-----BEGIN PRIVACY-ENHANCED MESSAGE-----
Proc-Type: 2001,MIC-CLEAR
Originator-Name: [email protected]
Originator-Key-Asymmetric:
MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen
TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB
MIC-Info: RSA-MD5,RSA,
EBocvC/kV0mXrFUK6110cTDv8s5FMQmqjvca4vbxw7cB7Picg6+0fGLog4nAjDzz
EzT3X08dJSDKrfNMEanp8Q==
<SEC-DOCUMENT>0000897101-04-000410.txt : 20040302
<SEC-HEADER>0000897101-04-000410.hdr.sgml : 20040302
<ACCEPTANCE-DATETIME>20040302115249
ACCESSION NUMBER: 0000897101-04-000410
CONFORMED SUBMISSION TYPE: 10-K
PUBLIC DOCUMENT COUNT: 9
CONFORMED PERIOD OF REPORT: 20031231
FILED AS OF DATE: 20040302
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: VASCULAR SOLUTIONS INC
CENTRAL INDEX KEY: 0001030206
STANDARD INDUSTRIAL CLASSIFICATION: SURGICAL & MEDICAL INSTRUMENTS & APPARATUS [3841]
IRS NUMBER: 411859679
STATE OF INCORPORATION: DE
FISCAL YEAR END: 1231
FILING VALUES:
FORM TYPE: 10-K
SEC ACT: 1934 Act
SEC FILE NUMBER: 000-27605
FILM NUMBER: 04641590
BUSINESS ADDRESS:
STREET 1: 6464 SYCAMORE COURT NORTH
CITY: MINNEAPOLIS
STATE: MN
ZIP: 55369
BUSINESS PHONE: 7636564300
MAIL ADDRESS:
STREET 1: 6464 SYCAMORE COURT NORTH
CITY: MINNEAPOLIS
STATE: MN
ZIP: 55369
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-K
<SEQUENCE>1
<FILENAME>vasc041035_10k.htm
<TEXT>
<HTML>
<HEAD>
<TITLE>VASCULAR SOLUTIONS, INC. FORM 10-K FOR YEAR ENDED DECEMBER 31, 2003 Dated: February 27, 2004</TITLE></HEAD>
<BODY>
<HR SIZE=3 COLOR=GRAY NOSHADE>
<BR>
<!-- MARKER FORMAT-SHEET="Head Minor Center" FSL="Default" -->
<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=4>UNITED STATES
<BR>SECURITIES AND EXCHANGE COMMISSION </FONT> <BR><FONT FACE="Times New Roman, Times, Serif" SIZE=2>WASHINGTON, D.C. 20549 </FONT></P>
<!-- MARKER FORMAT-SHEET="Head Minor Center Bold" FSL="Default" -->
<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=4>FORM 10-K </FONT></H1>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>(MARK ONE)</B> </FONT> </P>
<!-- MARKER FORMAT-SHEET="Para Hang" FSL="Default" -->
<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=5%> <FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>[X]</B> </FONT> </TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934</B> </FONT> </TD>
</TR>
</TABLE>
<BR>
<!-- MARKER FORMAT-SHEET="Head Minor Center Bold" FSL="Default" -->
<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>For the fiscal year
ended December 31, 2003 </FONT></H1>
<!-- MARKER FORMAT-SHEET="Head Minor Center Bold" FSL="Default" -->
<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>OR </FONT></H1>
<!-- MARKER FORMAT-SHEET="Para Hang" FSL="Default" -->
<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=5%> <FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>[ ]</B> </FONT> </TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934</B></FONT></TD></TR>
</TABLE>
<BR>
<!-- MARKER FORMAT-SHEET="Head Minor Center" FSL="Default" -->
<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>For the transition
period from __________________ to ________________</B> </FONT> </P>
<!-- MARKER FORMAT-SHEET="Head Minor Center" FSL="Default" -->
<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Commission File Number:
0-27605 </FONT></P>
<!-- MARKER FORMAT-SHEET="Head Minor Center" FSL="Default" -->
<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE="3"><B>VASCULAR SOLUTIONS, INC.</B></FONT>
<BR><FONT FACE="Times New Roman, Times, Serif" SIZE="2">(Exact name of registrant as specified in its charter) </FONT> </P>
<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 ALIGN=CENTER WIDTH=600>
<TR VALIGN=Bottom>
<TH><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
<TH><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
<TD WIDTH="50%" ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>Minnesota</B> </FONT></TD>
<TD WIDTH="50%" ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>41-1859679</B> </FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(State of Incorporation)</FONT></TD>
<TD ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(IRS Employer Identification No.)</FONT></TD></TR>
</TABLE>
<!-- MARKER FORMAT-SHEET="Head Minor Center" FSL="Default" -->
<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>6464 Sycamore Court
</B><BR><B>Minneapolis, Minnesota 55369 </B><BR>(Address of Principal Executive Offices) </FONT> </P>
<!-- MARKER FORMAT-SHEET="Head Minor Center" FSL="Default" -->
<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>(763) 656-4300
</B><BR>(Registrant’s telephone number, including are code) </FONT> </P>
<!-- MARKER FORMAT-SHEET="Head Minor Center" FSL="Default" -->
<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE="2">Securities registered
pursuant to Section 12(b) of the Act: <B>None </B><BR>Securities
registered pursuant to Section 12(g) of the Act:
<BR><B>Common Stock, par value $.01 per share</B><BR>___________________________ </FONT> </P>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Indicate by check mark whether the
registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days. Yes [X] No [ ] </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Indicate by check mark if disclosure
of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and
will not be contained, to the best of registrant’s knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X] </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The aggregate market value of voting
and non-voting common equity held by non-affiliates computed by reference to the price at
which the common equity was last sold on June 30, 2003 was $21,638,700. </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Indicate by check mark whether the
registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes [ ]
No [X] </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>As of February 13, 2004, the number
of shares outstanding of the registrant’s common stock was 12,998,770. </FONT></P>
<!-- MARKER FORMAT-SHEET="Head Minor Center" FSL="Default" -->
<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>DOCUMENTS INCORPORATED
BY REFERENCE</B> </FONT> </P>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Portions of the Registrant’s Proxy
Statement for its 2004 Annual Meeting of Shareholders to be held on April 22, 2004 are
incorporated by reference in Part III of this Annual Report on Form 10-K. </FONT></P>
<BR>
<!-- MARKER FORMAT-SHEET="Para Center" FSL="Workstation" -->
<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></P>
<HR SIZE=3 COLOR=GRAY NOSHADE>
<!-- *************************************************************************** -->
<!-- MARKER PAGE="sheet: 0; page: 0" -->
<BR>
<!-- MARKER FORMAT-SHEET="Head Minor Center" FSL="Default" -->
<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>PART I</B> </FONT> </P>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>ITEM 1. BUSINESS</B> </FONT> </P>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>Overview</B> </FONT> </P>
<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> We
are a medical device company focused on bringing clinically advanced solutions to
interventional cardiologists and interventional radiologists worldwide. Our current
product line consists of the following medical devices: </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Flush Level 1" FSL="Default" -->
<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
• Duett™sealing device, used to seal the puncture site following
catheterization procedures, <BR>• D-Stat® Flowable hemostat, a thick, yet
flowable, mixture used to control bleeding, <BR>• D-Stat Dry™ hemostatic
bandage, a topical pad with a bandage used to control surface bleeding, <BR>•
D-Stat Radial™ hemostat band, a topical pad with a compression strap to
control bleeding at the wrist, <BR>• Vari-Lase® endovenous laser system, a
laser and procedure kit used for the treatment of varicose veins, <BR>•
Pronto™ extraction catheter, a mechanical system for the removal of soft
thrombus from arteries, and <BR>• Acolysis® ultrasound (international only),
a treatment for peripheral occlusive arterial disease. </FONT></TD>
</TR>
</TABLE>
<BR>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>As a vertically-integrated medical
device company, we generate ideas and create new interventional medical devices, and then
deliver these products directly to the physician through our direct domestic sales force
and our international distribution network. </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> The
first product we brought to market, the Duett sealing device, is designed to provide a
complete seal of the puncture site following catheterization procedures such as
angiography, angioplasty and stenting. Our Duett sealing device combines an easy-to-use
balloon catheter delivery mechanism with a biological procoagulant mixture, which we
believe offers advantages over both manual compression and competitive vascular sealing
devices. We began selling our Duett sealing device in Europe in February 1998 and in the
United States in June 2000. Over 200,000 Duett sealing devices have been sold and
deployed worldwide. In the fourth quarter of 2001 we introduced the Diagnostic Duett
version of the Duett sealing device, which utilizes a lower dose of progcoagulant for the
less-challenging diagnostic subset of catheterization procedures. In mid-2002 we
introduced the next generation “Pro” line of the Duett sealing device for
improved ease-of-use. In 2003 we made the decision to reduce our focus on growing the
Duett product line in order to focus on increasing sales of our new products. </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> The
second product we developed and commercialized is the D-Stat Flowable hemostat, which we
began selling worldwide in February 2002. The D-Stat Flowable hemostat utilizes the
clinically proven procoagulant components of the Duett sealing device to provide a
powerful stop to active bleeding. The thick, yet flowable procoagulant controls active
bleeding by initiating the body’s own clotting mechanisms in the same manner as the
procoagulant included in our Duett sealing device. The D-Stat Flowable hemostat can be
clinically used in a number of medical procedures, and has substantial extension
market opportunities in other medical practice areas. </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> During
the second quarter of 2002 we acquired the Acolysis ultrasound thrombolysis system. The
Acolysis system uses ultrasound energy generated by the Acolysis controller that is
delivered intravascularly by the disposable Acolysis probe to lyse blood clots and
plaque. The Acolysis controller and probes are sold only in international markets, where
it has been sold principally for the treatment of peripheral vascular disease. Upon
completion of our acquisition and integration of the Acolysis business, we commenced
active international sales of the Acolysis probes through our existing international
distribution network in late 2002. In late 2003 we received CE mark approval to
internally manufacture Acolysis probes, which will allow broader international market
activities starting in 2004. </FONT></P>
<BR>
<!-- MARKER FORMAT-SHEET="Para Center" FSL="Workstation" -->
<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2</FONT></P>
<HR SIZE=3 COLOR=GRAY NOSHADE>
<!-- *************************************************************************** -->
<!-- MARKER PAGE="sheet: 0; page: 0" -->
<BR>
<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> In
the second half of 2003 we received regulatory clearance in the United States
for four new interventional medical devices: the D-Stat Dry, the D-Stat Radial,
the Vari-Lase and the Pronto. Our D-Stat Dry hemostatic bandage consists of our
proprietary hemostat which is lyohphilized (freeze-dried) into a gauze pad and
applied with an included adhesive bandage. The D-Stat Dry hemostatic bandage is
used to assist in the control of bleeding from vascular access sites in
conjunction with manual compression. Our D-Stat Radial hemostat band is a
version of our D-Stat Dry which includes a compression band for application
around the patient’s wrist. The D-Stat Radial hemostat band is designed to
be used following catheterizations using the radial artery in the wrist. Our
Vari-Lase endovenous laser products consist of a solid state diode laser console
and procedure kit and accessories which are used in the minimally-invasive
treatment of varicose veins. Our Pronto extraction catheter is a catheter and
syringe system for the mechanical removal of blood clots from arteries.
</FONT></P>
<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> We
also have in development several additional products that leverage our existing
infrastructure to bring additional solutions to the interventional cardiologist and
interventional radiologist. Additional products that we expect to gain regulatory
clearance and market launch before the end of 2004 include several new versions of our
D-Stat Dry hemostatic bandage and a new device for the measurement of stenosis of the
aortic valve of the heart. </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>Interventional Cardiology and
Interventional Radiology Industry Background</B> </FONT> </P>
<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 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 9 million diagnostic and
interventional catheterization procedures worldwide in 2003. Oftentimes, these procedures
are performed to remove blood clots or plaque which have been generated and deposited
inside the patient’s artery and are an impediment to normal blood flow. The number
of catheterization procedures performed is expected to grow by more than 5% each year for
the next three years as the incidence of cardiovascular disease continues to increase.
The overall interventional medical device market in 2003 exceeded $5 billion worldwide. </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Each
procedure using a catheter requires a puncture in an artery, usually the femoral artery
in the groin area and sometimes the radial artery in the wrist of the patient to gain
access for the catheter. The catheter then is deployed through an introducer sheath and
into the vessel to be diagnosed or treated. Upon completion of the procedure and removal
of the catheter, the physician must seal this puncture in the artery and the tissue tract
that leads from the skin surface to the artery to stop bleeding. The traditional method
for sealing the puncture site has been a manual process whereby a healthcare professional
applies direct pressure to the puncture site, sometimes using a sand bag or a large
C-clamp, for 20 minutes to an hour in order to form a blood clot. The healthcare
professional then monitors the patient, who must remain immobile in order to prevent
dislodging of the clot, for an additional four to 48 hours. </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 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 can 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. </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 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. </FONT></P>
<BR>
<!-- MARKER FORMAT-SHEET="Para Center" FSL="Workstation" -->
<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>3</FONT></P>
<HR SIZE=3 COLOR=GRAY NOSHADE>
<!-- *************************************************************************** -->
<!-- MARKER PAGE="sheet: 0; page: 0" -->
<BR>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>In addition to the Duett sealing
device, four invasive sealing devices have received FDA approval and are currently being
marketed around the world. In aggregate, over $320 million of the five FDA-approved
invasive sealing devices were sold worldwide in 2003 compared to less than $20 million in
1996. In addition to invasive (below the skin surface) sealing devices, starting in 2000,
non-invasive “patches” have begun to be used as an assistance to manual
compression following catheterizations. Non-invasive patches are used by physicians who
(principally due to cost, complexity or risk of complications) do not wish to use
invasive sealing devices, and for those patients who are contra-indicated for an invasive
sealing device. 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 (invasive and non-invasive) is more than $1 billion.
Accordingly, the market opportunity for vascular sealing devices is currently
approximately 20% penetrated. </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>Duett Sealing Device</B> </FONT> </P>
<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> We
believe our Duett sealing device (1) offers a complete seal of the puncture site with
nothing left behind in the artery, (2) is an easy-to-use system and (3) minimizes patient
discomfort and permits early ambulation. Our product uses a balloon catheter, a device
already familiar to cardiologists and radiologists, which is inserted through the
introducer sheath that is already in the patient. The inflated balloon serves as a
temporary mechanical seal, preventing the flow of blood from the artery. Our biological
procoagulant, which is a proprietary mixture of collagen, thrombin and diluent, is then
delivered to the puncture site, stimulating rapid clotting and creating a complete seal
of both the arterial puncture and the tissue tract from the artery to the skin surface.
The blood-clotting speed and strength of thrombin enables the use of the Duett sealing
device even in the presence of powerful anti-clotting medications, such as ReoPro®,
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. </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> We
commenced sales of a new version of our Duett sealing device, the Diagnostic Duett
sealing device, for a subset of catheterization patients in the fourth quarter of 2001.
The Diagnostic Duett is tailored specifically for treating diagnostic patients. Because
the Duett sealing device is a one-size-fits-all device, the procoagulant is dosed
appropriately for the most challenging catheterization patients. We developed the
Diagnostic Duett with a lower dose of procoagulant that is tailored specifically for the
less-challenging diagnostic patients where substantial blood-thinning drugs are less
frequently used. All other components of the Diagnostic Duett, including the balloon
catheter, are identical to the original Duett sealing device. This results in the
Diagnostic Duett having identical deployment steps, but being less expensive and yet
fully effective for the over 2.5 million diagnostic procedures that occur each year in
the United States. In July 2002 we launched the next generation “Pro” line of
the Duett sealing device. The Pro line enhances the Duett catheter by improving its
robustness and simplifying the device deployment steps. </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>D-Stat Flowable Hemostat</B> </FONT> </P>
<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Our
second product, the D-Stat Flowable hemostat, is a blood clotting material that can be
delivered topically and into voids and open spaces to control active bleeding. The
D-Stat Flowable offers the advantage of being thick to maintain its position, yet easily
deliverable. The D-Stat Flowable consists of the same collagen, thrombin and diluent
components as the Duett sealing device, which has been proven effective in controlling
bleeding from aggressive arterial puncture sites. After a simple reconstitution step, the
D-Stat Flowable can be applied directly to a wide variety of bleeding surfaces
included applicator tips. Since the D-Stat Flowable is applied locally, no
special catheter delivery system is required. The D-Stat Flowable is shelf stable and can
be prepared up to three hours before use. </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> The
D-Stat Flowable hemostat can be used in a wide variety of interventional procedures as an
adjunct to hemostasis. An example of these uses includes sealing the access site after the
removal of catheters from A-V access grafts. We believe that the D-Stat Flowable
hemostat is the only hemostat available in the United States that combines </FONT></P>
<BR>
<!-- MARKER FORMAT-SHEET="Para Center" FSL="Workstation" -->
<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>4</FONT></P>
<HR SIZE=3 COLOR=GRAY NOSHADE>
<!-- *************************************************************************** -->
<!-- MARKER PAGE="sheet: 0; page: 0" -->
<BR>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>the thick consistency and extremely
flowable delivery that is preferred by the interventional physician in these
opportunities. </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> We
commenced sales of the D-Stat Flowable worldwide in the first quarter of 2002. Currently,
the approved clinical indications for the D-Stat Flowable are limited to topical bleeding
and blood “oozing” following percutaneous procedures. We believe these
indications are but a small fraction of the total potential market for the D-Stat
Flowable. We currently are undertaking a clinical study of the use of the D-Stat Flowable
in the hemostasis of prepectoral pockets created in pacemaker and defribrillator
implantations. We expect that enrollment in this “Pocket Protector” clinical
study will be completed and submitted for FDA approval by the middle of 2004. We estimate
that the U.S. market opportunity for this prepectoral pocket indication is greater than
100,000 procedures (or $10 million) annually. Following completion of the Pocket
Protector clinical study, we expect to perform clinical studies on the use of D-Stat
Flowable to seal following breast biopsy and liver biopsy procedures, each of which we
believe can match or exceed the prepectoral pocket market opportunity for D-Stat
Flowable. </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>Acolysis Ultrasound Thrombolysis
System</B> </FONT> </P>
<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Our
third product, the Acolysis ultrasound thrombolysis system, uses high energy, low
frequency ultrasound to lyse thrombus into subcapillary particles without damaging vessel
walls. The therapeutic principle of the Acolysis system is to generate ultrasound
thrombolysis by the selective disruption of the fibrin matrix of the thrombus. Cavitation
produces subcapillary-sized particles, resulting in a debulking of the arterial lesion.
The first application of the Acolysis product is to treat chronic occlusions in
peripheral arteries. Peripheral vascular disease currently affects over 8 million people
worldwide, with limited effective treatment options. We believe the Acolysis product
represents a new approach in both therapy and technology, and initial clinical experience
and one-year follow-up with the product has been favorable. </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Our international
sales efforts on the Acolysis product began in 2002 on a limited basis. In the fourth
quarter of 2003 we received CE mark approval for our internal manufacturing of the
Acolysis probe, which will allow us to broaden our international marketing activities in
2004. We are in the process of planning and structuring a clinical study in the U.S. to
study the effectiveness of the use of the Acolysis system to open chronic peripheral
occlusions, with the study not expected to be completed before 2006. </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>D-Stat Dry and D-Stat Radial
Hemostat Products</B> </FONT> </P>
<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> In
September 2003 we received regulatory clearance and commenced sales of our D-Stat Dry
hemostatic bandage in the United States and international markets. The D-Stat Dry
hemostatic bandage is a version of our proprietary blood clotting substance that is
lyophilized (freeze-dried) into a gauze pad, combined with an adhesive bandage for
application. The D-Stat Dry is used as an assistance for manual compression to manage
bleeding after catheterization procedures. We believe that the market for a hemostatic
pad in this indication has grown substantially since the first competitive patch was
introduced in 2000, with a market size greater than $30 million in 2003. Like the D-Stat
Flowable, we believe that the D-Stat Dry has many potential uses beyond this initial
application, and we are currently exploring several opportunities and variations of the
D-Stat Dry for use in trauma, dialysis and other medial areas. We are exploring corporate
relationships for most of these opportunities for the D-Stat Dry. </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> The
D-Stat Radial hemostat band is a specially-sized version of the D-Stat Dry that includes
a compression band that allows it to be applied over the radial artery in the wrist. In
approximately 5% of all catheterizations, the radial artery in the wrist instead of the
femoral artery in the groin is used to gain arterial access. In these cases using the
radial artery, the health care professional must control bleeding from the artery after
the procedure. A variety of compression splints and tapes have been used for this
purpose. The D-Stat Radial is the first device that contains an active blood clotting
agent together with the compression collar for this purpose. We received regulatory
clearance for the D-Stat Radial hemostat band in September 2003, and made manufacturing
improvements to the product before launching it in the United States in early 2004. </FONT></P>
<BR>
<!-- MARKER FORMAT-SHEET="Para Center" FSL="Workstation" -->
<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>5</FONT></P>
<HR SIZE=3 COLOR=GRAY NOSHADE>
<!-- *************************************************************************** -->
<!-- MARKER PAGE="sheet: 0; page: 0" -->
<BR>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>Vari-Lase Endovenous Laser Products</B> </FONT> </P>
<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Our
Vari-Lase endovenous laser products consist of a laser console, procedure kits and
accessories used in the treatment of reflux of the great saphenous vein, commonly
referred to as varicose veins. More than one million people in the U.S. seek treatment
each year for varicose veins. Left untreated, varicose veins can result in serious
clinical consequences, including limited mobility and venous ulcers. Historically, an
invasive surgical procedure known as vein stripping was the only treatment for severe
varicose veins. While vein stripping is still performed on over 100,000 patients each
year in the United States, a new non-surgical procedure using endovenous laser energy to
treat and close the diseased vein has emerged since 2002 as a preferred alternative.
Recent clinical data on endovenous laser therapy has demonstrated excellent clinical
results and outstanding patient satisfaction. </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> The
first product we launched in our Vari-Lase product line was our Vari-Lase procedure kit
in July 2003 in the United States. Our procedure kit is custom-designed for the
endovenous procedure, with features supporting ease-of-use and safety, and is compatible
with the competitive laser consoles already in use for this procedure. In December 2003
we received FDA clearance for our laser console, which we have manufactured to our
specifications by MedArt Corporation, a subsidiary of Asah Medico, a leading
Denmark-based medical laser manufacturer. To complete our Vari-Lase product line, we sell
micro-introducers and guidewires which are used as accessory items in the endovenous
laser procedure as well as other interventional medical procedures. </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<A NAME=A010></A>
<P><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>Pronto Extraction Catheter</B> </FONT> </P>
<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Our
Pronto product consists of an extraction catheter with a proprietary distal tip and a
large extraction lumen that can be delivered into arteries to mechanically remove blood
clots. The Pronto extraction catheter was initially developed by Dr. Pedro Silva of Milan, Italy,
who exclusively licensed the design to us in 2002. We received CE mark approval and
commenced international sales of the Pronto in August 2003, and received FDA clearance in
December 2003 and commenced sales in the United States in early 2004. </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<A NAME=A011></A>
<P><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>Business Strategy</B> </FONT> </P>
<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Our
primary objective is to establish ourselves as a leading supplier of clinically superior
medical devices for substantial opportunities within interventional medicine. Starting
with our Duett sealing device in the vascular sealing device market, the key steps in
achieving our primary objective are the following: </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Hang Level 1" FSL="Default" -->
<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>• </FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><I>Maintain
and Improve our Clinically-Oriented Direct Sales Force in the United States. </I>During
the third quarter of 2000 we commenced sales of our Duett sealing device in the United
States through a direct sales force that includes clinical specialists who train
interventional cardiologists, radiologists and catheterization laboratory administrators
on the use of our products. We believe that effective training is a key factor in
promoting use of interventional medical devices, and we have created and will continue to
work to improve an in-the-field training program for the use of our products. </FONT></TD>
</TR>
</TABLE>
<BR>
<!-- MARKER FORMAT-SHEET="Para Hang Level 1" FSL="Default" -->
<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>• </FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><I>Introduce
our New Products to Our Existing Market. </I>In the second half of 2003 we received
clearance for a total of four new products to be sold in the United States through our
existing direct sales force to our existing markets. We believe that each of these
products has the potential to generate a material level of sales during 2004 and expand
in 2005 and beyond. </FONT></TD>
</TR>
</TABLE>
<BR>
<!-- MARKER FORMAT-SHEET="Para Center" FSL="Workstation" -->
<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>6</FONT></P>
<HR SIZE=3 COLOR=GRAY NOSHADE>
<!-- *************************************************************************** -->
<!-- MARKER PAGE="sheet: 0; page: 0" -->
<BR>
<!-- MARKER FORMAT-SHEET="Para Hang Level 1" FSL="Default" -->
<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>• </FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><I>Develop
Future Devices through our Direct Sales Force to our Existing Customers. </I>We intend to
continue to leverage our direct sales force by bringing additional products to the
interventional physician. Our research and development team is working on additional
configurations of the D-Stat Dry hemostatic bandage and a new device for the precise
measurement of aortic stenosis which we believe we can bring to the United States market
before the end of 2004. </FONT></TD>
</TR>
</TABLE>
<BR>
<!-- MARKER FORMAT-SHEET="Para Hang Level 1" FSL="Default" -->
<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>• </FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><I>Explore
Corporate Relationships to Augment our Direct Sales Force.</I> For markets for our
products beyond the interventional physician and in other situations where synergistic
sales can result, we intend to enter into corporate relationships to broaden our products’ reach
and increase our revenues. </FONT></TD>
</TR>
</TABLE>
<BR>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>Sales, Marketing and Distribution</B> </FONT> </P>
<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> In
the third quarter of 2000 we commenced sales of our Duett sealing device in the United
States through our direct sales organization. As of December 31, 2003, our direct sales
force consisted of approximately 40 employees. We believe that the majority of
interventional catheterization procedures in the United States are performed in high
volume catheterization laboratories, and that these institutions can be served by our
focused direct sales force. We also believe that our sales force are able to sell each of
our new products to the same customer base. </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> As
part of our sales force, we have hired clinical specialists to train physicians and other
healthcare personnel on the use of our products. We believe that effective training is a
key factor in encouraging physicians to use interventional medical devices. We have
created, and will continue to work to improve an in-the-field training program for the
use of all of our products. We also develop and maintain close working relationships with
our customers to continue to receive input concerning our product development plans. </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> We
are focused on building market awareness and acceptance of our products. Our marketing
organization provides a wide range of programs, materials and events that support our
sales force. These include product training, conference and trade show appearances and
sales literature and promotional materials. Members of our medical advisory board also
aid in marketing our products by publishing articles and making presentations at
physicians’ meetings and conferences. </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Our
international sales and marketing strategy has been to sell to interventional
cardiologists and radiologists through established independent distributors in major
international markets, subject to required regulatory approvals. In Germany, we
established a direct sales organization by creating Vascular Solutions GmbH and began
selling directly to customers in the German market in the fourth quarter of 2000. Our
products are currently marketed through independent distributors in most of the other
major developed markets. We intend to add independent distributors in other countries as
our sales and marketing efforts are expanded. Under multi-year written distribution
agreements with each of our independent distributors, we ship our products to these
distributors upon receipt of purchase orders. Each of our independent distributors has
the exclusive right to sell our products within a defined territory. These distributors
also market other medical products, although they have agreed not to sell other vascular
sealing devices. Our independent distributors purchase our products from us at a discount
from list price and resell the device to hospitals and clinics. Sales to international
distributors are denominated in United States dollars. The end-user price is determined
by the distributor and varies from country to country. </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 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 international markets constituted 13%, 11%, 10%, 33% and 93%
of our net sales for the years ended December 31, 2003, 2002, 2001, 2000 and 1999. </FONT></P>
<BR>
<!-- MARKER FORMAT-SHEET="Para Center" FSL="Workstation" -->
<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>7</FONT></P>
<HR SIZE=3 COLOR=GRAY NOSHADE>
<!-- *************************************************************************** -->
<!-- MARKER PAGE="sheet: 0; page: 0" -->
<BR>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>New Product Development</B> </FONT> </P>
<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Our
research and development staff is currently focused on developing new products to sell to
our existing customer base through our direct sales force and on developing next
generation versions of our existing products. We incurred expenses of $3,670,935 in 2003,
$3,227,538 in 2002 and $4,123,883 in 2001 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. </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> We
are in the process of developing several new products and product line extensions of our
current products. We currently are developing several new versions of our D-Stat Dry
hemostatic bandage for use in interventional medicine and in other medical areas such as
trauma and dialysis. We also have an active program for the development of a new device
for the precise measurement of aortic stenosis. </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> We
are also working on next generation versions of the Duett sealing device. We have
developed and performed pre-clinical testing of the Mechanical Duett, a concept that
utilizes an immediate and complete mechanical seal of the arterial puncture to obtain
hemostasis. Additional development of this new concept is necessary before it proceeds
into clinical studies. </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> We
expect our research and development activities to continue to expand to include
evaluation of new concepts and products for the interventional cardiology and
interventional radiology field. We believe that there are many potential new
interventional products that would fit within the development, clinical, manufacturing
and distribution network we have created for our existing products. </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>Manufacturing</B> </FONT> </P>
<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> We
manufacture our products in our facility in a suburb of Minneapolis, Minnesota. The
catheter manufacturing and packaging processes occur under a controlled clean room
environment. Our manufacturing facility and processes were certified in July 1998 as
compliant with the European Community’s EN 46001 standards and were audited in
September 1999 and June 2000 for compliance with the FDA’s quality systems
regulations with no deficiencies noted. Upon expiration of our prior lease, in March 2003
we moved to a new facility, also located in a suburb of Minneapolis, Minnesota. FDA
approved our new facility in May 2003. </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> We
purchase components from various suppliers and rely on single sources for several parts of
the Duett sealing device and D-Stat flowable hemostat. In September 1998, we entered into
a ten year, sole-source, supply agreement with our collagen supplier, Davol Inc., that
provides for a fixed price based on volume purchases which is adjusted annually for
increases in the Department of Labor’s employer’s cost index. In June 1999, we
entered into a five year, sole-source, supply agreement with our thrombin supplier,
GenTrac, Inc., a subsidiary of King Pharmaceuticals, Inc., that provides for a fixed price
with a price adjustment formula based on increased costs and wholesale price increases.
Our agreement with GenTrac, Inc. expires in May 2005. To date, we have not experienced any
significant adverse effects resulting from shortages of components. </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> The
manufacture and sale of our products entail significant risk of product liability claims.
Although we have product liability insurance coverage in an amount which we consider
reasonable, it may not be adequate to cover potential claims. Any product liability claims
asserted against us could result in costly litigation, reduced sales and significant
liabilities and divert the attention of our technical and management personnel away from
the development and marketing of our products for significant periods of time. </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>Competition</B> </FONT> </P>
<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Competition
in the interventional medical device industry is intense and dominated by very large and
experienced companies such as Medtronic, Inc., Abbott Laboratories and Boston Scientific.
We compete on</FONT></P>
<BR>
<!-- MARKER FORMAT-SHEET="Para Center" FSL="Workstation" -->
<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>8</FONT></P>
<HR SIZE=3 COLOR=GRAY NOSHADE>
<!-- *************************************************************************** -->
<!-- MARKER PAGE="sheet: 0; page: 0" -->
<BR>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>the basis of our clinically
differentiated products and focused opportunities within this interventional medical
device market. </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Our
Duett sealing device principally competes with three vascular sealing devices and manual
compression. The three principal competitive vascular sealing devices are: </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Hang Level 1" FSL="Default" -->
<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>• </FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The
VasoSeal<SUP>®</SUP> 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. </FONT></TD>
</TR>
</TABLE>
<BR>
<!-- MARKER FORMAT-SHEET="Para Hang Level 1" FSL="Default" -->
<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>• </FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The
Angio-Seal<SUP>®</SUP> 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. </FONT></TD>
</TR>
</TABLE>
<BR>
<!-- MARKER FORMAT-SHEET="Para Hang Level 1" FSL="Default" -->
<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>• </FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The
Closer™ device, sold by Perclose, Inc., a subsidiary of Abbott Laboratories, seals
the puncture site through the use of a mechanical device that enables a physician to
perform a minimally invasive replication of open surgery. </FONT></TD>
</TR>
</TABLE>
<BR>
<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> There
are many companies that are selling or have developed hemostats which compete generally
with our D-Stat Flowable hemostat. Virtually all of these devices, however, are
positioned as hemostats for the surgical market and are not designed specifically for use
in interventional procedures. </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Topical
patches and pads, which have recently been introduced to the market, are designed to
treat bleeding at arterial puncture sites. Our D-Stat Dry hemostatic bandage competes in
this market segment. These patches are applied directly over the puncture site and held
in place with adjunctive manual compression for a period of 10-20 minutes. These patches
include: </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Flush Level 1" FSL="Default" -->
<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
• The Syvek(TM)Patch, manufactured and marketed by Marine Polymer Technologies, Inc.
<BR>• The Closur-P.A.D.(TM), manufactured by Scion Cardiovascular and distributed by
Medtronic, Inc. <BR>• The Chito-Seal(TM), distributed by Abbott Vascular, Inc. a
division of Abbott Laboratories </FONT></TD>
</TR>
</TABLE>
<BR>
<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> The
Acolysis therapeutic ultrasound system and the Pronto extraction catheter compete, and
are expected to compete, in the highly competitive market segment for removal of thrombus
and plaque from the arterial system. There are many companies that are selling or have
developed products in this segment, including Possis Medical, Medtronic, Boston
Scientific and ev3. </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> We
are aware of four companies that sell a product for the endovenous laser treatment of
varicose veins. These companies are AngioDynamics (a subsidiary of EZ-EM), biolitec,
Dornier MedTech and Diomed. Each of these company’s products contain the same basic
components for the therapy but differ in procedural training, custom-designed features
and support. </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> In
each of our product areas, we believe that several other companies are developing new
devices. The medical device industry is characterized by rapid and significant
technological change as well as the frequent emergence of new technologies. There are
likely to be research and development projects related to these market areas of which we
are currently unaware. A new technology or product may emerge that results in a reduced
need for our products or results in a product that renders our product noncompetitive. </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<A NAME=A016></A>
<P><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>Regulatory Requirements</B> </FONT> </P>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<A NAME=A017></A>
<P><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B><I>United States</I></B> </FONT> </P>
<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Our
products are regulated in the United States as medical devices by the FDA under the
Federal Food, Drug and CosmeticAct. 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</FONT> </P>
<BR>
<!-- MARKER FORMAT-SHEET="Para Center" FSL="Workstation" -->
<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>9</FONT></P>
<HR SIZE=3 COLOR=GRAY NOSHADE>
<!-- *************************************************************************** -->
<!-- MARKER PAGE="sheet: 0; page: 0" -->
<BR>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>general controls such as labeling,
adherence to good manufacturing practices and maintenance of product complaint records,
but are usually exempt from premarket notification requirements. Class II devices are
subject to the same general controls and also are subject to special controls such as
performance standards, and FDA guidelines, and may also require clinical testing prior to
approval. Class III devices are subject to the highest level of controls because they are
used in life-sustaining or life-supporting implantable devices. Class III devices require
rigorous clinical testing prior to their approval, and generally require a premarket
approval (PMA) application prior to their sale. </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> If
a medical device manufacturer can establish that a device is “substantially
equivalent” to a legally marketed Class I or Class II device, or to an unclassified
device, or to a Class III device for which the FDA has not called for PMAs, the
manufacturer may seek clearance from the FDA to market the device by filing a 510(k)
premarket notification. The 510(k) notification must be supported by appropriate data
establishing the claim of substantial equivalence to the satisfaction of the FDA.
