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

     FORM 10-K (MARK ONE)

     [X]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
          EXCHANGE ACT OF 1934

                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002

                                       OR

     [ ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
          EXCHANGE ACT OF 1934
               FOR THE TRANSITION PERIOD FROM _______ TO ________

                         Commission File Number: 0-27605
                      -------------------------------------

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

        MINNESOTA                                        41-1859679
(State of Incorporation)                       (IRS Employer Identification No.)

                               6464 SYCAMORE COURT
                          MINNEAPOLIS, MINNESOTA 55369
                    (Address of Principal Executive Offices)

                                 (763) 656-4300
               (Registrant's telephone number, including are code)

        Securities registered pursuant to Section 12(b) of the Act: NONE
          Securities registered pursuant to Section 12(g) of the Act:
                     COMMON STOCK, PAR VALUE $.01 PER SHARE

                      -------------------------------------

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]

The aggregate market value of voting and non-voting common equity held by
non-affiliates computed by reference to the price at which the common equity was
last sold on February 15, 2003 was $8,321,000.

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

As of February 15, 2003, the number of shares outstanding of the registrant's
common stock was 12,850,239.

                       DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant's Proxy Statement for its 2003 Annual Meeting of
Shareholders to be held on April 15, 2003 are incorporated by reference in Part
III of this Annual Report on Form 10-K.

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                                     PART I

ITEM 1. BUSINESS

OVERVIEW

      We are a medical device company focused on bringing clinically advanced
solutions to interventional cardiologists and interventional radiologists
worldwide. Our current product line includes the Duett(TM) sealing device, the
D-Stat(TM) flowable hemostat and the Acolysis(R) therapeutic ultrasound system.
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 international
distribution network.

      Our principal product, the Duett sealing device, is designed to provide a
complete seal of the puncture site following catheterization procedures such as
angiography, angioplasty and stenting. Our Duett sealing device combines an
easy-to-use balloon catheter delivery mechanism with a biological procoagulant
mixture, which we believe offers advantages over both manual compression and
competitive vascular sealing devices. We began selling our Duett sealing device
in Europe in February 1998 and in the United States in June 2000. Over 150,000
Duett sealing devices have been sold and deployed worldwide, and we achieved
over $10 million in net sales of the Duett sealing device in its first year on
the United States market. In the fourth quarter of 2001 we introduced the
Diagnostic Duett version of the Duett sealing device, which utilizes a lower
dose of progcoagulant for the less-challenging diagnostic subset of
catheterization procedures. In mid-2002 we introduced the next generation "Pro"
line of the Duett sealing device for improved ease-of-use, and we are currently
working on future generations of the Duett product line.

      The second product we have developed and commercialized is the D-Stat
flowable hemostat, which we began selling worldwide in February 2002. The D-Stat
utilizes the clinically proven procoagulant components of the Duett sealing
device to provide a powerful stop to active bleeding. The thick, yet flowable
procoagulant controls active bleeding by initiating the body's own clotting
mechanisms in the same manner as the Duett procoagulant. The D-Stat has clinical
use in a multitude of interventional procedures, and substantial extension
market opportunities in other medical practice areas.

      During the second quarter of 2002 we acquired the Acolysis ultrasound
thrombolysis system. The Acolysis system uses ultrasound energy generated by the
controller that is delivered intravascularly by the disposable probe to lyse
blood clots and plaque. The Acolysis system is sold only in international
markets, where it has been sold principally for the treatment of peripheral
vascular disease. Upon completion of our acquisition and integration, we
commenced active international sales of the Acolysis probes through our existing
international distribution network in late 2002.

      We are developing several additional products that leverage our existing
infrastructure to bring additional solutions to the interventional cardiologist
and radiologist. Additional interventional medical devices that we expect to
gain regulatory clearance and market launch in the second half of 2003 include
the D-Stat Dry hemostatic bandage, the D-Stat Radial hemostat band, the Pronto
extraction catheter and a minimally invasive varicose vein treatment device.

INTERVENTIONAL CARDIOLOGY AND INTERVENTIONAL RADIOLOGY INDUSTRY BACKGROUND

      Over 60 million Americans have one or more types of cardiovascular
disease--diseases of the heart and blood vessels. Cardiovascular disease is the
number one cause of death in the United States and is replacing infectious
disease as the world's pre-eminent health risk. Peripheral vascular disease
affects over 8 million people


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worldwide. Advances in medicine have enabled physicians to perform an increasing
number of diagnostic and therapeutic treatments of cardiovascular disease using
minimally invasive methods, such as catheters placed inside the arteries,
instead of highly invasive open surgery. Cardiologists and radiologists use
diagnostic procedures, such as angiography, to confirm, and interventional
procedures, such as angioplasty and stenting, to treat, diseases of the coronary
and peripheral arteries. Based on industry statistics, we estimate that
cardiologists and radiologists performed over 9 million diagnostic and
interventional catheterization procedures worldwide in 2002. The number of
catheterization procedures performed is expected to grow by more than 5% each
year for the next three years as the incidence of cardiovascular disease
continues to increase. The overall interventional medical device market in 2002
exceeded $5 billion worldwide.

      Each procedure using a catheter requires a puncture in an artery, usually
the femoral artery in the groin area and sometimes the radial artery in the
wrist of the patient to gain access for the catheter. The catheter then is
deployed through an introducer sheath and into the vessel to be diagnosed or
treated. Upon completion of the procedure and removal of the catheter, the
physician must seal this puncture in the artery and the tissue tract that leads
from the skin surface to the artery to stop bleeding. The traditional method for
sealing the puncture site has been a manual process whereby a healthcare
professional applies direct pressure to the puncture site, sometimes using a
sand bag or a large C-clamp, for 20 minutes to an hour in order to form a blood
clot. The healthcare professional then monitors the patient, who must remain
immobile in order to prevent dislodging of the clot, for an additional four to
48 hours.

      Patients subjected to manual compression generally experience significant
pain and discomfort during compression of the puncture site and during the
period in which they are required to be immobile. Many patients report that this
pain is the most uncomfortable aspect of the catheterization procedure. In
addition, patients usually develop a substantial coagulated mass of blood, or
hemotoma, around the puncture site, limiting patient mobility for up to six
weeks following the procedure. Finally, the need for healthcare personnel to
provide compression and the use of hospital beds during the recovery period
results in substantial costs to the institution which, under virtually all
current healthcare payment systems, are not separately reimbursed.

      Until 1996, manual compression was used following virtually all
catheterization procedures. In late 1995, the first vascular sealing device
which did not rely on compression was introduced in the United States. In
addition to the Duett sealing device, four devices have received FDA approval
and are currently being marketed around the world. In aggregate, approximately
$320 million of the four FDA-approved devices were sold worldwide in 2002
compared to less than $20 million in 1996. Based on the number of
catheterization procedures performed annually by cardiologists and radiologists,
industry sources report that the total market opportunity for vascular sealing
devices is more than $1 billion. Accordingly, the market opportunity for
vascular sealing devices is less than 20% penetrated.

THE VASCULAR SOLUTIONS DUETT SEALING DEVICE

      We believe our Duett sealing device (1) offers a complete seal of the
puncture site with nothing left behind in the artery, (2) is an easy-to-use
system and (3) minimizes patient discomfort and permits early ambulation. Our
product uses a balloon catheter, a device already familiar to cardiologists and
radiologists, which is inserted through the introducer sheath that is already in
the patient. The inflated balloon serves as a temporary mechanical seal,
preventing the flow of blood from the artery. Our biological procoagulant, which
is a proprietary mixture of collagen, thrombin and diluent, is then delivered to
the puncture site, stimulating rapid clotting and creating a complete seal of
both the arterial puncture and the tissue tract from the artery to the skin
surface. The blood-clotting speed and strength of thrombin enables the use of
the Duett sealing device even in the presence of powerful anti-clotting
medications, such as ReoPro(R), increasingly used in interventional
catheterization procedures. With our Duett sealing device, nothing is left
behind in the artery, so immediate reaccess of the site, if necessary, is
possible, and the potential for infection is minimized.


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      We commenced sales of a new version of our Duett sealing device, the
Diagnostic Duett sealing device, for a subset of catheterization patients in the
fourth quarter of 2001. The Diagnostic Duett is tailored specifically for
treating diagnostic patients. Because the Duett sealing device is a
one-size-fits-all device, the procoagulant is dosed appropriately for the most
challenging catheterization patients. We developed the Diagnostic Duett with a
lower dose of procoagulant that is tailored specifically for the
less-challenging diagnostic patients where substantial blood-thinning drugs are
less frequently used. All other components of the Diagnostic Duett, including
the balloon catheter, are identical to the original Duett sealing device. This
results in the Diagnostic Duett having identical deployment steps, but being
less expensive and yet fully effective for the over 2.5 million diagnostic
procedures that occur each year in the United States.

      In July 2002 we launched the next generation "Pro" line of the Duett
sealing device. The Pro line enhances the Duett catheter by improving its
robustness and simplifying the device deployment steps.

THE D-STAT FLOWABLE HEMOSTAT

      Our second product, the D-Stat flowable hemostat, is a blood clotting gel
that can be delivered topically and into voids and open spaces to seal against
active bleeding. The D-Stat offers the advantage of being thick to maintain its
position, yet easily deliverable. The D-Stat consists of the same collagen,
thrombin and diluent components as the Duett sealing device, which has been
proven effective in controlling bleeding from aggressive arterial puncture
sites. After a simple reconstitution step, the D-Stat hemostat can be applied
directly to a wide variety of bleeding surfaces using one of the three included
applicator tips. Since the D-Stat is applied locally, no special catheter
delivery system is required. The D-Stat hemostat is shelf stable and can be
prepared up to three hours before use.

      The D-Stat flowable hemostat can be used in a wide variety of
interventional procedures as an adjunct to hemostasis. Examples of these uses
include sealing the access site after the removal of catheters from A-V access
grafts, sealing very small punctures of the femoral artery, and sealing
following venous punctures. We believe that the D-Stat flowable hemostat is the
only hemostat available in the United States that combines the thick consistency
and extremely flowable delivery that is preferred by the interventional
physician in these opportunities.

      We commenced sales of the D-Stat worldwide in the first quarter of 2002,
and by the end of the fourth quarter of 2002 we reached nearly $1 million in
annualized net sales of the D-Stat. We achieved this revenue with limited
approved clinical indications for the D-Stat, which initially has been limited
to topical bleeding and blood "oozing." We believe these indications are but a
small fraction of the total potential market for the D-Stat. We recently filed
for regulatory approval for a clinical study to confirm our next clinical use of
the D-Stat in the hemostasis of prepectoral pockets created in pacemaker and
defribrillator implantations. We estimate that the U.S. market opportunity for
this prepectoral pocket indication is greater than 100,000 procedures each year.
Following the prepectoral pockets study, we expect to perform clinical studies
on the use of D-Stat to seal following breast biopsy and liver biopsy
procedures, each of which we believe can match or exceed the prepectoral pocket
market opportunity for D-Stat.

THE ACOLYSIS ULTRASOUND THROMBOLYSIS SYSTEM

      Our third product, the Acolysis ultrasound thrombolysis system, uses high
energy, low frequency ultrasound to lyse thrombus into subcapillary particles
without damaging vessel walls. The therapeutic principle of the Acolysis system
is to generate ultrasound thrombolysis by the selective disruption of the fibrin
matrix of the thrombus. Cavitation produces subcapillary-sized particles,
resulting in a debulking of the arterial lesion. Peripheral vascular disease,
the initial market opportunity, affects over 8 million people worldwide. We
believe


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the Acolysis System represents a breakthrough in both therapy and technology,
and initial clinical experience and one-year follow-up with the product has been
favorable.

      Our international sales efforts on the Acolysis therapeutic ultrasound
product began in earnest during the fourth quarter of 2002. Our first indication
for this product is to open chronic total occlusions in peripheral arteries.
Currently, in Germany we have approximately 10 Acolysis controllers placed in
the field generating a mix of clinical evaluations and sales. We are in the
process of planning and structuring a clinical study to confirm the
effectiveness of the use of the Acolysis system to open chronic total
occlusions. We expect to commence a U.S. clinical study of the Acolysis product
in 2004.

BUSINESS STRATEGY

      Our primary objective is to establish ourselves as a leading supplier of
clinically superior medical devices for substantial opportunites within
interventional medicine. Starting with our Duett sealing device in the large
vascular sealing device market, the key steps in achieving our primary objective
are the following:

      o     ESTABLISH OUR CLINICALLY-ORIENTED DIRECT SALES FORCE IN THE UNITED
            STATES. During the third quarter of 2000 we commenced sales of our
            Duett sealing device in the United States through a direct sales
            force that includes clinical specialists who train interventional
            cardiologists, radiologists and catheterization laboratory
            administrators on the use of our products. We believe that effective
            training is a key factor in promoting use of interventional medical
            devices. We have created and will continue to work to improve an
            in-the-field training and certification program for the use of our
            products. As of December 31, 2002, our United States direct sales
            force consisted of approximately 50 employees.

      o     CONTINUE TO PROMOTE THE DUETT SEALING DEVICE'S BENEFITS COMPARED TO
            MANUAL COMPRESSION AND OTHER DEVICES. We believe that the primary
            benefits of the Duett sealing device are improved patient outcomes
            and provider efficiencies. We intend to continue to use our existing
            and growing body of clinical results to initiate use of our Duett
            sealing device by physicians currently using manual compression and
            to convert physicians from other vascular sealing devices to our
            product.

      o     LEVERAGE FUTURE DEVICES THROUGH OUR DIRECT SALES FORCE TO OUR
            EXISTING CUSTOMERS. We intend to leverage our direct sales force by
            bringing additional products to the interventional physician. The
            D-Stat is our first product that takes advantage of this strategy,
            and the Acolysis product in international markets is the second
            product in our pipeline. Our research and development team is
            working on four additional substantial medical devices for the
            interventional physician that we expect to launch through our
            existing distribution network in the second half of 2003.

SALES, MARKETING AND DISTRIBUTION

      In the third quarter of 2000 we commenced sales of our Duett sealing
device in the United States through our direct sales organization. As of
December 31, 2002, our direct sales force consisted of approximately 50
employees. We believe that the majority of interventional catheterization
procedures in the United States are performed in high volume catheterization
laboratories, and that these institutions can be served by our focused direct
sales force. We also believe that our sales force will be able to sell our new
products to the same customer base.

      As part of our sales force, we have hired clinical specialists to train
physicians and other healthcare personnel on the use of our products. We believe
that effective training is a key factor in encouraging physicians to use
interventional medical devices. We have created, and will continue to work to
improve an in-the-field


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training and certification program for the use of all of our products. We also
develop and maintain close working relationships with our customers to continue
to receive input concerning our product development plans.

      We are focused on building market awareness and acceptance of our
products. Our marketing organization provides a wide range of programs,
materials and events that support our sales force. These include product
training, conference and trade show appearances and sales literature and
promotional materials. Members of our medical advisory board also aid in
marketing our products by publishing articles and making presentations at
physicians' meetings and conferences.

      Our international sales and marketing strategy has been to sell to
interventional cardiologists and radiologists through established independent
distributors in major international markets, subject to required regulatory
approvals. In Germany, we established a direct sales organization by creating
Vascular Solutions GmbH and began selling directly to customers in the German
market in the fourth quarter of 2000. Our products are currently marketed
through independent distributors in Norway, Italy, Austria, the United Kingdom,
Ireland, Denmark, Switzerland, Finland, Sweden, Greece, Belgium, Spain, the
Netherlands, South Africa, China and Portugal. We intend to add independent
distributors in other countries as our sales and marketing efforts are expanded.
Under multi-year written distribution agreements with each of our independent
distributors, we ship our products to these distributors upon receipt of
purchase orders. Each of our independent distributors has the exclusive right to
sell our products within a defined territory. These distributors also market
other medical products, although they have agreed not to sell other vascular
sealing devices. Our independent distributors purchase our products from us at a
discount from list price and resell the device to hospitals and clinics. Sales
to international distributors are denominated in United States dollars. The
end-user price is determined by the distributor and varies from country to
country.

