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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, 2000

                                       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.)

                             2495 XENIUM LANE NORTH
                          MINNEAPOLIS, MINNESOTA 55441
                    ----------------------------------------
                    (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

                                   ----------

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

Check if no disclosure of delinquent filers pursuant to Item 405 of Regulation
S-B is contained in this form, and no disclosure will 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 stock held by non-affiliates based upon the
closing Nasdaq sale price on February 15, 2001 was $55,100,000.

As of February 15, 2001, the number of shares outstanding of the registrant's
common stock was 13,142,198.


                       DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant's Proxy Statement for its 2001 Annual Meeting of
Shareholders to be held on April 19, 2001 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 manufacture, market and sell the Vascular Solutions Duett(TM) sealing
device, which enables cardiologists and radiologists to rapidly seal the entire
puncture site following catheterization procedures such as angiography,
angioplasty and stenting. A catheterization procedure involves the insertion of
a catheter through a patient's skin and into an artery to perform minimally
invasive medical procedures. In order to gain access to an artery for a
catheter, the artery must first be punctured. At the end of the procedure, the
puncture must be sealed in order to prevent bleeding. Traditionally, manual
compression has been used to seal the puncture site. Increasingly, vascular
sealing devices are used, with three competitors currently selling FDA-approved
devices.

     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 the three other FDA-approved
vascular sealing devices. We began selling our product in Europe in February
1998. On June 22, 2000, we received approval from the FDA of our PMA application
for the sale of the Duett sealing device in the United States and commenced
selling our Duett sealing device in the United States. Over 40,000 Duett sealing
devices have been sold and deployed worldwide. While the vascular sealing device
market has developed quickly, it represents less than 20% of the more than $1
billion potential annual market, based on the current number of catheterization
procedures performed.

     We believe that we are well-positioned to capture a substantial share of
the vascular sealing device market opportunity as our Duett sealing device
offers the following benefits:

     CLINICAL BENEFITS

     o   complete closure of the entire puncture site, consisting of the
         arterial puncture and the tissue tract--the tissue between the skin
         surface and the artery;

     o   effective in patients receiving anti-clotting medications, such as
         ReoPro(R), which are increasingly used in therapeutic catheterization
         procedures, through the use of thrombin in our biological procoagulant;

     o   nothing is left behind in the artery to cause an infection or to
         interfere with accessing the site again, if that becomes necessary;

     o   rapid deployment of an easy-to-use, one-size-fits-all device through
         the existing introducer sheath;

     PATIENT COMFORT BENEFITS

     o   the pain associated with the use of manual compression on the puncture
         site is minimized;

     o   patients are ambulated earlier, thereby minimizing the pain associated
         with immobile bed rest;

     ECONOMIC BENEFITS

     o   the scheduling of patients and utilization of the catheterization
         laboratory can be more efficient due to reduced recovery time and
         care; and

     o   recovery beds and staff can be better utilized through early
         ambulation of patients.



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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. 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 7.5
million diagnostic and interventional catheterization procedures worldwide in
2000. 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.

     Each procedure using a catheter requires a puncture in an artery, usually
the femoral artery in the groin area, of the patient to gain access for the
catheter, which is deployed through an introducer sheath. Upon 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.

     In addition to this discomfort and cost, manual compression can result in
major complications at the puncture site. These major complications can include
a pseudo-aneurysm, or the continuation of blood flow from the artery into the
coagulated blood mass at the puncture site, collapse of the femoral artery or
femoral nerve damage from the extended compression. Additional procedures may be
required to correct these major complications.

     The increasing use of medications to prevent blood clot formation during
interventional catheterization procedures has increased the difficulty in
sealing the puncture site using manual compression. During and following the
catheterization procedure, physicians are concerned with the formation of blood
clots in the coronary or peripheral arteries. To prevent clots from forming, the
physician typically administers heparin, an anticoagulant, during the
interventional catheterization procedure. More recently, drugs which prevent
blood clotting by inhibiting platelet aggregation, such as ReoPro(R), are also
being used in interventional catheterization procedures. Because these platelet
inhibitor drugs limit the ability of blood to clot, they also increase the
difficulty of sealing the puncture site using manual compression and the natural
clotting process following the catheterization procedure.

     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, three devices have received FDA approval
and are currently being marketed around the world.



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     In aggregate, $230 million of the three FDA-approved devices were sold
worldwide in 2000 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 product (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 enable 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.

BUSINESS STRATEGY

     Our primary objective is to establish our Duett sealing device as the
leading product in the rapidly growing vascular sealing device market. The key
steps in achieving our primary objective are the following:


     o    Hire, Train and Deploy a 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 product. We believe that effective training is a key factor in
          promoting use of our Duett sealing device. We have created and will
          continue to work to improve an in-the-field training and certification
          program for the use of our Duett sealing device. As of December 31,
          2000, our United States direct sales force consisted of approximately
          40 employees which we expect to grow to approximately 65 employees by
          the end of 2001.

     o    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 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. Through
          our marketing staff, we plan on building market awareness of our Duett
          sealing device using a wide range of programs, materials and events,
          including conference and trade show appearances and the dissemination
          of sales literature and promotional materials.

     o    Capitalize on the Large and Growing Vascular Sealing Market. While the
          market for vascular sealing devices has developed quickly, it
          represents less than 20% of the more than $1 billion potential annual
          market, based on the current number of catheterization procedures
          performed. The primary factors underlying the market opportunity for
          vascular sealing devices are the significant and growing number of
          catheterization procedures being performed and the substantial
          majority of the resulting puncture sites still being sealed through
          manual compression. The growth in catheterization procedures by




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          cardiologists and radiologists reflects an increasing incidence of
          cardiovascular disease and the growing number of catheterization
          laboratories worldwide. In 2000, over 7.5 million catheterization
          procedures were performed. This number is expected to increase by more
          than 5% each year for the next three years. Although the market for
          vascular sealing devices has grown rapidly, over 80% of the arterial
          punctures in 2000 were sealed using manual compression. We believe
          that our device offers benefits that position it well to capture a
          significant share of the market for vascular sealing devices.

     o    Develop Duett Sealing Product Line Extensions and Explore New Product
          Opportunities. In addition to developing next generation versions of
          our Duett sealing device, we are developing product line extensions.
          Our first product line extension is the Duett hemostat, a surgical
          hemostat using the procoagulant components of the Duett sealing
          device. Our second product line extension is the Duett pseudo-aneurysm
          closure, which also uses the Duett procoagulant components and a
          simple delivery system to close pseudo-aneurysms. Furthermore, we
          intend to leverage our knowledge and experience in the vascular
          sealing market into other interventional cardiology and radiology
          products.


CLINICAL RESULTS

     To date, over 40,000 deployments of our Duett sealing device have been
performed worldwide. A total of 31 scientific publications and presentations
have been made on our Duett sealing device at interventional cardiology and
radiology meetings, reporting the results of over 2,500 deployments.

     Six separate clinical studies of our Duett sealing device have been
performed to date, each of which produced very favorable clinical results.

                      DUETT SEALING DEVICE CLINICAL STUDIES

<TABLE>
<CAPTION>
         STUDY                  TIME FRAME          PATIENTS ENROLLED     NUMBER OF CENTERS
         -----                  ----------          -----------------     -----------------
<S>                     <C>                         <C>                   <C>
European Feasibility            July 1997                    24                   1
European Multi-Center   October 1997--January 1998           48                   2
U.S. Feasibility         January 1998--March 1998            43                   2
European Registry         June 1998--January 1999         1,587                  25
SEAL Multi-Center         August 1998--March 1999           695                  15
Continued Access           July 1999--March 2000            457                   5
Registry
</TABLE>

     The Simple and Effective Arterial cLosure ("SEAL") clinical study was a
randomized, controlled study to support our PMA application with the FDA. In the
SEAL study, the Duett sealing device demonstrated, as compared to manual
compression, the three primary endpoints of (1) reduced time to the cessation of
bleeding, (2) reduced time to ambulation of the patient and (3) no statistically
significant increase in major complications.


SALES, MARKETING AND DISTRIBUTION

     Upon receipt of FDA approval of our PMA application on June 22, 2000, we
commenced sales of our Duett sealing device in the United States through our
direct sales organization. As of December 31, 2000, our direct sales force
consisted of approximately 40 employees, which we expect to grow to
approximately 65 employees by the end of 2001. 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.

     As part of our sales force, we have hired clinical specialists to train
physicians and other healthcare personnel on the use of the Duett sealing
device. We believe that effective training is a key factor in encouraging
physicians




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to use our Duett sealing device. We have created, and will continue to work to
improve an in-the-field training and certification program for the use of our
Duett sealing device. We will seek to 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 Duett
sealing device. 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 Duett sealing device 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. Our Duett sealing device is currently marketed through independent
distributors in Norway, Italy, Austria, the United Kingdom, Ireland, Denmark,
Switzerland, Finland, Sweden, Greece, Belgium, Spain, the Netherlands, Taiwan,
Portugal and Hong Kong. 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 Duett sealing device to these distributors upon receipt of purchase
orders. Each of our independent distributors has the exclusive right to sell our
Duett sealing device 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 Duett sealing device
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.

     In September 2000, we began the process of transitioning from utilizing an
independent distributor in Germany to organizing Vascular Solutions GmbH as a
wholly owned subsidiary for direct sales in Germany. During the fourth quarter
of 2000 we commenced direct shipments through Vascular Solutions GmbH to
customers in Germany.

