Table of Contents





# UNITED STATESSECURITIES AND
EXCHANGE COMMISSIONWASHINGTON, D.C. 20549

---

# FORM 10-Q

---

(Mark
One)

x    
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934

# For the quarterly
period ended September 30, 2005

# OR

o    
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OFTHE SECURITIES EXCHANGE ACT OF
1934

For
the transition period from _______ to ________

Commission File Number:
0-27605

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VASCULAR SOLUTIONS,
INC.(Exact name of
registrant as specified in its charter)

|Minnesota                                                      | 41-1859679                       
|-------------------------------------------------------------- | ---------------------------------
|(State or other jurisdiction of incorporation or organization) | (IRS Employer Identification No.)

6464
Sycamore CourtMinneapolis, Minnesota 55369(Address
of principal executive offices, including zip code)

(763) 656-4300 (Registrants
telephone number, including area code)

# 

Not Applicable(Former
name, former address and formerfiscal
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 
o

Indicate by check mark whether the
registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).Yes 
x     
No 
o

Indicate by check mark whether the
registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes 
o     
No 
x

The registrant had 14,595,978 shares
of common stock, $.01 par value per share, outstanding as of October 21, 2005.





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# VASCULAR SOLUTIONS,
INC.

# TABLE OF CONTENTS

|         |  |                       | Page
|-------- |  | --------------------- | ----
|        
|PART I.  |  | FINANCIAL INFORMATION
|        
|         |  | Item 1.               |     
|        
|         |  |                       |     
|        
|         |  |                       |     
|        
|         |  |                       |     
|        
|         |  |                       |     
|        
|         |  | Item 2.               |     
|        
|         |  | Item 3.               |     
|        
|         |  | Item 4.               |     
|        
|PART II. |  | OTHER INFORMATION    
|        
|         |  | Item 1.               |     
|        
|         |  | Item 2.               |     
|        
|         |  | Item 3.               |     
|        
|         |  | Item 4.               |     
|        
|         |  | Item 5.               |     
|        
|         |  | Item 6.               |     

1

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Table of Contents

# PART I.  FINANCIAL
INFORMATION

# Item 1.  Financial
Statements

# VASCULAR SOLUTIONS,
INC.Consolidated Balance
Sheets

|                                                                                             |  | September 30,
2005 |   | December 31,
2004
|-------------------------------------------------------------------------------------------- |  | ------------------ | - | -----------------
|
|
|Assets                                                                                       |  |                    |   |                  
|Current assets:                                                                              |  |                   
|Cash and cash equivalents                                                                    |  |                    | $ | 6,174,542        
|Accounts receivable, net of reserves of $160,000 and $180,000 in 2005 and 2004, respectively |  |                    |   | 4,643,029        
|Inventories                                                                                  |  |                    |   | 4,637,910        
|Prepaid expenses                                                                             |  |                    |   | 726,478          
|                                                                                             |  |                    |   |                  
|Total current assets                                                                         |  |                    |   | 16,181,959       
|                                                                                            
|Property and equipment, net                                                                  |  |                    |   | 2,237,870        
|Intangible assets, net                                                                       |  |                    |   | 319,470          
|                                                                                             |  |                    |   |                  
|Total assets                                                                                 |  |                    | $ | 18,739,299       
|                                                                                             |  |                    |   |                  
|                                                                                            
|Liabilities and shareholders equity                                                         |  |                   
|Current liabilities:                                                                         |  |                   
|Accounts payable                                                                             |  |                    | $ | 1,255,652        
|Accrued compensation                                                                         |  |                    |   | 2,022,089        
|Accrued expenses                                                                             |  |                    |   | 1,211,585        
|                                                                                             |  |                    |   |                  
|Total current liabilities                                                                    |  |                    |   | 4,489,326        
|                                                                                            
|Shareholders equity:                                                                        |  |                   
|Common stock, $0.01 par value:                                                               |  |                   
|Authorized shares  40,000,000                                                               |  |                   
|Issued and outstanding shares  14,594,978  2005;                                           |  |                   
|14,350,937  2004                                                                            |  |                    |   | 145,950          
|Additional paid-in capital                                                                   |  |                    |   | 77,503,625       
|Other                                                                                        |  |                    |   | (16,085          
|Accumulated deficit                                                                          |  |                    |   | (63,383,517      
|                                                                                             |  |                    |   |                  
|Total shareholders equity                                                                   |  |                    |   | 14,249,973       
|                                                                                             |  |                    |   |                  
|Total liabilities and shareholders equity                                                   |  |                    | $ | 18,739,299       
|                                                                                             |  |                    |   |                  

See accompanying notes.

Note:  The balance sheet at December
31, 2004 has been derived from the audited financial statements at that date.

2

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Table of Contents

# VASCULAR SOLUTIONS,
INC.Consolidated
Statements of Operations

|                                      |  | Three Months Ended
September 30, |   | Nine Months Ended
September 30,
|------------------------------------- |  | -------------------------------- | - | -------------------------------
|
|
|
|                                     
|Net sales                             |  |                                  | $ | 8,574,140                      
|Cost of goods sold                    |  |                                  |   | 2,329,980                      
|                                      |  |                                  |   |                                
|Gross profit                          |  |                                  |   | 6,244,160                      
|                                     
|Operating expenses:                   |  |                                 
|Research and development              |  |                                  |   | 864,850                        
|Clinical and regulatory               |  |                                  |   | 556,594                        
|Sales and marketing                   |  |                                  |   | 3,566,092                      
|General and administrative            |  |                                  |   | 754,650                        
|Thrombin qualification                |  |                                  |   | 431,657                        
|Amortization of purchased technology  |  |                                  |   | 54,375                         
|                                      |  |                                  |   |                                
|Total operating expenses              |  |                                  |   | 6,228,218                      
|                                      |  |                                  |   |                                
|                                     
|Operating income (loss)               |  |                                  |   | 15,942                         
|Interest income                       |  |                                  |   | 44,448                         
|                                      |  |                                  |   |                                
|                                     
|Net income (loss)                     |  |                                  | $ | 60,390                         
|                                      |  |                                  |   |                                
|                                     
|Net income (loss) per share - basic   |  |                                  | $ | 0.00                           
|                                      |  |                                  |   |                                
|Net income (loss) per share - diluted |  |                                  | $ | 0.00                           
|                                      |  |                                  |   |                                

See accompanying notes.