      Substantially all of our revenues from inception until our FDA approval on
June 22, 2000 were derived from sales to international distributors, primarily
in Europe, none of which is affiliated with us. Sales in Europe constituted 11%,
10%, 33% and 93% of our net sales for the years ended December 31, 2002, 2001,
2000 and 1999.

NEW PRODUCT DEVELOPMENT

      Our research and development staff is currently focused on developing new
products to sell to our existing customer base through our direct sales force
and on developing next generation versions of our Duett sealing device. We
incurred expenses of $3,227,538 in 2002, $4,123,883 in 2001 and $3,117,339 in
2000 for research and development activities. To further reduce our costs, our
research and development group continues to develop in-house capabilities to
manufacture some of the components currently produced by outside vendors.

      We have developed four new products that we expect to launch in the second
half of 2003 through our existing distribution network to the interventional
cardiology and interventional radiology market:

      o     D-STAT DRY HEMOSTATIC BANDAGE. The D-Stat Dry bandage consists of a
            freeze-dried pad of the D-Stat procoagulant which can be applied to
            topical bleeding with a custom adhesive bandage. Initial potential
            uses of the D-Stat Dry include sealing following arterial
            interventional punctures and a variety of radiology procedures. We
            believe that the D-Stat Dry bandage will be the most effective,
            simple and cost-effective topical solution to hemostasis available
            to the interventional physician.

      o     D-STAT RADIAL HEMOSTAT BAND. The D-Stat Radial hemostat band is a
            customized compression device with the power of the D-Stat
            procoagulant for sealing the arterial puncture following
            catheterization procedures utilizing the radial artery in the wrist.
            Currently, only compression devices are used to seal the puncture of
            the radial artery, which is the source of arterial puncture in
            approximately 5% of all


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            catheterizations. We believe that the D-Stat Radial will lessen the
            time to hemostasis, and thereby lower the risk of complications
            resulting from compression of the radial artery following
            catheterization procedures.

      o     PRONTO EXTRACTION CATHETER. We have licensed from Dr. Pedro Silva of
            Milan, Italy a patented design of an extraction catheter for the
            removal of soft thrombus from arteries. The Pronto catheter consists
            of an extraction catheter with a proprietary atraumatic distal tip
            and large extraction lumen that can be placed in arteries and easily
            extract soft thrombus. A user-friendly syringe extraction system
            allows for a single operator deployment with total preparation and
            deployment time of less than one minute. Principal clinical uses of
            the Pronto extraction catheter are expected to include the removal
            of thrombus burden from acute myocardial infarction (heart attack)
            cases.

      o     VARICOSE VEIN TREATMENT. During 2002 we internally generated a
            product that addresses the substantial market for the treatment of
            superficial venous reflux, otherwise known as varicose veins.
            Varicose veins affect over one million people worldwide and, when
            severe, are treated by the archaic practice of surgical vein
            stripping. Recently, new interventional tools have been developed to
            intravascularly treat and close superficial varicose veins as a
            replacement for invasive vein stripping. We have developed a product
            that furthers this shift to interventional treatments in a
            clinically-efficient and cost-effective manner.

      We are also working on next generation versions of the Duett sealing
device. We have developed and performed pre-clinical testing of the Mechanical
Duett, a concept that utilizes an immediate and complete mechanical seal of the
arterial puncture to obtain hemostasis. To develop the Mechanical Duett, we have
entered into a development and manufacturing agreement with Tepha, Inc. to
supply us with the bioresorbable component of the Mechanical Duett. Initial
international clinical studies of the Mechanical Duett are expected to occur in
the middle of 2003.

      We expect our research and development activities to continue to expand to
include evaluation of new concepts and products for the interventional
cardiology and interventional radiology field. We believe that there are many
potential new interventional products that would fit within the development,
clinical, manufacturing and distribution network we have created for our
existing products.

MANUFACTURING

      We manufacture our products in our facility in a suburb of Minneapolis,
Minnesota. The catheter manufacturing and packaging processes occur under a
controlled clean room environment. Our manufacturing facility and processes were
certified in July 1998 as compliant with the European Community's EN 46001
standards and were audited in September 1999 and June 2000 for compliance with
the FDA's quality systems regulations with no deficiencies noted. Upon
expiration of our existing lease, in March 2003 we will move to a new facility,
also located in a suburb of Minneapolis, Minnesota which will require
recertification by the FDA.

      We purchase components from various suppliers and rely on single sources
for several parts of the Duett sealing device and D-Stat flowable hemostat. In
September 1998, we entered into a ten year, sole-source, supply agreement with
our collagen supplier, Davol Inc., that provides for a fixed price based on
volume purchases which is adjusted annually for increases in the Department of
Labor's employer's cost index. In June 1999, we entered into a five year,
sole-source, supply agreement with our thrombin supplier, GenTrac, Inc., a
subsidiary of King Pharmaceuticals, Inc., that provides for a fixed price with a
price adjustment formula based on increased costs and wholesale price increases.
To date, we have not experienced any significant adverse effects resulting from
shortages of components.


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      The manufacture and sale of our products entail significant risk of
product liability claims. Although we have product liability insurance coverage
in an amount which we consider reasonable, it may not be adequate to cover
potential claims. Any product liability claims asserted against us could result
in costly litigation, reduced sales and significant liabilities and divert the
attention of our technical and management personnel away from the development
and marketing of our products for significant periods of time.

COMPETITION

      Competition in the interventional medical device industry is intense and
dominated by very large and experienced companies such as Medtronic, Inc.,
Abbott Laboratories and Boston Scientific. We compete on the basis of our
clinically differentiated products and focused opportunities within this
interventional medical device market.

      Our Duett sealing device competes with four vascular sealing devices and
manual compression. Because the substantial majority of vascular sealing is
performed through manual compression, this represents our primary competition.
Manual compression usually requires a healthcare professional to manually apply
pressure to the puncture site for 20 minutes to one hour following which the
patient is confined to bed rest for between four and 48 hours. Often manual
compression involves the use of mechanical devices, including C-clamps and
sandbags, or pneumatic devices. Manual compression is considered to be
uncomfortable for the patient.

      The four competitive vascular sealing devices are:

      o     The VasoSeal(R) device, manufactured and marketed by Datascope
            Corp., seals the tissue tract by placing a dry collagen plug in the
            tissue tract adjacent to the puncture in the artery.

      o     The Angio-Seal(R) device, sold by the Daig division of St. Jude
            Medical, Inc. and developed by Kensey Nash Corporation, seals the
            puncture site through the use of a collagen plug on the outside of
            the artery connected by a suture to a biodegradable anchor which is
            inserted into the artery.

      o     The Closer(TM) device, sold by Perclose, Inc., a subsidiary of
            Abbott Laboratories, seals the puncture site through the use of a
            mechanical device that enables a physician to perform a minimally
            invasive replication of open surgery.

      o     The QuickSeal(TM)device, manufactured by SubQ, Inc. and distributed
            by Boston Scientific, Inc., mechanically seals the puncture site
            through use of a hydrated gelatin plug placed in the tissue tract
            adjacent to the puncture in the artery.

      We believe that several other companies are developing arterial closure
devices. The medical device industry is characterized by rapid and significant
technological change as well as the frequent emergence of new technologies.
There are likely to be research and development projects related to vascular
sealing devices of which we are currently unaware. A new technology or product
may emerge that results in a reduced need for vascular sealing devices or
results in a product that renders our product noncompetitive.

      There are many companies that are selling or have developed hemostats
which compete generally with our D-Stat flowable hemostat. Virtually all of
these devices, however, are positioned as hemostats for the open surgical market
and are not designed specifically for use in interventional procedures. There
are likely to be new products, or modifications of existing products, that will
compete with our D-Stat flowable hemostat in the interventional segment of the
hemostat market, and these new products may render our product noncompetitive.


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      Topical patches and pads, which have recently been introduced to the
market, are designed to treat bleeding at arterial puncture sites. Our D-Stat
Dry hemostatic bandage will compete in this market segment. These patches are
applied directly over the puncture site and held in place with adjunctive manual
compression for a period of 10-20 minutes. These patches include:

      o     The Syvek(TM)Patch, manufactured and marketed by Marine Polymer
            Technologies, Inc.
      o     The Closur-P.A.D.(TM), manufactured by Scion Cardiovascular and
            distributed by Medtronic, Inc.
      o     The Chito-Seal(TM), distributed by Abbott Vascular, Inc. a division
            of Abbott Laboratories

      The Acolysis therapeutic ultrasound system and the Pronto extraction
catheter compete, and are expected to compete, in the highly competitive market
segment for removal of thrombus and plaque from the arterial system. There are
many companies that are selling or have developed products in this segment,
including Possis Medical, Inc., Boston Scientific and Endicor. We believe that
several other companies are developing other technologies that will compete with
our Acolysis System, and these new technologies may render our product
noncompetitive.

REGULATORY REQUIREMENTS

UNITED STATES

      Our products are regulated in the United States as medical devices by the
FDA under the Federal Food, Drug and Cosmetic, or FDC, Act. The FDA classifies
medical devices into one of three classes based upon controls the FDA considers
necessary to reasonably ensure their safety and effectiveness. Class I devices
are subject to general controls such as labeling, premarket notification and
adherence to good manufacturing practices. Class II devices are subject to the
same general controls and also are subject to special controls such as
performance standards, postmarket surveillance, patient registries and FDA
guidelines, and may also require clinical testing prior to approval. Class III
devices are subject to the highest level of controls because they are used in
life-sustaining or life-supporting implantable devices. Class III devices
require rigorous clinical testing prior to their approval, and generally require
a premarket approval (PMA) application prior to their sale.

      If a medical device manufacturer can establish that a device is
"substantially equivalent" to a legally marketed Class I or Class II device, or
to an unclassified device, or to a Class III device for which the FDA has not
called for PMAs, the manufacturer may seek clearance from the FDA to market the
device by filing a 510(k) premarket notification. The 510(k) notification may
need to be supported by appropriate data establishing the claim of substantial
equivalence to the satisfaction of the FDA. Following submission of the 510(k)
notification, the manufacturer may not place the device into commercial
distribution in the United States until an order is issued by the FDA.

      Manufacturers must file an investigated device exemption (or IDE)
application if human clinical studies of a device are required and if the device
presents what the FDA considers to be a significant risk. The IDE application
must be supported by data, typically including the results of animal and
mechanical testing of the device. If the IDE application is approved by the FDA,
human clinical studies may begin at a specific number of investigational sites
with a maximum number of patients, as approved by the FDA. The clinical studies
must be conducted under the review of an independent institutional board at the
hospital performing the clinical study.

      Generally, upon completion of these human clinical studies, a manufacturer
seeks approval of a Class III medical device from the FDA by submitting a PMA
application. A PMA application must be supported by extensive data, including
the results of the clinical studies, as well as literature to establish the
safety and effectiveness of the device.


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      Our Duett sealing device is classified as a Class III device and is
subject to the IDE requirements. In May 1997, the FDA determined that the review
of the Duett sealing device would be delegated to the Center for Devices and
Radiological Health area of the FDA, with a consulting review by the Center for
Biologic Evaluation and Research. During 1998 and 1999, we received approval of
our IDE application to start our feasibility clinical study, filed our IDE
Supplement to begin our multi-center clinical study, completed the SEAL
multi-center clinical study and filed our PMA application with the FDA. In
September 1999 our manufacturing facility was audited by the FDA, with no
deficiencies or non-compliances noted by the inspector. In December 1999, we
received the FDA's review letter of our PMA application, and we submitted an
amendment to our PMA to the FDA in January 2000. On June 22, 2000, we received
approval from the FDA of our PMA application to sell the Duett sealing device in
the United States.

      Our D-Stat flowable hemostat also is regulated in the United States as a
medical device by the FDA and required clearance of our 510(k) application by
the FDA prior to being sold in the United States. Our D-Stat flowable hemostat
was the subject of a 510(k) application which was determined to be
"substantially equivalent" to a legally marketed predicate device by the FDA,
thereby allowing commercial marketing in the United States. In January 2002, our
510(k) application for the D-Stat flowable hemostat was cleared by the FDA, and
we commenced sales in the United States in February 2002.

      We also are subject to FDA regulations concerning manufacturing processes
and reporting obligations. These regulations require that manufacturing steps be
performed according to FDA standards and in accordance with documentation,
control and testing standards. We also are subject to inspection by the FDA on
an on-going basis. We are required to provide information to the FDA on adverse
incidents as well as maintain a documentation and record keeping system in
accordance with FDA guidelines. The advertising of our products also is subject
to both FDA and Federal Trade Commission jurisdiction. If the FDA believes that
we are not in compliance with any aspect of the law, it can institute
proceedings to detain or seize products, issue a recall, stop future violations
and assess civil and criminal penalties against us, our officers and our
employees.

INTERNATIONAL

      The European Union has adopted rules which require that medical products
receive the right to affix the CE mark, an international symbol of adherence to
quality assurance standards and compliance with applicable European medical
device directives. As part of the CE compliance, manufacturers are required to
comply with the ISO 9000 series of standards for quality operations. We received
the CE mark approval for our Duett sealing device and ISO 9001 certification in
July 1998, we received the CE mark approval for our D-Stat flowable hemostat in
October 2001 and we purchased the Acolysis system, which previously had obtained
the CE mark, in April 2002.

      International sales of the Duett sealing device, D-Stat and the Acolysis
System are subject to the regulatory requirements of each country in which we
sell our product. These requirements vary from country to country but generally
are much less stringent than those in the United States. Our products are
currently marketed in Germany, Norway, Italy, Austria, the United Kingdom,
Ireland, Denmark, Switzerland, Finland, Sweden, Greece, Belgium, Spain, the
Netherlands, South Africa, China and Portugal. We have obtained regulatory
approvals where required. Through our Japanese distributor, we are pursuing the
regulatory approval of our Duett sealing device for commercial sale in Japan.


                                       9
<PAGE>


THIRD PARTY REIMBURSEMENT

      In the United States, healthcare providers that purchase medical devices,
such as vascular sealing devices, generally rely on third-party payors,
principally the Centers for Medicare and Medicaid Services, or CMS, (formerly
the Health Care Financing Administration, or HCFA) and private health insurance
plans, to reimburse all or part of the cost of therapeutic and diagnostic
catheterization procedures. We believe that in the current United States
reimbursement system, the cost of vascular sealing devices is incorporated into
the overall cost of the catheter procedure. We have performed analyses to
establish the cost benefit of the Duett sealing device, relying on shortened
hospital stays and decreased use of healthcare professionals, to justify the
increased cost of using our Duett sealing device in the United States.

      During 2000, CMS implemented a new Medicare prospective payment system for
hospital outpatient services. One aspect of the new system recognized new
technology items and services as discrete payment groups under the prospective
payment system. Under this system, hospitals receive separate payments for the
use of new medical devices that are recognized by CMS. The Duett sealing device
was issued a transitional pass through code by CMS in 2000. Effective January 1,
2003, CMS incorporated the payment for the Duett sealing device and all vascular
sealing devices into the overall payment for the diagnostic catheterization
procedure. The net effect is an overall increase in the 2003 hospital payment
for a diagnostic procedure, with no separate reimbursement for the sealing
device. Currently there is no separate reimbursement for our D-Stat flowable
hemostat.

      Market acceptance of our products in international markets is dependent in
part upon the availability of reimbursement from healthcare payment systems.
Reimbursement and healthcare payment systems in international markets vary
significantly by country. The main types of healthcare payment systems in
international markets are government sponsored healthcare and private insurance.
Countries with government sponsored healthcare, such as the United Kingdom, have
a centralized, nationalized healthcare system. New devices are brought into the
system through negotiations between departments at individual hospitals at the
time of budgeting. In most foreign countries, there are also private insurance
systems that may offer payments for alternative therapies.

PATENTS AND INTELLECTUAL PROPERTY

      We file patent applications to protect technology, inventions and
improvements that are significant to the development of our business, and use
trade secrets and trademarks to protect other areas of our business. Prior to
the formation of our company, Dr. Gary Gershony filed a number of patent
applications in the United States and other countries directed to proprietary
technology used in our Duett sealing device. Upon the commencement of our
operations in February 1997, Dr. Gershony assigned all patents and patent
applications relating to the Duett sealing device to us on a worldwide,
perpetual, royalty-free basis. At the time of assignment, there existed one
United States patent issued that is directed to a balloon catheter sealing
device and method and which expires in May 2013, three United States patents
pending and an international patent application pending which designated
numerous foreign countries and regions.