     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 33%,
93% and 100% of our net sales for the years ended December 31, 2000, 1999 and
1998. Sales to MicroMed A.S., our Norwegian distributor, accounted for 11% of
our net sales for the year ended December 31, 2000. Sales to Cardiologic
G.m.b.H., our former German distributor, accounted for 6% of net sales and sales
to N.G.C. Medical S.p.A., our Italian distributor, accounted for 5% for the same
period.


PRODUCT TECHNOLOGY

     The components of our proprietary Duett sealing device consist of a very
thin balloon catheter and a procoagulant mixture. The balloon catheter consists
of a balloon made of polyethylene connected to a wire, covered by a sleeve. The
procoagulant is a proprietary mixture of collagen, thrombin and a diluent. Both
collagen and thrombin have been approved for use as blood clotting agents in the
human body by the FDA for over ten years. The mixture of thrombin, a very rapid
blood clotting agent, and collagen, which allows the procoagulant to assume a
gel-like viscosity, provides a highly effective clotting agent when delivered
directly to the puncture site. The diluent is a liquid used to create the
desired viscosity and neutralize the pH of the mixture. The procoagulant is
mixed before use.

     The Duett catheter can be deployed through any commonly used introducer
sheath from five French to nine French in diameter. Therefore, the sheath that
is already in the femoral artery is left in place and no replacement of the
sheath is required. The Duett catheter is then inserted through the introducer
sheath and into the femoral artery and the syringe containing the Duett
procoagulant is attached to the sidearm of the introducer sheath. Using





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a syringe, the balloon is inflated and positioned against the inner surface of
the artery where the arterial pressure and gentle traction result in the balloon
acting as a temporary seal of the puncture.

     Next, the procoagulant is delivered directly to the top of the arterial
puncture and the tissue tract through the sidearm of the introducer sheath. The
procoagulant stimulates rapid clotting through the powerful action of thrombin
and collagen. The introducer sheath is removed from the body as the procoagulant
agent is being delivered.

     Immediately after the delivery of the procoagulant to the tissue tract, the
balloon is deflated and covered by the sleeve. The slippery nature of the sleeve
as well as its low profile (approximately one millimeter in diameter) allows for
removal of the balloon catheter from the artery without disruption of the
procoagulant.

     After removal of the Duett catheter from the artery, manual pressure is
maintained for a short time, usually two to five minutes, to assure the seal. We
recommend ambulation of patients generally one to two hours after diagnostic
catheterizations and two to four hours after interventional catheterization
procedures.

RESEARCH AND DEVELOPMENT

     Our research and development staff is currently focused on improving our
Duett sealing device and reducing our cost of goods sold. We incurred expenses
of $3,265,536 in 2000, $3,067,897 in 1999 and $2,348,281 in 1998 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 are currently developing two product line extensions to the Duett
sealing device. Our first product line extension is the Duett hemostat, a
surgical hemostat using the procoagulant components of the Duett sealing device.
The Duett hemostat is intended to be used to control active bleeding in open
surgical procedures. We expect to begin European clinical studies in the first
half of 2001. Our second product line extension is the Duett pseudo-aneurysm
closure, which also uses the Duett procoagulant components and a simple delivery
system to close pseudo-aneurysms. A pseudo-aneurysm is a complication which
occurs in approximately 1-3% of patients following a catheterization procedure
and often requires a surgical procedure to repair. The use of the Duett
procoagulant components to close pseudo-aneurysms was demonstrated in a European
clinical evaluation during the fourth quarter of 2000.

     We intend to research and develop new sealants in the future for use in our
Duett sealing device as well as to apply our core closure technology to other
catheterization procedures, including cardio-pulmonary support procedures and
treatment of abdominal aortic aneurysms. The large size of the punctures in
these procedures makes closure of the puncture site very difficult using
conventional compression methods. We believe that modifications of our delivery
system will allow our sealing technology to be useful in larger punctures of the
femoral artery that are greater than nine French.

     We expect our research and development activities to expand to include
evaluation of new concepts and products beyond vascular sealing in the
interventional cardiology and 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 Duett
sealing device.

MANUFACTURING

     We manufacture our Duett sealing device 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
ISO 9001



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standards and were audited in September 1999 for compliance with the FDA's good
manufacturing practices with no deficiencies noted.

     We purchase components from various suppliers and rely on single sources
for several parts of the Duett sealing device. 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 Jones Pharma,
Incorporated, 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.

     The manufacture and sale of our Duett sealing device 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 the Duett sealing device for significant periods of
time.

COMPETITION

     Competition in the vascular sealing market is intense, and we believe that
it will increase. We believe that the primary bases of competition in the
vascular sealing market are clinical efficacy, ease of use, patient comfort,
minimization of complications and cost-effectiveness. On these bases, we believe
that our product is well-positioned.

     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.

     Our Duett sealing device also competes with three vascular sealing devices.
These three competitive devices are:

     o   The VasoSeal 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 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 third device, developed and marketed under the ProStar(TM),
         TechStar(TM) and Closer(TM) names 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.

     We believe that several other companies are developing arterial closure
devices, however, we are unaware of any new sealing device or company that has
completed U.S. clinical studies. 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



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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.

REGULATORY REQUIREMENTS

UNITED STATES

     Our Duett sealing device is regulated in the United States as a medical
device by the FDA under the FDC Act, and required premarket approval by the FDA
prior to being sold. 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 investigational device exemption, or 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.

     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. Our Duett
sealing device is classified as a Class III device.

     Manufacturers must file an 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. Our Duett sealing device is subject to the IDE requirements. We received
approval of our IDE application and performed our feasibility clinical study at
two United States centers in January to March 1998. Based on the results of this
feasibility clinical study, we received approval and performed our 695 patient
multi-center SEAL clinical study from August 1998 through March 1999.

     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. The FDA allowed us to submit our PMA
application in segments prior to completion of our clinical studies. Upon
completion of the follow-up and data analysis of the SEAL clinical study, we
submitted the final two segments of our PMA application to the FDA in June 1999.
Under the FDC Act, the FDA has 180 days to review a PMA application, although
the review of such an application more often occurs over a longer time period
and may require additional information. 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 for the sale of the Duett sealing device in the United
States. Our PMA approval was conditioned on our agreeing to perform a post
approval study of the immunogenic response to the Duett procoagulant and a post
approval animal study of the 30 day resorption of the



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Duett procoagulant, both of which we agreed to conduct. In our worldwide
clinical experience to date, we have not observed any evidence of elevated
immunogenic response to the Duett procoagulant or any substantial response
caused by the resorption of the Duett procoagulant. Nevertheless, the FDA or
international regulatory agencies could restrict or withdraw their approval of
our Duett sealing device if one of the post approval studies produces adverse
results that would support such an action.

     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 the Duett sealing device 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.

     International sales of the Duett sealing device 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 Duett sealing device is currently marketed
in Germany, Norway, Italy, Austria, the United Kingdom, Ireland, Denmark,
Switzerland, Finland, Sweden, Greece, Belgium, Spain, the Netherlands, Taiwan,
Portugal and Hong Kong. We have obtained regulatory approvals where required.
Through our Japanese distributor, we are pursuing the regulatory approval for
commercial sale in Japan.

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 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 are working 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, the Health Care Financing Administration recently implemented
a new Medicare prospective payment system for hospital outpatient services. One
aspect of the new system involves the recognition of new technology items and
services as discrete payment groups under the prospective payment system. Under
this new system, hospitals receive separate payments for the use of new medical
devices that are recognized by HCFA. The Duett sealing device has been issued a
transitional pass through code by HCFA and is currently eligible for device
reimbursement under the Medicare prospective payment system for hospital
outpatient services.

     Market acceptance of the Duett sealing device 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



                                       9
<PAGE>   11



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.

     We have pursued reimbursement for our Duett sealing device internationally
through our independent distributors. We have initially focused on the markets
of Norway, Italy, Austria, the United Kingdom, Ireland, Denmark, Switzerland,
Finland, Sweden, Greece, Belgium, Spain, the Netherlands, Taiwan, Portugal and
Hong Kong. While the healthcare financing issues in these countries are
substantial, we have been able to sell the Duett sealing device to private
clinics or nationalized hospitals in each of these countries.

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 has 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 has also 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 has issued concerning the
procoagulant mixture and which expires in October 2015. A fifth United States
patent has issued concerning a balloon catheter sealing device and which expires
in May 2013. Finally, a sixth United States patent has issued concerning a
balloon catheter and procoagulant sealing device and which expires in October
2015. We currently have six 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 three
vascular sealing products with which our Duett sealing device competes has been
subject to infringement litigation. We are aware of many United States patents
issued to other companies in the vascular sealing field which describe vascular
sealing devices. After consultation with our intellectual property counsel, we
believe that our Duett sealing device does not infringe any of these existing
United States issued patents. The interpretation of patents, however, 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.

     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 March 15, 2000, the court
granted summary judgment dismissing all of Datascope's claims, subject to the
right of Datascope to recommence



                                       10
<PAGE>   12



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.
We believe the allegations included in the complaint are without merit, have
filed our answer to the complaint, and we intend to defend this litigation
vigorously. It is not possible to predict the timing or outcome of the Datascope
litigation, including whether we will be prohibited from selling our Duett
sealing device in the United States or internationally, or to estimate the
amount or range of potential loss, if any.

     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 requests a judgment
that our 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
us from selling our product in the United States, damages caused by the
manufacture and sale of our product, and other costs, disbursements and
attorneys' fees. We have previously consulted with our intellectual property
counsel regarding St. Jude Medical's United States patents and do not believe
that we infringe them. We believe the allegations included in the complaint are
without merit, have filed our answer to the complaint, and we intend to defend
this litigation vigorously. It is not possible to predict the timing or outcome
of the St. Jude Medical litigation, including whether we will be prohibited from
selling our Duett sealing device in the United States or internationally, or to
estimate the amount or range of potential loss, if any.

