the quarter ended March 31, 2006. Total stock compensation expense recognized
during the quarter ended March 31, 2006 totaled $0.2 million (or $.01 per
share), of which $0.1 million was included in general and administrative
expenses and $0.1 million was included in sales and marketing expenses. Because
the Company maintained a full valuation allowance on its U.S. deferred tax
assets, the Company did not recognize any tax benefit related to its stock-based
compensation expense for the quarter ended March 31, 2006. Stock compensation
expense recognized for the quarter ended March 31, 2005 was not significant.

As of March 31, 2006, the Company had approximately $0.5 million of total
unrecognized compensation expense, net of estimated forfeitures, related to
stock options and $0.4 million of total unrecognized compensation expense
related to RSU awards that will both be recognized over a weighted average
period of approximately one year.

Prior to the adoption of Statement 123(R), the Company accounted for its
stock-based employee compensation plans 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 equaled the market price of the underlying stock on the date
of grant for all options granted, and thus, under APB No. 25, no compensation
expense was recognized. Pro forma information regarding net loss and net loss
per share is required by Statement No. 123 and has been determined as if the
Company had accounted for its employee stock options under the fair value method
of Statement No. 123.

The following table illustrates the pro forma effect on net loss and net loss
per share if the Company had applied the fair value recognition provisions of
Statement No. 123 to stock-based employee compensation, for the three-month
period ended March 31, 2005. Since stock-based compensation expense for the
three months ended March 31, 2006, was calculated and recorded under the
provisions of Statement 123(R), no pro forma disclosure for that period is
presented:

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

Less: Total stock-based employee compensation
   expense determined under fair value based
   method for all awards                                (519)
                                                     -------
Pro forma net loss                                   ($4,478)
                                                     =======
Net loss per share:
   As reported
      Basic and diluted                              ($ 0.13)
                                                     =======
   Pro forma
      Basic and diluted                              ($ 0.14)
                                                     =======
</TABLE>

In December 2005, the Company authorized the acceleration of vesting of all
otherwise unvested stock options held by its employees with an exercise price of
$3.00 or greater granted under its Stock Incentive Plan or as a free- standing
option not under any plan. Options to purchase 1,294,232 shares of common stock
(affecting 86 employees) were subject to this acceleration. The decision to
accelerate vesting of these underwater options was made primarily to minimize
future compensation expense that the Company would otherwise recognize in its
consolidated statement of operations with respect to these options pursuant to
Statement 123(R). The aggregate future expense eliminated as a result of the
acceleration of the vesting of these options was approximately $3.3 million.


                                       11
<PAGE>

NOTE 4. INVENTORIES

Inventories consist of the following:

<TABLE>
<CAPTION>
                       March 31,   December 31,
(In thousands)            2006         2005
--------------------   ---------   ------------
<S>                    <C>         <C>
Raw materials           $  5,262     $  5,047
Work in process            4,835        4,462
Finished goods            10,225       11,992
Obsolescence reserve        (165)        (215)
                        --------     --------
Total, net              $ 20,157     $ 21,286
                        ========     ========
</TABLE>

NOTE 5. COMPREHENSIVE INCOME (LOSS)

Comprehensive income (loss) for the Company includes gains and losses from
foreign currency translation which are charged or credited to the cumulative
translation account within shareholders' equity. Gains and losses from foreign
currency translation are not material. Comprehensive income also includes
unrealized gains and losses on the Company's investment portfolio, which are
also charged or credited to shareholders' equity. Unrealized gains and losses on
investments are not material.

NOTE 6. INTANGIBLE ASSETS

The Company applies Statement of Financial Accounting Standard 142 (SFAS 142)
"Goodwill and Other Intangible Assets" to its intangible assets, which prohibits
the amortization of intangible assets with indefinite useful lives and requires
that these assets be reviewed for impairment at least annually. Management
reviews indefinite-lived intangible assets for impairment annually as of the
last day of the second quarter, or more frequently if a change in circumstances
or occurrence of events suggests the remaining value may not be recoverable. The
test for impairment requires management to make estimates about fair-value,
which are based either on the expected undiscounted future cash flows or on
other measures of value such as the market capitalization of the Company. If the
carrying amount of the assets is greater than the measures of fair value,
impairment is considered to have occurred and a write-down of the asset is
recorded. Management completed the annual impairment tests in the second quarter
of 2005 and determined that the Company's indefinite-lived intangible assets
were not impaired.