      Since commencing operations, we have continued the prosecution of the
pending United States patent applications and filed new patent applications. A
second United States patent was issued that is directed to a balloon catheter
and procoagulant sealing device and method and which expires in October 2015. A
third United States patent was issued that contains method claims concerning the
use of a balloon catheter and flowable procoagulant and which expires in October
2015. A fourth United States patent was issued concerning the procoagulant
mixture and which expires in October 2015. A fifth United States patent was
issued concerning a balloon catheter sealing device and which expires in May
2013. A sixth United States patent was issued concerning a balloon catheter and
procoagulant sealing device and which expires in October 2015. A seventh


                                       10
<PAGE>


United States patent was issued concerning a balloon catheter sealing device and
which expires in October 2015. We currently have 5 additional United States
patents pending concerning aspects of our Duett sealing device and other
interventional products. We also have pursued international patent applications,
which designate the key developed nations with substantive patent protection
systems.

      The interventional cardiology market in general, and the vascular sealing
device field in particular, is characterized by numerous patent filings and
frequent and substantial intellectual property litigation. Each of the vascular
sealing products currently on the U.S. market, including our Duett sealing
device, has been subject to infringement litigation. (See "Legal Proceedings" in
Item 3 of Part I of this Form 10-K) The interpretation of patents involves
complex and evolving legal and factual questions. Intellectual property
litigation in recent years has proven to be complex and expensive, and the
outcome of such litigation is difficult to predict.

      We may become the subject of additional intellectual property claims in
the future related to our Duett sealing device or other products. Our defense of
any intellectual property claims filed in the future, regardless of the merits
of the complaint, could divert the attention of our technical and management
personnel away from the development and marketing of our products for
significant periods of time. The costs incurred to defend future claims could be
substantial and adversely affect us, even if we are ultimately successful.

      We also rely on trade secret protection for certain aspects of our
technology. We typically require our employees, consultants and vendors for
major components to execute confidentiality agreements upon their commencing
services with us or before the disclosure of confidential information to them.
These agreements generally provide that all confidential information developed
or made known to the other party during the course of that party's relationship
with us is to be kept confidential and not disclosed to third parties, except in
special circumstances. The agreements with our employees also provide that all
inventions conceived or developed in the course of providing services to us
shall be our exclusive property.

      We also register the trademarks and trade names through which we conduct
our business. To date, we have applied for registration in the United States of
the marks "Vascular Solutions Duett," "D-Stat," "Pronto" and the Duett stylized
logo. We acquired the registered trademark "Acolysis" in connection with our
acquisition of the Acolysis therapeutic ultrasound business in 2002.

EMPLOYEES

      As of December 31, 2002, we had 127 full time employees. Of these
employees, 31 were in manufacturing activities, 62 were in sales and marketing
activities, 8 were in research and development activities, 15 were in
regulatory, quality assurance and clinical research activities and 11 were in
general and administrative functions. We have never had a work stoppage and none
of our employees are covered by collective bargaining agreements. We believe our
employee relations are good.

EXECUTIVE OFFICERS OF THE REGISTRANT

      The executive officers of the Company as of February 15, 2003 are as
follows:

NAME                  AGE     POSITION
Howard Root           42      Chief Executive Officer, Acting Chief Financial
                              Officer and Director
Michael Nagel         40      Vice President of Sales & Marketing and Secretary
Deborah Jensen        46      Vice President of Regulatory Affairs
James Quackenbush     44      Vice President of Manufacturing


                                       11
<PAGE>


      HOWARD ROOT has served as our Chief Executive Officer and a director since
he co-founded Vascular Solutions in February 1997. From 1990 to 1995, Mr. Root
was employed by ATS Medical, Inc., a mechanical heart valve company, most
recently as Vice President and General Counsel. Prior to joining ATS Medical,
Mr. Root practiced corporate law, specializing in representing emerging growth
companies, at the law firm of Dorsey & Whitney for over five years. Mr. Root
received his B.S. in Economics and J.D. degrees from the University of
Minnesota.

      MICHAEL NAGEL has served as our Vice President of Sales & Marketing since
June 1997. Prior to joining us, Mr. Nagel was the Director of Sales & Marketing
at Quantech, Ltd., a developer of point of care medical diagnostic testing
products, where he worked since July 1996. From 1992 through July 1996, Mr.
Nagel was the mid-west division sales manager of B. Braun Cardiovascular, a
manufacturer of cardiovascular devices and catheters. From 1991 through 1992,
Mr. Nagel was the Director of Worldwide Sales for the Medical Products Division
of Angeion Corporation, a manufacturer of angioplasty accessories and pediatric
catheters. Prior to 1991, Mr. Nagel performed a variety of sales and marketing
functions with Abbott Labs Diagnostic Division for over five years. Mr. Nagel
received his B.A. and M.B.A. degrees from the University of St. Thomas.

      DEBORAH JENSEN has served as our Vice President of Regulatory Affairs,
Clinical Affairs and Quality Systems since October 2000. Ms. Jensen served as
the Corporate Compliance Officer and Vice President of Regulatory Affairs,
Clinical Research and Quality Systems for Empi, Inc. from October 1995 to
October 2000. From May 1993 to October 1995, Ms. Jensen was employed as a
Regulatory Affairs Manager for Boston Scientific's Scimed division. Prior to May
1993, Ms. Jensen held regulatory affairs, clinical research and quality
assurance positions at Medtronic and Lifecore Biomedical. She received her B.S.
in Biology from Valparaiso University.

      JAMES QUACKENBUSH has served as our Vice President of Manufacturing since
March 1999. Prior to joining us, Mr. Quackenbush served as Vice President of
Manufacturing and Operations with Optical Sensors, Inc., a diagnostic medical
device company, where he worked since October 1992. From March 1989 through
October 1992, Mr. Quackenbush served as operations manager with Schneider USA's
stent division. Prior to this time, he was an advanced project engineer with the
3M Medical Products Division. Mr. Quackenbush received a B.S. in Industrial
Engineering from Iowa State University.

      There are no family relationships among any of our executive officers.

AVAILABLE INFORMATION

      We make available free of charge on or through our internet website at
http://www.vascularsolutions.com our annual report on Form 10-K, quarterly
reports on Form 10Q, current reports on Form 8-K, and amendments to these
reports filed or furnished pursuant to Section 13 (a) or 15 (d) of the Exchange
Act as soon as reasonably practicable after we electronically file such material
with, or furnish it to, the SEC.


                                       12
<PAGE>


ITEM 2. PROPERTIES

      Our offices are in approximately 29,000 square feet of leased space in a
suburb of Minneapolis, Minnesota. These facilities include approximately 12,800
square feet used for manufacturing activities, approximately 3,400 square feet
used for research and laboratory activities, with the remainder used for
administrative offices. Our lease for these facilities expires March 31, 2003.
We entered into a new lease effective April 1, 2003 for a 33,000-square-foot
office and manufacturing facility under an operating lease agreement that
expires in September 2008. Our new lease provides a lower effective net lease
payment per square foot than our existing lease, with reimbursement of our
expected moving expenses. Our new office also is located in a suburb of
Minneapolis, Minnesota. We believe that our new facility will be adequate to
meet our needs through at least the end of the lease period.

ITEM 3. LEGAL PROCEEDINGS

      On July 23, 1999, we were named as the defendant in a patent infringement
lawsuit brought by Datascope Corp. in the United States District Court for the
District of Minnesota. The complaint requested a judgment that our Duett sealing
device infringes and, following FDA approval will infringe, a United States
patent held by Datascope and asks for relief in the form of an injunction that
would prevent us from selling our product in the United States as well as an
award of attorneys' fees, costs and disbursements. On August 12, 1999, we filed
our answer to this lawsuit and brought a counterclaim alleging unfair
competition and tortious interference. On August 20, 1999, we moved for summary
judgement to dismiss Datascope's claims. On March 15, 2000, the court granted
summary judgment dismissing all of Datascope's claims, subject to the right of
Datascope to recommence the litigation after our receipt of FDA approval of our
Duett sealing device. On July 12, 2000, after our receipt of FDA approval,
Datascope recommenced this litigation, alleging that the Duett sealing device
infringes a United States patent held by Datascope and requesting relief in the
form of an injunction that would prevent us from selling our product in the
United States, damages caused by our alleged infringement, and other costs,
disbursements and attorneys' fees. On November 26, 2002, we entered into an
agreement that settled all existing intellectual property litigation with
Datascope Corporation. Under the terms of the Settlement Agreement, Datascope
granted us a non-exclusive license to its Janzen patents as they apply to all
current versions of the Duett sealing sevice, and to certain permitted future
product improvements. Datascope also has released us from any claim of patent
infringement based on past or future sales of the Duett sealing device. In
exchange, we paid Datascope a single lump sum of $3,750,000 in the fourth
quarter of 2002.

      On July 3, 2000, we were named as the defendant in a patent infringement
lawsuit brought by the Daig division of St. Jude Medical in the United States
District Court for the District of Minnesota. The complaint requested a judgment
that our Duett sealing device infringes a series of four patents known as the
Fowler patents held by St. Jude Medical and asks for relief in the form of an
injunction that would prevent us from selling our Duett sealing device in the
United States, damages caused by the manufacture and sale of our product, and
other costs, disbursements and attorneys' fees. On July 12, 2001, we entered
into an agreement that settled all existing intellectual property litigation
with St. Jude Medical. Under the terms of the settlement agreement, we agreed to
pay a royalty of 2.5% of net sales of our Duett sealing device to St. Jude
Medical, up to a maximum amount over the remaining life of the St. Jude Fowler
patents. In exchange, St. Jude Medical granted to us a non-exclusive license to
its Fowler patents and has released us from any claim of patent infringement
based on sales of our Duett sealing device. We granted a non-exclusive
cross-license to our Gershony patents to St. Jude Medical, subject to a similar
royalty payment if St. Jude Medical utilizes our Gershony patents in any future
device. Beginning on July 1, 2001, a royalty expense of 2.5% of net sales is
included in our cost of goods sold until the maximum royalty is attained.


                                       13
<PAGE>


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

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

      No matters were submitted to a vote of security holders during the fourth
quarter ended December 31, 2002.


                                     PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

      On July 25, 2000, we sold 3,500,000 shares of our common stock, at an
initial public offering price of $12.00 per share, pursuant to a Registration
Statement on Form S-1 (Registration No. 333-84089), which was declared effective
by the Securities and Exchange Commission on July 19, 2000. Our net proceeds
from the offering were approximately $44.0 million. To date, we have spent
approximately $20.0 million of the net proceeds to hire, train and deploy a
direct sales force in the United States, $4.1 million to settle the St. Jude and
Datascope litigation, $1.6 million to purchase the Acolysis System and $4.5
million for general corporate purposes.

      The Company's common stock began trading on the Nasdaq National Market
under the symbol "VASC" on July 20, 2000. The following table sets forth, for
the periods indicated, the range of high and low last sale prices for the common
stock as reported by the Nasdaq National Market.

                                                      High             Low
                                                     ------           -----
     2001
        First Quarter ...........................    10.000           5.750
        Second Quarter ..........................     9.000           5.125
        Third Quarter ...........................     9.640           1.770
        Fourth Quarter ..........................     2.920           1.750

     2002
        First Quarter ...........................     3.700           2.480
        Second Quarter ..........................     2.700           1.680
        Third Quarter ...........................     1.780            .880
        Fourth Quarter ..........................     1.200            .650

HOLDERS

      As of December 31, 2002, the Company had 177 shareholders of record. Such
number of record holders does not reflect shareholders who beneficially own
common stock in nominee or street name.

DIVIDENDS

      The Company has paid no cash dividends on its common stock, and it does
not intend to pay cash dividends on its common stock in the future.


                                       14
<PAGE>


ITEM 6. SELECTED FINANCIAL DATA

      The selected consolidated financial data below should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" in Item 7 below and the Consolidated Financial
Statements and the Notes thereto included in Item 8 below.

<TABLE>
<CAPTION>
                                                                YEAR ENDED DECEMBER 31,
                                             ------------------------------------------------------------
                                               2002         2001         2000         1999         1998
                                             --------     --------     --------     --------     --------
                                                       (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S>                                          <C>          <C>          <C>          <C>          <C>
Statements of Operations Data:
     Net sales ..........................    $ 12,101     $ 12,082     $  6,193     $  1,429     $    494
     Cost of sales ......................       4,986        4,961        2,701        1,065          442
                                             --------     --------     --------     --------     --------
       Gross profit .....................       7,115        7,121        3,492          364           52

  Operating expenses:
     Research and development ...........       3,227        4,124        3,117        3,068        2,348
     Clinical and regulatory ............       1,348        1,288        1,082        1,324        1,376
     Sales and marketing ................      11,964       12,772        6,700        2,301        1,075
     General and administrative .........       2,167        2,498        2,255        1,904          668
     Legal settlement ...................       3,750          350           --           --           --
     Amortization of purchased technology         145           --           --           --           --
                                             --------     --------     --------     --------     --------
       Total operating expenses .........      22,601       21,032       13,154        8,597        5,467
                                             --------     --------     --------     --------     --------

  Operating loss ........................     (15,486)     (13,911)      (9,662)      (8,233)      (5,415)
        Interest income .................         507        1,661        1,453          371          274
                                             --------     --------     --------     --------     --------
  Net loss ..............................    $(14,979)    $(12,250)    $ (8,209)    $ (7,862)    $ (5,141)
                                             ========     ========     ========     ========     ========
  Net loss per common share -
     Basic and diluted ..................    $  (1.13)    $   (.93)    $   (.95)    $  (1.95)    $  (1.40)
  Weighted average number of common
      shares outstanding ................      13,276       13,217        8,645        4,033        3,660

<CAPTION>

                                                                  AS OF DECEMBER 31,
                                             ------------------------------------------------------------
                                               2002         2001         2000         1999         1998
                                             --------     --------     --------     --------     --------
                                                                    (IN THOUSANDS)
<S>                                          <C>          <C>          <C>          <C>          <C>
Balance Sheet Data:
  Cash, cash equivalents and available-
      for-sale securities .............      $ 16,750     $ 33,318     $ 44,098     $ 10,529     $  9,897
  Working capital .....................        18,656       34,712       46,300       10,487        9,933
  Total assets ........................        22,280       37,593       49,661       12,295       11,007
  Long-term debt ......................            --           --           --           --           --
  Total shareholders' equity ..........        20,369       35,630       47,194       11,172       10,546
</TABLE>


                                       15
<PAGE>


ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

      The following discussion of the financial condition and results of
operations of the Company should be read in conjunction with the Company's
Consolidated Financial Statements and Notes thereto, and the other financial
information included elsewhere in this Form 10-K Report. This Management's
Discussion and Analysis of Financial Condition and Results of Operations
contains descriptions of the Company's expectations regarding future trends
affecting its business. These forward-looking statements and other
forward-looking statements made elsewhere in this document are made in reliance
upon safe harbor provisions of the Private Securities Litigation Reform Act of
1995. The following discussion sets forth certain factors the Company believes
could cause actual results to differ materially from those contemplated by the
forward looking statements.

OVERVIEW

      We are a medical device company focused on bringing solutions to
interventional cardiologists and interventional radiologists. Our product line
includes the Duett(TM) sealing device, the D-Stat(TM) flowable hemostat and the
Acolysis(R) therapeutic ultrasound system. As a vertically-integrated medical
device company, we generate ideas and create new interventional medical devices,
and then deliver those products directly to the physician through our direct
domestic sales force and international distribution network.