     We may become the subject of additional intellectual property claims in the
future related to our Duett sealing device. Our defense of the Datascope claim,
the St. Jude Medical claim and any other 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 the Duett sealing device for significant periods of time. The
costs incurred to defend the Datascope claim, the St. Jude Medical claim and
other future claims could be substantial and adversely affect us, even if we are
ultimately successful. An adverse determination in the Datascope matter, the St.
Jude Medical matter or in other litigation or interference proceedings in the
future could prohibit us from selling our product, subject us to significant
liabilities to third parties or require us to seek licenses from third parties.

     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 intend to 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 mark "Vascular Solutions Duett" and the Duett logo.

EMPLOYEES

     As of December 31, 2000, we had 136 full time employees. Of these
employees, 46 were in manufacturing activities, 57 were in sales and marketing
activities, 11 were in research and development activities, eight were in
regulatory, quality assurance and clinical research activities and 14 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.



                                       11
<PAGE>   13



EXECUTIVE OFFICERS OF THE REGISTRANT

     The executive officers of the Company as of December 31, 2000 are as
follows:

<TABLE>
<CAPTION>
NAME                               AGE       POSITION
----                               ---       --------
<S>                                <C>       <C>
Howard Root                        40        Chief Executive Officer and Director
Jerry Johnson                      35        Chief Financial Officer and Secretary
Michael Nagel                      38        Vice President of Sales & Marketing
Deborah Jensen                     44        Vice President of Regulatory Affairs
James Quackenbush                  42        Vice President of Manufacturing
William Sutton                     37        Vice President of Research & Development
Richard Buchholz                   33        Treasurer
</TABLE>


     HOWARD ROOT has served as our Chief Executive Officer and a director since
he co-founded Vascular Solutions in February 1997. From April 1996 through
February 1997, Mr. Root was the Vice President of Gateway Alliance, LLC, a
provider of management services to start-up businesses. 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.

     JERRY JOHNSON joined us as our Chief Financial Officer and Secretary in
November 1999. Prior to joining us, Mr. Johnson was Executive Vice President of
Commerce Financial Group, Inc., a specialty finance and banking organization
since February 1999. From 1993 to 1999, Mr. Johnson was with John G. Kinnard &
Company, Inc., an investment bank, most recently as Managing Director of the
Healthcare Group. Mr. Johnson received a B.S. and M.B.A. in Finance from the
University of Minnesota and a J.D. degree from the University of Southern
California.

     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 joined us as the Vice President of Regulatory Affairs,
Clinical Affairs and Quality Systems in 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.



                                       12
<PAGE>   14



     WILLIAM SUTTON joined us as our Vice President of Research & Development in
December 1999. From 1997 through 1999, Mr. Sutton was Director of Research &
Development for Urologix, Inc., a urology medical device company. From 1994
through 1997, Mr. Sutton was a manager of research and development with C.R.
Bard, Inc., a medical device company. Mr. Sutton was a development engineer with
Abbott Laboratories, Inc., from 1987 through 1994. Mr. Sutton received his M.S.
and B.S. degrees in Mechanical Engineering from Stanford University.

     RICHARD BUCHHOLZ has served as our Controller since December 1997 and as
our Treasurer since December 1999. Prior to joining us, Mr. Buchholz was with
Ernst & Young LLP for over five years, most recently as manager on the audit
staff. Mr. Buchholz received his B.B.A. degree in Accounting from the University
of Wisconsin--Eau Claire and is a Certified Public Accountant.

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


ITEM 2.  PROPERTIES

     Our principal 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 and includes both an option to renew for an
additional five-year term and options to terminate after December 31, 2001 at
six-month intervals. We believe that these facilities will be adequate to meet
our needs through at least the end of 2001.


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. We believe the allegations included in the
complaint are without merit, have filed our answer to the complaint, and intend
to defend this litigation vigorously. It is not possible to predict the timing
or outcome of the Datascope litigation, including whether we will be prohibited
from selling our Duett sealing device in the United States or internationally,
or to estimate the amount or range of potential loss, if any.

     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 requests a judgment
that our 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
us from selling our product in the United States, damages caused by the
manufacture and sale of our product, and other costs, disbursements and
attorneys' fees. We have previously consulted with our intellectual property
counsel regarding St. Jude Medical's United States



                                       13
<PAGE>   15



patents and do not believe that we infringe them. We believe the allegations
included in the complaint are without merit, have filed our answer to the
complaint, and intend to defend this litigation vigorously. It is not possible
to predict the timing or outcome of the St. Jude Medical litigation, including
whether we will be prohibited from selling our Duett sealing device in the
United States or internationally, or to estimate the amount or range of
potential loss, if any.

     Other than the Datascope and St. Jude Medical claims, there are no legal
proceedings pending against us.

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, 2000.

                                     PART II

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

     The Company's common stock began trading on the Nasdaq National Market
under the symbol "VASC" on July 20, 2000. 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
over-allotment 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 $44.0 million.

     During the three-month period ended December 31, 2000, we issued and sold
an aggregate of 27,060 shares of our common stock to employees, consultants and
former employees for aggregate consideration of $95,474 pursuant to exercises of
options under our Stock Option Plan. These sales were made in reliance upon an
exemption from the registration provisions of the Securities Act set forth in
Rule 701 of the Securities Act.

     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.

<TABLE>
<CAPTION>
                                                             High          Low
                                                            -------     -------
<S>                                                         <C>         <C>
 2000
    Third Quarter ........................................  $19.375     $13.875
    Fourth Quarter .......................................   23.6875      7.375
</TABLE>


HOLDERS

        As of December 31, 2000, the Company had 180 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>   16



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,
                                                ------------------------------------------
                                                  2000       1999       1998        1997
                                                 -------    -------    -------     -------
                                                  (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S>                                              <C>        <C>        <C>         <C>
Statements of Operations Data:
  Net sales ............................         $ 6,193    $ 1,429    $   494     $    --

  Cost of sales .........................          2,701      1,065        443          --
                                                 -------    -------    -------     -------
    Gross profit ........................          3,492        364         51          --

Operating expenses:
  Research and development...............          3,265      3,068      2,348         766
  Clinical and regulatory ...............          1,082      1,324      1,376         259
  Sales and marketing ...................          6,700      2,301      1,075         273
   General and administrative............          2,107      1,904        667         426
                                                 -------    -------    -------     -------
    Total operating expenses ............         13,154      8,597      5,466       1,724
                                                 -------    -------    -------     -------
Operating loss ..........................         (9,662)    (8,233)    (5,415)     (1,724)
      Interest income ...................          1,453        371        274          72
                                                 -------    -------    -------     -------
Net loss ................................        $(8,209)    (7,862)    (5,141)     (1,652)
                                                 =======    =======    =======     =======
Net loss per common share -
  Basic and diluted .....................        $  (.95)   $ (1.95)   $ (1.40) $  $  (.62)
Weighted average number of common
shares
    Outstanding .........................          8,645      4,033      3,660       2,668
</TABLE>


<TABLE>
<CAPTION>
                                                              AS OF DECEMBER 31,
                                                -------------------------------------------
                                                   2000       1999       1998        1997
                                                 --------   -------    -------     -------
                                                                (IN THOUSANDS)
<S>                                              <C>        <C>        <C>         <C>
Balance Sheet Data:
  Cash and cash equivalents..............        $ 44,098   $10,529    $ 9,897     $ 7,299
  Working capital .......................          46,300    10,487      9,933       7,031
  Total assets ..........................          49,661    12,295     11,007       7,559
  Long-term debt ........................               0         0          0           0
  Total shareholders' equity ............          47,194    11,172     10,546       7,216
</TABLE>



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.



                                       15
<PAGE>   17


OVERVIEW

     Since we commenced operations in February 1997, we have been engaged in the
design, development, clinical testing, manufacture and sale of the Vascular
Solutions Duett sealing device. Our Duett sealing device is designed to seal the
entire puncture site following catheterization procedures such as angiography,
angioplasty and stenting. During 1998 and 1999 we received regulatory approvals
to market 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 our product in
the United States with a direct sales force.

     We have a limited history of operations and have experienced significant
operating losses since inception. As of December 31, 2000, we had an accumulated
deficit of $22.9 million. We commenced international sales in February 1998.
From inception through June 2000, we generated substantially all of our revenue
from sales to international distributors who resell the device to hospitals.

     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.

RESULTS OF OPERATIONS

YEAR ENDED DECEMBER 31, 2000 COMPARED TO YEAR ENDED DECEMBER 31, 1999

     Net sales increased 333% to $6,193,234 for the year ended December 31, 2000
from $1,429,094 for the year ended December 31, 1999. The increase in net sales
was principally the result of United States approval of our Duett sealing device
on June 22, 2000 and the commencement of our formal United States market launch
in July 2000. As a result, 67% of net sales for the year ended December 31, 2000
were to customers in the United States while 33% of the net sales were to our
customers in international markets. In September 2000, we began the process of
transitioning from utilizing an independent distributor in Germany to organizing
Vascular Solutions GmbH as a wholly owned subsidiary for direct sales in
Germany. In October 2000, we commenced direct shipments through Vascular
Solutions GmbH to customers in Germany.