3

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Table of Contents

# VASCULAR SOLUTIONS,
INC.Consolidated
Statements of Cash Flows

|                                                                                                   |  | Nine Months Ended
September 30,
|-------------------------------------------------------------------------------------------------- |  | -------------------------------
|
|
|
|Operating activities                                                                               |  |                                
|Net loss                                                                                           |  |                                
|Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: |  |                                
|Depreciation                                                                                       |  |                                
|Amortization                                                                                       |  |                                
|Deferred compensation expense                                                                      |  |                                
|Changes in operating assets and liabilities:                                                       |  |                                
|Accounts receivable, net                                                                           |  |                                
|Inventories                                                                                        |  |                                
|Prepaid expenses                                                                                   |  |                                
|Accounts payable                                                                                   |  |                                
|Accrued compensation and expenses                                                                  |  |                                
|                                                                                                   |  |                                
|Net cash used in operating activities                                                              |  |                                
|                                                                                                  
|Investing activities                                                                               |  |                                
|Purchase of property and equipment, net                                                            |  |                                
|Proceeds from sales of securities                                                                  |  |                                
|                                                                                                   |  |                                
|Net cash provided by (used in) investing activities                                                |  |                                
|                                                                                                  
|Financing activities                                                                               |  |                                
|Proceeds from exercise of stock options and sale of stock, net of expenses                         |  |                                
|                                                                                                   |  |                                
|Net cash provided by financing activities                                                          |  |                                
|                                                                                                  
|Effect of exchange rate changes on cash and cash equivalents                                       |  |                                
|                                                                                                   |  |                                
|Increase (decrease) in cash and cash equivalents                                                   |  |                                
|Cash and cash equivalents at beginning of period                                                   |  |                                
|                                                                                                   |  |                                
|Cash and cash equivalents at end of period                                                         |  |                                
|                                                                                                   |  |                                

See accompanying notes.

4

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Table of Contents

# VASCULAR SOLUTIONS,
INC.Notes to Unaudited
Consolidated Financial Statements

|(1) |  | Basis
of Presentation
|--- |  | ---------------------

| | The
accompanying unaudited financial statements of Vascular Solutions, Inc. (the Company)
have been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Regulation S-X.
Accordingly, they do not include all of the information and footnotes required by
generally accepted accounting principles for complete financial statements. In the
opinion of management, all normal, recurring adjustments considered necessary for a fair
presentation have been included. The financial statements should be read in conjunction
with the audited financial statements for the year ended December 31, 2004 included in
the Annual Report on Form 10-K of the Company filed with the Securities and Exchange
Commission. Interim results of operations are not necessarily indicative of the results
to be expected for the full year or any other interim periods.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) |  | New
Accounting Pronouncements
|--- |  | -----------------------------

| | In
December 2004, the Financial Accounting Standards Board (FASB) issued Statement No. 123R,
Share-Based Payment (SFAS 123R), which requires companies to measure and
recognize compensation expense for all stock-based payments at fair value.  SFAS
123R is effective for all fiscal years beginning after June 15, 2005.  Early
adoption is encouraged and retroactive application of the provisions of SFAS 123R to the
beginning of the fiscal year that includes the effective date is permitted, but not
required.  The Company estimates the expense associated with SFAS 123R will be in
the range of $1.3 million to $1.7 million in 2006.  See Note 3 for information
related to the pro forma effects on the Companys reported net income (loss) and net
income (loss) per common share of applying the fair value recognition provisions of the
previous Statement of Financial Accounting Standards (SFAS) 123, Accounting for Stock-Based
Compensation, to stock-based employee compensation.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) |  | Stock
Based Compensation
|--- |  | ------------------------

| | At
September 30, 2005, the Company had a stock-based employee compensation plan. The Company
accounts for the plan under the recognition and measurement principles of Accounting
Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees,
and related interpretations. No stock-based employee compensation cost is reflected in
net income (loss), as all options granted under the plan had exercise prices equal to the
market value of the underlying common stock on the date of grant. The following table
illustrates the effect on net income (loss) and net income (loss) per share if the
Company had applied the fair value recognition provisions of SFAS 123 to stock-based
employee compensation.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

5

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Table of Contents

# VASCULAR SOLUTIONS,
INC.Notes
to Unaudited Consolidated Financial Statements-Continued

| |                                                                                                                              |  | Three Months EndedSeptember 30, |   | Nine Months EndedSeptember 30,
| | ---------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------- | - | ------------------------------
|
|
|
|
| | Net income (loss), as reported                                                                                               |  |                                 | $ | 60,390                        
| | Deduct: Total stock-based employee and director compensation expense determined under fair-value-based method for all awards |  |                                 |   | (318,351                      
| |                                                                                                                              |  |                                 |   |                               
| | Pro forma net loss                                                                                                           |  |                                 | $ | (257,961                      
| |                                                                                                                              |  |                                 |   |                               
|
| | Net income (loss) per share:                                                                                                 |  |                                
|
| | Basic income (loss)  as reported                                                                                            |  |                                 | $ | 0.00                          
| |                                                                                                                              |  |                                 |   |                               
| | Basic income (loss)  pro forma                                                                                              |  |                                 | $ | (0.02                         
| |                                                                                                                              |  |                                 |   |                               
| | Diluted income (loss)  as reported                                                                                          |  |                                 | $ | 0.00                          
| |                                                                                                                              |  |                                 |   |                               
| | Diluted income (loss)  pro forma                                                                                            |  |                                 | $ | (0.02                         
| |                                                                                                                              |  |                                 |   |                               

|(4) |  | Net
Income (Loss) per Share
|--- |  | ---------------------------

| | Net
income per share is computed based on the weighted average number of common shares
outstanding. Diluted net income per share is computed based on the weighted average
number of common shares outstanding adjusted by the number of additional shares that
would have been outstanding had the potentially dilutive common shares been issued and
reduced by the number of shares the Company could have repurchased from the proceeds of
the potentially dilutive shares. Potentially dilutive shares of common stock include
stock options and warrants.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
following table sets forth the computation of net income (loss) per share:
| | ------------------------------------------------------------------------------

| |                                                                    |  | Three Months EndedSeptember 30, |   | Nine Months EndedSeptember 30,
| | ------------------------------------------------------------------ |  | ------------------------------- | - | ------------------------------
|
|
|
|
| | Net income (loss)                                                  |  |                                 | $ | 60,390                        
| |                                                                    |  |                                 |   |                               
| | Net income (loss) per share  basic                                |  |                                 | $ | 0.00                          
| |                                                                    |  |                                 |   |                               
| | Net income (loss) per share  diluted                              |  |                                 | $ | 0.00                          
| |                                                                    |  |                                 |   |                               
| | Weighted average common shares outstanding                         |  |                                 |   | 14,578,560                    
| | Effect of dilutive stock options and warrants                      |  |                                 |   | 1,091,805                     
| |                                                                    |  |                                 |   |                               
| | Weighted average common shares outstanding and assumed conversions |  |                                 |   | 15,670,365                    
| |                                                                    |  |                                 |   |                               

