Table of Contents





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


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FORM 10-Q

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|                                                   |            |   |                                                                                          
|-------------------------------------------------- | ---------- | - | -----------------------------------------------------------------------------------------
|                                                   | (Mark One)
|                                                   |           
|                                                   |            | x | QUARTERLY
 REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 
|For the quarterly period ended June 30, 2008      
|                                                   |            |   |                                                                                          
|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

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

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

6464 Sycamore 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)



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Indicate by check mark
whether the registrant: (1) has filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the
past 90 days.
Yes x
No o

|                                                                                                                                                                                                                                                                                                                     |                            
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------
|Indicate by check mark
 whether the registrant is 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. (Check one):
|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
15,847,843 shares of common stock, $.01 par value per share, outstanding as of
July 15, 2008.





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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 | 16  
|                              |          |                                                                                        |     
|                              | Item 3.  | Quantitative
 and Qualitative Disclosures about Market Risk                            | 24  
|                              |          |                                                                                        |     
|                              | Item 4.  | Controls
 and Procedures                                                               | 25  
|                              |          |                                                                                        |     
|PART II. OTHER INFORMATION    |         
|                              |          |                                                                                        |     
|                              | Item 1.  | Legal
 Proceedings                                                                     | 25  
|                              |          |                                                                                        |     
|                              | Item 1A. | Risk
 Factors                                                                          | 25  
|                              |          |                                                                                        |     
|                              | Item 2.  | Unregistered
 Sales of Equity Securities and Use of Proceeds                           | 25  
|                              |          |                                                                                        |     
|                              | Item 3.  | Defaults
 Upon Senior Securities                                                       | 25  
|                              |          |                                                                                        |     
|                              | Item 4.  | Submission
 of Matters to a Vote of Security Holders                                   | 25  
|                              |          |                                                                                        |     
|                              | Item 5.  | Other
 Information                                                                     | 26  
|                              |          |                                                                                        |     
|                              | Item 6.  | Exhibits                                                                               | 26  

1

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Table of Contents

PART 1. FINANCIAL INFORMATION

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

VASCULAR
SOLUTIONS, INC.Consolidated Balance Sheets

|                                                                                                         |  |                |             |                    |   |             |  
|-------------------------------------------------------------------------------------------------------- |  | -------------- | ----------- | ------------------ | - | ----------- | -
|                                                                                                         |  | June 30,
 2008 |             | December 31,
 2007 |  
|                                                                                                         |  |                |             |                    |  
|                                                                                                         |  | (unaudited)    |             | (see note)         |  
|                                                                                                         |  |                |             |                    |   |             |  
|Assets                                                                                                   |  |                |             |                    |   |             |  
|Current assets:                                                                                          |  |                |             |                    |   |             |  
|Cash and cash equivalents                                                                                |  | $              | 5,405,000   |                    | $ | 5,286,000   |  
|Restricted cash                                                                                          |  |                |            |                    |   | 5,473,000   |  
|Accounts receivable, net of reserves of
 $130,000 in both 2008 and 2007                                  |  |                | 7,342,000   |                    |   | 7,363,000   |  
|Inventories                                                                                              |  |                | 9,378,000   |                    |   | 8,307,000   |  
|Prepaid expenses                                                                                         |  |                | 749,000     |                    |   | 810,000     |  
|                                                                                                         |  |                |             |                    |   |             |  
|Total current assets                                                                                     |  |                | 22,874,000  |                    |   | 27,239,000  |  
|                                                                                                         |  |                |             |                    |   |             |  
|Property and equipment, net                                                                              |  |                | 3,578,000   |                    |   | 3,846,000   |  
|Intangible assets, net                                                                                   |  |                | 193,000     |                    |   | 193,000     |  
|                                                                                                         |  |                |             |                    |   |             |  
|Total assets                                                                                             |  | $              | 26,645,000  |                    | $ | 31,278,000  |  
|                                                                                                         |  |                |             |                    |   |             |  
|                                                                                                         |  |                |             |                    |   |             |  
|Liabilities and shareholders
equity                                                                     |  |                |             |                    |   |             |  
|Current liabilities:                                                                                     |  |                |             |                    |   |             |  
|Accounts payable                                                                                         |  | $              | 2,541,000   |                    | $ | 2,021,000   |  
|Accrued compensation                                                                                     |  |                | 2,536,000   |                    |   | 2,766,000   |  
|Accrued expenses                                                                                         |  |                | 1,034,000   |                    |   | 1,114,000   |  
|Litigation provision                                                                                     |  |                |            |                    |   | 5,219,000   |  
|Current portion of long-term
debt                                                                        |  |                | 467,000     |                    |   | 800,000     |  
|Current portion of deferred
revenue                                                                      |  |                | 937,000     |                    |   | 789,000     |  
|                                                                                                         |  |                |             |                    |   |             |  
|Total current liabilities                                                                                |  |                | 7,515,000   |                    |   | 12,709,000  |  
|                                                                                                         |  |                |             |                    |   |             |  
|Long-term liabilities:                                                                                   |  |                |             |                    |   |             |  
|Long-term debt, net of current
portion                                                                   |  |                |            |                    |   | 67,000      |  
|Long-term deferred revenue, net of
current
 portion                                                      |  |                | 5,297,000   |                    |   | 5,649,000   |  
|Deferred tax liability                                                                                   |  |                | 31,000      |                    |   | 28,000      |  
|                                                                                                         |  |                |             |                    |   |             |  
|Total long-term liabilities                                                                              |  |                | 5,328,000   |                    |   | 5,744,000   |  
|                                                                                                         |  |                |             |                    |   |             |  
|Shareholders equity:                                                                                    |  |                |             |                    |   |             |  
|Common stock, $0.01 par value:                                                                           |  |                |             |                    |   |             |  
|Authorized shares  40,000,000
 Issued and outstanding shares  15,846,343  2008;
    15,606,656  2007 |  |                | 158,000     |                    |   | 156,000     |  
|Additional paid-in capital                                                                               |  |                | 83,628,000  |                    |   | 82,456,000  |  
|Other                                                                                                    |  |                | 131,000     |                    |   | 96,000      |  
|Accumulated deficit                                                                                      |  |                | (70,115,000 | )                  |   | (69,883,000 | )
|                                                                                                         |  |                |             |                    |   |             |  
|Total shareholders equity                                                                               |  |                | 13,802,000  |                    |   | 12,825,000  |  
|                                                                                                         |  |                |             |                    |   |             |  
|Total liabilities and shareholders equity                                                               |  | $              | 26,645,000  |                    | $ | 31,278,000  |  
|                                                                                                         |  |                |             |                    |   |             |  

See accompanying notes.Note: The balance sheet at December 31, 2007
has been derived from the audited financial statements at that date.

2

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Table of Contents

VASCULAR SOLUTIONS, INC.