      We commenced operations in February 1997, and during 1998 and 1999 we
received regulatory approvals to market our first product, the Duett sealing
device, in several international markets, principally in Europe. On June 22,
2000, we received approval from the FDA of our PMA application for the sale of
our Duett sealing device in the United States. As a result, during the third
quarter of 2000 we commenced sales of the Duett in the United States through our
direct sales force. We commenced sales of the Diagnostic Duett in the United
States in December 2001, and commenced sales of the D-Stat in the United States
in February 2002. In April 2002, we acquired the assets of the Acolysis system
from the secured creditors of Angiosonics, Inc. The Acolysis controller and
probes have been sold in international markets, principally in Europe and China,
for over two years. During the last quarter of 2002, we commenced active
international sales of the Acolysis product.

      We have a limited history of operations and have experienced significant
operating losses since inception. As of December 31, 2002, we had an accumulated
deficit of $50.1 million.

      Although we have experienced revenue growth in recent periods, this growth
may not be sustainable and, therefore, these recent periods should not be
considered indicative of future performance. We may never achieve profitability,
or if we achieve profitability it may not be sustained in future periods.

CRITICAL ACCOUNTING POLICIES:

      The critical accounting policies of the Company are described in Note 1 to
the financial statements. 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 require complex management judgment.

INVENTORY

      We state our inventory at the lower of cost or market. We record reserves
for inventory shrinkage and for potentially excess, obsolete and slow moving
inventory based upon historical experience and forecasted demand. Our reserve
requirements could be materially different if demand for our products decreased
because of


                                       16
<PAGE>


competitive conditions or market acceptance, or if products become obsolete
because of advancements in the industry.

REVENUE RECOGNITION

      We recognize revenue upon shipment of products to customers, net of
estimated returns. We analyze the rate of historical returns when evaluating the
adequacy of the allowance for sales returns, which is included with the
allowance for doubtful accounts on our balance sheet. If the historical data the
Company uses 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. 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.

VALUATION OF LONG-LIVED ASSETS AND GOODWILL

      In fiscal 2002, we adopted Statement of Financial Accounting Standards
(SFAS) 142, "Goodwill and Other Intangible Assets." Goodwill is tested for
impairment annually or more frequently if changes in circumstance or the
occurrence of events suggests an impairment exists. The test for impairment
requires us to make several estimates about fair value, most of which are based
on projected future cash flows.

      We regularly review the carrying value of certain long-lived assets and
identifiable intangible assets with respect to any events or circumstances that
indicate an impairment or an adjustment to the amortization period is necessary.
If circumstances suggest the recorded amounts cannot be recovered, calculated
based upon estimated future undiscounted cash flows, the carrying values of
these assets are reduced to fair value.

RESULTS OF OPERATIONS

YEAR ENDED DECEMBER 31, 2002 COMPARED TO YEAR ENDED DECEMBER 31, 2001

      Net sales increased modestly to $12,100,526 for the year ended December
31, 2002 from $12,082,379 for the year ended December 31, 2001. Approximately
89% of our net sales for the year ended December 31, 2002 were to customers in
the United States and 11% of the net sales were to customers in international
markets. Net sales in 2002 were negatively affected by the intense competitive
environment for our Duett sealing device in the United States market. Net sales
during 2002 benefited from the early sales of our D-Stat flowable hemostat,
which we launched in February 2002.

      Gross profit as a percentage of net sales was unchanged at 59% for the
year ended December 31, 2002 and 2001. We added the Diagnostic Duett, D-Stat and
Acolysis products to our selling mix during 2002, which all have gross margins
greater than 60%. The introduction of the higher margin products in 2002 was
offset by a growth in the lower margin international sales. We expect gross
margins to slightly increase in 2003 as we again introduce new higher margin
products in 2003 and make slight gains in manufacturing efficiencies.

      Research and development expenses decreased 22% to $3,227,538 for the year
ended December 31, 2002 from $4,123,883 for the year ended December 31, 2001.
The decrease was attributable to more focused


                                       17
<PAGE>


development work on the product line extensions and new products during 2002.
Research and development expenses can fluctuate due to outside project spending.
We expect our research and development expenses to increase modestly during 2003
as we continue to pursue additional new products.

      Clinical and regulatory expenses increased 5% to $1,347,694 for the year
ended December 31, 2002 from $1,288,301 for the year ended December 31, 2001.
Clinical and regulatory expenses fluctuate due to the timing of clinical and
marketing studies. We are expecting clinical expenses to increase in 2003 as we
move forward with additional indications for our existing D-Stat flowable
hemostat and international studies of our new products.

      Sales and marketing expenses decreased 6% to $11,963,907 for the year
ended December 31, 2002 from $12,771,901 for the year ended December 31, 2001.
The reason for the decrease is better cost utilization. We have reviewed our
sales and marketing expenditures and focused our spending in the areas that
drive sales and provide an adequate financial return. As of December 31, 2002,
our direct sales force consisted of approximately 50 employees compared to
approximately 65 as of December 31, 2001. As a result, we expect our sales and
marketing expenses to again slightly decrease during 2003 as we continue to
review our sales and marketing expenditures.

      General and administrative expenses decreased 13% to $2,166,883 for the
year ended December 31, 2002 from $2,498,435 for the year ended December 31,
2001. The decrease was the result of lower headcount in 2002 compared to 2001.
We currently anticipate that general and administrative expenses will decrease
in 2003 as we continue to benefit from lower headcount and the settlement of all
of our outstanding intellectual property litigation.

      Legal settlement expenses were $3,750,000 for the year ended December 31,
2002 and $350,000 for the year ended December 31, 2001. We entered into an
agreement that settled all existing intellectual property litigation with
Datascope Corporation in 2002 (see "Legal Proceedings" in Item 3 of Part I of
this Form 10-K). As part of the settlement, Datascope released us from any claim
of patent infringement based on past or future sales of the Duett sealing
device. In exchange, we paid Datascope a single lump sum of $3,750,000 in the
fourth quarter of 2002. We entered into an agreement that settled all existing
intellectual property litigation with St. Jude Medical in 2001 (see "Legal
Proceedings" in Item 3 of Part I of this Form 10-K). As a result of the
settlement, we agree to pay St. Jude Medical a royalty of 2.5% of our Duett
sales up to a maximum amount over the remaining life of the St. Jude Medical
patents. We paid $350,000 to St. Jude Medical in 2001 representing the past
royalty on net sales of our Duett device since 1998 under the settlement
agreement.

      Amortization of purchased technology was $145,000 for the year ended
December 31, 2002 and $0 for the year ended December 31, 2001. The amortization
was the result of our acquisition of the Acolysis assets from the secured
creditors of Angiosonics, Inc. We allocated $870,000 from the acquisition to
purchased technology and are amortizing the amount over four years.

      Interest income decreased to $507,169 for the year ended December 31, 2002
from $1,660,757 for the year ended December 31, 2001 primarily as a result of a
reduced cash balance and lower interest rates.

YEAR ENDED DECEMBER 31, 2001 COMPARED TO YEAR ENDED DECEMBER 31, 2000

      Net sales increased 95% to $12,082,379 for the year ended December 31,
2001 from $6,193,234 for the year ended December 31, 2000. The increase in net
sales was principally the result of a full year of United States sales of our
Duett sealing device in 2001, compared to six months of sales in 2000. As a
result, 90% of our net sales for the year ended December 31, 2001 were to
customers in the United States, while 10% of the net sales were to our customers
in international markets.


                                       18
<PAGE>


      Gross profit as a percentage of net sales increased to 59% for the year
ended December 31, 2001 from 56% for the year ended December 31, 2000. This
increase as a percentage of net sales resulted principally from the full year of
United States sales in 2001. In the third quarter of 2001 we settled our
intellectual property litigation with St. Jude Medical. As part of the
settlement agreement, we agreed to pay a royalty of 2.5% of our net sales of the
Duett sealing device to St. Jude Medical up to a maximum amount for the
remaining life of the patents. This 2.5% royalty was included in our costs of
goods sold beginning in the third quarter of 2001. During the fourth quarter of
2001 we commenced initial sales of our Diagnostic Duett version of the Duett
sealing device in the United States. The Diagnostic Duett has a substantially
lower costs of goods sold than the original Duett, which is offset by a lower
average selling price.

      Research and development expenses increased 32% to $4,123,883 for the year
ended December 31, 2001 from $3,117,339 for the year ended December 31, 2000.
This increase was attributable to increased development work on the product line
extensions and new products during 2001.

      Clinical and regulatory expenses increased 19% to $1,288,301 for the year
ended December 31, 2001 from $1,082,029 for the year ended December 31, 2000.
The increase was primarily the result of additional personnel and the
commencement of clinical studies for new products and new claims for our Duett
sealing device during 2001.

      Sales and marketing expenses increased 91% to $12,771,901 for the year
ended December 31, 2001 from $6,699,722 for the year ended December 31, 2000.
This increase was due primarily to the full year of operations of our United
States direct sales force during 2001.

      General and administrative expenses increased 11% to $2,498,435 for the
year ended December 31, 2001 from $2,255,160 for the year ended December 31,
2000. The primary reason for the increase was legal fees associated with the St.
Jude Medical and Datscope litigation increased during 2001 as compared with
2000.

      Interest income increased to $1,660,757 for the year ended December 31,
2001 from $1,453,491 for the year ended December 31, 2000 primarily as a result
of a full year of interest on the cash proceeds received upon the closing of our
initial public offering in July 2000.

INCOME TAXES

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

      As of December 31, 2002, we had $46,100,000 of federal net operating loss
carryforwards available to offset future taxable income which begin to expire in
the year 2013. As of December 31, 2002, we also had federal and state research
and development tax credit carryforwards of approximately $1,206,000 which begin
to expire in the year 2013. Under the 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 have established a valuation allowance against the entire amount of our
deferred tax asset because we have not been able to conclude that it is more
likely than not that we will be able to realize the deferred tax asset, due
primarily to our history of operating losses.


                                       19
<PAGE>


LIQUIDITY AND CAPITAL RESOURCES

      We have financed all of our operations since inception through the
issuance of equity securities and, to a lesser extent, sales of our products.
Through December 31, 2002, we have sold common stock and preferred stock
generating aggregate net proceeds of $70.2 million. At December 31, 2002, we had
$16.7 million in cash, cash equivalents and available-for-sale securities
on-hand.

      During the year ended December 31, 2002, we used $14.3 million in
operating activities. The cash used in operating activities was primarily used
to fund our net loss for the period of $15.0 million, which was offset by
depreciation and amortization of $647,390. Included in the net loss of $15.0
million was the legal settlement of $3,750,000 to Datascope (see "Legal
Proceedings" in Item 3 of Part I of this Form 10-K). We generated proceeds of
$7,405,132 in investing activities, primarily from the net sales of investment
securities of $9,312,031, offset by the $1,550,203 in cash used in the
acquisition of Angiosonics' Acolysis System and net equipment purchases of
$356,696. We used $363,151 in financing activities during fiscal 2002, primarily
from the repurchase of our common stock for $547,722, offset by $184,571 we
received through the issuance of common stock.

      In April 2002, we paid $1,550,203 in cash to the secured creditors of
Angiosonics, Inc. in connection with the acquisition of the Acolysis system,
related patents and technologies. This acquisition was funded through existing
cash balances.

      In August 2002, the Board of Directors adopted a stock repurchase program
to acquire up to 1 million shares of our common stock in open market
transactions. The program does not obligate the company to acquire any specific
number of shares and may be discontinued at any time. Through December 31, 2002,
we have repurchased 608,900 shares under our stock repurchase program for
$547,722.

      We do not have any 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 a negative
cash flow for the foreseeable future and our expenses will be a material use of
our cash resources. We anticipate that our operating losses will continue
through at least mid-2004. We believe that current cash balances along with cash
generated from the future sales of products will be sufficient to meet our
operating and capital requirements for at least the next 24 months. Our
liquidity and capital requirements beyond the next 24 months will depend on
numerous factors, including the extent to which our current and future products
gain market acceptance and competitive developments.

      If cash generated from operations is insufficient to satisfy our cash
needs, we may be required to raise additional funds. We currently have no
commitments for additional funding and so our ability to meet our long-term
liquidity needs is uncertain. If we raise additional funds through the issuance
of equity securities, our shareholders may experience significant dilution.
Furthermore, additional financing may not be available when needed or, if
available, financing may not be on terms favorable to us or our shareholders. If
financing is not available when required or is not available on acceptable
terms, we may be unable to develop or market our products or take advantage of
business opportunities or respond to competitive pressures.


                                       20
<PAGE>


                                  RISK FACTORS

      THE RISKS AND UNCERTAINTIES DESCRIBED BELOW ARE NOT THE ONLY ONES FACING
OUR COMPANY. ADDITIONAL RISKS AND UNCERTAINTIES NOT PRESENTLY KNOWN TO US OR
THAT WE CURRENTLY DEEM IMMATERIAL MAY ALSO IMPAIR OUR BUSINESS OPERATIONS. IF
ANY OF THE FOLLOWING RISKS OCCUR, OUR BUSINESS, FINANCIAL CONDITION OR RESULTS
OF OPERATIONS COULD BE SERIOUSLY HARMED.

WE WILL NOT BE SUCCESSFUL IF THE INTERVENTIONAL MEDICAL DEVICE COMMUNITY DOES
NOT ADOPT OUR PRODUCTS

      During the third quarter of 2000 we commenced sales of our first product,
the Duett sealing device, in the United States, which we believe represents the
largest market for interventional medical devices. We have not become profitable
with the initial sales of our Duett sealing device, and we are in the process of
introducing additional interventional medical devices to grow our sales. Our
success will depend on the medical community's acceptance of our products. We
cannot predict how quickly, if at all, the medical community will accept our new
products, or, if accepted, the extent of their use. Our potential customers
must:

      o     believe that our products offer benefits compared to the
            methodologies and/or devices that they are currently using;

      o     believe that our products are worth the price that they will be
            asked to pay; and

      o     be willing to commit the time and resources required to change their
            current methodology.

      If we encounter difficulties in growing our sales of our new medical
devices in the United States, our business will be seriously harmed.

WE CURRENTLY RELY ON THE DUETT SEALING DEVICE AS OUR PRIMARY SOURCE OF REVENUE

      Although we have sold the D-Stat flowable hemostat for approximately one
year and we recently commenced marketing of the Acoylsis System, we continue to
rely on sales of our principal product, the Duett sealing device, which is being
sold in a limited number of international markets and in the United States. Even
though we are in the process of developing additional products, preparation of
regulatory approval, implementation timing and market uncertainties will exist
with each new product. As a result, our success to a large degree is dependent
on the maintenance and growth of our Duett sealing device business. To date we
have not been able to grow our share of the vascular sealing device market over
5% with our Duett sealing device. If we are unable to maintain and modestly grow
our Duett sealing device market share, our business will be seriously harmed.

WE HAVE INCURRED LOSSES AND WE MAY NOT BE PROFITABLE IN THE FUTURE

      Since we commenced operations in February 1997, we have incurred net
losses primarily from costs relating to the development and commercialization of
our Duett sealing device. At December 31, 2002, we had an accumulated deficit of
$50.1 million. We expect to continue to significantly invest in our sales and
marketing, and research and development activities. Because of our plans to
introduce new products, hire additional employees and expand our
commercialization, we expect to incur significant net losses through at least
mid-2004. Our business strategies may not be successful and we may not be
profitable in any future period. If we do become profitable, we cannot be
certain that we can sustain or increase profitability on a quarterly or annual
basis.

WE MAY FACE ADDITIONAL INTELLECTUAL PROPERTY CLAIMS IN THE FUTURE WHICH COULD
PREVENT US FROM MANUFACTURING AND SELLING OUR PRODUCTS OR RESULT IN OUR
INCURRING SUBSTANTIAL COSTS AND LIABILITIES


                                       21
<PAGE>


      The interventional cardiology industry is characterized by numerous patent
filings and frequent and substantial intellectual property litigation. Companies
in the interventional cardiology industry in general, and in vascular sealing in
particular, have employed intellectual property litigation in an attempt to gain
a competitive advantage. We are aware of many United States patents issued to
other companies in the vascular sealing field which describe vascular sealing
devices. Each of the currently marketed vascular sealing products has been
subject to infringement litigation. Although we have settled all of our previous
intellectual property litigation with respect to our Duett sealing device, it is
possible that additional claims relating to the Duett could be brought in the
future. In addition, it is possible that we could be subject to intellectual
property claims with respect to any of our new products. Intellectual property
litigation in recent years has proven to be very complex, and the outcome of
such litigation is difficult to predict.