NOTE 7. LONG-TERM DEBT (RESTATED)

On October 7, 2005 and October 12, 2005, the Company sold a combined $22.4
million aggregate principal amount of 6% Convertible Senior Notes due 2025
(Notes) and issued warrants to purchase 1,344,000 shares of the Company's common
stock (Warrants). Interest is payable under the Notes each April and October,
beginning in 2006.

The Warrants are exercisable at $4.40 per share and expire in 2010. The Company
has reserved 105% of the shares necessary for the exercise of the warrants. The
Warrants were valued at $1.13 per share using the Black-Scholes valuation model.
The total value of the Warrants on the date of issuance was $1.5 million, is
treated as a discount to the Convertible Senior Notes and is amortized to
interest expense over the 20 year life of the Warrants using the effective
interest method.

The Notes are convertible into common stock at any time at a fixed conversion
price of $4.20 per share, subject to adjustment under certain circumstances
including, but not limited to, the payment of cash dividends on common stock. If
fully converted, the Notes would convert into 5,333,334 shares of the Company's
common stock. At the date of issuance of the Notes, the Company had available
19,222 shares of its common stock available for the Note holders if conversion
was elected. The Company has agreed to ask its shareholders for approval to
increase its authorized shares at its next regularly scheduled shareholder
meeting. If the Note holders convert their notes prior to receiving approval for
additional authorized shares, the Company has the right to make settlement in
cash, or at the Company's option, with a combination of cash and shares.

The Note holders also have the right to require the Company to repurchase the
Notes at 100% of the principal amount plus accrued and unpaid interest on
October 15 in 2010, 2015 and 2020 or in connection with certain corporate change
of control transactions. If the Note holders elect to convert the Notes prior to
October 15, 2010 in


                                       12

<PAGE>

connection with certain corporate change of control transactions, the Company
will increase the conversion rate for the notes surrendered for conversion by a
number of additional shares based on the stock price of the Company on the date
of the change of control.

The Company has the right to redeem the Notes at 100% of the principal amount
plus accrued and unpaid interest at any time on or after October 20, 2008. At
any time prior to maturity, the Company may also elect to automatically convert
some or all of the Notes into shares of its common stock if the closing price of
the common stock exceeds $6.40 for a period as specified in the indenture. If an
automatic conversion of the Notes occurs prior to October 15, 2008, the Company
will make an additional payment to the Note holders equal to three full years of
interest, less any interest actually paid or provided for prior to the
conversion date. This payment can be made, at the option of the Company, either
in cash or common stock.

The Company agreed to file a Registration Statement on Form S-3 covering the
resale of all of the Registrable Securities using its best efforts to have the
Registration Statement declared effective within 120 days of the closing.
Depending on the length of time after this 120 day period for the Registration
Statement to be declared effective, the penalty can range from .8% to 1.2% of
the principal amount of the Notes and Warrants. The maximum penalty that may be
incurred is approximately $0.6 million.

The Company has analyzed all of the above provisions in the Convertible Notes
and related agreements for embedded derivatives under FASB Statement No.133,
Accounting for Derivative Instruments and Hedging Activities and related
Emerging Issues Task Force (EITF) interpretations and Securities and Exchange
Commission (SEC) rules. The Company has determined that four such provisions in
the convertible debt agreement are considered derivatives under FASB Statement
No. 133:

     -    The embedded written option relating to the common stock that may be
          potentially issuable upon conversion

     -    The option for Note holders to put back debt to the Company in
          connection with certain corporate change of control transactions

     -    The provision relating to an additional payment in connection with the
          automatic conversion of the Notes prior to October 15, 2008

     -    The provision to increase the conversion rate in the event of a change
          in control transaction

The Company prepared valuations of each of the above derivatives and recorded a
$5.5 million liability on the date of issuance of the Notes, with an offsetting
discount to the Convertible Senior Notes.

The derivative liability was adjusted to fair value at both December 31, 2005
and March 31, 2006. The adjustment to fair value at March 31, 2006 was $1.2
million and was credited to other income. The liability was $2.0 million at
March 31, 2006. The derivative liability is presented in the balance sheet in
the same line as the Convertible Senior Notes.

The discount related to the derivative liability is being amortized to interest
expense using the effective interest method over 20 years. At March 31, 2006,
the remaining unamortized discount relating to the Warrants and the derivative
liability was $6.7 million.