6

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Table of Contents

# VASCULAR SOLUTIONS,
INC.Notes to Unaudited Consolidated Financial Statements-Continued

| | The
calculation of weighted average diluted shares outstanding excludes options for
approximately 81,000 for the three months ended September 30, 2005 as the exercise
price of those options was greater than the average market price for the period,
resulting in an anti-dilutive effect on diluted net income per share.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(5) |  | Comprehensive
Income (Loss)
|--- |  | ---------------------------

| | Comprehensive
income (loss) for the Company includes net income (loss) and foreign currency
translation. Comprehensive income (loss) for the three and nine months ended September
30, 2005 and September 30, 2004 was as follows:
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |                                          |  | Three Months EndedSeptember 30, |   | Nine Months EndedSeptember 30,
| | ---------------------------------------- |  | ------------------------------- | - | ------------------------------
|
|
|
|
| | Net income (loss)                        |  |                                 | $ | 60,390                        
| | Foreign currency translation adjustments |  |                                 |   | (3,688                        
| |                                          |  |                                 |   |                               
| | Comprehensive income (loss)              |  |                                 | $ | 56,702                        
| |                                          |  |                                 |   |                               

|(6) |  | Revenue
Recognition
|--- |  | -------------------

| | In
the United States and Germany, the Company sells its products directly to hospitals and
clinics. Revenue is recognized in accordance with generally accepted accounting
principles as outlined in the Securities and Exchange Commissions Staff Accounting
Bulletin No. 104, Revenue Recognition, which requires that four basic criteria be
met before revenue can be recognized: (i) persuasive evidence of an arrangement exists;
(ii) the price is fixed or determinable; (iii) collectibility is reasonably assured; and
(iv) product delivery has occurred or services have been rendered. The Company recognizes
revenue as products are shipped based on FOB shipping point terms when title passes to
customers. The Company negotiates credit terms on a customer-by-customer basis and
products are shipped at an agreed upon price. All product returns must be pre-approved
and, if approved, customers are subject to a 20% restocking charge.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
all other international markets, the Company sells its products to international
distributors which subsequently resell the products to hospitals and clinics. The Company
has agreements with each of its distributors which provide that title and risk of loss
pass to the distributor upon shipment of the products to the distributor. The Company
warrants that its products are free from manufacturing defects at the time of shipment to
the distributor. Revenue is recognized upon shipment of products to distributors
following the receipt and acceptance of a distributors purchase order. Allowances
are provided for estimated returns and warranty costs at the time of shipment.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

7

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Table of Contents

# VASCULAR SOLUTIONS,
INC.Notes to Unaudited Consolidated Financial Statements-Continued

| | In
accordance with the Emerging Issues Task Force (EITF) issue 00-10, Accounting for
Shipping and Handling Fees and Costs, the Company includes shipping and
handling revenues in net sales and shipping and handling costs in cost of sales.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(7) |  | Inventories
|--- |  | -----------

| | Inventories
are stated at the lower of cost (first-in, first-out method) or market. Appropriate
consideration is given to deterioration, obsolescence and other factors in evaluating net
realizable value. Inventories are comprised of the following:
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                |  | September 30,
2005 |   | December 31,2004
|--------------- |  | ------------------ | - | ----------------
|
|
|               
|Raw materials   |  |                    | $ | 3,100,579       
|Work-in process |  |                    |   | 696,688         
|Finished goods  |  |                    |   | 840,643         
|                |  |                    |   |                 
|                |  |                    | $ | 4,637,910       
|                |  |                    |   |                 

|(8) |  | Credit
Risk and Allowance for Doubtful Accounts
|--- |  | -----------------------------------------------

| | The
Company maintains allowances for doubtful accounts for estimated losses resulting from
the inability of our customers to make required payments. This allowance is regularly
evaluated by the Company for adequacy by taking into consideration factors such as past
experience, credit quality of the customer base, age of the receivable balances, both
individually and in the aggregate, and current economic conditions that may affect a
customers ability to pay. Accounts receivable over 60 days past due are considered
past due. The Company does not accrue interest on past due accounts receivable.
Receivables are written off only after all collection attempts have failed and are based
on individual credit evaluation and the specific circumstances of the customer. At
September 30, 2005 and December 31, 2004, the allowance for doubtful accounts was
$110,000 and $160,000, respectively.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | All
product returns must be pre-approved and, if approved, customers are subject to a 20%
restocking charge. The Company analyzes the rate of historical returns when evaluating
the adequacy of the allowance for sales returns, which is included with the allowance for
doubtful accounts on our balance sheet. At September 30, 2005 and December 31, 2004, the
sales and return allowance was $50,000 and $20,000, respectively.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Accounts
receivable are shown net of the combined total of the allowance for doubtful accounts and
allowance for sales returns of $160,000 and $180,000 at September 30, 2005 and December
31, 2004, respectively.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