Following submission of the 510(k) notification, the manufacturer may not place the
device into commercial distribution in the United States until an order is issued by the
FDA. </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Manufacturers
must file an investigated device exemption (or IDE) application if human clinical studies
of a device are required and if the FDA considers experimental use of the device to
represent significant risk to the patient. 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 review board to ensure the protection of the patients’ rights.. </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 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. </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Our
Duett sealing device is classified as a Class III device and is subject to the IDE
requirements. In May 1997, the FDA determined that the review of the Duett sealing device
would be delegated to the Center for Devices and Radiological Health area of the FDA,
with a consulting review by the Center for Biologic Evaluation and Research. During 1998
and 1999, we received approval of our IDE application to start our feasibility clinical
study, filed our IDE Supplement to begin our multi-center clinical study, completed the
SEAL multi-center clinical study and filed our PMA application with the FDA. In September
1999 our manufacturing facility was audited by the FDA, with no deficiencies or
non-compliances noted by the inspector. In December 1999, we received the FDA’s
review letter of our PMA application, and we submitted an amendment to our PMA to the FDA
in January 2000. On June 22, 2000, we received approval from the FDA of our PMA
application to sell the Duett sealing device in the United States. </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Our
D-Stat Flowable, D-Stat Dry, D-Stat Radial, Pronto and Vari-Lase products also are
regulated in the United States as medical devices by the FDA and required clearance of
our 510(k) notification by the FDA prior to being sold in the United States. Each of
these devices was the subject of a 510(k) notification which was determined to be “substantially
equivalent” to a legally marketed predicate device by the FDA, thereby allowing
commercial marketing in the United States. The D-Stat Flowable received clearance in
February 2002, while the other four products received clearance during the second half of
2003. </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> We
also are subject to FDA regulations concerning manufacturing processes and reporting
obligations. These regulations require that manufacturing steps be performed according to
FDA standards and in accordance with documentation, control and testing standards. We
also are subject to inspection by the FDA on an on-going basis. We are required to
provide information to the FDA on adverse incidents as well as maintain a documentation
and record keeping system in accordance with FDA guidelines. The advertising of our
products also is subject to both FDA and Federal Trade Commission jurisdiction. If the
FDA believes that we are not in compliance with any aspect of the law, it can institute
proceedings to detain or seize products, </FONT></P>
<BR>
<!-- MARKER FORMAT-SHEET="Para Center" FSL="Workstation" -->
<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>10</FONT></P>
<HR SIZE=3 COLOR=GRAY NOSHADE>
<!-- *************************************************************************** -->
<!-- MARKER PAGE="sheet: 0; page: 0" -->
<BR>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>issue a recall, stop future
violations and assess civil and criminal penalties against us, our officers and our
employees. </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B><I>International</I></B> </FONT> </P>
<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 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 series of quality systems
standards. We received the CE mark approval for our Duett sealing device and
certification of our quality system in July 1998, and we received the CE mark approval
for our other products in the following months: </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Flush Level 1" FSL="Default" -->
<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
• D-Stat Flowable hemostat – November 2001
<BR>• Pronto extraction catheter – June 2003
<BR>• D-Stat Dry and D-Stat Radial – September 2003
<BR>• Vari-Lase endovenous laser procedure kit – December 2003
<BR>• Acolysis probe internal manufacturing – November
2003 </FONT></TD>
</TR>
</TABLE>
<BR>
<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> International
sales of our products are subject to the regulatory requirements of each country in which
we sell. These requirements vary from country to country but generally are much less
stringent than those in the United States. We have obtained regulatory approvals where
required for us to sell our products in the country. Through our Japanese distributor, we
are pursuing the regulatory approval of our Duett sealing device and Pronto extraction
catheter for commercial sale in Japan. </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>Third Party Reimbursement</B> </FONT> </P>
<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> In
the United States, healthcare providers that purchase medical devices, generally rely on
third-party payors, principally the Centers for Medicare and Medicaid Services, or CMS,
(formerly the Health Care Financing Administration, or HCFA) and private health insurance
plans, to reimburse all or part of the cost of therapeutic and diagnostic catheterization
procedures. We believe that in the current United States reimbursement system, the cost
of vascular sealing devices is incorporated into the overall cost of the catheter
procedure. We have performed analyses to establish the cost benefit of the Duett sealing
device, relying on shortened hospital stays and decreased use of healthcare
professionals, to justify the increased cost of using our Duett sealing device in the
United States. Our other products are subject to reimbursement rules depending on the
specific medical procedure in which they are utilized. </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Market
acceptance of our products in international markets is dependent in part upon the
availability of reimbursement from healthcare payment systems. Reimbursement and
healthcare payment systems in international markets vary significantly by country. The
main types of healthcare payment systems in international markets are government
sponsored healthcare and private insurance. Countries with government sponsored
healthcare, such as the United Kingdom, have a centralized, nationalized healthcare
system. New devices are brought into the system through negotiations between departments
at individual hospitals at the time of budgeting. In most foreign countries, there are
also private insurance systems that may offer payments for alternative therapies. </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>Patents and Intellectual Property</B> </FONT> </P>
<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 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 </FONT></P>
<BR>
<!-- MARKER FORMAT-SHEET="Para Center" FSL="Workstation" -->
<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>11</FONT></P>
<HR SIZE=3 COLOR=GRAY NOSHADE>
<!-- *************************************************************************** -->
<!-- MARKER PAGE="sheet: 0; page: 0" -->
<BR>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>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. </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Since
commencing operations, we have continued the prosecution of the pending United States
patent applications and filed new patent applications. A second United States patent was
issued that is directed to a balloon catheter and procoagulant sealing device and method
and which expires in October 2015. A third United States patent was issued that contains
method claims concerning the use of a balloon catheter and flowable procoagulant and
which expires in October 2015. A fourth United States patent was issued concerning our
procoagulant mixture and which expires in October 2015. A fifth United States patent was
issued concerning a balloon catheter sealing device and which expires in May 2013. A
sixth United States patent was issued concerning a balloon catheter and procoagulant
sealing device and which expires in October 2015. A seventh United States patent was
issued concerning a balloon catheter sealing device and which expires in October 2015. We
currently have four additional United States patents pending concerning new versions of
our Duett sealing device, our Pronto catheter, our Vari-Lase procedure kit and our D-Stat
Dry product. We also have pursued international patent applications, which designate the
key developed nations with substantive patent protection systems. </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> The
interventional medical device market in general, and the vascular sealing device and
endovenous laser therapy fields in particular, are characterized by frequent and
substantial intellectual property litigation. Each of the vascular sealing products
currently on the U.S. market, including our Duett sealing device, has been subject to
infringement litigation. (See “Legal Proceedings” in Item 3 of Part I of this
Form 10-K) In addition, two of our competitors in the endovenous laser therapy market
(AngioDynamics and Diomed) are currently involved in intellectual property litigation.
The interpretation of patents involves complex and evolving legal and factual questions.
Intellectual property litigation in recent years has proven to be complex and expensive,
and the outcome of such litigation is difficult to predict. </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> We
may become the subject of additional intellectual property claims in the future related
to our products. Our defense of any intellectual property claims filed in the future,
regardless of the merits of the complaint, could divert the attention of our technical
and management personnel away from the development and marketing of our products for
significant periods of time. The costs incurred to defend future claims could be
substantial and adversely affect us, even if we are ultimately successful. </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 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. </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> We
also register the trademarks and trade names through which we conduct our business. To
date, we have registered the trademarks “D-Stat,” and “Vari-Lase,” and
have applied for registration in the United States of the marks “Vascular Solutions
Duett,” “Pronto,” and the Duett stylized logo. We acquired the registered
trademark “Acolysis” in connection with our acquisition of the Acolysis
therapeutic ultrasound business in 2002. </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<A NAME=A021></A>
<P><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>Employees</B> </FONT> </P>
<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> As
of December 31, 2003, we had 128 full time employees. Of these employees, 35 were in
manufacturing activities, 62 were in sales and marketing activities, 8 were in research
and development activities, 14 were in regulatory, quality assurance and clinical
research activities and 9 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. </FONT></P>
<BR>
<!-- MARKER FORMAT-SHEET="Para Center" FSL="Workstation" -->
<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>12</FONT></P>
<HR SIZE=3 COLOR=GRAY NOSHADE>
<!-- *************************************************************************** -->
<!-- MARKER PAGE="sheet: 0; page: 0" -->
<BR>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>Executive Officers of the Registrant</B> </FONT> </P>
<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> The
executive officers of the Company as of February 13, 2004 are as follows: </FONT></P>
<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 WIDTH=600>
<TR VALIGN=Bottom>
<TH ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="1"><U>Name</U> </FONT></TH>
<TH><FONT FACE="Times New Roman, Times, Serif" SIZE="1"><U>Age</U> </FONT></TH>
<TH ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="1"><U>Position</U> </FONT></TH></TR>
<TR VALIGN=Bottom>
<TD WIDTH=30% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Howard Root</FONT></TD>
<TD WIDTH="15%" ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>43 </FONT></TD>
<TD WIDTH=55% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Chief Executive Officer and Director</FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Michael Nagel</FONT></TD>
<TD ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>41 </FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Vice President of Sales & Marketing and Secretary</FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Deborah Neymark</FONT></TD>
<TD ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>47 </FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Vice President of Regulatory Affairs</FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>James Quackenbush</FONT></TD>
<TD ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>45 </FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Vice President of Manufacturing</FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>James Hennen</FONT></TD>
<TD ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>31 </FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Chief Financial Officer</FONT></TD></TR>
</TABLE>
<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> <B><I>Howard
Root </I></B><I></I>has served as our Chief Executive Officer and a director since he
co-founded Vascular Solutions in February 1997. From 1990 to 1995, Mr. Root was employed
by ATS Medical, Inc., a mechanical heart valve company, most recently as Vice President
and General Counsel. Prior to joining ATS Medical, Mr. Root practiced corporate law,
specializing in representing emerging growth companies, at the law firm of Dorsey &Whitney
for over five years. Mr. Root received his B.S. in Economics and J.D. degrees from the
University of Minnesota. </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> <B><I>Michael
Nagel</I></B> 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. </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE="2"> <B><I>Deborah
Neymark </I></B>has served as our Vice President of Regulatory Affairs, Clinical Affairs and
Quality Systems since October 2000. Mrs. Neymark 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, Mrs.
Neymark was employed as a Regulatory Affairs Manager for Boston Scientific’s Scimed
division. Prior to May 1993, Mrs. Neymark held regulatory affairs, clinical research and
quality assurance positions at Medtronic and Lifecore Biomedical. She received her B.S.
in Biology from Valparaiso University. </FONT> </P>
<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> <B><I>James
Quackenbush</I></B> 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. </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> <B><I>James
Hennen </I></B> has served as our Chief Financial Officer since January 2004. Mr.
Hennen served as our Controller & Director of Finance from February 2002 through
December 2003. Prior to joining us, Mr. Hennen served in accounting positions, most
recently as International Controller with WAM!NET, Inc., a globally networked information
technology company for media transfer, where he worked since December 1997. From October
1995 through December 1997, Mr. Hennen was a Senior Auditor for Ernst and Young, LLP. Mr.
Hennen received a B.S. in Business/Accounting from the University of Minnesota. Mr. Hennen
is a Certified Public Accountant. </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> There
are no family relationships among any of our executive officers. </FONT></P>
<BR>
<!-- MARKER FORMAT-SHEET="Para Center" FSL="Workstation" -->
<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>13</FONT></P>
<HR SIZE=3 COLOR=GRAY NOSHADE>
<!-- *************************************************************************** -->
<!-- MARKER PAGE="sheet: 0; page: 0" -->
<BR>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>Available Information</B> </FONT> </P>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>We make available free of charge on
or through our internet website at <U>http://www.vascularsolutions.com</U> our annual
report on Form 10-K, quarterly reports on Form 10Q, current reports on Form 8-K, and
amendments to these reports filed or furnished pursuant to Section 13 (a) or 15 (d) of
the Exchange Act as soon as reasonably practicable after we electronically file such
material with, or furnish it to, the SEC. </FONT></P>
<!-- MARKER FORMAT-SHEET="Head Major Left Bold" FSL="Default" -->
<A NAME=A024></A>
<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=3>ITEM 2. PROPERTIES </FONT></H1>
<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Our
offices are in approximately 33,000 square feet of leased space in a suburb of
Minneapolis, Minnesota. These facilities include approximately 11,200 square feet used for
manufacturing activities, approximately 1,400 square feet used for research and laboratory
activities, with the remainder used for administrative offices. Our lease for these
facilities expires in September 2008. We believe that facility will be adequate to meet
our needs through at least the end of the lease period. </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>ITEM 3. LEGAL PROCEEDINGS</B> </FONT> </P>
<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> On
July 23, 1999, we were named as the defendant in a patent infringement lawsuit brought by
Datascope Corp. in the United States District Court for the District of Minnesota. The
complaint requested a judgment that our Duett sealing device infringes and, following FDA
approval will infringe, a United States patent held by Datascope and asks for relief in
the form of an injunction that would prevent us from selling our product in the United
States as well as an award of attorneys’ fees, costs and disbursements. On August
12, 1999, we filed our answer to this lawsuit and brought a counterclaim alleging unfair
competition and tortious interference. On August 20, 1999, we moved for summary judgement
to dismiss Datascope’s claims. On March 15, 2000, the court granted summary judgment
dismissing all of Datascope’s claims, subject to the right of Datascope to
recommence the litigation after our receipt of FDA approval of our Duett sealing device.
On July 12, 2000, after our receipt of FDA approval, Datascope recommenced this
litigation, alleging that the Duett sealing device infringes a United States patent held
by Datascope and requesting relief in the form of an injunction that would prevent us
from selling our product in the United States, damages caused by our alleged
infringement, and other costs, disbursements and attorneys’ fees. On November 26,
2002, we entered into an agreement that settled all existing intellectual property
litigation with Datascope Corporation. Under the terms of the Settlement Agreement,
Datascope granted us a non-exclusive license to its Janzen patents as they apply to all
current versions of the Duett sealing sevice, and to certain permitted future product
improvements. Datascope also has released us from any claim of patent infringement based
on past or future sales of the Duett sealing device. In exchange, we paid Datascope a
single lump sum of $3,750,000 in the fourth quarter of 2002. </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> On
July 3, 2000, we were named as the defendant in a patent infringement lawsuit brought by
the Daig division of St. Jude Medical in the United States District Court for the
District of Minnesota. The complaint requested a judgment that our Duett sealing device
infringes a series of four patents known as the Fowler patents held by St. Jude Medical
and asks for relief in the form of an injunction that would prevent us from selling our
Duett sealing device in the United States, damages caused by the manufacture and sale of
our product, and other costs, disbursements and attorneys’ fees. On July 12, 2001,
we entered into an agreement that settled all existing intellectual property litigation
with St. Jude Medical. Under the terms of the settlement agreement, we agreed to pay a
royalty of 2.5% of net sales of our Duett sealing device to St. Jude Medical, up to a
maximum amount over the remaining life of the St. Jude Fowler patents. In exchange, St.
Jude Medical granted to us a non-exclusive license to its Fowler patents and has released
us from any claim of patent infringement based on sales of our Duett sealing device. We
granted a non-exclusive cross-license to our Gershony patents to St. Jude Medical,
subject to a similar royalty payment if St. Jude Medical utilizes our Gershony patents in
any future device. Beginning on July 1, 2001, a royalty expense of 2.5% of net sales is
included in our cost of goods sold until the maximum royalty is attained. </FONT></P>
<BR>
<!-- MARKER FORMAT-SHEET="Para Center" FSL="Workstation" -->
<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>14</FONT></P>
<HR SIZE=3 COLOR=GRAY NOSHADE>
<!-- *************************************************************************** -->
<!-- MARKER PAGE="sheet: 0; page: 0" -->
<BR>
<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> On
December 11, 2003, we and a non-officer employee of Vascular Solutions were named as
defendants in a lawsuit brought by Diomed, Inc. in the United States District Court for
the District of Massachusetts. The complaint alleges that in marketing our Vari-Lase
endovenous laser procedure kit we engaged in false advertising and infringed a registered
trademark of Diomed. The complaint also alleges that our employee, who previously worked
for a company that conducted business with Diomed, improperly utilized trade secrets of
Diomed in developing our Vari-Lase procedure kit. The complaint requests monetary damages
and an injunction on the sale of our Vari-Lase procedure kit. We believe that the
allegations included in the complaint are wholly without merit, have filed our answer to
the complaint, and intend to defend this litigation vigorously. We have tendered this
claim to our insurance carrier. It is not possible to predict the timing or outcome of
the Diomed litigation, including whether it will affect our ability to sell our Vari-Lase
procedure kit, or to estimate the amount or range of potential loss, if any. </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> From
time to time we are involved in legal proceedings arising in the normal course of our
business. As of the date of this report we are not a party to any legal proceeding not
described in this section in which an adverse outcome would reasonably be expected
to have a material adverse effect on our results of operations or financial condition. </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>ITEM 4. SUBMISSION OF MATTERS TO A
VOTE OF SECURITY HOLDERS</B> </FONT> </P>
<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> No
matters were submitted to a vote of security holders during the fourth quarter ended
December 31, 2003. </FONT></P>
<BR><BR><BR><BR><BR><BR><BR><BR><BR><BR>
<!-- MARKER FORMAT-SHEET="Para Center" FSL="Workstation" -->
<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>15</FONT></P>
<HR SIZE=3 COLOR=GRAY NOSHADE>
<!-- *************************************************************************** -->
<!-- MARKER PAGE="sheet: 0; page: 0" -->
<BR>
<!-- MARKER FORMAT-SHEET="Head Minor Center Bold" FSL="Default" -->
<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>PART II </FONT></H1>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>ITEM 5. MARKET FOR REGISTRANT’S
COMMON EQUITY AND RELATED STOCKHOLDER MATTERS</B> </FONT> </P>
<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> On
July 25, 2000, we sold 3,500,000 shares of our common stock, at an initial public
offering price of $12.00 per share, pursuant to a Registration Statement on Form S-1
(Registration No. 333-84089), which was declared effective by the Securities and Exchange
Commission on July 19, 2000. Our net proceeds from the offering were approximately $44.0
million. To date, we have spent approximately $22.7 million of the net proceeds to hire,
train and deploy a direct sales force in the United States, $4.1 million to settle the
St. Jude and Datascope litigation, $1.6 million to purchase the Acolysis System, $0.7
million for our stock repurchase program, $7.2 million for research and development of
new products and $4.8 million for general corporate purposes. </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> The
Company’s common stock began trading on the NASDAQ National Market under the symbol
“VASC” on July 20, 2000. The following table sets forth, for the periods
indicated, the range of high and low last sale prices for the common stock as reported by
the NASDAQ National Market. </FONT></P>
<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 WIDTH=600>
<TR VALIGN=Bottom>
<TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
<TH COLSPAN="3" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="1"><U>High</U> </FONT></TH>
<TH COLSPAN="3" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="1"><U>Low</U> </FONT></TH></TR>
<TR VALIGN=Bottom>
<TH COLSPAN="3" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2002</FONT></TH>
<TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
<TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
<TD WIDTH=44% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> First Quarter</FONT></TD>
<TD WIDTH=1% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=8% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=18% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD WIDTH=1% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$ 3.700</FONT></TD>
<TD WIDTH=8% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
<TD WIDTH=18% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD WIDTH=1% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$ 2.480</FONT></TD>
<TD WIDTH=1% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Second Quarter</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2.700</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1.680</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Third Quarter</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1.780</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>.880</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><BR> Fourth Quarter</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><BR>1.200</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><BR>.650</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></TR>
<TR VALIGN=Bottom>
<TH COLSPAN="3" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=1><BR>2003</FONT></TH>
<TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
<TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> First Quarter</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1.16</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>0.750</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Second Quarter</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2.28</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>0.750</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Third Quarter</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>5.880</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2.350</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><BR> Fourth Quarter</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><BR>6.420</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><BR>5.100</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></TR>
</TABLE>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>Holders</B> </FONT> </P>
<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> As
of December 31, 2003, the Company had 161 shareholders of record. Such number of record
holders does not reflect shareholders who beneficially own common stock in nominee or
street name. </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>Dividends</B> </FONT> </P>
<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 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. </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>ITEM 6. SELECTED FINANCIAL DATA</B> </FONT> </P>
<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> The
following selected financial data as of December 31, 2003 and 2002 and for the three
years ended December 31, 2003, 2002 and 2001 are derived from, and should be read
together with, our financial statements included elsewhere in this Form 10-K. The
following selected financial data as of December 31, 2001, 2000 and 1999 and for the
fiscal years ended December 31, 2000 and 1999 are derived from financial statements not
included herein. The information set forth below should be read in conjunction with “Management’s
Discussion and Analysis of Financial Condition and Results of Operations,” the
Financial Statements and Notes thereto and other financial information included elsewhere
in this Form 10-K. </FONT></P>
<BR>
<!-- MARKER FORMAT-SHEET="Para Center" FSL="Workstation" -->
<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>16</FONT></P>
<HR SIZE=3 COLOR=GRAY NOSHADE>
<!-- *************************************************************************** -->
<!-- MARKER PAGE="sheet: 0; page: 0" -->
<BR>
<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 WIDTH=600>
<TR VALIGN=Bottom>
<TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
<TH COLSPAN=15><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Year Ended December 31,</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
</TR>
<TR VALIGN=Bottom>
<TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
<TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2003</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
<TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2002</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
<TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2001</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
<TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2000</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
<TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>1999</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH></TR>
<TR VALIGN=Bottom>
<TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
<TH COLSPAN=15><FONT FACE="Times New Roman, Times, Serif" SIZE=1>(In thousands, except per share amounts)</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
</TR>
<TR VALIGN=Bottom>
<TD WIDTH=39% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Statements of Operations Data:</FONT></TD>
<TD WIDTH=1% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=2% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=1% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD WIDTH=7% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
<TD WIDTH=4% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=1% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD WIDTH=7% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
<TD WIDTH=4% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=1% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD WIDTH=7% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
<TD WIDTH=4% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=1% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD WIDTH=7% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
<TD WIDTH=4% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=1% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD WIDTH=7% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
<TD WIDTH=2% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Net sales</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 11,804</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 12,101</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 12,082</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 6,193</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 1,429</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Cost of sales</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>4,570</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>4,986</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>4,961</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2,701</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,065</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR>
<TD COLSPAN=3></TD>
<TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=Black SIZE=1></TD><TD></TD>
<TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=Black SIZE=1></TD><TD></TD>
<TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=Black SIZE=1></TD><TD></TD>
<TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=Black SIZE=1></TD><TD></TD>
<TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=Black SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Gross profit</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>7,234</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>7,115</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>7,121</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>3,492</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>364</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Operating expenses:</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Research and development</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>3,671</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>3,227</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>4,124</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>3,117</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>3,068</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Clinical and regulatory</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,536</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,348</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,288</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,082</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,324</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Sales and marketing</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>9,646</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>11,964</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>12,772</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>6,700</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2,301</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> General and administrative</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,942</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2,167</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2,498</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2,255</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,904</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Legal settlement</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>—</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>3,750</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>350</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>—</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>—</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Amortization of purchased technology</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>217</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>145</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>—</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>—</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>—</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR>
<TD COLSPAN=3></TD>
<TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=Black SIZE=1></TD><TD></TD>
<TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=Black SIZE=1></TD><TD></TD>
<TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=Black SIZE=1></TD><TD></TD>
<TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=Black SIZE=1></TD><TD></TD>
<TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=Black SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Total operating expenses</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>17,012</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>22,601</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>21,032</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>13,154</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>8,597</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR>
<TD COLSPAN=3></TD>
<TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=Black SIZE=1></TD><TD></TD>
<TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=Black SIZE=1></TD><TD></TD>
<TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=Black SIZE=1></TD><TD></TD>
<TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=Black SIZE=1></TD><TD></TD>
<TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=Black SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Operating loss</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Interest income</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>150</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>507</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,661</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,453</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>371</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR>
<TD COLSPAN=3></TD>
<TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=Black SIZE=1></TD><TD></TD>
<TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=Black SIZE=1></TD><TD></TD>
<TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=Black SIZE=1></TD><TD></TD>
<TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=Black SIZE=1></TD><TD></TD>
<TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=Black SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Net loss</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> (9,628</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> (14,979</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> (12,250</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> (8,209</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> (7,862</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR>
<TD COLSPAN=3></TD>
<TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=Black SIZE=2></TD><TD></TD>
<TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=Black SIZE=2></TD><TD></TD>
<TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=Black SIZE=2></TD><TD></TD>
<TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=Black SIZE=2></TD><TD></TD>
<TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=Black SIZE=2></TD><TD></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Net loss per common share -</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Basic and diluted</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> (0.75</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> (1.13</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> (0.93</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> (0.95</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> (1.95</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Weighted average number of common</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> shares outstanding</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>12,859</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>13,276</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>13,217</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>8,645</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>4,033</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
</TABLE>
<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 WIDTH=600>
<TR VALIGN=Bottom>
<TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
<TH COLSPAN=15><FONT FACE="Times New Roman, Times, Serif" SIZE=1><BR><BR>As of December 31,</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
</TR>
<TR VALIGN=Bottom>
<TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
<TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2003</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
<TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2002</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
<TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2001</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
<TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2000</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
<TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>1999</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH></TR>
<TR VALIGN=Bottom>
<TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
<TH COLSPAN=15><FONT FACE="Times New Roman, Times, Serif" SIZE=1>(In thousands)</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
</TR>
<TR VALIGN=Bottom>
<TD WIDTH=48% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Balance Sheet Data:</FONT></TD>
<TD WIDTH=1% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=2% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=1% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD WIDTH=6% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
<TD WIDTH=3% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=1% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD WIDTH=6% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
<TD WIDTH=3% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=1% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD WIDTH=6% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
<TD WIDTH=3% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=1% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD WIDTH=6% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
<TD WIDTH=3% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=1% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD WIDTH=6% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
<TD WIDTH=2% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Cash, cash equivalents and available-</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> for-sale securities</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 5,885</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 16,750</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 33,318</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 44,098</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 10,529</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Working capital</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>9,223</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>18,656</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>34,712</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>46,300</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>10,487</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Total assets</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>12,992</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>22,280</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>37,593</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>49,661</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>12,295</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Long-term debt</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>—</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>—</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>—</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>—</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>—</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Total shareholders’ equity</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>10,872</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>20,369</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>35,630</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>47,194</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>11,172</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
</TABLE>
<BR>
<!-- MARKER FORMAT-SHEET="Para Center" FSL="Workstation" -->
<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>17</FONT></P>
<HR SIZE=3 COLOR=GRAY NOSHADE>
<!-- *************************************************************************** -->
<!-- MARKER PAGE="sheet: 0; page: 0" -->
<BR>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>ITEM 7. MANAGEMENT’S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS</B> </FONT> </P>
<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 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. </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>Overview</B> </FONT> </P>
<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> We
are a medical device company focused on bringing solutions to interventional
cardiologists and interventional radiologists. As a vertically-integrated medical device
company, we generate ideas and create new interventional medical devices, and then
deliver those products directly to the physician through our direct domestic sales force
and international distribution network. We continue to develop new products and
applications for our existing products. </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> During
2003, we received regulatory clearance for sales of four new interventional products: </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Hang Level 1" FSL="Default" -->
<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>• </FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><I>Vari-Lase
endovenous laser procedure kit. </I>We launched this product in the third quarter of
2003. The Vari-Lase product is a treatment for superficial venous reflux, otherwise known
as varicose veins. </FONT></TD>
</TR>
</TABLE>
<BR>
<!-- MARKER FORMAT-SHEET="Para Hang Level 1" FSL="Default" -->
<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>• </FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><I>Pronto
Extraction Catheter. </I>We launched this product in international markets at the end of
the third quarter of 2003, and received regulatory clearance for United States sales in
December 2003. The Pronto extraction catheter consists of a catheter with a proprietary
atraumatic distal tip and large extraction lumen for the removal of soft thrombus from
arteries. </FONT></TD>
</TR>
</TABLE>
<BR>
<!-- MARKER FORMAT-SHEET="Para Hang Level 1" FSL="Default" -->
<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>• </FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><I>D-Stat
Dry Hemostatic Bandage. </I>We launched this product on September 22, 2003. The D-Stat
Dry hemostatic bandage consists of a freeze-dried pad of our D-Stat procoagulant which
can be applied to topical bleeding with a custom adhesive bandage. </FONT></TD>
</TR>
</TABLE>
<BR>
<!-- MARKER FORMAT-SHEET="Para Hang Level 1" FSL="Default" -->
<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>• </FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><I>D-Stat
Radial Hemostatic Band. </I>We received regulatory clearance for this product in
September 2003 and launched this product in the first quarter of 2004. The D-Stat Radial
hemostat band is a customized compression device with the power of the D-Stat
procoagulant for sealing the arterial puncture following catheterization procedures. </FONT></TD>
</TR>
</TABLE>
<BR>
<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> We
believe these four new products, together with sales of our existing Duett, D-Stat
Flowable and Acolysis products, will result in substantial revenue growth in 2004. We
also believe that these new products will increase our gross margin percent to between
67% and 69% during 2004. </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>Results of Operations</B> </FONT> </P>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B><I>Year ended December 31, 2003
compared to year ended December 31, 2002</I></B> </FONT> </P>
<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Net
sales decreased modestly to $11,804,328 for the year ended December 31, 2003 from
$12,100,526 for the year ended December 31, 2002. Approximately 87% of our net sales for
the year ended December 31, 2003 were to customers in the United States and 13% of the
net sales were to customers in international markets. Net sales by product category were
as follows: </FONT></P>
<BR>
<!-- MARKER FORMAT-SHEET="Para Center" FSL="Workstation" -->
<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>18</FONT></P>
<HR SIZE=3 COLOR=GRAY NOSHADE>
<!-- *************************************************************************** -->
<!-- MARKER PAGE="sheet: 0; page: 0" -->
<BR>
<!-- MARKER FORMAT-SHEET="Para Hang Level 1" FSL="Default" -->
<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>• </FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Net
sales of the D-Stat Dry were $1,085,000 for the year ended December 31, 2003, compared to
no sales in 2002. Our D-Stat Dry product was launched at the end of the third quarter of
2003. Through December 31, 2003, we have sold our D-Stat Dry to 187 of the estimated
3,000 cardiac and interventional radiology labs in the U.S. We expect to increase our
D-Stat Dry net sales to between $8,000,000 and $10,000,000 in 2004. </FONT></TD>
</TR>
</TABLE>
<BR>
<!-- MARKER FORMAT-SHEET="Para Hang Level 1" FSL="Default" -->
<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>• </FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Net
sales of the Pronto were $97,000 for the year ended December 31, 2003, all from
international sales, compared to no sales in 2002. Our Pronto product was launched at the
end of the third quarter of 2003 in international markets, and we received FDA approval
in December 2003 but did not commence sales in the United States until 2004. We expect to
increase Pronto net sales to between $2,000,000 and $3,000,000 in 2004. </FONT></TD>
</TR>
</TABLE>
<BR>
<!-- MARKER FORMAT-SHEET="Para Hang Level 1" FSL="Default" -->
<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>• </FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Net
sales of Vari-Lase kits and accessories were $255,000 for the year ended December 31,
2003, compared to no sales in 2002. Our Vari-Lase procedure kit was launched during the
third quarter of 2003. In January 2004 we launched our Vari-Lase laser console, and as a
result we now offer a full line of endovenous laser products to our customers for the
treatment of varicose veins. We expect to increase our Vari-Lase console, kits and
accessory net sales to over $4,000,000 in 2004. </FONT></TD>
</TR>
</TABLE>
<BR>
<!-- MARKER FORMAT-SHEET="Para Hang Level 1" FSL="Default" -->
<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>• </FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Net
sales of D-Stat Flowable increased to $1,187,000 for the year ended December 31, 2003
from $764,000 for the year ended 2002, a 55% increase. Our reorder rate for the D-Stat
Flowable in 2003 compared to 2002 has remained steady at 58%. We expect to modestly
increase our D-Stat Flowable net sales to $1,500,000 in 2004. </FONT></TD>
</TR>
</TABLE>
<BR>
<!-- MARKER FORMAT-SHEET="Para Hang Level 1" FSL="Default" -->
<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>• </FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Net
sales of Acolysis products were $185,000 for the year ended December 31, 2003 compared to
$102,000 for the year ended December 31, 2002. We received the CE mark approval for our
own manufacturing activities for the Acolysis probe during the fourth quarter of 2003,
which will allow us to begin to expand our sales and marketing activities internationally
in 2004. We expect to modestly increase Acolysis net sales to $300,000 in 2004. </FONT></TD>
</TR>
</TABLE>
<BR>
<!-- MARKER FORMAT-SHEET="Para Hang Level 1" FSL="Default" -->
<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>• </FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Net
sales of our Duett sealing device were $8,995,000 for the year ended December 31, 2003
compared to $11,235,000 for the year ended December 31, 2002. Our Duett sales in 2003
were negatively affected by the intense competitive environment in the United States
invasive sealing device market and our new focus on new products. The 20% decrease, year
over year, in Duett net sales also was in line with our 19% decrease in sales and
marketing expenses from the year-prior period. We expect Duett sales to continue to
decline at a rate of between 20% to 30%, year over year, in 2004 as we continue to focus
on our new higher margin and more competitive products. </FONT></TD>
</TR>
</TABLE>
<BR>
<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Gross
profit as a percentage of net sales increased to 61% for the year ended December 31, 2003
from 59% for the year ended December 31, 2002. We added higher margin products to our
selling mix during 2003, particularly our D-Stat Dry which has gross margins greater than
80%. We expect gross margins to increase in 2004 to 67% to 69% as our selling mix changes
to favor the higher margin products and we continue to make slight gains in manufacturing
efficiencies. </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Research
and development expenses increased 14% to $3,670,935 for the year ended December 31, 2003
from $3,227,538 for the year ended December 31, 2002. The increase was directly related
to our increased activity in launching four new products in 2003 and our continued work
on our long term research and development projects. Research and development expenses
fluctuate due to outside project spending. We expect our research and development
expenses to remain relatively steady during 2004 as we continue to pursue additional new
products at an expected rate of approximately two new products per year and we continue
to move our longer term development projects forward. </FONT></P>
<BR>
<!-- MARKER FORMAT-SHEET="Para Center" FSL="Workstation" -->
<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>19</FONT></P>
<HR SIZE=3 COLOR=GRAY NOSHADE>
<!-- *************************************************************************** -->
<!-- MARKER PAGE="sheet: 0; page: 0" -->
<BR>
<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Clinical
and regulatory expenses increased 14% to $1,535,989 for the year ended December 31, 2003
from $1,347,694 for the year ended December 31, 2002. The expected increase was the
result of the approval of our four new products in the second half of 2003 as well as our
“Pocket Protector” clinical study for a new indication of our D-Stat Flowable
product. Clinical and regulatory expenses fluctuate due to the timing of clinical and
marketing studies. We expect clinical and regulatory expenses to increase by
approximately 25% in 2004 as we complete our “Pocket Protector” study, conduct
clinical/marketing studies related to our existing products and advance new products
through the regulatory system. </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Sales
and marketing expenses decreased 19% to $9,645,920 for the year ended December 31, 2003
from $11,963,907 for the year ended December 31, 2002. During 2002 and 2003 we reviewed
our sales and marketing expenditures and focused our spending in the areas that drive
sales and provide an adequate financial return. As of December 31, 2003, our direct sales
force consisted of approximately 40 employees compared to approximately 50 as of December
31, 2002. We expect to add approximately 10 field sales employees during 2004 to advance
our new products. As a result, we expect our sales and marketing expenses to increase by
approximately 10% in 2004 compared to 2003. </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> General
and administrative expenses decreased 10% to $1,942,483 for the year ended December 31,
2003 from $2,166,883 for the year ended December 31, 2002. The decrease was primarily the
result of lower legal fees in 2003 compared to 2002, as we incurred legal fees in 2002
relating to the Datascope litigation which was settled in the fourth quarter of 2002. The
reduction in legal fees was partially offset by an increase in the cost of business
insurance. We currently anticipate that general and administrative expenses will remain
relatively constant in 2004. </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Legal
settlement expenses were $3,750,000 for the year ended December 31, 2002. We entered into
an agreement that settled all existing intellectual property litigation with Datascope
Corporation in the fourth quarter of 2002 (see “Legal Proceedings” in Item 3 of
Part I of this Form 10-K). As part of the settlement, Datascope released us from any claim
of patent infringement based on past or future sales of the Duett sealing device. In
exchange, we paid Datascope a single lump sum of $3,750,000 in the fourth quarter of 2002. </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Amortization
of purchased technology was $217,500 for the year ended December 31, 2003 and $145,000 for
the year ended December 31, 2002. The increase is the result of a full year of
amortization in 2003 compared to 2002. The amortization resulted from our acquisition of
the Acolysis assets from the secured creditors of Angiosonics, Inc. We allocated $870,000
from the acquisition to purchased technology and are amortizing the amount over four
years. </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Interest
income decreased to $150,342 for the year ended December 31, 2003 from $507,169 for the
year ended December 31, 2002 primarily as a result of a reduced cash balance and lower
interest rates. </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<A NAME=A036></A>
<P><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>Results of Operations</B> </FONT> </P>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<A NAME=A037></A>
<P><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B><I>Year ended December 31, 2002
compared to year ended December 31, 2001</I></B> </FONT> </P>
<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Net
sales increased modestly to $12,100,526 for the year ended December 31, 2002 from
$12,082,379 for the year ended December 31, 2001. Approximately 89% of our net sales for
the year ended December 31, 2002 were to customers in the United States and 11% of the net
sales were to customers in international markets. Net sales in 2002 were negatively
affected by the intense competitive environment for our Duett sealing device in the United
States market. Net sales during 2002 benefited from the early sales of our D-Stat Flowable
hemostat, which we launched in February 2002. </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Gross
profit as a percentage of net sales was unchanged at 59% for the year ended December 31,
2002 and 2001. We added the Diagnostic Duett, D-Stat and Acolysis products to our selling
mix during 2002, which all have gross margins greater than 60%. The introduction of the
higher margin products in 2002 was offset by a growth in the lower margin international
sales. </FONT></P>
<BR>
<!-- MARKER FORMAT-SHEET="Para Center" FSL="Workstation" -->
<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>20</FONT></P>
<HR SIZE=3 COLOR=GRAY NOSHADE>
<!-- *************************************************************************** -->
<!-- MARKER PAGE="sheet: 0; page: 0" -->
<BR>
<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Research
and development expenses decreased 22% to $3,227,538 for the year ended December 31, 2002
from $4,123,883 for the year ended December 31, 2001. The decrease was attributable to
more focused development work on the product line extensions and new products during 2002.