In 2004, the Company entered into a secured credit facility with a bank,
consisting of a $2.5 million term note and a $6.0 million line of credit. The
Company fully drew down the $2.5 million term note, which calls for equal
installment payments over 36 months, which commenced in February 2005. As of
March 31, 2006, the balance due on this note was $1.5 million. The Company is
subject to certain financial covenants under the secured credit facility
agreement, as amended, to maintain a liquidity ratio of not less than 2.0 to 1.0
and a net tangible net worth of at least $40 million. At March 31, 2006, the
Company was in compliance with its financial covenants.

On March 29, 2006, the Company entered into a second amendment to the secured
credit facility whereby the bank agreed to waive the prohibition set forth in
the credit facility agreement with respect to the Company's pending acquisition
of 3F Therapeutics, Inc., and the bank consented to such acquisition. In
addition, the bank agreed to provide for advances of up to $1.5 million, which
the Company may use to finance or refinance eligible equipment purchased on or
after June 1, 2005 and on or before May 31, 2006. Such equipment advances will
be amortized over a 60-month period and carry an interest rate of prime plus
1.75%. On March 31, 2006, the Company fully drew down the $1.5 million advance
amount.


                                       13

<PAGE>

NOTE 8. SUBSEQUENT EVENT - ACQUISITION OF 3F THERAPEUTICS, INC.

On January 23, 2006, the Company entered into an agreement and plan of merger
(the Merger Agreement) with 3F Therapeutics, Inc. (3F). Under the terms of the
Merger Agreement, upon closing, the Company will pay each 3F stockholder its
pro-rata portion of an initial payment of 9,000,000 shares of the Company's
common stock, subject to certain adjustments. The Company will deposit 900,000
shares of the closing payment in escrow to be held for at least 18 months after
closing of the merger to cover indemnification claims and certain contingencies,
and the balance will be distributed pro-rata to holders of 3F capital stock. In
addition to the initial closing payment, the Company will be obligated to make
additional contingent payments to 3F stockholders of up to 5,000,000 shares of
the Company's common stock upon obtaining either CE mark or FDA approval for
3F's key products on or prior to December 31, 2013, up to an aggregate of
10,000,000 shares of the Company's common stock. Milestone events also include
certain transactions involving these key products. These contingent payments are
subject to certain rights of set-off for indemnification claims and certain
other events.

The consummation of the merger is subject to customary conditions, and the
Merger Agreement is subject to approval by the Company's shareholders. The
Merger Agreement has already been approved by the requisite number of 3F
stockholders. Subject to these conditions being resolved, the Company
anticipates that the merger will close in the third quarter of fiscal 2006.


                                       14

<PAGE>

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

This document 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 Part I, Item 1A of our Annual Report on
Form 10-K for the fiscal year ended December 31, 2005. 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 markets for mechanical bileaflet
replacement heart valves, allograft tissues, the surgical treatment of atrial
fibrillation, and the market for surgical tools and accessories. We also are
engaged in a development project for autotransfusion products.

Sulzer Carbomedics (Carbomedics) 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. In 1990, 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. As a result, we now 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 our 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.
With inventory purchases exceeding sales through the years, we built up our
inventory levels. Since 2002, we have drawn down these paid-for inventories and
used the cash it generated to fund operations. During 2004 and 2005, we
developed and implemented a plan to ramp-up our own manufacturing facility for
pyrolytic carbon. By the end of 2005, this process was substantially complete.

From 1990 through 2003, we paid Carbomedics approximately $125 million for the
development of our valve, the technology to manufacture pyrolytic carbon
components, and for pyrolytic valve components manufactured by Carbomedics. By
the end of 2002, we had remaining payments due under the technology agreement
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 2003, we paid $12 million to satisfy all future
obligations under this agreement.

During 2002, we reorganized the Company, laying off more than half of the work
force, including all executive management. With the hiring of a new president
late in 2002, we started the process of rebuilding our sales and marketing
teams, especially in the United States. This rebuilding is the most significant
factor in our operating expense levels during the last three fiscal years.
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 38% in 2005.


                                       15

<PAGE>

During 2004, we made our first investments outside the mechanical heart valve
market by completing two business development agreements. The first, signed in
April, was with ErySave AB, a Swedish research firm, for exclusive worldwide
rights to ErySave's PARSUS filtration technology for cardiac surgery procedures.
We had no revenues in 2005 nor do we expect any for 2006 from this technology.
In November 2004, we completed a global partnership agreement with CryoCath
Technologies, Inc. (CryoCath) to market CryoCath's surgical cryotherapy products
for the ablation of cardiac arrhythmias. The agreement with CryoCath has
resulted in revenues for our Company in 2005.