Consolidated
Statements of Operations

|                                           |  |                              |            |                            |   |            |   |      |            |   |   |            |  
|------------------------------------------ |  | ---------------------------- | ---------- | -------------------------- | - | ---------- | - | ---- | ---------- | - | - | ---------- | -
|                                           |  | Three Months Ended
 June 30, |            | Six Months Ended
 June 30, |  
|                                           |  | 2008                         |            | 2007                       |   | 2008       |   | 2007 |           
|                                           |  |                              |            |                            |   |            |   |      |           
|                                           |  | (unaudited)                  |            | (unaudited)                |  
|                                           |  |                              |            |                            |   |            |   |      |            |   |   |            |  
|Revenue:                                   |  |                              |            |                            |   |            |   |      |            |   |   |            |  
|Product revenue                            |  | $                            | 14,871,000 |                            | $ | 13,069,000 |   | $    | 28,609,000 |   | $ | 25,088,000 |  
|License and collaboration
revenue          |  |                              | 367,000    |                            |   | 159,000    |   |      | 744,000    |   |   | 294,000    |  
|                                           |  |                              |            |                            |   |            |   |      |            |   |   |            |  
|Total revenue                              |  |                              | 15,238,000 |                            |   | 13,228,000 |   |      | 29,353,000 |   |   | 25,382,000 |  
|                                           |  |                              |            |                            |   |            |   |      |            |   |   |            |  
|Product costs and operating expenses:      |  |                              |            |                            |   |            |   |      |            |   |   |            |  
|Cost of goods sold                         |  |                              | 5,360,000  |                            |   | 4,389,000  |   |      | 9,941,000  |   |   | 8,318,000  |  
|Collaboration expenses                     |  |                              | 187,000    |                            |   |           |   |      | 368,000    |   |   |           |  
|Research and development                   |  |                              | 1,553,000  |                            |   | 1,346,000  |   |      | 3,019,000  |   |   | 2,839,000  |  
|Clinical and regulatory                    |  |                              | 759,000    |                            |   | 751,000    |   |      | 1,610,000  |   |   | 1,511,000  |  
|Sales and marketing                        |  |                              | 5,174,000  |                            |   | 4,851,000  |   |      | 10,387,000 |   |   | 9,613,000  |  
|General and administrative                 |  |                              | 1,192,000  |                            |   | 1,198,000  |   |      | 2,734,000  |   |   | 2,146,000  |  
|Litigation                                 |  |                              | 1,457,000  |                            |   | 15,000     |   |      | 1,484,000  |   |   | 5,690,000  |  
|Thrombin qualification                     |  |                              |           |                            |   | 18,000     |   |      |           |   |   | 129,000    |  
|                                           |  |                              |            |                            |   |            |   |      |            |   |   |            |  
|Total product costs and operating expenses |  |                              | 15,682,000 |                            |   | 12,568,000 |   |      | 29,543,000 |   |   | 30,246,000 |  
|                                           |  |                              |            |                            |   |            |   |      |            |   |   |            |  
|                                           |  |                              |            |                            |   |            |   |      |            |   |   |            |  
|Operating income (loss)                    |  |                              | (444,000   | )                          |   | 660,000    |   |      | (190,000   | ) |   | (4,864,000 | )
|                                           |  |                              |            |                            |   |            |   |      |            |   |   |            |  
|Other income (expenses):                   |  |                              |            |                            |   |            |   |      |            |   |   |            |  
|Interest income                            |  |                              | 48,000     |                            |   | 107,000    |   |      | 140,000    |   |   | 198,000    |  
|Interest expense                           |  |                              | (18,000    | )                          |   | (41,000    | ) |      | (42,000    | ) |   | (85,000    | )
|Foreign exchange loss                      |  |                              | (1,000     | )                          |   |           |   |      | (1,000     | ) |   |           |  
|                                           |  |                              |            |                            |   |            |   |      |            |   |   |            |  
|                                           |  |                              |            |                            |   |            |   |      |            |   |   |            |  
|Income (loss) before income taxes          |  |                              | (415,000   | )                          |   | 726,000    |   |      | (93,000    | ) |   | (4,751,000 | )
|                                           |  |                              |            |                            |   |            |   |      |            |   |   |            |  
|Income tax expense                         |  |                              | (53,000    | )                          |   | (31,000    | ) |      | (140,000   | ) |   | (88,000    | )
|                                           |  |                              |            |                            |   |            |   |      |            |   |   |            |  
|Net income (loss)                          |  | $                            | (468,000   | )                          | $ | 695,000    |   | $    | (233,000   | ) | $ | (4,839,000 | )
|                                           |  |                              |            |                            |   |            |   |      |            |   |   |            |  
|                                           |  |                              |            |                            |   |            |   |      |            |   |   |            |  
|Net income (loss) per share  basic        |  | $                            | (0.03      | )                          | $ | 0.05       |   | $    | (0.02      | ) | $ | (0.32      | )
|                                           |  |                              |            |                            |   |            |   |      |            |   |   |            |  
|Net income (loss) per share  diluted      |  | $                            | (0.03      | )                          | $ | 0.04       |   | $    | (0.02      | ) | $ | (0.32      | )
|                                           |  |                              |            |                            |   |            |   |      |            |   |   |            |  

See accompanying notes.

3

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Table of Contents

VASCULAR SOLUTIONS, INC.

Consolidated
Statements of Cash Flows

|                                                                                                |  |                            |            |      |   |            |  
|----------------------------------------------------------------------------------------------- |  | -------------------------- | ---------- | ---- | - | ---------- | -
|                                                                                                |  | Six Months Ended
 June 30, |           
|                                                                                                |  | 2008                       |            | 2007 |  
|                                                                                                |  |                            |            |      |  
|                                                                                                |  | (unaudited)                |           
|Operating activities                                                                            |  |                            |            |      |   |            |  
|Net loss                                                                                        |  | $                          | (233,000   | )    | $ | (4,839,000 | )
|Adjustments to reconcile net loss to net
 cash provided by (used in) operating activities:      |  |                            |            |      |   |            |  
|Depreciation                                                                                    |  |                            | 742,000    |      |   | 653,000    |  
|Stock-based compensation                                                                        |  |                            | 879,000    |      |   | 659,000    |  
|Deferred compensation expense                                                                   |  |                            | 9,000      |      |   |           |  
|Deferred tax liability                                                                          |  |                            | 3,000      |      |   |           |  
|Loss on disposal of fixed
assets                                                                |  |                            | 40,000     |      |   |           |  
|Change in allowance for doubtful
accounts                                                       |  |                            |           |      |   | 35,000     |  
|Changes in operating assets and
 liabilities:                                                   |  |                            |            |      |   |            |  
|Accounts receivable                                                                             |  |                            | 29,000     |      |   | (707,000   | )
|Inventories                                                                                     |  |                            | (1,065,000 | )    |   | (210,000   | )
|Prepaid expenses                                                                                |  |                            | 63,000     |      |   | 176,000    |  
|Accounts payable                                                                                |  |                            | 519,000    |      |   | 650,000    |  
|Accrued compensation and
expenses                                                               |  |                            | (5,530,000 | )    |   | 4,766,000  |  
|Deferred revenue, net                                                                           |  |                            | (204,000   | )    |   | 6,706,000  |  
|                                                                                                |  |                            |            |      |   |            |  
|Net cash provided by (used in) operating
 activities                                            |  |                            | (4,748,000 | )    |   | 7,889,000  |  
|                                                                                                |  |                            |            |      |   |            |  
|Investing activities                                                                            |  |                            |            |      |   |            |  
|Purchase of property and equipment, net                                                         |  |                            | (512,000   | )    |   | (865,000   | )
|Cash deposits transferred from (to) restricted
 cash                                            |  |                            | 5,473,000  |      |   | (5,473,000 | )
|                                                                                                |  |                            |            |      |   |            |  
|Net cash provided by (used in) investing
 activities                                            |  |                            | 4,961,000  |      |   | (6,338,000 | )
|                                                                                                |  |                            |            |      |   |            |  
|Financing activities                                                                            |  |                            |            |      |   |            |  
|Repurchase of common shares                                                                     |  |                            | (141,000   | )    |   |           |  
|Payment on long-term debt                                                                       |  |                            | (400,000   | )    |   | (400,000   | )
|Proceeds from the exercise of stock
 options, stock warrants and sale of stock, net of expenses |  |                            | 437,000    |      |   | 560,000    |  
|                                                                                                |  |                            |            |      |   |            |  
|Net cash provided by (used in) financing
 activities                                            |  |                            | (104,000   | )    |   | 160,000    |  
|                                                                                                |  |                            |            |      |   |            |  
|Effect of exchange rate changes on cash and
 cash equivalents                                   |  |                            | 10,000     |      |   | 19,000     |  
|                                                                                                |  |                            |            |      |   |            |  
|Increase in cash and cash equivalents                                                           |  |                            | 119,000    |      |   | 1,730,000  |  
|Cash and cash equivalents at beginning of
 period                                               |  |                            | 5,286,000  |      |   | 2,557,000  |  
|                                                                                                |  |                            |            |      |   |            |  
|Cash and cash equivalents at end of period                                                      |  | $                          | 5,405,000  |      | $ | 4,287,000  |  
|                                                                                                |  |                            |            |      |   |            |  
|                                                                                                |  |                            |            |      |   |            |  
|Supplemental disclosure of cash flow                                                            |  |                            |            |      |   |            |  
|Cash paid for interest                                                                          |  | $                          | 46,000     |      | $ | 89,000     |  
|                                                                                                |  |                            |            |      |   |            |  
|Cash paid for taxes                                                                             |  | $                          | 232,000    |      | $ |           |  
|                                                                                                |  |                            |            |      |   |            |  

See accompanying notes.

4

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Table of Contents

VASCULAR SOLUTIONS, INC.Notes to Unaudited Consolidated Financial Statements

|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Basis of Presentation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    | The
 accompanying unaudited financial statements of Vascular Solutions, Inc. (the
 Company) have been prepared in accordance with generally accepted accounting
 principles for interim financial information and with the instructions to
 Form 10-Q and Regulation S-X. Accordingly, they do not include all of the
 information and footnotes required by generally accepted accounting
 principles for complete financial statements. In the opinion of management,
 all normal, recurring adjustments considered necessary for a fair
 presentation have been included. The financial statements should be read in
 conjunction with the audited financial statements for the fiscal year ended
 December 31, 2007 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) | Stock-Based Compensation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    | The Company
 has various types of stock-based compensation plans. These plans are
 administered by the compensation committee of the Board of Directors, which
 selects persons to receive awards and determines the number of shares subject
 to each award and the terms, conditions, performance measures and other
 provisions of the award. Readers should refer to Notes 8 and 9 of the
 Companys consolidated financial statements in the Annual Report on Form 10-K
 for the fiscal year ended December 31, 2007, for additional information
 related to these stock-based compensation plans.                                                                                                                                                                                                                                                                                                                                                                           
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    | Effective
 January 1, 2006, the Company adopted Statement of Financial Accounting
 Standards No. 123R, Share-Based Payment
 (SFAS 123R), which requires companies to measure and recognize compensation
 expense for all stock-based payments at fair value. SFAS 123R is being
 applied on the modified prospective basis. Prior to the adoption of SFAS
 123R, the Company accounted for its stock-based compensation plans under the
 recognition and measurement principles of Accounting Principles Board (APB)
 Opinion No. 25, Accounting for Stock Issued to Employees, and related
 interpretations, and accordingly, recognized no compensation expense related
 to the stock-based plans.                                                                                                                                                                                                                                                                              
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    | The
 following amounts have been recognized as stock-based compensation expense in
 the Consolidated Statements of Operations:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