Research and development expenses can fluctuate due to outside project spending. </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Clinical
and regulatory expenses increased 5% to $1,347,694 for the year ended December 31, 2002
from $1,288,301 for the year ended December 31, 2001. Clinical and regulatory expenses
fluctuate due to the timing of clinical and marketing studies. </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Sales
and marketing expenses decreased 6% to $11,963,907 for the year ended December 31, 2002
from $12,771,901 for the year ended December 31, 2001. We reviewed our sales and marketing
expenditures and focused our spending in the areas that drove sales and provided an
adequate financial return. As of December 31, 2002, our direct sales force consisted of
approximately 50 employees compared to approximately 65 as of December 31, 2001. </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> General
and administrative expenses decreased 13% to $2,166,883 for the year ended December 31,
2002 from $2,498,435 for the year ended December 31, 2001. The decrease was the result of
lower headcount in 2002 compared to 2001. </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Legal
settlement expenses were $3,750,000 for the year ended December 31, 2002 and $350,000 for
the year ended December 31, 2001. We entered into an agreement that settled all existing
intellectual property litigation with Datascope Corporation in 2002 (see “Legal
Proceedings” in Item 3 of Part I of this Form 10-K). As part of the settlement,
Datascope released us from any claim of patent infringement based on past or future sales
of the Duett sealing device. In exchange, we paid Datascope a single lump sum of
$3,750,000 in the fourth quarter of 2002. We entered into an agreement that settled all
existing intellectual property litigation with St. Jude Medical in 2001 (see “Legal
Proceedings” in Item 3 of Part I of this Form 10-K). As a result of the settlement,
we agreed to pay St. Jude Medical a royalty of 2.5% of our Duett sales up to a maximum
amount over the remaining life of the St. Jude Medical patents. We paid $350,000 to St.
Jude Medical in 2001 representing the past royalty on net sales of our Duett device since
1998 under the settlement agreement. </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Amortization
of purchased technology was $145,000 for the year ended December 31, 2002 and $0 for the
year ended December 31, 2001. The amortization was the result of our acquisition of the
Acolysis assets from the secured creditors of Angiosonics, Inc. We allocated $870,000 from
the acquisition to purchased technology and are amortizing the amount over four years. </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Interest
income decreased to $507,169 for the year ended December 31, 2002 from $1,660,757 for the
year ended December 31, 2001 primarily as a result of a reduced cash balance and lower
interest rates. </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>Income Taxes</B> </FONT> </P>
<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 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. </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> As
of December 31, 2003, we had net operating loss carryforwards of approximately $54,631,000
for U.S. federal income tax purposes which begin to expire in the year 2013. As of
December 31, 2003, we also had federal and state research and development tax credit
carryforwards of approximately $1,353,000 which begin to expire in the year 2013. As of
December 31, 2003, we also had a foreign tax loss carryforward of approximately $1,356,000
which does not expire. 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. </FONT></P>
<BR>
<!-- MARKER FORMAT-SHEET="Para Center" FSL="Workstation" -->
<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>21</FONT></P>
<HR SIZE=3 COLOR=GRAY NOSHADE>
<!-- *************************************************************************** -->
<!-- MARKER PAGE="sheet: 0; page: 0" -->
<BR>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>Liquidity and Capital Resources</B> </FONT> </P>
<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> We
have financed all of our operations since inception through the issuance of equity
securities and, to a lesser extent, sales of our products. Through December 31, 2003, we
have sold common stock and preferred stock generating aggregate net proceeds of
approximately $70.5 million. At December 31, 2003, we had $5,885,000 in cash, cash
equivalents and available-for-sale securities on-hand compared to $16,750,000 at December
31, 2002. </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> During
the year ended December 31, 2003, we used $10,417,000 to fund operating activities. The
cash used in operating activities was primarily used to fund our net loss for the period
of $9,628,000 and an increase in inventory of $1,054,000, which was offset by depreciation
and amortization of $604,000. The increase in inventory is due to the additon of four new
products and our preparation for our expected increase in sales in 2004. During 2003 we
generated proceeds of $11,356,000 in investing activities, primarily from the net sales of
investment securities of $11,895,000, offset by net equipment purchases of $539,000. Also
during 2003 we generated $69,000 in financing activities, primarily from $208,000 we
received through the issuance of common stock under employee stock plans, offset by our
repurchase of our common stock for $140,000. </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> In
August 2002, the Board of Directors adopted a stock repurchase program to acquire up to
one million shares of our common stock in open market transactions. The Board of Directors
cancelled the program in July 2003 after purchasing a total of 762,300 shares. During
2003, we repurchased 153,400 shares under this stock repurchase program for $140,000. </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> During
the fourth quarter of 2003, we entered into a $3.0 million credit facility with Silicon
Valley Bank. The line of credit has a 12 month term, bears interest at the rate of prime
plus 0.5% and is secured by a first security interest on all of our assets. The line of
credit includes two covenants: minimum tangible net worth of $8,000,000 and a liquidity
coverage of not less than 1.25 to 1.00. We were in compliance with these covenants at
December 31, 2003. As of December 31, 2003, we had no outstanding balance on the line of
credit balance and the availability was $1.2 million. </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> We
purchase our requirements for thrombin (a component in the Duett and all of the D-Stat
products) under a Purchase Agreement dated June 10, 1999 with a subsidiary of King
Pharmaceuticals, Inc. The agreement provides for a fixed price, with adjustments based on
the supplier’s manufacturing costs and the supplier’s annual percentage increase
in the wholesale price of thrombin. The agreement expires on May 29, 2005. During 2004 and
the first five months of 2005, we intend to increase our purchases of thrombin to benefit
from the pricing provisions of the agreement, which we expect will substantially increase
our inventory of thrombin. We believe that these purchases will satisfy our thrombin
requirements for 2004, 2005 and most of 2006. We are currently exploring a new thrombin
supply agreement and evaluating alternative potential suppliers, although there currently
is no other source of commercially-available thrombin approved for use in the United
States. </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> We
signed a purchase agreement with MedArt Corporation on September 22, 2003 for the
manufacture of our Vari-Lase laser console. Under that agreement, we are obligated to
purchase laser consoles with an aggregate purchase price of $1,197,000 for our Vari-Lase
business during the first year of the agreement, which commenced in December 2003. We do
not have any other significant cash commitments related to supply agreements, nor do we
have any significant commitments for capital expenditures. </FONT></P>
<BR>
<!-- MARKER FORMAT-SHEET="Para Center" FSL="Workstation" -->
<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>22</FONT></P>
<HR SIZE=3 COLOR=GRAY NOSHADE>
<!-- *************************************************************************** -->
<!-- MARKER PAGE="sheet: 0; page: 0" -->
<BR>
<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> The
following table summarizes our contractual cash commitments as of December 31, 2003: </FONT></P>
<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 ALIGN=CENTER WIDTH=100%>
<TR VALIGN=Bottom>
<TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
<TH COLSPAN=15><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Payments due by Period</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
</TR>
<TR VALIGN=Bottom>
<TH COLSPAN="3" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Contractual Obligations</FONT></TH>
<TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Total</FONT></TH>
<TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Less than 1<BR>
year</FONT></TH>
<TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>1-3 years</FONT></TH>
<TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>4-5 years</FONT></TH>
<TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>After 5<BR>
years</FONT></TH></TR>
<TR VALIGN=Bottom>
<TD WIDTH=38% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Facility Operating Lease</FONT></TD>
<TD WIDTH=1% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=2% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=1% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD WIDTH=9% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 1,708,920</FONT></TD>
<TD WIDTH=3% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=1% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD WIDTH=9% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 348,948</FONT></TD>
<TD WIDTH=3% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=1% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD WIDTH=9% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 1,082,304</FONT></TD>
<TD WIDTH=3% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=1% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD WIDTH=9% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 277,668</FONT></TD>
<TD WIDTH=3% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=5% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$ —</FONT></TD>
<TD WIDTH=1% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=1% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>MedArt Purchase Commitment</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,197,000</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,197,000</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>—</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>—</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>—</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR>
<TD COLSPAN=3></TD>
<TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=Black SIZE=1></TD><TD></TD>
<TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=Black SIZE=1></TD><TD></TD>
<TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=Black SIZE=1></TD><TD></TD>
<TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=Black SIZE=1></TD><TD></TD>
<TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=Black SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Total Contractual Cash Obligations</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 2,905,920</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 1,545,948</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 1,082,304</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 277,668</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$ —</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR>
<TD COLSPAN=3></TD>
<TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=Black SIZE=2></TD><TD></TD>
<TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=Black SIZE=2></TD><TD></TD>
<TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=Black SIZE=2></TD><TD></TD>
<TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=Black SIZE=2></TD><TD></TD>
<TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=Black SIZE=2></TD><TD></TD></TR>
</TABLE>
<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> We
currently anticipate that we will continue to experience a negative cash flow until at
least the fourth quarter of 2004 at which time we project that we will become cash flow
neutral. We currently believe that our working capital of $9.2 million and anticipated
cash from product sales will be sufficient to meet our operating and capital requirements
until we reach cash flow neutral in the fourth quarter of 2004. However, our actual
liquidity and capital requirements will depend upon numerous factors, including the costs
and timing of expansion of sales and marketing activities; the amount of revenues from
sales of our existing and new products; the cost of maintaining, enforcing and defending
patents and other intellectual property rights; competing technological and market
developments; developments related to regulatory and third party reimbursement matters;
the cost and progress of our research and development efforts; and other factors. </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> In
the event that additional financing is needed and depending on market conditions, we may
seek to raise additional funds for working capital purposes at any time through the sale
of equity or debt securities. 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 may be required to significantly curtail our
business operations. </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<A NAME=A040></A>
<P><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>Critical Accounting Policies:</B> </FONT> </P>
<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Management’s
Discussion and Analysis of Financial Condition and Results of Operations addresses our
financial statements, which have been prepared in accordance with accounting principles
generally accepted in the United States. The preparation of our financial statements
requires that we make estimates and assumptions that affect the reported amounts of assets
and liabilities and the disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during the
reporting period. On an on-going basis, we evaluate these estimates and judgments. We base
our estimates and judgments on historical experience and on various other factors that are
believed to be reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying value of assets and liabilities that are not readily
apparent from other sources. Actual results may differ from these estimates under
different assumptions or conditions. </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Our
accounting policies are described in Note 2 to the financial statements. We set forth
below those material accounting policies that we believe are the most critical to an
investor’s understanding of our financial results and condition, and require complex
management judgment. </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<A NAME=A041></A>
<P><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>Inventory</B> </FONT> </P>
<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> We
state our inventory at the lower of cost (first-in, first-out method) or market. We record
reserves for inventory shrinkage and for potentially excess, obsolete and slow moving
inventory based upon historical </FONT></P>
<BR>
<!-- MARKER FORMAT-SHEET="Para Center" FSL="Workstation" -->
<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>23</FONT></P>
<HR SIZE=3 COLOR=GRAY NOSHADE>
<!-- *************************************************************************** -->
<!-- MARKER PAGE="sheet: 0; page: 0" -->
<BR>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>experience and forecasted demand. At
December 31, 2003, this reserve was $240,000 compared to $260,000 at December 31, 2002.
Our reserve requirements could be materially different if demand for our products
decreased because of competitive conditions or market acceptance, or if products become
obsolete because of advancements in the industry. </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>Revenue Recognition</B> </FONT> </P>
<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> We
recognize revenue upon shipment of products to customers, net of estimated returns. We
analyze the rate of historical returns when evaluating the adequacy of the allowance for
sales returns, which is included with the allowance for doubtful accounts on our balance
sheet. At December 31, 2003, this reserve was $20,000 compared to $40,000 at December 31,
2002. If the historical data we use to calculate these estimates does not properly reflect
future returns, revenue could be overstated. </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>Allowance for Doubtful Accounts</B> </FONT> </P>
<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> We
maintain allowances for doubtful accounts for estimated losses resulting from the
inability of our customers to make required payments. This allowance is regularly
evaluated by us for adequacy by taking into consideration factors such as past experience,
credit quality of the customer base, age of the receivable balances, both individually and
in the aggregate, and current economic conditions that may affect a customer’s
ability to pay. At December 31, 2003, this reserve was $140,000 compared to $90,000 at
December 31, 2002. If the financial condition of our customers were to deteriorate,
resulting in an impairment of their ability to make payments, additional allowances may be
required. </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>Income Taxes</B> </FONT> </P>
<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> The
carrying value of our net deferred tax assets assumes that we will be able to generate
sufficient taxable income in the United States and to a lesser extent Germany, based on
estimates and assumptions. We record a valuation allowance to reduce the carrying value of
our net deferred tax asset to the amount that is more likely than not to be realized. For
the year ended December 31, 2003, we recorded a $24.2 million valuation allowance related
to our net deferred tax assets of $24.2 million. In the event we were to determine that we
would be able to realize our deferred tax assets in the future, an adjustment to the
deferred tax asset would increase net income in the period such determination is made. On
a quarterly basis, we evaluate the realizability of our deferred tax assets and assess the
requirement for a valuation allowance. </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>New Accounting Pronouncements</B> </FONT> </P>
<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> In
January 2003, the Financial Accounting Standards Board issued FASB Interpretation No. 46,
<I>Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51,</I> or FIN No. 46.
FIN No. 46 requires certain variable interest entities to be consolidated by the primary
beneficiary of the entity if the equity investors in the entity do not have the
characteristics of a controlling financial interest or do not have sufficient equity at
risk for the entity to finance its activities without additional subordinated financial
support from other parties. FIN No. 46 is effective immediately for all new variable
interest entities created or acquired after January 31, 2003. For variable interest
entities created or acquired prior to February 1, 2003, the provisions of FIN No. 46 must
be applied for the first interim or annual period beginning after December 15, 2003. The
adoption of FIN No. 46 did not have a material impact on our financial statements. </FONT></P>
<BR>
<!-- MARKER FORMAT-SHEET="Para Center" FSL="Workstation" -->
<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>24</FONT></P>
<HR SIZE=3 COLOR=GRAY NOSHADE>
<!-- *************************************************************************** -->
<!-- MARKER PAGE="sheet: 0; page: 0" -->
<BR>
<!-- MARKER FORMAT-SHEET="Head Minor Center Bold" FSL="Default" -->
<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>RISK FACTORS </FONT></H1>
<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> <I>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.</I> </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>We will not be successful if the
interventional medical device community does not adopt our new products</B> </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> During
the third quarter of 2000 we commenced sales of our first product, the Duett sealing
device, in the United States, which we believe represents the largest market for
interventional medical devices. We have not become profitable with our sales of the Duett.
In the second half of 2003, we received clearance to commence sales of four new
interventional products in the United States. Our success will depend on the medical
community’s acceptance of our new products. We cannot predict how quickly, if at all,
the medical community will accept our new products, or, if accepted, the extent of their
use. Our potential customers must: </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Hang Level 1" FSL="Default" -->
<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>• </FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>believe
that our products offer benefits compared to the methodologies and/or devices that they
are currently using; </FONT></TD>
</TR>
</TABLE>
<BR>
<!-- MARKER FORMAT-SHEET="Para Hang Level 1" FSL="Default" -->
<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>• </FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>use
our products and obtain acceptable clinical outcomes; </FONT></TD>
</TR>
</TABLE>
<BR>
<!-- MARKER FORMAT-SHEET="Para Hang Level 1" FSL="Default" -->
<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>•</FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>believe
that our products are worth the price that they will be asked to pay; and </FONT></TD>
</TR>
</TABLE>
<BR>
<!-- MARKER FORMAT-SHEET="Para Hang Level 1" FSL="Default" -->
<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>• </FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>be
willing to commit the time and resources required to change their current methodology. </FONT></TD>
</TR>
</TABLE>
<BR>
<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Because
we have only very recently commenced sales of our D-Stat Dry hemostatic bandage, Pronto
extraction catheter, Vari-Lase endovenous laser and D-Stat Radial hemostat band products,
we have no ability to predict the level of sales of these products. If we encounter
difficulties in growing our sales of our new medical devices in the United States, our
business will be seriously harmed. </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>We have limited working capital to
pursue our business</B> </FONT> </P>
<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> On
December 31, 2003, we had $5.9 million in cash, cash equivalents and marketable securities
and a working capital of $9.2 million. During 2003, our operating activities resulted in
the use of $10.9 million of cash. While we believe that during 2004 our working capital
requirements will decrease due to sales of our new products, there can be no assurance
that our existing working capital will be sufficient to satisfy our working capital needs.
If our sales do not increase, or if we encounter unexpected expenses, we will need to
raise additional working capital. We 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 may be
required to significantly curtail our business operations. </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<A NAME=A048></A>
<P><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>We have incurred losses and we may
not be profitable in the future</B> </FONT> </P>
<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Since
we commenced operations in February 1997, we have incurred net losses primarily from costs
relating to the development and commercialization of our Duett sealing device and new
products. At December 31, 2003, we had an accumulated deficit of $59.7 million. We expect
to continue to significantly invest in our sales and marketing, and research and
development activities. Because of our plans to introduce new products and expand our
commercialization, we expect to incur significant net losses through at least the </FONT> </P>
<BR>
<!-- MARKER FORMAT-SHEET="Para Center" FSL="Workstation" -->
<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>25</FONT></P>
<HR SIZE=3 COLOR=GRAY NOSHADE>
<!-- *************************************************************************** -->
<!-- MARKER PAGE="sheet: 0; page: 0" -->
<BR>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>first half of 2004. Our business
strategies may not be successful, and we may not become profitable in any future period
or at all. If we do become profitable, we cannot be certain that we can sustain or
increase profitability on a quarterly or annual basis. </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>We may face additional
intellectual property claims in the future which could prevent us from manufacturing and
selling our products or result in our incurring substantial costs and liabilities</B> </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> The
interventional medical device industry is characterized by numerous patent filings and
frequent and substantial intellectual property litigation. Companies in the interventional
medical device industry have employed intellectual property litigation in an attempt to
gain a competitive advantage. We have been subject to two intellectual property lawsuits
concerning our Duett sealing device. Although we have settled both of these intellectual
property lawsuits, it is possible that additional claims relating to the Duett could be
brought in the future. In addition, while we do not believe that any of our new products
infringes any existing patent, it is highly likely that we will become subject to
intellectual property claims with respect to our new products in the future. Intellectual
property litigation in recent years has proven to be very complex, and the outcome of such
litigation is difficult to predict. </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> An
adverse determination in any intellectual property litigation or interference proceedings
could prohibit us from selling a 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 a product. </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Our
defense of intellectual property claims filed in the future, regardless of the merits of
the complaint, could divert the attention of our technical and management personnel away
from the development and marketing of our products for significant periods of time. The
costs incurred to future claims could be substantial and seriously harm us, even if our
defense is ultimately successful. </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>The loss of, or interruption of
supply from, key vendors, including our single source supplier of thrombin, could limit
our ability to manufacture our products</B> </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> We
purchase components used in our products from various suppliers and rely on a single
source for the thrombin component of our Duett sealing device and D-Stat products. There
are currently no FDA-approved alternative suppliers of thrombin. Our current supply
agreement with our thrombin vendor extends through May 2005, and there are no assurances
that a future agreement can be negotiated, or that any future agreement would be on
similar terms. Because it requires FDA approval, establishing additional or replacement
suppliers for thrombin would require a lead-time of at least two years and would involve
significant additional costs. Any supply interruption from our vendor of thrombin or from
any other key vendor, or the failure by us to engage alternative vendors may limit our
ability to manufacture our Duett and D-Stat products and could therefore seriously harm
our business. </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>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</B> </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> The
limited history of our sales and our history of losses make prediction of future operating
results difficult. You should not rely on our past revenue growth as any indication of
future growth rates or operating results. The price of our common stock will likely fall
in the event that our operating results do not meet the expectations of analysts and
investors. Comparisons of our quarterly operating results are an unreliable indication of
our future performance because they are likely to vary significantly based on many
factors, including: </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Hang Level 1" FSL="Default" -->
<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>• </FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>the
level of sales of our products in the United States market; </FONT></TD>
</TR>
</TABLE>
<BR>
<!-- MARKER FORMAT-SHEET="Para Center" FSL="Workstation" -->
<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>26</FONT></P>
<HR SIZE=3 COLOR=GRAY NOSHADE>
<!-- *************************************************************************** -->
<!-- MARKER PAGE="sheet: 0; page: 0" -->
<BR>
<!-- MARKER FORMAT-SHEET="Para Hang Level 1" FSL="Default" -->
<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>• </FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>our
ability to introduce new products and enhancements in a timely manner; </FONT></TD>
</TR>
</TABLE>
<BR>
<!-- MARKER FORMAT-SHEET="Para Hang Level 1" FSL="Default" -->
<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>• </FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>the
demand for and acceptance of our products; </FONT></TD>
</TR>
</TABLE>
<BR>
<!-- MARKER FORMAT-SHEET="Para Hang Level 1" FSL="Default" -->
<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> •</FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>the
success of our competition and the introduction of alternative products; </FONT></TD>
</TR>
</TABLE>
<BR>
<!-- MARKER FORMAT-SHEET="Para Hang Level 1" FSL="Default" -->
<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>• </FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>our
ability to command favorable pricing for our products; </FONT></TD>
</TR>
</TABLE>
<BR>
<!-- MARKER FORMAT-SHEET="Para Hang Level 1" FSL="Default" -->
<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>• </FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>the
growth of the market for our devices; </FONT></TD>
</TR>
</TABLE>
<BR>
<!-- MARKER FORMAT-SHEET="Para Hang Level 1" FSL="Default" -->
<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> • </FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>the
expansion and rate of success of our direct sales force in the United States and our
independent distributors internationally; </FONT></TD>
</TR>
</TABLE>
<BR>
<!-- MARKER FORMAT-SHEET="Para Hang Level 1" FSL="Default" -->
<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>• </FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>actions
relating to ongoing FDA compliance; </FONT></TD>
</TR>
</TABLE>
<BR>
<!-- MARKER FORMAT-SHEET="Para Hang Level 1" FSL="Default" -->
<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>• </FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>the
effect of intellectual property disputes; </FONT></TD>
</TR>
</TABLE>
<BR>
<!-- MARKER FORMAT-SHEET="Para Hang Level 1" FSL="Default" -->
<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>• </FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>the
size and timing of orders from independent distributors or customers; </FONT></TD>
</TR>
</TABLE>
<BR>
<!-- MARKER FORMAT-SHEET="Para Hang Level 1" FSL="Default" -->
<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>• </FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>the
attraction and retention of key personnel, particularly in sales and marketing,
regulatory, manufacturing and research and development; </FONT></TD>
</TR>
</TABLE>
<BR>
<!-- MARKER FORMAT-SHEET="Para Hang Level 1" FSL="Default" -->
<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>• </FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>unanticipated
delays or an inability to control costs; </FONT></TD>
</TR>
</TABLE>
<BR>
<!-- MARKER FORMAT-SHEET="Para Hang Level 1" FSL="Default" -->
<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>• </FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>general
economic conditions as well as those specific to our customers and markets; and </FONT></TD>
</TR>
</TABLE>
<BR>
<!-- MARKER FORMAT-SHEET="Para Hang Level 1" FSL="Default" -->
<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>• </FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>seasonal
fluctuations in revenue due to the elective nature of some procedures. </FONT></TD>
</TR>
</TABLE>
<BR>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>We may face product liability
claims that could result in costly litigation and significant liabilities</B> </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 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. </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>The market for interventional
medical 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 products obsolete</B> </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> The
existing market for interventional medical devices is intensely competitive. We expect
competition to increase further as companies develop new products and/or modify their
existing products to compete directly with ours. The primary competitors for our Duett
sealing device are Abbott Laboratories (through its subsidiary Abbott Vascular), Datascope
Corp. and St. Jude Medical, Inc., which sells a product developed by Kensey Nash
Corporation. Each of our new products encounters competition from at least several medical
device companies, including Medtronic Inc. and AngioDynamics Corporation. Each of these
companies has: </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Hang Level 1" FSL="Default" -->
<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>• </FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>better
name recognition; </FONT></TD>
</TR>
</TABLE>
<BR>
<!-- MARKER FORMAT-SHEET="Para Hang Level 1" FSL="Default" -->
<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>• </FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>broader
product lines; </FONT></TD>
</TR>
</TABLE>
<BR>
<!-- MARKER FORMAT-SHEET="Para Hang Level 1" FSL="Default" -->
<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>• </FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>greater
sales, marketing and distribution capabilities; </FONT></TD>
</TR>
</TABLE>
<BR>
<!-- MARKER FORMAT-SHEET="Para Center" FSL="Workstation" -->
<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>27</FONT></P>
<HR SIZE=3 COLOR=GRAY NOSHADE>
<!-- *************************************************************************** -->
<!-- MARKER PAGE="sheet: 0; page: 0" -->
<BR>
<!-- MARKER FORMAT-SHEET="Para Hang Level 1" FSL="Default" -->
<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>• </FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>significantly
greater financial resources; </FONT></TD>
</TR>
</TABLE>
<BR>
<!-- MARKER FORMAT-SHEET="Para Hang Level 1" FSL="Default" -->
<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>• </FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>larger
research and development staffs and facilities; and </FONT></TD>
</TR>
</TABLE>
<BR>
<!-- MARKER FORMAT-SHEET="Para Hang Level 1" FSL="Default" -->
<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>• </FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>existing
relationships with some of our potential customers. </FONT></TD>
</TR>
</TABLE>
<BR>
<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> We
may not be able to effectively compete with these companies. In addition, broad product
lines may allow our competitors to negotiate exclusive, long-term supply contracts and
offer comprehensive pricing for their products. Broader product lines may also provide our
competitors with a significant advantage in marketing competing products to group
purchasing organizations and other managed care organizations that are increasingly
seeking to reduce costs through centralized purchasing. Greater financial resources and
product development capabilities may allow our competitors to respond more quickly to new
or emerging technologies and changes in customer requirements that may render our products
obsolete. </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>Our international sales are
subject to a number of risks that could seriously harm our ability to successfully
commercialize our products in any international market</B> </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Our
international sales are subject to several risks, including: </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Hang Level 1" FSL="Default" -->
<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>• </FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>the
ability of our independent distributors to sell our products; </FONT></TD>
</TR>
</TABLE>
<BR>
<!-- MARKER FORMAT-SHEET="Para Hang Level 1" FSL="Default" -->
<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>• </FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>the
impact of recessions in economies outside the United States; </FONT></TD>
</TR>
</TABLE>
<BR>
<!-- MARKER FORMAT-SHEET="Para Hang Level 1" FSL="Default" -->
<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>• </FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>greater
difficulty in collecting accounts receivable and longer collection periods; </FONT></TD>
</TR>
</TABLE>
<BR>
<!-- MARKER FORMAT-SHEET="Para Hang Level 1" FSL="Default" -->
<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>• </FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>unexpected
changes in regulatory requirements, tariffs or other trade barriers; </FONT></TD>
</TR>
</TABLE>
<BR>
<!-- MARKER FORMAT-SHEET="Para Hang Level 1" FSL="Default" -->
<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>• </FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>weaker
intellectual property rights protection in some countries; </FONT></TD>
</TR>
</TABLE>
<BR>
<!-- MARKER FORMAT-SHEET="Para Hang Level 1" FSL="Default" -->
<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>• </FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>potentially
adverse tax consequences; and </FONT></TD>
</TR>
</TABLE>
<BR>
<!-- MARKER FORMAT-SHEET="Para Hang Level 1" FSL="Default" -->
<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>• </FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>political
and economic instability. </FONT></TD>
</TR>
</TABLE>
<BR>
<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> The
occurrence of any of these events could seriously harm our future international sales and
our ability to successfully commercialize our products in any international market. </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>We have limited manufacturing
experience and may encounter difficulties in our manufacturing operations which could
seriously harm our business</B> </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> We
have limited experience in manufacturing our products. In particular, we have very limited
experience in lyophilization, which is a key manufacturing step for our D-Stat Dry
hemostatic bandage. We believe our facilities are adequate for our projected production of
our products for the foreseeable future, but future facility requirements will depend
largely on future sales of our products in the United States. We may encounter unforeseen
difficulties in expanding our production of our new products, including problems involving
production yields, quality control and assurance, component supply and shortages of
qualified personnel, compliance with FDA regulations and requirements regarding good
manufacturing practices, and the need for further regulatory approval of new manufacturing
processes. Difficulties encountered by us in expanding and maintaining our manufacturing
capabilities could seriously harm our business. </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>Our business and results of
operations may be seriously harmed by changes in third-party reimbursement policies</B> </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 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 </FONT></P>
<BR>
<!-- MARKER FORMAT-SHEET="Para Center" FSL="Workstation" -->
<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>28</FONT></P>
<HR SIZE=3 COLOR=GRAY NOSHADE>
<!-- *************************************************************************** -->
<!-- MARKER PAGE="sheet: 0; page: 0" -->
<BR>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>in which our products are used.