During 2005, we continued to develop our business outside the mechanical heart
valve market by entering into two additional business development agreements. In
June, we entered into a marketing services agreement with Alabama Tissue Center,
Inc. (ATC, a/k/a Regeneration Technologies, Inc. - Cardiovascular), a subsidiary
of Regeneration Technologies, Inc. Under the terms of the agreement, ATC has
appointed us as its exclusive marketing services representative to promote,
market and solicit orders for ATC's processed cardiovascular allograft tissue
from doctors, hospitals, clinics and patients throughout North America. The
agreement with ATC has also resulted in revenues for our Company in 2005. Also
in June 2005, we entered into an exclusive development, supply and distribution
agreement with Genesee BioMedical, Inc. (GBI), under which GBI will develop,
supply and manufacture cardiac surgical products to include annuloplasty repair
rings, c-rings and accessories, and we will have exclusive worldwide rights to
market and sell such products. Our agreement with GBI will produce revenues for
our Company in 2006.

On January 23, 2006, we entered into an agreement and plan of merger with 3F
Therapeutics, Inc. Under the terms of the Merger Agreement, upon closing we will
pay each 3F stockholder its pro-rata portion of an initial payment of 9 million
shares of our common stock, subject to certain post-closing adjustments and a
10% escrow fund. In addition to the initial closing payment, we will be
obligated to deliver up to an additional 10 million shares of our common stock
to 3F stockholders. These additional shares will be made in two payments of up
to 5 million shares each, each of which is contingent upon ATS obtaining either
CE mark or FDA approval for 3F's key products on or prior to December 31, 2013.
The consummation of the merger with 3F is subject to customary conditions, and
the Merger Agreement is subject to approval by our shareholders and the
stockholders of 3F; however, the requisite number of 3F stockholders has already
approved the Merger Agreement. We anticipate that the merger will close in the
third quarter of fiscal 2006.

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.

The Financial Accounting Standards Board issued FASB Statement No. 123 (Revised
2004), Share-Based Payment, which was adopted by ATS on January 1, 2006, using
the modified prospective transition method. Statement 123(R) requires all
share-based payments to employees, including grants of employee stock options
and restricted stock unit awards, to be recognized in the income statement based
on their fair values. Pro forma disclosure is no longer an alternative. See Note
2 of Notes to Consolidated Financial Statements and the discussion under General
& Administrative below in this report for additional information regarding
stock-based compensation plans and our adoption of Statement 123(R).


                                       16

<PAGE>

RESULTS OF OPERATIONS

The following table provides the dollar and percentage change in the Statements
of Operations for the three month periods ended March 31, 2006 and 2005.

<TABLE>
<CAPTION>
                                      Three months ended March 31,
                                ----------------------------------------
                                                         Increase
                                   2006        2005     (Decrease)     %
                                ----------   --------   ----------   ----
(In thousands)                  (RESTATED)
<S>                             <C>          <C>        <C>          <C>
Net sales                        $  9,730    $  7,063    $  2,667     37.8%
Cost of goods sold                  4,998       4,301         697     16.2%
                                 --------    --------    --------    -----
Gross profit                        4,732       2,762       1,970     71.3%
Gross profit %                       48.6%       39.1%
Operating expenses:
   Sales and marketing              4,834       4,731         103      2.2%
   Research and development           405         302         103     34.1%
   General and administrative       1,942       1,689         253     15.0%
                                 --------    --------    --------    -----
Total operating expenses            7,181       6,722         459      6.8%
                                 --------    --------    --------    -----
Operating loss                     (2,449)     (3,960)     (1,511)   -38.2%
Net interest income (expense)        (311)          1         312      NM
Change in value of derivative
   liability bifurcated from
   convertible senior notes         1,185          --       1,185      NM
                                 --------    --------    --------    -----
Net  loss                         ($1,575)    ($3,959)    ($2,384)   -60.2%
                                 ========    ========    ========    =====
</TABLE>

The following table presents the Statements of Operations as a percentage of net
sales for the three month periods ended March 31, 2006 and 2005.

