Table of Contents





|                                  
|----------------------------------
|UNITED STATES                     
|SECURITIES AND EXCHANGE COMMISSION
|WASHINGTON, D.C. 20549            
|                                  
|                                  
|                                  
|FORM 10-Q                         
|                                  
|                                  

|                                                   |   |                                                                                          
|-------------------------------------------------- | - | -----------------------------------------------------------------------------------------
|(Mark One)                                         |  
|                                                   |   |                                                                                          
|                                                   | x | QUARTERLY
 REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 
|For the quarterly period ended September 30, 2009 
|                                                   |   |                                                                                          
|OR                                                
|                                                   |   |                                                                                          
|                                                   | o | TRANSITION
 REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|For the transition period from _______ to ________

|                                                       
|-------------------------------------------------------
|Commission
 File Number: 0-27605                       
|                                                       
|                                                       
|                                                       
|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 Court                                                                 
|Minneapolis, 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 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 o

Indicate by check mark
whether the registrant has submitted electronically and posted on its corporate
Web site, if any, every Interactive Data File required to be submitted and
posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during
the preceding 12 months (or for such shorter period that the registrant was
required to submit and post such files).
Yes o
No o

Indicate by check mark
whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated filer and smaller reporting company
in Rule 12b-2 of the Exchange Act.


|                          |                            
|------------------------- | ---------------------------
|Large accelerated filer o | Accelerated filer x        
|Non-accelerated filer o   | Smaller Reporting Company 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
16,394,230 shares of common stock, $.01 par value per share, outstanding as of
October 16, 2009.







VASCULAR SOLUTIONS, INC.

TABLE OF CONTENTS

|                              |          |                                                                                        |  |     
|----------------------------- | -------- | -------------------------------------------------------------------------------------- |  | ----
|                              |          |                                                                                        |  | Page
|                              |          |                                                                                        |  |     
|                              |          |                                                                                        |  |     
|PART I. FINANCIAL INFORMATION |          |                                                                                       
|                              |          |                                                                                        |  |     
|                              | Item 1.  | Financial
 Statements (Unaudited)                                                      |  | 2   
|                              |          |                                                                                        |  |     
|                              |          | Consolidated
 Balance Sheets                                                           |  | 2   
|                              |          |                                                                                        |  |     
|                              |          | Consolidated
 Statements of Operations                                                 |  | 3   
|                              |          |                                                                                        |  |     
|                              |          | Consolidated
 Statements of Cash Flows                                                 |  | 4   
|                              |          |                                                                                        |  |     
|                              |          | Notes to
 Unaudited Consolidated Financial Statements                                  |  | 5   
|                              |          |                                                                                        |  |     
|                              | Item 2.  | Managements
 Discussion and Analysis of Financial Condition and Results of Operations |  | 13  
|                              |          |                                                                                        |  |     
|                              | Item 3.  | Quantitative
 and Qualitative Disclosures about Market Risk                            |  | 18  
|                              |          |                                                                                        |  |     
|                              | Item 4.  | Controls
 and Procedures                                                               |  | 19  
|                              |          |                                                                                        |  |     
|PART II. OTHER INFORMATION    |          |                                                                                       
|                              |          |                                                                                        |  |     
|                              | Item 1.  | Legal
 Proceedings                                                                     |  | 20  
|                              |          |                                                                                        |  |     
|                              | Item 1A. | Risk
 Factors                                                                          |  | 20  
|                              |          |                                                                                        |  |     
|                              | Item 2.  | Unregistered
 Sales of Equity Securities and Use of Proceeds                           |  | 20  
|                              |          |                                                                                        |  |     
|                              | Item 3.  | Defaults
 upon Senior Securities                                                       |  | 20  
|                              |          |                                                                                        |  |     
|                              | Item 4.  | Submission
 of Matters to a Vote of Security Holders                                   |  | 20  
|                              |          |                                                                                        |  |     
|                              | Item 5.  | Other
 Information                                                                     |  | 21  
|                              |          |                                                                                        |  |     
|                              | Item 6.  | Exhibits                                                                               |  | 21  

Page 1

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Table of Contents

PART 1. FINANCIAL INFORMATION

|        |                     
|------- | --------------------
|Item 1. | Financial Statements

VASCULAR SOLUTIONS, INC.

Consolidated Balance Sheets

|                                                                                              |  |                    |             |                   |   |             |  
|--------------------------------------------------------------------------------------------- |  | ------------------ | ----------- | ----------------- | - | ----------- | -
|                                                                                              |  | September 30, 2009 |             | December 31, 2008 |  
|                                                                                             
|                                                                                              |  | (unaudited)        |             | (see note)        |  
|Assets                                                                                        |  |                    |             |                   |   |             |  
|Current
 assets:                                                                              |  |                    |             |                   |   |             |  
|Cash and cash equivalents                                                                     |  | $                  | 14,053,000  |                   | $ | 7,209,000   |  
|Accounts receivable, net of reserves of
 $115,000 and $120,000 in 2009 and 2008, respectively |  |                    | 8,814,000   |                   |   | 8,706,000   |  
|Inventories                                                                                   |  |                    | 9,689,000   |                   |   | 9,974,000   |  
|Prepaid expenses                                                                              |  |                    | 1,564,000   |                   |   | 1,045,000   |  
|Current portion of deferred tax assets                                                        |  |                    | 2,680,000   |                   |   | 2,680,000   |  
|Total
 current assets                                                                         |  |                    | 36,800,000  |                   |   | 29,614,000  |  
|                                                                                              |  |                    |             |                   |   |             |  
|Property and
 equipment, net                                                                  |  |                    | 3,786,000   |                   |   | 3,887,000   |  
|Intangible
 assets, net                                                                       |  |                    | 193,000     |                   |   | 193,000     |  
|Deferred tax
 assets, net of current portion and liabilities                                  |  |                    | 8,590,000   |                   |   | 10,486,000  |  
|Total assets                                                                                  |  | $                  | 49,369,000  |                   | $ | 44,180,000  |  
|                                                                                              |  |                    |             |                   |   |             |  
|Liabilities and shareholders equity                                                          |  |                    |             |                   |   |             |  
|Current
 liabilities:                                                                         |  |                    |             |                   |   |             |  
|Accounts payable                                                                              |  | $                  | 1,497,000   |                   | $ | 2,022,000   |  
|Accrued compensation                                                                          |  |                    | 3,126,000   |                   |   | 2,584,000   |  
|Accrued expenses                                                                              |  |                    | 846,000     |                   |   | 848,000     |  
|Accrued royalties                                                                             |  |                    | 536,000     |                   |   | 576,000     |  
|Current portion of deferred revenue                                                           |  |                    | 929,000     |                   |   | 907,000     |  
|Total
 current liabilities                                                                    |  |                    | 6,934,000   |                   |   | 6,937,000   |  
|                                                                                              |  |                    |             |                   |   |             |  
|Long-term
 deferred revenue, net of current portion                                           |  |                    | 4,780,000   |                   |   | 5,417,000   |  
|                                                                                              |  |                    |             |                   |   |             |  
|Shareholders
 equity:                                                                        |  |                    |             |                   |   |             |  
|Common stock, $0.01 par value:                                                                |  |                    |             |                   |   |             |  
|Authorized shares  40,000,000                                                                |  |                    |             |                   |   |             |  
|Issued and outstanding shares  16,394,230
  2009;
 16,027,519  2008                        |  |                    | 164,000     |                   |   | 160,000     |  
|Additional paid-in capital                                                                    |  |                    | 87,361,000  |                   |   | 85,292,000  |  
|Other                                                                                         |  |                    | 84,000      |                   |   | 84,000      |  
|Accumulated deficit                                                                           |  |                    | (49,954,000 | )                 |   | (53,710,000 | )
|Total
 shareholders equity                                                                   |  |                    | 37,655,000  |                   |   | 31,826,000  |  
|Total
 liabilities and shareholders equity                                                   |  | $                  | 49,369,000  |                   | $ | 44,180,000  |  

See accompanying notes.