8

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Table of Contents

# VASCULAR SOLUTIONS,
INC.Notes to Unaudited Consolidated Financial Statements-Continued

|(9) |  | Concentrations
of Credit and Other Risks
|--- |  | ----------------------------------------

| | In
the United States and Germany, the Company sells its products directly to hospitals and
clinics. In all other international markets, the Company sells its products to
distributors who, in turn, sell to medical clinics. Loss, termination, or ineffectiveness
of distributors to effectively promote the Companys product could have a material
adverse effect on the Companys financial condition and results of operations.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | With
respect to accounts receivable, the Company performs credit evaluations of its customers
and does not require collateral. No single customer represented greater than 5% of gross
accounts receivable as of September 30, 2005 and December 31, 2004, respectively. There
have been no material losses on customer receivables.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Sales by geographic destination as a percentage of total net sales for the nine months ended
September 30, 2005 and 2004 were 88% and 89% in the United States, respectively, and 12%
and 11% in international markets, respectively. No single customer represented greater
than 5% of the total net sales for the three and nine months ended September 30, 2005 and
2004, respectively.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(10) |  | Dependence
on Key Suppliers
|---- |  | ---------------------------

| | King
Pharmaceuticals
| | --------------------

| | The
Company purchases certain key components from single-source suppliers. Any significant
component delay or interruption could require the Company to qualify new sources of
supply, if available, and could have a material adverse effect on the Companys
financial condition and results of operations. The Company purchases its requirements for
thrombin (a component in the Duett and D-Stat products) under a Purchase Agreement dated
June 10, 1999 with a subsidiary of King Pharmaceuticals, Inc (King). The agreement
provides for a fixed price, with adjustments based on the suppliers manufacturing
costs and the suppliers annual percentage increase in the wholesale price of
thrombin. The agreement expired on May 29, 2005. In anticipation of the agreement
expiring, the Company submitted purchase orders to King for approximately $3 million of
thrombin to benefit from the pricing provisions of the agreement. The Company expects the
thrombin to be delivered during the remainder of 2005 and the first part of 2006. The
Company believes that these purchases will satisfy its thrombin requirements for 2005,
2006 and the first half of 2007.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Sigma
| | -----

| | On
October 18, 2004, the Company entered into a supply agreement with Sigma-Aldrich Fine
Chemicals, an operating division of Sigma-Aldrich, Inc. (Sigma) for the supply of
thrombin to the Company. Pursuant to the terms of the agreement, the Company will be
paying for certain development costs of Sigma to allow Sigma to produce thrombin. The
payments are based on certain milestones over a two year period. The initial contract
term ends after ten years and is automatically extended for up to five additional
successive one year terms unless one party delivers notice of termination at least one
year prior to the scheduled termination of the agreement. During the term of the
agreement, Sigma has agreed not to sell thrombin of the type developed for the Company
under the agreement in or as a component of a hemostatic product for medical use. The
Company does not have any minimum purchase requirements under the agreement; however, if
the Company purchases less than three lots of thrombin in any year then (i) Sigma will be
released from its agreement not to sell thrombin in or as a component of a hemostatic
product for medical use, and (ii) Sigma will have the right to terminate the agreement
upon 30 days notice.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

9

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Table of Contents

# VASCULAR SOLUTIONS,
INC.Notes to Unaudited Consolidated Financial Statements-Continued

| | The
Sigma contract is part of the Companys plan to fully qualify a new source of
thrombin and to bring the new thrombin through the regulatory process to be used in the
Companys hemostatic products starting in 2007. The costs associated with the Sigma
agreement are part of the Companys total estimated expenditures of $7.4 million
(including the payments to Sigma) to complete this project. The failure by us to complete
our thrombin qualification project on time and on budget may affect our gross margins on
our Duett, D-Stat Flowable and D-Stat Dry products and could therefore seriously harm our
business.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The costs incurred as of September 30, 2005 are as follows:
| | -----------------------------------------------------------

|                               |  | Incurred (as of
September 30, 2005) |   | Total Estimated
|------------------------------ |  | ----------------------------------- | - | ---------------
|
|                              
|Qualification expenses         |  |                                     | $ | 1.3 million    
|Capital equipment              |  |                                     |   | 0.6 million    
|Purchase of thrombin inventory |  |                                     |   |               
|                               |  |                                     |   |                
|                               |  |                                     |   | $1.9 million   
|                               |  |                                     |   |                

| | The
purchase of the $2.5 million in thrombin is expected to be used in the Companys
hemostat products starting in 2007.
| | ------------------------------------------------------------------------------------------------------------------------

|(11) |  | Contingencies
|---- |  | -------------

| | The
description of legal proceedings in Part II, Item 1, Legal Proceedings to this
filing is incorporated herein by reference.
| | ------------------------------------------------------------------------------------------------------------------------------

|(12) |  | Shareholders
Equity
|---- |  | --------------------

| | On
March 9, 2004, we sold 888,900 shares of our common stock at an offering price of $6.75
per share for net proceeds of $5.6 million in a private placement.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------

|(13) |  | Reclassification
|---- |  | ----------------

| | Certain
2004 amounts have been reclassified to conform to the 2005 presentation.
| | --------------------------------------------------------------------------------

10

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Table of Contents

# Item 2.  Managements
Discussion and Analysis of Financial Condition and Results of Operations

# Overview

Vascular
Solutions, Inc. (we, us or Vascular) is a medical device company focused on bringing
clinically advanced solutions to interventional cardiologists and interventional
radiologists worldwide. We were incorporated in the state of Minnesota in December 1996,
and we began operations in February 1997. Our current product line consists of the
following medical devices:

- D-Stat Dry hemostatic
bandage, a topical pad with a bandage used to control surface bleeding,
- Pronto
extraction catheter, a mechanical system for the removal of soft thrombus from arteries,
- Vari-Lase® endovenous laser, a laser and procedure kit used for the treatment of
varicose veins,
- Duett sealing device, used to seal the puncture site following
catheterization procedures,
- D-Stat® Flowable hemostat, a thick, yet flowable,
mixture used to control bleeding,
- ThrombiGel hemostat, a resorbable version of our
D-Stat Dry,
- Langston dual lumen catheters, used to measure intravascular pressure
gradients,
- MAX-Support abdominal retraction belt, used to allow femoral access in
obese patients, and
- Acolysis® ultrasound (international only), a treatment for
peripheral occlusive arterial disease.

As
a vertically-integrated medical device company, we generate ideas and create new
interventional medical devices, and then deliver these products directly to the physician
through our direct domestic sales force and our international distribution network.

We
currently have in development several additional products that leverage our existing
infrastructure to bring additional solutions to the interventional cardiologist and
interventional radiologist. Additional products that we expect to gain regulatory
clearance and market launch before the end of 2005 in the United States include the
Skyway support catheter and the Twin-Pass dual access catheter, both
specialty-purpose catheters designed for interventional cardiology which address market
opportunities we estimate at between $1 million and $5 million per year.