     Gross profit as a percentage of net sales increased to 56% for the year
ended December 31, 2000 from 25% for the year ended December 31, 1999. This
increase as a percentage of net sales resulted from the initiation of United
States sales of the Duett sealing device, a decrease in cost of goods sold due
to the conversion to the Duett Model 2000 for international sales in the fourth
quarter of 1999, increased volume and improved manufacturing processes. The
Duett Model 2000 incorporates minor modifications to the procoagulant components
and different vendors for certain components, resulting in lower cost of goods
compared to the original Duett Model 1000. The approval we received from the FDA
in June applies to the Duett Model 1000. We will not be able to sell the Duett
Model 2000 in the United States until we receive approval of a PMA supplement.
We do not expect to receive FDA approval of a PMA supplement for the Duett Model
2000 prior to the second half of 2001.

     Research and development expenses increased 6% to $3,265,536 for the year
ended December 31, 2000 from $3,067,897 for the year ended December 31, 1999.
This increase was attributable to hiring additional development personnel,
continued work on product improvements and exploring new product opportunities.
We expect our research and development expenses to increase through the
remainder of 2001 as we continue work on product improvements and explore new
product opportunities.

     Clinical and regulatory expenses decreased 18% to $1,082,029 for the year
ended December 31, 2000 from $1,323,972 for the year ended December 31, 1999.
The decrease was primarily the result of costs associated with the patient
enrollment portion of the 695-patient multi-center clinical study of our Duett
sealing device which




                                       16
<PAGE>   18



commenced in August 1998 and was completed in March 1999. In addition to the
payments to the clinical centers for patient enrollment and data collection, we
contracted with a third party to perform data analysis and computation for the
study in 1999. We expect clinical and regulatory expenses to increase modestly
during 2001 as we pursue additional regulatory approvals for improvements to our
Duett sealing device and new products.

     Sales and marketing expenses increased 191% to $6,699,722 for the year
ended December 31, 2000 from $2,301,603 for the year ended December 31, 1999.
This increase was due primarily to $2,815,000 in increased personnel costs with
hiring, training and deploying a direct United States sales force and $997,000
associated with travel, marketing and physician training for the domestic and
international distribution of our Duett sealing device. We currently anticipate
that sales and marketing expenses will increase for the foreseeable future as we
continue to hire, train and deploy a direct sales force in the United States.
These expenses will be principally related to hiring additional sales personnel,
expanding marketing efforts, travel and training physicians in the United
States.

     General and administrative expenses increased 11% to $2,106,963 for the
year ended December 31, 2000 from $1,903,946 for the year ended December 31,
1999. This increase was primarily attributable to a $385,000 increase in legal
fees associated with litigation items (See "Legal Proceedings" in Item 3 of Part
I of this Form 10-K) and a $425,000 increase in personnel costs to support
increased operations. These increases in 2000 were offset by a $257,000 expense
in connection with a warrant granted to a supplier in the second quarter of 1999
and $453,500 in initial public offering costs that were expensed in the fourth
quarter of 1999 due to the delay of our initial public offering. We currently
anticipate that general and administrative expenses will increase by modest
amounts for the foreseeable future as we continue to incur substantial
litigation expenses related to the existing patent infringement claims.

     Interest income increased to $1,453,491 for the year ended December 31,
2000 from $371,066 for the year ended December 31, 1999 primarily as a result of
higher cash balances from the cash proceeds received upon the closing of our
initial public offering in July 2000.

YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998

     Net sales increased 189% to $1,429,094 for the year ended December 31, 1999
from $494,150 for the year ended December 31, 1998. This increase in net sales
was the result of increased shipments of our Duett sealing device to our
existing independent international distributors and shipments to new independent
international distributors covering other territories. International sales of
our Duett sealing device commenced in February 1998. Sales to our German,
Norwegian and Italian distributors accounted for approximately 29%, 20% and 12%
of net sales for the year ended December 31, 1999.

     Gross profit as a percentage of net sales increased to 25% for the year
ended December 31, 1999 from 10% for the year ended December 31, 1998. This
increase as a percentage of net sales resulted from improvements in
manufacturing efficiencies and increases in the number of Duett sealing devices
manufactured.

     Research and development expenses increased 31% to $3,067,897 for the year
ended December 31, 1999 from $2,348,281 in the year ended December 31, 1998.
This increase was attributable to a $301,100 increase for additional personnel
required for the continued development of the Duett sealing device, $240,000 of
materials associated with the development of our next generation sealing device
and $45,900 in prototyping costs.

     Clinical and regulatory expenses decreased 4% to $1,323,972 for the year
ended December 31, 1999 from $1,375,595 for the year ended December 31, 1998.
The decrease was primarily the result of costs associated with the 695-patient
multi-center clinical study of our Duett sealing device which commenced in
August 1998 and was completed in March 1999. In addition to the payments to the
clinical centers for patient enrollment and data collection, we contracted with
a third party to perform data analysis and computation for the study.



                                       17
<PAGE>   19



     Sales and marketing expenses increased 114% to $2,301,603 for the year
ended December 31, 1999 from $1,075,250 for the year ended December 31, 1998.
This increase was due primarily to a $611,500 increase in personnel costs and
$277,800 associated with travel, marketing and physician training for the
international distribution of the Duett sealing device.

     General and administrative expenses increased 185% to $1,903,946 for the
year ended December 31, 1999 from $667,522 in the year ended December 31, 1998.
This increase was primarily the result of $453,500 in initial public offering
costs that were expensed in the fourth quarter of 1999 due to the delay of the
offering and $422,500 in legal expenses in 1999 associated with intellectual
property claims.

     Interest income increased to $371,066 for the year ended December 31, 1999
from $273,877 for the year ended December 31, 1998 primarily as a result of
higher cash balances resulting from our private equity financing completed in
the fourth quarter of 1998.

YEAR ENDED DECEMBER 31, 1998 COMPARED TO THE YEAR ENDED DECEMBER 31, 1997

     Net sales of $494,150 in 1998 were the result of shipments to international
distributors, with 65% of the sales attributable to our German distributor and
16% of the sales attributable to our Austrian distributor. We commenced
international sales in February 1998 and, accordingly, had no revenues in 1997.

     Gross profit as a percentage of net sales was 10% in 1998. Cost of goods
sold reflected the commencement of manufacturing and assembly operations as well
as manufacturing, engineering and support functions.

     Research and development expenses increased 206% to $2,348,281 in 1998 from
$766,176 in 1997. This increase was attributable to a $577,000 increase
associated with the hiring of additional personnel required to develop our Duett
sealing device, a $146,000 increase in legal costs related to patent
applications and approximately $425,000 of materials associated with the
development of our Duett sealing device.

     Clinical and regulatory expenses increased 430% to $1,375,595 in 1998 from
$259,503 in 1997. The increase was primarily the result of costs associated with
our clinical studies that commenced in January 1998.

     Sales and marketing expenses increased 294% to $1,075,250 in 1998 from
$273,089 in 1997. The increase was due primarily to the international commercial
launch of our Duett sealing device in February 1998, resulting in increases in
costs associated with travel, marketing and physician training.

     General and administrative expenses increased 57% to $667,522 in 1998 from
$425,596 in 1997. The increase was primarily the result of additional
administrative personnel and facilities costs.

     Interest income increased to $273,877 in 1998 from $72,546 in 1997
primarily as a result of higher cash balances resulting from our December 1997
private equity financings.

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, 2000, we had $20,400,000 of federal net operating loss
carryforwards available to offset future taxable income which begin to expire in
the year 2013. As of December 31, 2000, we also had federal and state research
and development tax credit carryforwards of $1,084,000 which begin to expire in
the year 2013.



                                       18
<PAGE>   20



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.

LIQUIDITY AND CAPITAL RESOURCES

     We have financed all of our operations since inception through the issuance
of equity securities. Through December 31, 2000, we have sold common stock and
preferred stock generating aggregate net proceeds of $69.5 million. At December
31, 2000, we had $44.1 million in cash and cash equivalents on-hand. During the
year ended December 31, 2000, we used $10.0 million of cash and cash equivalents
in operating activities. The cash used in operating activities was primarily
used to fund our net loss for the period of $8.2 million and increases in
accounts receivable and inventories to support our increased operations and a
decrease in accounts payable as a result of the timing of certain vendor
payments. For the year ended December 31, 1999, we used $7.2 million of cash in
operating activities. This was primarily used to fund our net loss for the
period of $7.9 million and increases in accounts receivable and inventories.
Cash used in operating activities was partially offset by an increase of
$746,000 in accounts payable. Cash used in operating activities for the year
ended December 31, 1998 was $5.2 million. This was primarily used to fund our
net loss for the year of $5.1 million and increases in accounts receivable and
inventories. Our other use of cash in each of these periods was investing
activities to acquire manufacturing and office equipment. Our equipment
acquisitions totaled $576,000 during the year ended December 31, 2000, $316,000
for the year ended December 31, 1999 and $582,000 for the year ended December
31, 1998.

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

     We currently anticipate that we will continue to experience significant
growth in our expenses 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 December 31, 2001, because we plan to spend
substantial amounts hiring and training a direct United States sales force,
funding sales and marketing activities and creating and expanding research and
development initiatives. 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 Duett sealing device gains
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.

RECENT ACCOUNTING PRONOUNCEMENTS

     In June 1998, the Financial Accounting Standards Board issued SFAS No.133,
"Accounting for Derivative Instruments and Hedging Activities." This statement
changes the previous accounting definition of derivative



                                       19
<PAGE>   21



which focused on freestanding contracts, including, for example, options and
forwards, and futures and swaps, expanding it to include embedded derivatives
and many commodity contracts. Under the statement, every derivative is recorded
in the balance sheet as either an asset or liability measured at its fair value.
The statement requires that changes in the derivative's fair value be recognized
currently in earnings unless specific hedge accounting criteria are met. SFAS
133, as amended, is effective for fiscal years beginning after June 15, 2000. We
do not anticipate that the adoption of SFAS 133 will have a material impact on
our financial position or results of operations. We do not currently hold
derivative instruments or engage in hedging activities.