Note: The balance sheet at
December 31, 2008 has been derived from the audited financial statements at
that date.

Page 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, |  
|                                            |  | 2009                               |            | 2008                              |   | 2009       |   | 2008 |           
|                                           
|                                            |  | (unaudited)                        |            | (unaudited)                       |  
|Revenue:                                    |  |                                    |            |                                   |   |            |   |      |            |   |   |            |  
|Product revenue                             |  | $                                  | 16,817,000 |                                   | $ | 15,089,000 |   | $    | 49,014,000 |   | $ | 43,698,000 |  
|License and collaboration revenue           |  |                                    | 411,000    |                                   |   | 376,000    |   |      | 1,191,000  |   |   | 1,120,000  |  
|Total
 revenue                              |  |                                    | 17,228,000 |                                   |   | 15,465,000 |   |      | 50,205,000 |   |   | 44,818,000 |  
|                                            |  |                                    |            |                                   |   |            |   |      |            |   |   |            |  
|Product
 costs and operating expenses:      |  |                                    |            |                                   |   |            |   |      |            |   |   |            |  
|Cost of goods sold                          |  |                                    | 5,718,000  |                                   |   | 5,130,000  |   |      | 16,698,000 |   |   | 15,071,000 |  
|Collaboration expenses                      |  |                                    | 199,000    |                                   |   | 138,000    |   |      | 554,000    |   |   | 506,000    |  
|Research and development                    |  |                                    | 1,988,000  |                                   |   | 1,530,000  |   |      | 5,707,000  |   |   | 4,550,000  |  
|Clinical and regulatory                     |  |                                    | 713,000    |                                   |   | 792,000    |   |      | 2,092,000  |   |   | 2,402,000  |  
|Sales and marketing                         |  |                                    | 5,280,000  |                                   |   | 5,090,000  |   |      | 15,840,000 |   |   | 15,477,000 |  
|General and administrative                  |  |                                    | 1,152,000  |                                   |   | 1,037,000  |   |      | 3,375,000  |   |   | 3,771,000  |  
|Litigation                                  |  |                                    |           |                                   |   |           |   |      |           |   |   | 1,484,000  |  
|Total
 product costs and operating expenses |  |                                    | 15,050,000 |                                   |   | 13,717,000 |   |      | 44,266,000 |   |   | 43,261,000 |  
|                                            |  |                                    |            |                                   |   |            |   |      |            |   |   |            |  
|Operating
 income                           |  |                                    | 2,178,000  |                                   |   | 1,748,000  |   |      | 5,939,000  |   |   | 1,557,000  |  
|                                            |  |                                    |            |                                   |   |            |   |      |            |   |   |            |  
|Other income
 (expenses):                   |  |                                    |            |                                   |   |            |   |      |            |   |   |            |  
|Interest income                             |  |                                    | 5,000      |                                   |   | 28,000     |   |      | 43,000     |   |   | 168,000    |  
|Interest expense                            |  |                                    | (9,000     | )                                 |   | (10,000    | ) |      | (30,000    | ) |   | (52,000    | )
|Foreign exchange gain (loss)                |  |                                    | 3,000      |                                   |   | (22,000    | ) |      | (3,000     | ) |   | (22,000    | )
|                                            |  |                                    |            |                                   |   |            |   |      |            |   |   |            |  
|Income
 before income taxes                 |  |                                    | 2,177,000  |                                   |   | 1,744,000  |   |      | 5,949,000  |   |   | 1,651,000  |  
|                                            |  |                                    |            |                                   |   |            |   |      |            |   |   |            |  
|Income tax
 expense                         |  |                                    | (746,000   | )                                 |   | (22,000    | ) |      | (2,194,000 | ) |   | (162,000   | )
|Net income                                  |  | $                                  | 1,431,000  |                                   | $ | 1,722,000  |   | $    | 3,755,000  |   | $ | 1,489,000  |  
|                                            |  |                                    |            |                                   |   |            |   |      |            |   |   |            |  
|Net income
 per share  basic               |  | $                                  | 0.09       |                                   | $ | 0.11       |   | $    | 0.24       |   | $ | 0.10       |  
|Net income
 per share  diluted             |  | $                                  | 0.09       |                                   | $ | 0.11       |   | $    | 0.23       |   | $ | 0.09       |  

See accompanying notes.

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Table of Contents

VASCULAR SOLUTIONS, INC.

Consolidated Statements of Cash
Flows

|                                                                                                 |  |                                   |            |      |   |            |  
|------------------------------------------------------------------------------------------------ |  | --------------------------------- | ---------- | ---- | - | ---------- | -
|                                                                                                 |  | Nine Months Ended 
 September 30, |           
|                                                                                                 |  | 2009                              |            | 2008 |  
|                                                                                                
|                                                                                                 |  | (unaudited)                       |           
|Operating activities                                                                             |  |                                   |            |      |   |            |  
|Net income                                                                                       |  | $                                 | 3,755,000  |      | $ | 1,489,000  |  
|Adjustments
 to reconcile net income to net cash provided by operating activities:               |  |                                   |            |      |   |            |  
|Depreciation                                                                                     |  |                                   | 1,042,000  |      |   | 1,127,000  |  
|Stock-based compensation                                                                         |  |                                   | 1,299,000  |      |   | 1,332,000  |  
|Deferred compensation expense                                                                    |  |                                   |           |      |   | 9,000      |  
|Deferred taxes, net                                                                              |  |                                   | 1,897,000  |      |   | 4,000      |  
|Loss on disposal of fixed assets                                                                 |  |                                   |           |      |   | 24,000     |  
|Change in allowance for doubtful accounts                                                        |  |                                   | (5,000     | )    |   |           |  
|Changes in operating assets and
 liabilities:                                                    |  |                                   |            |      |   |            |  
|Accounts receivable                                                                              |  |                                   | (102,000   | )    |   | (315,000   | )
|Inventories                                                                                      |  |                                   | 284,000    |      |   | (2,327,000 | )
|Prepaid expenses                                                                                 |  |                                   | (519,000   | )    |   | (567,000   | )
|Accounts payable                                                                                 |  |                                   | (524,000   | )    |   | 792,000    |  
|Accrued compensation and expenses                                                                |  |                                   | 500,000    |      |   | (4,900,000 | )
|Deferred license fees received                                                                   |  |                                   |           |      |   | 386,000    |  
|Amortization of deferred license fees and
 other deferred revenue                                |  |                                   | (616,000   | )    |   | (615,000   | )
|Net cash
 provided by (used in) operating activities                                             |  |                                   | 7,011,000  |      |   | (3,561,000 | )
|                                                                                                 |  |                                   |            |      |   |            |  
|Investing activities                                                                             |  |                                   |            |      |   |            |  
|Purchase of
 property and equipment                                                              |  |                                   | (941,000   | )    |   | (1,013,000 | )
|Cash
 deposits transferred from restricted cash                                                  |  |                                   |           |      |   | 5,473,000  |  
|Net cash
 provided by (used in) investing activities                                             |  |                                   | (941,000   | )    |   | 4,460,000  |  
|                                                                                                 |  |                                   |            |      |   |            |  
|Financing activities                                                                             |  |                                   |            |      |   |            |  
|Repurchase
 of common shares                                                                     |  |                                   | (340,000   | )    |   | (153,000   | )
|Payment on
 long-term debt                                                                       |  |                                   |           |      |   | (867,000   | )
|Proceeds
 from the exercise of stock options, stock warrants and sale of stock, net of
 expenses |  |                                   | 1,114,000  |      |   | 468,000    |  
|Net cash
 provided by (used in) financing activities                                             |  |                                   | 774,000    |      |   | (552,000   | )
|                                                                                                 |  |                                   |            |      |   |            |  
|Effect of
 exchange rate changes on cash and cash equivalents                                    |  |                                   |           |      |   | (35,000    | )
|Increase in
 cash and cash equivalents                                                           |  |                                   | 6,844,000  |      |   | 312,000    |  
|Cash and
 cash equivalents at beginning of period                                                |  |                                   | 7,209,000  |      |   | 5,286,000  |  
|Cash and
 cash equivalents at end of period                                                      |  | $                                 | 14,053,000 |      | $ | 5,598,000  |  
|                                                                                                 |  |                                   |            |      |   |            |  
|Supplemental disclosure of cash flow                                                             |  |                                   |            |      |   |            |  
|Cash paid
 for interest                                                                          |  | $                                 | 23,000     |      | $ | 59,000     |  
|Cash paid
 for taxes                                                                             |  | $                                 | 158,000    |      | $ | 241,000    |  