Failure by physicians, hospitals and other users of our products to obtain sufficient
reimbursement from healthcare payors for procedures in which our products are used or
adverse changes in governmental and private third-party payors’ policies toward
reimbursement for such procedures would seriously harm our business. </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> In
the United States, healthcare providers, including hospitals and clinics that purchase
medical devices such as our products, 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. Any changes in this reimbursement system
could seriously harm our business. </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> In
international markets, acceptance of our products is dependent in part upon the
availability of reimbursement within prevailing healthcare payment systems. Reimbursement
and healthcare payment systems in international markets vary significantly by country. Our
failure to receive international reimbursement approvals could have a negative impact on
market acceptance of our products in the markets in which these approvals are sought. </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>Our products and our
manufacturing activities are subject to extensive governmental regulation that could
prevent us from selling our products in the United States or introducing new and improved
products</B> </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Our
products and our manufacturing activities are subject to extensive regulation by a number
of governmental agencies, including the FDA and comparable international agencies. We are
required to: </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Hang Level 1" FSL="Default" -->
<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>• </FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>obtain
the clearance of the FDA and international agencies before we can market and sell our
products; </FONT></TD>
</TR>
</TABLE>
<BR>
<!-- MARKER FORMAT-SHEET="Para Hang Level 1" FSL="Default" -->
<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>• </FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>satisfy
these agencies’ content requirements for all of our labeling, sales and promotional
materials; and </FONT></TD>
</TR>
</TABLE>
<BR>
<!-- MARKER FORMAT-SHEET="Para Hang Level 1" FSL="Default" -->
<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>• </FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>undergo
rigorous inspections by these agencies. </FONT></TD>
</TR>
</TABLE>
<BR>
<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Compliance
with the regulations of these agencies may delay or prevent us from introducing any new
model of our existing products or other new products. Furthermore, we may be subject to
sanctions, including temporary or permanent suspension of operations, product recalls and
marketing restrictions if we fail to comply with the laws and regulations pertaining to
our business. </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> We
are also required to demonstrate compliance with the FDA’s quality system
regulations. The FDA enforces its quality system regulations through pre-approval and
periodic post-approval inspections. These regulations relate to product testing, vendor
qualification, design control and quality assurance, as well as the maintenance of records
and documentation. If we are unable to conform to these regulations, the FDA may take
actions which could seriously harm our business. In addition, government regulation may be
established that could prevent, delay, modify or rescind regulatory clearance or approval
of our products. </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>ITEM 7A. QUANTITATIVE AND
QUALITATIVE DISCLOSURES ABOUT MARKET RISK</B> </FONT> </P>
<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Financial
instruments that potentially subject us to concentrations of credit risk consist primarily
of cash and cash equivalents, available-for-sale securities and accounts receivables. We
maintain our accounts for cash and cash equivalents and available-for-sale securities
principally at one major bank and one investment firm 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. </FONT></P>
<BR>
<!-- MARKER FORMAT-SHEET="Para Center" FSL="Workstation" -->
<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>29</FONT></P>
<HR SIZE=3 COLOR=GRAY NOSHADE>
<!-- *************************************************************************** -->
<!-- MARKER PAGE="sheet: 0; page: 0" -->
<BR>
<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> With
respect to accounts receivable, we perform credit evaluations of our customers and do not
require collateral. There have been no material losses on accounts receivables. </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> In
the United States and Germany, we sell our products directly to hospitals and clinics in
the local currency. Revenue is recognized upon shipment of products to customers. </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> In
all other international markets, we sell our products to independent distributors who, in
turn, sell to medical clinics. We sell our product in these countries through independent
distributors denominated in United States dollars. Loss, termination or ineffectiveness of
distributors to effectively promote our product would have a material adverse effect on
our financial condition and results of operations. </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> We
do not believe our operations are currently subject to significant market risks for
interest rates, foreign currency exchange rates, commodity prices or other relevant
market price risks of a material nature. </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>ITEM 8. CONSOLIDATED FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA</B> </FONT> </P>
<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> The
Consolidated Financial Statements and Notes thereto required pursuant to this Item begin
on page 36 of this Annual Report on Form 10-K. </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>ITEM 9. CHANGES IN AND
DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE</B> </FONT> </P>
<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> None. </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>ITEM 9A. CONTROLS AND PROCEDURES</B> </FONT> </P>
<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Evaluation
of disclosure controls and procedures. </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Under
the supervision and with the participation of our management, including our Chief
Executive Officer and Chief Financial Officer, we evaluated the effectiveness of the
design and operation of our disclosure controls and procedures (as defined in Rule
13a-15(f) under the Exchange Act). Based upon that evaluation, the Chief Executive Officer
and Chief Financial Officer concluded that, as of the end of the period covered by this
report, our disclosure controls and procedures were effective in timely alerting them to
the material information relating to us (or our consolidated subsidiaries) required to be
included in the reports we file or submit under the Exchange Act. </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Changes
in internal controls. </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> During
the fiscal quarter ended December 31, 2003, there has been no change in our internal
control over financial reporting (as defined in Rule 13 a-15(f) under the Exchange Act)
that has materially affected, or is reasonably likely to materially affect, our internal
control over financial reporting. </FONT></P>
<BR><BR><BR><BR><BR><BR>
<!-- MARKER FORMAT-SHEET="Para Center" FSL="Workstation" -->
<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>30</FONT></P>
<HR SIZE=3 COLOR=GRAY NOSHADE>
<!-- *************************************************************************** -->
<!-- MARKER PAGE="sheet: 0; page: 0" -->
<BR>
<!-- MARKER FORMAT-SHEET="Head Minor Center Bold" FSL="Default" -->
<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>PART III</B> </FONT></H1>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>ITEM 10. DIRECTORS AND EXECUTIVE
OFFICERS OF THE REGISTRANT</B> </FONT> </P>
<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 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, 2003. </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> See
Item 1 of Part I hereof for information regarding our Executive Officers. </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>ITEM 11. EXECUTIVE COMPENSATION</B> </FONT> </P>
<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 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, 2003. </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>ITEM 12. SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER MATTERS</B> </FONT> </P>
<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Incorporated
herein by reference to the Section under the heading “Security Ownership of Certain
Beneficial Owners and Management” and “Equity Compensation Plan
Information” contained in the Proxy Statement for our Annual Meeting of Shareholders
to be filed with the Securities and Exchange Commission within 120 days of the close of
the year ended December 31, 2003. </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>ITEM 13. CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS</B> </FONT> </P>
<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> None. </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>ITEM 14. PRINCIPAL ACCOUNTING FEES
AND SERVICES</B> </FONT> </P>
<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Incorporated
herein by reference to the Section under the heading “Additional Information about
our Independent Auditor” 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, 2003. </FONT></P>
<BR><BR><BR><BR><BR>
<!-- MARKER FORMAT-SHEET="Para Center" FSL="Workstation" -->
<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>31</FONT></P>
<HR SIZE=3 COLOR=GRAY NOSHADE>
<!-- *************************************************************************** -->
<!-- MARKER PAGE="sheet: 0; page: 0" -->
<BR>
<!-- MARKER FORMAT-SHEET="Head Minor Center Bold" FSL="Default" -->
<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>PART IV </FONT></H1>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>ITEM 15. EXHIBITS, FINANCIAL
STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K</B> </FONT> </P>
<!-- MARKER FORMAT-SHEET="Para Hang" FSL="Default" -->
<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(a) </FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Documents
filed as part of this Report. </FONT></TD>
</TR>
</TABLE>
<BR>
<!-- MARKER FORMAT-SHEET="Para Hang Level 1" FSL="Default" -->
<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(1) </FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The
following financial statements are filed herewith in Item 8 in Part II. </FONT></TD>
</TR>
</TABLE>
<BR>
<!-- MARKER FORMAT-SHEET="Para Hang Level 2" FSL="Default" -->
<A NAME=A059></A>
<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(i) </FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=85%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Report
of Independent Auditors </FONT></TD>
</TR>
</TABLE>
<BR>
<!-- MARKER FORMAT-SHEET="Para Hang Level 2" FSL="Default" -->
<A NAME=A060></A>
<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(ii) </FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=85%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Consolidated
Balance Sheets </FONT></TD>
</TR>
</TABLE>
<BR>
<!-- MARKER FORMAT-SHEET="Para Hang Level 2" FSL="Default" -->
<A NAME=A061></A>
<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(iii) </FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=85%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Consolidated
Statements of Operations </FONT></TD>
</TR>
</TABLE>
<BR>
<!-- MARKER FORMAT-SHEET="Para Hang Level 2" FSL="Default" -->
<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(iv) </FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=85%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Consolidated
Statement of Changes in Shareholders’ Equity </FONT></TD>
</TR>
</TABLE>
<BR>
<!-- MARKER FORMAT-SHEET="Para Hang Level 2" FSL="Default" -->
<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(v) </FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=85%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Consolidated
Statements of Cash Flows </FONT></TD>
</TR>
</TABLE>
<BR>
<!-- MARKER FORMAT-SHEET="Para Hang Level 2" FSL="Default" -->
<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(vi) </FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=85%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Notes
to Consolidated Financial Statements </FONT></TD>
</TR>
</TABLE>
<BR>
<!-- MARKER FORMAT-SHEET="Para Hang Level 1" FSL="Default" -->
<A NAME=A062></A>
<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(2) </FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Financial
Statement Schedules </FONT></TD>
</TR>
</TABLE>
<BR>
<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Schedule
II – Valuation and Qualifying Accounts. Such schedule should be read in conjunction
with the consolidated financial statements. All other supplemental schedules are omitted
because of the absence of conditions under which they are required. </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Hang Level 1" FSL="Default" -->
<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(3) </FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Exhibits</FONT></TD>
</TR>
</TABLE>
<BR>
<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 WIDTH=600>
<TR VALIGN=Bottom>
<TH COLSPAN="2" ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Exhibit<BR>
Number</FONT></TH>
<TH COLSPAN="2" WIDTH="90%"><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Description</FONT></TH></TR>
<tr><td colspan=8><hr color=black size=1></td></TR>
<TR VALIGN=Top>
<TD WIDTH=5% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>3</FONT></TD>
<TD WIDTH=5% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>.1</FONT></TD>
<TD WIDTH="90%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>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).</FONT></TD>
<TD WIDTH=2% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR VALIGN=Top>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR VALIGN=Top>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>3</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>.2</FONT></TD>
<TD ALIGN="LEFT" WIDTH="90%"><FONT FACE="Times New Roman, Times, Serif" SIZE=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)).</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR VALIGN=Top>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR VALIGN=Top>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>4</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>.1</FONT></TD>
<TD ALIGN="LEFT" WIDTH="90%"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>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)).</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR VALIGN=Top>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR VALIGN=Top>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>4</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>.2</FONT></TD>
<TD ALIGN="LEFT" WIDTH="90%"><FONT FACE="Times New Roman, Times, Serif" SIZE=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 333</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR VALIGN=Top>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR VALIGN=Top>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>4</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>.3</FONT></TD>
<TD ALIGN="LEFT" WIDTH="90%"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>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)).</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR VALIGN=Top>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR VALIGN=Top>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>4</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>.4</FONT></TD>
<TD ALIGN="LEFT" WIDTH="90%"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>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 Solution</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR VALIGN=Top>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR VALIGN=Top>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>4</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>.5</FONT></TD>
<TD ALIGN="LEFT" WIDTH="90%"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>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))</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR VALIGN=Top>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR VALIGN=Top>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>10</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>.1</FONT></TD>
<TD ALIGN="LEFT" WIDTH="90%"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Lease Agreement dated August 30, 2002 by and between First Industrial, L.P. as Landlord and Vascular Solutions, Inc. as Tenant (incorporated by reference to Exhibit 10.1 of Vascular Solutions’ Form 10-Q for the quarter ended September</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
</TABLE>
<BR>
<!-- MARKER FORMAT-SHEET="Para Center" FSL="Workstation" -->
<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>32</FONT></P>
<HR SIZE=3 COLOR=GRAY NOSHADE>
<!-- *************************************************************************** -->
<!-- MARKER PAGE="sheet: 0; page: 0" -->
<BR>
<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 WIDTH=600>
<TR valign=top>
<TD WIDTH=5% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>10</FONT></TD>
<TD WIDTH=2% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>.2</FONT></TD>
<TD WIDTH="90%" ALIGN="LEFT" STYLE="padding-left:12pt;"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>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-</FONT></TD>
<TD WIDTH=2% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR valign=top>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR valign=top>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>10</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>.3</FONT></TD>
<TD ALIGN="LEFT" WIDTH="90%" STYLE="padding-left:12pt;"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>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)).</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR valign=top>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR valign=top>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>10</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>.4</FONT></TD>
<TD ALIGN="LEFT" WIDTH="90%" STYLE="padding-left:12pt;"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>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)).</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR valign=top>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR valign=top>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>10</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>.5*</FONT></TD>
<TD ALIGN="LEFT" WIDTH="90%" STYLE="padding-left:12pt;"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>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)).</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR valign=top>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR valign=top>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>10</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>.6</FONT></TD>
<TD ALIGN="LEFT" WIDTH="90%" STYLE="padding-left:12pt;"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Form of Distribution Agreement (incorporated by reference to Exhibit 10.12 of Vascular Solutions’ Registration Statement on Form S-1 (File No. 333-84089)).</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR valign=top>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR valign=top>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>10</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>.7*</FONT></TD>
<TD ALIGN="LEFT" WIDTH="90%" STYLE="padding-left:12pt;"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Vascular Solutions, Inc. Employee Stock Purchase Plan, as amended (incorporated by reference to Exhibit 10.14 to Vascular Solutions’ Form 10-K for the year ended December 31, 2000).</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR valign=top>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR valign=top>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>10</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>.8</FONT></TD>
<TD ALIGN="LEFT" WIDTH="90%" STYLE="padding-left:12pt;"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Settlement Agreement dated July 12, 2001 by and between Vascular Solutions and St. Jude Medical and Daig Corporation (incorporated by reference to Exhibit 99.2 to Vascular Solutions’ Form 8-K dated July 12, 2001).</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR valign=top>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR valign=top>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>10</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>.9</FONT></TD>
<TD ALIGN="LEFT" WIDTH="90%" STYLE="padding-left:12pt;"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Purchase Agreement dated April 30, 2002 by and between Vascular Solutions and Angiosonics (incorporated by reference to Exhibit 99.2 to Vascular Solutions’ Form 8-K dated April 30, 2002).</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR valign=top>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR valign=top>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>10</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>.10*</FONT></TD>
<TD ALIGN="LEFT" WIDTH="90%" STYLE="padding-left:12pt;"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Stock Option and Stock Award Plan as Amended July 16, 2002 (incorporated by reference to Exhibit 10.1 of Vascular Solutions’ Form 10-Q for the quarter ended June 30, 2002).</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR valign=top>
<TD WIDTH=5% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><BR>10</FONT></TD>
<TD WIDTH=2% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><BR>.11</FONT></TD>
<TD WIDTH="90%" ALIGN="LEFT" STYLE="padding-left:12pt;"><FONT FACE="Times New Roman, Times, Serif" SIZE=2><BR>Settlement Agreement dated November 26, 2002 by and between Vascular Solutions and Datascope (incorporated by reference to Exhibit 99.2 to Vascular Solutions’ Form 8-K dated November 26, 2002).</FONT></TD>
<TD WIDTH=2% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR valign=top>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR valign=top>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>10</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>.12**</FONT></TD>
<TD ALIGN="LEFT" WIDTH="90%" STYLE="padding-left:12pt;"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>License and Supply Agreement dated December 17, 2002 by and between Vascular Solutions and Tepha, Inc. (incorporated by reference to Exhibit 10.17 of Vascular Solutions’ Form 10-K for the year ended December 31, 2002).</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR valign=top>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR valign=top>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>10</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>.13**</FONT></TD>
<TD ALIGN="LEFT" WIDTH="90%" STYLE="padding-left:12pt;"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Private Label Purchase Agreement dated September 22, 2003 by and between Vascular Solutions and MedArt Corportation (incorporated by reference to Exhibit 10.18 of Vascular Solutions’ Form 10-Q for the quarter ended September 30, 3003).</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR valign=top>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR valign=top>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>10</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>.14</FONT></TD>
<TD ALIGN="LEFT" WIDTH="90%" STYLE="padding-left:12pt;"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Loan and Security Agreement dated December 31, 2003 by and between Vascular Solutions and Silicon Valley Bank.</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR valign=top>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR valign=top>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>14</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN="LEFT" WIDTH="90%" STYLE="padding-left:12pt;"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Code of Ethics</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR valign=top>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR valign=top>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>21</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN="LEFT" WIDTH="90%" STYLE="padding-left:12pt;"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>List of Subsidiaries</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR valign=top>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR valign=top>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>23</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>.1</FONT></TD>
<TD ALIGN="LEFT" WIDTH="90%" STYLE="padding-left:12pt;"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Consent of Ernst & Young LLP.</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR valign=top>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR valign=top>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>24</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>.1</FONT></TD>
<TD ALIGN="LEFT" WIDTH="90%" STYLE="padding-left:12pt;"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Power of Attorney (included on signature page).</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR valign=top>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR valign=top>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>31</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>.1</FONT></TD>
<TD ALIGN="LEFT" WIDTH="90%" STYLE="padding-left:12pt;"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR valign=top>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR valign=top>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>31</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>.2</FONT></TD>
<TD ALIGN="LEFT" WIDTH="90%" STYLE="padding-left:12pt;"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Certification of Chief Financial Officer pursuant to Section 302 of the Sabanes-Oxley Act of 2002.</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR valign=top>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR valign=top>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>32</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>.1</FONT></TD>
<TD ALIGN="LEFT" WIDTH="90%" STYLE="padding-left:12pt;"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR valign=top>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR valign=top>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>32</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>.2</FONT></TD>
<TD ALIGN="LEFT" WIDTH="90%" STYLE="padding-left:12pt;"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
</TABLE>
<BR>
<!-- MARKER FORMAT-SHEET="Para Center" FSL="Workstation" -->
<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>33</FONT></P>
<HR SIZE=3 COLOR=GRAY NOSHADE>
<!-- *************************************************************************** -->
<!-- MARKER PAGE="sheet: 0; page: 0" -->
<BR>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>_________________ <BR>* Management contract or
compensatory plan or arrangement required to be filed as an Exhibit to this Form 10-K. <BR>** Certain portions of this exhibit have been omitted pending a request for
confidential treatment from the SEC.</FONT></P>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(b) Reports
on Form 8-K: </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>We furnished a Form 8-K on October
15, 2003 to report our press release dated October 15, 2003 on our third quarter results. </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(c) See
Item 15(a)(3) above. </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(d) See
Item 15(a)(2) above. </FONT></P>
<BR><BR><BR><BR><BR><BR><BR><BR><BR><BR><BR><BR><BR><BR><BR><BR><BR><BR><BR><BR>
<!-- MARKER FORMAT-SHEET="Para Center" FSL="Workstation" -->
<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>34</FONT></P>
<HR SIZE=3 COLOR=GRAY NOSHADE>
<!-- *************************************************************************** -->
<!-- MARKER PAGE="sheet: 0; page: 0" -->
<BR>
<!-- MARKER FORMAT-SHEET="Head Minor Center Bold" FSL="Default" -->
<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>SIGNATURES </FONT></H1>
<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 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 27th day of February, 2004. </FONT></P>
<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 WIDTH=700>
<TR VALIGN=top>
<TD WIDTH=75% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
<TD WIDTH=25% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><b>VASCULAR SOLUTIONS, INC.</b></FONT></TD></TR>
<TR VALIGN=top>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><br> </FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><br>By: <U>/s/ Howard Root </U> </FONT></TD></TR>
<TR VALIGN=top>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
<TD ALIGN="LEFT" NOWRAP><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Howard Root<BR>
Chief Executive Officer and Director</FONT></TD></TR>
</TABLE>
<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> KNOW
ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes
and appoints Howard Root and James Hennen (with full power to act alone), as his or her
true and lawful attorneys-in-fact and agents, with full powers of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any and all
capacities, to sign any and all amendments to the Annual Report on Form 10-K of Vascular
Solutions, Inc., and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents full power and authority to do and perform each and every
act and thing requisite or necessary to be done in and about the premises, as fully to
all intents and purposes as he or she might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or their substitute or
substitutes, lawfully do or cause to be done by virtue hereof. </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been signed
on the 19th day of February, 2004, by the following persons in the capacities indicated. </FONT></P>
<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 ALIGN=CENTER WIDTH=600>
<TR VALIGN=Bottom>
<TH ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"> <U>Signature</U> </FONT></TH>
<TH ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"> <U>Title</U> </FONT></TH></TR>
<TR VALIGN=Bottom>
<TD WIDTH=40% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><BR> <U>/s/ Howard Root</U> </FONT></TD>
<TD WIDTH=60% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><BR>Chief Executive Officer and Director</FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Howard Root </FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><I>(Principal Executive Officer)</I> </FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><BR><U>/s/ James Hennen</U> </FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><BR>Chief Financial Officer</FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> James Hennen</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><I>(Principal Financial and Accounting Officer)</I> </FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><BR><U>/s/ James Jacoby, Jr.</U> </FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><BR>Director</FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> James Jacoby, Jr.</FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><BR><U>/s/ Richard Nigon</U> </FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><BR>Director</FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Richard Nigon</FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><BR><U>/s/ Michael Kopp</U> </FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><BR>Director</FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Michael Kopp</FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><BR><U>/s/ Paul O’Connell</U> </FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><BR>Director</FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Paul O’Connell</FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><BR><U>/s/ John Erb</U> </FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><BR>Director</FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> John Erb</FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><BR><U>/s/ Dr. Gary Dorfman</U> </FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><BR>Director</FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Dr. Gary Dorfman</FONT></TD></TR>
</TABLE>
<BR>
<!-- MARKER FORMAT-SHEET="Para Center" FSL="Workstation" -->
<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>35</FONT></P>
<HR SIZE=3 COLOR=GRAY NOSHADE>
<!-- *************************************************************************** -->
<!-- MARKER PAGE="sheet: 0; page: 0" -->
<BR>
<!-- MARKER FORMAT-SHEET="Head Minor Center Bold" FSL="Default" -->
<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>SCHEDULE II </FONT></H1>
<!-- MARKER FORMAT-SHEET="Head Minor Center Bold" FSL="Default" -->
<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>VALUATION AND
QUALIFYING ACCOUNTS <BR>YEARS ENDED DECEMBER 31, 2003, 2002, AND 2001 </FONT></H1>
<!-- MARKER FORMAT-SHEET="Head Major Center Bold" FSL="Default" -->
<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=4> </FONT></H1>
<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 ALIGN=CENTER WIDTH=600>
<TR VALIGN=Bottom>
<TH COLSPAN="3" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Description</FONT></TH>
<TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Balance at<BR>
Beginning<BR>
of Year</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
<TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Additions<BR>
Charged<BR>
to Costs<BR>
and<BR>
Expenses</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
<TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Less<BR>
Deductions</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
<TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Balance at<BR>
End of Year</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH></TR>
<TR VALIGN=Bottom>
<TD WIDTH=45% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><BR>YEAR ENDED DECEMBER 31, 2003:</FONT></TD>
<TD WIDTH=1% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=2% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=1% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD WIDTH=9% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
<TD WIDTH=3% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=1% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD WIDTH=9% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
<TD WIDTH=4% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=1% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD WIDTH=9% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
<TD WIDTH=3% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=1% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD WIDTH=9% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
<TD WIDTH=2% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Sales return allowance</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 40,000</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> (12,708</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 7,292</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 20,000</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Allowance for doubtful accounts</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>90,000</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>69,099</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>19,099</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>140,000</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR>
<TD COLSPAN=3></TD>
<TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=Black SIZE=1></TD><TD></TD>
<TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=Black SIZE=1></TD><TD></TD>
<TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=Black SIZE=1></TD><TD></TD>
<TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=Black SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Total</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 130,000</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 56,391</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 26,391</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 160,000</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR>
<TD COLSPAN=3></TD>
<TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=Black SIZE=2></TD><TD></TD>
<TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=Black SIZE=2></TD><TD></TD>
<TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=Black SIZE=2></TD><TD></TD>
<TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=Black SIZE=2></TD><TD></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>YEAR ENDED DECEMBER 31, 2002:</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Sales return allowance</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>64,526</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 174,642</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 199,168</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 40,000</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Allowance for doubtful accounts</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>110,000</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>23,592</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>43,592</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>90,000</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR>
<TD COLSPAN=3></TD>
<TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=Black SIZE=1></TD><TD></TD>
<TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=Black SIZE=1></TD><TD></TD>
<TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=Black SIZE=1></TD><TD></TD>
<TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=Black SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Total</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 174,526</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 198,234</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 242,760</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 130,000</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR>
<TD COLSPAN=3></TD>
<TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=Black SIZE=2></TD><TD></TD>
<TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=Black SIZE=2></TD><TD></TD>
<TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=Black SIZE=2></TD><TD></TD>
<TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=Black SIZE=2></TD><TD></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Year Ended December 31, 2001:</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Sales return allowance</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>—</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>401,733</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>337,207</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>64,526</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Allowance for doubtful accounts</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>80,000</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>35,304</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>5,304</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>110,000</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR>
<TD COLSPAN=3></TD>
<TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=Black SIZE=1></TD><TD></TD>
<TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=Black SIZE=1></TD><TD></TD>
<TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=Black SIZE=1></TD><TD></TD>
<TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=Black SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Total</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 80,000</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 437,037</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>342,511</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 174,526</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR>
<TD COLSPAN=3></TD>
<TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=Black SIZE=2></TD><TD></TD>
<TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=Black SIZE=2></TD><TD></TD>
<TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=Black SIZE=2></TD><TD></TD>
<TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=Black SIZE=2></TD><TD></TD></TR>
</TABLE>
<BR><BR><BR><BR><BR><BR><BR><BR><BR><BR>
<!-- MARKER FORMAT-SHEET="Para Center" FSL="Workstation" -->
<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>36</FONT></P>
<HR SIZE=3 COLOR=GRAY NOSHADE>
<!-- *************************************************************************** -->
<!-- MARKER PAGE="sheet: 0; page: 0" -->
<BR>
<!-- MARKER FORMAT-SHEET="Head Minor Center" FSL="Default" -->
<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Report of Independent
Auditors </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The Board of Directors and
Shareholders<BR>Vascular Solutions, Inc. </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>We have audited the consolidated
balance sheets of Vascular Solutions, Inc. as of December 31, 2003 and 2002, 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, 2003. 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. </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>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. </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>In our opinion, the financial
statements referred to above present fairly, in all material respects, the consolidated
financial position of Vascular Solutions, Inc. at December 31, 2003 and 2002, and the
consolidated results of its operations and its cash flows for each of the three years in
the period ended December 31, 2003 in conformity with accounting principles generally
accepted in the United States. </FONT></P>
<!-- MARKER FORMAT-SHEET="Head Right" FSL="Default" -->
<P ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Ernst & Young LLP </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Minneapolis, Minnesota<BR>January 16,
2004 </FONT></P>
<BR><BR><BR><BR><BR><BR><BR><BR>
<!-- MARKER FORMAT-SHEET="Para Center" FSL="Workstation" -->
<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>37</FONT></P>
<HR SIZE=3 COLOR=GRAY NOSHADE>
<!-- *************************************************************************** -->
<!-- MARKER PAGE="sheet: 0; page: 0" -->
<BR>
<!-- MARKER FORMAT-SHEET="Head Minor Center" FSL="Default" -->
<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Vascular Solutions,
Inc. </FONT></P>
<!-- MARKER FORMAT-SHEET="Head Minor Center" FSL="Default" -->
<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Consolidated Balance
Sheets </FONT></P>
<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 ALIGN=CENTER WIDTH=600>
<TR VALIGN=Bottom>
<TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
<TH COLSPAN=6><FONT FACE="Times New Roman, Times, Serif" SIZE="1"><B>December 31</B> </FONT></TH>
</TR>
<TR VALIGN=Bottom>
<TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
<TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE="1"><B>2003</B> </FONT><HR WIDTH=100% SIZE=1 COLOR=BLACK NOSHADE></TH>
<TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2002</FONT><HR WIDTH=100% SIZE=1 COLOR=BLACK NOSHADE></TH></TR>
<TR VALIGN=Bottom>
<TD WIDTH=65% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>Assets</B> </FONT></TD>
<TD WIDTH=1% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=2% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=1% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B> </B> </FONT></TD><TD WIDTH=12% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B></B> </FONT></TD>
<TD WIDTH=4% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B> </B> </FONT></TD>
<TD WIDTH=1% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD WIDTH=12% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
<TD WIDTH=2% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Current assets:</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Cash and cash equivalents</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>$</B> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B> 2,864,913</B> </FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B> </B> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 1,835,059</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Available-for-sale securities</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B> </B> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>3,019,693</B> </FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B> </B> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>14,914,444</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Accounts receivable, net of reserves of $160,000 and</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> $130,000 in 2003 and 2002, respectively</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B> </B> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>1,810,443</B> </FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B> </B> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,357,946</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Inventories</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B> </B> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>3,186,274</B> </FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B> </B> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2,132,516</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Prepaid expenses</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B> </B> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>462,154</B> </FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B> </B> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>326,773</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR>
<TD COLSPAN=3></TD>
<TD COLSPAN=3><HR NOSHADE COLOR=Black SIZE=1></TD>
<TD COLSPAN=3><HR NOSHADE COLOR=Black SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Total current assets</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B> </B> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>11,343,477</B> </FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B> </B> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>20,566,738</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Property and equipment, net</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B> </B> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>948,602</B> </FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B> </B> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>795,885</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Intangible assets, net</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B> </B> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>700,095</B> </FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B> </B> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>917,595</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR>
<TD COLSPAN=3></TD>
<TD COLSPAN=3><HR NOSHADE COLOR=Black SIZE=1></TD>
<TD COLSPAN=3><HR NOSHADE COLOR=Black SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Total assets</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>$</B> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B> 12,992,174</B> </FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B> </B> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 22,280,218</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR>
<TD COLSPAN=3></TD>
<TD COLSPAN=3><HR NOSHADE COLOR=Black SIZE=2></TD>
<TD COLSPAN=3><HR NOSHADE COLOR=Black SIZE=2></TD><TD></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>Liabilities and Shareholders’ Equity</B> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Current liabilities:</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Accounts payable</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>$</B> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B> 750,762</B> </FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B> </B> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 771,078</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Accrued compensation</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B> </B> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>1,111,049</B> </FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B> </B> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>886,130</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Accrued expenses</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B> </B> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>258,228</B> </FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B> </B> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>253,777</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR>
<TD COLSPAN=3></TD>
<TD COLSPAN=3><HR NOSHADE COLOR=Black SIZE=1></TD>
<TD COLSPAN=3><HR NOSHADE COLOR=Black SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Total current liabilities</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B> </B> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>2,120,039</B> </FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B> </B> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,910,985</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><BR>Commitments</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><BR>Shareholders’ equity:</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Common stock, $0.01 par value:</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Authorized shares - 40,000,000</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Issued and outstanding shares - 12,989,170 - 2003;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 12,880,839 - 2002</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B> </B> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>129,892</B> </FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B> </B> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>128,808</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Additional paid-in capital</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B> </B> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>70,422,926</B> </FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B> </B> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>70,355,343</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Other</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B> </B> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>(41,356</B> </FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>)</B> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(21,278</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Accumulated deficit</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B> </B> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>(59,722,039</B> </FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>)</B> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(50,093,640</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR>
<TD COLSPAN=3></TD>
<TD COLSPAN=3><HR NOSHADE COLOR=Black SIZE=1></TD>
<TD COLSPAN=3><HR NOSHADE COLOR=Black SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Total shareholders’ equity</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B> </B> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>10,872,135</B> </FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B> </B> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>20,369,233</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR>
<TD COLSPAN=3></TD>
<TD COLSPAN=3><HR NOSHADE COLOR=Black SIZE=1></TD>
<TD COLSPAN=3><HR NOSHADE COLOR=Black SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Total liabilities and shareholders’ equity</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>$</B> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B> 12,992,174</B> </FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B> </B> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 22,280,218</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR>
<TD COLSPAN=3></TD>
<TD COLSPAN=3><HR NOSHADE COLOR=Black SIZE=2></TD>
<TD COLSPAN=3><HR NOSHADE COLOR=Black SIZE=2></TD><TD></TD></TR>
</TABLE>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><I>See accompanying notes</I> </FONT> </P>
<BR><BR><BR>
<!-- MARKER FORMAT-SHEET="Para Center" FSL="Workstation" -->
<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>38</FONT></P>
<HR SIZE=3 COLOR=GRAY NOSHADE>
<!-- *************************************************************************** -->
<!-- MARKER PAGE="sheet: 0; page: 0" -->
<BR>
<!-- MARKER FORMAT-SHEET="Head Minor Center" FSL="Default" -->
<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Vascular Solutions,
Inc. </FONT></P>
<!-- MARKER FORMAT-SHEET="Head Minor Center" FSL="Default" -->
<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Consolidated Statements
of Operations </FONT></P>
<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 ALIGN=CENTER WIDTH=600>
<TR VALIGN=Bottom>
<TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
<TH COLSPAN=9><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Year Ended December 31</FONT></TH>
</TR>
<TR VALIGN=Bottom>
<TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
<TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2003</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
<TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2002</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
<TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2001</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH></TR>
<TR VALIGN=Bottom>
<TD WIDTH=48% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Net sales</FONT></TD>
<TD WIDTH=1% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=2% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=1% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>$</B> </FONT></TD><TD WIDTH=12% ALIGN=RIGHT> <FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>11,804,328</B> </FONT></TD>
<TD WIDTH=4% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=1% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD WIDTH=12% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 12,100,526</FONT></TD>
<TD WIDTH=4% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=1% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD WIDTH=12% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 12,082,379</FONT></TD>
<TD WIDTH=2% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Cost of goods sold</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>4,570,242</B> </FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>4,985,587</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>4,961,014</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR>
<TD COLSPAN=3></TD>
<TD COLSPAN=3><HR NOSHADE COLOR=Black SIZE=1></TD>
<TD COLSPAN=3><HR NOSHADE COLOR=Black SIZE=1></TD>
<TD COLSPAN=3><HR NOSHADE COLOR=Black SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Gross profit</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>7,234,086</B> </FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>7,114,939</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>7,121,365</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Operating expenses:</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Research and development</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>3,670,935</B> </FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>3,227,538</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>4,123,883</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Clinical and regulatory</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>1,535,989</B> </FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,347,694</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,288,301</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Sales and marketing</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>9,645,920</B> </FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>11,963,907</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>12,771,901</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> General and administrative</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>1,942,483</B> </FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2,166,883</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2,498,435</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Legal settlement</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>—</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>3,750,000</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>350,000</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Amortization of purchased technology</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>217,500</B> </FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>145,000</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>—</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR>
<TD COLSPAN=3></TD>
<TD COLSPAN=3><HR NOSHADE COLOR=Black SIZE=1></TD>
<TD COLSPAN=3><HR NOSHADE COLOR=Black SIZE=1></TD>
<TD COLSPAN=3><HR NOSHADE COLOR=Black SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Total operating expenses</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>17,012,827</B> </FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>22,601,022</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>21,032,520</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR>
<TD COLSPAN=3></TD>
<TD COLSPAN=3><HR NOSHADE COLOR=Black SIZE=1></TD>
<TD COLSPAN=3><HR NOSHADE COLOR=Black SIZE=1></TD>
<TD COLSPAN=3><HR NOSHADE COLOR=Black SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Operating loss</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>(9,778,741</B> </FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>)</B> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(15,486,083</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(13,911,155</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Interest income</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>150,342</B> </FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>507,169</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,660,757</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR>
<TD COLSPAN=3></TD>
<TD COLSPAN=3><HR NOSHADE COLOR=Black SIZE=1></TD>
<TD COLSPAN=3><HR NOSHADE COLOR=Black SIZE=1></TD>
<TD COLSPAN=3><HR NOSHADE COLOR=Black SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Net loss</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT> <FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>(9,628,399</B> </FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> (14,978,914</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> (12,250,398</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR>
<TD COLSPAN=3></TD>
<TD COLSPAN=3><HR NOSHADE COLOR=Black SIZE=2></TD>
<TD COLSPAN=3><HR NOSHADE COLOR=Black SIZE=2></TD>
<TD COLSPAN=3><HR NOSHADE COLOR=Black SIZE=2></TD><TD></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Basic and diluted net loss per share</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT> <FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>(0.75</B> </FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>)</B> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> (1.13</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> (0.93</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR>
<TD COLSPAN=3></TD>
<TD COLSPAN=3><HR NOSHADE COLOR=Black SIZE=2></TD>
<TD COLSPAN=3><HR NOSHADE COLOR=Black SIZE=2></TD>
<TD COLSPAN=3><HR NOSHADE COLOR=Black SIZE=2></TD><TD></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Shares used in computing basic and diluted</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> net loss per share</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>12,858,765</B> </FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>13,276,147</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>13,216,773</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR>
<TD COLSPAN=3></TD>
<TD COLSPAN=3><HR NOSHADE COLOR=Black SIZE=2></TD>
<TD COLSPAN=3><HR NOSHADE COLOR=Black SIZE=2></TD>
<TD COLSPAN=3><HR NOSHADE COLOR=Black SIZE=2></TD><TD></TD></TR>
</TABLE>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><I>See accompanying notes</I> </FONT> </P>
<BR><BR><BR>
<!-- MARKER FORMAT-SHEET="Para Center" FSL="Workstation" -->
<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>39</FONT></P>
<HR SIZE=3 COLOR=GRAY NOSHADE>
<!-- *************************************************************************** -->
<!-- MARKER PAGE="sheet: 0; page: 0" -->
<BR>
<!-- MARKER FORMAT-SHEET="Head Minor Center" FSL="Default" -->
<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Vascular Solutions,
Inc. </FONT></P>
<!-- MARKER FORMAT-SHEET="Head Minor Center" FSL="Default" -->
<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Consolidated Statement
of Changes in Shareholders’ Equity </FONT></P>
<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 ALIGN=CENTER WIDTH=100%>
<TR VALIGN=Bottom>
<TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
<TH COLSPAN=6><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Common Stock</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
<TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
<TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
<TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
<TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
<TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
<TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Shares</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
<TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Amount</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
<TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Additional<BR>
Paid-in<BR>
Capital</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
<TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Other</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
<TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Accumulated<BR>
Deficit</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
<TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>TOTAL</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH></TR>
<TR VALIGN=Bottom>
<TD WIDTH=38% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Balance at December 31, 2000</FONT></TD>
<TD WIDTH=1% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=1% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=1% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD WIDTH=7% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>13,116,008</FONT></TD>
<TD WIDTH=2% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=1% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD WIDTH=7% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>131,160</FONT></TD>
<TD WIDTH=2% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=1% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD WIDTH=7% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>69,965,240</FONT></TD>
<TD WIDTH=2% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=1% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD WIDTH=7% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(38,182</FONT></TD>
<TD WIDTH=2% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
<TD WIDTH=1% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD WIDTH=7% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(22,864,328</FONT></TD>
<TD WIDTH=2% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
<TD WIDTH=1% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD WIDTH=7% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>47,193,890</FONT></TD>
<TD WIDTH=2% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Exercise of stock options</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>120,800</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,208</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>304,096</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>—</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>—</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>305,304</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Issuance of common stock under the</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Employee Stock Purchase Plan</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>90,194</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>902</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>308,660</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>—</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>—</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>309,562</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Value of stock options granted for</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> services</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>—</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>—</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>10,398</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>—</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>—</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>10,398</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Deferred compensation related to</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> option grants</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>—</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>—</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>123,780</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(123,780</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>—</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>—</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Amortization of deferred compensation</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>—</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>—</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>—</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>62,850</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>—</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>62,850</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Comprehensive loss:</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Net loss</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>—</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>—</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>—</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>—</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(12,250,398</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(12,250,398</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Translation adjustment</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>—</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>—</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>—</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(1,722</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>—</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(1,722</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR>
<TD COLSPAN=3></TD>
<TD COLSPAN=3></TD>
<TD COLSPAN=3></TD>
<TD COLSPAN=3></TD>
<TD COLSPAN=3></TD>
<TD COLSPAN=3></TD>
<TD COLSPAN=3><HR NOSHADE COLOR=Black SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Total comprehensive loss</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(12,252,120</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR>
<TD COLSPAN=3></TD>
<TD COLSPAN=3><HR NOSHADE COLOR=Black SIZE=1></TD>
<TD COLSPAN=3><HR NOSHADE COLOR=Black SIZE=1></TD>
<TD COLSPAN=3><HR NOSHADE COLOR=Black SIZE=1></TD>
<TD COLSPAN=3><HR NOSHADE COLOR=Black SIZE=1></TD>
<TD COLSPAN=3><HR NOSHADE COLOR=Black SIZE=1></TD>
<TD COLSPAN=3><HR NOSHADE COLOR=Black SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Balance at December 31, 2001</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>13,327,002</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>133,270</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>70,712,174</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(100,834</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(35,114,726</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>35,629,884</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Exercise of stock options</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>10,000</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>100</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>19,900</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>—</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>—</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>20,000</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Issuance of common stock under the</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Employee Stock Purchase Plan</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>152,737</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,528</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>163,043</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>—</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>—</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>164,571</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Stock repurchase program</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(608,900</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(6,090</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(541,632</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>—</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>—</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(547,722</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Deferred compensation related to</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> option grants</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>—</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>—</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,858</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(1,858</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>—</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>—</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Amortization of deferred compensation</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>—</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>—</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>—</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>74,668</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>—</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>74,668</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Comprehensive loss:</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Net loss</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>—</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>—</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>—</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>—</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(14,978,914</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(14,978,914</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Translation adjustment</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>—</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>—</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>—</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>6,746</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>—</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>6,746</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR>
<TD COLSPAN=3></TD>
<TD COLSPAN=3></TD>
<TD COLSPAN=3></TD>
<TD COLSPAN=3></TD>
<TD COLSPAN=3></TD>
<TD COLSPAN=3></TD>
<TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=Black SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Total comprehensive loss</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(14,972,168</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR>
<TD COLSPAN=3></TD>
<TD COLSPAN=3><HR NOSHADE COLOR=Black SIZE=1></TD>
<TD COLSPAN=3><HR NOSHADE COLOR=Black SIZE=1></TD>
<TD COLSPAN=3><HR NOSHADE COLOR=Black SIZE=1></TD>
<TD COLSPAN=3><HR NOSHADE COLOR=Black SIZE=1></TD>
<TD COLSPAN=3><HR NOSHADE COLOR=Black SIZE=1></TD>
<TD COLSPAN=3><HR NOSHADE COLOR=Black SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Balance at December 31, 2002</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>12,880,839</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 128,808</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 70,355,343</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> (21,278</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> (50,093,640</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 20,369,233</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Exercise of stock options</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>65,855</B> </FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>659</B> </FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>81,710</B> </FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>—</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>—</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>82,369</B> </FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Issuance of common stock under the</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Employee Stock Purchase Plan</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>195,876</B> </FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>1,959</B> </FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>123,972</B> </FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>—</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>—</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>125,931</B> </FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Stock repurchase program</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>(153,400</B> </FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>)</B> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>(1,534</B> </FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>)</B> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>(138,099</B> </FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>)</B> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>—</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>—</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>(139,633</B> </FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>)</B> </FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Amortization of deferred compensation</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>—</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>—</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>—</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>40,545</B> </FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>—</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>40,545</B> </FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Comprehensive loss:</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Net loss</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>—</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>—</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>—</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>—</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>(9,628,399</B> </FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>)</B> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>(9,628,399</B> </FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>)</B> </FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Translation adjustment</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>—</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>—</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>—</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>22,089</B> </FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>—</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>22,089</B> </FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR>
<TD COLSPAN=3></TD>
<TD COLSPAN=3></TD>
<TD COLSPAN=3></TD>
<TD COLSPAN=3></TD>
<TD COLSPAN=3></TD>
<TD COLSPAN=3></TD>
<TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=Black SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Total comprehensive loss</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>(9,606,310</B> </FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>)</B> </FONT></TD></TR>
<TR>
<TD COLSPAN=3></TD>
<TD COLSPAN=3><HR NOSHADE COLOR=Black SIZE=1></TD>
<TD COLSPAN=3><HR NOSHADE COLOR=Black SIZE=1></TD>
<TD COLSPAN=3><HR NOSHADE COLOR=Black SIZE=1></TD>
<TD COLSPAN=3><HR NOSHADE COLOR=Black SIZE=1></TD>
<TD COLSPAN=3><HR NOSHADE COLOR=Black SIZE=1></TD>
<TD COLSPAN=3><HR NOSHADE COLOR=Black SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Balance at December 31, 2003</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>12,989,170</B> </FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>$</B> </FONT></TD><TD ALIGN=RIGHT> <FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>129,892</B> </FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>$</B> </FONT></TD><TD ALIGN=RIGHT> <FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>70,422,926</B> </FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>$</B> </FONT></TD><TD ALIGN=RIGHT> <FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>(41,356</B> </FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>)</B> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>$</B> </FONT></TD><TD ALIGN=RIGHT> <FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>(59,722,039</B> </FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>)</B> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>$</B> </FONT></TD><TD ALIGN=RIGHT> <FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>10,872,135</B> </FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR>
<TD COLSPAN=3></TD>
<TD COLSPAN=3><HR NOSHADE COLOR=Black SIZE=2></TD>
<TD COLSPAN=3><HR NOSHADE COLOR=Black SIZE=2></TD>
<TD COLSPAN=3><HR NOSHADE COLOR=Black SIZE=2></TD>
<TD COLSPAN=3><HR NOSHADE COLOR=Black SIZE=2></TD>
<TD COLSPAN=3><HR NOSHADE COLOR=Black SIZE=2></TD>
<TD COLSPAN=3><HR NOSHADE COLOR=Black SIZE=2></TD><TD></TD></TR>
</TABLE>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><I>See accompanying notes.</I> </FONT> </P>
<BR><BR><BR><BR><BR>
<!-- MARKER FORMAT-SHEET="Para Center" FSL="Workstation" -->
<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>40</FONT></P>
<HR SIZE=3 COLOR=GRAY NOSHADE>
<!-- *************************************************************************** -->
<!-- MARKER PAGE="sheet: 0; page: 0" -->
<BR>
<!-- MARKER FORMAT-SHEET="Head Minor Center" FSL="Default" -->
<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Vascular Solutions, Inc. </FONT></P>
<!-- MARKER FORMAT-SHEET="Head Minor Center" FSL="Default" -->
<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Consolidated Statements
of Cash Flows </FONT></P>
<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 ALIGN=CENTER WIDTH=600>
<TR VALIGN=Bottom>
<TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
<TH COLSPAN=9><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Year Ended December 31</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
</TR>
<TR VALIGN=Bottom>
<TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
<TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2003</FONT><HR WIDTH=100% SIZE=1 COLOR=BLACK NOSHADE></TH>
<TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2002</FONT><HR WIDTH=100% SIZE=1 COLOR=BLACK NOSHADE></TH>
<TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2001</FONT><HR WIDTH=100% SIZE=1 COLOR=BLACK NOSHADE></TH></TR>
<TR VALIGN=Bottom>
<TD WIDTH=51% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Operating activities</FONT></TD>
<TD WIDTH=1% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=2% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=1% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD WIDTH=11% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
<TD WIDTH=4% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=1% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD WIDTH=11% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
<TD WIDTH=4% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=1% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD WIDTH=11% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
<TD WIDTH=2% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Net loss</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>$</B> </FONT></TD><TD ALIGN=RIGHT> <FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>(9,628,399</B> </FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> (14,978,914</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> (12,250,398</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Adjustments to reconcile net loss to net cash used</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> in operating activities:</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Depreciation</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>386,196</B> </FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>502,390</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>432,721</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Amortization</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>217,500</B> </FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>145,000</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>—</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Value of options granted for services</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>—</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>—</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>10,398</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Deferred compensation expense</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>40,545</B> </FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>74,668</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>62,850</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Changes in operating assets and liabilities:</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Accounts receivable</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>(452,497</B> </FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>)</B> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(72,935</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>686,372</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Inventories</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>(1,053,758</B> </FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>)</B> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>113,455</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>684,082</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Prepaid expenses</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>(135,381</B> </FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>)</B> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(36,885</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(58,637</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Accounts payable</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>(20,316</B> </FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>)</B> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>26,222</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(22,191</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Accrued compensation and expenses</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>229,370</B> </FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(78,309</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(481,583</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR>
<TD COLSPAN=3></TD>
<TD COLSPAN=3><HR NOSHADE COLOR=Black SIZE=1></TD>
<TD COLSPAN=3><HR NOSHADE COLOR=Black SIZE=1></TD>
<TD COLSPAN=3><HR NOSHADE COLOR=Black SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Net cash used in operating activities</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>(10,416,740</B> </FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>)</B> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(14,305,308</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(10,936,386</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><BR><B>Investing Activities</B> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Purchase of Acolysis assets</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>—</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(1,550,203</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>—</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Purchase of property and equipment</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>(538,913</B> </FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>)</B> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(356,696</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(456,206</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Purchase of securities</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>(10,695,249</B> </FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>)</B> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(33,173,021</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(25,300,530</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Proceeds from sales of securities</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>22,590,000</B> </FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>42,485,052</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>24,423,770</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR>
<TD COLSPAN=3></TD>
<TD COLSPAN=3><HR NOSHADE COLOR=Black SIZE=1></TD>
<TD COLSPAN=3><HR NOSHADE COLOR=Black SIZE=1></TD>
<TD COLSPAN=3><HR NOSHADE COLOR=Black SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Net cash provided by (used in) investing activities</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>11,355,838</B> </FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>7,405,132</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(1,332,966</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><BR><B>Financing Activities</B> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Proceeds from exercise of stock options</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>82,369</B> </FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>20,000</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>305,304</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Net proceeds from sale of common stock</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>125,931</B> </FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>164,571</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>309,562</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Repurchase of common stock</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>(139,633</B> </FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>)</B> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(547,722</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>—</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR>
<TD COLSPAN=3></TD>
<TD COLSPAN=3><HR NOSHADE COLOR=Black SIZE=1></TD>
<TD COLSPAN=3><HR NOSHADE COLOR=Black SIZE=1></TD>
<TD COLSPAN=3><HR NOSHADE COLOR=Black SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Net cash provided (used in) by financing activities</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>68,667</B> </FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(363,151</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>614,866</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><BR>Effect of exchange rate changes on cash and cash</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> equivalents</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>22,089</B> </FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>6,746</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(1,722</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR>
<TD COLSPAN=3></TD>
<TD COLSPAN=3><HR NOSHADE COLOR=Black SIZE=1></TD>
<TD COLSPAN=3><HR NOSHADE COLOR=Black SIZE=1></TD>
<TD COLSPAN=3><HR NOSHADE COLOR=Black SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Increase (decrease) in cash and cash equivalents</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>1,029,854</B> </FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(7,256,581</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(11,656,208</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Cash and cash equivalents at beginning of year</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>1,835,059</B> </FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>9,091,640</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>20,747,848</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR>
<TD COLSPAN=3></TD>
<TD COLSPAN=3><HR NOSHADE COLOR=Black SIZE=1></TD>
<TD COLSPAN=3><HR NOSHADE COLOR=Black SIZE=1></TD>
<TD COLSPAN=3><HR NOSHADE COLOR=Black SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Cash and cash equivalents at end of year</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>$</B> </FONT></TD><TD ALIGN=RIGHT> <FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>2,864,913</B> </FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 1,835,059</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 9,091,640</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR>
<TD COLSPAN=3></TD>
<TD COLSPAN=3><HR NOSHADE COLOR=Black SIZE=2></TD>
<TD COLSPAN=3><HR NOSHADE COLOR=Black SIZE=2></TD>
<TD COLSPAN=3><HR NOSHADE COLOR=Black SIZE=2></TD><TD></TD></TR>
</TABLE>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><I>See accompanying notes.</I> </FONT> </P>
<BR><BR><BR>
<!-- MARKER FORMAT-SHEET="Para Center" FSL="Workstation" -->
<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>41</FONT></P>
<HR SIZE=3 COLOR=GRAY NOSHADE>
<!-- *************************************************************************** -->
<!-- MARKER PAGE="sheet: 0; page: 0" -->
<BR>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>1. Description of Business</B> </FONT> </P>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Vascular Solutions, Inc. (the
Company) is a medical device company focused on bringing solutions to interventional
cardiologists and interventional radiologists. The Company’s product line includes
the Duett™ sealing device, the D-Stat™ flowable hemostat, the D-Stat Dry
bangage, the D-Stat Radial hemostat band, the Vari-Lase endovenous laser procedure kit
& laser, the Pronto extraction catheter and the Acolysis®therapeutic ultrasound
system. As a vertically-intergrated medical device company, the Company generates ideas
and creates new interventional medical devices, and then delivers those products directly
to the physician through its direct domestic sales force and international distribution
network. The Duett sealing device is designed to provide a complete seal of the puncture
site following catheterization procedures such as angiography, angioplasty and stenting.