|                                      |  |                              |         |                            |   |         |  |      |         |  |   |         | 
|------------------------------------- |  | ---------------------------- | ------- | -------------------------- | - | ------- |  | ---- | ------- |  | - | ------- | 
|                                      |  | Three Months Ended
 June 30, |         | Six Months Ended
 June 30, |  
|                                      |  | 2008                         |         | 2007                       |   | 2008    |  | 2007 |        
|                                      |  |                              |         |                            |   |         |  |      |        
|Stock-based compensation included in: |  |                              |         |                            |   |         |  |      |         |  |   |         | 
|Cost of goods sold                    |  | $                            | 33,000  |                            | $ | 33,000  |  | $    | 105,000 |  | $ | 70,000  | 
|Research and development              |  |                              | 45,000  |                            |   | 46,000  |  |      | 87,000  |  |   | 88,000  | 
|Clinical and regulatory               |  |                              | 24,000  |                            |   | 20,000  |  |      | 69,000  |  |   | 43,000  | 
|Sales and marketing                   |  |                              | 97,000  |                            |   | 82,000  |  |      | 294,000 |  |   | 178,000 | 
|General and administrative            |  |                              | 157,000 |                            |   | 192,000 |  |      | 324,000 |  |   | 280,000 | 
|                                      |  |                              |         |                            |   |         |  |      |         |  |   |         | 
|                                      |  | $                            | 356,000 |                            | $ | 373,000 |  | $    | 879,000 |  | $ | 659,000 | 
|                                      |  |                              |         |                            |   |         |  |      |         |  |   |         | 

5

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Table of Contents

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

| |                                                                                                                                                            
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Company
 uses the Black-Scholes option-pricing model to estimate the fair value of
 stock-based awards with the following weighted average assumptions:

|                              |  |                 |      |                 |  |  |      |   | 
|----------------------------- |  | --------------- | ---- | --------------- |  |  | ---- | - | 
|                              |  | June 30, 
 2008 |      | June 30, 
 2007 | 
|                              |  |                 |      |                 | 
|Stock Options and Awards:     |  |                 |      |                 |  |  |      |   | 
|Expected
 life (years)        |  |                 | 5.50 |                 |  |  | 5.50 |   | 
|Expected
 volatility          |  |                 | 50   | %               |  |  | 51   | % | 
|Dividend
 yield               |  |                 | 0    | %               |  |  | 0    | % | 
|Risk-free
 interest rate      |  |                 | 2.75 | %               |  |  | 4.76 | % | 
|                              |  |                 |      |                 |  |  |      |   | 
|Employee Stock Purchase Plan: |  |                 |      |                 |  |  |      |   | 
|Expected
 life (years)        |  |                 | 2.00 |                 |  |  | 2.00 |   | 
|Expected
 volatility          |  |                 | 35   | %               |  |  | 34   | % | 
|Dividend
 yield               |  |                 | 0    | %               |  |  | 0    | % | 
|Risk-free
 interest rate      |  |                 | 2.02 | %               |  |  | 4.81 | % | 

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Company
 calculates expected volatility for stock options and awards using historical
 volatility. The starting point for the historical period used is based on a
 material change in the Companys operations that occurred in the third
 quarter of 2003. The Company uses a 10% forfeiture rate for key employees and
 a 15% forfeiture rate for non-key employees for stock options and awards. The
 Company calculates expected volatility for employee stock purchase plan
 shares using historical volatility over a two-year period. A two-year period
 is used to coincide with the maximum two-year offering period under the
 employee stock purchase plan.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | The Company
 has a stock option and stock award plan (the Stock Option Plan) which
 provides for the granting of stock options, restricted shares and alternative
 stock appreciation rights to employees, directors and consultants. Incentive
 stock options may be granted only to employees of the Company. Options which
 do not qualify as incentive stock options and awards of restricted shares may
 be granted to both employees and to non-employee directors and consultants.
 As of June 30, 2008, the Company has reserved 5,400,000 shares of common
 stock under the Stock Option Plan. Under the Stock Option Plan, stock options
 must be granted at an exercise price not less than the fair market value of
 the Companys common stock on the grant date. The options expire on the date
 determined by the Board of Directors but may not extend more than ten years
 from the grant date. The incentive stock options generally become exercisable
 over a four-year period and the nonqualified stock options generally become
 exercisable over a two-year period. Unexercised options are canceled 90 days
 after termination, and unvested awards are canceled on the date of
 termination of employment and become available under the Stock Option Plan
 for future grants.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | The holder
 of a restricted share award is generally entitled at all times on and after
 the date of issuance of the restricted shares to exercise the rights of a
 shareholder of the Company, including the right to vote the shares and the
 right to receive dividends on the shares. On February 1, 2008, the Company
 granted additional restricted shares to employees under the Stock Option
 Plan. The restricted shares vest over a four-year period based on the
 continuation of employment.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                

6

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Table of Contents

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

| |                                                     
| | ----------------------------------------------------
| | Restricted
 share activity is summarized as follows:

|                             |  |                     |         |                                           |   |      | 
|---------------------------- |  | ------------------- | ------- | ----------------------------------------- | - | ---- | 
|                             |  | Shares
 Outstanding |         | Weighted
 Average Grant
 Date Fair
 Value |  
|                             |  |                     |         |                                           |   |      | 
|                            
|Balance at December 31, 2007 |  |                     | 313,000 |                                           | $ | 8.01 | 
|Granted                      |  |                     | 169,000 |                                           |   | 6.03 | 
|Vested                       |  |                     | (66,000 | )                                         |   | 5.51 | 
|Canceled                     |  |                     | (10,000 | )                                         |   | 7.57 | 
|                             |  |                     |         |                                           |   |      | 
|Balance at
 June 30, 2008    |  |                     | 406,000 |                                           | $ | 7.63 | 
|                             |  |                     |         |                                           |   |      | 

| |                                                                                                                                                                                                                     
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | As of June
 30, 2008, there was $1,339,000 of total unrecognized compensation costs
 related to the outstanding restricted shares, which is expected to be
 recognized over a weighted average period of 1.77 years.
| |                                                                                                                                                                                                                     
| | Stock option
 activity is summarized as follows:                                                                                                                                                                    

|                              |  |                           |           |                                     |   |                             |  |   |           | 
|----------------------------- |  | ------------------------- | --------- | ----------------------------------- | - | --------------------------- |  | - | --------- | 
|                              |  | Plan Options
 Outstanding |           | Weighted
 Average
 Exercise 
 Price |   | Aggregate
 Intrinsic
 Value | 
|                              |  |                           |           |                                     |   |                             |  |   |          
|                             
|Balance at December 31, 2007  |  |                           | 1,459,000 |                                     | $ | 5.74                        |  |   |           | 
|Granted                       |  |                           | 60,000    |                                     |   | 6.36                        |  |   |           | 
|Exercised                     |  |                           | (40,000   | )                                   |   | 2.19                        |  |   |           | 
|Forfeited                     |  |                           | (3,000    | )                                   |   | 9.44                        |  |   |           | 
|Canceled                      |  |                           | (32,000   | )                                   |   | 9.50                        |  |   |           | 
|                              |  |                           |           |                                     |   |                             |  |   |           | 
|Balance at
 June 30, 2008     |  |                           | 1,444,000 |                                     | $ | 5.78                        |  | $ | 2,577,000 | 
|                              |  |                           |           |                                     |   |                             |  |   |           | 
|                             
|Exercisable
 at June 30, 2008 |  |                           | 1,355,000 |                                     | $ | 5.64                        |  | $ | 2,570,000 | 
|                              |  |                           |           |                                     |   |                             |  |   |           | 

| |                                                                                                                                                                                                                                                                                                                                           
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | As of June 30, 2008, there
 was $141,000 of total unrecognized compensation costs related to the
 outstanding stock options, which is expected to be recognized over a weighted
 average period of 0.42 years. The total intrinsic value of options
 exercised was $154,000 and $176,000 for the three and six months ended June 30, 2008.
| |                                                                                                                                                                                                                                                                                                                                           
| | At June 30, 2008, a total
 of 2,496,280 shares were available for grant under the Stock Option Plan.                                                                                                                                                                                                                                      
| |                                                                                                                                                                                                                                                                                                                                           
| | As of June 30, 2008, there
 was $450,000 of total unrecognized compensation costs related to the employee
 stock purchase plan, which is expected to be recognized over a weighted
 average period of 0.92 years.                                                                                                                         