See accompanying notes.

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Table of Contents

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

|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(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 fiscal year ended
 December 31, 2008 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) | Net Income per Share                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    | In
 accordance with Statement of Financial Accounting Standards No. 128, Earnings
 Per Share,(SFAS 128), [Accounting Standards Codification (ASC)
 260-10-55], basic net income per share for the three and nine months ended September 30, 2009 and 2008 is
 computed by dividing net income by the weighted average common shares
 outstanding during the periods presented. Diluted net income per weighted
 average common share is computed by dividing net income by the weighted
 average common shares outstanding during the period, increased to include
 dilutive potential common shares issuable relating to outstanding restricted
 stock, and upon the exercise of stock options and awards that were
 outstanding during the period.                                                                                                                                                                                                                            
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    | Weighted
 average common shares outstanding for the three and nine months ended September 30, 2009 and 2008 was as
 follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

|                                               |  |                                   |            |                                  |  |            |  |      |            |  |  |            | 
|---------------------------------------------- |  | --------------------------------- | ---------- | -------------------------------- |  | ---------- |  | ---- | ---------- |  |  | ---------- | 
|                                               |  | Three Months Ended
 September 30, |            | Nine Months Ended
 September 30, | 
|                                               |  | 2009                              |            | 2008                             |  | 2009       |  | 2008 |           
|                                              
|                                               |  | (unaudited)                       |            | (unaudited)                      | 
|Weighted average shares outstanding  basic    |  |                                   | 16,055,000 |                                  |  | 15,581,000 |  |      | 15,955,000 |  |  | 15,517,000 | 
|Weighted average shares outstanding 
 diluted |  |                                   | 16,526,000 |                                  |  | 16,044,000 |  |      | 16,390,000 |  |  | 15,885,000 | 

|    |                                                                                                                                                                                                   
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(3) | Comprehensive Income                                                                                                                                                                              
|    |                                                                                                                                                                                                   
|    | Comprehensive
 income for the Company includes net income and foreign currency translation.
 Comprehensive income for the three and nine months ended September 30, 2009 and 2008 was as
 follows:

|                                         |  |                                   |           |                                  |   |           |   |      |           |  |   |           |  
|---------------------------------------- |  | --------------------------------- | --------- | -------------------------------- | - | --------- | - | ---- | --------- |  | - | --------- | -
|                                         |  | Three Months Ended
 September 30, |           | Nine Months Ended
 September 30, |  
|                                         |  | 2009                              |           | 2008                             |   | 2009      |   | 2008 |          
|                                        
|                                         |  | (unaudited)                       |           | (unaudited)                      |  
|Net income                               |  | $                                 | 1,431,000 |                                  | $ | 1,722,000 |   | $    | 3,755,000 |  | $ | 1,489,000 |  
|Foreign currency translation adjustments |  |                                   |          |                                  |   | (48,000   | ) |      |          |  |   | (22,000   | )
|Comprehensive income                     |  | $                                 | 1,431,000 |                                  | $ | 1,674,000 |   | $    | 3,755,000 |  | $ | 1,467,000 |  

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

|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(4) | Revenue Recognition                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    | In the
 United States 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(SAB 104),
 [ASC 605-10-S99], 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.                                                                                    
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    | Effective April 1, 2008
 the Company entered into a five-year distribution agreement with Nicolai,
 GmbH. As a result of entering into this distribution agreement, the Company
 no longer maintains a direct sales force in Germany. In connection with this
 distribution agreement, the Company received 500,000 Euros from Nicolai,
 GmbH. The 500,000 Euro payment was deferred and is being recognized ratably
 over the five-year term of the distribution agreement. The agreement also
 includes provisions requiring the Company to pay Nicolai, GmbH specific
 amounts if the Company terminates the distribution agreement prior to the end
 of the five-year term. The Company does not intend to terminate the
 distribution agreement and, as such, has not recorded a liability relating to
 these potential future payments to Nicolai, GmbH.                                                                                                                                                                                                                  
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    | In all
 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.                                                                                                                                                                                                                                                                                                                                                                      
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    | The Company
 also generates revenues from license agreements and research collaborations
 and recognizes these revenues when earned. In accordance with Emerging Issues
 Task Force (EITF) Issue No. 00-21, Revenue Arrangements with Multiple Deliverables,
 [ASC 605-25-25-5], for deliverables which contain multiple deliverables, the
 Company separates the deliverables into separate accounting units if they
 meet the following criteria: (i) the delivered items have a stand-alone value
 to the customer; (ii) the fair value of any undelivered items can be reliably
 determined; and (iii) if the arrangement includes a general right of return,
 delivery of the undelivered items is probable and substantially controlled by
 the seller. Deliverables that do not meet these criteria are combined with
 one or more other deliverables into one accounting unit. Revenue from each
 accounting unit
 is recognized based on the applicable accounting literature, primarily Staff
 Accounting Bulletin (SAB) 104, Revenue Recognition,[ASC
 605-10-S99-1].
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    | In addition, the
 Company has reviewed the provisions of EITF Issue No. 07-01, Accounting
 for Collaborative Arrangements,[ASC 808-10], and has determined
 this EITF has no impact on the amounts recorded under these agreements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             

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Table of Contents

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

|    |                                                                                                                                                                                                                                                            
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    | In
 accordance with EITF Issue No. 00-10, Accounting
 for Shipping and Handling Fees and Costs, [ASC 605-45-45], the
 Company includes shipping and handling revenues in net revenue, and shipping
 and handling costs in cost of sales.                   
|    |                                                                                                                                                                                                                                                            
|(5) | 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,
 2009 |           | December 31,
 2008 |  
|               
|                |  | (unaudited)         |           |                    |   |          
|               
|Raw materials   |  | $                   | 4,910,000 |                    | $ | 4,943,000 | 
|Work-in process |  |                     | 750,000   |                    |   | 871,000   | 
|Finished goods  |  |                     | 4,029,000 |                    |   | 4,160,000 | 
|                |  | $                   | 9,689,000 |                    | $ | 9,974,000 | 

|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(6) | 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.
 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, 2009 and December 31, 2008, the allowance
 for doubtful accounts was $80,000 and $95,000, 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, 2009 and December 31, 2008, the sales and return allowance was $35,000
 and $25,000, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                     
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    | Accounts receivable
 are shown net of the combined total of the allowance for doubtful accounts
 and allowance for sales returns of $115,000 and $120,000 at September 30,
 2009 and December 31, 2008, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|(7) | Concentrations of Credit and Other Risks                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    | In the
 United States the Company sells its products directly to hospitals and
 clinics. In all international markets, the Company sells its products to
 distributors who, in turn, sell to medical clinics.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    | With respect
 to accounts receivable, the Company performs credit evaluations of its
 customers and does not require collateral. No single customer represented
 greater than 10% of gross accounts
 receivable as of either September 30, 2009 or December 31, 2008. There have
 been no material losses on customer receivables.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              

