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<SEC-DOCUMENT>0000897101-05-000384.txt : 20050210
<SEC-HEADER>0000897101-05-000384.hdr.sgml : 20050210
<ACCEPTANCE-DATETIME>20050210170044
ACCESSION NUMBER: 0000897101-05-000384
CONFORMED SUBMISSION TYPE: 10-K
PUBLIC DOCUMENT COUNT: 10
CONFORMED PERIOD OF REPORT: 20041231
FILED AS OF DATE: 20050210
DATE AS OF CHANGE: 20050210
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: 05593847
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>vasc050575_10k.htm
<TEXT>
<HTML>
<HEAD>
<TITLE>Vascular Solutions, Inc. Form 10-K dated December 31, 2004</TITLE></HEAD>
<BODY>
<BR><BR><BR><BR>
<HR SIZE=3 COLOR=BLACK NOSHADE>
<BR>
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<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=4><B>UNITED STATES
<BR>SECURITIES AND EXCHANGE COMMISSION </b></FONT>
<BR><FONT FACE="Times New Roman, Times, Serif" SIZE=2><b>WASHINGTON, D.C. 20549 </b></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 style=margin-left:160pt;><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>(MARK ONE)</B> </FONT> </P>
<TABLE WIDTH=500 CELLPADDING=0 CELLSPACING=0 align=center>
<TR VALIGN=TOP>
<TD WIDTH=5%> <FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>[X]</B> </FONT> </TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=90%><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>
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<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>For the fiscal year ended December 31, 2004 </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>
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<TABLE WIDTH=500 CELLPADDING=0 CELLSPACING=0 align=center>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>[ ]</B> </FONT> </TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=90%><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>
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<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>For the transition period from __________________ to ________________</B> </FONT> </P>
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<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Commission file number: 0-27605 </FONT></P>
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<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 or other jurisdiction<BR>of incorporation or organization)</FONT></TD>
<TD ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(IRS Employer Identification No.)<BR> </FONT></TD></TR>
</TABLE>
<BR>
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<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, including zip code) </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 area 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>Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes [X] No [ ] </FONT></P>
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<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, 2004 was $118,383,145.
</FONT></P>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>As of February 4, 2005, the number of shares outstanding of the
registrant’s common stock was 14,352,547. </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 2005 Annual Meeting
of Shareholders to be held on April 19, 2005 are incorporated by reference in Part III of this Annual Report on Form 10-K.
</FONT></P>
<HR SIZE=3 COLOR=BLACK NOSHADE>
<BR>
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<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>
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<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> Vascular Solutions, Inc. (we,
us or Vascular) is a medical device company focused on bringing clinically advanced solutions to interventional cardiologists and
interventional radiologists worldwide. We were incorporated in the state of Minnesota in December 1996, and we began operations in
February 1997. Our current product line consists of the following medical devices: </FONT></P>
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<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=2%><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=93%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>D-Stat Dry™ hemostatic bandage, a topical pad with a bandage used to control surface bleeding, </FONT></TD>
</TR>
</TABLE>
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<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=2%><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=93%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Pronto™ extraction catheter, a mechanical system for the
removal of soft thrombus from arteries, </FONT></TD>
</TR>
</TABLE>
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<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=2%><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=93%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Vari-Lase® endovenous laser, a laser and procedure kit used
for the treatment of varicose veins, </FONT></TD>
</TR>
</TABLE>
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<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=2%><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=93%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Duett™ sealing device, used to seal the puncture site
following catheterization procedures, </FONT></TD>
</TR>
</TABLE>
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<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=2%><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=93%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>D-Stat® Flowable hemostat, a thick, yet flowable, mixture used
to control bleeding, </FONT></TD>
</TR>
</TABLE>
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<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=2%><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=93%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Langston™ dual lumen pigtail catheter, used to measure
intravascular pressure gradients, </FONT></TD>
</TR>
</TABLE>
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<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=2%><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=93%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>MAX-Support™ abdominal retraction belt, used to allow femoral
access in obese patients, and </FONT></TD>
</TR>
</TABLE>
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<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=2%><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=93%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>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 Large Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> We currently 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 2005 in the United States include the following medical devices: </FONT></P>
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<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=2%><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=93%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Skyway™ exchange catheter and the SideKick™ dual access
catheter, both specialty-purpose catheters designed for interventional cardiology which address market opportunities we estimate
at between $1 million and $5 million per year. </FONT></TD>
</TR>
</TABLE>
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<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=2%><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=93%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>D-Stat Foam™ hemostat, a resorbable version of our D-Stat Dry
which we expect to launch in 2005 with a limited topical indication, and expect to expand to a much broader surgical indication by
the end of 2006. This resorbable version of the D-Stat Dry addresses a market in excess of $100 million annually for a surgical
thrombin-based resorbable pad hemostat. </FONT></TD>
</TR>
</TABLE>
<BR>
<!-- MARKER FORMAT-SHEET="Head Major Left Bold" FSL="Default" -->
<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Interventional Cardiology and Interventional Radiology Industry Background </FONT></H1>
<!-- 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 nine million diagnostic and interventional
catheterization procedures worldwide in 2004. 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 2004 exceeded $5 billion
worldwide. </FONT></P>
<BR>
<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2</FONT></P>
<HR SIZE=3 COLOR=GRAY NOSHADE>
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<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. In addition to our Duett sealing device, three other invasive sealing
devices have received FDA approval and are currently being marketed around the world. In the aggregate, over $380 million of the
five FDA-approved invasive sealing devices were sold worldwide in 2004, 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 annually. </FONT></P>
<!-- MARKER FORMAT-SHEET="Head Major Left Bold" FSL="Default" -->
<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>D-Stat Dry and D-Stat Radial Hemostat Products </FONT></H1>
<!-- MARKER FORMAT-SHEET="Para Large 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 and 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 $40 million in 2004.