7

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Table of Contents

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

|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(3) | Net Income (Loss) per Share                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    | In
 accordance with Statement of Financial Accounting Standards No. 128, Earnings
 Per Share,(SFAS 128), basic net income (loss) per share for the
 three and six months ended June 30, 2008 and 2007 is computed by dividing net income
 (loss) by the weighted average common shares outstanding during the periods
 presented. Diluted net income per share is computed by dividing income by the
 weighted average number of 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. For all net loss periods
 presented, diluted loss per share is the same as basic loss per share because
 the effect of outstanding restricted stock, options and warrants is
 antidilutive.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    | Weighted
 average common shares outstanding for the three and six months ended June 30, 2008 and 2007 was as
 follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          

|                                               |  |                              |            |                            |  |            |  |      |            |  |  |            | 
|---------------------------------------------- |  | ---------------------------- | ---------- | -------------------------- |  | ---------- |  | ---- | ---------- |  |  | ---------- | 
|                                               |  | Three Months Ended
 June 30, |            | Six Months Ended
 June 30, | 
|                                               |  | 2008                         |            | 2007                       |  | 2008       |  | 2007 |           
|                                               |  |                              |            |                            | 
|                                               |  | (unaudited)                  |            | (unaudited)                | 
|Weighted average shares outstanding  basic    |  |                              | 15,501,861 |                            |  | 15,180,925 |  |      | 15,470,713 |  |  | 15,137,504 | 
|Weighted
 average shares outstanding  diluted |  |                              | 15,501,861 |                            |  | 15,862,176 |  |      | 15,470,713 |  |  | 15,137,504 | 

|    |                                                                                                                                                                                                                  
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(4) | Comprehensive
Income (Loss)                                                                                                                                                                                      
|    |                                                                                                                                                                                                                  
|    | Comprehensive
 income (loss) for the Company includes net income (loss) and foreign currency
 translation. Comprehensive income (loss) for the three and six months ended June 30, 2008 and 2007 was as
 follows:

|                                          |  |                              |            |                            |   |         |  |      |            |   |  |              |  
|----------------------------------------- |  | ---------------------------- | ---------- | -------------------------- | - | ------- |  | ---- | ---------- | - |  | ------------ | -
|                                          |  | Three Months Ended
 June 30, |            | Six Months Ended
 June 30, |  
|                                          |  | 2008                         |            | 2007                       |   | 2008    |  | 2007 |           
|                                          |  |                              |            |                            |   |         |  |      |           
|                                          |  | (unaudited)                  |            | (unaudited)                |  
|                                          |  |                              |            |                            |   |         |  |      |            |   |  |              |  
|Net income
 (loss)                        |  |                              | ($ 468,000 | )                          | $ | 695,000 |  |      | ($ 233,000 | ) |  | ($ 4,839,000 | )
|Foreign
 currency translation adjustments |  |                              | (7,000     | )                          |   | 4,000   |  |      | 26,000     |   |  | (10,000      | )
|                                          |  |                              |            |                            |   |         |  |      |            |   |  |              |  
|Comprehensive
 income (loss)              |  |                              | ($ 475,000 | )                          | $ | 699,000 |  |      | ($ 207,000 | ) |  | ($ 4,849,000 | )
|                                          |  |                              |            |                            |   |         |  |      |            |   |  |              |  

8

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Table of Contents

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

|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(5) | 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), 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 and will sell
 its products through distributors in all international markets. In connection
 with this distribution agreement, the Company will receive four installment
 payments of 125,000 Euros from Nicolai, GmbH. The first of these four
 installment payments was due upon execution of the agreement and received on
 March 14, 2008. The second milestone payment was earned on June 30, 2008 and
 was received by the Company on July 9, 2008. The installment payments will be
 deferred and recognized ratably over the five-year term of the distribution
 agreement. The agreement also includes provisions whereby the Company would
 be required to pay Nicolai, GmbH specific amounts of money in the event the
 Company terminates the distribution agreement prior to the end of the five-year
 period. The Company has no intentions of terminating 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, 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.                                                                                                                                                                                                          

9

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Table of Contents

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

|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    | In addition,
 the Company has reviewed the provisions of EITF Issue No. 07-01, Accounting for Collaborative Arrangements,and
 believes the adoption of this EITF will have no impact on the amounts
 recorded under these agreements.                                                                                                                                                                                                                                                                                 
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    | In
 accordance with EITF Issue No. 00-10, Accounting
 for Shipping and Handling Fees and Costs, the Company includes
 shipping and handling revenues in net revenue, and shipping and handling
 costs in cost of sales.                                                                                                                                                                                                                                                                                               
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|(6) | Restricted Cash                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    | Under an
 investment management agreement with Wells Fargo Bank, N.A., effective June
 19, 2007, the Company set aside $5,473,000 as restricted cash. This cash was
 used to satisfy the judgment in the Diomed, Inc. litigation case as more
 fully discussed below in footnote 11, Commitments and Contingencies. After
 the Company settled this lawsuit on April 8, 2008, the remaining restricted
 cash was returned to the Company on June 10, 2008 and the investment
 management agreement account was closed.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|(7) | Inventories                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    | Inventories
 are stated at the lower of cost (first-in, first-out method) or market.
 Appropriate consideration is given to deterioration, obsolescence and other
 factors in evaluating net realizable value. Inventories are comprised of the
 following:                                                                                                                                                                                                                                                           

|                |  |                |           |                    |   |           | 
|--------------- |  | -------------- | --------- | ------------------ | - | --------- | 
|                |  | June 30,
 2008 |           | December 31,
 2007 |  
|                |  |                |           |                    |  
|                |  | (unaudited)    |           |                    |  
|               
|Raw materials   |  | $              | 4,226,000 |                    | $ | 4,119,000 | 
|Work-in process |  |                | 989,000   |                    |   | 650,000   | 
|Finished goods  |  |                | 4,163,000 |                    |   | 3,538,000 | 
|                |  |                |           |                    |   |           | 
|                |  | $              | 9,378,000 |                    | $ | 8,307,000 | 
|                |  |                |           |                    |   |           | 

|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(8) | Credit Risk and Allowance for Doubtful Accounts                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    | The Company
 maintains allowances for doubtful accounts for estimated losses resulting
 from the inability of our customers to make required payments. This allowance
 is regularly evaluated by the Company for adequacy by taking into
 consideration factors such as past experience, credit quality of the customer
 base, age of the receivable balances, both individually and in the aggregate,
 and current economic conditions that may affect a customers ability to pay.
 Accounts receivable over 60 days past due are considered past due. The
 Company does not accrue interest on past due accounts receivable. Receivables
 are written off only after all collection attempts have failed and are based
 on individual credit evaluation and the specific circumstances of the
 customer. At June 30, 2008 and December 31, 2007, the allowance for doubtful
 accounts was $95,000 and $90,000, respectively.

10

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Table of Contents

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

|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     | 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 June 30,
 2008 and December 31, 2007, the sales and return allowance was $35,000 and
 $40,000, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|     | Accounts
 receivable are shown net of the combined total of the allowance for doubtful
 accounts and allowance for sales returns of $130,000 at both June 30, 2008
 and December 31, 2007.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|(9)  | 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. Loss, termination or
 ineffectiveness of distributors to effectively promote the Companys product
 could have a material adverse effect on the Companys financial condition and
 results of operations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|     | With respect
 to accounts receivable, the Company performs credit evaluations of its
 customers and does not require collateral. No single customer represented
 greater than 10% of gross accounts receivable as of either June 30, 2008 or
 December 31, 2007. There have been no material losses on customer receivables.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|     | Revenue by
 geographic destination as a percentage of total net revenue for the six-month
 periods ended June 30, 2008 and 2007 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 six months ended June 30, 2008 or
 June 30, 2007.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|(10) | Dependence on Key Suppliers                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|     | King Pharmaceuticals                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|     | The Company
 purchases certain key components from single-source suppliers. Any
 significant component delay or interruption could require the Company to
 qualify new sources of supply, if available, and could have a material
 adverse effect on the Companys financial condition and results of
 operations. The Company purchases its requirements for thrombin (a component
 in the D-Stat 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 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.