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Table of Contents

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

|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|    | Revenue by
 geographic destination as a percentage of total net revenue for the nine
 month periods ended September 30, 2009 and 2008 was 87% in the United States
 and 13% in international markets for both periods. No single customer
 represented greater than 10% of the total net revenue for the nine months
 ended September 30, 2009 or 2008.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|(8) | 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 Hemostat products) under a Thrombin-JMI Supply Agreement entered into
 with King Pharmaceuticals, Inc. (King) on January 9, 2007. Under the terms of the Thrombin-JMI
 Supply Agreement, King agrees to manufacture and supply thrombin to the
 Company on a non-exclusive basis. The Thrombin-JMI Supply Agreement does not
 contain any minimum purchase requirements. King agrees to supply the Company
 with such quantity of thrombin as the Company may order at a fixed price
 throughout the term of the Thrombin-JMI Supply Agreement as adjusted for
 inflation, variations in potency and other factors. The Thrombin-JMI Supply
 Agreement has an initial term of 10 years, followed by successive automatic
 one-year extensions, subject to termination by the parties under certain
 circumstances, including: (i) termination by King without cause anytime after
 the fifth anniversary of the date of the Thrombin-JMI Supply Agreement upon
 five years prior written notice to the Company, and (ii) termination by the Company
 without cause anytime after the fifth anniversary of the date of the
 Thrombin-JMI Supply Agreement upon five years prior written notice to King
 provided that the Device Supply Agreement,
 which the Company also entered into with King on January 9, 2007, has expired
 on its terms or the parties have agreed to terminate it.                                                                                                                                                                                                                                                                                                                                                                                       
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|(9) | Commitments and Contingencies                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|    | Diomed Inc. Litigation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|    | On March 4,
 2004, the Company was named as the defendant in an intellectual property
 lawsuit brought by Diomed Inc. (Diomed) in the United States District Court
 for the District of Massachusetts (the Court). The complaint requested a
 judgment that sales of the Companys Vari-Lase® procedure kit and
 Vari-Lase laser console infringe on a single method patent (No. 6,398,777)
 held by Diomed and asked for relief in the form of an injunction that would
 prevent the Company from selling the Companys Vari-Lase products,
 compensatory and treble damages caused by the manufacture and sale of the
 Companys products, and other costs, disbursements and attorneys fees. The
 trial commenced on March 12, 2007, and concluded on March 28, 2007, when the
 jury reached a verdict that the Company contributed to and induced
 infringement of Diomeds patent and awarded monetary damages in the amount of
 $4,100,000, plus pre-judgment interest. The jury concluded there was no
 willful infringement by the Company and therefore the award was not subject
 to treble damages or attorneys fees. To settle Diomeds claims for
 pre-judgment interest and for additional damages for sales not considered by
 the jury, the Company agreed to
 amend the judgment amount to $4,975,000 and accrued this amount together with
 additional costs and attorneys fees as of June 30, 2007 in the aggregate
 amount of $5,690,000. On June 20, 2007 the Company posted a supersedeas bond
 and appealed the jury verdict to the U.S. Court of Appeals for the Federal
 Circuit in Washington, D.C. On April 8, 2008, the Company announced that it
 entered into a settlement agreement with Diomed. Pursuant to the settlement
 agreement, (i) on April 29, 2008, the Company made a one-time payment of
 $3,586,000 to Diomed, (ii) the Company and Diomed jointly dismissed the
 appeal with the United States Court of Appeals for the Federal Circuit, and
 (iii) Diomed provided to the Company a satisfaction of judgment, releasing
 the Company from the monetary obligations of the judgment imposed by the
 Court in its entirety.

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Table of Contents

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

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | Marine Polymer Technologies, Inc. Litigation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | On May 11,
 2005 the Company initiated a lawsuit for product disparagement and false
 advertising against Marine Polymer Technologies, Inc., a Delaware corporation
 (Marine Polymer). In the lawsuit, the Company alleged that Marine Polymer
 made defamatory and disparaging statements concerning the Companys D-Stat®
 Dry hemostatic bandage. The Company sought relief in the form of an
 injunction to enjoin Marine Polymer from continuing to defame and disparage
 the Companys products, damages as a result of such statements, and other
 costs, disbursements and attorneys fees. Marine Polymer brought a
 counter-claim against the Company including, among other claims, business
 defamation and product disparagement for statements allegedly made by the
 Company concerning Marine Polymers SyvekPatch®. Marine Polymer
 sought relief in the form of monetary damages, costs, disbursements and
 attorneys fees. The trial commenced on March 24, 2008 in the United States
 District Court for the District of Massachusetts. At the conclusion of the
 trial on April 7, 2008 the jury returned a verdict in favor of the Company
 and against Marine Polymer for product disparagement concerning statements made
 regarding the safety of the Companys D-Stat Dry hemostat product. In its
 verdict, the jury found that Marine Polymers statements were false and
 disparaged the D-Stat Dry product and awarded the Company $4,500,000 in
 monetary damages. The jury rejected Marine Polymers counter-claims in their
 entirety. Following post trial motions, on June 30, 2008, the Court upheld
 the jury verdict, granted the Companys request for a permanent injunction
 against Marine Polymer for the statements that the jury found were false, and
 added prejudgment interest on the jury verdict award in the amount of
 $592,124. On July 14, 2008, Marine Polymer filed a Notice of Appeal with the
 U.S. First Circuit Court of Appeals seeking to overturn the monetary damages
 and injunction issued against them. Marine Polymer did not appeal the Courts
 rejection of its counter-claims against the Company. On February 4, 2009,
 oral arguments by both parties on Marine Polymers appeal were heard by the
 U.S. First Circuit Court of Appeals.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | VNUS®Medical
 Technologies Litigation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | On October 13, 2005, the
 Company was named as one of three defendants in an intellectual property
 lawsuit brought by VNUS® Medical Technologies, Inc. (VNUS) in the
 United States District Court for the Northern District of California. The
 complaint requested a judgment that the Companys Vari-Lase® procedure kit and Vari-Lase® laser console infringe on four patents
 held by VNUS and asked for relief in the form of an injunction that would
 prevent the Company from selling the Companys Vari-Lase® products, compensatory and treble damages
 caused by the manufacture and sale of these products, and other costs,
 disbursements and attorneys fees. VNUS subsequently indicated that it was
 not pursuing its allegation of infringement concerning one of the four
 patents. On June 2, 2008, the Company entered into a settlement agreement
 with VNUS for the purpose of resolving the lawsuit. Under the terms of
 the settlement agreement, (i) on June 4,
 2008, the Company paid VNUS a royalty payment in the aggregate amount of
 $3,116,000 related to all Vari-Lase products shipped within the United States
 through the end of the first quarter of 2008, (ii) the Company agreed to pay
 a quarterly royalty on all on-going U.S. shipments of Vari-Lase laser and kit
 products payable quarterly during the remaining life of the applicable
 patents, (iii) VNUS granted the Company a non-exclusive and non-sublicensable
 license to the applicable patents for use in endovenous laser therapy, and
 (iv) all litigation between the parties was dismissed.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        