      An adverse determination in any intellectual property litigation or
interference proceedings could prohibit us from selling our products, subject us
to significant liabilities to third parties or require us to seek licenses from
third parties. The costs associated with these license arrangements may be
substantial and could include ongoing royalties. Furthermore, the necessary
licenses may not be available to us on satisfactory terms, if at all. Adverse
determinations in a judicial or administrative proceeding or failure to obtain
necessary licenses could prevent us from manufacturing and selling our product.

      Our defense of intellectual property claims filed in the future,
regardless of the merits of the complaint, could divert the attention of our
technical and management personnel away from the development and marketing of
our products for significant periods of time. The costs incurred to future
claims could be substantial and seriously harm us, even if our defense is
ultimately successful.

OUR FUTURE OPERATING RESULTS ARE DIFFICULT TO PREDICT AND MAY VARY SIGNIFICANTLY
FROM QUARTER TO QUARTER, WHICH MAY ADVERSELY AFFECT THE PRICE OF OUR COMMON
STOCK

      The limited history of our sales and our history of losses make prediction
of future operating results difficult. You should not rely on our past revenue
growth as any indication of future growth rates or operating results. The price
of our common stock will likely fall in the event that our operating results do
not meet the expectations of analysts and investors. Comparisons of our
quarterly operating results are an unreliable indication of our future
performance because they are likely to vary significantly based on many factors,
including:

      o     the level of sales of our Duett sealing device and new products in
            the United States market;

      o     our ability to introduce new products and enhancements in a timely
            manner;

      o     the demand for and acceptance of our products;

      o     the success of our competition and the introduction of alternative
            products;

      o     our ability to command favorable pricing for our products;

      o     the growth of the market for our devices;

      o     the expansion and rate of success of our direct sales force in the
            United States and our independent distributors internationally;

      o     actions relating to ongoing FDA compliance;


                                       22
<PAGE>


      o     the effect of intellectual property disputes;

      o     the size and timing of orders from independent distributors or
            customers;

      o     the attraction and retention of key personnel, particularly in sales
            and marketing, regulatory, manufacturing and research and
            development;

      o     unanticipated delays or an inability to control costs;

      o     general economic conditions as well as those specific to our
            customers and markets; and

      o     seasonal fluctuations in revenue due to the elective nature of some
            procedures.

OUR DIRECT SALES EFFORTS MAY NOT BE SUCCESSFUL BECAUSE WE HAVE A LIMITED
OPERATING HISTORY WITH A DIRECT SALES FORCE

      Because we received regulatory approval to sell our Duett sealing device
in the United States during 2000, we have only a limited operating history with
a direct sales force. We believe that there is significant competition for
direct sales personnel and clinical specialists with the advanced sales skills
and technical knowledge we require. We may not be able to obtain, train and
retain sufficient numbers of direct sales personnel and the future sales efforts
of our direct sales force may not be successful.

WE MAY FACE PRODUCT LIABILITY CLAIMS THAT COULD RESULT IN COSTLY LITIGATION AND
SIGNIFICANT LIABILITIES

      The manufacture and sale of medical products entail significant risk of
product liability claims. The medical device industry in general has been
subject to significant medical malpractice litigation. Any product liability
claims, with or without merit, could result in costly litigation, reduced sales,
cause us to incur significant liabilities and divert our management's time,
attention and resources. Because of our limited operating history and lack of
experience with these claims, we cannot be sure that our product liability
insurance coverage is adequate or that it will continue to be available to us on
acceptable terms, if at all.

THE MARKET FOR VASCULAR SEALING DEVICES IS HIGHLY COMPETITIVE AND WILL LIKELY
BECOME MORE COMPETITIVE, AND OUR COMPETITORS MAY BE ABLE TO RESPOND MORE QUICKLY
TO NEW OR EMERGING TECHNOLOGIES AND CHANGES IN CUSTOMER REQUIREMENTS THAT MAY
RENDER OUR DUETT SEALING DEVICE OBSOLETE

      The existing market for vascular sealing devices is intensely competitive.
We expect competition to increase further as additional companies begin to enter
this market and/or modify their existing products to compete directly with ours.
Our primary competitors are Abbott Laboratories (through its subsidiary
Perclose, Inc.), Datascope Corp. and St. Jude Medical, Inc., which sells a
product developed by Kensey Nash Corporation. These companies have:

      o     better name recognition;

      o     broader product lines;

      o     greater sales, marketing and distribution capabilities;

      o     significantly greater financial resources;

      o     larger research and development staffs and facilities; and


                                       23
<PAGE>


      o     existing relationships with some of our potential customers.

      We may not be able to effectively compete with these companies. In
addition, broad product lines may allow our competitors to negotiate exclusive,
long-term supply contracts and offer comprehensive pricing for their products.
Broader product lines may also provide our competitors with a significant
advantage in marketing competing products to group purchasing organizations and
other managed care organizations that are increasingly seeking to reduce costs
through centralized purchasing. Greater financial resources and product
development capabilities may allow our competitors to respond more quickly to
new or emerging technologies and changes in customer requirements that may
render our Duett sealing device obsolete.

OUR INTERNATIONAL SALES ARE SUBJECT TO A NUMBER OF RISKS THAT COULD SERIOUSLY
HARM OUR ABILITY TO SUCCESSFULLY COMMERCIALIZE OUR PRODUCTS IN ANY INTERNATIONAL
MARKET

      Our international sales are subject to several risks, including:

      o     the ability of our independent distributors to sell our device;

      o     the impact of recessions in economies outside the United States;

      o     greater difficulty in collecting accounts receivable and longer
            collection periods;

      o     unexpected changes in regulatory requirements, tariffs or other
            trade barriers;

      o     weaker intellectual property rights protection in some countries;

      o     potentially adverse tax consequences; and

      o     political and economic instability.

      The occurrence of any of these events could seriously harm our future
international sales and our ability to successfully commercialize our products
in any international market.

WE HAVE LIMITED MANUFACTURING EXPERIENCE AND MAY ENCOUNTER DIFFICULTIES IN OUR
MANUFACTURING OPERATIONS WHICH COULD SERIOUSLY HARM OUR BUSINESS

      We have limited experience in manufacturing our products. We are currently
in the process of moving our facilities to a new location. We believe our new
facilities will be adequate for our projected production of our products for the
foreseeable future, but future facility requirements will depend largely on
future sales of our products in the United States. We may encounter unforeseen
difficulties in moving our production in the near future, expanding our
production of our new products, including problems involving production yields,
quality control and assurance, component supply and shortages of qualified
personnel, compliance with FDA regulations and requirements regarding good
manufacturing practices, and the need for further regulatory approval of new
manufacturing processes. Difficulties encountered by us in expanding our
manufacturing capabilities could seriously harm our business.

OUR BUSINESS AND RESULTS OF OPERATIONS MAY BE SERIOUSLY HARMED BY CHANGES IN
THIRD-PARTY REIMBURSEMENT POLICIES


                                       24
<PAGE>


      We could be seriously harmed by changes in reimbursement policies of
governmental or private healthcare payors, particularly to the extent any
changes affect reimbursement for catheterization procedures in which our Duett
sealing device or D-Stat hemostat is used. Failure by physicians, hospitals and
other users of our products to obtain sufficient reimbursement from healthcare
payors for procedures in which our products are used or adverse changes in
governmental and private third-party payors' policies toward reimbursement for
such procedures would seriously harm our business.

      In the United States, healthcare providers, including hospitals and
clinics that purchase medical devices such as our Duett sealing device or D-Stat
hemostat, generally rely on third-party payors, principally federal Medicare,
state Medicaid and private health insurance plans, to reimburse all or part of
the cost of catheterization procedures. We believe that in a prospective payment
system, such as the system currently used by Medicare, and in many managed care
systems used by private healthcare payors, the cost of our product will be
incorporated into the overall cost of the procedure and that there will be no
separate, additional reimbursement for our product.

      In international markets, acceptance of our products is dependent in part
upon the availability of reimbursement within prevailing healthcare payment
systems. However, we are unaware of any hospitals that receive specific,
cost-based, direct reimbursement for the use of our Duett sealing device or our
D-Stat hemostat. Reimbursement and healthcare payment systems in international
markets vary significantly by country. Our failure to receive international
reimbursement approvals could have a negative impact on market acceptance of our
products in the markets in which these approvals are sought.

OUR PRODUCTS AND OUR MANUFACTURING ACTIVITIES ARE SUBJECT TO EXTENSIVE
GOVERNMENTAL REGULATION THAT COULD PREVENT US FROM SELLING OUR PRODUCTS IN THE
UNITED STATES OR INTRODUCING NEW AND IMPROVED PRODUCTS

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

      o     obtain the approval of the FDA and international agencies before we
            can market and sell our products;

      o     satisfy these agencies' content requirements for all of our
            labeling, sales and promotional materials; and

      o     undergo rigorous inspections by these agencies.

      Compliance with the regulations of these agencies may delay or prevent us
from introducing any new model of our existing products or other new products.
Furthermore, we may be subject to sanctions, including temporary or permanent
suspension of operations, product recalls and marketing restrictions if we fail
to comply with the laws and regulations pertaining to our business.

      We are also required to demonstrate compliance with the FDA's quality
system regulations. The FDA enforces its quality system regulations through
pre-approval and periodic post-approval inspections. These regulations relate to
product testing, vendor qualification, design control and quality assurance, as
well as the maintenance of records and documentation. If we are unable to
conform to these regulations, the FDA may take actions which could seriously
harm our business. In addition, government regulation may be established that
could prevent, delay, modify or rescind regulatory clearance or approval of our
products.

THE LOSS OF, OR INTERRUPTION OF SUPPLY FROM, KEY VENDORS, INCLUDING SINGLE
SOURCE SUPPLIERS, COULD LIMIT OUR ABILITY TO MANUFACTURE OUR PRODUCTS

      We purchase components used in our Duett sealing device and D-Stat
flowable hemostat from various suppliers and rely on single sources for the
collagen and thrombin components of our Duett sealing device


                                       25
<PAGE>


procoagulant and our D-Stat flowable hemostat. There are currently no
FDA-approved alternative suppliers of thrombin and very few FDA-approved
alternative suppliers of collagen. Our current supply agreement with our
thrombin vendor extends through 2004, but there are no assurances that any
future agreement would be on similar terms. Because it requires FDA approval,
establishing additional or replacement suppliers for thrombin would require a
lead-time of at least two years and would involve significant additional costs.
Any supply interruption from key vendors or failure by us to engage alternative
vendors may limit our ability to manufacture our Duett sealing device and our
D-Stat flowable hemostat and could therefore seriously harm our business.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

      Not applicable.

ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

      The Consolidated Financial Statements and Notes thereto required pursuant
to this Item begin on page 35 of this Annual Report on Form 10-K.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE

                                      None.




                                       26
<PAGE>


                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

      Incorporated herein by reference to the Sections under the headings
"Election of Directors" and "Section 16(a) Beneficial Ownership Reporting
Compliance" contained in the Proxy Statement for our Annual Meeting of
Shareholders to be filed with the Securities and Exchange Commission within 120
days of the close of the year ended December 31, 2002.

      See Item 1 of Part I hereof for information regarding our Executive
Officers.

ITEM 11.  EXECUTIVE COMPENSATION

      Incorporated herein by reference to the Sections under the headings
"Director Compensation" and "Executive Compensation and Other Information"
contained in the Proxy Statement for our Annual Meeting of Shareholders to be
filed with the Securities and Exchange Commission within 120 days of the close
of the year ended December 31, 2002.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

      Incorporated herein by reference to the Section under the heading
"Security Ownership of Certain Beneficial Owners and Management" and "Equity
Compensation Plan Information" contained in the Proxy Statement for our Annual
Meeting of Shareholders to be filed with the Securities and Exchange Commission
within 120 days of the close of the year ended December 31, 2002.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

      None.

ITEM 14. CONTROLS AND PROCEDURES

      (a) Evaluation of disclosure controls and procedures.

      Under the supervision and with the participation of our management,
including our Chief Executive Officer and Acting Chief Financial Officer, we
evaluated the effectiveness of the design and operation of our disclosure
controls and procedures (as defined in Rule 13a-14(c) under the Exchange Act) as
of a date (the "Evaluation Date") within 90 days prior to the filing date of
this report. Based upon that evaluation, the Chief Executive Officer and Acting
Chief Financial Officer concluded that, as of the Evaluation Date, our
disclosure controls and procedures were effective in timely alerting them to the
material information relating to us (or our consolidated subsidiaries) required
to be included in our periodic SEC filings.

      (b) Changes in internal controls.

      There were no significant changes made in our internal controls during the
period covered by this report or, to our knowledge, in other factors that could
significantly affect these controls subsequent to the date of their evaluation.


                                       27
<PAGE>


                                     PART IV


ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a)   Documents filed as part of this Report.

      (1)   The following financial statements are filed herewith in Item 8 in
            Part II.

            (i)   Consolidated Balance Sheets

            (ii)  Consolidated Statements of Operations

            (iii) Consolidated Statement of Changes in Shareholders' Equity

            (iv)  Consolidated Statements of Cash Flows

            (v)   Notes to Consolidated Financial Statements

      (2)   Financial Statement Schedules

      Schedule II - Valuation and Qualifying Accounts. Such schedule should be
read in conjunction with the consolidated financial statements. All other
supplemental schedules are omitted because of the absence of conditions under
which they are required.

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

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

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

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

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

     4.5    Stock Purchase Warrant dated June 10, 1999 by and between Vascular
            Solutions, Inc. and Jones Pharma, Incorporated (incorporated by
            reference to Exhibit 4.7 of Vascular Solutions' Registration
            Statement on Form S-1 (File No. 333-84089)).

    10.1    Lease Agreement dated February 11, 1998 by and between Massachusetts
            Mutual Life


                                       28
<PAGE>


            Insurance Company as Landlord and Vascular Solutions, Inc. as Tenant
            (incorporated by reference to Exhibit 10.2 of Vascular Solutions'
            Registration Statement on Form S-1 (File No. 333-84089)).

    10.2    First Lease Amendment dated June 9, 1999 by and between Duke Realty
            Limited Partnership as Landlord and Vascular Solutions, Inc. as
            Tenant (incorporated by reference to Exhibit 10.3 of Vascular
            Solutions' Registration Statement on Form S-1 (File No. 333-84089)).

    10.3    Second Lease Amendment dated October 24, 1999 by and between Duke
            Realty Limited Partnership as Landlord and Vascular Solutions, Inc.
            as Tenant (incorporated by reference to Exhibit 10.3 to Vascular
            Solutions' Form 10-K for the year ended December 31, 2000).

    10.4    Third Lease Amendment dated August 23, 2000 by and between Duke
            Realty Limited Partnership as Landlord and Vascular Solutions, Inc.
            as Tenant (incorporated by reference to Exhibit 10.4 to Vascular
            Solutions' Form 10-K for the year ended December 31, 2000).

    10.5    Bill of Sale and Assignment dated January 31, 1997 by and between
            Vascular Solutions, Inc. and Dr. Gary Gershony (incorporated by
            reference to Exhibit 10.4 of Vascular Solutions' Registration
            Statement on Form S-1 (File No. 333-84089)).

    10.6    Mutual and General Release dated November 9, 1998 by and between
            Vascular Solutions, Inc., Dr. Gary Gershony and B. Braun Medical,
            Inc. (incorporated by reference to Exhibit 10.5 of Vascular
            Solutions' Registration Statement on Form S-1 (File No. 333-84089)).

    10.7    Purchase and Sale Agreement dated September 17, 1998 by and between
            Vascular Solutions, Inc. and Davol Inc. (incorporated by reference
            to Exhibit 10.8 of Vascular Solutions' Registration Statement on
            Form S-1 (File No. 333-84089)).

    10.8    Purchase Agreement dated June 10, 1999 by and between GenTrac, Inc.
            and Vascular Solutions, Inc. (incorporated by reference to Exhibit
            10.9 of Vascular Solutions' Registration Statement on Form S-1 (File
            No. 333-84089)).