11

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Table of Contents

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

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|     | Sigma                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|     | On October
 18, 2004, the Company entered into a supply agreement with Sigma-Aldrich Fine
 Chemicals, an operating division of Sigma-Aldrich, Inc. (Sigma) for the
 supply of thrombin to the Company. Pursuant to the terms of the Sigma
 agreement, the Company agreed to pay certain development costs of Sigma to
 allow Sigma to manufacture thrombin for the Companys needs in manufacturing
 its hemostatic products. The payments were based on the achievement of
 certain milestones over a two-year period and all payment obligations have
 been fulfilled. The Sigma agreement terminates after ten years and is automatically
 extended for up to five additional successive one-year terms unless one party
 delivers notice of termination at least one year prior to the scheduled
 termination of the Sigma agreement. During the term of the agreement, Sigma
 has agreed not to sell thrombin of the type developed for the Company under
 the agreement in or as a component of a hemostatic product for medical use.
 The Company does not have any minimum purchase requirements under the Sigma
 agreement; however, if the Company purchases less than three lots of thrombin
 in any year commencing in 2008, then (i) Sigma will be released from its
 agreement not to sell thrombin in or as a component of a hemostatic product
 for medical use and (ii) Sigma will have the right to terminate the agreement
 on 30 days notice.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|(11) | 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. 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. The jury concluded there was no
 willful infringement by the Company and therefore the award was not subject
 to treble damages or attorneys fees. On April 12, 2007 the Company converted
 all Vari-Lase sales to the Companys new Vari-Lase Bright TipTM
 fiber which features a proprietary ceramic distal tip that prevents even the
 possibility of the vein wall contact that was the requirement of Diomeds
 sole patent claim in the litigation. 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 July 2, 2007 the Court granted
 an injunction order that applies to endovenous laser therapy kits that were sold
 by the Company as of the trial date and any other kits that are not more than
 a mere

12

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Table of Contents

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

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| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | colorable
 variation of such kits. Concerning the laser consoles, the injunction order
 applies only to Vari-Lase consoles of the type that were sold at the time of
 trial and that are not more than a mere colorable variation of such consoles
 and that are sold for use with the kits that are subject to the injunction.
 On July 11, 2007, Diomed moved for a finding that the Companys continued
 sale of laser consoles was in violation of the injunction. The Company filed
 a response to the motion and requested a hearing on the matter. On January
 15, 2008, the Court denied Diomeds contempt motion and ruled that the
 Companys sale of laser consoles did not violate the injunction. 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | 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 counterclaims 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.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | 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                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 

13

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Table of Contents

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

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|---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     | 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
 U.S. 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.
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|     | 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|(12) | 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 June 30, 2008, 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 June 30, 2008. 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 is a three-year, $2,000,000 facility with an
 interest rate of prime plus 1.5%. On January 6, 2006, the Company executed a
 $2,000,000 advance on the equipment line of credit. The advance was secured
 by various equipment acquired by the Company during the year ended December
 31, 2005. As of June 30, 2008, the Company had an outstanding balance of
 $467,000 on the equipment line of credit. The weighted average interest rate
 for the six months ended June 30, 2008 on the equipment line of credit was
 7.29%. The outstanding balance of $467,000 on the equipment line of credit as
 of June 30, 2008 was paid in full on July 9, 2008. Following the pay-off of
 the equipment line of credit, 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 $100,000 for all rolling three month periods ending June 30,
 2008, and an adjusted net income greater than $500,000 for each subsequent
 rolling three month period thereafter. 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 minimum
 tangible net worth requirement at June 30, 2008 was $10,555,000. The Company
 was in compliance with all of the covenants as of June 30, 2008.                                                                                     

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Table of Contents

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

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|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|(13) | Income Taxes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|     | In July
 2006, the Financial Accounting Standards Board (FASB) issued FASB
 Interpretation 48 (FIN 48), Accounting for
 Uncertainty in Income Taxes  an Interpretation of FASB Statement No. 109,
 which clarifies the accounting for uncertain income tax positions. This
 interpretation prescribes a financial statement recognition threshold and
 measurement attribute for any tax position taken or expected to be taken in a
 tax return. The interpretation also provides guidance on derecognition,
 classification, interest and penalties, accounting in interim periods,
 disclosure and transition. Effective January 1, 2007, the Company adopted FIN
 48. 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 $512,000 at both June 30, 2008
 and December 31, 2007. The impact of tax related interest and penalties is
 recorded as a component of income tax expense. At June 30, 2008, 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.
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|(14) | 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 year:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

|                          |  |                             |            |                 |  |              |     |                 |  |   |            |  |  |  |     |   | 
|------------------------- |  | --------------------------- | ---------- | --------------- |  | ------------ | --- | --------------- |  | - | ---------- |  |  |  | --- | - | 
|                          |  | Three Months Ended June 30,
|                          |  | 2008                        |            | 2007            | 
|                          |  |                             |            |                 |  |              |     |                 | 
|                          |  | Net
 Revenue                |            | Percent
 Change |  | Net
 Revenue |     | Percent
 Change | 
|                          |  |                             |            |                 |  |              |     |                 | 
|                         
|Hemostat products         |  | $                           | 5,996,000  |                 |  |              | (11 | %)              |  | $ | 6,723,000  |  |  |  | 22  | % | 
|Extraction catheters      |  |                             | 3,712,000  |                 |  |              | 40  | %               |  |   | 2,658,000  |  |  |  | 15  | % | 
|Vein products             |  |                             | 2,358,000  |                 |  |              | 16  | %               |  |   | 2,038,000  |  |  |  | 24  | % | 
|Specialty catheters       |  |                             | 1,143,000  |                 |  |              | 31  | %               |  |   | 872,000    |  |  |  | 3   | % | 
|Access products           |  |                             | 1,383,000  |                 |  |              | 146 | %               |  |   | 562,000    |  |  |  | 52  | % | 
|Other                     |  |                             | 279,000    |                 |  |              | 29  | %               |  |   | 216,000    |  |  |  | 3   | % | 
|                          |  |                             |            |                 |  |              |     |                 |  |   |            |  |  |  |     |   | 
|                          |  |                             |            |                 |  |              |     |                 |  |   |            |  |  |  |     |   | 
|Total product revenue     |  | $                           | 14,871,000 |                 |  |              | 14  | %               |  | $ | 13,069,000 |  |  |  | 20  | % | 
|                          |  |                             |            |                 |  |              |     |                 |  |   |            |  |  |  |     |   | 
|                          |  |                             |            |                 |  |              |     |                 |  |   |            |  |  |  |     |   | 
|License and collaboration |  |                             | 367,000    |                 |  |              | 131 | %               |  |   | 159,000    |  |  |  | 100 | % | 
|                          |  |                             |            |                 |  |              |     |                 |  |   |            |  |  |  |     |   | 
|                          |  |                             |            |                 |  |              |     |                 |  |   |            |  |  |  |     |   | 
|Total revenue             |  | $                           | 15,238,000 |                 |  |              | 15  | %               |  | $ | 13,228,000 |  |  |  | 21  | % | 
|                          |  |                             |            |                 |  |              |     |                 |  |   |            |  |  |  |     |   | 

15

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Table of Contents

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

|                          |  |                           |            |                  |     |               |  |                  |            |  |     |   | 
|------------------------- |  | ------------------------- | ---------- | ---------------- | --- | ------------- |  | ---------------- | ---------- |  | --- | - | 
|                          |  | Six Months Ended June 30, |           
|                          |  | 2008                      |            | 2007             |    
|                          |  |                           |            |                  |    
|                          |  | Net 
 Revenue             |            | Percent 
 Change |     | Net 
 Revenue |  | Percent 
 Change |           
|                          |  |                           |            |                  |     |               |  |                  |           
|                          |  |                           |            |                  |     |               |  |                  |           
|Hemostat products         |  | $                         | 11,856,000 |                  | (5  | %)            |  | $                | 12,470,000 |  | 15  | % | 
|Extraction catheters      |  |                           | 7,070,000  |                  | 29  | %             |  |                  | 5,468,000  |  | 25  | % | 
|Vein products             |  |                           | 4,557,000  |                  | 19  | %             |  |                  | 3,830,000  |  | 24  | % | 
|Specialty catheters       |  |                           | 2,279,000  |                  | 30  | %             |  |                  | 1,747,000  |  | 14  | % | 
|Access products           |  |                           | 2,312,000  |                  | 108 | %             |  |                  | 1,111,000  |  | 63  | % | 
|Other                     |  |                           | 535,000    |                  | 16  | %             |  |                  | 462,000    |  | 28  | % | 
|                          |  |                           |            |                  |     |               |  |                  |            |  |     |   | 
|                          |  |                           |            |                  |     |               |  |                  |            |  |     |   | 
|Total product revenue     |  | $                         | 28,609,000 |                  | 14  | %             |  | $                | 25,088,000 |  | 20  | % | 
|                          |  |                           |            |                  |     |               |  |                  |            |  |     |   | 
|                          |  |                           |            |                  |     |               |  |                  |            |  |     |   | 
|License and collaboration |  |                           | 744,000    |                  | 153 | %             |  |                  | 294,000    |  | 100 | % | 
|                          |  |                           |            |                  |     |               |  |                  |            |  |     |   | 
|                          |  |                           |            |                  |     |               |  |                  |            |  |     |   | 
|Total revenue             |  | $                         | 29,353,000 |                  | 16  | %             |  | $                | 25,382,000 |  | 22  | % | 
|                          |  |                           |            |                  |     |               |  |                  |            |  |     |   | 

|     |                                                                                                                                                                                                                                                        
|---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(15) | Reclassification                                                                                                                                                                                                                                       
|    
|     | Revenue amounts relating
 to license and collaboration for the three and six months ended June 30, 2007
 have been reclassified to conform to the 2008 presentation. Total revenue
 remains unchanged for the three and six months ended June 30, 2007.

|        |                                                                                       
|------- | --------------------------------------------------------------------------------------
|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 extraction catheter, a
 mechanical system 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,                                                                                                                                                 
| |   |                                                                                                                                                                                                                                                                                                 
| |  | Specialty catheters,
 consisting of a variety of catheters for clinical niches including the
 Langston® dual lumen catheters, Twin-Pass® dual access
 catheters, Skyway® support catheters, and GopherTM
 support catheter and                                                                  

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Table of Contents

| |   |                                                                                                                                                                                                       
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Access products,
 principally consisting of micro-introducers, the MICROEliteTM
 snare, the Guardian®hemostasis valve, and guidewires used in
 connection with percutaneous access to the vasculature.