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Table of Contents

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

|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|     | AngioDynamics, Inc. Litigation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|     | On July 29, 2009
 AngioDynamics, Inc. (AngioDynamics) filed a lawsuit against the Company in
 the United States District Court for the District of Delaware, alleging that
 the Company has infringed U.S. Patent No. 7,273,478 and U.S. Patent No.
 7,559,329 by making, using and selling Vari-Lase® products, including Bright
 Tip fibers and procedure kits. AngioDynamics has requested injunctive relief
 and compensatory damages. The Company believes that the Vari-Lase products do
 not infringe any valid AngioDynamics patent.                                                                                                                                                                                                                                                                                                                                                                                                          
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|     | From
 time to time, the Company is involved in legal proceedings arising in the
 normal course of business. As of the date of this report the Company is 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 the Companys results of
 operations or financial condition.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|(10) | Long-term Debt                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|     | On December
 26, 2007, the Company modified and extended its secured asset-based loan and
 security agreement with Silicon Valley Bank dated December 31, 2003 (as
 previously amended December 28, 2006 and December 29, 2005), consisting of an
 operating line of credit and an equipment line of credit. The operating line
 of credit is a two-year, $10,000,000 facility with availability based
 primarily on eligible customer receivables and inventory. The interest rate
 is the greater of prime plus 0.5% or 7.25%. As of September 30, 2009, the
 Company had no outstanding balance against the operating line of credit.
 Based on the Companys eligible customer receivables, inventory and cash balances,
 $10,000,000 was available for borrowing as of September
 30, 2009. The operating line of credit requires an annual fee of 0.25% of the
 average unused portion of the committed revolving line as determined by the
 bank.
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|     | The
 equipment line of credit was paid in full on July 9, 2008 and the Company no
 longer has the ability to borrow any additional funds under the equipment
 line of credit portion of the credit facility.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|     | The credit
 facility includes three covenants: a minimum of $10,000,000 in tangible net
 worth, a minimum of $3,000,000 of unrestricted cash in deposit accounts with
 Silicon Valley Bank and an adjusted net income for each financial reporting
 period. The adjusted net income covenant requires an adjusted net income
 greater than $500,000 for each rolling three month period for the remaining
 term of the agreement. The amount required as a minimum tangible net worth
 will increase by an amount equal to the sum of 50% of the Companys quarterly
 net profit and all consideration received by the Company upon the issuance of
 equity securities. The Company was in compliance with all of the covenants as
 of September 30, 2009.                                                                                                                                                                                              

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Table of Contents

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

|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(11) | Income Taxes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|     | The Company
 is subject to income tax in numerous jurisdictions and at various rates and
 the use of estimates is required in determining the provision for income
 taxes. For the nine month period ended September 30, 2009, the Company
 recorded a tax provision of $2,194,000 on income before tax of $5,949,000
 resulting in an effective income tax rate of 37%. For the nine months ended
 September 30, 2009, the difference between the effective tax rate of 37% and
 the U.S. federal statutory income tax rate of 34% was due mainly to the
 impact of state income taxes. For the nine month period ended September 30,
 2008, the Company recorded a tax provision of $162,000 related to alternative
 minimum taxes (AMT) as the Company continued to maintain a full valuation
 allowance on its tax benefits.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|     | Through the
 third quarter of 2008, the Company maintained a full valuation allowance on
 its deferred tax assets. The Company regularly assesses the likelihood that
 the deferred tax assets will be recovered from future taxable income. The
 Company considers projected future taxable income and ongoing tax planning
 strategies, then records a valuation allowance to reduce the carrying value
 of the net deferred taxes to an amount that is more likely than not to be
 realized.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|     | As of
 December 31, 2008, based upon the Companys assessment of all available
 evidence, including previous three year cumulative income before unusual and
 infrequent expenses (litigation and thrombin qualification expenses),
 estimates of future profitability, and the Companys overall prospects of
 future business, the Company determined that it is more likely than not that
 the Company will be able to realize a portion of the deferred tax assets in
 the future, and as a result recorded a $13,200,000 income tax benefit for the
 year ended December 31, 2008. To determine the amount of the reduction in the
 valuation allowance, the Company used a discounted projection of its revenue
 and income over the next five years, which would approximate the ten-year
 life of the Companys three most significant products as of December 31,
 2008. The amount of the valuation allowance reduction was based on the
 Companys projected discounted taxable income. The Company will continue to
 assess the potential realization of deferred tax assets on an annual basis,
 or an interim basis if circumstances warrant. If the Companys actual results
 and updated projections vary significantly from the projections used as a
 basis for this determination, the Company may need to increase or decrease
 the valuation allowance against the gross deferred tax assets. The Company
 would adjust earnings for the deferred tax in the period the determination
 was made.
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|     | Effective January 1,
 2007, the Company adopted FIN 48, Accounting for Uncertainty in Income Taxes  an
 Interpretation of FASB Statement No. 109, [ASC 740-10-25
 & ASC 740-10-50]. Upon adoption, the Company had $425,000 of
 unrecognized income tax benefits and the adoption of FIN 48 had no effect on
 shareholders equity. The Company has recorded a FIN 48 reserve of $597,000
 as of December 31, 2008. The impact of tax related interest and penalties is
 recorded as a component of income tax expense. For the nine months ended
 September 30, 2009, the Company has recorded $0 for the payment of tax
 related interest and there were no tax penalties or interest recognized in
 the statements of operations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|     | The Company
 is subject to income tax examinations in the U.S. Federal jurisdiction,
 as well as in Germany and various state jurisdictions. At September 30, 2009,
 the Company was not under examination by any of these taxing authorities and the
 open tax years are 2006 through 2008.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

Page 11

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Table of Contents

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

|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(12) | New Accounting Pronouncement                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|     | In June
 2009, the FASB issued Statement of Financial Accounting Standards No. 168, The FASB Accounting Standards Codification and the
 Hierarchy of Generally Accepted Accounting Principles a Replacement of FASB
 Statement No. 162(FAS 168). This Standard establishes the FASB
 Accounting Standards Codification (the Codification) as the source of
 authoritative accounting principles recognized by the FASB to be applied by
 nongovernmental entities in the preparation of financial statements in
 conformity with U.S. GAAP. The Codification does not change current U.S.
 GAAP, but is intended to simplify user access to all authoritative U.S. GAAP
 by providing all the authoritative literature related to a particular topic
 in one place. The Codification was effective for interim and annual periods
 ending after September 15, 2009, and as of the effective date, all existing
 accounting standard documents will be superseded. The Codification is
 effective for us in the third quarter of 2009, and accordingly, our Quarterly
 Report on Form 10-Q for the quarter ending September 30, 2009 and all
 subsequent public filings will reference the Codification as the sole source
 of authoritative literature.
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|(13) | Products and Services                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|     | The
 following tables set forth, for the periods indicated, net revenue by product
 line along with the percent change from the previous period:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             

|                          |  |                                 |            |                 |  |              |    |                 |            |  |  |     |   
|------------------------- |  | ------------------------------- | ---------- | --------------- |  | ------------ | -- | --------------- | ---------- |  |  | --- | --
|                          |  | Nine Months Ended September 30, |           
|                          |  | 2009                            |            | 2008            | 
|                          |  | NetRevenue                      |            | Percent
 Change |  | Net
 Revenue |    | Percent
 Change |           
|                          |  |                                 |            |                 |  |              |    |                 |            |  |  |     |   
|Hemostat products         |  | $                               | 18,520,000 |                 |  | 5            | %  | $               | 17,633,000 |  |  | (5  | %)
|Extraction catheters      |  |                                 | 12,310,000 |                 |  | 13           | %  |                 | 10,913,000 |  |  | 34  | % 
|Vein products             |  |                                 | 7,991,000  |                 |  | 14           | %  |                 | 6,982,000  |  |  | 17  | % 
|Access products           |  |                                 | 5,309,000  |                 |  | 35           | %  |                 | 3,933,000  |  |  | 107 | % 
|Specialty catheters       |  |                                 | 4,172,000  |                 |  | 23           | %  |                 | 3,398,000  |  |  | 37  | % 
|Other                     |  |                                 | 712,000    |                 |  | (15          | %) |                 | 839,000    |  |  | 24  | % 
|Total product revenue     |  | $                               | 49,014,000 |                 |  | 12           | %  | $               | 43,698,000 |  |  | 16  | % 
|License and collaboration |  |                                 | 1,191,000  |                 |  | 6            | %  |                 | 1,120,000  |  |  | 26  | % 
|Total revenue             |  | $                               | 50,205,000 |                 |  | 12           | %  | $               | 44,818,000 |  |  | 16  | % 