# Results of Operations

Three and nine months
ended September 30, 2005 compared to three and nine months ended September 30, 2004

Net
sales increased 44% to $8,574,000 for the quarter ended September 30, 2005 from $5,974,000
for the quarter ended September 30, 2004. Approximately 89% of our net sales for the
quarter ended September 30, 2005 were to customers in the United States and 11% of our net
sales were to customers in international markets. Net sales increased 52% to $23,927,000
for the nine months ended September 30, 2005 from $15,708,000 for the nine months ended
September 30, 2004. Approximately 88% of our net sales for the nine months ended September
30, 2005 were to customers in the United States and 12% of our net sales were to customers
in international markets. Net sales by product category were as follows:

| | l |  | Net
sales of the D-Stat Dry hemostatic bandage were $3,661,000 for the quarter ended
September 30, 2005, compared to $2,449,000 in the third quarter of 2004, a 49% increase.
Net sales of the D-Stat Dry hemostatic bandage were $10,178,000 for the nine months ended
September 30, 2005, compared to $6,218,000 in the nine month period ended September 30,
2004, a 64% increase. Through September 30, 2005, we have sold our D-Stat Dry to 819
interventional cardiology and interventional radiology labs in the United States.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

11

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| | l |  | Net
sales of the Pronto extraction catheter were $1,686,000 for the quarter ended September
30, 2005, compared to net sales of $871,000 in the third quarter of 2004, a 94% increase.
Net sales of the Pronto extraction catheter were $4,612,000 for the nine months ended
September 30, 2005, compared to net sales of $1,961,000 in the nine month period ending
September 30, 2004, a 135% increase. Through September 30, 2005, we have sold our Pronto
to 722 interventional cardiology and interventional radiology labs in the United States.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | l |  | Net
sales of our Vari-Lase product line increased to $1,237,000 for the quarter ended
September 30, 2005 compared to net sales of $763,000 in the quarter ended September 30,
2005, a 62% increase. Net sales of our Vari-Lase product line increased to $3,312,000 for
the nine months ended September 30, 2005 compared to net sales of $1,565,000 in the nine
month period ended September 30, 2004, a 112% increase. Through September 30, 2005, we
have sold our Vari-Lase products to 278 accounts.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | l |  | Net
sales of the D-Stat Flowable increased to $590,000 for the quarter ended September 30,
2005 from $350,000 for the quarter ended September 30, 2004, a 69% increase. Net sales of
the D-Stat Flowable increased to $1,565,000 for the nine months ended September 30, 2005
from $1,051,000 for the nine months ended September 30, 2004, a 49% increase.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | l |  | Net
sales of our Duett sealing device decreased to $909,000 for the quarter ended September
30, 2005 from $1,448,000 for the quarter ended September 30, 2004, a 37% decrease. Net
sales of our Duett sealing device decreased to $3,212,000 for the nine months ended
September 30, 2005 from $4,713,000 for the nine months ended September 30, 2004, a 32%
decrease. We continue to believe that our Duett business will represent a substantial but
declining percentage of our on-going sales as our focus is on harvesting this
product line. A total of 91 accounts purchased the Duett sealing device in the third
quarter 2005.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | l |  | Net
sales of our other products were $491,000 for the quarter ended September 30, 2005,
compared to $93,000 for the quarter ended September 30, 2004, a 428% increase. Net sales
of our other products were $1,048,000 for the nine months ended September 30, 2005,
compared to $198,000 for the nine months ended September 30, 2004, a 429% increase.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Gross
profit as a percentage of net sales increased to 72.8% for the quarter ended September 30,
2005 from 71.8% for the quarter ended September 30, 2004. Gross profit as a percentage of
net sales increased to 72.0% for the nine months ended September 30, 2005 from 70.1% for
the nine months ended September 30, 2004. The increase was the result of the change in the
selling mix of our products, increased volume and related manufacturing efficiencies. The
D-Stat Dry and Pronto now account for 43% and 19%, respectively, of our net sales for the
nine month period ended September 30, 2005. The D-Stat Dry has a gross margin in excess of
80% and the Pronto has a gross margin in excess of 75%. We expect gross margins to
decrease slightly in the fourth quarter to approximately 70% as we plan on launching our
Pronto V3, which has a lower margin than the original Pronto.

Research
and development expenses increased 16% to $865,000 for the quarter ended September 30,
2005 from $746,000 for the quarter ended September 30, 2004. Research and development
expenses increased 6% to $2,709,000 for the nine months ended September 30, 2005 from
$2,551,000 for the nine months ended September 30, 2004. Research and development expenses
fluctuate due to outside project spending. We expect our normal research and development
expenses to remain relatively steady for the final quarter of 2005 in the range of
$800,000 to $1,000,000 as we continue to pursue additional new products at an expected
rate of approximately two new products per year.

12

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Thrombin
qualification expenses were $432,000 for the quarter ended September 30, 2005 and $0 for
the quarter ended September 30, 2004. Thrombin qualification expenses were $1,057,000 for
the nine months ended September 30, 2005 and $0 for the nine months ended September 30,
2004. We have now incurred a total of $1.3 million of expenses of the total estimated
expense of $4.1 million associated with qualifying the new source of thrombin to be
incurred in the remainder of 2005 and 2006. We expect our thrombin qualification expense
for the final quarter of 2005 to be in the range of $800,000 to $1,000,000. We remain on
plan to qualify and receive approval to use our new thrombin in our existing
thrombin-based products by the first quarter of 2007.

Clinical
and regulatory expenses increased 10% to $557,000 for the quarter ended September 30, 2005
from $505,000 for the quarter ended September 30, 2004. Clinical and regulatory expenses
increased 10% to $1,534,000 for the nine months ended September 30, 2005 from $1,391,000
for the nine months ended September 30, 2004. Clinical and regulatory expenses fluctuate
due to the timing of clinical and marketing studies. The increase is the result of our
increased activity with the completion of our D-Stat Flowable Pocket Protector
clinical study and our D-Stat Dry marketing clinical study. We expect clinical and
regulatory expenses to be in the range of $550,000 to $650,000 for the final quarter of
2005.

Sales
and marketing expenses increased 25% to $3,566,000 for the quarter ended September 30,
2005 from $2,849,000 for the quarter ended September 30, 2004. Sales and marketing
expenses increased 21% to $10,036,000 for the nine months ended September 30, 2005 from
$8,279,000 for the nine months ended September 30, 2004. This increase was primarily due
to increased headcount in our United States direct sales force, which went from 47 field
employees as of September 30, 2004 to 64 field employees as of September 30, 2005. We
anticipate that sales and marketing expenses will be between $3.5 million and $3.7 million
in the final quarter of 2005.