<TABLE>
<CAPTION>
                                Three months ended
                                     March 31,
                                ------------------
                                   2006       2005
                                ----------   -----
                                (RESTATED)
<S>                             <C>          <C>
Net sales                          100.0%    100.0%
Cost of goods sold                  51.4%     60.9%
                                   -----     -----
Gross profit                        48.6%     39.1%
Operating expenses:
   Sales and marketing              49.7%     67.0%
   Research and development          4.2%      4.3%
   General and administrative       20.0%     23.9%
                                   -----     -----
Total operating expenses            73.8%     95.2%
                                   -----     -----
Operating loss                     -25.2%    -56.1%
Net interest income (expense)       -3.2%      0.0%
Change in value of derivative
   liability bifurcated from
   convertible senior notes         12.2%      0.0%
                                   -----     -----
Net loss                           -16.2%    -56.1%
                                   =====     =====
</TABLE>


                                       17

<PAGE>

NET SALES. The following table provides the dollar and percentage change in net
sales inside and outside the United States for the three month periods ended
March 31, 2006 and 2005.

<TABLE>
<CAPTION>
                           Three months ended March 31,
                        ---------------------------------
                         2006     2005    Increase     %
                        ------   ------   --------   ----
(In thousands)
<S>                     <C>      <C>      <C>        <C>
United States           $3,894   $2,870    $1,024    35.7%
Outside United States    5,836    4,193     1,643    39.2%
                        ------   ------   --------   ----
Total net sales         $9,730   $7,063    $2,667    37.8%
                        ======   ======   ========   ====
</TABLE>

The following table provides net sales inside and outside the United States as a
percentage of total net sales for the three month periods ended March 31, 2006
and 2005.

<TABLE>
<CAPTION>
                          Three months
                        ended March 31,
                        ---------------
                          2006    2005
                         -----    ----
<S>                     <C>       <C>
Share of total net
   sales:
United States             40.0%   40.6%
Outside United States     60.0%   59.4%
                         -----   -----
Total net sales          100.0%  100.0%
                         =====   =====
</TABLE>

The following table provides the percentage change in average sales price, unit
sales and net sales for mechanical heart valves inside and outside the United
States for the three months ended March 31, 2006, compared to the same period in
2005.

<TABLE>
<CAPTION>
                             2006 change in
                               mechanical
                           heart valve sales
                        -----------------------
                        Average
                         Sales     Unit
                         Price    Sales   Total
                        -------   -----   -----
<S>                     <C>       <C>     <C>
United States             0.0%      9.8%    9.9%
Outside United States     2.1%     31.3%   34.1%
                         ----      ----    ----
Total change             -2.6%     27.9%   24.6%
                         ====      ====    ====
</TABLE>

Since late 2002, we have been building a new sales organization in the United
States, which has grown to four area directors managing more than 30 sales
territories. 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 net sales increases in the
United States.

Also during the last three years we have aggressively entered several
international markets that represented opportunities for greater mechanical
heart valve sales unit growth but at prices lower than our other markets. Prices
in some of these territories are lower than our historical manufacturing costs.
We felt this strategy was reasonable because it allowed us to increase our
market share while reducing our high priced but paid-for inventories.

Net sales in the first quarter of 2006 were also favorably impacted by revenue
from the new business initiatives and partnerships discussed above, mainly
revenue derived from surgical cryotherapy products and processed cardiovascular
allograft tissue. Approximately 14% of our first quarter 2006 revenue was
derived from new products.


                                       18
<PAGE>

COST OF GOODS SOLD AND GROSS PROFIT. Our costs of goods sold and gross profit as
a percentage of net sales has improved over the last several years due in part
to increases in our mechanical heart valve average selling prices, which are
much higher in the United States than in international markets. Our gross profit
is anticipated to continue improving as sales within the United States increase
as a percentage of total sales and as we start selling lower cost valves that
have been entirely manufactured in our facilities.

During the quarter ended March 31, 2006, we had substantially depleted our high
priced but paid-for inventories of carbon components purchased from Carbomedics,
moving into lower cost carbon material FIFO cost layers. This favorably impacted
our first quarter 2006 gross profit by approximately $0.6 million and improved
our gross profit percentage of net sales by approximately 5.8%.

We have made write-downs to our inventories during the past three fiscal years
due to future selling prices being lower than manufacturing costs in select
international markets. These write-downs resulted in lower-of-cost-or-market
(LCM) inventory reserves, which were used as high-cost pyrolytic carbon
components purchased from Carbomedics were sold into low selling-price
international markets. During the first quarter of 2006, the remaining LCM
reserves were fully utilized in connection with the depletion of our high priced
but paid-for inventories of carbon components discussed above. Consequently, LCM
inventory write-downs are not anticipated in 2006.