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|        |                                                                                       
|------- | --------------------------------------------------------------------------------------
|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 began operations in February 1997. Our main
product lines consist of the following:

|  |                                                                                                                                                                                                                                                                                                
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Hemostat
 (blood clotting) products, principally consisting of the D-Stat®
 Dry hemostat, a topical thrombin-based pad with a bandage used to control
 surface bleeding, and the D-Stat Flowable, a thick yet flowable
 thrombin-based mixture for preventing bleeding in subcutaneous pockets,
|  |                                                                                                                                                                                                                                                                                                
| | Extraction
 catheters, principally consisting of the Pronto® V3 and Pronto LP
 extraction catheters, mechanical systems for the removal of soft thrombus
 from arteries,                                                                                                                       
|  |                                                                                                                                                                                                                                                                                                
| | Vein
 products, principally consisting of the Vari-Lase® endovenous
 laser, a laser and procedure kit used for the treatment of varicose veins,                                                                                                                                                
|  |                                                                                                                                                                                                                                                                                                
| | Access
 products, principally consisting of micro-introducer kits, MICRO Elite and EXPRO Elite
 snares, the Guardian® hemostasis valve, and guidewires used in
 connection with percutaneous access to the vasculature, and                                                                  
|  |                                                                                                                                                                                                                                                                                                
| | Specialty
 catheters, consisting of a variety of catheters for clinical niches including
 the Langston® dual lumen catheters, Twin-Pass® dual
 access catheters, Gandras catheters, Minnie support catheter, and Gopher catheter.                                                           

In
2000 we received FDA clearance for our first product, the Duett sealing
device, which is used to seal the puncture site following catheterization
procedures. In 2001, due to competitive developments in the sealing device
market, we made the strategic decision to develop additional products and
de-emphasize the promotion of our Duett sealing device. We have grown from net
revenue of $6.2 million in 2000 solely from the Duett device to net revenue of
$61.2 million in 2008, with 98% of our 2008 net revenue resulting from products
other than the Duett device. This increase in revenue represents a compound
annual growth rate of 33% and is driven by our commitment to the research and
development of multiple new devices to diagnose and treat existing and new
vascular conditions.

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.

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Results of Operations

The
following table sets forth, for the periods indicated, certain items from our
statements of operations expressed as a percentage of net revenue:

|                                           |  |                                   |     |                                  |  |      |   |      |     |    |  |     |   
|------------------------------------------ |  | --------------------------------- | --- | -------------------------------- |  | ---- | - | ---- | --- | -- |  | --- | --
|                                           |  | Three Months Ended
 September 30, |     | Nine Months Ended
 September 30, | 
|                                           |  | 2009                              |     | 2008                             |  | 2009 |   | 2008 |    
|Revenue:                                   |  |                                   |     |                                  |  |      |   |      |     |    |  |     |   
|Product revenue                            |  |                                   | 98  | %                                |  | 98   | % |      | 98  | %  |  | 98  | % 
|License and collaboration revenue          |  |                                   | 2   | %                                |  | 2    | % |      | 2   | %  |  | 2   | % 
|Total revenue                              |  |                                   | 100 | %                                |  | 100  | % |      | 100 | %  |  | 100 | % 
|                                           |  |                                   |     |                                  |  |      |   |      |     |    |  |     |   
|Product costs and operating expenses:      |  |                                   |     |                                  |  |      |   |      |     |    |  |     |   
|Cost of goods sold                         |  |                                   | 33  | %                                |  | 33   | % |      | 33  | %  |  | 34  | % 
|Collaboration expenses                     |  |                                   | 1   | %                                |  | 1    | % |      | 1   | %  |  | 1   | % 
|Research and development                   |  |                                   | 11  | %                                |  | 10   | % |      | 11  | %  |  | 10  | % 
|Clinical and regulatory                    |  |                                   | 4   | %                                |  | 5    | % |      | 4   | %  |  | 5   | % 
|Sales and marketing                        |  |                                   | 31  | %                                |  | 33   | % |      | 32  | %  |  | 35  | % 
|General and administrative                 |  |                                   | 7   | %                                |  | 7    | % |      | 7   | %  |  | 8   | % 
|Litigation                                 |  |                                   |    |                                  |  |     |   |      |    |    |  | 3   | % 
|Total product costs and operating expenses |  |                                   | 87  | %                                |  | 89   | % |      | 88  | %  |  | 96  | % 
|Operating income                           |  |                                   | 13  | %                                |  | 11   | % |      | 12  | %  |  | 4   | % 
|Other income and expenses, net             |  |                                   |    |                                  |  |     |   |      |    |    |  |    |   
|Income before income taxes                 |  |                                   | 13  | %                                |  | 11   | % |      | 12  | %  |  | 4   | % 
|Income taxes                               |  |                                   | (4  | %)                               |  |     |   |      | (4  | %) |  | (1  | %)
|Net income                                 |  |                                   | 9   | %                                |  | 11   | % |      | 8   | %  |  | 3   | % 

Three and nine
months ended September 30, 2009, compared to three and nine months ended
September 30, 2008

Net
revenue increased 11% to $17,228,000 for the quarter ended September 30, 2009
from $15,465,000 for the quarter ended September 30, 2008. The increase in net
revenue was a result of an increased market penetration as well as the
introduction of new products, principally in the access products and specialty
catheters categories. Approximately 87% of our net revenue was earned in the
United States and 13% of our net revenue was earned in international markets
for both quarters ended September 30, 2009 and September 30, 2008. Net revenue
increased 12% to $50,205,000 for the nine months ended September 30, 2009 from
$44,818,000 for the nine months ended September 30, 2008. Approximately 87% of
our net revenue was earned in the United States and 13% of our net revenue was
earned in international markets for each of the nine months ended September 30,
2009 and September 30, 2008.

We
recognized $212,000 and $637,000 of licensing revenue during the three and nine
month periods ending September 30, 2009, respectively, as the result of our
License Agreement and Device Supply Agreement with King and our distribution
agreement with Nicolai in Germany. We also recognized $199,000 and $554,000 of
collaboration revenue during the three and nine month periods ending September
30, 2009, respectively, as a result of performing clinical and development work
for King under the Device Supply Agreement. We expect to recognize
approximately $850,000 of license revenue in 2009, and expect collaboration
revenue will continue through the fourth quarter of 2009 dependent upon our
progress with our pre-clinical and clinical projects for King.

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Gross
margin across all product lines remained constant at 66% for the quarter ended
September 30, 2009 compared to 66% for the quarter ended September 30, 2008. We
expect product gross margins to be in the range of 65% to 66% for the fourth
quarter of 2009, subject to changes in our selling mix between our lower margin
products such as the Vari-Lase products and our higher margin products such as
the D-Stat Dry. Gross margin across all product lines remained constant at 66%
for the nine months ended September 30, 2009 compared to 66% for the nine
months ended September 30, 2008.