General
and administrative expenses increased 30% to $755,000 for the quarter ended September 30,
2005 from $581,000 for the quarter ended September 30, 2004. General and administrative
expenses increased 25% to $2,005,000 for the nine months ended September 30, 2005 from
$1,598,000 for the nine months ended September 30, 2004. The increase was the result of
increased head count and legal fees related to the Diomed intellectual property litigation
(see Legal Proceedings in Item 1 of Part II of this Form 10-Q), as our legal
fees increased $200,000 in the nine month period ended September 30, 2005 compared to the
nine month period ended September 30, 2004. Looking forward, we expect to incur
approximately $100,000 in legal fees per quarter related to the Diomed and VNUS Medical
litigation. We currently anticipate that general and administrative expenses will be
approximately $650,000 to $750,000 in the final quarter of 2005.

Amortization
of purchased technology was $54,000 for the quarter ended September 30, 2005, which is
unchanged from the quarter ended September 30, 2004. Amortization of purchased technology
was $163,000 for the nine months ended September 30, 2005, which is unchanged from the
nine months ended September 30, 2004. The amortization resulted from our acquisition of
the Acolysis assets from the secured creditors of Angiosonics, Inc. in 2002. We allocated
$870,000 of the acquisition price to purchased technology and are amortizing the amount
over four years.

Interest
income increased to $44,000 for the quarter ended September 30, 2005 from $7,000 for the
quarter ended September 30, 2004. Interest income increased to $120,000 for the nine
months ended September 30, 2005 from $41,000 for the nine months ended September 30, 2004,
primarily as a result of higher interest rates.

13

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# Income Taxes

We
have not generated any fiscal year pre-tax income to date and therefore have not paid any
federal income taxes since our inception in December 1996. No provision or benefit for
federal and state income taxes has been recorded for net operating losses incurred in any
period since our inception.

As
of September 30, 2005, we had approximately $57.9 million of federal net operating loss
carryforwards available to offset future taxable income which begin to expire in the year
2013. As of September 30, 2005, we also had federal and state research and development tax
credit carryforwards of approximately $1.9 million which begin to expire in the year 2013.
As of September 30, 2005, we also had a foreign tax loss carryforward of approximately
$2.5 million, which does not expire. Under the United States Tax Reform Act of 1986, the
amounts of and benefits from net operating loss carryforwards may be impaired or limited
in certain circumstances, including significant changes in ownership interests. Future use
of our existing net operating loss carryforwards may be restricted due to changes in
ownership or from future tax legislation. We performed a section 382 study during the
third quarter 2005 on our federal net operating loss carryforward and we concluded that we
will have no limitations on the net operating loss carryforward.

# Liquidity and Capital
Resources

We
have financed all of our operations since inception through the issuance of equity
securities and, to a lesser extent, sales of our products. Through September 30, 2005, we
have sold capital stock generating aggregate net proceeds of approximately $77.4 million.
At September 30, 2005, we had $6,175,000 in cash and cash equivalents on-hand compared to
$7,184,000 at December 31, 2004.

During
the quarter ended September 30, 2005, we generated $10,000 in cash as a result of
operating activities, we incurred capital expenditures in the amount of $908,000, and we
generated $29,000 in financing activities through the sale of common stock upon the
exercise of outstanding stock options and issuances under employee stock plans. The
majority of the capital expenditures was for equipment related to our thrombin
qualification process.

We
currently have a $5 million credit facility with Silicon Valley Bank. The line of credit
has a 12 month term, bears interest at the rate of prime plus 0.5% and is secured by a
first security interest on all of our assets. The line of credit includes two covenants:
minimum tangible net worth of $11.0 million and a liquidity coverage of not less than 1.25
to 1.00. We were in compliance with these covenants at September 30, 2005. As of September
30, 2005, we had no outstanding balance on the line of credit balance and the availability
was $4.2 million. We plan on renewing our line of credit during the fourth quarter of
2005.

We
purchase our requirements for thrombin (a component in the Duett and in all of the D-Stat
products) under a Purchase Agreement dated June 10, 1999 with a subsidiary of King
Pharmaceuticals, Inc. The agreement provides for a fixed price, with adjustments based on
the suppliers manufacturing costs and the suppliers annual percentage increase
in the wholesale price of thrombin. The agreement expired on May 29, 2005. Prior to the
expiration of the agreement, we issued purchase orders for approximately $3 million of
thrombin to benefit from the pricing provisions of the agreement, which thrombin we expect
to be delivered throughout 2005 and into 2006. We believe that these purchases will
satisfy our thrombin requirements through at least the end of the second quarter of 2007.

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We have taken delivery of
approximately $0.7 million of the $3.0 million of King thrombin through September 30,
2005. We have executed a supply agreement for a new source of thrombin, which we plan to
fully qualify and bring through the regulatory process by the first quarter of 2007 at a
cumulative cost of approximately $4.1 million in development and qualification
expenditures and approximately $800,000 in capital expenditures. We also expect to
purchase approximately $2.5 million of thrombin from our new supplier during the end of
2005 and the beginning of 2006. With these planned actions, we expect our thrombin
inventory to peak at approximately $6.4 million at the end of the second quarter of 2006,
and then decrease throughout the remainder of 2006 as no additional thrombin is purchased.
This investment, while substantial, is within our projected capital resources and we
expect will allow us to introduce new thrombin-based products as well as control our long
term cost of thrombin. The failure by us to complete our thrombin qualification project on
time and on budget may affect our gross margins on our Duett, D-Stat Flowable and D-Stat
Dry products and could therefore seriously harm our business.

We
do not have any other significant cash commitments related to supply agreements, nor do we
have any significant commitments for capital expenditures.

We
currently anticipate that we will continue to experience positive cash flow from our
normal operating activities, excluding requirements associated with our new supply of
thrombin. We currently believe that our working capital of $11,693,000 and anticipated
cash from product sales will be sufficient to meet all of our operating and capital
requirements, including our thrombin inventory purchases under our current thrombin supply
contract and our costs associated with the new supply of thrombin. However, our actual
liquidity and capital requirements will depend upon numerous factors, including the costs
and timing of expansion of sales and marketing activities; the amount of revenues from
sales of our existing and new products; the cost of maintaining, enforcing and defending
patents and other intellectual property rights; competing technological and market
developments; developments related to regulatory and third party reimbursement matters;
the cost and progress of our research and development efforts; and other factors.