    10.9*   Form of Employment Agreement by and between Vascular Solutions, Inc.
            and each of its executive officers (incorporated by reference to
            Exhibit 10.11 of Vascular Solutions' Registration Statement on Form
            S-1 (File No. 333-84089)).

   10.10    Form of Distribution Agreement (incorporated by reference to Exhibit
            10.12 of Vascular Solutions' Registration Statement on Form S-1
            (File No. 333-84089)).

   10.11*   Vascular Solutions, Inc. Employee Stock Purchase Plan, as amended
            (incorporated by reference to Exhibit 10.14 to Vascular Solutions'
            Form 10-K for the year ended December 31, 2000).

   10.12    Settlement Agreement dated July 12, 2001 by and between Vascular
            Solutions and St. Jude Medical and Daig Corporation (incorporated by
            reference to Exhibit 99.2 to Vascular Solutions' Form 8-K dated July
            12, 2001).

   10.13    Purchase Agreement dated April 30, 2002 by and between Vascular
            Solutions and Angiosonics (incorporated by reference to Exhibit 99.2
            to Vascular Solutions' Form 8-K dated April 30, 2002).

   10.14*   Stock Option and Stock Award Plan as Amended July 16, 2002
            (incorporated by reference to Exhibit 10.1 of Vascular Solutions'
            Form 10-Q for the quarter ended June 30, 2002).

   10.15    Lease Agreement dated August 30, 2002 by and between First
            Industrial, L.P. as Landlord and Vascular Solutions, Inc. as Tenant
            (incorporated by reference to Exhibit 10.1 of Vascular Solutions'
            Form 10-Q for the quarter ended September 30, 2002).

   10.16    Settlement Agreement dated November 26, 2002 by and between Vascular
            Solutions and Datascope (incorporated by reference to Exhibit 99.2
            to Vascular Solutions' Form 8-K dated November 26, 2002).

   10.17**  License and Supply Agreement dated December 17, 2002 by and
            between Vascular Solutions and Tepha, Inc.

      21    List of Subsidiaries


                                       29
<PAGE>


   23.1     Consent of Ernst & Young LLP.

   24.1     Power of Attorney (included on signature page).

   99.1     Certification of Chief Executive Officer and Acting Chief Financial
            Officer pursuant to Section 906 of Sarbanes-Oxley Act of 2002.

------------------------
 * Management contract or compensatory plan or arrangement required to be filed
   as an Exhibit to this Form 10-K.
** Certain portions of this exhibit have been omitted pending a request for
   confidential treatment from the SEC.

(b) Reports on Form 8-K:

We filed a Form 8-K on November 26, 2002 to report the settlement of patent
litigation with Datascope. There were no financial statements required to be
filed with the Form 8-K.

(c) See Item 14(a)(3) above.

(d) See Item 14(a)(2) above.






                                       30
<PAGE>


                                   SIGNATURES

         Pursuant to the requirements of Section 13 or 15(d) 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, on the 28th day of
February, 2003.

                                            VASCULAR SOLUTIONS, INC.

                                            By:    /s/ Howard Root
                                            ------------------------------------
                                            Howard Root
                                            Chief Executive Officer and Director

         KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Howard Root and James Hennen (with full
power to act alone), as his or her true and lawful attorneys-in-fact and agents,
with full powers of substitution and resubstitution, for him or her and in his
or her name, place and stead, in any and all capacities, to sign any and all
amendments to the Annual Report on Form 10-K of Vascular Solutions, Inc., and to
file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents full power and authority to do and perform each and
every act and thing requisite or necessary to be done in and about the premises,
as fully to all intents and purposes as he or she might or could do in person,
hereby ratifying and confirming all that said attorneys-in-fact and agents, or
their substitute or substitutes, lawfully do or cause to be done by virtue
hereof.

         Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed on the 28th day of February 2003, by the following
persons in the capacities indicated.

        Signature                                         Title
        ---------                                         -----

      /s/ Howard Root                      Chief Executive Officer, Acting Chief
--------------------------                 Financial Officer and Director
         Howard Root                       (PRINCIPAL EXECUTIVE OFFICER &
                                           PRINCIPAL FINANCIAL OFFICER)


     /s/ James Hennen                      Controller/Director of Finance
--------------------------                 (PRINCIPAL ACCOUNTING OFFICER)
        James Hennen


   /s/ James Jacoby, Jr.                   Director
--------------------------
      James Jacoby, Jr.


     /s/ Richard Nigon                     Director
--------------------------
        Richard Nigon


     /s/ Michael Kopp                      Director
--------------------------
        Michael Kopp


    /s/ Paul O'Connell                     Director
--------------------------
      Paul O'Connell


        /s/ John Erb                       Director
--------------------------
           John Erb


   /s/ Dr. Gary Dorfman                    Director
--------------------------
      Dr. Gary Dorfman


                                       31
<PAGE>


                                 CERTIFICATIONS

I, Howard Root, certify that:

1.   I have reviewed this annual report on Form 10-K of Vascular Solutions,
     Inc.;

2.   Based on my knowledge, this annual report does not contain any untrue
     statement of a material fact or omit to state a material fact necessary to
     make the statements made, in light of the circumstances under which such
     statements were made, not misleading with respect to the period covered by
     this annual report;

3.   Based on my knowledge, the financial statements, and other financial
     information included in this annual report, fairly present in all material
     respects the financial condition, results of operations and cash flows of
     the registrant as of, and for, the periods presented in this annual report;

4.   The registrant's other certifying officers and I are responsible for
     establishing and maintaining disclosure controls and procedures (as defined
     in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

     (a)  designed such disclosure controls and procedures to ensure that
          material information relating to the registrant, including its
          consolidated subsidiaries, is made known to us by others within those
          entities, particularly during the period in which this annual report
          is being prepared;

     (b)  evaluated the effectiveness of the registrant's disclosure controls
          and procedures as of a date within 90 days prior to the filing date of
          this annual report (the "Evaluation Date"); and

     (b)  presented in this annual report our conclusions about the
          effectiveness of the disclosure controls and procedures based on our
          evaluation as of the Evaluation Date;

5.   The registrant's other certifying officers and I have disclosed, based on
     our most recent evaluation, to the registrant's auditors and the audit
     committee of registrant's board of directors (or persons performing the
     equivalent function):

     (a)  all significant deficiencies in the design or operation of internal
          controls which could adversely affect the registrant's ability to
          record, process, summarize and report financial data and have
          identified for the registrant's auditors any material weaknesses in
          internal controls; and

     (b)  any fraud, whether or not material, that involves management or other
          employees who have a significant role in the registrant's internal
          controls; and


                                       32
<PAGE>


     6.   The registrant's other certifying officers and I have indicated in
          this annual report whether or not there were significant changes in
          internal controls or in other factors that could significantly affect
          internal controls subsequent to the date of our most recent
          evaluation, including any corrective actions with regard to
          significant deficiencies and material weaknesses.

Date:  February 28, 2003                      By:  /s/ Howard Root
                                                   -----------------------------
                                              Howard Root
                                              CHIEF EXECUTIVE OFFICER AND ACTING
                                              CHIEF FINANCIAL OFFICER
                                              (Principal executive officer and
                                              principal financial officer)






                                       33
<PAGE>


                                   SCHEDULE II
                        VALUATION AND QUALIFYING ACCOUNTS
                  YEARS ENDED DECEMBER 31, 2002, 2001, AND 2000

<TABLE>
<CAPTION>
                                                   Additions
                                                    Charged
                                       Balance at   to Costs               Balance at
Description                            Beginning      and         Less       End of
                                        of Year     Expenses   Deductions     Year
                                        --------    --------    --------    --------
<S>                                     <C>         <C>         <C>         <C>
YEAR ENDED DECEMBER 31, 2002:
     Sales return allowance ........    $ 64,526    $174,642    $199,168    $ 40,000
     Allowance for doubtful accounts     110,000      23,592      43,592      90,000
                                        --------    --------    --------    --------
       Total .......................    $174,526    $198,234    $242,760    $130,000
                                        ========    ========    ========    ========

  YEAR ENDED DECEMBER 31, 2001:
     Sales return allowance ........          --     401,733     337,207      64,526
     Allowance for doubtful accounts      80,000      35,304       5,304     110,000
                                        --------    --------    --------    --------
       Total .......................    $ 80,000    $437,037     342,511    $174,526
                                        ========    ========    ========    ========

  YEAR ENDED DECEMBER 31, 2000:
     Sales return allowance ........          --          --          --          --
     Allowance for doubtful accounts          --      80,000          --      80,000
                                        --------    --------    --------    --------
       Total .......................    $     --    $ 80,000    $     --    $ 80,000
                                        ========    ========    ========    ========
</TABLE>




                                       34
<PAGE>









                         Report of Independent Auditors

The Board of Directors and Shareholders
Vascular Solutions, Inc.

We have audited the consolidated balance sheets of Vascular Solutions, Inc. as
of December 31, 2002 and 2001, and the related statements of operations, changes
in shareholders' equity, and cash flows for each of the three years in the
period ended December 31, 2002. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Vascular
Solutions, Inc. at December 31, 2002 and 2001, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended December 31, 2002 in conformity with accounting principles generally
accepted in the United States.

                                             Ernst & Young LLP

Minneapolis, Minnesota
January 17, 2003






                                       35

<PAGE>




37

                            Vascular Solutions, Inc.

                           Consolidated Balance Sheets

<TABLE>
<CAPTION>
                                                                             DECEMBER 31
                                                                        2002            2001
                                                              ------------------------------------
<S>                                                                   <C>             <C>
ASSETS
Current assets:
   Cash and cash equivalents                                          $  1,835,059    $  9,091,640
   Available-for-sale securities                                        14,914,444      24,226,475
   Accounts receivable, net of reserves of $130,000 and $174,526 in
     2002 and 2001, respectively                                         1,357,946       1,285,011
   Inventories                                                           2,132,516       1,782,363
   Prepaid expenses                                                        326,773         289,888
                                                              ------------------------------------
Total current assets                                                    20,566,738      36,675,377

Property and equipment, net                                                795,885         917,579
Intangible assets, net                                                     917,595              --
                                                              ------------------------------------
Total assets                                                          $ 22,280,218    $ 37,592,956
                                                              ====================================

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
   Accounts payable                                                   $    771,078    $    744,856
   Accrued compensation                                                    886,130         923,705
   Accrued expenses                                                        253,777         294,511
                                                              ------------------------------------
Total current liabilities                                                1,910,985       1,963,072

Shareholders' equity:
   Common stock, $0.01 par value:
     Authorized shares - 40,000,000
     Issued and outstanding shares - 12,880,839 - 2002;
       13,327,002 - 2001                                                   128,808         133,270
   Additional paid-in capital                                           70,355,343      70,712,174
   Other                                                                   (21,278)       (100,834)
   Accumulated deficit                                                 (50,093,640)    (35,114,726)
                                                              ------------------------------------
Total shareholders' equity                                              20,369,233      35,629,884
                                                              ------------------------------------
Total liabilities and shareholders' equity                            $ 22,280,218    $ 37,592,956
                                                              ====================================
</TABLE>



SEE ACCOMPANYING NOTES.


                                       36
<PAGE>




                            Vascular Solutions, Inc.

                      Consolidated Statements of Operations

<TABLE>
<CAPTION>
                                                         YEAR ENDED DECEMBER 31
                                                  2002            2001            2000
                                             --------------------------------------------
<S>                                          <C>             <C>             <C>
Net sales                                    $ 12,100,526    $ 12,082,379    $  6,193,234
Cost of goods sold                              4,985,587       4,961,014       2,701,342
                                             --------------------------------------------
Gross profit                                    7,114,939       7,121,365       3,491,892

Operating expenses:
   Research and development                     3,227,538       4,123,883       3,117,339
   Clinical and regulatory                      1,347,694       1,288,301       1,082,029
   Sales and marketing                         11,963,907      12,771,901       6,699,722
   General and administrative                   2,166,883       2,498,435       2,255,160
   Legal settlement                             3,750,000         350,000              --
   Amortization of purchased technology           145,000              --              --
                                             --------------------------------------------
Total operating expenses                       22,601,022      21,032,520      13,154,250
                                             --------------------------------------------

Operating loss                                (15,486,083)    (13,911,155)     (9,662,358)
Interest income                                   507,169       1,660,757       1,453,491
                                             --------------------------------------------

Net loss                                     $(14,978,914)   $(12,250,398)   $ (8,208,867)
                                             ============================================

Basic and diluted net loss per share         $      (1.13)   $      (0.93)   $      (0.95)
                                             ============================================

Shares used in computing basic and diluted
   net loss per share                          13,276,147      13,216,773       8,645,152
                                             ============================================
</TABLE>

SEE ACCOMPANYING NOTES.




                                       37
<PAGE>


                            Vascular Solutions, Inc.

            Consolidated Statement of Changes in Shareholders' Equity

<TABLE>
<CAPTION>
                                                     SERIES A                      SERIES B
                                                  PREFERRED STOCK               PREFERRED STOCK                  COMMON STOCK
                                          ------------------------------------------------------------------------------------------
                                                SHARES         AMOUNT          SHARES       AMOUNT          SHARES           AMOUNT
                                          ------------------------------------------------------------------------------------------
<S>                                           <C>          <C>                <C>         <C>               <C>          <C>
Balance at December 31, 1999                  2,000,000    $     20,000       1,777,777   $     17,778      5,250,291    $  52,503
   Exercise of stock options                         --              --              --             --         62,940          629
   Sale of common stock with the initial
     public offering at $12.00 per share
     in July 2000, net of offering costs             --              --              --             --      4,025,000       40,250
   Conversion of preferred stock in
     connection with initial public
     offering                                (2,000,000)       (20,000)      (1,777,777)       (17,778)     3,777,777       37,778
   Amortization of deferred compensation             --              --              --             --             --           --
   Deferred compensation related to
     option grants                                   --              --              --             --             --           --
   Comprehensive loss:
     Net loss                                        --              --              --             --             --           --
     Translation adjustment                          --              --              --             --             --           --

   Total comprehensive loss
                                          ------------------------------------------------------------------------------------------
Balance at December 31, 2000                         --              --              --             --     13,116,008      131,160
   Exercise of stock options                         --              --              --             --        120,800        1,208
   Issuance of common stock under the
     Employee Stock Purchase Plan                    --              --              --             --         90,194          902
   Value of stock options granted for
     services                                        --              --              --             --             --           --
   Deferred compensation related to
     option grants                                   --              --              --             --             --           --
   Amortization of deferred compensation             --              --              --             --             --           --
   Comprehensive loss:
     Net loss                                        --              --              --             --             --           --
     Translation adjustment                          --              --              --             --             --           --

   Total comprehensive loss
                                          ------------------------------------------------------------------------------------------
Balance at December 31, 2001                         --              --              --             --     13,327,002      133,270
   Exercise of stock options                         --              --              --             --         10,000          100
   Issuance of common stock under the
     Employee Stock Purchase Plan                    --              --              --             --        152,737        1,528
   Stock repurchase program                          --              --              --             --       (608,900)      (6,090)
   Deferred compensation related to
     option grants                                   --              --              --             --             --           --
   Amortization of deferred compensation             --              --              --             --             --           --
   Comprehensive loss:
     Net loss                                        --              --              --             --             --           --
     Translation adjustment                          --              --              --             --             --           --

   Total comprehensive loss
                                          ------------------------------------------------------------------------------------------
Balance at December 31, 2002                         --    $         --              --   $         --     12,880,839    $ 128,808
                                          ==========================================================================================

</TABLE>


[WIDE TABLE CONTINUED FROM ABOVE]


<TABLE>
<CAPTION>

                                           ADDITIONAL
                                            PAID-IN                         ACCUMULATED
                                            CAPITAL            OTHER          DEFICIT           TOTAL
                                           ------------------------------------------------------------
<S>                                        <C>             <C>             <C>             <C>
Balance at December 31, 1999               $ 25,828,309    $    (90,931)   $(14,655,461)   $ 11,172,198
   Exercise of stock options                    169,765              --              --         170,394
   Sale of common stock with the initial
     public offering at $12.00 per share
     in July 2000, net of offering costs     43,932,416              --              --      43,972,666
   Conversion of preferred stock in
     connection with initial public
     offering                                        --              --
   Amortization of deferred compensation             --          72,561              --          72,561
   Deferred compensation related to
     option grants                               34,750         (34,750)             --              --
   Comprehensive loss:
     Net loss                                        --              --      (8,208,867)     (8,208,867)
     Translation adjustment                          --          14,938              --          14,938
                                                                                            -----------
   Total comprehensive loss                                                                  (8,193,929)
                                           ------------------------------------------------------------
Balance at December 31, 2000                 69,965,240         (38,182)    (22,864,328)     47,193,890
   Exercise of stock options                    304,096              --              --         305,304
   Issuance of common stock under the
     Employee Stock Purchase Plan               308,660              --              --         309,562
   Value of stock options granted for
     services                                    10,398              --              --          10,398
   Deferred compensation related to
     option grants                              123,780        (123,780)             --              --
   Amortization of deferred compensation             --          62,850              --          62,850
   Comprehensive loss:
     Net loss                                        --              --     (12,250,398)    (12,250,398)
     Translation adjustment                          --          (1,722)             --          (1,722)
                                                                                            -----------
   Total comprehensive loss                                                                 (12,252,120)

                                           ------------------------------------------------------------
Balance at December 31, 2001                 70,712,174        (100,834)    (35,114,726)     35,629,884
   Exercise of stock options                     19,900              --              --          20,000
   Issuance of common stock under the
     Employee Stock Purchase Plan               163,043              --              --         164,571
   Stock repurchase program                    (541,632)             --              --        (547,722)
   Deferred compensation related to
     option grants                                1,858          (1,858)             --              --
   Amortization of deferred compensation             --          74,668              --          74,668
   Comprehensive loss:
     Net loss                                        --              --     (14,978,914)    (14,978,914)
     Translation adjustment                          --           6,746              --           6,746
                                                                                            -----------
   Total comprehensive loss                                                                 (14,972,168)
                                           ------------------------------------------------------------
Balance at December 31, 2002               $ 70,355,343    $    (21,278)   $(50,093,640)   $ 20,369,233
                                           ============================================================
</TABLE>

SEE ACCOMPANYING NOTES.