The D-Stat flowable hemostat is a thick, yet flowable blood clotting material that is
used in a wide variety of interventional medical procedures for the local control of
bleeding. The D-Stat Dry bandage consists of a freeze-dried pad of the D-Stat
procoagulant which can be applied to topical bleeding with a custom adhesive bandage. The
D-Stat Radial is a customized compression device containing a freeze-dried pad of the
D-Stat procoagulant for sealing the arterial puncture following catheterization
procedures utilizing the radial artery in the wrist. The Vari-Lase product is a treatment
for superficial venous reflux, otherwise known as varicose veins. The Pronto extraction
catheter consists of a catheter with a proprietary atraumatic distal tip and large
extraction lumen for the removal of soft thrombus from arteries. The Acolysis
intravascular therapeutic ultrasound system delivers ultrasound waves to lyse blood clots
and plaque in arteries. The Acolysis system is not available for sale in the United
States. The Company was incorporated in December 1996 and began operations in February
1997. </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>2. Summary of Significant Accounting
Policies</B> </FONT> </P>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><I>Basis of Consolidation</I> </FONT> </P>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>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. </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><I>Foreign Currency Translation and
Transactions</I> </FONT> </P>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>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. </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><I>Comprehensive Loss</I> </FONT> </P>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The components of comprehensive loss
are net loss and the effects of foreign currency translation adjustments. </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><I>Use of Estimates</I> </FONT> </P>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The preparation of financial
statements in conformity with accounting principles generally accepted in the United
States requires management to make estimates and assumptions that affect the amounts
reported in the financial statements and accompanying notes. Actual results could differ
from those estimates. </FONT></P>
<BR>
<!-- MARKER FORMAT-SHEET="Para Center" FSL="Workstation" -->
<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>42</FONT></P>
<HR SIZE=3 COLOR=GRAY NOSHADE>
<!-- *************************************************************************** -->
<!-- MARKER PAGE="sheet: 0; page: 0" -->
<BR>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>2. Summary of Significant Accounting
Policies (continued)</B> </FONT> </P>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><I>Cash and Cash Equivalents</I> </FONT> </P>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The Company classifies all highly
liquid investments with initial maturities of three months or less as cash equivalents.
Cash equivalents consist of cash and money market funds and are stated at cost, which
approximates market value. </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<A NAME=A091></A>
<P><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><I>Available-for-Sale Securities</I> </FONT> </P>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The Company classifies investments
as available-for-sale securities. Available-for-sale securities consist of U.S.
Government obligations and investment-grade corporate debt with maturities of up to one
year. These investments are stated at amortized cost, which approximates market value. </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>At December 31, 2003 and 2002, the
Company had the following available for sale securities with carrying values equal to
fair values: </FONT></P>
<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 ALIGN=CENTER WIDTH=400>
<TR VALIGN=Bottom>
<TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
<TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2003</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
<TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2002</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH></TR>
<TR VALIGN=Bottom>
<TD WIDTH=48% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Corporate Debt</FONT></TD>
<TD WIDTH=1% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=4% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=1% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD WIDTH=19% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>2,021,567</B> </FONT></TD>
<TD WIDTH=5% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=1% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD WIDTH=19% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>10,383,681</FONT></TD>
<TD WIDTH=2% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>U.S. Government Obligations</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>998,126</B> </FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>4,530,763</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR>
<TD COLSPAN=3></TD>
<TD COLSPAN=6><HR NOSHADE COLOR=Black SIZE=1></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>$</B> </FONT></TD><TD ALIGN=RIGHT> <FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>3,019,693</B> </FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 14,914,444</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR>
<TD COLSPAN=3></TD>
<TD COLSPAN=6><HR NOSHADE COLOR=Black SIZE=2></TD></TR>
</TABLE>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><I>Inventories</I> </FONT> </P>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Inventories are stated at the lower
of cost (first-in, first-out method) or market and are comprised of the following at
December 31: </FONT></P>
<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 ALIGN=CENTER WIDTH=400>
<TR VALIGN=Bottom>
<TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
<TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2003</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
<TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2002</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH></TR>
<TR VALIGN=Bottom>
<TD WIDTH=36% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Raw materials</FONT></TD>
<TD WIDTH=1% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=6% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=1% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>$</B> </FONT></TD><TD WIDTH=23% ALIGN=RIGHT> <FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>2,100,775</B> </FONT></TD>
<TD WIDTH=7% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=1% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD WIDTH=23% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 1,561,943</FONT></TD>
<TD WIDTH=2% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Work-in-process</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>260,887</B> </FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>138,134</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Finished goods</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>824,612</B> </FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>432,439</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR>
<TD COLSPAN=3></TD>
<TD COLSPAN=6><HR NOSHADE COLOR=Black SIZE=1></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>$</B> </FONT></TD><TD ALIGN=RIGHT> <FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>3,186,274</B> </FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 2,132,516</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR>
<TD COLSPAN=3></TD>
<TD COLSPAN=6><HR NOSHADE COLOR=Black SIZE=2></TD></TR>
</TABLE>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><I>Property and Equipment</I> </FONT> </P>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>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: </FONT></P>
<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 ALIGN=CENTER WIDTH=400>
<TR VALIGN=Bottom>
<TD WIDTH=66% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Manufacturing equipment</FONT></TD>
<TD WIDTH=34% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>3 to 5 years</FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Office and computer equipment</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>3 years</FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Furniture and fixtures</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2 to 5 years</FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Leasehold improvements</FONT></TD>
<TD ALIGN="LEFT" NOWRAP><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Remaining term of the lease</FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Research and development equipment</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>3 to 5 years</FONT></TD></TR>
</TABLE>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<A NAME=A094></A>
<P><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><I>Impairment of Long-Lived Assets</I> </FONT> </P>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>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. </FONT></P>
<BR>
<!-- MARKER FORMAT-SHEET="Para Center" FSL="Workstation" -->
<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>43</FONT></P>
<HR SIZE=3 COLOR=GRAY NOSHADE>
<!-- *************************************************************************** -->
<!-- MARKER PAGE="sheet: 0; page: 0" -->
<BR>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>2. Summary of Significant Accounting
Policies (continued)</B> </FONT> </P>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><I>Revenue Recognition</I> </FONT> </P>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>In the United States and Germany,
the Company sells its products directly to hospitals and clinics. Revenue is recognized
upon shipment of products to customers, net of estimated returns. </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>In all other international markets,
the Company sells its products to international distributors which subsequently resell
the products to hospitals and clinics. The Company has agreements with each of its
distributors which provide that title and risk of loss pass to the distributor upon
shipment of the products to the distributor. The Company warrants that its products are
free from manufacturing defects at the time of shipment to the distributor. Revenue is
recognized upon shipment of products to distributors following the receipt and acceptance
of a distributor’s purchase order. Allowances are provided for estimated returns and
warranty costs at the time of shipment. To date, warranty costs have been insignificant. </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<A NAME=A097></A>
<P><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><I>Research and Development Costs</I> </FONT> </P>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>All research and development costs
are charged to operations as incurred. </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<A NAME=A098></A>
<P><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><I>Stock-Based Compensation</I> </FONT> </P>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>At December 31, 2003, the Company
had a stock-based employee compensation plan, which is described more fully in Note 9.
The Company accounts for those plans under the recognition and measurement principles of
Accounting Principles Board (APB) Opinion No. 25, <I>Accounting for Stock Issued to
Employees</I>, and related interpretations. No stock-based employee compensation cost is
reflected in net loss, as all options granted under those plans had an exercise price
equal to the market value of the underlying common stock on the date of grant. The
following table illustrates the effect on net loss and loss per share if the Company had
applied the fair value recognition provisions of Financial Accounting Standards Board
(FASB) Statement of Financial Accounting Standards (SFAS) No. 123, <I>Accounting for
Stock-Based Compensation</I>, to stock-based employer compensation. </FONT></P>
<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 ALIGN=CENTER WIDTH=600>
<TR VALIGN=Bottom>
<TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
<TH COLSPAN=9><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Year Ended December 31</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
</TR>
<TR VALIGN=Bottom>
<TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
<TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2003</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
<TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2002</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
<TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2001</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH></TR>
<TR VALIGN=Bottom>
<TD WIDTH=51% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Net loss, as reported</FONT></TD>
<TD WIDTH=1% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=2% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=1% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>$</B> </FONT></TD><TD WIDTH=11% ALIGN=RIGHT> <FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>(9,628,399</B> </FONT></TD>
<TD WIDTH=4% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>)</B> </FONT></TD>
<TD WIDTH=1% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD WIDTH=11% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> (14,978,914</FONT></TD>
<TD WIDTH=4% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
<TD WIDTH=1% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD WIDTH=11% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> (12,250,398</FONT></TD>
<TD WIDTH=2% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Deduct: Total stock-based employee compensation</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> expense determined under fair-value-based</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> method for all awards</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>(573,355</B> </FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>)</B> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(2,340,094</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(2,631,693</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR>
<TD COLSPAN=3></TD>
<TD COLSPAN=9><HR NOSHADE COLOR=Black SIZE=1></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Pro forma net loss</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>$</B> </FONT></TD><TD ALIGN=RIGHT> <FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>(10,201,754</B> </FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>)</B> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> (17,319,008</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> (14,882,091</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR>
<TD COLSPAN=3></TD>
<TD COLSPAN=9><HR NOSHADE COLOR=Black SIZE=1></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Net loss per share:</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Basic and diluted - as reported</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>$</B> </FONT></TD><TD ALIGN=RIGHT> <FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>(0.75</B> </FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>)</B> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> (1.13</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> (0.93</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR>
<TD COLSPAN=3></TD>
<TD COLSPAN=9><HR NOSHADE COLOR=Black SIZE=2></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Basic and diluted - pro forma</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>$</B> </FONT></TD><TD ALIGN=RIGHT> <FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>(0.79</B> </FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>)</B> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> (1.30</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> (1.13</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR>
<TD COLSPAN=3></TD>
<TD COLSPAN=9><HR NOSHADE COLOR=Black SIZE=2></TD></TR>
</TABLE>
<BR>
<!-- MARKER FORMAT-SHEET="Para Center" FSL="Workstation" -->
<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>44</FONT></P>
<HR SIZE=3 COLOR=GRAY NOSHADE>
<!-- *************************************************************************** -->
<!-- MARKER PAGE="sheet: 0; page: 0" -->
<BR>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>2. Summary of Significant Accounting
Policies (continued)</B> </FONT> </P>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>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: </FONT></P>
<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 ALIGN=CENTER WIDTH=400>
<TR VALIGN=Bottom>
<TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
<TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2003</FONT><HR WIDTH=100% SIZE=1 COLOR=BLACK NOSHADE></TH>
<TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2002</FONT><HR WIDTH=100% SIZE=1 COLOR=BLACK NOSHADE></TH>
<TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2001</FONT><HR WIDTH=100% SIZE=1 COLOR=BLACK NOSHADE></TH></TR>
<TR VALIGN=Bottom>
<TD WIDTH=52% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Expected life (years)</FONT></TD>
<TD WIDTH=1% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=5% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=8% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD WIDTH=1% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>6</B> </FONT></TD>
<TD WIDTH=7% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>.38</B> </FONT></TD>
<TD WIDTH=8% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD WIDTH=1% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>6</FONT></TD>
<TD WIDTH=7% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>.50</FONT></TD>
<TD WIDTH=8% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD WIDTH=1% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>7</FONT></TD>
<TD WIDTH=1% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>.00</FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Expected volatility</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>0</B> </FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>.98</B> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>.01</FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>.21</FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Risk-free interest rate</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>3</B> </FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>.54%</B> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>4</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>.30%</FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>4</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>.88%</FONT></TD></TR>
</TABLE>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The weighted average fair value of
options granted with an exercise price equal to the deemed stock price on the date of
grant during 2003, 2002, and 2001 was $0.71, $1.58, and $5.31, respectively. </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><I>Income Taxes</I> </FONT> </P>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>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. </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><I>Concentrations of Credit Risk</I> </FONT> </P>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Financial instruments that
potentially subject the Company to concentrations of credit risk consist primarily of
cash and cash equivalents, investments, and accounts receivable. The Company maintains
its accounts for cash and cash equivalents and investments principally at one major bank
and two investment firms in the United States. The Company has a formal written
investment policy that restricts the placement of investments to issuers evaluated as
creditworthy. The Company has not experienced any losses on its deposits of its cash and
cash equivalents. </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>With respect to accounts receivable,
the Company performs credit evaluations of its customers and does not require collateral.
One customer accounted for 4% of gross accounts receivable as of December 31, 2003 and
one customer accounted for 5% of gross accounts receivable as of December 31, 2002. There
have been no material losses on customer receivables. </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><I>Net Loss Per Share</I> </FONT> </P>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>In accordance with SFAS No. 128, <I>Earnings
Per Share</I>, 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. </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><I>Reclassifications</I> </FONT> </P>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Certain prior year balances were
reclassified to conform to the current year presentation. </FONT></P>
<BR>
<!-- MARKER FORMAT-SHEET="Para Center" FSL="Workstation" -->
<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>45</FONT></P>
<HR SIZE=3 COLOR=GRAY NOSHADE>
<!-- *************************************************************************** -->
<!-- MARKER PAGE="sheet: 0; page: 0" -->
<BR>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>2. Summary of Significant Accounting
Policies (continued)</B> </FONT> </P>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><I>Goodwill and Other Intangible Assets</I> </FONT> </P>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>In fiscal 2002, the Company adopted
SFAS No. 142, <I>Goodwill and Other Intangible Assets</I>. Goodwill is tested for
impairment annually in the fourth quarter or more frequently if changes in circumstances
or the occurrence of events suggest an impairment exists. The Company has concluded that
no impairment of goodwill exists as of December 31, 2003. </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Other intangible assets consist of
purchased technology. Purchased technology is amortized using the straight-line method
over its estimated useful life of four years. The Company reviews intangible assets for
impairment annually or as changes in circumstances or the occurrence of events suggests
the remaining value is not recoverable. </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><I>New Accounting Pronouncements</I> </FONT> </P>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>In January 2003, the Financial
Accounting Standards Board issued FASB Interpretation No. 46, <I>Consolidation of Variable
Interest Entities, an Interpretation of ARB No. 51,</I> or FIN No. 46. FIN No. 46 requires
certain variable interest entities to be consolidated by the primary beneficiary of the
entity if the equity investors in the entity do not have the characteristics of a
controlling financial interest or do not have sufficient equity at risk for the entity to
finance its activities without additional subordinated financial support from other
parties. FIN No. 46 is effective immediately for all new variable interest entities
created or acquired after January 31, 2003. For variable interest entities created or
acquired prior to February 1, 2003, the provisions of FIN No. 46 must be applied for the
first interim or annual period beginning after December 15, 2003. The adoption of FIN No.
46 did not have a material impact on the Company’s financial statements. </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>3. Acquisition of Certain Assets of
Angiosonics, Inc.</B> </FONT> </P>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>On April 29, 2002, the Company
purchased the Acolysis® intravascular ultrasound assets and related patents and
technologies from the secured creditors of Angiosonics, Inc. in exchange for $1,500,000
in cash. The Company allocated the purchase price of $1,500,000 and the related
transaction fees using the fair market value of the assets. The Company allocated
$487,608 to inventory and fixed assets, $870,000 to purchased technology, and $192,595 to
goodwill. </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<A NAME=A108></A>
<P><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>4. Goodwill and Other Intangible
Assets</B> </FONT> </P>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>As discussed in Note 2, the Company
adopted SFAS No. 142 in fiscal 2002, and determined that the developed technology the
Company acquired from Angiosonics, Inc. in April 2002 would be amortized over its useful
life of four years. The goodwill acquired will not be amortized. The Company expects the
future annual amortization expense for its acquired purchased development to be
approximately $217,500 for each of the next two fiscal years and approximately $72,500 in
the third fiscal year. </FONT></P>
<BR><BR>
<!-- MARKER FORMAT-SHEET="Para Center" FSL="Workstation" -->
<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>46</FONT></P>
<HR SIZE=3 COLOR=GRAY NOSHADE>
<!-- *************************************************************************** -->
<!-- MARKER PAGE="sheet: 0; page: 0" -->
<BR>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>4. Goodwill and Other Intangible
Assets (continued)</B> </FONT> </P>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Balances of acquired intangible
assets as of December 31, 2003 were as follows: </FONT></P>
<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 ALIGN=CENTER WIDTH=500>
<TR VALIGN=Bottom>
<TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
<TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Carrying<BR>
Amount</FONT><HR WIDTH=100% SIZE=1 COLOR=BLACK NOSHADE></TH>
<TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Accumulated<BR>
Amortization</FONT><HR WIDTH=100% SIZE=1 COLOR=BLACK NOSHADE></TH>
<TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Net</FONT><HR WIDTH=100% SIZE=1 COLOR=BLACK NOSHADE></TH></TR>
<TR VALIGN=Bottom>
<TD WIDTH=41% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Amortizing intangibles:</FONT></TD>
<TD WIDTH=1% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=3% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=1% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD WIDTH=14% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
<TD WIDTH=4% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=1% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD WIDTH=14% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
<TD WIDTH=4% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=1% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD WIDTH=14% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
<TD WIDTH=2% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Purchased technology</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 870,000</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 362,500</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 507,500</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Non-amortizing intangibles:</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Goodwill</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>192,595</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>—</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>192,595</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR>
<TD COLSPAN=3></TD>
<TD COLSPAN=9><HR NOSHADE COLOR=Black SIZE=1></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 1,062,595</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 362,500</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 700,095</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR>
<TD COLSPAN=3></TD>
<TD COLSPAN=9><HR NOSHADE COLOR=Black SIZE=2></TD></TR>
</TABLE>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>5. Property and Equipment</B> </FONT> </P>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Property and equipment consists of
the following at December 31: </FONT></P>
<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 ALIGN=CENTER WIDTH=400>
<TR VALIGN=Bottom>
<TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
<TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2003</FONT><HR WIDTH=100% SIZE=1 COLOR=BLACK NOSHADE></TH>
<TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2002</FONT><HR WIDTH=100% SIZE=1 COLOR=BLACK NOSHADE></TH></TR>
<TR VALIGN=Bottom>
<TD WIDTH=56% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Property and equipment:</FONT></TD>
<TD WIDTH=1% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=3% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=1% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD WIDTH=15% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
<TD WIDTH=6% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=1% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD WIDTH=15% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
<TD WIDTH=2% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Manufacturing equipment</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>$</B> </FONT></TD><TD ALIGN=RIGHT> <FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>1,174,787</B> </FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 1,017,283</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Office and computer equipment</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>875,431</B> </FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>817,143</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Furniture and fixtures</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>240,359</B> </FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>242,694</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Leasehold improvements</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>123,614</B> </FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>143,079</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Research and development equipment</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>289,014</B> </FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>287,964</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR>
<TD COLSPAN=3></TD>
<TD COLSPAN=6><HR NOSHADE COLOR=Black SIZE=1></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>2,703,205</B> </FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2,508,163</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Less accumulated depreciation</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>(1,754,603</B> </FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>)</B> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(1,712,278</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR>
<TD COLSPAN=3></TD>
<TD COLSPAN=6><HR NOSHADE COLOR=Black SIZE=1></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Net property and equipment</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>$</B> </FONT></TD><TD ALIGN=RIGHT> <FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>948,602</B> </FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 795,885</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR>
<TD COLSPAN=3></TD>
<TD COLSPAN=6><HR NOSHADE COLOR=Black SIZE=2></TD></TR>
</TABLE>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>6. Line of Credit</B> </FONT> </P>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>On December 31, 2003, the Company
entered into a secured asset-based loan and security agreement. This new line of credit
is a one-year, $3,000,000 facility with availability based primarily on eligible customer
receivables and inventory. The interest rate is Prime plus 0.5% with a floor of 4.5%. As
of December 31, 2003, the Company had no outstanding loan balance against the facility.
Based on the Company’s eligible customer receivables, inventory and cash balances,
$1,164,000 was available for borrowing as of December 31, 2003. The fee for the unused
portion of the line of credit is $1,250 per each quarter. The facility fee of $15,000 is
payable upon the first advance. This line of credit includes two covenants: minimum
tangible net worth of $8,000,000 and a liquidity coverage of not less than 1.25 to 1.00.
The Company was in compliance with these covenants at December 31, 2003. </FONT></P>
<BR><BR><BR><BR>
<!-- MARKER FORMAT-SHEET="Para Center" FSL="Workstation" -->
<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>47</FONT></P>
<HR SIZE=3 COLOR=GRAY NOSHADE>
<!-- *************************************************************************** -->
<!-- MARKER PAGE="sheet: 0; page: 0" -->
<BR>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>7. Leases</B> </FONT> </P>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The Company leases a 33,000
square-foot office and manufacturing facility under an operating lease agreement, which
expires in September 2008. Rent expense related to the operating leases was approximately
$336,000, $303,100, and $306,600 for the years ended December 31, 2003, 2002, and 2001,
respectively. </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Future minimum lease commitments
under these operating leases as of December 31, 2003 are as follows: </FONT></P>
<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 ALIGN=CENTER WIDTH=300>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2004</FONT></TD>
<TD WIDTH=1% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=16% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=1% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD WIDTH=30% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>348,948</FONT></TD>
<TD WIDTH=2% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2005</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>348,948</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2006</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>363,132</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2007</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>370,224</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2008</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>277,668</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR>
<TD COLSPAN=3></TD>
<TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=Black SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 1,708,920</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR>
<TD COLSPAN=3></TD>
<TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=Black SIZE=2></TD><TD></TD></TR>
</TABLE>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>8. Income Taxes</B> </FONT> </P>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>At December 31, 2003, the Company
had net operating loss carryforwards of approximately $54,631,000 for federal income tax
purposes that are available to offset future taxable income and begin to expire in the
year 2013. At December 31, 2003, the Company also had federal and Minnesota research and
development tax credit carryforwards of approximately $1,353,000 which begin to expire in
the year 2013. At December 31, 2003, the Company has foreign tax loss carryforwards of
approximately $1,356,000 that do not expire. No benefit has been recorded for any loss
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. </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The components of the Company’s
deferred tax assets and liabilities as of December 31, 2003 and 2002 are as follows: </FONT></P>
<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 ALIGN=CENTER WIDTH=400>
<TR VALIGN=Bottom>
<TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
<TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2003</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
<TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2002</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH></TR>
<TR VALIGN=Bottom>
<TD WIDTH=52% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Deferred tax assets:</FONT></TD>
<TD WIDTH=1% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=3% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=1% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD WIDTH=17% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
<TD WIDTH=6% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=1% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD WIDTH=17% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
<TD WIDTH=2% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Net operating loss carryforwards</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>$</B> </FONT></TD><TD ALIGN=RIGHT> <FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>22,394,000</B> </FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 18,452,000</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Tax credit carryforwards</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>1,353,000</B> </FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,206,000</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Depreciation and amortization</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>183,000</B> </FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>129,000</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Accrued compensation</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>131,000</B> </FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>88,000</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Other allowances</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>64,000</B> </FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>94,000</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Inventory reserve</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>96,000</B> </FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>104,000</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR>
<TD COLSPAN=3></TD>
<TD COLSPAN=6><HR NOSHADE COLOR=Black SIZE=1></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>24,223,000</B> </FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>20,073,000</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Less valuation allowances</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>(24,223,000</B> </FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>)</B> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(20,073,000</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR>
<TD COLSPAN=3></TD>
<TD COLSPAN=6><HR NOSHADE COLOR=Black SIZE=1></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Net deferred taxes</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> —</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> —</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR>
<TD COLSPAN=3></TD>
<TD COLSPAN=6><HR NOSHADE COLOR=Black SIZE=2></TD></TR>
</TABLE>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The Company records a valuation
allowance to reduce the carrying value of the net deferred taxes to an amount that is
more likely than not to be realized. </FONT></P>
<BR><BR>
<!-- MARKER FORMAT-SHEET="Para Center" FSL="Workstation" -->
<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>48</FONT></P>
<HR SIZE=3 COLOR=GRAY NOSHADE>
<!-- *************************************************************************** -->
<!-- MARKER PAGE="sheet: 0; page: 0" -->
<BR>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>8. Income Taxes (continued)</B> </FONT> </P>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Reconciliation of the statutory
federal income tax rate to the Company’s effective tax rate is as follows: </FONT></P>
<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 ALIGN=CENTER WIDTH=500>
<TR VALIGN=Bottom>
<TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
<TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2003</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
<TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2002</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
<TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2001</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH></TR>
<TR VALIGN=Bottom>
<TD WIDTH=65% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Tax at statutory rate</FONT></TD>
<TD WIDTH=1% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=3% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=5% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD WIDTH=1% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>34</B> </FONT></TD>
<TD WIDTH=6% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>.0%</B> </FONT></TD>
<TD WIDTH=5% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD WIDTH=1% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>34</FONT></TD>
<TD WIDTH=6% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>.0%</FONT></TD>
<TD WIDTH=5% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD WIDTH=1% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>34</FONT></TD>
<TD WIDTH=1% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>.0%</FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>State income taxes, net of federal bendfit</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>6</B> </FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>.0</B> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>6</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>.0</FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>6</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>.0</FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Meals and entertainment</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>1</B> </FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>.0</B> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>.0</FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>.0</FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Federal research credits</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>1</B> </FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>.0</B> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>—</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>—</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Impact of net operating loss carryforward</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>(42</B> </FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>.0)</B> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(41</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>.0)</FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(41</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>.0)</FONT></TD></TR>
<TR>
<TD COLSPAN=3></TD>
<TD COLSPAN=9><HR NOSHADE COLOR=Black SIZE=1></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Effective income tax rate</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN="CENTER" NOWRAP><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>—</B> </FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>%</B> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN="CENTER" NOWRAP><FONT FACE="Times New Roman, Times, Serif" SIZE=2>—</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>%</FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN="CENTER" NOWRAP><FONT FACE="Times New Roman, Times, Serif" SIZE=2>—</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>%</FONT></TD></TR>
<TR>
<TD COLSPAN=3></TD>
<TD COLSPAN=9><HR NOSHADE COLOR=Black SIZE=2></TD></TR>
</TABLE>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>9. Stock Options and Warrants</B> </FONT> </P>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<A NAME=A115></A>
<P><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><I>Stock Option Plan</I> </FONT> </P>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>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, 2003, the Company had reserved 2,900,000 shares of
common stock under the Stock Option Plan. Under the Stock Option Plan, incentive stock
options must be granted at an exercise price not less than the fair market value of the
Company’s common stock on the grant date. The exercise price of a nonqualified
option granted under the Stock Option Plan must not be less than 50% of the fair market
value of the Company’s common stock on the grant date. Prior to the initial public
offering in July 2000, the Board of Directors determined the fair value of the common
shares underlying options by assessing the business progress of the Company as well as
the market conditions for medical device companies and other external factors. The
options expire on the date determined by the Board of Directors but may not extend more
than ten years from the grant date. The Stock Option Plan also permits the granting of
stock appreciation rights, restricted stock, and other stock-based awards. The incentive
stock options generally become exercisable over a four-year period and the nonqualified
stock options generally become exercisable over a two-year period. Unexercised options
are canceled 90 days after termination of employment and become available under the Stock
Option Plan. </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>In the third quarter of 2002, the
Company offered to exchange for its current employees, other than the Chief Executive
Officer, any outstanding options to purchase shares of the Company’s common stock
under the Stock Option Plan with an exercise price of at least $3.00 per share for new
options the Company will grant under the plan. The new options were granted on February
18, 2003, which was six months and two business days after the date the options were
exchanged. The Company granted 428,570 new options under the Stock Option Plan at an
exercise price of $0.84. The number of shares granted to each participating option holder
was the number of shares subject to the eligible options tendered by such option holder.