If
cash generated from operations is insufficient to satisfy our cash needs, we may be
required to raise additional funds. In the event that additional financing is needed, and
depending on market conditions, we may seek to raise additional funds for working capital
purposes through the sale of equity or debt securities.

# Critical Accounting
Policies

Managements
Discussion and Analysis of Financial Condition and Results of Operations addresses our
financial statements, which have been prepared in accordance with accounting principles
generally accepted in the United States for interim financial information. The preparation
of our financial statements requires that we make estimates and assumptions that affect
the reported amounts of assets and liabilities and the disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. On an on-going basis, we evaluate these
estimates and judgments. We base our estimates and judgments on historical experience and
on various other factors that are believed to be reasonable under the circumstances, the
results of which form the basis for making judgments about the carrying value of assets
and liabilities that are not readily apparent from other sources. Actual results may
differ from these estimates under different assumptions or conditions.

We
set forth below those material accounting policies that we believe are the most critical
to an investors understanding of our financial results and condition and which
require complex management judgment.

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Inventory

We
state our inventory at the lower of cost (first-in, first-out method) or market. We record
reserves for inventory shrinkage and for potentially excess, obsolete and slow moving
inventory based upon historical experience and forecasted demand. At September 30, 2005,
this reserve was $440,000, compared to $430,000 at December 31, 2004. Our reserve
requirements could be materially different if demand for our products decreased because of
competitive conditions or market acceptance, or if products become obsolete because of
advancements in the industry.

Revenue Recognition

We
recognize revenue upon shipment of products to customers, net of estimated returns. We
analyze the rate of historical returns when evaluating the adequacy of the allowance for
sales returns, which is included with the allowance for doubtful accounts on our balance
sheet. At September 30, 2005, this reserve was $50,000, which is an increase of $30,000
from December 31, 2004. If the historical data we use to calculate these estimates does
not properly reflect future returns, revenue could be overstated.

Allowance for Doubtful
Accounts

We
maintain allowances for doubtful accounts for estimated losses resulting from the
inability of our customers to make required payments. This allowance is regularly
evaluated by us for adequacy by taking into consideration factors such as past experience,
credit quality of the customer base, age of the receivable balances, both individually and
in the aggregate, and current economic conditions that may affect a customers
ability to pay. At September 30, 2005, this reserve was $110,000, which is a decrease of
$50,000 from December 31, 2004. If the financial condition of our customers were to
deteriorate, resulting in an impairment of their ability to make payments, additional
allowances may be required.

Income Taxes

The
carrying value of our net deferred tax assets assumes that we will be able to generate
sufficient taxable income in the United States and, to a lesser extent, Germany, based on
estimates and assumptions. We record a valuation allowance to reduce the carrying value of
our net deferred tax assets to the amount that is more likely than not to be realized. At
September 30, 2005, we recorded a $26.9 million valuation allowance related to our net
deferred tax assets of $26.9 million. In the event we were to determine that we would be
able to realize our deferred tax assets in the future, an adjustment to the deferred tax
assets would increase net income in the period such determination is made. On a quarterly
basis, we evaluate the realizability of our deferred tax assets and assess the requirement
for a valuation allowance.

# Cautionary Statement
Pursuant to the Private Securities Litigation Reform Act of 1995

The
Private Securities Litigation Reform Act of 1995 (the Act) provides a safe
harbor for forward-looking statements to encourage companies to provide prospective
information about their business, so long as those statements are identified as
forward-looking and are accompanied by meaningful cautionary statements identifying
important factors that could cause actual results to differ materially from those
discussed in the statement. We desire to take advantage of the safe harbor provisions with
respect to any forward-looking statements we may make in this filing, other filings with
the Securities and Exchange Commission and any public oral statements or written releases.
The words or phrases will likely, is expected, will
continue, is anticipated, estimate, projected,
forecast, or similar expressions are intended to identify forward-looking
statements within the meaning of the Act. Such statements are subject to
certain risks and uncertainties that could cause actual results to differ materially from
those projected. We caution readers not to place undue reliance on any such
forward-looking statements, which speak only as of the date made. In accordance with the
Act, we identify the following important general factors which, if altered from the
current status, could cause our actual results to differ from those described in any
forward-looking statements: risks associated with our limited operating history, the
qualification of a new source of thrombin, defense of patent infringement lawsuits,
adoption of our new products, lack of profitability, lack of experience with a direct
sales force, exposure to possible product liability claims, the development of new
products by others, dependence on third party distributors in international markets, doing
business in international markets, limited manufacturing experience, the availability of
third party reimbursement, actions by the FDA related to our products, the loss of key
vendors, and those factors set forth under the heading Risk Factors in our
Annual Report on Form 10-K for the year ended December 31, 2004. This list is not
exhaustive, and we may supplement this list in any future filing with the Securities and
Exchange Commission or in connection with the making of any specific forward-looking
statement.

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# Item 3.  Quantitative and
Qualitative Disclosures About Market Risk

Financial
instruments that potentially subject us to concentrations of credit risk consist primarily
of cash and cash equivalents and accounts receivables. We maintain our accounts for cash
and cash equivalents principally at one major bank and one investment firm in the United
States. We have a formal written investment policy that permits only the placement of
investments to issuers evaluated as creditworthy. We have not experienced any losses on
our deposits of our cash and cash equivalents.

With
respect to accounts receivable, we perform credit evaluations of our customers and do not
require collateral. There have been no material losses on accounts receivables.

In
the United States and Germany, we sell our products directly to hospitals and clinics in
the local currency. Revenue is recognized upon shipment of products to customers.

In
all other international markets, we sell our products to independent distributors who, in
turn, sell to medical clinics. We sell our product in these countries through independent
distributors denominated in United States dollars. Loss, termination or ineffectiveness of
distributors to effectively promote our product would have a material adverse effect on
our financial condition and results of operations.

We
do not believe our operations are currently subject to significant market risks for
interest rates, foreign currency exchange rates, commodity prices or other relevant market
price risks of a material nature.

# Item 4.  Controls and
Procedures

# Evaluation of disclosure
controls and procedures.

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

17

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# Changes in internal
controls.