                                  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.

BECAUSE WE ONLY BEGAN PRODUCT DEVELOPMENT IN FEBRUARY 1997, WE HAVE A LIMITED
OPERATING HISTORY UPON WHICH TO EVALUATE OUR POTENTIAL FOR FUTURE SUCCESS

     We began product development in February 1997 and began to generate
international sales in February 1998. Accordingly, we have only four years of
operating history upon which you can evaluate our business and prospects. You
must consider the risks and uncertainties frequently encountered by early stage,
single-product medical device companies like ours in a new and evolving market,
such as the vascular sealing device market. If we are unsuccessful in addressing
these risks and uncertainties, our business will be seriously harmed.


WE HAVE BEEN NAMED AS THE DEFENDANT IN TWO PATENT INFRINGEMENT LAWSUITS AND MAY
FACE ADDITIONAL INTELLECTUAL PROPERTY INFRINGEMENT CLAIMS IN THE FUTURE WHICH
COULD PREVENT US FROM MANUFACTURING AND SELLING OUR PRODUCT OR RESULT IN OUR
INCURRING SUBSTANTIAL COSTS AND LIABILITIES

     An adverse determination in any intellectual property litigation or
interference proceedings could prohibit us from selling our product, 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.

     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 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. It is not possible to predict the timing or
outcome of this lawsuit, including whether we will be prohibited from selling
our Duett sealing device in the United States or internationally, or to estimate
the amount or range of potential loss, if any.



                                       20
<PAGE>   22



     On July 3, 2000, we were named as the defendant in a patent infringement
lawsuit brought by the Daig division of St. Jude Medical, Inc. in the United
States District Court for the District of Minnesota. The complaint requests a
judgment that our 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 us from selling our product in the United States, damages caused by the
manufacture and sale of our product, and other costs, disbursements and
attorneys' fees. It is not possible to predict the timing or outcome of this
lawsuit, including whether we will be prohibited from selling our Duett sealing
device in the United States or internationally, or to estimate the amount or
range of potential loss, if any.

     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 three vascular sealing products with which our Duett
sealing device competes has been subject to infringement litigation. It is
likely that we will become the subject of additional intellectual property
claims in the future related to our Duett sealing device. Intellectual property
litigation in recent years has proven to be very complex, and the outcome of
such litigation is difficult to predict.

     Our defense of the Datascope lawsuit, the St. Jude Medical lawsuit and any
other 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 the Duett sealing device
for significant periods of time. The costs incurred to defend the Datascope
lawsuit, the St. Jude Medical lawsuit and other future claims could be
substantial and seriously harm us, even if our defense is ultimately successful.


WE WILL NOT BE SUCCESSFUL IF THE VASCULAR SEALING DEVICE MARKET DOES NOT ADOPT
OUR NEW SEALING METHODOLOGY

     During the third quarter of 2000 we commenced sales of our product in the
United States, which we believe represents the largest market for vascular
sealing devices. Our success will depend on the medical community's acceptance
of our Duett sealing device. We cannot predict how quickly, if at all, the
medical community will accept our Duett sealing device, or, if accepted, the
extent of its use. Our potential customers must:

     o   believe that our device offers benefits compared to the methodologies
         and/or devices that they are currently using to seal vascular
         punctures;

     o   believe that our device is 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 selling our Duett sealing device into the
United States market, our business will be seriously harmed.


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

     We have developed only one product which is being sold in a limited number
of international markets and in the United States. Even if we were to develop
additional products, FDA approval would be required in order to sell them in the
United States. Preparation of the requisite materials to seek FDA approval and
the approval process itself require a substantial amount of time and money.
Therefore, we do not expect to be in a position to sell additional products in
the foreseeable future. As a result, our success is solely dependent on the
success of our Duett sealing device. If our Duett sealing device is not
successful, our business will be seriously harmed.



                                       21
<PAGE>   23



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
from costs relating to the development and commercialization of our Duett
sealing device. At December 31, 2000, we had an accumulated deficit of $22.9
million. We expect to continue to significantly increase our sales and
marketing, research and development and general and administrative expenses. In
particular, we are in the process of hiring, training and deploying a direct
sales force to sell our Duett sealing device in the United States. Because of
our plans to invest heavily in sales and marketing, hire additional employees
and expand our commercialization, we expect to incur significant net losses
through at least December 31, 2001. 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.


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 recent United States launch of our Duett sealing device and 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 in the United States
          market;

     o    the effect of intellectual property disputes;

     o    the demand for and acceptance of our Duett sealing device;

     o    the success of our competition and the introduction of alternative
          means for vascular sealing;

     o    our ability to command favorable pricing for our Duett sealing device;

     o    the growth of the market for vascular sealing 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;

     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 with respect to
          our Duett sealing device;

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

     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.


                                       22
<PAGE>   24

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 are in the process of hiring and implementing a direct
sales force, including clinical specialists to perform physician training, to
commercialize our Duett sealing device in the United States. 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

     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




                                       23
<PAGE>   25



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.


WE CURRENTLY DEPEND ON THE INTERNATIONAL MARKETING AND SALES EFFORTS OF A
LIMITED NUMBER OF INDEPENDENT DISTRIBUTORS

     Our Duett sealing device is sold internationally through independent
distributors in Norway, Italy, Austria, the United Kingdom, Ireland, Denmark,
Switzerland, Finland, Sweden, Greece, Belgium, Spain, the Netherlands, Taiwan,
Portugal and Hong Kong. Our international sales are largely dependent on the
marketing efforts of, and sales by, these distributors. Sales through
distributors are subject to several risks, including the risk of financial
instability of distributors and the risk that distributors will not effectively
promote our Duett sealing device. Loss or termination of these distribution
relationships could seriously harm our international sales efforts and could
result in our repurchasing unsold inventory from former distributors by virtue
of local laws applicable to distribution relationships, provisions of
distribution agreements or negotiated settlements entered into with our
distributors. Sales to our Norwegian, former German and Italian distributors
accounted for 11%, 6% and 5% of net sales for the year ended December 31, 2000.


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

     Our international sales are subject to several risks, including:

     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 Duett
sealing device or any future product in any international market.


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

     We have limited experience in manufacturing our Duett sealing device. Until
very recently, we have manufactured the Duett sealing device in limited
quantities for international sales and clinical studies in the United States. We
do not have experience in manufacturing our Duett sealing device in substantial
commercial quantities. We believe our current facilities are adequate for our
projected production of our Duett sealing device for the next year, but future
facility requirements will depend largely on future sales of our product in the
United States. We may encounter unforeseen difficulties in expanding our
production of our Duett sealing device and



                                       24
<PAGE>   26



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

     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 is used. Failure by physicians, hospitals and other users of our
Duett sealing device to obtain sufficient reimbursement from healthcare payors
for procedures in which our Duett sealing device is 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, 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 the Duett sealing device will be incorporated
into the overall cost of the procedure and that there will be no separate,
additional reimbursement for our product.

     The Health Care Financing Administration recently implemented a new
Medicare prospective payment system for hospital outpatient services. One aspect
of the new system involves the recognition of new technology items and services
as discrete payment groups under the prospective payment system. Under this new
system, hospitals receive separate payments for the use of new medical devices
that are recognized by HCFA. The Duett sealing device has been issued a
transitional pass through code by HCFA and is currently eligible for device
reimbursement under the Medicare prospective payment system for hospital
outpatient services.

     In international markets, acceptance of our Duett sealing device 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. 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
Duett sealing device in the markets in which these approvals are sought.


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

     Our Duett sealing device 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.



                                       25
<PAGE>   27



     Compliance with the regulations of these agencies may delay or prevent us
from introducing any new model of our Duett sealing device or other 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.

     We are currently conducting two post approval studies of our Duett sealing
device as required by the FDA. It is likely that we will conduct further studies
on the use of our Duett sealing device for the foreseeable future. The FDA and
international regulatory agencies may restrict or withdraw their approval of our
Duett sealing device if additional information becomes available to support this
action through these studies or otherwise.


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

     We purchase components used in our Duett sealing device from various
suppliers and rely on single sources for the collagen and thrombin components of
our Duett sealing device procoagulant. There are currently no FDA-approved
alternative suppliers of thrombin and very few FDA-approved alternative
suppliers of collagen. 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 could therefore seriously
harm our business.


OUR FAILURE TO EXPAND OUR MANAGEMENT SYSTEMS AND CONTROLS TO SUPPORT ANTICIPATED
GROWTH COULD SERIOUSLY HARM OUR BUSINESS

     Our operations are growing rapidly and we expect this expansion to continue
as we execute our business strategy. Our total number of employees grew from 64
on December 31, 1999 to 136 on December 31, 2000. We anticipate further
increases in the number of our employees. Sustaining our growth has placed
significant demands on management and our administrative, operational, personnel
and financial resources. Accordingly, our future operating results will depend
on the ability of our officers and key other employees to continue to implement
and improve our operational, client support and financial control systems, and
effectively expand, train and manage our employee base. We may not be able to
manage our growth successfully and inability to sustain or manage our growth
could seriously harm our business.


ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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



                                       26
<PAGE>   28



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

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

     In international markets outside of Germany, we sell our products to
independent distributors who, in turn, sell to medical clinics. Loss,
termination or ineffectiveness of distributors to effectively promote our
product would have a material adverse effect on our financial condition and
results of operations.


ITEM 8.  CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The Consolidated Financial Statements and Notes thereto required pursuant to
this Item begin on page 31 of this Annual Report on Form 10-K.