A stock option holder had to be employed by the Company through February 18, 2003 in
order to be eligible to receive the new options. As a result of this exchange of options,
467,070 options with an average price of $6.80 were canceled. </FONT></P>
<BR><BR>
<!-- MARKER FORMAT-SHEET="Para Center" FSL="Workstation" -->
<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>49</FONT></P>
<HR SIZE=3 COLOR=GRAY NOSHADE>
<!-- *************************************************************************** -->
<!-- MARKER PAGE="sheet: 0; page: 0" -->
<BR>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>9. Stock Options and Warrants
(continued)</B> </FONT> </P>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Option activity is summarized as
follows: </FONT></P>
<TABLE CELLPADDING="0" CELLSPACING="0" BORDER="0" WIDTH="600">
<TR VALIGN=Bottom>
<TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
<TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Shares<BR>
Available<BR>
for Grant</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
<TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Plan Options<BR>
Outstanding</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
<TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Exercise<BR>
Price</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
<TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Weighted<BR>
Average<BR>
Exercise<BR>
Price</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH></TR>
<TR VALIGN=Bottom>
<TD WIDTH="35%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Balance at December 31, 2000</FONT></TD>
<TD WIDTH="1%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD WIDTH="11%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>174,629</FONT></TD>
<TD WIDTH="4%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD WIDTH="11%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,070,771</FONT></TD>
<TD WIDTH="4%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH="18%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$ 1.50 - $16.50</FONT></TD>
<TD WIDTH="1%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 5</FONT></TD>
<TD WIDTH="1%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>.85</FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Shares reserved</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>500,000</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>—</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>—</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN="RIGHT" COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>—</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Granted</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(972,000</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>972,000</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 2.51 - 7.48</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 05</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>.35</FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Exercised</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>—</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(120,800</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
<TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 1.50 - 7.00</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 2</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>.53</FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Canceled</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>347,160</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(347,160</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
<TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 1.50 - 6.50</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 7</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>.41</FONT></TD></TR>
<TR>
<TD COLSPAN=3></TD>
<TD COLSPAN=6><HR NOSHADE COLOR=Black SIZE=1></TD>
<TD COLSPAN=3></TD>
<TD COLSPAN=3 ALIGN=RIGHT></TD><TD></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Balance at December 31, 2001</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>49,789</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,574,811</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 1.50 - 16.50</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 5</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>.45</FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Shares reserved</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>500,000</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>—</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>—</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN="RIGHT" COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>—</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Granted</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(186,000</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>186,000</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 0.81 - 2.70</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 1</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>.83</FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Exercised</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>—</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(10,000</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
<TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> $ 2.00</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 2</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>.00</FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Canceled</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>849,890</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(849,890</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
<TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 1.45 - 16.50</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 6</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>.25</FONT></TD></TR>
<TR>
<TD COLSPAN=3></TD>
<TD COLSPAN=6><HR NOSHADE COLOR=Black SIZE=1></TD>
<TD COLSPAN=3></TD>
<TD COLSPAN=3 ALIGN=RIGHT></TD><TD></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Balance at December 31, 2002</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,213,679</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>900,921</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 0.81 - 16.50</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 3</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>.94</FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Shares reserved</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>500,000</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>—</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>—</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN="RIGHT" COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>—</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Granted</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(889,070</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>889,070</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 0.78 - 5.74</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 0</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>.89</FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Exercised</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>—</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(65,855</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
<TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 0.78 - 2.70</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 1</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>.25</FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Canceled</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>218,965</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(218,965</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
<TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 0.81 - 16.50</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 2</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>.49</FONT></TD></TR>
<TR>
<TD COLSPAN=3></TD>
<TD COLSPAN=6><HR NOSHADE COLOR=Black SIZE=1></TD>
<TD COLSPAN=3></TD>
<TD COLSPAN=3 ALIGN=RIGHT></TD><TD></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Balance at December 31, 2003</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>1,043,574</B> </FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>1,505,171</B> </FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>$ 0.78 - $12.00</B> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>$</B> </FONT></TD><TD ALIGN=RIGHT> <FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B> 2</B> </FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>.50</B> </FONT></TD></TR>
<TR>
<TD COLSPAN=3></TD>
<TD COLSPAN=6><HR NOSHADE COLOR=Black SIZE=2></TD>
<TD COLSPAN=3></TD>
<TD COLSPAN=3 ALIGN=RIGHT></TD><TD></TD></TR>
</TABLE>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The following table summarizes
information about stock options outstanding at December 31, 2003: </FONT></P>
<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 ALIGN=CENTER WIDTH=700>
<TR VALIGN=Bottom>
<TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
<TH COLSPAN=9><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Options Outstanding</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
<TH COLSPAN=6><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Options Exercisable</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
</TR>
<TR VALIGN=Bottom>
<TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Range of<BR>
Exercise Prices</FONT><HR WIDTH=100% SIZE=1 COLOR=BLACK NOSHADE></TH>
<TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Outstanding<BR>
as of December<BR>
31, 2003</FONT><HR WIDTH=100% SIZE=1 COLOR=BLACK NOSHADE></TH>
<TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Weighted<BR>
Average<BR>
Remaining<BR>
Contractual Life</FONT><HR WIDTH=100% SIZE=1 COLOR=BLACK NOSHADE></TH>
<TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Weighted<BR>
Average<BR>
Exercise Price</FONT><HR WIDTH=100% SIZE=1 COLOR=BLACK NOSHADE></TH>
<TH COLSPAN="3" ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Exercisable<BR>
as of<BR>
December 31,<BR>
2003</FONT><HR WIDTH=100% SIZE=1 COLOR=BLACK NOSHADE></TH>
<TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Weighted<BR>
Average<BR>
Exercise Price</FONT><HR WIDTH=100% SIZE=1 COLOR=BLACK NOSHADE></TH></TR>
<TR VALIGN=Bottom>
<TD WIDTH="25%" ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$ 0.78 - $ 0.83</FONT></TD>
<TD WIDTH=1% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=3% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=1% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD WIDTH=12% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>90,750</FONT></TD>
<TD WIDTH=4% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=9% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD WIDTH=1% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>9</FONT></TD>
<TD WIDTH=3% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>.1</FONT></TD>
<TD WIDTH=9% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD WIDTH=1% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 0</FONT></TD>
<TD WIDTH=3% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>.79</FONT></TD>
<TD WIDTH=1% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD WIDTH=12% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>76,600</FONT></TD>
<TD WIDTH=4% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=9% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD WIDTH=1% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 0</FONT></TD>
<TD WIDTH=1% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>.79</FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 0.84 - 0.84</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>686,860</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>9</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>.1</FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> $</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 0</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>.84</FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>290,140</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 0</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>.84</FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 0.85 - 2.51</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>328,211</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>6</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>.6</FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> $</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 2</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>.10</FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>237,311</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 2</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>.02</FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 2.52 - 7.00</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>310,650</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>6</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>.2</FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> $</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 5</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>.61</FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>293,870</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 5</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>.68</FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 7.01 - 12.00</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>88,700</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>7</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>.1</FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 7</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>.65</FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>61,430</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 7</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>.78</FONT></TD></TR>
<TR>
<TD COLSPAN=3></TD>
<TD COLSPAN=3><HR NOSHADE COLOR=Black SIZE=1></TD>
<TD COLSPAN=3></TD>
<TD COLSPAN=3></TD>
<TD COLSPAN=3><HR NOSHADE COLOR=Black SIZE=1></TD>
<TD COLSPAN=3></TD><TD></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,505,171</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>7</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>.9</FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 2</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>.50</FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>959,351</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 3</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>.05</FONT></TD></TR>
<TR>
<TD COLSPAN=3></TD>
<TD COLSPAN=3><HR NOSHADE COLOR=Black SIZE=2></TD>
<TD COLSPAN=3></TD>
<TD COLSPAN=3></TD>
<TD COLSPAN=3><HR NOSHADE COLOR=Black SIZE=2></TD>
<TD COLSPAN=3></TD><TD></TD></TR>
</TABLE>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>For the year ended December 31,
2001, the Company recorded compensation expense of $10,398 in connection with
nonqualified stock options granted to outside consultants. </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<A NAME=A117></A>
<P><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><I>Deferred Compensation</I> </FONT> </P>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>In 2003, 2002, and 2001, the Company
recorded $0, $1,858, and $123,780 of deferred compensation in connection with certain
nonqualified stock options granted to medical advisory board members, respectively. The
weighted average fair value of these options was $2.79. The 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 $40,545, $74,668 ,
and $62,850 for the years ended December 31, 2003, 2002, and 2001, respectively. </FONT></P>
<BR>
<!-- MARKER FORMAT-SHEET="Para Center" FSL="Workstation" -->
<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>50</FONT></P>
<HR SIZE=3 COLOR=GRAY NOSHADE>
<!-- *************************************************************************** -->
<!-- MARKER PAGE="sheet: 0; page: 0" -->
<BR>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>9. Stock Options and Warrants
(continued)</B> </FONT> </P>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<A NAME=A119></A>
<P><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><I>Warrants</I> </FONT> </P>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>As of December 31, 2003, the Company
had the following warrants outstanding and exercisable: </FONT></P>
<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 ALIGN=CENTER WIDTH=500>
<TR VALIGN=Bottom>
<TH COLSPAN="3" ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Exercise Price</FONT><HR WIDTH=100% SIZE=1 COLOR=BLACK NOSHADE></TH>
<TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Outstanding as of<BR>
December 31, 2003</FONT><HR WIDTH=100% SIZE=1 COLOR=BLACK NOSHADE></TH>
<TH COLSPAN="3" NOWRAP><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Expiration Date</FONT><HR WIDTH=100% SIZE=1 COLOR=BLACK NOSHADE></TH></TR>
<TR VALIGN=Bottom>
<TD WIDTH=14% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD WIDTH=1% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 5</FONT></TD>
<TD WIDTH=7% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>.00</FONT></TD>
<TD WIDTH=1% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD WIDTH=19% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>100,000</FONT></TD>
<TD WIDTH=8% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
<TD WIDTH=1% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD WIDTH="47%" ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>June 10, 2004</FONT></TD>
<TD WIDTH=2% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>.50</FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>75,500</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>January 31, 2007</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>.50</FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>24,500</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>February 14, 2007</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>3</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>.00</FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>68,000</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>December 29, 2007</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR>
<TD COLSPAN=6><HR NOSHADE COLOR=Black SIZE=1></TD>
<TD COLSPAN=3></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD WIDTH=1% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 3</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>.19</FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD WIDTH=19% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>268,000</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD WIDTH=47% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR>
<TD COLSPAN=6><HR NOSHADE COLOR=Black SIZE=2></TD>
<TD COLSPAN=3></TD></TR>
</TABLE>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>10. Employee Stock Purchase Plan</B> </FONT> </P>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The Company has an Employee Stock
Purchase Plan (the Purchase Plan) under which 900,000 shares of common stock have been
reserved for issuance. Eligible employees may contribute 1% to 10% of their compensation
to purchase shares of the Company’s common stock at a discount of 15% of the market
value at certain plan-defined dates up to a maximum of 2,000 shares per purchasing
period. The Purchase Plan terminates in May 2010. In fiscal 2003, 2002, and 2001, 195,876
shares, 152,737 shares, and 90,194 shares, respectively, were issued under the Purchase
Plan. At December 31, 2003, 461,193 shares were available for issuance under the Purchase
Plan. </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>11. Stock Repurchase Program</B> </FONT> </P>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>In August 2002, the Board of
Directors authorized a stock repurchase program to acquire up to 1,000,000 shares of
outstanding common stock in the open market, block purchases, or private transactions. In
fiscal 2003 and 2002, respectively, the Company repurchased and retired 153,400 and
608,900 shares of the Company’s common stock for an aggregate purchase price of
$139,633 and $547,722. In October 2003, the Board of Directors terminated the stock
repurchase program. </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>12. Employee Retirement Savings Plan</B> </FONT> </P>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The Company has an employee 401(k)
retirement savings plan (the Plan). The Plan provides eligible employees with an
opportunity to make tax-deferred contributions into a long-term investment and savings
program. All employees over the age of 21 are eligible to participate in the Plan
beginning with the first quarterly open enrollment date following start of employment.
Through December 31, 2001, the Plan allowed eligible employees to contribute up to 18% of
their annual compensation. Effective January 1, 2002, the employee contribution limit was
increased to 50% of their annual compensation, subject to a maximum limit determined by
the Internal Revenue Service, with the Company contributing an amount equal to 25% of the
first 5% contributed to the Plan. The Company recorded an expense of $74,258, $91,170,
and $112,084 for contributions to the Plan for the years ended December 31, 2003,
2002, and 2001, respectively. </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>13. Concentrations of Credit and
Other Risks</B> </FONT> </P>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>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. </FONT></P>
<BR>
<!-- MARKER FORMAT-SHEET="Para Center" FSL="Workstation" -->
<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>51</FONT></P>
<HR SIZE=3 COLOR=GRAY NOSHADE>
<!-- *************************************************************************** -->
<!-- MARKER PAGE="sheet: 0; page: 0" -->
<BR>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>13. Concentrations of Credit and
Other Risks (continued)</B> </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>No customers were more than 5% of
net sales for the years ended December 31, 2003, 2002 and 2001. </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The Company performs ongoing credit
evaluations of its customers but does not require collateral. There have been no material
losses on customer receivables. </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Sales by geographic destination as a
percentage of total net sales were as follows for the years ended December 31: </FONT></P>
<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 ALIGN=CENTER WIDTH=400>
<TR VALIGN=Bottom>
<TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
<TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2003</FONT><HR WIDTH=100% SIZE=1 COLOR=BLACK NOSHADE></TH>
<TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2002</FONT><HR WIDTH=100% SIZE=1 COLOR=BLACK NOSHADE></TH>
<TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2001</FONT><HR WIDTH=100% SIZE=1 COLOR=BLACK NOSHADE></TH></TR>
<TR VALIGN=Bottom>
<TD WIDTH=35% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Domestic</FONT></TD>
<TD WIDTH=1% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=10% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=1% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD WIDTH=6% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>87</B> </FONT></TD>
<TD WIDTH=15% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>%</B> </FONT></TD>
<TD WIDTH=1% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD WIDTH=6% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>89</FONT></TD>
<TD WIDTH=15% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>%</FONT></TD>
<TD WIDTH=1% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD WIDTH=6% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>90</FONT></TD>
<TD WIDTH=3% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>%</FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Foreign</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>13</B> </FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>11</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>10</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
</TABLE>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>14. Dependence on Key Suppliers</B> </FONT> </P>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The Company purchases certain key
components from single-source suppliers. Any significant component delay or interruption
could require the Company to qualify new sources of supply, if available, and could have
a material adverse effect on the Company’s financial condition and results of
operations. The Company purchases their requirements for thrombin (a component in the
Duett and D-Stat products) under a Purchase Agreement dated June 10, 1999 with a
subsidiary of King Pharmaceuticals, Inc. The agreement provides for a fixed price, with
adjustments based on the supplier’s manufacturing costs and the supplier’s
annual percentage increase in the wholesale price of thrombin. The agreement expires on
May 29, 2005. During 2004 and the first half of 2005, the Company intends to increase its
purchases of thrombin to benefit from the pricing provisions of the agreement, which the
Company expects will substantially increase their inventory of thrombin. The Company
believes that these purchases will satisfy its thrombin requirements for 2004, 2005 and
most of 2006. The Company is currently exploring a new thrombin supply agreement and
evaluating alternative potential suppliers, although there currently is no other source
of commercially-available thrombin approved for use in the United States. </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>15. Commitments and Contingencies</B> </FONT> </P>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Datascope Litigation </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>In July 1999, the Company was named
as a defendant in a patent infringement lawsuit brought by Datascope Corporation
(Datascope), a competitor, in the United States District Court of the District of
Minnesota. The complaint requested a judgment that the Company’s device infringes
and, following FDA approval, will infringe, a United States patent held by Datascope and
asks for relief in the form of an injunction that would prevent the Company from selling
its product in the United States as well as an award of attorney’s fees, costs, and
disbursements. On August 12, 1999, the Company filed its answer to this lawsuit and
brought a counterclaim alleging unfair competition and tortious interference against
Datascope. On August 20, 1999, the Company moved for summary judgment to dismiss Datascope’s
claims. On March 15, 2000, the court granted summary judgment dismissing all of Datascope’s
claims, subject to the right of Datascope to recommence the litigation after the Company’s
receipt of FDA approval of the Duett sealing device. On July 12, 2000, after the Company
received FDA approval, Datascope recommenced this litigation, alleging that the Duett
sealing device infringes a 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. </FONT></P>
<BR>
<!-- MARKER FORMAT-SHEET="Para Center" FSL="Workstation" -->
<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>52</FONT></P>
<HR SIZE=3 COLOR=GRAY NOSHADE>
<!-- *************************************************************************** -->
<!-- MARKER PAGE="sheet: 0; page: 0" -->
<BR>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>15. Commitments and Contingencies
(continued)</B> </FONT> </P>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>On November 26, 2002, the Company
entered into an agreement that settled all existing intellectual property litigation with
Datascope Corporation. Under the terms of the settlement agreement, Datascope has granted
the Company a nonexclusive license to its Janzen patents as they apply to all current
versions of the Duett sealing device, and to certain permitted future product
improvements. Datascope also has released the Company from any claim of patent
infringement based on past or future sales of the Duett sealing device. In exchange, the
Company paid Datascope a single lump sum of $3,750,000 in the fourth quarter of 2002. </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>St. Jude Medical Litigation </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>On July 3, 2000, the Company was
named as the defendant in a patent infringement lawsuit brought by the Daig division of
St. Jude Medical, Inc. (St. Jude Medical), a competitor, in the United States
District Court of the District of Minnesota. The complaint requests a judgment that the
Company’s Duett sealing device infringes a series of four patents held by St. Jude
Medical and asks for relief in the form of an injunction that would prevent the Company
from selling its product in the United States, damages caused by the manufacture and sale
of the Company’s product, and other costs, disbursements, and attorneys’ fees. </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>On July 12, 2001, the Company
entered into an agreement that settled all existing intellectual property litigation with
St. Jude Medical, Inc. Under the terms of the settlement agreement, the Company agreed to
pay a royalty of 2.5% of net sales of the Company’s Duett sealing device to St. Jude
Medical, up to a maximum amount over the remaining life of the St. Jude Medical Fowler
patents. In exchange, St. Jude Medical granted to the Company a nonexclusive license to
its Fowler patents and has released it from any claim of patent infringement based on
sales of the Duett sealing device. The Company granted a nonexclusive cross-license to
its Gershony patents to St. Jude Medical, subject to a similar royalty payment if St.
Jude Medical utilizes the Gershony patents in any future device. Beginning on July 1,
2001, a royalty expense of 2.5% of net sales is included in the Company’s cost of
goods sold until the maximum royalty is attained. </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Diomed Litigation </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>On December 11, 2003, the Company
and a non-officer employee of the Company were named as defendants in a lawsuit brought
by Diomed, Inc. in the United States District Court for the District of Massachusetts.
The complaint alleges that in marketing the Vari-Lase endovenous laser procedure kit the
Comany engaged in false advertising and infringed a registered trademark of Diomed. The
complaint also alleges that the non-officer employee, who previously worked for a company
that conducted business with Diomed, improperly utilized trade secrets of Diomed in
developing the Vari-Lase procedure kit. The complaint requests monetary damages and an
injunction on the sale of the Vari-Lase procedure kit. The Company believes that the
allegations included in the complaint are wholly without merit, the Copany has filed
their answer to the complaint, and intends to defend this litigation vigorously. We have
tendered this claim to our insurance carrier. It is not possible to predict the timing or
outcome of the Diomed litigation, including whether it will affect the Company’s
ability to sell the Vari-Lase procedure kit, or to estimate the amount or range of
potential loss, if any. </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>MedArt Purchase Commitment </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The Company signed a purchase
agreement with MedArt Corporation on September 22, 2003. Under that agreement, the
Company is obligated to purchase laser consoles with an aggregate purchase price of
$1,197,000 for their Vari-Lase business during the first year of the agreement, which
commenced in December 2003. The Company plans to start selling its laser consoles during
the first quarter of 2004. </FONT></P>
<BR>
<!-- MARKER FORMAT-SHEET="Para Center" FSL="Workstation" -->
<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>53</FONT></P>
<HR SIZE=3 COLOR=GRAY NOSHADE>
<!-- *************************************************************************** -->
<!-- MARKER PAGE="sheet: 0; page: 0" -->
<BR>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>16. Quarterly Financial Data
(Unaudited, in Thousands, Except per Share Data)</B> </FONT> </P>
<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 WIDTH=600>
<TR VALIGN=Bottom>
<TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2003</FONT><HR WIDTH=100% SIZE=1 COLOR=BLACK NOSHADE></TH>
<TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>First<BR>
Quarter</FONT><HR WIDTH=100% SIZE=1 COLOR=BLACK NOSHADE></TH>
<TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Second<BR>
Quarter</FONT><HR WIDTH=100% SIZE=1 COLOR=BLACK NOSHADE></TH>
<TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Third<BR>
Quarter</FONT><HR WIDTH=100% SIZE=1 COLOR=BLACK NOSHADE></TH>
<TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Fourth<BR>
Quarter</FONT><HR WIDTH=100% SIZE=1 COLOR=BLACK NOSHADE></TH></TR>
<TR VALIGN=Bottom>
<TD WIDTH=39% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Net sales</FONT></TD>
<TD WIDTH=1% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=3% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=1% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>$</B> </FONT></TD><TD WIDTH=9% ALIGN=RIGHT> <FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>2,968</B> </FONT></TD>
<TD WIDTH=5% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=1% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>$</B> </FONT></TD><TD WIDTH=9% ALIGN=RIGHT> <FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>2,725</B> </FONT></TD>
<TD WIDTH=5% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=1% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>$</B> </FONT></TD><TD WIDTH=9% ALIGN=RIGHT> <FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>2,708</B> </FONT></TD>
<TD WIDTH=5% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=1% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>$</B> </FONT></TD><TD WIDTH=9% ALIGN=RIGHT> <FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>3,403</B> </FONT></TD>
<TD WIDTH=2% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Gross profit</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>1,746</B> </FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>1,639</B> </FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>1,607</B> </FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>2,242</B> </FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Operating loss</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>(2,659</B> </FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>)</B> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>(2,724</B> </FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>)</B> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>(2,415</B> </FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>)</B> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>(1,981</B> </FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>)</B> </FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Net loss</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>(2,597</B> </FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>)</B> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>(2,68</B>3 </FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>)</B> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>(2,385</B> </FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>)</B> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>(1,963</B> </FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>)</B> </FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Basic and diluted net loss</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> per share</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>$</B> </FONT></TD><TD ALIGN=RIGHT> <FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>(0.20</B> </FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>)</B> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>$</B> </FONT></TD><TD ALIGN=RIGHT> <FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>(0.2</B>1 </FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>)</B> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>$</B> </FONT></TD><TD ALIGN=RIGHT> <FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>(0.19</B> </FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>)</B> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>$</B> </FONT></TD><TD ALIGN=RIGHT> <FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>(0.15</B> </FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>)</B> </FONT></TD></TR>
<TR VALIGN=Bottom>
<TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1><BR>2002</FONT><HR WIDTH=100% SIZE=1 COLOR=BLACK NOSHADE></TH>
<TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
<TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
<TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
<TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Net sales</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 2,803</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 3,329</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 3,041</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 2,928</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Gross profit</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,597</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2,002</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,817</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,699</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Operating loss</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(3,689</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(2,871</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(2,777</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(6,149</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Net loss</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(3,551</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(2,743</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(2,634</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(6,051</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Basic and diluted net loss</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> per share</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> (0.27</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> (0.20</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> (0.20</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> (0.46</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
</TABLE>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The results of the fourth quarter of
2002 include a $3,750,000 settlement of litigation which the Company expensed in that
period. (See Note 15.) </FONT></P>
<BR><BR><BR><BR><BR><BR><BR><BR><BR><BR><BR><BR><BR><BR><BR><BR>
<!-- MARKER FORMAT-SHEET="Para Center" FSL="Workstation" -->
<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>54</FONT></P>
<HR SIZE=3 COLOR=GRAY NOSHADE>
</BODY>
</HTML>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.14
<SEQUENCE>3
<FILENAME>vasc041035_ex10-14.txt
<TEXT>
EXHIBIT 10.14
This LOAN AND SECURITY AGREEMENT dated as of the Effective Date,
between SILICON VALLEY BANK ("Bank"), whose address is 5775 Wayzata Boulevard,
Suite 700, Minneapolis, Minnesota 55416 and VASCULAR SOLUTIONS, INC., a
Minnesota corporation ("Borrower"), whose address is 6464 Sycamore Court,
Minneapolis, Minnesota 55369, provides the terms on which Bank will lend to
Borrower and Borrower will repay Bank. The parties agree as follows:
1. ACCOUNTING AND OTHER TERMS
Accounting terms not determined in this Agreement will be construed
following GAAP. Calculations and determinations must be made following GAAP. The
term "financial statements" includes the notes and schedules, if any. The terms
"including" and "includes" always mean "including (or includes) without
limitation," in this or any Loan Document.
2. LOAN AND TERMS OF PAYMENT
2.1 PROMISE TO PAY.
Borrower promises to pay Bank the unpaid principal amount of all Credit
Extensions and interest on the unpaid principal amount of the Credit Extensions.
2.1.1 REVOLVING ADVANCES.
(a) Bank will make Revolving Advances not exceeding the lesser of (A)
the Committed Revolving Line and (B) the Borrowing Base. Amounts borrowed under
this Section may be repaid and reborrowed during the term of this Agreement.
(b) To obtain a Revolving Advance, Borrower must notify Bank by
facsimile or telephone by 12:00 p.m. Pacific time on the Business Day the
Revolving Advance is proposed to be made. Borrower must promptly confirm the
notification by delivering to Bank the Payment/Advance Form, in the form
attached hereto as Exhibit B. Bank will credit Revolving Advances to Borrower's
deposit account. Bank may make Revolving Advances under this Agreement based on
instructions from a Responsible Officer or his or her designee or without
instructions if any such Revolving Advances are necessary to meet Obligations
which have become due. Bank may rely on any telephonic notice given by a person
whom Bank in its good faith business judgment believes is a Responsible Officer
or such Person's designee (with the status of a designee derived from written
instructions from Borrower to Bank or specific verbal instructions from a
Responsible Officer), and Borrower hereby indemnifies Bank for any loss Bank
suffers due to any such reliance.
(c) The Committed Revolving Line terminates on the Revolving Maturity
Date, when all Revolving Advances and related Obligations are immediately
payable.
(d) Bank's obligation to lend the undisbursed portion of the
Obligations will terminate if, in Bank's sole discretion, there has been a
material adverse change in the general affairs, management, results of
operation, condition (financial or otherwise) or the prospect of repayment of
the Obligations, or there has been any material adverse deviation by Borrower
from the most recent business plan of Borrower presented to and accepted by Bank
prior to the execution of this Agreement.
<PAGE>
2.2 OVERADVANCES.
If Borrower's Obligations under Section 2.1.1 exceed any of the
applicable lending limitations set forth therein, Borrower must immediately pay
Bank the excess. Bank, under its ordinary practices, will be in contact with the
Borrower concerning any such excess, provided that Borrower understands and
agrees that Borrower's obligation to repay any such excess is not conditioned on
the giving of any notice or communication of any type by Bank to Borrower .
2.3 INTEREST RATE, PAYMENTS.
(a) Interest Rate. Revolving Advances accrue interest on the
outstanding principal balance at a PER ANNUM rate equal to the greater of (i)
4.50% or (ii) one-half of one percentage point (0.50%) above the Prime Rate.
After an Event of Default has occurred and is continuing, Obligations accrue
interest at five (5) percentage points above the rate effective immediately
before such Event of Default occurred. The interest rate increases or decreases
when the Prime Rate changes. Interest is computed on a 360 day year for the
actual number of days elapsed.
(b) Payments. Interest due on the Committed Revolving Line is payable
on the 25th day of each month for the period ending at the end of the day
preceding such 25th day. Bank may debit any of Borrower's deposit accounts at
Bank for principal and interest payments owing or any amounts Borrower owes
Bank. Bank will promptly notify Borrower when it debits Borrower's accounts.
These debits are not a set-off. Payments received after 12:00 noon Pacific time
are considered received at the opening of business on the next Business Day.
When a payment is due on a day that is not a Business Day, the payment is due
the next Business Day and additional fees or interest accrue.
2.4 FEES.
(a) Facility Fee. Borrower shall pay to Bank a fee of $15,000
concurrently with the making of the first Revolving Advance hereunder, which
shall be in addition to interest and to all other amounts payable hereunder and
which shall not be refundable.
(b) Bank Expenses. Borrower shall pay to the Bank all Bank Expenses
(including reasonable attorneys' fees and expenses) incurred through and after
the Closing Date when due.
(c) Unused Line Fee. Borrower shall pay to the Bank $1,250 per each
quarter (or partial quarter) during the term hereof as long as no Advances have
been made during such quarter, with such fee due and payable, if applicable, on
the fir st day of each quarter with respect to the then immediately preceding
quarter or partial quarter period, with the first of such payments due on April
1, 2004. However, on and after such time that the facility fee as described in
2.4(a) is payable by the Borrower, any and all unused line fees paid hereunder
prior to such date shall be applied and credited to the such facility fee and
Borrower shall thereupon only be responsible for the payment of such facility
fee less the aggregate amount of such unused line fees so credited.
3. CONDITIONS OF LOANS
3.1 CONDITIONS PRECEDENT TO INITIAL CREDIT EXTENSION.
Bank's obligation to make the initial Credit Extension is subject to
the condition precedent that it receive the agreements, documents and fees it
requires in its good faith business judgment, and shall include, without
limitation, the satisfaction of the audit condition set forth in Section 6.2(d)
hereof.
-2-
<PAGE>
3.2 CONDITIONS PRECEDENT TO ALL CREDIT EXTENSIONS.
Bank's obligations to make each Credit Extension, including the initial
Credit Extension, is subject to the following:
(a) timely receipt of any Payment/Advance Form; and
(b) the representations and warranties in Section 5 must be materially
true on the date of the Payment/Advance Form and on the effective date of each
Credit Extension (each a "Bring Down Date") (except to the extent they related
specifically to an earlier date, in which case such representations and
warranties shall remain materially true and accurate as of such specific date on
the Bring Down Date) and no Default or Event of Default may have occurred and be
continuing, or result from the Credit Extension. Each Credit Extension is
Borrower's representation and warranty on that date that the representations and
warranties of Section 5 remain true (except to the extent they related
specifically to an earlier date, in which case such representations and
warranties shall remain materially true and accurate as of such specific date on
the Bring Down Date).
4. CREATION OF SECURITY INTEREST
4.1 GRANT OF SECURITY INTEREST.
Borrower grants Bank a continuing security interest in all
presently existing and later acquired Collateral to secure all Obligations and
performance of each of Borrower's duties under the Loan Documents. Except for
Permitted Liens, any security interest will be a first priority security
interest in the Collateral. If this Agreement is terminated, Bank's lien and
security interest in the Collateral will continue until Borrower fully satisfies
its Obligations, other than for Inchoate Indemnities.
4.2 AUTHORIZATION TO FILE.
Borrower authorizes Bank to file financing statements without notice to
Borrower, with all appropriate jurisdictions, as Bank deems appropriate, in
order to perfect or protect Bank's interest in the Collateral.
5. REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants as follows:
5.1 DUE ORGANIZATION AND AUTHORIZATION.
Each of Borrower and each Subsidiary is duly existing and in good
standing in its state of formation and qualified and licensed to do business in,
and in good standing in, any state in which the conduct of its business or its
ownership of property requires that it be qualified, except where the failure to
do so could not reasonably be expected to cause a Material Adverse Change.
The execution, delivery and performance of the Loan Documents have been
duly authorized, and do not conflict with Borrower's formation documents, nor
constitute an event of default under any material agreement by which Borrower is
bound. Borrower is not in default under any agreement to which or by which it is
bound in which the default could reasonably be expected to cause a Material
Adverse Change.
-3-
<PAGE>
5.2 COLLATERAL.
Borrower has good title to the Collateral and the Intellectual
Property, free of Liens except Permitted Liens and Borrower has Rights to each
asset that is Collateral. Borrower has no other deposit account, other than the
deposit accounts described in the Schedule. The Accounts are bona fide, existing
obligations, and the service or property has been performed or delivered to the
account debtor or its agent for immediate shipment to and unconditional
acceptance by the account debtor. The Collateral is not in the possession of any
third party bailee (such as at a warehouse), except to the extent that purchased
components of inventory are located, in the ordinary course of business, at the
sites of contract manufacturers and with the further understanding that no
inventory that is located at such a third party site shall be considered
Eligible Inventory hereunder. In the event that Borrower, after the date hereof,
intends to store or otherwise deliver the Collateral to such a bailee, then
Borrower will receive the prior written consent of Bank and such bailee must
acknowledge in writing that the bailee is holding such Collateral for the
benefit of Bank. Borrower has no notice of any actual or imminent Insolvency
Proceeding of any account debtor whose accounts are an Eligible Account in any
Borrowing Base Certificate. All Inventory is in all material respects of good
and marketable quality, free from material defects. Borrower is the sole owner
of, or a licensee of, the Intellectual Property, except for non-exclusive
licenses granted to its customers in the ordinary course of business. Each
Patent is valid and enforceable (subject to the ability of the Borrower to
abandon rights to certain Intellectual Property as set forth in Section 6.8
hereof) and no part of the Intellectual Property has been judged invalid or
unenforceable, in whole or in part, and no claim has been made that any part of
the Intellectual Property violates the rights of any third party, except to the
extent such claim could not reasonably be expected to cause a Material Adverse
Change.
5.3 LITIGATION.
Except as shown in the Schedule, there are no actions or proceedings
pending or, to the knowledge of Borrower's Responsible Officers, threatened by
or against Borrower or any Subsidiary in which a likely adverse decision could
reasonably be expected to cause a Material Adverse Change. With respect to the
litigation identified on the Schedule, Borrower shall supply to Bank all current
pleadings and other applicable information for Bank's review and evaluation;
Borrower shall assist Bank in its evaluation thereof, with the specific
understanding that no loans are to be made hereunder until such time as the Bank
determines, in its good faith business judgment, that the litigation and the
matters pertaining thereto are acceptable to Bank.
5.4 NO MATERIAL ADVERSE CHANGE IN FINANCIAL STATEMENTS.
All consolidated financial statements for Borrower, and any Subsidiary,
delivered to Bank fairly present in all material respects Borrower's
consolidated financial condition and Borrower's consolidated results of
operations, subject to normal year end audit adjustments for interim financial
statements. There has not been any material deterioration in Borrower's
consolidated financial condition since the date of the most recent financial
statements submitted to Bank.
5.5 SOLVENCY.
The fair salable value of Borrower's assets as a going concern
(including goodwill minus disposition costs) exceeds the fair value of its
liabilities; the Borrower is not left with unreasonably small capital after the
transactions in this Agreement; and Borrower is able to pay its debts (including
trade debts) as they mature.
-4-
<PAGE>
5.6 REGULATORY COMPLIANCE.
Borrower is not an "investment company" or a company "controlled" by an
"investment company" under the Investment Company Act. Borrower is not engaged
as one of its important activities in extending credit for margin stock (under
Regulations T and U of the Federal Reserve Board of Governors). Borrower has
complied in all material respects with the Federal Fair Labor Standards Act.
Borrower has not violated any laws, ordinances or rules, the violation of which
could reasonably be expected to cause a Material Adverse Change. None of
Borrower's or any Subsidiary's properties or assets has been used by Borrower or
any Subsidiary or, to the best of Borrower's knowledge, by previous Persons, in
disposing, producing, storing, treating, or transporting any hazardous substance
other than legally. Borrower and each Subsidiary has timely filed all required
tax returns and paid, or made adequate provision to pay, all material taxes,
except those being contested in good faith with adequate reserves under GAAP.
Borrower and each Subsidiary has obtained all consents, approvals and
authorizations of, made all declarations or filings with, and given all notices
to, all government authorities that are necessary to continue its business as
currently conducted, except where the failure to do so could not reasonably be
expected to cause a Material Adverse Change.
5.7 SUBSIDIARIES.
Borrower does not own any stock, partnership interest or other equity
securities except for Permitted Investments.
5.8 FULL DISCLOSURE.
No written representation, warranty or other statement of Borrower in
any certificate or written statement given to Bank (taken together with all such
writ ten certificates and written statements to Bank) contains any untrue
statement of a material fact or, when taken as a whole, omits to state a
material fact necessary to make the statements contained in the certificates or
statements not misleading in light of the circumstances in which they were made,
with it being recognized by Bank that the projections and forecasts provided by
Borrower in good faith and based upon reasonable assumptions are not viewed as
facts and that actual results during the period or periods covered by such
projections and forecasts may differ from the projected and forecasted results.
5.9 LIEN STATUS OF CERTAIN PURCHASED ASSETS.
All assets purchased pursuant to that certain Asset Purchase Agreement
dated as of April 29, 2002 by and between Borrower and the secured creditors
parties thereto with respect to certain assets of Angiosonics, Inc., which were
subject to UCC lien filings in favor of such secured creditors as of the date of
Borrower's purchase of such assets, were listed on the UCC amendments evidencing
the full release of such assets from such UCC lien filings and which amendments
were filed with the Delaware Secretary of State on May 31, 2002, and bearing UCC
amendment filing numbers 2134515 and 2134520.
6. AFFIRMATIVE COVENANTS
Borrower will do all of the following for so long as Bank has an
obligation to lend or there are outstanding Obligations (other than for Inchoate
Indemnities):
6.1 GOVERNMENT COMPLIANCE.
Borrower will maintain its and its Subsidiaries' (if any) legal
existence and good standing in the jurisdiction of formation of each and will
maintain qualification of all such entities in each
-5-
<PAGE>
applicable jurisdiction in which the failure to so qualify would reasonably be
expected to cause a material adverse effect on Borrower's business or
operations. Borrower will comply, and will cause each Subsidiary to comply, with
all laws, ordinances and regulations to which such party is subject to the
extent that noncompliance therewith could have a material adverse effect on
Borrower's business or operations or could reasonably be expected to cause a
Material Adverse Change.