Our gross profit as a percentage of net sales in the first quarter of 2006 was
also favorably impacted by revenue and gross profit from the new business
initiatives and partnerships discussed above, mainly revenue derived from
surgical cryotherapy products and processed cardiovascular allograft tissue. Our
first quarter 2006 and 2005 gross profit as a percentage of net sales was higher
by approximately 3.9% and 2.8%, respectively, due to these new business
initiatives.

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 and animal
tissues. For our heart valves, however, obsolescence issues are remote due to
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
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.

SALES AND MARKETING. In the United States, our sales and marketing costs rose
only modestly in the first quarter of 2006 to $3.6 million, compared to $3.5
million for the first quarter of the prior year. The increase is due primarily
to $0.1 million of stock compensation expense recognized in the first quarter of
2006 related to the adoption of Statement 123(R) on January 1, 2006. During the
past three fiscal years, our U.S. sales and marketing organization has steadily
grown to more than 30 sales territories in the United States and has a marketing
department that now consists of 14 employees.

Internationally, our sales and marketing costs increased 6.5% in the first
quarter of 2006 to $1.3 million, compared to $1.2 million for same period in
2005. The increases in the first quarter of 2006 over the prior year reflect our
continued investment in international markets, including the early 2005 set up
of direct sales operations in Germany and increased sales management.

RESEARCH AND DEVELOPMENT. Research and development (R & D) expenses increased
$0.1 million, or 34.1%, in the first quarter of 2006 compared to the same period
in 2005 due to increased costs to develop and improve current and future
products and the related regulatory and clinical activities for these products.
R & D costs also increased due to staff additions and an increase in the number
of R & D programs.

GENERAL AND ADMINISTRATIVE. During the first quarter of 2006, major cost
increases in general and administrative (G & A) expenses over the first quarter
of 2005 were for non-cash stock compensation expense of $0.1 million and outside
consulting, legal and professional services of $0.1 million.

We recognized total stock compensation expense in the first quarter of 2006 of
$0.2 million, of which $0.1 million was included in G & A expenses and $0.1
million in sales & marketing expenses. Of the $0.2 million first quarter 2006
stock compensation expense, $0.1 million was attributable to the adoption of
Financial Accounting Standards Board Statement No. 123 (Revised 2004),
Share-Based Payment, which we adopted on January 1, 2006. For the full


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<PAGE>

year 2006, we estimate $0.4 to $0.6 million of additional stock compensation
expense attributable to the adoption of Statement 123(R).

In December 2005, we authorized the acceleration of vesting of all otherwise
unvested stock options held by our employees with an exercise price of $3.00 or
greater granted under the 2000 Stock Incentive Plan or as a free standing option
not under any plan. Options to purchase 1,294,232 shares of common stock
(affecting 86 employees) were subject to this acceleration. The decision to
accelerate vesting of these underwater options was made primarily to minimize
future compensation expense that we would otherwise recognize in our
consolidated statement of operations with respect to these options pursuant to
Statement 123(R). We believe that the aggregate future expense eliminated as a
result of the acceleration of the vesting of these options is approximately $3.3
million.

NET INTEREST INCOME (EXPENSE). In the first quarter of 2006, net interest
expense was attributable primarily to the October 2005 sale of $22.4 million
aggregate principal amount of 6% Convertible Senior Notes. Interest expense on
these notes in the first quarter of 2006 was $0.5 million, which also includes
amortization of 1) financing costs, 2) the discount related to the implied value
of common stock warrants sold with the Notes and 3) the discounts related to the
bifurcated Convertible Senior Notes derivatives. See Note 7 of Notes to
Consolidated Financial Statements in this Report for more information regarding
the Convertible Senior Notes discounts. Interest expense in both 2006 and 2005
is also attributable to our credit facility with Silicon Valley Bank. Interest
income was $0.2 million and $0.1 million for the first quarters of 2006 and
2005, respectively, and is attributable to the investment of our cash balances.

CHANGE IN VALUE OF DERIVATIVE LIABILITY BIFURCATED FROM CONVERTIBLE SENIOR
NOTES. In the first quarter of 2006, we recorded a non-operating gain of $1.2
million to adjust the Convertible Senior Notes derivative liability to fair
value at March 31, 2006. See Note 7 of Notes to Consolidated Financial
Statements in this Report for more information regarding the Convertible Senior
Notes derivative liability and the accounting for this liability under Financial
Accounting Standards Board (FASB) Statement No.133, Accounting for Derivative
Instruments and Hedging Activities.