                                       38
<PAGE>


                            Vascular Solutions, Inc.

                      Consolidated Statements of Cash Flows

<TABLE>
<CAPTION>
                                                                  YEAR ENDED DECEMBER 31
                                                          2002            2001            2000
                                                      --------------------------------------------
<S>                                                   <C>             <C>             <C>
Operating activities
Net loss                                              $(14,978,914)   $(12,250,398)   $ (8,208,867)
Adjustments to reconcile net loss to net cash used
   in operating activities:
     Depreciation                                          502,390         432,721         366,745
     Amortization                                          145,000              --              --
     Value of options granted for services                      --          10,398              --
     Deferred compensation expense                          74,668          62,850          72,561
     Changes in operating assets and liabilities:
       Accounts receivable                                 (72,935)        686,372      (1,592,304)
       Inventories                                         113,455         684,082      (1,851,228)
       Prepaid expenses                                    (36,885)        (58,637)       (138,074)
       Accounts payable                                     26,222         (22,191)        240,774
       Accrued compensation and expenses                   (78,309)       (481,583)      1,106,005
                                                      --------------------------------------------
Net cash used in operating activities                  (14,305,308)    (10,936,386)    (10,004,388)

INVESTING ACTIVITIES
Purchase of Acolysis assets                             (1,550,203)             --              --
Purchase of property and equipment                        (356,696)       (456,206)       (575,887)
Purchase of securities                                 (33,173,021)    (25,300,530)    (23,349,715)
Proceeds from sales of securities                       42,485,052      24,423,770              --
                                                      --------------------------------------------
Net cash provided by (used in) investing activities      7,405,132      (1,332,966)    (23,925,602)

FINANCING ACTIVITIES
Proceeds from exercise of stock options                     20,000         305,304         170,394
Net proceeds from sale of common stock                     164,571         309,562      43,972,666
Repurchase of common stock                                (547,722)             --              --
                                                      --------------------------------------------
Net cash (used in) provided by financing activities       (363,151)        614,866      44,143,060

Effect of exchange rate changes on cash and cash
   equivalents                                               6,746          (1,722)          5,587
                                                      --------------------------------------------
(Decrease) increase in cash and cash equivalents        (7,256,581)    (11,656,208)     10,218,657
Cash and cash equivalents at beginning of year           9,091,640      20,747,848      10,529,191
                                                      --------------------------------------------
Cash and cash equivalents at end of year              $  1,835,059    $  9,091,640    $ 20,747,848
                                                      ============================================

</TABLE>


SEE ACCOMPANYING NOTES.



                                       39
<PAGE>




                            Vascular Solutions, Inc.

                   Notes to Consolidated Financial Statements

                                December 31, 2002

1. DESCRIPTION OF BUSINESS

Vascular Solutions, Inc. (the Company) is a medical device company focused on
bringing solutions to interventional cardiologists and interventional
radiologists. The Company's product line includes the Duett(TM) sealing device,
the D-Stat(TM) flowable hemostat and the Acolysis(R) therapeutic ultrasound
system. As a vertically-intergrated medical device company, the Company
generates ideas and creates new interventional medical devices, and then
delivers those products directly to the physician through its direct domestic
sales force and international distribution network. The Duett sealing device is
designed to provide a complete seal of the puncture site following
catheterization procedures such as angiography, angioplasty and stenting. The
Diagnostic Duett is a version of the Duett sealing device that is tailored
specifically for treating diagnostic patients. The D-Stat flowable hemostat is a
thick, yet flowable blood clotting material that is used in a wide variety of
interventional medical procedures for the local control of bleeding. The
Acolysis intravascular therapeutic ultrasound system delivers ultrasound waves
to lyse blood clots and plaque in arteries. The Acolysis system is not available
for sale in the United States. The Company was incorporated in December 1996 and
began operations in February 1997.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF CONSOLIDATION

The consolidated financial statements include the accounts of Vascular
Solutions, Inc. and its wholly owned subsidiary, Vascular Solutions GmbH, after
elimination of intercompany accounts and transactions.

FOREIGN CURRENCY TRANSLATION AND TRANSACTIONS

Foreign assets and liabilities are translated using the year-end exchange rates.
Results of operations are translated using the average exchange rates throughout
the year. Translation gains or losses are accumulated as a separate component of
shareholders' equity.

COMPREHENSIVE LOSS

The components of comprehensive loss are net loss and the effects of foreign
currency translation adjustments.

USE OF ESTIMATES

The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.




                                       40
<PAGE>


2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

CASH AND CASH EQUIVALENTS

The Company classifies all highly liquid investments as cash equivalents. Cash
equivalents consist of cash and money market funds and are stated at cost, which
approximates market value.

AVAILABLE-FOR-SALE SECURITIES

The Company classifies investments as available-for-sale securities.
Available-for-sale securities consist of bank certificates of deposit, U.S.
Government obligations, commercial paper, and investment-grade corporate debt
with maturities of up to one year. These investments are stated at amortized
cost, which approximates market value.

INVENTORIES

Inventories are stated at the lower of cost (first-in, first-out method) or
market and are comprised of the following at December 31:

                                            2002              2001
                                      ------------------------------------

   Raw materials                            $1,561,943       $1,294,507
   Work-in-process                             138,134          305,527
   Finished goods                              432,439          182,329
                                      ------------------------------------
                                            $2,132,516       $1,782,363
                                      ====================================

PROPERTY AND EQUIPMENT

Property and equipment are stated at cost. Depreciation is provided on a
straight-line basis over the estimated useful lives of the assets as follows:

   Manufacturing equipment                 3 to 5 years
   Office and computer equipment           3 years
   Furniture and fixtures                  2 to 5 years
   Leasehold improvements                  Remaining term of the lease
   Research and development equipment      3 to 5 years

IMPAIRMENT OF LONG-LIVED ASSETS

The Company will record impairment losses on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amount. The amount of impairment loss recorded will be measured as the
amount by which the carrying value of the assets exceeds the fair value of the
assets.




                                       41
<PAGE>

                            Vascular Solutions, Inc.

                   Notes to Consolidated Financial Statements

                                December 31, 2002


2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

REVENUE RECOGNITION

In the United States and Germany, the Company sells its products directly to
hospitals and clinics. Revenue is recognized upon shipment of products to
customers, net of estimated returns.

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

RESEARCH AND DEVELOPMENT COSTS

All research and development costs are charged to operations as incurred.

STOCK-BASED COMPENSATION

At December 31, 2002, the Company had a stock-based employee compensation plan,
which is described more fully in Note 9. The Company accounts for those plans
under the recognition and measurement principles of Accounting Principles Board
(APB) Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES, and related
interpretations. No stock-based employee compensation cost is reflected in net
loss, as all options granted under those plans had an exercise price equal to
the market value of the underlying common stock on the date of grant. The
following table illustrates the effect on net loss and loss per share if the
Company had applied the fair value recognition provisions of Financial
Accounting Standards Board (FASB) Statement of Financial Accounting Standards
(SFAS) No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION, to stock-based employer
compensation.

<TABLE>
<CAPTION>
                                                                  YEAR ENDED DECEMBER 31
                                                       2002                2001               2000
                                                -----------------------------------------------------------

<S>                                                   <C>                <C>                <C>
Net loss, as reported                                 $(14,978,914)      $(12,250,398)      $  (8,208,867)
Deduct: Total stock-based employee compensation
   expense determined under fair-value-based
   method for all awards                                (2,340,094)        (2,631,693)         (2,152,860)
                                                -----------------------------------------------------------
Pro forma net loss                                    $(17,319,008)      $(14,882,091)       $(10,361,727)
                                                ===========================================================
Net loss per share:
   Basic and diluted - as reported                     $(1.13)            $(0.93)             $(0.95)
                                                ===========================================================
   Basic and diluted - pro forma                       $(1.30)            $(1.13)             $(1.20)
                                                ===========================================================
</TABLE>



                                       42
<PAGE>


                            Vascular Solutions, Inc.

                   Notes to Consolidated Financial Statements

                                December 31, 2002


2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

For purposes of calculating the above-required disclosure, the fair value of
each option grant is estimated on the date of grant using the Black-Scholes
option-pricing model. The fair value of the Company's stock options was
estimated assuming no expected dividends and the following weighted average
assumptions:

                                    2002             2001              2000
                                 -----------------------------------------------

   Expected life (years)            6.50              7.00             7.50
   Expected volatility              1.01              1.21             0.93
   Risk-free interest rate          4.30%             4.88%            5.96%

The weighted average fair value of options granted with an exercise price equal
to the deemed stock price on the date of grant during 2002, 2001, and 2000 was
$1.58, $5.31, and $9.79, respectively.

INCOME TAXES

Income taxes are accounted for under the liability method. Deferred income taxes
are provided for temporary differences between the financial reporting and the
tax bases of assets and liabilities.

CONCENTRATIONS OF CREDIT RISK

Financial instruments that potentially subject the Company to concentrations of
credit risk consist primarily of cash and cash equivalents, investments, and
accounts receivable. The Company maintains its accounts for cash and cash
equivalents and investments principally at one major bank and two investment
firms in the United States. The Company has a formal written investment policy
that restricts the placement of investments to issuers evaluated as
creditworthy. The Company has not experienced any losses on its deposits of its
cash and cash equivalents.




                                       43
<PAGE>


                            Vascular Solutions, Inc.

                   Notes to Consolidated Financial Statements

                                December 31, 2002


2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

With respect to accounts receivable, the Company performs credit evaluations of
its customers and does not require collateral. One customer accounted for 5% of
gross accounts receivable as of December 31, 2002 and two customers accounted
for 11% of gross accounts receivable as of December 31, 2001. There have been no
material losses on customer receivables.

NET LOSS PER SHARE

In accordance with SFAS No. 128, EARNINGS PER SHARE, basic net loss per share is
computed by dividing net loss by the weighted average common shares outstanding
during the periods presented. Diluted net loss per share is computed by dividing
net loss by the weighted average common and dilutive potential common shares
outstanding computed in accordance with the treasury stock method. For all
periods presented, diluted loss per share is the same as basic loss per share,
because the effect of outstanding options, warrants, and convertible preferred
stock is antidilutive.

RECLASSIFICATIONS

Certain prior year balances were reclassified to conform to the current year
presentation.

GOODWILL AND OTHER INTANGIBLE ASSETS

In fiscal 2002, the Company adopted SFAS No. 142, GOODWILL AND OTHER INTANGIBLE
ASSETS. Goodwill is tested for impairment annually or more frequently if changes
in circumstances or the occurrence of events suggest an impairment exists. The
test for impairment requires the Company to make several estimates about fair
value, most of which are based on projected future cash flows. The Company has
concluded that no impairment of goodwill exists as of December 31, 2002.

Other intangible assets consist of purchased technology. Purchased technology is
amortized using the straight-line method over its estimated useful life of four
years. The Company reviews intangible assets for impairment annually or as
changes in circumstances or the occurrence of events suggests the remaining
value is not recoverable.

3. ACQUISITION OF CERTAIN ASSETS OF ANGIOSONICS, INC.

On April 29, 2002, the Company purchased the Acolysis(R) intravascular
ultrasound assets and related patents and technologies from the secured
creditors of Angiosonics, Inc. in exchange for $1,500,000 in cash. The Company
allocated the purchase price of $1,500,000 and the related transaction fees
using the fair market value of the assets. The Company allocated $487,608 to
inventory and fixed assets, $870,000 to purchased technology, and $192,595 to
goodwill.




                                       44
<PAGE>

                            Vascular Solutions, Inc.

                   Notes to Consolidated Financial Statements

                                December 31, 2002


4. GOODWILL AND OTHER INTANGIBLE ASSETS

As discussed in Note 2, the Company adopted SFAS No. 142 in fiscal 2002, and
determined that the developed technology the Company acquired from Angiosonics,
Inc. in April 2002 would be amortized over its useful life of four years. The
Company also acquired goodwill determined to be an indefinite-lived intangible
asset. The Company expects the future annual amortization expense for its
acquired purchased development to be approximately $217,500 for each of the next
three fiscal years and approximately $72,500 in the fourth fiscal year.

Balances of acquired intangible assets as of December 31, 2002 were as follows:

                                                       ACCUMULATED
                                     CARRYING AMOUNT  AMORTIZATION      NET
                                    --------------------------------------------
   Amortizing intangibles:
     Purchased technology               $   870,000       $145,000     $725,000

   Non-amortizing intangibles:
     Goodwill                               192,595              -      192,595
                                    --------------------------------------------
                                         $1,062,595       $145,000     $917,595
                                    ============================================

5. PROPERTY AND EQUIPMENT

Property and equipment consists of the following at December 31:

                                                    2002              2001
                                               ---------------------------------
   Property and equipment:
     Manufacturing equipment                      $1,017,283      $   773,989
     Office and computer equipment                   817,143          734,146
     Furniture and fixtures                          242,694          221,347
     Leasehold improvements                          143,079          143,079
     Research and development equipment              287,964          254,906
                                               ---------------------------------
                                                   2,508,163        2,127,467
   Less accumulated depreciation                  (1,712,278)      (1,209,888)
                                               ---------------------------------
   Net property and equipment                    $   795,885      $   917,579
                                               =================================




                                       45
<PAGE>

                            Vascular Solutions, Inc.

                   Notes to Consolidated Financial Statements

                                December 31, 2002


6. LEASES

The Company leases a 29,000 square-foot office and manufacturing facility under
an operating lease agreement, which expires in March 2003. The Company gave
written notice to the lessor in September 2002 of its intentions to terminate
the lease effective March 31, 2003. The Company signed a new lease in September
2002 to lease a 33,000 square-foot office and manufacturing facility under an
operating lease agreement, which expires in September 2008. Rent expense related
to the operating leases was approximately $303,100, $306,600, and $242,100 for
the years ended December 31, 2002, 2001, and 2000, respectively.