6.2 FINANCIAL STATEMENTS, REPORTS, CERTIFICATES.
(a) Borrower will deliver to Bank: (i) as soon as available, but no
later than 30 days after the last day of each month, a company prepared
consolidated balance sheet and income statement covering Borrower's consolidated
operations during the period certified by a Responsible Officer and in a form
acceptable to Bank and, Borrower shall concurrently therewith provide to Bank a
description regarding any material variances that have occurred with respect to
Borrower's financial projections during such period (with the understanding that
Borrower may from time to time modify such projections and agrees to provide
Bank with copies of any such modifications); (ii) as soon as available, but no
later than 90 days after the last day of Borrower's fiscal year, audited
consolidated financial statements prepared under GAAP, consistently applied,
together with an unqualified opinion on the financial statements from an
independent certified public accounting firm reasonably acceptable to Bank;
(iii) a prompt report of any legal actions pending or threatened against
Borrower or any Subsidiary that could result in damages or costs to Borrower or
any Subsidiary of $100,000 or more; and (iv) budgets, sales projections,
operating plans or other financial information Bank reasonably requests,
including, without limitation, financial projections (covering such matters and
in such form as Bank shall reasonably request) for each fiscal year, and which
are to be delivered to Bank prior the start of such fiscal year.
(b) Within 30 days after the last day of each month while any
Revolving Advances are outstanding (and in any event delivered in conjunction
with a request for a Revolving Advance when no such Revolving Advances are then
outstanding), Borrower will deliver to Bank a Borrowing Base Certificate signed
by a Responsible Officer in the form of Exhibit C hereto, with aged listings of
accounts receivable and accounts payable, in each case by invoice date, and
together with an inventory report in form and substance acceptable to Bank.
Further, when no Revolving Advances are outstanding Borrower shall deliver to
Bank the foregoing Borrowing Base Certificate, and together with aged listings
of accounts receivable and accounts payable, together with an inventory report
in form and substance acceptable to Bank all within 30 days after the end of
each quarter.
(c) Within 30 days after the last day of each month, Borrower will
deliver to Bank with the monthly financial statements a Compliance Certificate
signed by a Responsible Officer in the form of Exhibit D.
(d) Allow Bank to audit Borrower's Collateral at Borrower's expense.
Such audits will be conducted no more often than every 12 months unless a
Default or Event of Default has occurred and is continuing. Further, as a
condition to the making of any Advances hereunder, Bank shall conduct a
Collateral audit and general field examination which shall produce results that
are acceptable to Bank in its good faith business judgment.
6.3 INVENTORY; RETURNS.
Borrower will keep all Inventory in good and marketable condition, free
from material defects. Returns and allowances between Borrower and its account
debtors will follow Borrower's customary practices as they exist at execution of
this Agreement. Borrower must
-6-
<PAGE>
promptly notify Bank of all returns, recoveries, disputes and claims, that
involve more than $50,000.
6.4 TAXES.
Borrower will make, and cause each Subsidiary to make, timely payment
of all material federal, state, and local taxes or assessments (other than taxes
and assessments which Borrower is contesting in good faith, with adequate
reserves maintained in accordance with GAAP) and will deliver to Bank, on
demand, appropriate certificates attesting to the payment.
6.5 INSURANCE.
Borrower will keep its business and the Collateral insured for risks
and in amounts standard for Borrower's industry, and as Bank may reasonably
request. Insurance policies will be in a form, with companies, and in amounts
that are satisfactory to Bank in Bank's reasonable discretion. All property
policies will have a lender's loss payable endorsement showing Bank as an
additional loss payee and all liability policies will show the Bank as an
additional insured and provide that the insurer must give Bank at least 20 days
notice before canceling its policy. At Bank's request, Borrower will deliver
certified copies of policies and evidence of all premium payments. Proceeds
payable under any policy will, at Bank's option, be payable to Bank on account
of the Obligations.
6.6 PRIMARY ACCOUNTS.
Borrower will maintain (A) its operating bank accounts with Bank and
(B) 80% of all excess cash and investments balances at or through Bank. Further,
as to any amounts that are on deposit at institutions other than at the Bank,
Borrower shall cause such other institutions to enter into account control
agreements in favor of Bank in order to allow the Bank perfect its lien therein
and with such agreements and provisions as are reasonably acceptable to Bank.
6.7 FINANCIAL COVENANTS.
Borrower will maintain at all times:
(i) TANGIBLE NET WORTH. A Tangible Net Worth of at least
$8,000,000.
(ii) LIQUIDITY COVERAGE. A ratio of (A) unrestricted domestic
cash (and equivalents) plus the product of the aggregate amount of Eligible
Accounts multiplied by the applicable advance rate for the making of Revolving
Advances hereunder with respect to Eligible Accounts, divided by (B) the
aggregate amount of Obligations outstanding hereunder, of not less than 1.25 to
1.00.
6.8 INTELLECTUAL PROPERTY.
Borrower will (i) protect, defend and maintain the validity and
enforceability of all material Intellectual Property and promptly advise Bank in
writing of material infringements and (ii) not allow any Intellectual Property
material to Borrower's business to be abandoned, forfeited or dedicated to the
public without Bank's written consent.
6.9 FURTHER ASSURANCES.
Borrower will execute any further instruments and take further action
as Bank reasonably requests to perfect or continue Bank's security interest in
the Collateral or to effect the purposes of this Agreement.
-7-
<PAGE>
7. NEGATIVE COVENANTS
Borrower will not do any of the following without Bank's prior written
consent, which will not be unreasonably withheld, for so long as Bank has an
obligation to lend or there are any outstanding Obligations other than for
Inchoate Indemnities:
7.1 DISPOSITIONS.
Convey, sell, lease, transfer or otherwise dispose of (collectively
"Transfer"), or permit any of its Subsidiaries to Transfer, all or any part of
its business or property, except for Transfers (i) of Inventory in the ordinary
course of business; (ii) of non-exclusive licenses and similar arrangements for
the use of the property of Borrower or any Subsidiary in the ordinary course of
business; (iii) of worn-out or obsolete Equipment; or (iv) that arise from the
making of Permitted Investments. Further, Bank agrees to facilitate the
dispositions in clause (iii) above with respect to a release of the Bank's lien
therein on terms acceptable to Bank, subject, in all cases, to the first
priority lien right in any and all proceeds arising therefrom.
7.2 CHANGES IN BUSINESS, OWNERSHIP, MANAGEMENT OR BUSINESS LOCATIONS.
Engage in or permit any Subsidiary to engage in any business other than
the businesses currently engaged in by Borrower or reasonably related thereto or
have a material change in its management or its ownership of greater than 25%
(other than by the sale of Borrower's equity securities in a public offering or
to venture capital investors so long as Borrower identifies the venture capital
investors prior to the closing of the investment). Borrower will not, without at
least 30 days prior written notice, relocate its chief executive office or add
any new offices or business locations in which Borrower maintains or stores over
$15,000 in Borrower's assets or property.
7.3 MERGERS OR ACQUISITIONS.
Merge or consolidate, or permit any Subsidiary to merge or consolidate,
with any other Person, or acquire, or permit any Subsidiary to acquire, all or
substantially all of the capital stock or property of another Person, except
where: (i) no Default or Event of Default has occurred and is continuing or
would result from such action during the term of this Agreement; (ii) such
transaction would not result in a decrease of more than 25% of Tangible Net
Worth; and (iii) upon the acquisition of any other Person as otherwise permitted
pursuant to the terms of this Section, such Person become an appropriate obligor
relating to the Obligations hereunder, as the Bank may determine, and shall
execute such agreements, documents and instruments as are reasonably necessary
or appropriate, as the Bank may determine, in order to evidence such debt
obligations and to establish a first priority security interest in the personal
property assets of such Person in favor of Bank, subject to Permitted Liens. A
Subsidiary may merge or consolidate into another Subsidiary or into Borrower as
long as no Default or Event of Default has occurred and is continuing prior to
the proposed transaction or would otherwise arise thereafter as a direct or
indirect result thereof.
7.4 INDEBTEDNESS.
Create, incur, assume, or be liable for any Indebtedness, or permit any
Subsidiary to do so, other than Permitted Indebtedness.
7.5 ENCUMBRANCE.
Create, incur, or allow any Lien on any of its property, or assign or
convey any right to receive income, including the sale of any Accounts, or
permit any Subsidiary to do so, except for
-8-
<PAGE>
Permitted Liens, or permit the Bank's first priority lien in the Collateral to
change, subject only to Permitted Liens as may be applicable and subject to the
provisions of Section 7.1 hereof regarding the Transfer of wornout or obsolete
equipment as more specifically set forth in Section 7.1, provided, further, with
respect to Inventory, it is understood that under Section 9320(a) of the Code, a
buyer thereof in the ordinary course of business shall take such Inventory free
of the Lien of Bank hereunder, subject to the Lien of the Bank in any and all
proceeds thereof.
7.6 DISTRIBUTIONS; INVESTMENTS.
Directly or indirectly acquire or own any Person, or make any
Investment in any Person, other than Permitted Investments, or permit any
Subsidiary to do so. Pay any dividends or make any distribution or other
payment, redemption, retirement or re-purchase of any of its capital stock,
provided that Borrower may redeem or repurchase for cash, at fair value, the
capital stock of Borrower (or options to purchase capital stock) from any
employee of Borrower upon the death, disability, retirement or other termination
of such employee, if (i) no Default or Event of Default shall have occurred and
be continuing or shall result from the same, and (ii) the total amount paid in
all of the foregoing transactions shall not exceed $50,000 in any fiscal year of
Borrower.
7.7 TRANSACTIONS WITH AFFILIATES.
Directly or indirectly enter into or permit to exist any material
transaction with any Affiliate of Borrower except for transactions that are in
the ordinary course of Borrower's business, upon fair and reasonable terms that
are no less favorable to Borrower than would be obtained in an arm's length
transaction with a nonaffiliated Person, provided that the foregoing
restrictions shall not apply to (i) redemptions or repurchases of Borrower's
stock otherwise permitted under Section 7.6, or (ii) employment arrangements
(including arrangements made with respect to bonuses) entered into in the
ordinary course of business consistent with past business practices with members
of the Board of Directors and officers of Borrower, provided that no Default or
Event of Default has occurred and is continuing or that no Default or Event of
Default would arise upon the the making of any such employment arrangement or
upon the effectiveness thereof.
7.8 SUBORDINATED DEBT.
Make or permit any payment on any Subordinated Debt, except under the
terms of the Subordinated Debt, or amend any provision in any document relating
to the Subordinated Debt without Bank's prior written consent.
7.9 COMPLIANCE.
Become an "investment company" or a company controlled by an
"investment company," under the Investment Company Act of 1940 or undertake as
one of its important activities extending credit to purchase or carry margin
stock, or use the proceeds of any Credit Extension for that purpose; fail to
meet the minimum funding requirements of ERISA, permit a Reportable Event or
Prohibited Transaction, as defined in ERISA, to occur; fail to comply with the
Federal Fair Labor Standards Act or violate any other law or regulation, if the
violation could reasonably be expected to have a material adverse effect on
Borrower's business or operations or would reasonably be expected to cause a
Material Adverse Change, or permit any of its Subsidiaries to do so.
8. EVENTS OF DEFAULT
Any one of the following is an "Event of Default" hereunder:
-9-
<PAGE>
8.1 PAYMENT DEFAULT.
If Borrower fails to pay any of the Obligations within 3 days after
their due date. During such additional 3 day period the failure to cure such
payment default is not an Event of Default hereunder (but no Credit Extension
will be made during the cure period);
8.2 COVENANT DEFAULT.
(A) If Borrower does not perform any obligation in Sections 6.1, 6.2,
6.5, 6.6, and 6.7 or violates any covenant in Section 7; or
(B) If Borrower does not perform or observe any other material term,
condition or covenant in this Agreement (other than as referenced in the Section
8.1 or 8.2(A)), any Loan Documents, or in any agreement between Borrower and
Bank and as to any default under a term, condition or covenant that can be
cured, has not cured the default within 10 days after it occurs, or if the
default cannot be cured within 10 days or cannot be cured after Borrower's
attempts within 10 day period, and the default may be cured within a reasonable
time, then Borrower has an additional period (of not more than 30 days) to
attempt to cure the default. During the additional time, the failure to cure the
default is not an Event of Default (but no Credit Extensions will be made during
the cure period);
8.3 MATERIAL ADVERSE CHANGE.
If there (i) occurs a material adverse change in the business,
operations, or condition (financial or otherwise) of the Borrower, or (ii) is a
material impairment of the prospect of repayment of any portion of the
Obligations or (iii) is a material impairment of the value or priority of Bank's
security interests in the Collateral (any of the foregoing is referred to herein
as a "Material Adverse Change").
8.4 ATTACHMENT.
If any material portion of Borrower's assets is attached, seized,
levied on, or comes into possession of a trustee or receiver and the attachment,
seizure or levy is not removed in 10 days, or if Borrower is enjoined,
restrained, or prevented by court order from conducting a material part of its
business or if a judgment or other claim becomes a Lien on a material portion of
Borrower's assets, or if a notice of lien, levy, or assessment is filed against
any of Borrower's assets by any government agency and not paid within 10 days
after Borrower receives notice. These are not Events of Default if stayed or if
a bond is posted pending contest by Borrower (but no Credit Extensions will be
made during the cure period prior to obtaining a stay or posting a bond);
8.5 INSOLVENCY.
If Borrower becomes insolvent or if Borrower begins an Insolvency
Proceeding or an Insolvency Proceeding is begun against Borrower and not
dismissed or stayed within 30 days (but no Credit Extensions will be made before
any Insolvency Proceeding is dismissed);
8.6 OTHER AGREEMENTS.
If there is a default in any agreement between Borrower and a third
party that gives the third party the right to accelerate any Indebtedness
exceeding $100,000 or that could reasonably be expected to cause a Material
Adverse Change;
-10-
<PAGE>
8.7 JUDGMENTS.
If a money judgment(s) in the aggregate of at least $50,000 is rendered
against Borrower and is unsatisfied and unstayed for 10 days (but no Credit
Extensions will be made before the judgment is stayed or satisfied);
8.8 MISREPRESENTATIONS.
If Borrower or any Person acting for Borrower makes any material
misrepresentation or material misstatement now or later in any warranty or
representation in this Agreement or in any writing delivered to Bank or to
induce Bank to enter this Agreement or any Loan Document; or
8.9 GUARANTY.
Any guaranty of any Obligations ceases for any reason to be in full
force or any Guarantor does not perform any obligation under any guaranty of the
Obligations, or any material misrepresentation or material misstatement exists
now or later in any warranty or representation in any guaranty of the
Obligations or in any certificate delivered to Bank in connection with the
guaranty, or any circumstance described in Sections 8.4, 8.5 or 8.7 occurs to
any Guarantor.
9. BANK'S RIGHTS AND REMEDIES
9.1 RIGHTS AND REMEDIES.
When an Event of Default occurs and continues Bank may, without notice
or demand, do any or all of the following:
(a) Declare all Obligations immediately due and payable (but if an
Event of Default described in Section 8.5 occurs all Obligations are immediately
due and payable without any action by Bank);
(b) Stop advancing money or extending credit for Borrower's benefit
under this Agreement or under any other agreement between Borrower and Bank;
(c) Settle or adjust disputes and claims directly with account debtors
for amounts, on terms and in any order that Bank considers advisable;
(d) Make any payments and do any acts it considers necessary or
reasonable to protect its security interest in the Collateral. Borrower will
assemble the Collateral if Bank requires and make it available as Bank
designates. Bank may enter premises where the Collateral is located, take and
maintain possession of any part of the Collateral, and pay, purchase, contest,
or compromise any Lien which appears to be prior or superior to its security
interest and pay all expenses incurred. Borrower grants Bank a license to enter
and occupy any of its premises, without charge, to exercise any of Bank's rights
or remedies;
(e) Apply to the Obligations any (i) balances and deposits of Borrower
it holds, or (ii) any amount held by Bank owing to or for the credit or the
account of Borrower;
(f) Ship, reclaim, recover, store, finish, maintain, repair, prepare
for sale, advertise for sale, and sell the Collateral. Bank is granted a
non-exclusive, royalty-free license or other right to use, without charge,
Borrower's labels, Patents, Copyrights, Mask Works, rights of use of any name,
trade secrets, trade names, Trademarks, service marks, and advertising matter,
or any similar property as it pertains to the Collateral, in completing
production of, advertising for sale,
-11-
<PAGE>
and selling any Collateral and, in connection with Bank's exercise of its rights
under this Section, Borrower's rights under all licenses and all franchise
agreements inure to Bank's benefit (to the extent permitted thereby or as
otherwise may be permitted under law); and
(g) Dispose of the Collateral according to the Code.
9.2 POWER OF ATTORNEY.
Effective only when an Event of Default occurs and continues, Borrower
irrevocably appoints Bank as its lawful attorney to: (i) endorse Borrower's name
on any checks or other forms of payment or security; (ii) sign Borrower's name
on any invoice or bill of lading for any Account or drafts against account
debtors, (iii) make, settle, and adjust all claims under Borrower's insurance
policies; (iv) settle and adjust disputes and claims about the Accounts directly
with account debtors, for amounts and on terms Bank determines reasonable; and
(v) transfer the Collateral into the name of Bank or a third party as the Code
permits. Bank may exercise the power of attorney to sign Borrower's name on any
documents necessary to perfect or continue the perfection of any security
interest regardless of whether an Event of Default has occurred. Bank's
appointment as Borrower's attorney in fact, and all of Bank's rights and powers
under this Section 9.2, coupled with an interest, are irrevocable until all
Obligations (other than for Inchoate Indemnities) have been fully repaid and
performed and Bank's obligation to provide Credit Extensions terminates.
9.3 ACCOUNTS COLLECTION.
When an Event of Default occurs and continues, Bank may notify any
Person owing Borrower money of Bank's security interest in the funds and verify
the amount of the Account. While any Obligations are outstanding, Borrower shall
be deemed to collect all payments in trust for Bank and, if requested by Bank in
its good faith business judgment, immediately deliver the payments to Bank in
the form received from the account debtor, with proper endorsements for deposit.
9.4 BANK EXPENSES.
If Borrower fails to pay any amount or furnish any required proof of
payment to third persons, Bank may make all or part of the payment or obtain
insurance policies required in Section 6.5, and take any action under the
policies Bank deems prudent and Bank will apprise Borrower of any such actions
in accordance with its customary procedures. Any amounts paid by Bank are Bank
Expenses and immediately due and payable, bearing interest at the then
applicable rate and secured by the Collateral. No payments by Bank are deemed an
agreement to make similar payments in the future or Bank's waiver of any Event
of Default.
9.5 BANK'S LIABILITY FOR COLLATERAL.
If Bank complies with reasonable banking practices and the Code, it is
not liable for: (a) the safekeeping of the Collateral; (b) any loss or damage to
the Collateral; (c) any diminution in the value of the Collateral; or (d) any
act or default of any carrier, warehouseman, bailee, or other person. Except as
provided in the preceding sentence, Borrower bears all risk of loss, damage or
destruction of the Collateral.
9.6 REMEDIES CUMULATIVE.
Bank's rights and remedies under this Agreement, the Loan Documents,
and all other agreements are cumulative. Bank has all rights and remedies
provided under the Code, by law, or in equity. Bank's exercise of one right or
remedy is not an election, and Bank's waiver of any
-12-
<PAGE>
Event of Default is not a continuing waiver. Bank's delay is not a waiver,
election, or acquiescence. No waiver is effective unless signed by Bank and then
is only effective for the specific instance and purpose for which it was given.
9.7 DEMAND WAIVER.
Borrower waives demand, notice of default or dishonor, notice of
payment and nonpayment, notice of any default, nonpayment at maturity, release,
compromise, settlement, extension, or renewal of accounts, documents,
instruments, chattel paper, and guarantees held by Bank on which Borrower is
liable.
10. NOTICES
All notices or demands by any party about this Agreement or any other
related agreement must be in writing and be personally delivered or sent by an
overnight delivery service, by certified mail, postage prepaid, return receipt
requested, or by telefacsimile to the addresses set forth at the beginning of
this Agreement. A party may change its notice address by giving the other party
written notice.
11. CHOICE OF LAW, VENUE AND JURY TRIAL WAIVER
California law governs the Loan Documents without regard to principles
of conflicts of law. Borrower and Bank each submit to the exclusive jurisdiction
of the State and Federal courts in Santa Clara County, California.
BORROWER AND BANK EACH WAIVE THEIR RIGHT TO A JURY TRIAL OF ANY CLAIM OR CAUSE
OF ACTION ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY CONTEMPLATED
TRANSACTION, INCLUDING CONTRACT, TORT, BREACH OF DUTY AND ALL OTHER CLAIMS. THIS
WAIVER IS A MATERIAL INDUCEMENT FOR BOTH PARTIES TO ENTER INTO THIS AGREEMENT.
EACH PARTY HAS REVIEWED THIS WAIVER WITH ITS COUNSEL.
12. GENERAL PROVISIONS
12.1 SUCCESSORS AND ASSIGNS.
This Agreement binds and is for the benefit of the successors and
permitted assigns of each party. Borrower may not assign this Agreement or any
rights under it without Bank's prior written consent which may be granted or
withheld in Bank's discretion. Bank has the right, without the consent of or
notice to Borrower, to sell, transfer, negotiate, or grant participation in all
or any part of, or any interest in, Bank's obligations, rights and benefits
under this Agreement.
12.2 INDEMNIFICATION.
Borrower will indemnify, defend and hold harmless Bank and its
officers, employees, and agents against: (a) all obligations, demands, claims,
and liabilities asserted by any other party in connection with the transactions
contemplated by the Loan Documents; and (b) all losses or Bank Expenses
incurred, or paid by Bank from, following, or consequential to transactions
between Bank and Borrower (including reasonable attorneys fees and expenses),
except for losses caused by Bank's gross negligence or willful misconduct.
A Person seeking to be indemnified under this Section shall notify
Borrower of any event requiring indemnification within a reasonable time
following such Person's receipt of notice of
-13-
<PAGE>
commencement of any action or proceeding giving rise to a claim for
indemnification hereunder, provided that (i) there shall be no obligation to so
notify Borrower if an Event of Default has occurred and is continuing, (ii)
neither Bank nor any such Person shall have any liability or obligation for any
inadvertent failure to provide such notice, (iii) no failure to provide such
notice shall affect Borrower's obligation to provide indemnity hereunder and
(iv) in any event, nothing herein shall impose on Bank any duty or obligation to
impair the confidentiality or sanctity of its attorney client relationship. In
such proceeding, such Person shall use commercially reasonable efforts to keep
Borrower reasonably informed of its defense and any settlement of any such
action or proceeding and negotiations to settle or otherwise resolve any claim,
provided that (i) such Person shall have the exclusive right to decide to accept
or reject any settlement offer, (ii) there shall be no obligation to keep
Borrower so informed if an Event of Default has occurred and is continuing,
(iii) neither Bank nor any such Person shall have any liability or obligation
for any inadvertent failure to keep Borrower so informed, (iv) no failure to
keep Borrower so informed shall affect Borrower's obligation to provide
indemnity hereunder and (v) in any event, nothing herein shall impose on Bank
any duty or obligation to impair the confidentiality or sanctity of its attorney
client relationship. Notwithstanding any provision in this Agreement to the
contrary, the indemnity agreement set forth in this Section shall survive any
termination of this Agreement and shall for all purposes continue in full force
and effect.
12.3 TIME OF ESSENCE.
Time is of the essence for the performance of all obligations in this
Agreement.
12.4 SEVERABILITY OF PROVISION.
Each provision of this Agreement is severable from every other
provision in determining the enforceability of any provision.
12.5 AMENDMENTS IN WRITING, INTEGRATION.
All amendments to this Agreement must be in writing and signed by
Borrower and Bank. This Agreement represents the entire agreement about this
subject matter, and supersedes prior negotiations or agreements. All prior
agreements, understandings, representations, warranties, and negotiations
between the parties about the subject matter of this Agreement merge into this
Agreement and the Loan Documents.
12.6 COUNTERPARTS.
This Agreement may be executed in any number of counterparts and by
different parties on separate counterparts, each of which, when executed and
delivered, are an original, and all taken together, constitute one Agreement.
12.7 SURVIVAL.
All covenants, representation s and warranties made in this Agreement
continue in full force while any Obligations remain outstanding (other than for
Inchoate Indemnities). The obligations of Borrower in Section 12.2 to indemnify
Bank will survive until all statutes of limitations for actions that may be
brought against Bank have run.
12.8 CONFIDENTIALITY.
In handling any confidential information, Bank will exercise the same
degree of care that it exercises for its own proprietary information, but
disclosure of information may be made (i) to Bank's subsidiaries or affiliates
in connection with their business with Borrower, (ii) to
-14-
<PAGE>
prospective transferees or purchasers of any interest in the loans (provided,
however, Bank shall use commercially reasonable efforts in obtaining such
prospective transferee or purchasers written agreement to the terms of this
provision), (iii) as required by law, regulation, subpoena, or other order, (iv)
as required in connection with Bank's examination or audit and (v) as Bank
considers appropriate exercising remedies under this Agreement. Confidential
information does not include information that either: (a) is in the public
domain or in Bank's possession when disclosed to Bank, or becomes part of the
public domain after disclosure to Bank; or (b) is disclosed to Bank by a third
party, if Bank does not know that the third party is prohibited from disclosing
the information.
12.9 ATTORNEYS' FEES, COSTS AND EXPENSES.
In any action or proceeding between Borrower and Bank arising out of
the Loan Documents, the prevailing party will be entitled to recover its
reasonable attorneys' fees and other reasonable costs and expenses incurred, in
addition to any other relief to which it may be entitled.
13. DEFINITIONS
13.1 DEFINITIONS.
In this Agreement:
"ACCOUNTS" are all existing and later arising accounts, contract
rights, and other obligations owed Borrower in connection with its sale or lease
of goods (including licensing software and other technology) or provision of
services, all credit insurance, guaranties, other security and all merchandise
returned or reclaimed by Borrower and Borrower's Books relating to any of the
foregoing.
"AFFILIATE" of a Person is a Person that owns or controls directly or
indirectly the Person, any Person that controls or is controlled by or is under
common control with the Person, and each of that Person's senior executive
officers, directors, partners and, for any Person that is a limited liability
company, that Person's managers and members.
"BANK EXPENSES" are all audit fees and expenses and reasonable costs
and expenses (including reasonable attorneys' fees and expenses) for preparing,
negotiating, administering, defending and enforcing the Loan Documents
(including appeals or Insolvency Proceedings).
"BORROWER'S BOOKS" are all Borrower's books and records including
ledgers, records regarding Borrower's assets or liabilities, the Collateral,
business operations or financial condition and all computer programs or discs or
any equipment containing the information.
"BORROWING BASE" shall mean:
(A) up to 75% of Eligible Accounts as determined and confirmed by Bank
from Borrower's most recent Borrowing Base Certificate; provided, however, that
Bank may lower the percentage of the Borrowing Base after performing an audit of
Borrower's Collateral in Bank's good faith business judgment; and
(B) up to 25% of Eligible Inventory, provided that Advances hereunder
based on Eligible Inventory shall at no time exceed the lesser of (i) $1,000,000
or (ii) 33% of the amount from clause (A) above, as applicable from time to
time.
-15-
<PAGE>
"BUSINESS DAY" is any day that is not a Saturday, Sunday or a day on
which the Bank is closed.
"CLOSING DATE" is the date of this Agreement.
"CODE" is the Uniform Commercial Code, as applicable.
"COLLATERAL" is the property described on Exhibit A.
"COMMITTED REVOLVING LINE" shall mean a credit facility for the making
of Revolving Advances in the aggregate principal amount of $3,000,000.
"CONTINGENT OBLIGATION" is, for any Person, any direct or indirect
liability, contingent or not, of that Person for (i) any indebtedness, lease,
dividend, letter of credit or other obligation of another such as an obligation
directly or indirectly guaranteed, endorsed, co-made, discounted or sold with
recourse by that Person, or for which that Person is directly or indirectly
liable; (ii) any obligations for undrawn letters of credit for the account of
that Person; and (iii) all obligations from any interest rate, currency or
commodity swap agreement, interest rate cap or collar agreement, or other
agreement or arrangement designated to protect a Person against fluctuation in
interest rates, currency exchange rates or commodity prices; but "Contingent
Obligation" does not include endorsements in the ordinary course of business.
The amount of a Contingent Obligation is the stated or determined amount of the
primary obligation for which the Contingent Obligation is made or, if not
determinable, the maximum reasonably anticipated liability for it determined by
the Person in good faith; but the amount may not exceed the maximum of the
obligations under the guarantee or other support arrangement.
"COPYRIGHTS" are all copyright rights, applications or registrations
and like protections in each work or authorship or derivative work, whether
published or not (whether or not it is a trade secret) now or later existing,
created, acquired or held.
"CREDIT EXTENSION" is each Revolving Advance and each other extension
of credit or credit accommodation by Bank for Borrower's benefit.
"DEFAULT" shall mean any event or occurrence which with the passing of
time or the giving of notice or both would become an Event of Default hereunder.
"EFFECTIVE DATE" is the date Bank executes this Agreement.
"ELIGIBLE ACCOUNTS" are Accounts in the ordinary course of Borrower's
business that meet all Borrower's representations and warranties in Section 5.2;
but Bank may change eligibility standards by giving Borrower notice. Unless Bank
agrees otherwise in writing, Eligible Accounts will not include:
(a) Accounts that the account debtor has not paid within 90
days of invoice date;
(b) Accounts for an account debtor, 50% or more of whose
Accounts have not been paid within 90 days of invoice date;
(c) Credit balances over 90 days from invoice date;
(d) Accounts for an account debtor, including Affiliates,
whose total obligations to Borrower exceed 25% of all Accounts, for the amounts
that exceed that percentage, unless the Bank approves in writing;
-16-
<PAGE>
(e) Accounts for which the account debtor does not have its
principal place of business in the United States;
(f) Accounts for which the account debtor is a federal, state
or local government entity or any department, agency, or instrumentality, other
than for account debtor consisting of a hospital, as long as the Bank is able to
perfect its Lien therein through the filing of a UCC-1 financing statement in
the appropriate governmental filing office, provided Bank reserves the right to
make an Assignment of Claims filing, or other equivalent filing under any other
applicable filing or registration scheme, which Bank in its discretion may do;
(g) Accounts for which Borrower owes the account debtor, but
only up to the amount owed (sometimes called "contra" accounts, accounts
payable, customer deposits or credit accounts);
(h) Accounts for demonstration or promotional equipment, or in
which goods are consigned, sales guaranteed, sale or return, sale on approval,
bill and hold, or other terms if account debtor's payment may be conditional;
(i) Accounts for which the account debtor is Borrower's
Affiliate, officer, employee, or agent;
(j) Accounts in which the account debtor disputes liability or
makes any claim and Bank believes there may be a basis for dispute (but only up
to the disputed or claimed amount), or if the Account Debtor is subject to an
Insolvency Proceeding, or becomes insolvent, or goes out of business; and
(k) Accounts for which Bank reasonably determines collection
to be doubtful.
"ELIGIBLE INVENTORY" means Inventory that Bank deems acceptable, in its
discretion, for the purpose of making of Advances hereunder.
"EQUIPMENT" is all present and future machinery, equipment, tenant
improvements, furniture, fixtures, vehicles, tools, parts and attachments in
which Borrower has any interest.
"ERISA" is the Employment Retirement Income Security Act of 1974, and
its regulations.
"GAAP" is generally accepted accounting principles, consistently
applied.
"GUARANTOR" is any present or future guarantor of the Obligations.
"INCHOATE INDEMNITIES" shall mean indemnity obligations of the Borrower
hereunder for which no claim or applicable covered occurrence or event under any
applicable indemnity provision hereof has yet arisen, to the knowledge of Bank,
even though the indemnity provisions hereof shall continue to remain enforceable
contractual provisions with respect to any such potential claims or otherwise
regarding any such occurrences or events.
"INDEBTEDNESS" is (a) indebtedness for borrowed money or the deferred
price of property or services, such as reimbursement and other obligations for
surety bonds and letters of credit, (b) obligations evidenced by notes, bonds,
debentures or similar instruments, (c) capital lease obligations and (d)
Contingent Obligations.
-17-
<PAGE>
"INSOLVENCY PROCEEDING" are proceedings by or against any Person under
the United States Bankruptcy Code, or any other bankruptcy or insolvency law,
including assignments for the benefit of creditors, compositions, extensions
generally with its creditors, or proceedings seeking reorganization,
arrangement, or other relief.
"INTELLECTUAL PROPERTY" is:
(a) Copyrights, Trademarks, Patents, and Mask Works including
amendments, renewals, extensions, and all licenses or other rights to use and
all license fees and royalties from the use;
(b) Any trade secrets and any intellectual property rights in computer
software and computer software products now or later existing, created, acquired
or held;
(c) All design rights which may be available to Borrower now or later
created, acquired or held;
(d) Any claims for damages (past, present or future) for infringement
of any of the rights above, with the right, but not the obligation, to sue and
collect damages for use or infringement of the intellectual property rights
above;
All proceeds and products of the foregoing, including all insurance,
indemnity or warranty payments.
"INVENTORY" is present and future inventory in which Borrower has any
interest, including merchandise, raw materials, parts, supplies, packing and
shipping materials, work in process and finished products intended for sale or
lease or to be furnished under a contract of service, of every kind and
description now or later owned by or in the custody or possession, actual or
constructive, of Borrower, including inventory temporarily out of its custody or
possession or in transit and including returns on any accounts or other proceeds
(including insurance proceeds) from the sale or disposition of any of the
foregoing and any documents of title.
"INVESTMENT" is any beneficial ownership of (including stock,
partnership interest or other securities) any Person, or any loan, advance or
capital contribution to any Person.
"LIEN" is a mortgage, lien, deed of trust, charge, pledge, security
interest or other encumbrance.
"LOAN DOCUMENTS" are, collectively, this Agreement, any note, or notes
or guaranties or third party suretyship obligations in favor of Bank executed by
Borrower or other Persons, as applicable, and any other present or future
agreement between Borrower and/or for the benefit of Bank in connection with
this Agreement, all as amended, extended or restated.
"MASK WORKS" are all mask works or similar rights available for the
protection of semiconductor chips, now owned or later acquired.
"MATERIAL ADVERSE CHANGE" is described in Section 8.3.
"OBLIGATIONS" are debts, principal, interest, Bank Expenses and other
amounts Borrower owes Bank now or later, including cash management services,
letters of credit and foreign exchange contracts, if any and including interest
accruing after Insolvency Proceedings begin and debts, liabilities, or
obligations of Borrower assigned to Bank.
-18-
<PAGE>
"PATENTS" are patents, patent applications and like protections,
including improvements, divisions, continuations, renewals, reissues, extensions
and continuations-in-part of the same.
"PERMITTED INDEBTEDNESS" is:
(a) Borrower's indebtedness to Bank under this Agreement or any other
Loan Document;
(b) Indebtedness existing on the Closing Date and shown on the
Schedule;
(c) Subordinated Debt;
(d) Indebtedness to trade creditors incurred in the ordinary course of
business; and
(e) Indebtedness secured by Permitted Liens.
"PERMITTED INVESTMENTS" are:
(a) Investments shown on the Schedule and existing on the Closing Date,
provided that Investments in a Subsidiary shall be allowed in the ordinary
course of business and shall be consistent in manner, scope and magnitude as
made on and prior to the date hereof;
(b) (i) marketable direct obligations issued or unconditionally
guaranteed by the United States or its agency or any State maturing within 1
year from its acquisition, (ii) commercial paper maturing no more than 1 year
after its creation and having the highest rating from either Standard & Poor's
Corporation or Moody's Investors Service, Inc., and (iii) Bank's certificates of
deposit issued maturing no more than 1 year after issue;
(c) extensions of trade credit by Borrower or by any Subsidiary in the
ordinary course of business consistent with past business practices of Borrower
or Subsidiary, as applicable (provided that trade credit that Borrower supplies
to its Subsidiary shall in all cases be consistent with the standards set forth
in clause (a) hereof).
(d) Investments (including debt obligations) received in connection
with the bankruptcy or reorganization of suppliers and customers and in
settlement of delinquent obligations of and other disputes with, customers and
suppliers arising in the ordinary course of business;
(e) promissory notes acquired in connection with the disposition of
assets permitted under Sect ion 7.1; and
(f) Additional Investments in an aggregate amount not to exceed $50,000
at any time outstanding, provided that any such Investment may not be made while
a Default or an Event of Default has occurred and is continuing or would
otherwise arise upon the making thereof.