INCOME TAXES. At the end of 2005, we had accumulated approximately $81 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 deferred tax asset related to our
NOL carryforwards and other deferred items as we currently cannot determine that
it is more likely than not that this asset will be realized and we, therefore,
have provided a valuation allowance for the entire asset.

NET LOSS. Our decrease in net loss for the first quarter of 2006 compared to the
same period in 2005 resulted from changes in sales offset by changes in
operating costs, all of which are described above.

LIQUIDITY AND CAPITAL RESOURCES

Cash, cash equivalents and short-term investments totaled $18.5 million and
$21.7 million at March 31, 2006 and December 31, 2005, respectively.

OPERATING ACTIVITIES. During the first three months of 2006, we received cash
payments from customers of $8.5 million and made payments to employees and
suppliers of $12.8 million. During the first three months of 2005, we received
cash payments from customers of $6.6 million and made cash payments to employees
and suppliers of $12.2 million. Our operating losses during the past three
fiscal years were significantly funded through the depletion of inventories and
the use of existing cash and investment balances. Since 2002, 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 decrease, we
believe our operating losses will decrease and we will move steadily towards a
cash flow breakeven on sales and eventually to profitability. We believe our
current cash balances are adequate to fund our operating activities during 2006.

Investing Activities. We purchased property and equipment of $0.1 million and
$0.6 million during the first three months of 2006 and 2005, respectively.
Capital purchases during 2005 were mainly in support of increasing


                                       20

<PAGE>

production in our pyrolytic carbon facility. During 2006, our spending on
property and equipment should decline as a significant portion of our 2005
purchases supported our pyrolytic carbon facility production increase efforts,
which are substantially completed.

FINANCING ACTIVITIES. We raised approximately $0.1 million during each of the
first three months of 2006 and 2005 through the issuance of common stock through
stock options and our employee stock purchase plan.

In 2004 we entered into a secured credit facility consisting of a $2.5 million
term note and a $6.0 million line of credit. We fully drew down the $2.5 million
term note, which was used to fund equipment purchases for our pyrolytic carbon
facility. The term note calls for equal installment payments over 36 months,
which commenced in February 2005. Accordingly, during the first three months of
2006 and 2005 we repaid $0.2 million and $0.1 million, respectively, on the
note. We are subject to certain financial covenants under the secured credit
facility agreement, as amended, to include a liquidity ratio of not less than
2.0 to 1.0 and a net tangible net worth of at least $40 million. At March 31,
2006, we were in compliance with these financial covenants.

On March 29, 2006, we entered into a second amendment to the secured credit
facility whereby the bank agreed to waive the prohibition set forth in the
credit facility agreement with respect to our pending acquisition of 3F
Therapeutics, Inc., and the bank consented to such acquisition. In addition, the
bank agreed to provide for advances of up to $1.5 million which we may use to
finance or refinance eligible equipment purchased on or after June 1, 2005 and
on or before May 31, 2006. Such equipment advances will be amortized over a 60
month period and carry an interest rate of prime plus 1.75%. On March 31, 2006,
we fully drew down the $1.5 million advance amount.

In October 2005, we sold a combined $22.4 million aggregate principal amount of
6% Convertible Senior Notes due 2025 and issued warrants to purchase 1,344,000
shares of our common stock. The warrants are exercisable at $4.40 per share and
expire in 2010. We plan to use these proceeds to fund business development
opportunities. The first interest payment on these convertible notes, totaling
$0.7 million, was paid in April 2006.

The notes are convertible into common stock at any time at a fixed conversion
price of $4.20 per share, subject to certain adjustments. If fully converted,
the notes would convert into approximately 5,333,334 shares of our common stock
and would require us to increase our authorized shares. If the notes are
converted under certain circumstances on or prior to October 15, 2008, we will
pay the investors the interest they would have received on the notes through
that date. We have the right to redeem the notes at 100% of the principal amount
plus accrued interest at any time on or after October 20, 2008, and the
investors have the right to require us to repurchase the notes at 100% of the
principal amount plus accrued interest on October 15 in 2010, 2015 and 2020. See
Note 7 of Notes to Consolidated Financial Statements in this Report for a full
description of the terms and provisions of the Notes.