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

     None.


                                    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, 2000.

   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, 2000.


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" 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, 2000.



                                       27
<PAGE>   29



ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

    Incorporated herein by reference to the Section under the heading "Certain
Transactions" 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, 2000.


                                     PART IV


ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a)  Documents files 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

        None.

   (3)  Exhibits


<TABLE>
<CAPTION>
  Exhibit
  Number       Description
  -------      -----------
<S>            <C>
    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)).

</TABLE>



                                       28
<PAGE>   30

<TABLE>
<S>            <C>
    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
               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.

   10.4        Third Lease Amendment dated August 23, 2000 by and between Duke Realty Limited
               Partnership as Landlord and Vascular Solutions, Inc. as Tenant.

   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        Clinical Trial Services Agreement dated July 1, 1998 by and between Vascular
               Solutions, Inc. and The Cardiovascular Data Analysis Center of the Beth Israel
               Medical Group (incorporated by reference to Exhibit 10.6 of Vascular Solutions'
               Registration Statement on Form S-1 (File No. 333-84089)).

   10.8        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)).

   10.9        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)).

   10.10*      Consulting Agreement dated June 10, 1999, between Vascular Solutions, Inc. and
               Gary Gershony, M.D. (incorporated by reference to Exhibit 10.10 of Vascular
               Solutions' Registration Statement on Form S-1 (File No. 333-84089)).

   10.11*      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)).

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

   10.13*      Vascular Solutions, Inc. Stock Option and Stock Award Plan, as amended
               (incorporated by reference to Exhibit 10.1 of Vascular Solutions' Registration
               Statement on Form S-8 (File No. 333-54164)).

   10.14*      Vascular Solutions, Inc. Employee Stock Purchase Plan, as amended.

   23.1        Consent of Ernst & Young LLP.

   24.1        Power of Attorney (included on signature page).
</TABLE>

----------
* Management contract or compensatory plan or arrangement required to be filed
  as an Exhibit to this Form 10-K.

(b)     Registrant filed no Report on Form 8-K during its fourth quarter ended
        December 31, 2000.

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

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



                                       29
<PAGE>   31



                                   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 9th day of
March, 2001.




                                       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 Jerry Johnson (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 9th day of March, 2001, by the following
persons in the capacities indicated.

<TABLE>
<CAPTION>
                Signature                                     Title
                ---------                                     -----
<S>                                           <C>
             /s/ Howard Root                  Chief Executive Officer and Director
-------------------------------------------   (principal executive officer)
               Howard Root

            /s/ Jerry Johnson                 Chief Financial Officer
-------------------------------------------   (principal financial officer and
              Jerry Johnson                   principal accounting officer)

            /s/ Gary Gershony                 Director
-------------------------------------------
              Gary Gershony

           /s/ Gerard Langeler                Director
-------------------------------------------
             Gerard Langeler

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

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

             /s/ Michael Kopp                 Director
-------------------------------------------
               Michael Kopp
</TABLE>



                                       30
<PAGE>   32


                         REPORT OF INDEPENDENT AUDITORS


Board of Directors and Shareholders
Vascular Solutions, Inc.

We have audited the consolidated balance sheets of Vascular Solutions, Inc. as
of December 31, 2000 and 1999, 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, 2000. 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 financial position of Vascular Solutions, Inc. at
December 31, 2000 and 1999, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 2000 in conformity
with accounting principles generally accepted in the United States.


                                                   /s/ Ernst & Young LLP

Minneapolis, Minnesota
January 9, 2001



                                       31

<PAGE>   33



                            VASCULAR SOLUTIONS, INC.

                           CONSOLIDATED BALANCE SHEETS


<TABLE>
<CAPTION>
                                                                            DECEMBER 31
                                                                    --------------------------
                                                                        2000           1999
                                                                    -----------    -----------
<S>                                                                 <C>            <C>
ASSETS
Current assets:
  Cash and cash equivalents                                         $44,097,563    $10,529,191
  Accounts receivable, net of allowance for doubtful accounts
    of $80,000 in 2000                                                1,971,383        374,978
  Inventories                                                         2,466,445        612,569
  Prepaid expenses                                                      231,251         93,177
                                                                    -----------    -----------
Total current assets                                                 48,766,642     11,609,915

Property and equipment, net                                             894,094        684,952
                                                                    -----------    -----------
Total assets                                                        $49,660,736    $12,294,867
                                                                    ===========    ===========

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
  Accounts payable                                                  $   933,059    $ 1,019,715
  Accrued compensation                                                1,344,995         85,441
  Accrued expenses                                                      188,792         17,513
                                                                    -----------    -----------
Total current liabilities                                             2,466,846      1,122,669

Commitments and contingencies

Shareholders' equity:
  Series A Preferred Stock, $.01 par value:
    Authorized shares - 0--2000; 2,000,000--1999
    Issued and outstanding shares - 2,000,000--1999 - 20,000
  Series B Preferred Stock, $.01 par value:
    Authorized shares - 0--2000; 1,777,777--1999
    Issued and outstanding shares - 1,777,777--1999 - 17,778
    Common stock, $.01 par value:
    Authorized shares - 40,000,000--2000; 16,222,223--1999
    Issued and outstanding shares - 13,116,008--2000;
      5,250,291--1999                                                   131,160         52,503
  Additional paid-in capital                                         69,965,240     25,828,309
  Other                                                                 (38,182)       (90,931)
  Accumulated deficit                                               (22,864,328)   (14,655,461)
                                                                    -----------    -----------
Total shareholders' equity                                           47,193,890     11,172,198
                                                                    -----------    -----------
Total liabilities and shareholders' equity                          $49,660,736    $12,294,867
                                                                    ===========    ===========
</TABLE>

See accompanying notes.


                                       32

<PAGE>   34



                            VASCULAR SOLUTIONS, INC.

                      CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                      YEAR ENDED DECEMBER 31
                                            -----------------------------------------
                                                 2000          1999          1998
                                              -----------   -----------   -----------
<S>                                           <C>           <C>           <C>
Net sales                                     $ 6,193,234   $ 1,429,094   $   494,150
Cost of goods sold                              2,701,342     1,065,199       442,565
                                              -----------   -----------   -----------
Gross profit                                    3,491,892       363,895        51,585

Operating expenses:
  Research and development                      3,265,536     3,067,897     2,348,281
  Clinical and regulatory                       1,082,029     1,323,972     1,375,595
  Sales and marketing                           6,699,722     2,301,603     1,075,250
  General and administrative                    2,106,963     1,903,946       667,522
                                              -----------   -----------   -----------
Total operating expenses                       13,154,250     8,597,418     5,466,648
                                              -----------   -----------   -----------

Operating loss                                 (9,662,358)   (8,233,523)   (5,415,063)
Interest income                                 1,453,491       371,066       273,877
                                              -----------   -----------   -----------

Net loss                                      $(8,208,867)  $(7,862,457)  $(5,141,186)
                                              ===========   ===========   ===========

Basic and diluted net loss per share          $      (.95)  $     (1.95)  $     (1.40)
                                              ===========   ===========   ===========

Shares used in computing basic and diluted
  net loss per share                            8,645,152     4,032,616     3,660,136
                                              ===========   ===========   ===========
</TABLE>


See accompanying notes.


                                       33

<PAGE>   35



                            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, 1997                            2,000,000   $ 20,000           --   $    --     3,553,250   $ 35,533
  Exercise of stock options                                    --         --           --        --        19,700        197
  Sale of common stock at $3.00 per share
     in March and April 1998                                   --         --           --        --       126,667      1,266
  Value of options  granted for services                       --         --           --        --            --         --
  Sale of Series B convertible preferred
     stock at $4.50 per share in December
     1998, net of offering costs                               --         --    1,777,777    17,778            --         --
  Net loss                                                     --         --           --        --            --         --
                                                        ---------   --------   ----------   -------    ----------   --------
Balance at December 31, 1998                            2,000,000     20,000    1,777,777    17,778     3,699,617     36,996
  Exercise of stock options                                    --         --           --        --     1,550,674     15,507
  Value of options granted for services                        --         --           --        --            --         --
  Value of warrant granted related to supply
    agreement                                                  --         --           --        --            --         --
  Deferred compensation related to option
    grants                                                     --         --           --        --            --         --
  Amortization of deferred compensation                        --         --           --        --            --         --
  Net loss                                                     --         --           --        --            --         --
                                                        ---------   --------   ----------   -------    ----------   --------
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
                                                        =========   ========   ==========   =======    ==========   ========
</TABLE>


<TABLE>
<CAPTION>
                                                       ADDITIONAL
                                                         PAID-IN                  ACCUMULATED
                                                         CAPITAL       OTHER         DEFICIT         TOTAL
                                                       -----------   ---------    ------------    -----------

<S>                                                    <C>           <C>          <C>             <C>
Balance at December 31, 1997                           $ 8,811,800   $      --    $ (1,651,818)   $ 7,215,515
  Exercise of stock options                                 32,353          --              --         32,550
  Sale of common stock at $3.00 per share
     in March and April 1998                               378,734          --              --        380,000
  Value of options granted for services                     78,400          --              --         78,400
  Sale of Series B convertible preferred
     stock at $4.50 per share in December
     1998, net of offering costs                         7,962,719          --              --      7,980,497
  Net loss                                                      --          --      (5,141,186)    (5,141,186)
                                                       -----------   ---------    ------------    -----------
Balance at December 31, 1998                            17,264,006          --      (6,793,004)    10,545,776
  Exercise of stock options                              8,144,018          --              --      8,159,525
  Value of options granted for services                     22,660          --              --         22,660
  Value of warrant granted related to supply
    agreement                                              257,000          --              --        257,000
  Deferred compensation related to option
    grants                                                 140,625    (140,625)             --             --
  Amortization of deferred compensation                         --      49,694              --         49,694
  Net loss                                                      --          --      (7,862,457)    (7,862,457)
                                                       -----------   ---------    ------------    -----------
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                     34,750     (34,750)             --             --
  Deferred compensation related to option
    grants                                                      --      72,561              --         72,561
  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
                                                       ===========   =========    ============    ===========
</TABLE>

See accompanying notes.