Research
and development expense for the third quarter of 2009 totaled $1,988,000, or
11% of revenue, compared to $1,530,000, or 10% of revenue, for the third
quarter of 2008. Research and development expense for the nine month period
ending September 30, 2009 totaled $5,707,000, or 11% of revenue, compared to
$4,550,000, or 10% of revenue, for the nine month period ending September 30,
2008. The increase in research and development expenses resulted from
additional new products moving through our development system in 2009. We
expect our continuing research and development expenses to be approximately 10%
to 11% of revenue in the fourth quarter of 2009 as we continue to pursue
additional new products and to move our longer term development projects
forward.

Clinical
and regulatory expense for the third quarter of 2009 totaled $713,000, or 4% of
revenue, compared to $792,000, or 5% of revenue, for the third quarter of 2008.
Clinical and regulatory expense for the nine month period ending September 30,
2009 totaled $2,092,000, or 4% of revenue, compared to $2,402,000, or 5% of
revenue, for the nine month period ending September 30, 2008. Clinical and
regulatory expenses fluctuate due to the timing of clinical studies and the
number of new products coming through the regulatory system. We expect clinical
and regulatory expenses to be approximately 4% to 5% of revenue in the fourth
quarter of 2009.

Sales
and marketing expense for the third quarter of 2009 totaled $5,280,000, or 31%
of revenue, compared to $5,090,000, or 33% of revenue, for the third quarter of
2008. Sales and marketing expense for the nine month period ending September
30, 2009 totaled $15,840,000, or 32% of revenue, compared to $15,477,000, or
35% of revenue, for the nine month period ending September 30, 2008. We expect
to maintain the same relative size of our direct sales force in the fourth
quarter of 2009 at between 85 and 90 full-time sales employees. As a result, we
expect our sales and marketing expenses will continue to decline as a
percentage of revenue to between 29% and 31% of revenue by the end of 2009.

General
and administrative expense for the third quarter of 2009 totaled $1,152,000, or
7% of revenue, compared to $1,037,000, or 7% of revenue, for the third quarter
of 2008. General and administrative expense for the nine month period ending
September 30, 2009 totaled $3,375,000, or 7% of revenue, compared to
$3,771,000, or 8% of revenue, for the nine month period ending September 30,
2008. The decrease for the nine month period was primarily the result of lower
legal fees of approximately $500,000 due to the litigation that was pending in
the first half of 2008 (see Note 9 to the Consolidated Financial Statements
included in Item 1 of Part I of this Form 10-Q). We expect general and administrative
expenses to be approximately 6% of revenue in the fourth quarter of 2009.

Litigation
expenses were $-0- for both the third quarter and nine month period ending
September 30, 2009 compared to $-0- and $1,484,000 for the third quarter and
nine month period ending September 30, 2008. For a complete discussion of
litigation matters, see Note 9 to the Unaudited Consolidated Financial
Statements in Item 1 of Part 1 of this Form 10-Q.

Interest
income decreased to $5,000 and $43,000 for the third quarter and nine month
period ending September 30, 2009 compared to $28,000 and $168,000 for the third
quarter and nine month period ending September 30, 2008. The decrease in
interest income was primarily the result of a decrease in interest rates.

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Table of Contents

Interest
expense decreased to $9,000 and $30,000 for the third quarter and nine month
period ending September 30, 2009 compared to $10,000 and $52,000 for the third
quarter and nine month period ending September 30, 2008. The decrease in
interest expense was as a result of repaying our equipment line of credit
during the year ended December 31, 2008.

Foreign
exchange gain was $3,000 for the quarter ending September 30, 2009 compared to
a foreign exchange loss of $22,000 for the quarter ending September 30, 2008.
Foreign exchange loss was $3,000 for the nine month period ending September 30,
2009 compared to a foreign exchange loss of $22,000 for the nine month period
ending September 30, 2008.

Income
tax expense increased to $746,000 and $2,194,000 for the three month and nine
month periods ending September 30, 2009 on income before tax of $2,177,000 and
$5,949,000 resulting in an effective income tax rate of 37%. The difference
between the effective tax rate of 37% and the U.S. federal statutory income tax
rate of 34% was due mainly to the impact of state income taxes. For the three
month and nine month periods ending September 30, 2008, income tax expense
related to alternative minimum taxes (AMT) was $22,000 and $162,000 as we
continued to maintain a full valuation allowance on our tax benefits through
September 30, 2008.

Liquidity and Capital Resources

Our
cash and cash equivalents totaled $14,053,000 at September 30, 2009 compared to
$7,209,000 in cash and cash equivalents at December 31, 2008, an increase of
$6,844,000. Our cash equivalents are invested in a money market fund invested
in all types of high quality, short-term money market instruments denominated
in U.S. dollars such as debt instruments guaranteed by the governments of the
United States, Western Europe, Australia, Japan and Canada, high quality
corporate issuers and bank obligations. The money market funds assets are
rated in the highest short-term category by nationally recognized rating
agencies, such as Moodys or Standard & Poors.

Cash
provided by operations. We generated $7,011,000 of
cash from operations in the nine months ended September 30, 2009. The cash
generated to date during 2009 primarily resulted from our income before taxes
of $5,949,000 since essentially all of our income taxes are offset by our
deferred tax assets.

Cash
used for investing activities.We used $941,000 of
cash in investing activities in the nine months ended September 30, 2009. We
incurred capital expenditures of $941,000 relating primarily to additional
manufacturing equipment, leasehold improvements as part of our facility
expansion and additional research and development equipment.

Cash
provided by financing activities.We generated
$774,000 of cash in financing activities in the nine month period ended
September 30, 2009. We used $340,000 of cash to repurchase shares that vested
under outstanding restricted stock awards for income tax withholding purposes.
This was offset by our receipt of $1,114,000 of cash we received under our
Employee Stock Purchase Plan and upon the exercise of outstanding stock
options.

We
have a $10 million revolving line of credit with Silicon Valley Bank, which has
a 24-month term and bears interest at the rate equal to the greater of prime
plus 0.5% or 7.25% and is secured by a first security interest on all of our
assets. As of September 30, 2009, we were in compliance with all the bank
covenants and we had no outstanding balance on the revolving line of credit
with an availability of $10 million.

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We
currently anticipate that we will experience positive cash flow from our normal
operating activities for the foreseeable future. We currently believe that our
working capital of $29.9 million at September 30,
2009 will be sufficient to meet all of our operating and capital requirements
for the foreseeable future. However, our actual liquidity and capital
requirements will depend upon numerous unpredictable factors, including 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; 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. There is no assurance such financing will be available on
terms acceptable to us or be available at all.

Off-Balance Sheet
Arrangements

We
did not have any off-balance sheet arrangements as of September 30, 2009.

Contractual
Obligations

The
following table summarizes our contractual cash commitments as of September 30,
2009:

|                           |  |                         |           |                   |   |              |  |              |           |                    |   |           |  |   |         | 
|-------------------------- |  | ----------------------- | --------- | ----------------- | - | ------------ |  | ------------ | --------- | ------------------ | - | --------- |  | - | ------- | 
|                           |  | Payments
 Due by Period |          
|Contractual Obligations    |  | Total                   |           | Less than
 1 year |   | 1 - 3
 years |  | 3 - 5
 years |           | More than
 5 years |  
|Facility
 operating leases |  | $                       | 4,868,000 |                   | $ | 749,000      |  | $            | 1,595,000 |                    | $ | 1,683,000 |  | $ | 841,000 | 

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

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.

The
material accounting policies that we believe are most critical to an investors
understanding of our financial results and condition and which require complex
management judgment are discussed in our 2008 Form 10-K under the caption
Critical Accounting Policies.