"PERMITTED LIENS" are:
(a) Liens existing on the Closing Date and shown on the Schedule or
arising under this Agreement or other Loan Documents;
(b) Liens for taxes, fees, assessments or other government charges or
levies, either not delinquent or being contested in good faith and for which
Borrower maintains adequate reserves on its Books, if they have no priority over
any of Bank's security interests;
-19-
<PAGE>
(c) Purchase money Liens (i) on Equipment acquired or held by Borrower
or its Subsidiaries incurred for financing the acquisition of the Equipment, or
(ii) existing on equipment when acquired, if the Lien is confined to the
property and improvements and the proceeds of the equipment;
(d) Non-exclusive licenses or non-exclusive sublicenses granted in the
ordinary course of Borrower's business and, with respect to any licenses where
Borrower is the licensee, any interest or title of a licensor or under any such
license or sublicense, if the licenses and sublicenses permit granting Bank a
security interest;
(e) Leases or subleases entered into in the ordinary course of
Borrower's business, including in connection with Borrower's leased premises or
leased property;
(f) Liens incurred in the extension, renewal or refinancing of the
indebtedness secured by Liens described in (a) through (c), but any extension,
renewal or replacement Lien must be limited to the property encumbered by the
existing Lien and the principal amount of the indebtedness may not increase;
(g) carriers', warehousemen's, mechanics', materialmen's, repairmen's,
worker's compensation, employment insurance, social security or other similar
Liens relating to statutory obligations arising in the ordinary course of
business which are not delinquent or remain payable without penalty or which are
being contested in good faith and by appropriate proceedings (provided, however,
that such appropriate proceedings do not involve any substantial danger of the
sale, forfeiture or loss of any material item of Collateral or Collateral which
in the aggregate is material to Borrower and that Borrower has adequately bonded
such Lien or reserves sufficient to discharge such Lien have been provided on
the books of Borrower)
(h) Liens arising from judgments, decrees or attachments which do not
constitute an Event of Default;
(i) easements, rights-of-way, restrictions, minor defects or
irregularities in title and other similar charges or encumbrances not
interfering in any material respect with the ordinary conduct of the business of
Borrower; and
(j) banker's Liens, rights of setoff and similar Liens incurred on
deposits made in the ordinary course of business, subject, however, in each case
to the provisions of any account control agreement entered into by and between
Bank and the depository institution with respect to any such deposits and
accounts.
"PERSON" is any individual, sole proprietorship, partnership, limited
liability company, joint venture, company association, trust, unincorporated
organization, association, corporation, institution, public benefit corporation,
firm, joint stock company, estate, entity or government agency.
"PRIME RATE" is Bank's most recently announced "prime rate," even if it
is not Bank's lowest rate.
"RESPONSIBLE OFFICER" is each of the Chief Executive Officer, the
President, the Chief Financial Officer and the Controller of Borrower.
"REVOLVING ADVANCE" or "REVOLVING ADVANCES" is a loan advance (or
advances) under the Committed Revolving Line.
"REVOLVING MATURITY DATE" is December 31, 2004.
-20-
<PAGE>
"RIGHTS", as applied to the Collateral, means the Borrower's rights and
interests in, and powers with respect to, that Collateral, whatever the nature
of those rights, interests and powers and, in any event, including Borrower's
power to transfer rights in such Collateral to Bank.
"SCHEDULE" is any attached schedule of exceptions.
"SUBORDINATED DEBT" is debt incurred by Borrower subordinated to
Borrower's indebtedness owed to Bank and which is reflected in a written
agreement in a manner and form acceptable to Bank and approved by Bank in
writing.
"SUBSIDIARY" is for any Person, or any other business entity of which
more than 50% of the voting stock or other equity interests is owned or
controlled, directly or indirectly, by the Person or one or more Affiliates of
the Person. As used herein, Subsidiary shall mean a Subsidiary of the Borrower.
"TANGIBLE NET WORTH" is, on any date, the book value of Borrower minus
the aggregate amounts attributable to intangible items plus Subordinated Debt.
"TRADEMARKS" are trademark and servicemark rights, registered or not,
applications to register and registrations and like protections, and the entire
goodwill of the business of Assignor connected with the trademarks.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized representatives as of the date first above
written.
BORROWER:
VASCULAR SOLUTIONS, INC.
By:
--------------------------------
Title:
-----------------------------
BANK:
SILICON VALLEY BANK
By:
--------------------------------
Title:
-----------------------------
Effective Date: __________________________
-21-
<PAGE>
EXHIBIT A
The Collateral consists of all of Borrower's right, title and interest
in and to the following personal property of Borrower:
All goods and equipment now owned or hereafter acquired, including,
without limitation, all machinery, fixtures, vehicles (including motor vehicles
and trailers), and any interest in any of the foregoing, and all attachments,
accessories, accessions, replacements, substitutions, additions, and
improvements to any of the foregoing, wherever located;
All inventory, now owned or hereafter acquired, including, without
limitation, all merchandise, raw materials, parts, supplies, packing and
shipping materials, work in process and finished products including such
inventory as is temporarily out of Borrower's custody or possession or in
transit and including any returns upon any accounts or other proceeds, including
insurance proceeds, resulting from the sale or disposition of any of the
foregoing and any documents of title representing any of the above;
All contract rights and general intangibles now owned or hereafter
acquired, including the Intellectual Property (as defined below) only, however,
to the extent and subject to the limitations set forth in the Exclusion Clause
(as defined below);
All now existing and hereafter arising accounts, contract rights,
payment intangibles, royalties, license rights and all other forms of
obligations owing to Borrower arising out of the sale or lease of goods, the
licensing of technology or the rendering of services by Borrower, whether or not
earned by performance, and any and all credit insurance, guaranties, and other
security therefor, as well as all merchandise returned to or reclaimed by
Borrower;
All documents, cash, deposit accounts, securities, securities
entitlements, securities accounts, investment property, financial assets,
letters of credit, letter-of-credit rights, commercial tort claims, certificates
of deposit, instruments and chattel paper now owned or hereafter acquired and
Borrower's Books relating to the foregoing; and
All Borrower's Books relating to the foregoing and any and all claims,
rights and interests in any of the above and all substitutions for, additions
and accessions to and proceeds thereof.
Notwithstanding the foregoing, the Collateral shall not include any
Intellectual Property, provided that if a judicial authority (including a U.S.
Bankruptcy Court) holds that a security interest in the underlying Intellectual
Property is necessary to have a security interest in such items that are
proceeds of the Intellectual Property consisting of payment intangibles,
accounts, license revenues, or general intangibles relating to rights to payment
arising therefrom or relating thereto, then in such circumstance, the Collateral
shall automatically, and effective as of the Closing Date, include the
Intellectual Property only to the extent necessary to permit perfection of
Bank's security interest in such proceeds, including, without limitation,
payment intangibles, accounts, license revenues, or general intangibles relating
to rights to payment (the foregoing is referred to herein collectively as the
"Exclusion Clause").
Further, Borrower and Bank are parties to that certain Negative Pledge
Agreement, whereby Borrower, in connection with Bank's loans, has agreed, among
other things, not to sell, transfer, assign, mortgage, pledge, lease, grant a
security interest in, or encumber, any of its Intellectual Property, without the
Bank's prior written consent, other than as may be permitted thereunder or
hereunder.
<PAGE>
The term "Intellectual Property" as used herein shall mean the
following: Borrower's right, title or interest, whether now owned or hereafter
acquired, in and to any intellectual property rights of Borrower of any nature
or character, including without limitation, and whether domestic or foreign, the
following: (i) any copyrights and copyright applications, whether registered or
unregistered, copyright registration and like protection in each work of
authorship and derivative work thereof, whether published or unpublished, and
whether said copyrights are statutory or arise under common law, and all rights,
claims and demands in any way related to any such copyrights or works, including
any rights to sue for past, present or future infringement, and any rights of
renewal and extension of copyrights; (ii) any patents, patent applications,
patent rights and like protections and any licenses relating to any of the
foregoing, and any improvements, divisions, continuations, renewals, reissues,
extensions and continuations-in-part thereof and any rights to sue for past
present or future infringement thereof and any rights arising therefrom and
pertaining thereto; (iii) any state (including common law), federal and foreign
trademarks, service marks and trade names, and applications for registration of
such trademarks, service marks and trade names, and any licenses relating to any
of the foregoing, whether registered or unregistered and wherever registered,
any rights to sue for past, present or future infringement of unconsented use
thereof, all rights arising therefrom and pertaining and any reissues,
extensions and renewals thereof and the goodwill of the business of Borrower
connected with and symbolized by any of the foregoing; (iv) any trade secrets,
trade dress, trade styles, logos, other source of business identifiers,
mask-works, mask-work registrations or mask-work applications, integrated
circuit masks, software, circuit designs and documentation relating thereto, and
the goodwill of the business of Borrower connected with and symbolized by any of
the foregoing, including, without limitation, any rights to unpatented
inventions, know-how, and operating manuals, including any rights to sue for
past, present or future infringement or unconsented use thereof, all rights
arising therefrom and pertaining thereto, provided that with respect to any and
all of the foregoing, the term "Intellectual Property" shall not include any
proceeds thereof (other than proceeds in the direct form of Intellectual
Property) and specifically, without limitation, and regardless of any of the
foregoing, the term "Intellectual Property" shall NOT include any payment
intangibles, accounts, license revenues, or general intangibles relating to
rights to payment arising therefrom or relating thereto
2
<PAGE>
EXHIBIT B
LOAN PAYMENT/ADVANCE REQUEST FORM
DEADLINE FOR SAME DAY PROCESSING IS 12:00 P.S.T.
<TABLE>
<CAPTION>
FAX TO: 952-593-9248 DATE: _____________________________
<S> <C>
* LOAN PAYMENT:
From Account #__________________________ To Account #________________________________
(Deposit Account #) (Loan Account #)
Principal $_____________________________ and/or Interest $____________________________________________
All Borrower's representation and warranties in the Loan and Security Agreement are true, correct and complete in all material
respects to on the date of the telephone transfer request for and advance, but those representations and warranties expressly
referring to another date shall be true, correct and complete in all material respects as of such date:
AUTHORIZED SIGNATURE: _____________________________________________ Phone Number: ____________________________________________
* LOAN ADVANCE:
COMPLETE OUTGOING WIRE REQUEST SECTION BELOW IF ALL OR A PORTION OF THE FUNDS FROM THIS LOAN ADVANCE ARE FOR AN OUTGOING WIRE.
From Account #__________________________ To Account #________________________________
(Loan Account #) (Deposit Account #)
Amount of Advance $ ____________________
All Borrower's representation and warranties in the Loan and Security Agreement are true, correct and complete in all material
respects to on the date of the telephone transfer request for and advance, but those representations and warranties expressly
referring to another date shall be true, correct and complete in all material respects as of such date:
AUTHORIZED SIGNATURE: _____________________________________________ Phone Number: _____________________________________________
* OUTGOING WIRE REQUEST
COMPLETE ONLY IF ALL OR A PORTION OF FUNDS FROM THE LOAN ADVANCE ABOVE ARE TO BE WIRED.
Deadline for same day processing is 12:00pm, P.S.T.
Beneficiary Name: ________________________________ Amount of Wire: $___________________________
Beneficiary Bank: ________________________________ Account Number: ____________________________
City and Sate: ___________________________________
Beneficiary Bank Transit (ABA) #: __ __ __ __ __ __ __ __ Beneficiary Bank Code (Swift, Sort, Chip, etc.): ____
(FOR INTERNATIONAL WIRE ONLY)
Intermediary Bank: _______________________________ Transit (ABA) #: ____________________________________
For Further Credit to: _________________________________________________________________________________________
Special Instruction: ___________________________________________________________________________________________
BY SIGNING BELOW, I (WE) ACKNOWLEDGE AND AGREE THAT MY (OUR) FUNDS TRANSFER REQUEST SHALL BE PROCESSED IN ACCORDANCE WITH AND
SUBJECT TO THE TERMS AND CONDITIONS SET FORTH IN THE AGREEMENTS(S) COVERING FUNDS TRANSFER SERVICE(S), WHICH AGREEMENTS(S) WERE
PREVIOUSLY RECEIVED AND EXECUTED BY ME (US).
Authorized Signature: ____________________________ 2nd Signature (If Required): _______________________________________
Print Name/Title: ________________________________ Print Name/Title:___________________________________________________
Telephone # ______________________________________ Telephone # ________________________________________________________
</TABLE>
<PAGE>
EXHIBIT C
BORROWING BASE CERTIFICATE
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Borrower: Vascular Solutions, Inc. Bank: Silicon Valley Bank
------------------------ 3003 Tasman Drive
Santa Clara, CA 95054
Commitment Amount: $3,000,000
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ACCOUNTS RECEIVABLE
1. Accounts Receivable Book Value as of____ $_______________
2. Additions (please explain on reverse) $_______________
3. TOTAL ACCOUNTS RECEIVABLE $_______________
ACCOUNTS RECEIVABLE DEDUCTIONS (without duplication)
4. Amounts over 90 days due $_______________
5. Balance of 50% over 90 day accounts $_______________
6. Credit balances over 90 days $_______________
7. Concentration Limits $_______________
8. Foreign Accounts $_______________
9. Governmental Accounts $_______________
10. Contra Accounts $
11. Promotion or Demo Accounts $_______________
12. Intercompany/Employee Accounts $_______________
13. Other (please explain on reverse) $_______________
14. TOTAL ACCOUNTS RECEIVABLE DEDUCTIONS $_______________
15. Eligible Accounts (#3 minus #14) $_______________
16. LOAN VALUE OF ACCOUNTS (75% of #15) $_______________
INVENTORY
16a TOTAL INVENTORY $_______________
16b Inventory Deductions $_______________
16c Eligible Inventory (16a minus 16b) $_______________
16d LOAN VALUE OF INVENTORY $_______________
(25% of #16c, not to exceed the lesser of 33% of #16 or $1MM)
BALANCES
17. Maximum Loan Amount $_______________
18. Total Funds Available [Lesser of #17 or (#16 plus #16d)] $_______________
19. Present balance owing on Line of Credit $_______________
20. Outstanding under Sublimits, if any Sublimits are in effect $_______________
21. RESERVE POSITION (#18 minus #19 and #20) $_______________
THE UNDERSIGNED REPRESENTS AND WARRANTS THAT THIS IS TRUE, COMPLETE AND CORRECT, AND THAT THE INFORMATION IN THIS BORROWING BASE
CERTIFICATE COMPLIES WITH THE REPRESENTATIONS AND WARRANTIES IN THE LOAN AND SECURITY AGREEMENT BETWEEN THE UNDERSIGNED AND SILICON
VALLEY BANK.
------------------------
COMMENTS: | BANK USE ONLY |
| ------------- |
Vascular Solutions, Inc. | Rec'd By: ____________ |
| Auth. Signer |
| Date: ________________ |
By: _________________________ | Verified: ____________ |
Title: | Auth. Signer |
| Date: ________________ |
| |
------------------------
</TABLE>
<PAGE>
EXHIBIT D
COMPLIANCE CERTIFICATE
<TABLE>
<CAPTION>
TO: SILICON VALLEY BANK
3003 Tasman Drive
Santa Clara, CA 95054
FROM: VASCULAR SOLUTIONS, INC.
The undersigned authorized officer of VASCULAR SOLUTIONS, INC. ("Borrower") certifies that under the terms and conditions
of the Loan and Security Agreement between Borrower and Bank (the "Agreement"), (i) Borrower is in complete compliance for the
period ending _______________ with all required reporting and financial covenants as set forth in Section 6.2 and 6.7 of the
Agreement, respectively, except as noted below and (ii) all representations and warranties as set forth in the Agreement are true
and correct in all material respects on this date. Attached are the required documents supporting the certification. The Officer
certifies that these are prepared in accordance with Generally Accepted Accounting Principles (GAAP) consistently applied from one
period to the next e xcept as explained in an accompanying letter or footnotes and subject to normal year end audit adjustments for
interim financial statements. The Officer acknowledges that no borrowings may be requested at any time or date of determination that
Borrower is not in compliance with any of the terms of the Agreement regarding the making of loans as more fully set forth in
Sections 3.1 and 3.2 thereof, as applicable, and that compliance is determined on an ongoing basis and not just at the date this
certificate is delivered.
PLEASE INDICATE COMPLIANCE STATUS BY CIRCLING YES/NO UNDER "COMPLIES" COLUMN.
<S> <C> <C>
REPORTING COVENANT REQUIRED COMPLIES
- ------------------ -------- --------
Monthly financial statements + CC Monthly within 30 days Yes No
Annual (Audited) FYE within 90 days Yes No
A/R & A/P Agings (by invoice date) Monthly * within 30 days Yes No
Inventory Report Monthly * within 30 days Yes No
A/R Audit Initial and Annually Yes No
Borrowing Base Certificate Monthly * within 30 days Yes No
Annual Projections Prior to start of new fiscal year Yes No
* Quarterly when not borrowing
FINANCIAL COVENANT REQUIRED ACTUAL COMPLIES
- ------------------ -------- ------ --------
As of month end:
ss. 6.7(i): Minimum Tangible Net Worth $8,000,000 $_________ Yes No
ss. 6.7(ii): Minimum Liquidity Coverage 1.25:1.00 _____:1.00 Yes No
------------------------------------
COMMENTS REGARDING EXCEPTIONS: See Attached. | BANK USE ONLY |
Sincerely, | Receivedd By: ____________________ |
| AUTHORIZED SIGNER |
Vascular Solutions, Inc. | Date: ________________ |
| Verified: ____________ |
By: _________________________ | AUTHORIZED SIGNER |
Title: | Date: ________________ |
Date: | Compliance Status: Yes No |
| |
| |
| |
------------------------------------
</TABLE>
<PAGE>
Schedule to Loan and Security Agreement
---------------------------------------
The exact correct corporate name of Borrower is (attach a copy of the formation
documents, E.G., articles, partnership agreement): Vascular Solutions, Inc.
Borrower's State of formation: Minnesota
Borrower has operated under only the following other names (if none, so state):
None
All other address at which the Borrower does business are as follows (attach
additional sheets if necessary and include all warehouse addresses): See
Representations and Warranties dated December 10, 2003.
Borrower has deposit accounts and/or investment accounts located only at the
following institutions: See Representations and Warranties dated December 10,
2003.
List Acct. Numbers: See Representations and Warranties dated December 10, 2003.
Liens existing on the Closing Date and disclosed to and accepted by Bank in
writing:
None.
Investments existing on the Closing Date and disclosed to and accepted by Bank
in writing:
Vascular Solutions, GmbH - Balances as of Novemer 30, 2003 - Investment in
Subsidiary $21,347, Intercompany receivable $1,429,955, Intercompany Note
Receivable $154,350
Subordinated Debt:
Indebtedness on the Closing Date and disclosed to and consented to by Bank in
writing:
None.
The following is a list of the Borrower's copyrights (including copyrights of
software) which are registered with the United States Copyright Office. (Please
include name of the copyright and registration number and attach a copy of the
registration): No list. We copyright all marketing materials in the normal
course of business.
The following is a list of all software which the Borrower sells, distributes or
licenses to others, which is not registered with the United States Copyright
Office. (Please include versions which are not registered:
None.
The following is a list of all of the Borrower's patents which are registered
with the United States Patent Office. (Please include name of the patent and
registration number and attach a copy of the registration.): _See patent and
trademark sheet.
The following is a list of all of the Borrower's patents which are pending with
the United States Patent Office. (Please include name of the patent and a copy
of the application.): See patent and trademark sheet.
The following is a list of all of the Borrower's registered trademarks. (Please
include name of the trademark and a copy of the registration.): See patent and
trademark sheet.
Borrower is not subject to litigation which would have a material adverse effect
on the Borrower's financial condition, except the following (attach additional
comments, if needed): See Diomed suit.
Tax ID Number: 41-1859679
Organizational Number, if any: 9L-421
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-14
<SEQUENCE>4
<FILENAME>vasc041035_ex14.txt
<TEXT>
EXHIBIT 14
VASCULAR SOLUTIONS, INC.
CODE OF BUSINESS CONDUCT AND ETHICS
Vascular Solutions is committed to high standards of legal and ethical
business conduct. This Code of Business Conduct and Ethics summarizes the legal,
ethical and regulatory standards that Vascular Solutions imposes upon its
business conduct and is a reminder to our directors, officers and employees, of
the seriousness of that commitment. Compliance with this Code is required for
every Vascular Solutions employee. While this Code imposes additional and
specific internal requirements on the Company and the directors, officers and
employees of Vascular Solutions, in no manner is this Code intended to create
any additional legal obligations for either the company or its employees. The
Company reserves the right to amend this Code at any time.
INTRODUCTION
Our business is becoming increasingly complex, both in terms of the
geographies in which we function and the laws with which we must comply. To help
you understand what is expected of you and to carry out your responsibilities,
we have created this Code of Business Conduct and Ethics. Additionally, we have
designated the Vice President of Regulatory Affairs as the Company's Ethics
Officer to oversee adherence to the Code.
This Code is not intended to be a comprehensive guide to all of our
policies or to all your responsibilities under law or regulation. It provides
general parameters to help you resolve the ethical and legal issues you
encounter in conducting our business. Think of this Code as a guideline, or a
minimum requirement, that must always be followed. If you have any questions
about anything in the Code or appropriate actions in light of the Code, you may
contact the Ethics Officer or the Chair of the Audit Committee.
We expect each of our directors, officers and employees to read and
become familiar with the ethical standards described in this Code and to affirm
your agreement to adhere to these standards by signing the Compliance
Certificate that appears at the end of this Code. Violations of the law, our
corporate policies, or this Code may lead to disciplinary action, including
immediate dismissal.
I. WE INSIST ON HONEST AND ETHICAL CONDUCT BY ALL OF OUR DIRECTORS,
OFFICERS, EMPLOYEES AND OTHER REPRESENTATIVES
We have built our business based on a commitment to delivering
excellence in vascular medical products -- not only quality vascular products
for physicians that improve the lives of patients, but also quality employees
and representatives who adhere to high standards of honesty, ethics and fairness
in our dealings with all of our business contacts. We place a high value on the
integrity of our directors, our officers and our employees and demand this level
of integrity in
<PAGE>
all our dealings. We insist on not only ethical dealings with others, but on the
ethical handling of actual or apparent conflicts of interest between personal
and professional relationships.
FAIR DEALING
You are required to deal honestly and fairly with our customers,
suppliers, competitors and other third parties.
We market our products fairly and vigorously based on our honesty,
creativity and ingenuity and the proven quality and reliability of the products.
Serving our customers effectively is our most important goal--in the eyes of the
customer you are Vascular Solutions. In our dealings with customers, suppliers,
and governmental regulatory bodies we:
o prohibit bribes, kickbacks or any other form of improper
payment, direct or indirect, to any representative of
government, labor union, customer or supplier in order to
obtain a contract, some other commercial benefit or government
action;
o prohibit our directors, officers and employees from accepting
any bribe, kickback or improper payment from anyone;
o prohibit gifts or favors of more than nominal value to or from
our customers or suppliers;
o limit marketing and client entertainment expenditures to those
that are necessary, prudent, job-related and consistent with
our policies;
o require clear and precise communication in our contracts, our
advertising, our literature, our public statements, and our
statements to government officials and seek to eliminate
misstatement of fact or misleading impressions;
o reflect accurately on all invoices to customers the sale price
and terms of sales for products sold;
o protect all proprietary data our customers or suppliers
provide to us as reflected in our agreements with them;
o prohibit our representatives from otherwise taking unfair
advantage of our customers or suppliers, or other third
parties, through manipulation, concealment, abuse of
privileged information or any other unfair-dealing practice.
CONFLICTS OF INTEREST; CORPORATE OPPORTUNITIES
Our directors, officers and employees should not be involved in any
activity that creates or gives the appearance of a conflict of interest between
their personal interests and the interests
2
<PAGE>
of Vascular Solutions. In particular, without the specific permission of our
Ethics Officer or the Board of Directors, no director, officer or employee
shall:
o be a consultant to, or a director, officer or employee of, or
otherwise operate an outside business that:
>> markets products in competition with our current or
potential products;
>> supplies products or services to Vascular Solutions;
or
>> purchases products from Vascular Solutions;
o have any financial interest, including significant stock
ownership, in any entity with which we do business that might
create or give the appearance of a conflict of interest;
o seek or accept any personal loan or services from any entity
with which we do business, except from financial institutions
or service providers offering similar loans or services to
third parties under similar terms in the ordinary course of
their respective businesses;
o be a consultant to, or a director, officer or employee of, or
otherwise operate an outside business if the demands of the
outside business would interfere with the director's,
officer's or employee's responsibilities to us, (if in doubt,
consult your supervisor or the Ethics Officer);
o accept any personal loan or guarantee of obligations from
Vascular Solutions, except to the extent such arrangements are
legally permissible; or
o conduct business on behalf of Vascular Solutions with
immediate family members, which include spouses, children,
parents, siblings and persons sharing the same home whether or
not legal relatives.
Directors, officers, and employees must notify the Ethics Officer or the Chair
of our Audit Committee of the existence of any actual or potential conflict of
interest.
CONFIDENTIALITY AND CORPORATE ASSETS
Our directors, officers and employees are entrusted with our
confidential information and with the confidential information of our suppliers,
customers or other business partners. This information may include (1) technical
or scientific information about current and future products, services or
research, (2) business or marketing plans or projections, (3) earnings and other
internal financial data, (4) personnel information, (5) supply and customer
lists and (6) other non-public information that, if disclosed, might be of use
to our competitors, or harmful to our suppliers, customers or other business
partners. This information is our property, or the property of our suppliers,
customers or business partners and in many cases was developed at great expense.
Our directors, officers and employees shall:
3
<PAGE>
o Not discuss confidential information with or in the presence
of any unauthorized persons, including family members and
friends;
o Use confidential information only for our legitimate business
purposes and not for personal gain;
o Not disclose confidential information to third parties.
o Not use Vascular Solutions property or resources for any
personal benefit or the personal benefit of anyone else.
Vascular Solutions property includes the Vascular Solutions
internet, email, and voicemail services, which should be used
only for business related activities, and which may be
monitored by Vascular Solutions at any time without notice.
Please see your employment agreement or confidentiality agreement to review all
responsibilities in this area.
II. WE PROVIDE FULL, FAIR, ACCURATE, TIMELY AND UNDERSTANDABLE DISCLOSURE
We are committed to providing our shareholders and investors with full,
fair, accurate, timely and understandable disclosure in the reports that we file
with the Securities and Exchange Commission. To this end, our directors,
officers and employees shall:
o not make false or misleading entries in our books and records
for any reason;
o not condone any undisclosed or unrecorded bank accounts or
assets established for any purpose;
o comply with generally accepted accounting principles at all
times;
o notify our Director of Finance if there is an unreported
transaction;
o maintain a system of internal accounting controls that will
provide reasonable assurances to management that all
transactions are properly recorded;
o maintain books and records that accurately and fairly reflect
our transactions;
o prohibit the establishment of any undisclosed or unrecorded
funds or assets;
o maintain a system of internal controls that will provide
reasonable assurances to our management that material
information about Vascular Solutions is made known to
management, particularly during the periods in which our
periodic reports are being prepared;
o present information in a clear and orderly manner and avoid
the use of unnecessary legal and financial language in our
periodic reports; and
4
<PAGE>
o not communicate to the public any nonpublic information except
through our Director of Finance or Chief Executive Officer.
III. WE COMPLY WITH ALL LAWS, RULES AND REGULATIONS
We will comply with all laws and governmental regulations that are
applicable to our activities, and expect all our directors, officers and
employees to obey the law. Specifically, we are committed to:
o complying with all applicable state and federal securities
laws;
o complying with all applicable state, federal and international
laws concerning the manufacture, distribution and sale of
medical device including those concerning:
* reporting and investigating complaints and adverse
events which may be associated with our products
* the design, manufacture and evaluation of our
products
o complying with all applicable laws designed to protect the
confidentiality of patient records and health information;
o maintaining a safe and healthy work environment;
o promoting a workplace that is free from discrimination,
intimidation, or harassment based on race, color, religion,
sex, age, national origin or disability;
o the principles of fair competition and laws prohibiting
restraints of trade and other unfair trade practices by
prohibiting inaccurate or misleading representation of
competitors' operations or products or obtaining, through
improper means, confidential commercial information concerning
our competitors;
o conducting our activities in full compliance with all
applicable environmental laws;
o keeping the political activities of our directors, officers
and employees separate from our business;
o prohibiting any illegal payments, gifts, or gratuities to any
government officials or political party;
o prohibiting the unauthorized use, reproduction, or
distribution of any third party's trade secrets, copyrighted
information or confidential information; and
o prohibiting the sale or export, either directly or through our
representatives, of our products to countries where our
products are not approved for sale.
5
<PAGE>
Our directors, officers and employees are prohibited from trading our
securities while in possession of material, nonpublic ("INSIDE") information
about Vascular Solutions. Our Insider Trading Policy describes the nature of
inside information and the related restrictions on trading.
REPORTING AND EFFECT OF VIOLATIONS
Compliance with this code of conduct is, first and foremost, the
individual responsibility of every director, officer and employee. We attempt to
foster a work environment in which ethical issues and concerns may be raised and
discussed with supervisors or with others without the fear of retribution. It is
our responsibility to provide a system of reporting and access when you wish to
report a suspected violation, or to seek counseling, and the normal chain of
command cannot, for whatever reason, be used.
ADMINISTRATION
Our Board of Directors and Audit Committee have established the
standards of business conduct contained in this Code and oversees compliance
with this Code. They have also designated the Vice President of Regulatory
Affairs to the position of Ethics Officer to ensure adherence to the Code. While
serving in this capacity, the Ethics Officer reports directly to the Board of
Directors.
Training on this code will be included in the orientation of new
employees and provided to existing directors, officers, and employees on an
on-going basis. To ensure familiarity with the Code, directors, officers, and
employees may be asked to read the Code and sign a Compliance Certificate
periodically.
REPORTING VIOLATIONS AND QUESTIONS
Directors, officers, and employees must report, in person or in
writing, any known or suspected violations of laws, governmental regulations or
this Code to either the Ethics Officer or the Chair of the Audit Committee of
our Board of Directors. Additionally, directors, officers, and employees may
contact the Ethics Officer or the Chair of the Audit Committee with a question
or concern about this Code or a business practice. Any questions or violation
reports will be addressed immediately and seriously, and can be made
anonymously. If you feel uncomfortable reporting suspected violations to these
individuals, you may report matters to Dorsey & Whitney LLP, our outside legal
counsel. The names, addresses and telephone numbers of these individuals are
listed in the attachment to this Code.
WE WILL NOT ALLOW ANY RETALIATION AGAINST A DIRECTOR, OFFICER OR
EMPLOYEE WHO ACTS IN GOOD FAITH IN REPORTING ANY VIOLATION.
Our Ethics Officer will investigate any reported violations and will
determine an appropriate response, including corrective action and preventative
measures, involving the Chair of the Audit Committee or Chief Executive Officer
when required. All reports will be treated confidentially to every extent
possible.
6
<PAGE>
CONSEQUENCES OF A VIOLATION.
Directors, officers and employees that violate any laws, governmental
regulations or this Code will face appropriate, case specific disciplinary
action, which may include demotion or immediate discharge.
7
<PAGE>
NAMES AND ADDRESSES (AS OF JULY 1, 2003)
REPORTING CONTACTS:
ETHICS OFFICER: THE CHAIR OF OUR AUDIT COMMITTEE:
Name: Deborah Jensen Name: Richard Nigon
Address: 6464 Sycamore Court Address: 920 Second Avenue South
Minneapolis, MN 55369 Minneapolis, MN 55402
Phone: (763) 656-4349 Phone: (612) 341-6250
E-mail: [email protected] E-mail: [email protected]
ADDITIONAL REPORTING CONTACT:
OUR OUTSIDE COUNSEL:
DORSEY & WHITNEY LLP
Name: Tim Hearn
Address: 50 South Sixth Street
Suite 1500
Minneapolis, MN 55402
Phone: (612) 340-7802
E-mail: [email protected]
8
<PAGE>
COMPLIANCE CERTIFICATE
I have read and understand the Vascular Solutions Code of Business
Conduct and Ethics (the "CODE") and agree to adhere in all respects to the
ethical standards described in the Code. I understand that this Code does not
contain all of Vascular Solutions' policies and that I understand that any
violation of the Code will subject me to appropriate disciplinary action, which
may include demotion or immediate discharge.
I certify to Vascular Solutions that I am not in violation of the Code,
unless I have noted such violation in a signed Statement of Exceptions attached
to this Compliance Certificate.
Date: __________________________________ ___________________________________
Name: _____________________________
Title/Position:____________________
CHECK ONE OF THE FOLLOWING:
|_| A Statement of Exceptions is attached.
|_| No Statement of Exceptions is attached.
9
<PAGE>
VASCULAR SOLUTIONS
CORPORATE COMPLIANCE PROGRAM
REPORTING FORM
Date of Report: ___________________________
Please state the nature of your concern and describe the event or circumstance
giving rise to this compliance report. Please be as specific as possible.
Attach extra sheets if more space is required.
This form may be submitted anonymously. While supplying your name may assist in
the investigation of your report, you are under no obligation to disclose your
identity. It is an explicit violation of Vascular Solutions policies to
retaliate in any way against an employee or officer who in good faith reports
any actual or potential violation of applicable laws, rules, regulations, or
corporate policies and procedures. Please submit the completed form to either
the Ethics Officer or the Chairman of the Ethics Committee. If you wish to
provide your name, please do so below.
________________________________________________________________________________
Name Phone Number
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-21
<SEQUENCE>5
<FILENAME>vasc041035_ex21.txt
<TEXT>
EXHIBIT 21
SUBSIDIARIES
Vascular Solutions, GmbH (Germany)
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-23.1
<SEQUENCE>6
<FILENAME>vasc041035_ex23-1.txt
<TEXT>
EXHIBIT 23.1
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statement (Form
S-8 No. 333-54164) of our report dated January 16, 2004, with respect to the
consolidated financial statements of Vascular Solutions, Inc. included in the
Annual Report (Form 10-K) for the year ended December 31, 2003.
Our audits also included the financial statement schedule of Vascular Solutions,
Inc. listed in Item 15(a). This schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion based on our audits. In
our opinion, the financial statement schedule referred to above, when considered
in relation to the basic financial statements taken as a whole, presents fairly
in all material respects the information set forth therein.
Ernst & Young LLP
Minneapolis, Minnesota
February 26, 2004
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-31
<SEQUENCE>7
<FILENAME>vasc041035_ex31-1.txt
<TEXT>
EXHIBIT 31.1
CERTIFICATIONS
I, Howard Root, certify that:
1. I have reviewed this annual report on Form 10-K of Vascular Solutions,
Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of
a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
(a) designed such disclosure controls and procedures or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in
which this report is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures as of the end
of the period covered by this report based on such evaluation; and
(c) disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's
most recent fiscal quarter (the registrant's fourth fiscal quarter in
the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting; and
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of the registrant's board
of directors (or persons performing the equivalent functions):
(a) all significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
<PAGE>
(b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
control over financial reporting.
Date: February 19, 2004 By: /s/ Howard Root
-----------------------
Howard Root
CHIEF EXECUTIVE OFFICER
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-31
<SEQUENCE>8
<FILENAME>vasc041035_ex31-2.txt
<TEXT>
EXHIBIT 31.2
CERTIFICATIONS
I, James Hennen, certify that:
1. I have reviewed this annual report on Form 10-K of Vascular Solutions,
Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of
a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
(a) designed such disclosure controls and procedures or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in
which this report is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures as of the end
of the period covered by this report based on such evaluation; and
(c) disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's
most recent fiscal quarter (the registrant's fourth fiscal quarter in
the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting; and
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of the registrant's board
of directors (or persons performing the equivalent functions):
(a) all significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
<PAGE>
(b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
control over financial reporting.
Date: February 19, 2004 By: /s/ James Hennen
-----------------------
James Hennen
CHIEF FINANCIAL OFFICER
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-32
<SEQUENCE>9
<FILENAME>vasc041035_ex32-1.txt
<TEXT>
EXHIBIT 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. ss. 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Vascular Solutions, Inc. (the "Company")
on Form 10-K for the period ended December 31, 2003, as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), I, Howard
Root, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C.
ss. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
that, to the best of my knowledge:
1. The Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations
of the Company.
/s/ Howard Root
------------------------------------------
Howard Root
Chief Executive Officer
February 19, 2004
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-32
<SEQUENCE>10
<FILENAME>vasc041035_ex32-2.txt
<TEXT>
EXHIBIT 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. ss. 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Vascular Solutions, Inc. (the "Company")
on Form 10-K for the period ended December 31, 2003, as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), I, James
Hennen, Chief Financial Officerr of the Company, certify, pursuant to 18 U.S.C.
ss. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
that, to the best of my knowledge:
1. The Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations
of the Company.
/s/ James Hennen
------------------------------------------
James Hennen
Chief Financial Officer
February 19, 2004
</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
-----END PRIVACY-ENHANCED MESSAGE-----