                                       34

<PAGE>   36



                            VASCULAR SOLUTIONS, INC.

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                YEAR ENDED DECEMBER 31
                                                      ----------------------------------------
                                                         2000           1999            1998
                                                      -----------   ------------    ------------
<S>                                                   <C>           <C>             <C>
OPERATING ACTIVITIES
Net loss                                              $(8,208,867)  $ (7,862,457)   $(5,141,186)
Adjustments to reconcile net loss to net cash used
  in operating activities:
    Depreciation                                          366,745       243,318        154,272
    Value of options granted for services                      --        22,660         78,400
    Value of warrant granted related to supply
      agreement                                                --       257,000             --
    Deferred compensation expense                          72,561        49,694             --
    Changes in operating assets and liabilities:
      Accounts receivable                              (1,592,304)     (249,978)       (125,000)
      Inventories                                      (1,851,228)     (293,758)       (259,101)
      Prepaid expenses                                   (138,074)      (40,003)        (38,064)
      Accounts payable                                    (84,509)      745,899         (53,767)
      Accrued compensation and expenses                 1,431,288       (84,069)        171,245
                                                      -----------   -----------     -----------
Net cash used in operating activities                 (10,004,388)   (7,211,694)     (5,213,201)

INVESTING ACTIVITIES
Purchase of property and equipment                       (575,887)     (315,693)       (581,923)
                                                      -----------   -----------     -----------
Net cash used in investing activities                    (575,887)     (315,693)       (581,923)

FINANCING ACTIVITIES
Proceeds from exercise of stock options                   170,394     8,159,525          32,550
Net proceeds from sale of common stock                 43,972,666            --         380,000
Net proceeds from sale of preferred stock                      --            --       7,980,497
                                                      -----------   -----------     -----------
Net cash provided by financing activities              44,143,060     8,159,525       8,393,047

Effect of exchange rate changes on cash and cash
  equivalents                                               5,587            --              --
                                                      -----------   -----------     -----------
Increase in cash and cash equivalents                  33,568,372       632,138       2,597,923
Cash and cash equivalents at beginning of year         10,529,191     9,897,053       7,299,130
                                                      -----------   -----------     -----------
Cash and cash equivalents at end of year              $44,097,563   $10,529,191     $ 9,897,053
                                                      ===========   ===========     ===========
</TABLE>


See accompanying notes.



                                       35

<PAGE>   37


                            VASCULAR SOLUTIONS, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                DECEMBER 31, 2000


1. DESCRIPTION OF BUSINESS

Vascular Solutions, Inc. (the "Company") manufactures, markets and sells the
Vascular Solutions Duett(TM) sealing device, which enables cardiologists and
radiologists to rapidly seal the puncture site following catheterization
procedures such as angiography, angioplasty and stenting. 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 generally accepted
accounting principles 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.

Cash and Cash Equivalents

The Company considers all highly liquid investments with a remaining maturity of
three months or less to be cash equivalents. Cash equivalents consist of money
market funds and are carried at cost which approximates market.


                                       36

<PAGE>   38


                            VASCULAR SOLUTIONS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)




2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

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:

<TABLE>
<CAPTION>
                                                                2000          1999
                                                             ----------     --------
<S>                                                          <C>            <C>
  Raw materials                                              $1,746,279     $451,955
  Work-in-process                                               371,176      103,285
  Finished goods                                                348,990       57,329
                                                             ----------     --------
                                                             $2,466,445     $612,569
                                                             ==========     ========
</TABLE>


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.

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.



                                       37

<PAGE>   39



                            VASCULAR SOLUTIONS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)



2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

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 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

The Company follows Accounting Principles Board Opinion No. 25, Accounting for
Stock Issued to Employees ("APB 25"), and related interpretations in accounting
for its stock options. Under APB 25, when the exercise price of stock options
equals the market price of the underlying stock on the date of grant, no
compensation expense is recognized.

The Company determines the fair value of stock options granted to non-employees
for services using the Black-Scholes valuation method. The fair value of the
stock options granted is expensed over the time period the services are
rendered.

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 and accounts
receivable. The Company maintains its accounts for cash and cash equivalents
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.


                                       38


<PAGE>   40




                            VASCULAR SOLUTIONS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)



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. Two customers accounted for 23%
and 51% of total accounts receivable as of December 31, 2000 and 1999,
respectively. There have been no material losses on customer receivables.

Net Loss Per Share

In accordance with Statement of Financial Accounting Standards No. 128, Earnings
Per Share, ("SFAS 128"), 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.

3. PROPERTY AND EQUIPMENT

Property and equipment consists of the following at December 31:

<TABLE>
<CAPTION>
                                                                 2000          1999
                                                             ----------    ----------
<S>                                                          <C>           <C>
  Property and equipment:
    Manufacturing equipment                                  $  713,054    $  520,167
    Office and computer equipment                               555,828       335,449
    Furniture and fixtures                                      216,983        98,022
    Leasehold improvements                                      105,869        84,143
    Research and development equipment                           79,527        57,593
                                                             ----------    ----------
                                                              1,671,261     1,095,374
  Less accumulated depreciation                                (777,167)     (410,422)
                                                             ----------    ----------
  Net property and equipment                                 $  894,094    $  684,952
                                                             ==========    ==========
</TABLE>



                                       39

<PAGE>   41



                            VASCULAR SOLUTIONS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)



4. 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 may
terminate the lease agreement at six-month intervals after December 2001 with a
six-month written notice to the lessor. Prior to February 1998, the Company
leased a 5,500-square-foot facility under a noncancelable operating lease which
expired in December 1998. The Company was required to make rental payments on
its previous facility until December 1998. The Company subleased this facility
to another entity from June 1998 through December 1998. Rent expense related to
the operating leases was approximately $242,100, $167,900 and $152,300 for the
years ended December 31, 2000, 1999 and 1998. Rent expense for the year ended
December 31, 1998 was reduced by approximately $32,000 for rental income
received under the sublease of the previous facility.

Future minimum lease commitments under the existing operating lease as of
December 31, 2000 are as follows:


<TABLE>
<S>                                                              <C>
  2001                                                           $190,700
  2002                                                            191,500
  2003                                                             47,900
                                                                 --------
                                                                 $430,100
                                                                 ========
</TABLE>


5. INCOME TAXES

At December 31, 2000, the Company had net operating loss carryforwards of
approximately $20,400,000 for federal income tax purposes that are available to
offset future taxable income and begin to expire in the year 2013. At December
31, 2000, the Company also had federal and Minnesota research and development
tax credit carryforwards of approximately $1,084,000 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.



                                       40

<PAGE>   42



                            VASCULAR SOLUTIONS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)



5. INCOME TAXES (CONTINUED)

The components of the Company's deferred tax assets and liabilities as of
December 31, 2000 and 1999 are as follows:


<TABLE>
<CAPTION>
                                                                 2000           1999
                                                             ----------     -----------
<S>                                                          <C>            <C>
  Deferred tax assets:
    Net operating loss carryforwards                         $ 8,154,000    $ 5,057,200
    Tax credit carryforwards                                   1,084,000        332,500
    Depreciation and amortization                                198,000        382,000
    Accrued compensation                                         209,000        180,000
    Other allowances                                              88,000             --
                                                             ----------    ------------
                                                               9,733,000      5,951,700
    Less valuation allowances                                 (9,733,000)    (5,951,700)
                                                             -----------    -----------
  Net deferred taxes                                         $        --    $        --
                                                             ===========    ===========
</TABLE>

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

<TABLE>
<CAPTION>
                                                 2000           1999          1998
                                                -------        ------        ------
<S>                                             <C>            <C>           <C>
  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                         --%           --%           --%
                                                ======         =====         =====
</TABLE>


6. 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 over-allotment 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 $.01 per
share, with no shares of preferred stock outstanding or designated.


                                       41

<PAGE>   43



                            VASCULAR SOLUTIONS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)




7. CAPITAL STOCK

In January and February 1997, the Company issued 1,500,000 shares of common
stock at $1.50 per share, from which the Company received net proceeds of
approximately $2,079,000. In connection with the sale of common stock, the
Company granted warrants to the placement agent to purchase a total of 100,000
shares of common stock at an exercise price of $1.50 per share. The warrants
expire in January and February 2007.

In December 1997, the Company issued 2,000,000 shares of Series A Preferred
Stock at $2.50 per share, from which the Company received net proceeds of
$4,960,954. The Series A Preferred Stock converted into 2,000,000 shares of
common stock upon the closing of the Company's initial public offering.

In December 1997, the Company issued 680,000 shares of common stock at
$3.00 per share, from which the Company received net proceeds of approximately
$1,790,000. In connection with the sale of common stock, the Company granted
warrants to the placement agent to purchase a total of 68,000 shares of common
stock at an exercise price of $3.00 per share. The warrants expire in December
2007.

In December 1998, the Company issued 1,777,777 shares of Series B Preferred
Stock at $4.50 per share, from which the Company received net proceeds of
approximately $7,980,497. The Series B Preferred Stock converted into 1,777,777
shares of common stock upon the closing of the Company's initial public
offering.