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
$52.6 million in 2007, with 97% of our 2007 net revenue coming from products
other than the Duett device. This increase in revenue represents a compound
annual growth rate of 36% and was 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.

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 
 June 30, |     | Six Months Ended 
 June 30, | 
|                                           |  |                               |     |                             | 
|                                           |  | 2008                          |     | 2007                        |  | 2008 |   | 2007 |    
|                                           |  |                               |     |                             |  |      |   |      |    
|                                           |  |                               |     |                             |  |      |   |      |    
|Revenue:                                   |  |                               | 98  | %                           |  | 99   | % |      | 97  | %  |  | 99  | % 
|Product revenue                            |  |                               |     |                             |  |      |   |      |    
|License and collaboration revenue          |  |                               | 2   | %                           |  | 1    | % |      | 3   | %  |  | 1   | % 
|                                           |  |                               |     |                             |  |      |   |      |     |    |  |     |   
|Total revenue                              |  |                               | 100 | %                           |  | 100  | % |      | 100 | %  |  | 100 | % 
|                                           |  |                               |     |                             |  |      |   |      |     |    |  |     |   
|Product costs and operating expenses:      |  |                               |     |                             |  |      |   |      |     |    |  |     |   
|Cost of goods sold                         |  |                               | 35  | %                           |  | 33   | % |      | 34  | %  |  | 33  | % 
|Collaboration expenses                     |  |                               | 1   | %                           |  |     |   |      | 1   | %  |  |    |   
|Research and development                   |  |                               | 10  | %                           |  | 10   | % |      | 10  | %  |  | 11  | % 
|Clinical and regulatory                    |  |                               | 5   | %                           |  | 6    | % |      | 6   | %  |  | 6   | % 
|Sales and marketing                        |  |                               | 34  | %                           |  | 37   | % |      | 36  | %  |  | 38  | % 
|General and administrative                 |  |                               | 8   | %                           |  | 9    | % |      | 9   | %  |  | 8   | % 
|Litigation                                 |  |                               | 10  | %                           |  |     |   |      | 5   | %  |  | 22  | % 
|Thrombin qualification                     |  |                               |    |                             |  |     |   |      |    |    |  | 1   | % 
|                                           |  |                               |     |                             |  |      |   |      |     |    |  |     |   
|Total product costs and operating expenses |  |                               | 103 | %                           |  | 95   | % |      | 101 | %  |  | 119 | % 
|                                           |  |                               |     |                             |  |      |   |      |     |    |  |     |   
|Operating income (loss)                    |  |                               | (3  | %)                          |  | 5    | % |      | (1  | %) |  | (19 | %)
|Other income and expenses, net             |  |                               |    |                             |  |     |   |      |    |    |  |    |   
|                                           |  |                               |     |                             |  |      |   |      |     |    |  |     |   
|Income (loss) before income taxes          |  |                               | (3  | %)                          |  | 5    | % |      | (1  | %) |  | (19 | %)
|Income taxes                               |  |                               |    |                             |  |     |   |      |    |    |  |    |   
|                                           |  |                               |     |                             |  |      |   |      |     |    |  |     |   
|Net income (loss)                          |  |                               | (3  | %)                          |  | 5    | % |      | (1  | %) |  | (19 | %)
|                                           |  |                               |     |                             |  |      |   |      |     |    |  |     |   

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Three
and six months ended June 30, 2008, compared to three and six months ended June
30, 2007

Net
revenue increased 15% to $15,238,000 for the quarter ended June 30, 2008 from
$13,228,000 for the quarter ended June 30, 2007. The increase in net revenue
was a result of double digit percentage revenue increases in four of our five
product categories. Approximately 88% of our net revenue for the second quarter
ended June 30, 2008 was from sales to customers in the United States and 12% of
the net revenue was from sales to customers in international markets. Net revenue
increased 16% to $29,353,000 for the six months ended June 30, 2008 from
$25,382,000 for the six months ended June 30, 2007. Approximately 87% of our
net revenue for the six months ended June 30, 2008 was from sales to customers
in the United States and 13% of the net revenue was from sales to customers in
international markets.

Gross
margin across all product lines declined to 64% for the quarter ended June 30,
2008 from 66% for the quarter ended June 30, 2007. We expect gross margins to
be in the range of 64% to 66% for the remainder of 2008, subject to changes in
our selling mix between our lower margin products such as the Vari-Lase and
products sold to King and our higher margin products such as the D-Stat Dry.
Gross margin across all product lines declined to 65% for the six months ended
June 30, 2008 from 67% for the six months ended June 30, 2007.

Research
and development expenses increased 15% to $1,553,000 for the quarter ended June
30, 2008 from $1,346,000 for the quarter ended June 30, 2007. Research and
development expenses increased 6% to $3,019,000 for the six months ended June
30, 2008 from $2,839,000 for the six months ended June 30, 2007. The increase
was the result of our continued emphasis on investment in new products,
including an increase to 21 full-time employees in Research and Development at
June 30, 2008 from 20 at June 30, 2007. We expect our research and development
expenses to be approximately 9% to 10% of revenue per quarter for the second
half of 2008 as we continue to pursue additional new products at an expected
rate of between two and four new products per year and as we continue to move
our longer-term development projects forward.

Clinical
and regulatory expenses increased 1% to $759,000 for the quarter ended June 30,
2008 from $751,000 for the quarter ended June 30, 2007. Clinical and regulatory
expenses increased 7% to $1,610,000 for the six months ended June 30, 2008 from
$1,511,000 for the six months ended June 30, 2007. The increase was the result
of increased activity in two clinical studies we have in process. Clinical and
regulatory expenses fluctuate due to the timing of clinical and marketing
studies. We expect clinical and regulatory expenses to be approximately 5% to
6% of revenue per quarter for the second half of 2008.

Sales
and marketing expenses increased 7% to $5,174,000 for the quarter ended June
30, 2008 from $4,851,000 for the quarter ended June 30, 2007. Sales and
marketing expenses increased 8% to $10,387,000 for the six months ended June
30, 2008 from $9,613,000 for the six months ended June 30, 2007. The primary
reason for the increase in sales and marketing expenses was the increase in
commissions paid to our direct sales force as a result of achieving certain
revenue milestones. We do not expect to materially increase the number of field
sales employee in 2008. As a result, we expect our sales and marketing expenses
to be between 30% and 33% of revenue per quarter for the second half of 2008.
Sales and marketing expenses are expected to decline as a percent of revenue as
our revenue increases.

General and administrative expenses decreased 1% to $1,192,000 for the quarter ended
June 30, 2008 from $1,198,000 for the quarter ended June 30, 2007. General and administrative expenses increased 27% to $2,734,000 for the six months ended June
30, 2008 from $2,146,000 for the six months ended June 30, 2007. The decrease in the second quarter of 2008 was the result of lower legal fees as substantially
all outstanding litigation matters have been resolved. The increase for the six months ended June 30, 2008 was principally due to an increase in legal fees
relating to litigation with Marine Polymer and VNUS as discussed in Note 11 to the financial statements. We expect general and administrative expenses to be
approximately 7% to 8% of revenue per quarter for the second half of 2008.

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Litigation
expenses were $1,457,000 for the quarter ended June 30, 2008, and $1,484,000
for the six months ended June 30, 2008. During the quarter ended June 30, 2008 we
recorded a litigation gain of $1,659,000 and we recorded litigation expense of
$3,116,000 following the settlement agreements reached with Diomed and VNUS.
For a complete discussion see Note 11 to the financial statements.

Thrombin
qualification expenses were $-0- for the quarter ended June 30, 2008 compared
to $18,000 for the quarter ended June 30, 2007. Thrombin qualification expenses
were $-0- for the six months ended June 30, 2008 compared to $129,000 for the
six months ended June 30, 2007. On October 18, 2004, we entered into a supply agreement with
Sigma-Aldrich Fine Chemicals, an operating division of Sigma-Aldrich, Inc.
(Sigma) for the supply of thrombin to us. Pursuant to the terms of the
agreement, we agreed to pay certain development costs of Sigma necessary for
Sigma to produce thrombin. The initial contract term ends after ten years and
is automatically extended for up to five additional successive one-year terms
unless one party delivers notice of termination at least one year prior to the
scheduled termination of the agreement. During the term of the agreement, Sigma
has agreed not to sell thrombin of the type developed for us under the
agreement in or as a component of a hemostatic product for medical use. We do
not have any minimum purchase requirements under the agreement; however, if we
purchase less than three lots of thrombin in any year commencing in 2008 then
(i) Sigma will be released from its agreement not to sell thrombin in or as a
component of a hemostatic product for medical use, and (ii) Sigma will have the
right to terminate the agreement upon 30 days notice.