During
the fiscal quarter ended September 30, 2005, there has been no change in our internal
control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act)
that has materially affected, or is reasonably likely to materially affect, our internal
control over financial reporting.

# PART
II.  OTHER INFORMATION

# Item 1.  Legal Proceedings

On
December 11, 2003, we and one of our non-officer employees were named as defendants in a
lawsuit brought by Diomed, Inc. in the United States District Court for the District of
Massachusetts. The complaint alleges that in marketing our Vari-Lase endovenous laser
procedure kit we engaged in false advertising and infringed a registered trademark of
Diomed. The complaint also alleges that our employee, who previously worked for a company
that conducted business with Diomed, improperly utilized trade secrets of Diomed in
developing our Vari-Lase procedure kit. The complaint requests monetary damages and an
injunction on the sale of our Vari-Lase procedure kit. We believe that the allegations
included in the complaint are wholly without merit and intend to defend this litigation
vigorously. On July 13, 2005, the court held a hearing on our motion for summary judgment,
in which we sought dismissal of all claims. After questioning by the Court, the Diomed
plaintiffs dismissed all of the trademark infringement and false advertising claims. The
Court has taken under advisement our motion for summary judgment on the remaining claims,
which relate to the trade secret allegations. Our insurance carrier accepted our tender of
this claim and has paid for the expenses incurred in defending this lawsuit. We have
recently been notified that the insurance carrier is withdrawing coverage prospectively,
effective November 6, 2005. It is not possible to predict the timing or outcome of this
litigation, including whether it will affect our ability to sell our Vari-Lase procedure
kit, or to estimate the amount or range of potential loss, if any.

On
March 4, 2004, we were named as the defendant in an intellectual property lawsuit brought
by Diomed, Inc. in the United States District Court for the District of Massachusetts. The
complaint requested a judgment that our Vari-Lase procedure kit and Vari-Lase laser
console infringes on a single patent held by Diomed, Inc. and asked for relief in the form
of an injunction that would prevent us from selling our Vari-Lase products, compensatory
and treble damages caused by the manufacture and sale of our product, and other costs,
disbursements and attorneys fees. On April 12, 2005, the Judge entered a Memorandum
and Order on Claims Construction from the Markman hearing phase of the litigation. In the
Order, the Judge held that in order to violate the Diomed patent, a competing method must
deliberately put the tip of the laser fiber in physical contact with the wall of the vein,
must drain blood from the vein, must compress the vein and must maintain vein wall contact
as the laser energy is delivered. We believe that our Vari-Lase products are not used in
this method, and thus we do not believe that the litigation has merit. It is not possible
to predict the timing or outcome of this litigation, including whether it will affect our
ability to sell our Vari-Lase products, or to estimate the amount or range of potential
loss, if any.

On
October 13, 2005, we were named as one of three defendants in an intellectual property
lawsuit brought by VNUS Medical Technologies, Inc. in the United States District Court for
the Northern District of California. The complaint requested a judgment that our Vari-Lase
procedure kit and Vari-Lase laser console infringes on four patents held by VNUS Medical
Technologies, Inc. and asked for relief in the form of an injunction that would prevent us
from selling our Vari-Lase products, compensory ad treble damages caused by the
manufacture and sale of our product, and other costs, disbursements and attorneys
fees. We are currently evaluating the merits of this claim. It is not possible to predict
the timing or outcome of this litigation, including whether it will affect our ability to
sell our Vari-Lase products, or to estimate the amount or range of potential loss, if any.

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From
time to time we are involved in legal proceedings arising in the normal course of our
business. As of the date of this report we are not a party to any legal proceeding not
described in this section in which an adverse outcome would reasonably be expected to
have a material adverse effect on our results of operations or financial condition.

# Item 2.  Unregistered
Sales of Equity Securities and Use of Proceeds

(a)  
Not applicable

(b)  
          Not applicable

(c) 
          Not applicable

# Item 3.  Defaults Upon
Senior Securities

None.

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

None.

# Item 5.  Other Information

None.

# Item 6.  Exhibits

|ExhibitNumber |  | Description
|------------- |  | -----------

|3.1 |  | Amended and Restated Articles of Incorporation of Vascular Solutions, Inc. (incorporated by
reference to Exhibit 3.1 to Vascular  Solutions  Form 10-Q for the quarter
ended September 30, 2000).
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|3.2 |  | Bylaws
of Vascular Solutions, Inc. (incorporated by reference to Exhibit 3.2 of Vascular
                  Solutions' Registration Statement on Form S-1 (File No. 333-84089)).
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4.1 |  | Specimen
of Common Stock certificate (incorporated by reference to Exhibit 4.1 of Vascular
                  Solutions' Registration Statement on Form S-1 (File No. 333-84089)).
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4.2 |  | Form
of warrant dated January 31 and February 14, 1997 issued to representatives of Miller,
Johnson & Kuehn, Incorporated (incorporated by reference to Exhibit 4.2 of Vascular
Solutions Registration Statement on Form S-1 (File No. 333-84089)).
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4.3 |  | Form
of warrant dated December 29, 1997 issued to representatives of Miller, Johnson &Kuehn,
Incorporated (incorporated by reference to Exhibit 4.3 of Vascular SolutionsRegistration
Statement on Form S-1 (File No. 333-84089)).
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4.4 |  | Amended
and Restated  Investors Rights Agreement dated December 9, 1998, by and between
Vascular  Solutions,  Inc. and the purchasers of Series A and Series B preferred
stock  (incorporated  by  reference  to Exhibit 4.4 of Vascular  Solutions
Registration Statement on Form S-1 (File No. 333-84089)).
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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|31.1 |  | Certification
of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|---- |  | ---------------------------------------------------------------------------------------------------

|31.2 |  | Certification
of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|---- |  | ---------------------------------------------------------------------------------------------------

|32.1 |  | Certification
of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|---- |  | ---------------------------------------------------------------------------------------------------

|32.2 |  | Certification
of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|---- |  | ---------------------------------------------------------------------------------------------------

# SIGNATURE

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.

|      | VASCULAR SOLUTIONS, INC.                                            
|----- | --------------------------------------------------------------------
|     
|     
|Date: | October 25, 2005                                                    
|      | Howard Root                                                         
|      | Chief Executive Officer and Director
(principal executive officer)  
|     
|      |                                                                     
|      | James Hennen                                                        
|      | Chief Financial Officer
(principal financial and accounting officer)

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