In connection with the Series B Preferred Stock Purchase Agreement, the Company
entered into a Put and Option Agreement (the "Agreement") with one of the Series
B investors (the "Investor"). The Agreement provided the Company with the right
to sell, and the Investor the obligation to purchase, up to $3,000,000 of common
stock at $5.00 or $6.00 per share based on the Company attaining certain
milestones. The Company exercised its right and sold 600,000 shares of common
stock to the Investor at $5.00 per share on June 30, 1999. In addition, the
Agreement provided the Investor with the right to buy, and the Company the
obligation to sell, up to $3,000,000 of common stock at $5.00 or $6.00 per share
based on the Company attaining certain milestones. The Investor exercised its
right and purchased 600,000 shares of common stock from the Company at $5.00 per
share on December 28, 1999.

Furthermore, the Agreement provided an affiliate of the Investor with the right
to buy, and the Company with the obligation to sell, up to $2,000,000 of common
stock at $7.00 or $8.00 per share based on the Company attaining certain
milestones. The affiliate of the Investor exercised its right and purchased
285,714 shares of common stock from the Company at $7.00 per share on December
28, 1999.


                                       42


<PAGE>   44



                            VASCULAR SOLUTIONS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)



7. CAPITAL STOCK (CONTINUED)

On June 10, 1999, the Company issued a warrant to purchase 100,000 shares of
common stock at $5.00 per share to a supplier in connection with entering into a
five-year supply agreement. The warrant is exercisable at any time and expires
on June 10, 2004. Using the Black-Scholes valuation model, the Company
determined a fair value of $257,000 for the warrant and expensed this amount
during the year ended December 31, 1999. The amount was classified as research
and development expense because it related to product development activities.

As of December 31, 2000, the Company had 268,000 warrants outstanding at a
weighted average exercise price of $3.19 per share.

8. STOCK OPTIONS

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, 2000, the Company reserved 1,400,000 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 non-qualified
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 stock-based awards. The incentive stock options
generally become exercisable over a four-year period and the non-qualified stock
options generally become exercisable over a two-year period. Unexercised options
are canceled upon termination of employment and become available under the Stock
Option Plan.


                                       43


<PAGE>   45




                            VASCULAR SOLUTIONS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)



8. STOCK OPTIONS (CONTINUED)

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>
  Balance at December 31,
    1997                           91,589        401,411    $1.50-$ 2.00    $ 1.74
    Shares reserved               400,000             --              --        --
    Granted                      (259,500)       259,500     3.00-  3.25      3.01
    Exercised                          --        (19,700)    1.50-  2.00      1.65
    Canceled                      108,080       (108,080)    1.50-  3.00      1.84
                                 --------      ---------
  Balance at December 31,
    1998                          340,169        533,131     1.50-  3.25      2.34
    Shares reserved               500,000             --              --        --
    Granted                      (587,000)       587,000     3.25-  6.00      5.08
    Exercised                          --        (64,960)    2.00-  3.25      2.46
    Canceled                      121,560       (121,560)    2.00-  3.25      2.75
                                 --------      ---------
  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
                                 ========      =========
</TABLE>


The following table summarizes information about stock options outstanding at
December 31, 2000:


<TABLE>
<CAPTION>
                               OPTIONS OUTSTANDING              OPTIONS EXERCISABLE
                     -------------------------------------    -----------------------
                                     WEIGHTED
                     OUTSTANDING      AVERAGE                 EXERCISABLE   WEIGHTED
                         AS OF       REMAINING    WEIGHTED       AS OF        AVERAGE
      RANGE OF       DECEMBER 31,  CONTRACTUAL    AVERAGE     DECEMBER 31   EXERCISE
   EXERCISE PRICES       2000         LIFE         PRICE         2000         PRICE
------------------   ------------  -----------   ---------    -----------   ---------
<S>                  <C>           <C>           <C>          <C>           <C>
$  1.50                 131,411        6.3        $ 1.50        123,665      $ 1.50
   2.00 -   3.25        316,710        7.7          2.98        188,100        2.90
   5.00 -   7.00        412,400        8.9          6.10        119,210        6.20
 $10.50 - $16.50        210,250        9.1         12.42          5,000       10.00
                      ---------                                 -------
                      1,070,771        8.2        $ 5.85        435,975      $ 3.49
                      =========                                 =======
</TABLE>



                                       44

<PAGE>   46




                            VASCULAR SOLUTIONS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)



8. STOCK OPTIONS (CONTINUED)

Stock-Based Compensation

The Company accounts for stock options under APB 25, under which no compensation
cost has been recognized. Had compensation cost for these options been
determined consistent with Statement of Financial Accounting Standards No. 123,
Accounting for Stock-Based Compensation (FASB 123), the net loss and net loss
per common share would have been increased to the following pro forma amounts
for the years ended December 31, 2000, 1999 and 1998:

<TABLE>
<CAPTION>
                                               2000            1999           1998
                                           -------------   ------------   ------------
<S>                                        <C>             <C>            <C>
  Net loss:
    As reported                            $ (8,208,867)   $(7,862,457)   $(5,141,186)
    Pro forma                               (10,361,727)    (8,169,981)    (5,306,547)

  Basic and diluted net loss per share:
    As reported                            $       (.95)   $     (1.95)   $     (1.40)
    Pro forma                                     (1.20)         (2.03)         (1.45)
</TABLE>


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:

<TABLE>
<CAPTION>
                                                2000          1999          1998
                                               ------        ------        ------
<S>                                            <C>           <C>           <C>
  Expected life (years)                          7.5           7.0           7.0
  Expected volatility                            .93           .67           .62
  Risk-free interest rate                       5.96%         4.90%         4.78%
</TABLE>


The weighted average fair value of options granted with an exercise price equal
to the deemed stock price on the date of grant during 2000, 1999 and 1998 was
$9.79, $3.82 and $1.97.

For the years ended December 31, 2000, 1999 and 1998, the Company recorded
compensation expense of zero, $22,660 and $78,400 in connection with
non-qualified stock options granted to Board of Directors members, medical
advisory board members and outside consultants, respectively.



                                       45

<PAGE>   47




                            VASCULAR SOLUTIONS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)



8. STOCK OPTIONS (CONTINUED)

Deferred Compensation

In 1999 and 2000, the Company recorded a total of $175,375 of deferred
compensation for certain stock options granted for the excess of the deemed
value for accounting purposes of the common stock issuable upon exercise of such
options over the aggregate exercise price of such options. The weighted average
fair value of these options was $2.74. 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 $72,561 and
$49,694 for the years ended December 31, 2000 and 1999.

9. 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. The Plan
allows eligible employees to contribute up to 18% 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 $52,357 and $21,573 for contributions
to the Plan for the year ended December 31, 2000 and 1999. No employer
contributions were made for the year ended December 31, 1998.

10. 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.



                                       46

<PAGE>   48




                            VASCULAR SOLUTIONS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)



10. CONCENTRATIONS OF CREDIT AND OTHER RISKS (CONTINUED)

Sales to significant customers as a percentage of total revenues are as follows
for the years ended December 31, 2000, 1999 and 1998:

<TABLE>
<CAPTION>
                                                 2000          1999          1998
                                                 -----         -----         -----
<S>                                              <C>           <C>           <C>
  Customer A                                     10.7%         19.7%          9.1%
  Customer B                                      6.3          28.8          65.0
  Customer C                                      5.4          11.8           4.0
  Customer D                                      2.2           5.8          15.8
</TABLE>

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:

<TABLE>
<CAPTION>
                                                 2000          1999          1998
                                                 -----         -----         -----
<S>                                              <C>           <C>           <C>
  Domestic                                         67%            7%            --%
  Foreign                                          33            93            100
</TABLE>

11. 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.



                                       47

<PAGE>   49




                            VASCULAR SOLUTIONS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)



12. COMMITMENTS AND CONTINGENCIES

In July 1999, the Company was named as a defendant in a patent infringement
lawsuit brought by Datascope Corporation, 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 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. The Company believes the allegations included
in the complaint are without merit, has filed its answer to the complaint and
intends to defend the lawsuit vigorously. It is not possible to predict the
timing or outcome of the Datascope litigation, including whether the Company
will be prohibited from selling the Duett sealing device in the United States or
internationally, or to estimate the amount or range of potential loss, if any.

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., 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. The Company believes the
allegations included in the complaint are without merit, has filed its answer to
the complaint and intends to defend the lawsuit vigorously. It is not possible
to predict the timing or outcome of the St. Jude Medical litigation, including
whether the Company will be prohibited from selling the Duett sealing device in
the United States or internationally, or to estimate the amount or range of
potential loss, if any.


                                       48


<PAGE>   50




                            VASCULAR SOLUTIONS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)



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

<TABLE>
<CAPTION>
                                  FIRST        SECOND          THIRD        FOURTH
            2000                 QUARTER       QUARTER        QUARTER       QUARTER
------------------------------  --------       --------       -------       -------
<S>                             <C>            <C>            <C>           <C>
Net sales                       $   643        $   708        $ 2,037       $ 2,805
Operating loss                   (2,052)        (2,912)        (2,630)       (2,068)
Net loss                         (1,931)        (2,819)        (2,100)       (1,359)
Basic and diluted net loss
  per share                        (.37)          (.53)          (.19)         (.10)

            1999
------------------------------
Net sales                       $   207        $   307        $   405       $   510
Operating loss                   (1,817)        (1,899)        (1,837)       (2,681)
Net loss                         (1,714)        (1,819)        (1,734)       (2,595)
Basic and diluted net loss
  per share                        (.46)          (.49)          (.40)         (.59)
</TABLE>




                                       49