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New Accounting Pronouncement

In
June 2009, the FASB issued Statement of Financial Accounting Standards
No. 168, The FASB Accounting Standards
Codification and the Hierarchy of Generally Accepted Accounting Principles a Replacement of FASB Statement No. 162(FAS
168). This Standard establishes the FASB Accounting Standards Codification
(the Codification) as the source of authoritative accounting principles
recognized by the FASB to be applied by nongovernmental entities in the
preparation of financial statements in conformity with U.S. GAAP. The
Codification does not change current U.S. GAAP, but is intended to simplify
user access to all authoritative U.S. GAAP by providing all the authoritative
literature related to a particular topic in one place. The Codification was
effective for interim and annual periods ending after September 15, 2009,
and as of the effective date, all existing accounting standard documents will
be superseded. The Codification is effective for us in the third quarter of
2009, and accordingly, our Quarterly Report on Form 10-Q for the quarter ending
September 30, 2009 and all subsequent public filings will reference the
Codification as the sole source of authoritative literature.

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, believe, 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
defense of patent infringement lawsuits, adoption of our new products, limited
profitability, 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, 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 Item 1A of Part I of our Annual Report on Form 10-K
for the year ended December 31, 2008. 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. We undertake no obligation to revise or update publically any
forward-looking statement for any reason.

|         |                                                            
|-------- | -----------------------------------------------------------
|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 two major
banks and one investment firm in the United States. We have a formal written
investment policy that limits our investments to investments in 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.

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Table of Contents

In
the United States we sell our products directly to hospitals and clinics
denominated in United States dollars. In Germany, through April 1, 2008 we sold
our products to hospitals and clinics denominated in Euros. Effective April 1,
2008, we began selling our products in Germany through our new
distributor Nicolai, GmbH. The sale of our products to Nicolai is denominated
in Euros. Product revenue recognized on sales in Germany represented
approximately 1.8% of our total product revenue for the nine months ended
September 30, 2009. The exposure to currency exchange rates on this volume of
product sales in Germany would be considered immaterial to our financial
statements.

In
all other international markets, we sell our products to independent
distributors who, in turn, sell to hospitals. 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. As we have earned and
received all Euro installment payments pursuant to the terms of our
distribution agreement with Nicolai, GmbH before the end of 2008, there is no
further exposure to fluctuations in the Euro related to this agreement. A
change of 0.1 in the Euro exchange would result in an increase or decrease of
approximately $20,000 in the amount of United States dollars we receive in
payment on accounts receivable from Nicolai, GmbH. Under our current policies,
we do not use foreign currency derivative instruments to manage exposure to
fluctuations in the Euro exchange rate.

We
currently have no indebtedness, but if we were to borrow amounts from our
revolving credit line, we would be exposed to changes in interest rates.
Advances under our revolving credit line bear interest at an annual rate
indexed to prime. We will thus be exposed to interest rate risk with respect to
amounts outstanding under the line of credit to the extent that interest rates
rise. As we had no amounts outstanding on the line of credit at September 30,
2009, we have no exposure to interest rate changes on this credit facility.
Under our current policies, we do not use interest rate derivative instruments
to manage exposure to interest rate changes. Additionally, we will be exposed
to declines in the interest rates paid on deposited funds. A 0.1% decline in
the current market interest rates paid on deposits would result in interest
income being reduced by approximately $14,000 on an annual basis.

|        |                        
|------- | -----------------------
|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 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.

Changes in internal controls.

During
the fiscal quarter ended September 30, 2009, 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.

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Table of Contents

PART II. OTHER INFORMATION

|        |                   
|------- | ------------------
|Item 1. | Legal
 Proceedings

The
legal proceedings for the Marine Polymer Technologies, Inc. litigation and
AngioDynamics, Inc. litigation as described in Note 9 to Unaudited Consolidated
Financial Statements in Item 1 of Part I of this Form 10-Q is incorporated into
this Item 1 of Part II by reference.

From
time to time, we are involved in legal proceedings arising in the normal course
of business. As of the date of this report we were 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 1A. | Risk
 Factors

Item
1A, (Risk Factors) of our most recently filed Form 10-K sets forth
information relating to important risks and uncertainties that could materially
adversely affect our business, financial condition or operating results. There
have been no material changes from the Risk Factors described in our annual
report on Form 10-K; however, those Risk Factors continue to be relevant to an
understanding of our business, financial condition and operating results and,
accordingly, you should review and consider such Risk Factors in making any investment
decision with respect to our securities. An investment in our securities
continues to involve a high degree of risk.

|        |                                                             
|------- | ------------------------------------------------------------
|Item 2. | Unregistered
 Sales of Equity Securities and Use of Proceeds

Purchase
of Equity Securities by the Issuer and Affiliated Purchasers:

|                       |  |                                          |     |                                 |   |                                                                                           |  |                                                                                                   |   |  |  |   | 
|---------------------- |  | ---------------------------------------- | --- | ------------------------------- | - | ----------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------- | - |  |  | - | 
|Period                 |  | Total
 Number 
 of Shares 
 Purchased(1) |     | AveragePrice 
 Paid per 
 Share |   | Total
 Number of 
 Shares Purchasedas Part
 of a Publicly 
 Announced Plans or 
 Programs |  | Approximate
 Dollar 
 Value of Shares that 
 May Yet be Purchased 
 Under the Plans or 
 Programs |  
|July 1 - 31, 2009      |  |                                          | 816 |                                 | $ | 8.70                                                                                      |  |                                                                                                   |  |  |  |  | 
|August 1 - 31, 2009    |  |                                          |    |                                 |   |                                                                                          |  |                                                                                                   |  |  |  |  | 
|September 1 - 30, 2009 |  |                                          |    |                                 |   |                                                                                          |  |                                                                                                   |  |  |  |  | 

| |                                                                                                                                                                                                                                                                                          
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (1) At the request of our employees and pursuant to
 the terms of their Restricted Stock Awards, we purchased 816 shares of common
 stock at the fair market value of the common stock on the day their awards
 vested to satisfy income tax withholding obligations for those employees.

|        |                                                     | 
|------- | --------------------------------------------------- | 
|Item 3. | Defaults Upon Senior Securities                    
|        |                                                    
|        | None.                                              
|        |                                                    
|Item 4. | Submission of Matters to a Vote of Security Holders
|        |                                                    
|        | None.                                              

Page
20

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Table of Contents

|        |                   | 
|------- | ----------------- | 
|Item 5. | Other Information
|        |                  
|        | None.            
|        |                  
|Item 6. | Exhibits         

|                 |  |             |                                                                                                                                                                                                    | 
|---------------- |  | ----------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 
|Exhibit 
 Number |  | 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              |  |             | Amended and Restated Bylaws of Vascular Solutions,
 Inc. (incorporated by reference to Exhibit 3.1 of Vascular Solutions Form
 8-K dated October 19, 2007).                                      
|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)).                                 
|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.                                                                                              

Page 21

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Table of Contents

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.

|                          |     |                                      | 
|------------------------- | --- | ------------------------------------ | 
|VASCULAR
 SOLUTIONS, INC.
|                          |     |                                     
|Date:
 October 20, 2009   | By: | /s/ Howard
 Root                     | 
|                          |     | Howard Root                         
|                          |     | Chief Executive Officer and Director
|                          |     | (principal executive officer)       
|                          |     |                                     
|                          | By: | /s/ James
 Hennen                    | 
|                          |     | James Hennen                        
|                          |     | Chief Financial Officer             
|                          |     | (principal financial officer)       
|                          |     |                                     
|                          | By: | /s/ Timothy
 Slayton                 | 
|                          |     | Timothy
 Slayton                    
|                          |     | Controller                          
|                          |     | (principal accounting officer)      

Page 22

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