The
Sigma contract was part of our plan to qualify a second source of thrombin (in
addition to the Thrombin-JMI® Supply Agreement discussed in above
Note 10 to the Unaudited Consolidated Financial Statements in Item 1 of Part 1
of this Form 10-Q) and to bring the new thrombin through the regulatory process
to be used in our hemostatic products. We have purchased $1.7 million of
thrombin from Sigma, of which we have expensed approximately $400,000 in our
development work. We received regulatory approval in February 2008 allowing us
to use the Sigma thrombin in our hemostat products sold in international
markets. In the second quarter of 2008 we began using Sigma thrombin in the
manufacture of our international hemostat products and have consumed $100,000
to date, resulting in approximately $1.2 million in inventory at June 30, 2008.
We expect to consume the remaining supply of Sigma thrombin in the manufacture
of our hemostat products sold in international markets prior to its expiration.

Interest
expense decreased to $18,000 for the quarter ended June 30, 2008 from $41,000
for the quarter ended June 30, 2007. Interest expense decreased to $42,000 for
the six months ended June 30, 2007 from $85,000 for the six months ended June
30, 2007. This decline is a direct result of a lower equipment line of credit
balance due to the monthly payments being made, as well as lower interest
rates.

Interest
income decreased to $48,000 for the quarter ended June 30, 2008 from $107,000
for the quarter ended June 30, 2007. Interest income decreased to $140,000 for
the six months ended June 30, 2008 from $198,000 for the six months ended June
30, 2007. This decrease in interest income is primarily a result of the lower
cash balance being maintained following the payments made in settlement of the
Diomed litigation and VNUS litigation.

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Income Taxes

Income
tax expense was $53,000 for the quarter ended June 30, 2008, and $140,000 for
the six months ended June 30, 2008, primarily the result of federal and state
alternative minimum tax (AMT). With the exception of the year ended December
31, 2007, we have not generated any significant pre-tax income. No provision or
benefit for future federal and state income taxes has been recorded for net
operating losses incurred in any period since our inception because the
benefits may not be realized until we generate sustainable taxable income. We
have established a valuation allowance in the amount of the full value of our
federal net operating loss, federal and state research and development credits
and foreign tax losses. The adoption of FIN 48has not
impacted our operating results since we have historically established a
valuation allowance for the full value of our deferred assets. However, we
established a FIN 48 reserve of $512,000 for the six months ended June 30,
2008.

As
of June 30, 2008, we had approximately $49.2 million of federal net operating
loss carryforwards available to offset future taxable income which begin to
expire in the year 2013. As of June 30, 2008, we also had federal and state
research and development tax credit carryforwards of approximately $3.7 million
which begin to expire in the year 2013. As of June 30, 2008, we also had a
foreign tax loss carryforward of approximately $3.1 million, which does not
expire. Under the United States Tax Reform Act of 1986, the amounts of and
benefits from net operating loss carryforwards may be impaired or limited in
certain circumstances, including significant changes in ownership interests.
Future use of our existing net operating loss carryforwards may be restricted
due to changes in ownership or from future tax legislation. We performed a
section 382 change in ownership study during the third quarter of 2005 on our
federal net operating loss carryforward, and concluded that, as of the date of
the study, we would have no limitations on the net operating loss carryforward.

Liquidity and Capital Resources

We
have financed substantially all of our operations since inception through the
issuance of equity securities and sales of our products. Through June 30, 2008,
we have sold capital stock generating aggregate net proceeds of approximately
$80.4 million. At June 30, 2008, we had $5,405,000 in cash and cash equivalents
on-hand, compared to $10,759,000 in cash and cash equivalents at December 31,
2007.

During
the six months ended June 30, 2008, we used $4,748,000 in cash for operating
activities, we generated $4,961,000 in cash from investing activities, and we
used $104,000 in cash for financing activities. The financing activities
consisted of the repurchase of our shares for income tax withholding purposes
upon vesting of outstanding restricted share awards and payments made on our
equipment line of credit, off-set by the sale of common stock upon the exercise
of outstanding stock options. The majority of the cash generated by investing
activities was the result of transferring $5,473,000 from restricted cash to
cash, which was used to make the settlement payment to Diomed. Capital
expenditures of $512,000 were incurred, relating primarily to the purchase of
additional manufacturing equipment and additional research and development
equipment. Our cash usage through operating activities was primarily the result
of settlement payments made to Diomed and VNUS, and for additional purchases of
inventory.

We
have a combined $12 million credit facility with Silicon Valley Bank consisting
of a $10 million revolving line of credit with a 24-month term that 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; and a $2 million
equipment line of credit with a 36-month term that bears interest at the rate
of prime plus 1.5% and is secured by a first security interest on all of our
assets used as collateral for the amounts borrowed under the equipment line of
credit. The credit facility includes three covenants: a minimum of $10 million
in tangible net worth, a minimum of $3 million of unrestricted cash in deposit
accounts with Silicon Valley

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Bank and an
adjusted net income for each financial reporting period. The adjusted net
income covenant requires an adjusted net income greater than $100,000 for each
subsequent rolling three month period ending June 30, 2008, and an adjusted net
income greater than $500,000 for each subsequent rolling three month period
thereafter. 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 us upon the issuance of equity securities. The
minimum required tangible net worth was $10.6 million at June 30, 2008. We were
in compliance with all of the covenants on June 30, 2008. As of June 30, 2008,
we had no outstanding balance on the $10 million revolving line of credit and
an availability of $10 million. As of June 30, 2008, we had a balance of
$467,000 on the equipment line of credit, which was paid in full on July 9,
2008. Following the pay-off of the equipment line of credit, we no longer have
the ability to borrow any additional funds under the $2 million credit
facility.

The
following table summarizes our contractual cash commitments as of June 30,
2008:

|                                    |  |                        |           |                    |   |             |  |             |           |                     |   |           |  |   |           | 
|----------------------------------- |  | ---------------------- | --------- | ------------------ | - | ----------- |  | ----------- | --------- | ------------------- | - | --------- |  | - | --------- | 
|                                    |  | Payments Due by Period |          
|Contractual Obligations             |  | Total                  |           | Less than 
 1 year |   | 1 - 3 years |  | 3 - 5 years |           | More than 
 5 years |  
|                                    |  |                        |           |                    |   |             |  |             |           |                     |  
|Facility
 operating leases          |  | $                      | 5,749,000 |                    | $ | 694,000     |  | $           | 1,534,000 |                     | $ | 1,628,000 |  | $ | 1,893,000 | 
|Equipment
 line of credit*          |  |                        | 467,000   |                    |   | 467,000     |  |             |          |                     |   |          |  |   |          | 
|                                    |  |                        |           |                    |   |             |  |             |           |                     |   |           |  |   |           | 
|Total
 contractual cash obligations |  | $                      | 6,216,000 |                    | $ | 1,161,000   |  | $           | 1,534,000 |                     | $ | 1,628,000 |  | $ | 1,893,000 | 
|                                    |  |                        |           |                    |   |             |  |             |           |                     |   |           |  |   |           | 

* This obligation
excludes interest.

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

We
currently anticipate that we will continue to experience positive cash flow
from our operating activities through the remainder of 2008. We currently
believe that our working capital of $15.4 million at June 30, 2008 will be
sufficient to meet all of our operating and capital requirements for at least
the next twelve months. 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 our 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 available at all.

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.

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

Inventory

We
state our inventory at the lower of cost (first-in, first-out method) or
market. The estimated value of excess, obsolete and slow-moving inventory as
well as inventory with a carrying value in excess of its net realizable value
is established by us on a quarterly basis through review of inventory on hand
and assessment of future demand, anticipated release of new products into the
market, historical experience and product expiration. Our stated value of
inventory could be materially different if demand for our products decreased
because of competitive conditions or market acceptance, or if products become
obsolete because of advancements in the industry.

Revenue Recognition

We
recognize revenue 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), 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) collectability is
reasonably assured; and (iv) product delivery has occurred or services have
been rendered. We recognize revenue as products are shipped based on FOB
shipping point terms when title passes to customers. We negotiate 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.

We
also generate revenue from license agreements and research collaborations and
recognize this revenue when earned. In accordance with EITF Issue No. 00-21, Revenue
Arrangements with Multiple Deliverables, for deliverables which
contain multiple deliverables, we separate 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 SAB 104.

We
analyze the rate of historical returns when evaluating the adequacy of the
allowance for sales returns, which is included with the allowance for doubtful
accounts on our balance sheet. At June 30, 2008, this reserve was $35,000
compared to $40,000 at December 31, 2007. If the historical data we use to
calculate these estimates does not properly reflect future returns, revenue
could be overstated.