CASH MANAGEMENT

By the end of the first quarter of 2006, we had substantially depleted our high
priced but paid-for inventories of pyrolytic carbon components. During the last
two years we have been increasing production of these components in our own
factory. We estimate that operating costs will remain high in comparison to
sales during 2006 and will require the use of cash to fund operations. We will
draw down cash balances to fund operations during 2006.

Based upon the current forecast of sales and operating expenses, we anticipate
having cash to fund our operations through 2006. However, 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.

OFF-BALANCE SHEET ARRANGEMENTS

We do not have any "off-balance sheet arrangements" (as such term is defined in
the rules and regulations of the SEC) 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.


                                       21

<PAGE>

ITEM 4. CONTROLS AND PROCEDURES (RESTATED)

RESTATEMENT

The Company has restated its financial statements as of and for the three months
ended March 31, 2006. The determination to restate these financial statements
was made after an error was discovered in June 2006 in the accounting for
embedded derivatives related to its Convertible Senior Notes (the Notes) under
Financial Accounting Standards Board (FASB) Statement No.133, Accounting for
Derivative Instruments and Hedging Activities and related Emerging Issues Task
Force interpretations and SEC rules.

The Convertible Senior Notes agreement permits Note holders to exchange their
debt instruments for common stock at a conversion rate of $4.20 per share. The
Company had insufficient authorized common shares as of the closing date, which
requires this embedded instrument to be bifurcated from the debt agreement and
classified as a liability in accordance with EITF 00-19.

After management's review of the Note agreements, our historical accounting for
the Notes and the related derivative accounting requirements connected with the
Notes, management recommended to the Audit Committee that, based on our analysis
of the impact of the items described above, our previously filed financial
statements be restated to reflect the correction of these items. The Audit
Committee agreed with this recommendation. On July 13, 2006, the Audit Committee
approved our restated financial statements and authorized their filing in an
amendment to our Form 10-Q for the quarter ended March 31, 2006.

(A) EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

In connection with the restatement, we reevaluated 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) as of the
end of the period covered by this report. We concluded that our failure to
correctly apply FASB Statement No. 133, and its related interpretations, with
respect to the accounting for embedded derivatives related to the Notes
constituted a material weakness in our internal control over financial
reporting. Solely as a result of this material weakness, our Chief Executive
Officer and Chief Financial Officer concluded that our disclosure controls and
procedures were not effective as of March 31, 2006.

We have performed a thorough analysis of all of the provisions in the Notes and
related agreements for embedded derivatives under FASB Statement No.133 and the
related EITF interpretations and SEC rules, in an effort to ensure that the
restated financial statements and this report, as amended, reflect all necessary
adjustments.

(b) Changes in Internal Control over Financial Reporting

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 fiscal quarter
ended March 31, 2006 that has materially affected, or is reasonably likely to
materially affect our internal control over financial reporting.


                                       22

<PAGE>

                           PART II. OTHER INFORMATION

ITEM 1A. RISK FACTORS

In addition to the other information set forth in this report, you should
carefully consider the factors discussed in Part I, Item 1A of our Annual Report
on Form 10-K for the fiscal year ended December 31, 2005 (as amended), which
could have a material impact on our business, financial condition or results of
operations. The risks described in our Annual Report on Form 10-K are not the
only risks facing the Company. Additional risks and uncertainties not presently
known to us or that we currently believe to be immaterial may also adversely
affect our business, financial condition or results of operations.

ITEM 6. EXHIBITS

NOTE: All Exhibits listed under Item 6 in the Original Filing are unchanged
except for the filing of updated Certifications pursuant to Sections 302 and
906 of the Sarbanes-Oxley Act of 2002:

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, dated March 29, 2006, to the Loan and Security 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 April 3, 2006)

31.1 Certification of Chief Executive Officer pursuant to Rules
     13a-15(e)/15d-15(e) of the Securities Exchange Act, as amended (Section 302
     Certification)

31.2 Certification of Chief Financial Officer pursuant to Rules
     13a-15(e)/15d-15(e) of the Securities Exchange Act, as amended (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)


                                       23

<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: July 17, 2006                     ATS MEDICAL, INC.


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


                                       24

<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, dated March 29, 2006, to the Loan and Security 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 April 3, 2006)

31.1      Certification of the Chief Executive Officer pursuant to Rules
          13a-15(e)/15d-15(e) of the Securities Exchange Act, as amended
          (Section 302 Certification)

31.2      Certification of the Chief Financial Officer pursuant to Rules
          13a-15(e)/15d-15(e) of the Securities Exchange Act, as amended
          (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>


                                       25