Future minimum lease commitments under these operating leases as of December 31,
2002 are as follows:

   2003                                                   $   256,359
   2004                                                       342,225
   2005                                                       342,225
   2006                                                       356,497
   2007                                                       363,634
   2008                                                       272,725
                                                      -------------------
                                                           $1,933,665
                                                      ===================

7. INCOME TAXES

At December 31, 2002, the Company had net operating loss carryforwards of
approximately $46,100,000 for federal income tax purposes that are available to
offset future taxable income and begin to expire in the year 2013. At December
31, 2002, the Company also had federal and Minnesota research and development
tax credit carryforwards of approximately $1,206,000 which begin to expire in
the year 2013. No benefit has been recorded for such carryforwards, and
utilization in future years may be limited under Sections 382 and 383 of the
Internal Revenue Code if significant ownership changes have occurred.

The components of the Company's deferred tax assets and liabilities as of
December 31, 2002 and 2001 are as follows:

                                                2002              2001
                                          ------------------------------------
   Deferred tax assets:
     Net operating loss carryforwards          $18,452,000      $12,852,000
     Tax credit carryforwards                    1,206,000        1,317,000
     Depreciation and amortization                 129,000          156,000
     Accrued compensation                           88,000          245,000
     Other allowances                               94,000           44,000
     Inventory reserve                             104,000           34,000
                                          ------------------------------------
                                                20,073,000       14,648,000
     Less valuation allowances                 (20,073,000)     (14,648,000)
                                          ------------------------------------
   Net deferred taxes                          $         -      $         -
                                          ====================================



                                       46
<PAGE>

                            Vascular Solutions, Inc.

                   Notes to Consolidated Financial Statements

                                December 31, 2002


7. INCOME TAXES (CONTINUED)

Reconciliation of the statutory federal income tax rate to the Company's
effective tax rate is as follows:

                                                2002        2001        2000
                                             -----------------------------------

   Tax at statutory rate                        34.0%        34.0%      34.0%
   State income taxes                            6.0          6.0        6.0
   Impact of net operating loss carryforward   (40.0)       (40.0)     (40.0)
                                             -----------------------------------
   Effective income tax rate                       -%           -%         -%
                                             ===================================

8. INITIAL PUBLIC OFFERING

On July 25, 2000, the Company completed the initial public offering of its
common stock. Upon the closing of the initial public offering, the Company
issued 3,500,000 shares of its common stock at an offering price of $12.00 per
share, and all of the Company's Series A and Series B preferred stock
automatically converted into 3,777,777 shares of common stock. On August 15,
2000, the underwriters exercised in full their overallotment option to purchase
an additional 525,000 shares of common stock at $12.00 per share. Cash proceeds
from the sale of the 4,025,000 shares of common stock, net of underwriters'
discount and offering expenses, totaled approximately $44 million. Upon closing
of the Company's initial public offering, the authorized capital stock of the
Company consisted of 40,000,000 shares of common stock, par value $0.01 per
share, with no shares of preferred stock outstanding or designated.

9. STOCK OPTIONS AND WARRANTS

STOCK OPTION PLAN

The Company has a stock option and stock award plan (the Stock Option Plan)
which provides for the granting of incentive stock options to employees and
nonqualified stock options to employees, directors, and consultants. As of
December 31, 2002, the Company reserved 2,400,000 shares of common stock under
the Stock Option Plan. Under the Stock Option Plan, incentive 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 exercise price of a nonqualified
option granted under the Stock Option Plan must not be less than 50% of the fair
market value of the Company's common stock on the grant date. Prior to the
initial public offering in July 2000, the Board of Directors determined the fair
value of the common shares underlying options by assessing the business progress
of the Company as well as the market conditions for medical device companies and
other external factors. 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
Stock Option Plan also permits the granting of stock appreciation rights,
restricted stock, and other


                                       47
<PAGE>

                            Vascular Solutions, Inc.

                   Notes to Consolidated Financial Statements

                                December 31, 2002


9. STOCK OPTIONS AND WARRANTS (CONTINUED)

stock-based awards. 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 of employment and become available under the Stock Option
Plan.

In the third quarter of 2002, the Company offered to exchange for its current
employees, other than the Chief Executive Officer, any outstanding options to
purchase shares of the Company's common stock under the Stock Option Plan with
an exercise price of at least $3.00 per share for new options the Company will
grant under the plan. The new options will be granted on or about February 18,
2003, which is six months and two business days after the date the options were
exchanged. New options granted under the Stock Option Plan will have an exercise
price determined by the market price of the Company's stock on the date the new
options are granted. The number of shares to be granted to each participating
option holder will be equal to the number of shares subject to the eligible
options tendered by such option holder. A stock option holder must continue to
be employed by the Company through February 18, 2003 in order to be eligible to
receive the new options. As a result of this exchange of options shares, 467,070
options with an average price of $6.80 were canceled.

Option activity is summarized as follows:

<TABLE>
<CAPTION>
                                                                                             WEIGHTED
                                          SHARES                                             AVERAGE
                                        AVAILABLE       PLAN OPTIONS       EXERCISE          EXERCISE
                                        FOR GRANT       OUTSTANDING          PRICE            PRICE
                                     ----------------------------------------------------------------------
<S>                                        <C>               <C>          <C>   <C>         <C>
   Balance at December 31, 1999            374,729           933,611      $1.50-$  6.00     $  4.00
     Granted                              (290,250)          290,250       6.00-  16.50       11.12
     Exercised                                   -           (62,940)      1.50-   5.00        2.71
     Canceled                               90,150           (90,150)      1.50-  16.50        4.89
                                     -----------------------------------
   Balance at December 31, 2000            174,629         1,070,771       1.50-  16.50        5.85
     Shares reserved                       500,000                 -           -                  -
     Granted                              (972,000)          972,000       2.51-   7.48        5.35
     Exercised                                   -          (120,800)      1.50-   7.00        2.53
     Canceled                              347,160          (347,160)      1.50-  16.50        7.41
                                     -----------------------------------
   Balance at December 31, 2001             49,789         1,574,811       1.50-  16.50        5.45
     Shares reserved                       500,000                 -           -                  -
     Granted                              (186,000)          186,000       0.81-   2.70        1.83
     Exercised                                   -           (10,000)              2.00        2.00
     Canceled                              849,890          (849,890)      1.45-  16.50        6.25
                                     -----------------------------------
   Balance at December 31, 2002          1,213,679           900,921
                                     ===================================

</TABLE>



                                       48
<PAGE>

                            Vascular Solutions, Inc.

                   Notes to Consolidated Financial Statements

                                December 31, 2002


9. STOCK OPTIONS AND WARRANTS (CONTINUED)

The following table summarizes information about stock options outstanding at
December 31, 2002:

<TABLE>
<CAPTION>
                                       OPTIONS OUTSTANDING                      OPTIONS EXERCISABLE
                         ------------------------------------------------ ---------------------------------
                                             WEIGHTED
                           OUTSTANDING        AVERAGE                     EXERCISABLE
                               AS OF         REMAINING       WEIGHTED        AS OF          WEIGHTED
        RANGE OF           DECEMBER 31,     CONTRACTUAL       AVERAGE      DECEMBER 31,      AVERAGE
     EXERCISE PRICES           2002            LIFE       EXERCISE PRICE       2002       EXERCISE PRICE
------------------------------------------------------------------------- ---------------------------------

<S>          <C>              <C>               <C>          <C>               <C>            <C>
     $  0.81- $ 1.50          187,711           6.8          $  1.31           121,811        $  1.38
        1.51-   3.25          340,070           8.1             2.55           163,955           2.58
        3.26-   6.00          229,000           6.9             6.00           174,320           6.00
        6.01-   7.00           51,440           4.6             6.69            48,030           6.71
        7.01-  10.00           90,620           8.0             7.61            54,300           7.72
       10.01-  12.00            1,000           7.3            12.00               640          12.00
       12.01-  16.50            1,080           0.2            16.50             1,080          16.50
                         -----------------                                -----------------
                              900,921           7.3             3.94           564,136           4.26
                         =================                                =================
</TABLE>

For the year ended December 31, 2001, the Company recorded compensation expense
of $10,398 in connection with nonqualified stock options granted to outside
consultants.

DEFERRED COMPENSATION

In 2002, 2001, and 2000, the Company recorded a total of $160,388 of deferred
compensation in connection with certain nonqualified stock options granted to
medical advisory board members. The weighted average fair value of these options
was $3.21. Deferred compensation recorded is amortized ratably over the period
that the options vest and is adjusted for options which have been canceled.
Deferred compensation expense was $74,668, $62,850, and $72,561 for the years
ended December 31, 2002, 2001, and 2000, respectively.

WARRANTS

As of December 31, 2002, the Company had 268,000 warrants outstanding and
exercisable at a weighted average exercise price of $3.19 per share.




                                       49
<PAGE>

                            Vascular Solutions, Inc.

                   Notes to Consolidated Financial Statements

                                December 31, 2002


10. EMPLOYEE STOCK PURCHASE PLAN

The Company has an Employee Stock Purchase Plan (the Purchase Plan) under which
700,000 shares of common stock have been reserved for issuance. Eligible
employees may contribute 1% to 10% of their compensation to purchase shares of
the Company's common stock at a discount of 15% of the market value at certain
plan-defined dates up to a maximum of 2,000 shares per purchasing period. The
Purchase Plan terminates in May 2010. In fiscal 2002, 2001, and 2000, 152,737
shares, 90,194 shares, and zero shares, respectively, were issued under the
Purchase Plan. At December 31, 2002, 457,069 shares were available for issuance
under the Purchase Plan.

11. STOCK REPURCHASE PROGRAM

In August 2002, the Board of Directors authorized a stock repurchase program to
acquire up to 1,000,000 shares of outstanding common stock in the open market,
block purchases, or private transactions. During fiscal 2002, the Company
repurchased and retired 608,900 shares of the Company's common stock for an
aggregate purchase price of $547,722. The remaining authorized amount for stock
repurchase is 391,100 shares.

12. EMPLOYEE RETIREMENT SAVINGS PLAN

The Company has an employee 401(k) retirement savings plan (the Plan). The Plan
provides eligible employees with an opportunity to make tax-deferred
contributions into a long-term investment and savings program. All employees
over the age of 21 are eligible to participate in the Plan beginning with the
first quarterly open enrollment date following start of employment. Through
December 31, 2001, the Plan allowed eligible employees to contribute up to 18%
of their annual compensation. Effective January 1, 2002, the employee
contribution limit was increased to 50% of their annual compensation, subject to
a maximum limit determined by the Internal Revenue Service, with the Company
contributing an amount equal to 25% of the first 5% contributed to the Plan. The
Company recorded an expense of $91,170, $112,084, and $52,357 for contributions
to the Plan for the years ended December 31, 2002, 2001, and 2000, respectively.




                                       50
<PAGE>

                            Vascular Solutions, Inc.

                   Notes to Consolidated Financial Statements

                                December 31, 2002


13. CONCENTRATIONS OF CREDIT AND OTHER RISKS

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

No customers were more than 5% of net sales for the years ended December 31,
2002 and 2001. Three customers made up 22.4% of net sales for the year ended
December 31, 2000.

The Company performs ongoing credit evaluations of its customers but does not
require collateral. There have been no material losses on customer receivables.

Sales by geographic destination as a percentage of total net sales were as
follows for the years ended December 31:

                            2002             2001              2000
                        ---------------------------------------------------

   Domestic                  89%               90%              67%
   Foreign                   11                10               33

14. DEPENDENCE ON KEY SUPPLIERS

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.

15. COMMITMENTS AND CONTINGENCIES

Datascope

In July 1999, the Company was named as a defendant in a patent infringement
lawsuit brought by Datascope Corporation (Datascope), a competitor, in the
United States District Court of the District of Minnesota. The complaint
requested a judgment that the Company's device infringes and, following FDA
approval, will infringe, a United States patent held by Datascope and asks for
relief in the form of an injunction that would prevent the Company from selling
its product in the United States as well as an award of attorney's fees, costs,
and disbursements. On August 12, 1999, the Company filed its answer to this
lawsuit and brought a counterclaim alleging unfair competition and tortious
interference against Datascope. On August 20, 1999, the Company moved for
summary judgment to dismiss Datascope's claims. On March 15, 2000, the court
granted summary judgment dismissing all of Datascope's claims, subject to the
right of Datascope to recommence the litigation after the Company's receipt of
FDA approval of the Duett sealing device. On July 12, 2000, after the Company
received FDA approval, Datascope recommenced this litigation, alleging that the
Duett sealing device infringes a






                                       51
<PAGE>



                                Vascular Solutions, Inc.

                   Notes to Consolidated Financial Statements

                                December 31, 2002



15. COMMITMENTS AND CONTINGENCIES (CONTINUED)

United States patent held by Datascope and requesting relief in the form of an
injunction that would prevent the Company from selling its product in the United
States, damages caused by the alleged infringement, and other costs,
disbursements, and attorneys' fees.

On November 26, 2002, the Company entered into an agreement that settled all
existing intellectual property litigation with Datascope Corporation. Under the
terms of the settlement agreement, Datascope has granted the Company a
nonexclusive license to its Janzen patents as they apply to all current versions
of the Duett sealing device, and to certain permitted future product
improvements. Datascope also has released the Company from any claim of patent
infringement based on past or future sales of the Duett sealing device. In
exchange, the Company paid Datascope a single lump sum of $3,750,000 in the
fourth quarter.

St. Jude

On July 3, 2000, the Company was named as the defendant in a patent infringement
lawsuit brought by the Daig division of St. Jude Medical, Inc. (St. Jude
Medical), a competitor, in the United States District Court of the District of
Minnesota. The complaint requests a judgment that the Company's Duett sealing
device infringes a series of four patents held by St. Jude Medical and asks for
relief in the form of an injunction that would prevent the Company from selling
its product in the United States, damages caused by the manufacture and sale of
the Company's product, and other costs, disbursements, and attorneys' fees.

On July 12, 2001, the Company entered into an agreement that settled all
existing intellectual property litigation with St. Jude Medical, Inc. Under the
terms of the settlement agreement, the Company agreed to pay a royalty of 2.5%
of net sales of the Company's Duett sealing device to St. Jude Medical, up to a
maximum amount over the remaining life of the St. Jude Medical Fowler patents.
In exchange, St. Jude Medical granted to the Company a nonexclusive license to
its Fowler patents and has released it from any claim of patent infringement
based on sales of the Duett sealing device. The Company granted a nonexclusive
cross-license to its Gershony patents to St. Jude Medical, subject to a similar
royalty payment if St. Jude Medical utilizes the Gershony patents in any future
device. Beginning on July 1, 2001, a royalty expense of 2.5% of net sales is
included in the Company's cost of goods sold until the maximum royalty is
attained.




                                       52
<PAGE>


                            Vascular Solutions, Inc.

                   Notes to Consolidated Financial Statements

                                December 31, 2002


16. QUARTERLY FINANCIAL DATA (UNAUDITED, IN THOUSANDS, EXCEPT PER SHARE DATA)


<TABLE>
<CAPTION>

                                          FIRST                              THIRD
                2002                     QUARTER       SECOND QUARTER       QUARTER       FOURTH QUARTER
-----------------------------------------------------------------------------------------------------------
<S>                                        <C>             <C>               <C>              <C>
Net sales                                  $2,803          $ 3,329           $ 3,041          $ 2,928
Gross profit                                1,597            2,002             1,817            1,699
Operating loss                             (3,689)          (2,871)           (2,777)          (6,149)
Net loss                                   (3,551)          (2,743)           (2,634)          (6,051)
Basic and diluted net loss
   per share                              $ (0.27)         $ (0.20)          $ (0.20)         $ (0.46)


                2001
-------------------------------------

Net sales                                  $3,123          $ 3,540           $ 2,529          $ 2,890
Gross profit                                1,906            2,154             1,444            1,617
Operating loss                             (2,988)          (3,263)           (3,891)          (3,769)
Net loss                                   (2,345)          (2,824)           (3,521)          (3,560)
Basic and diluted net loss
   per share                               $(0.18)         $ (0.21)          $ (0.27)         $ (0.27)

</TABLE>


The results of the fourth quarter of 2002 include a $3,750,000 settlement of
litigation which the Company expensed in that period. (See Note 15.)





                                       53