Allowance for Doubtful Accounts

We
maintain allowances for doubtful accounts for estimated losses resulting from
the inability of our customers to make required payments. This allowance is
regularly evaluated by us for adequacy by taking into consideration factors such
as past experience, credit quality of the customer base, age of the receivable
balances, both individually and in the aggregate, and current economic
conditions that may affect a customers ability to pay. At June 30, 2008, this
reserve was $95,000 compared to $90,000 at December 31, 2007. If the financial condition of our
customers were to deteriorate, resulting in an impairment of their ability to
make payments, additional allowances may be required.

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Warranty Costs

We
provide a warranty for certain products against defects in material and
workmanship for periods of up to 24 months. We record a liability for warranty
claims at the time of sale. The amount of the liability is based on the amount
we are charged by our original equipment manufacturer to cover the warranty
period. The original equipment manufacturer includes a one-year warranty with
each product sold to us. We record a liability for the uncovered warranty
period offered to a customer, provided the warranty period offered exceeds the
initial one-year warranty period covered by the original equipment
manufacturer. At June 30, 2008, this warranty provision was $33,000 compared to
$34,000 at December 31, 2007. If the assumptions used in calculating the
provision were to materially change, resulting in more defects than
anticipated, an additional provision may be required.

Income Taxes

The
carrying value of our net deferred tax assets assumes that we will be able to
generate sufficient taxable income in the United States and, to a lesser
extent, Germany, based on estimates and assumptions. We record a valuation allowance
to reduce the carrying value of our net deferred tax asset to the amount that
is more likely than not to be realized. For the quarter ended June 30, 2008, we
recorded a $29.0 million valuation allowance and a $512,000 reserve related to
our net deferred tax assets of $29.5 million as a result of FASB Interpretation 48 (FIN 48), Accounting
for Uncertainty in Income Taxes  an Interpretation of FASB Statement
No. 109. In the event we were to determine that we would
be able to realize our deferred tax assets in the future, an adjustment to the
deferred tax asset would increase net income in the period such determination
is made. On a quarterly basis, we evaluate the realizability of our deferred
tax assets and assess the requirement for a valuation allowance.

Stock-Based Compensation

We
account for stock-based compensation in accordance with SFAS No. 123(R), Share-Based
Payment. Under the fair value recognition provisions of this
statement, share-based compensation cost is measured at the grant date based on
the value of the award and is recognized as expense over the vesting period. Determining
the fair value of share-based awards at the grant date requires judgment,
including estimating expected dividends, estimating expected forfeiture rates,
estimating expected stock volatility, estimating the expected term, estimating
expected risk-free interest rates and determining illiquidity discount rates. If
actual results differ significantly from these estimates and we materially
change our estimates, stock-based compensation expense and our results of
operations could be materially impacted.

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

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actual results to differ materially from those
projected. We caution readers not to place undue reliance on any such
forward-looking statements, which speak only as of the date made. In accordance
with the Act, we identify the following important general factors which, if
altered from the current status, could cause our actual results to differ from
those described in any forward-looking statements: risks associated with our
limited operating history, the qualification of a new source of thrombin,
defense of patent infringement lawsuits, adoption of our new products, lack of
profitability, lack of experience with a direct sales force, exposure to
possible product liability claims, the development of new products by others,
dependence on third party distributors in international markets, doing business
in international markets, limited manufacturing experience, the availability of
third party reimbursement, actions by the FDA related to our products, the loss
of key vendors, and those factors set forth under the heading Risk Factors in
Item 1A of Part I of our Annual Report on Form 10-K for the year ended December
31, 2007. 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.

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

During
the six months ended June 30, 2008, we sold our products in the United States
and Germany directly to hospitals and clinics in the local currency. Product
revenue recognized on sales in Germany represented approximately 2.3% of our
total product revenue for the six months ended June 30, 2008. Any exposure to
currency exchange rates on this volume of product sales in Germany would be considered
immaterial to the financial statements. Effective April 1, 2008, we began selling
all products in Germany through our distributor Nicolia, GmbH. The sale of our
products to Nicolia is transacted in Euros.

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

We
do not believe our operations are currently subject to significant market risks
for interest rates, foreign currency exchange rates, commodity prices or other
relevant market price risks of a material nature. We expect to earn the
remaining two installments of 125,000 Euros each due to us pursuant to the
terms of the distribution agreement with Nicolai GmbH in fiscal 2008. A change
of 0.1 in the Euro exchange would result in an increase or decrease of approximately
$25,000 in the amount of cash we receive in installments and 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
had $467,000 of indebtedness on our equipment line of credit as of June 30,
2008. If we were to borrow additional amounts from our revolving credit line,
we would be further exposed to changes in interest rates. Advances under our
revolving and equipment lines of credit bear interest at an annual rate indexed
to prime. We will thus be exposed to interest rate risk with respect to amounts
outstanding

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under these lines of credit to the extent that
interest rates rise. Based on our debt outstanding at June 30, 2008, a 1%
increase in current market interest rates would have an impact of approximately
$5,000 on an annual basis. This specific risk was mitigated in July 2008
following the pay-off in full of the equipment line of credit. 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 1% decline in the current
market interest rates paid on deposits would result in interest income being reduced
by approximately $54,000 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 June 30, 2008, there has been no change in our
internal control over financial reporting (as defined in Rule 13a-15(f) under
the Exchange Act) that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

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

The
legal proceedings as described in Note 11 to Unaudited Consolidated Financial
Statements in Item 1 of Part I of this Form 10-Q are incorporated with this
Item 1 of Part II by reference.

|         |              
|-------- | -------------
|Item 1A. | Risk
 Factors

We
do not have material changes to our risk factors as set forth under Item 1A of
Part I of our most recently filed Form 10-K.

|        |                                                             
|------- | ------------------------------------------------------------
|Item 2. | Unregistered
 Sales of Equity Securities and Use of Proceeds
|        |                                                             
|        | None.                                                       

|        |                                
|------- | -------------------------------
|Item 3. | Defaults Upon Senior Securities
|        |                                
|        | None.                          

|        |                                                    
|------- | ---------------------------------------------------
|Item 4. | Submission of Matters to a Vote of Security Holders

Our
annual meeting of shareholders was held on April 22, 2008, at which time (1)
seven nominees were elected to the Board of Directors for one-year terms, and
(2) the appointment of Virchow, Krause & Company, LLP as our independent
registered public accounting firm was ratified. We solicited proxies pursuant
to Section 14(a) of the Exchange Act, and there was no solicitation in
opposition to managements solicitations. All nominees for directors as listed
in the proxy statement were elected.

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The voting results were as follows:

|                                                             |            |         |           |                 
|------------------------------------------------------------ | ---------- | ------- | --------- | ----------------
|                                                             | For        | Against | Withheld  | Broker
 Non-Vote
|                                                             |            |         |           |                 
|Election of Directors:                                       |            |         |           |                 
|Jon Erb                                                      | 14,488,715 |        | 181,719   |                
|Michael Kopp                                                 | 14,490,412 |        | 180,019   |                
|Richard Nigon                                                | 14,342,557 |        | 327,874   |                
|Paul OConnell                                               | 14,490,412 |        | 180,019   |                
|Howard Root                                                  | 13,588,161 |        | 1,082,270 |                
|Jorge Saucedo                                                | 14,490,312 |        | 180,119   |                
|Charmaine Sutton                                             | 14,490,662 |        | 179,769   |                
|                                                             |            |         |           |                 
|Approval of Independent Registered 
 Public Accounting Firm: | 14,561,537 | 63,124  | 45,770    |                

|        |                  
|------- | -----------------
|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)).                                 
|10.1            |  | Settlement Agreement dated April 8, 2008 between the
 Company and Diomed Inc. (incorporated by reference to Exhibit 10.1 to
 Vascular Solutions Form 8-K filed on April 10, 2008)                
|10.2*           |  | Settlement Agreement dated June 2, 2008 between VNUS
 Medical Technologies, Inc. and AngioDynamics, Inc. and Company                                                                              
|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.                                                                                              

* Pursuant to Rule
24b-2 of the Securities Exchange Act of 1934, as amended, confidential portions
of this exhibit has been deleted and filed separately with the Securities and
Exchange Commission pursuant to a request for confidential treatment.

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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: July 25, 2008 | By:                      | /s/ Howard Root                                           
|                    |                          |                                                           
|                    |                          | Howard Root                                               
|                    |                          | Chief Executive Officer
 and Director                     
|                    |                          | (principal executive officer and duly
 authorized officer)
|                    |                          |                                                           
|                    | By:                      | /s/ James Hennen                                          
|                    |                          |                                                           
|                    |                          | James Hennen                                              
|                    |                          | Chief Financial Officer                                   
|                    |                          | (principal financial officer)                             
|                    |                          |                                                           
|                    | By:                      | /s/ Timothy Slayton                                       
|                    |                          |                                                           
|                    |                          | Timothy Slayton                                           
|                    |                          | Controller                                                
|                    |                          | (principal accounting officer)                            

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