</FONT></P>
<!-- MARKER FORMAT-SHEET="Para Large Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> We believe that the D-Stat
Dry has many potential uses beyond this initial application, and to date, we have developed four variations of our D-Stat Dry
— the D-Stat 2Dry, the D-Stat Clamp, the D-Stat Radial and the D-Stat Dry 3x3. The D-Stat 2 Dry is a convenient 2-bandage
version of the D-Stat Dry used in the dialysis market. The D-Stat Clamp utilizes our D-Stat Dry pad and is configured for
attachment to standard compression devices. </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Large 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 </FONT></P>
<BR>
<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>3 </FONT></P>
<HR SIZE=3 COLOR=GRAY NOSHADE>
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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>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>
<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> At the end of the first
quarter of 2004 we received regulatory clearance in the United States for the D-Stat Dry 3x3 bandage. The 3x3 version of the
D-Stat Dry, which is designed for use in trauma indications, continues to proceed through clinical evaluations and discussions
with potential corporate distribution partners. The 3x3 version of the D-Stat Dry is a bandage that does not require mixing or
special storage requirements and it can be quickly applied to even severely bleeding wounds. During the fourth quarter of 2004, we
advanced discussions with two potential corporate partners that have expressed an interest in branding and distributing this
product for us on an exclusive or non-exclusive basis, pending further due diligence and negotiations. We also have conducted
clinical evaluations at 11 U.S. trauma centers and four U.S. military operations in Iraq that requested the product directly from
us. To date, we have received feedback on approximately 60 successful deployments, with no adverse events reported, all from the
U.S. trauma centers. </FONT></P>
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<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Pronto Extraction Catheter </FONT></H1>
<!-- MARKER FORMAT-SHEET="Para Large 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 large extraction lumen that can be delivered into arteries to
mechanically remove blood clots using simple vacuum suction. 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. In the fourth quarter of 2004 we completed development work on the third generation design of the Pronto, called the Pronto
V3, which we expect to launch in the United States in the third quarter of 2005. We believe this new version of the Pronto
incorporates several improvements that physicians have requested, and we believe there will be a very substantial boost to our
Pronto sales starting in the fourth quarter of 2005. We believe that the market size for the removal of soft thrombus is greater
than $100 million per year worldwide. </FONT></P>
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<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Vari-Lase Endovenous Laser Products </FONT></H1>
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<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 United States 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. During
the fourth quarter of 2004 the Center for Medicare and Medicaid Services (CMS) published the Medicare Physicians Fee Schedule
which established favorable reimbursement rates for the endoveneous laser procedure starting January 1, 2005. Private insurance
also has continued its favorable trend with coverage decisions which have caused more physicians to add this procedure to their
practice. We believe the current U.S. market size for treating varicose veins using endovenous therapy is greater than $60 million
per year. </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Large 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. During 2004 we developed and commenced sales of our Auto-Fill™ syringe and Vari-Lase procedure
packs as accessory products to the Vari-Lase product line. The Auto-Fill </FONT></P>
<BR>
<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>4 </FONT></P>
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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>syringe is an easy fluid delivery system for tumescent local anesthesia. The
Vari-Lase Procedure Pack is a complete sterile pack of accessories designed for endovenous laser procedures. 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 used in other interventional medical procedures. </FONT></P>
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<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Duett Sealing Device </FONT></H1>
<!-- 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 procoagulant 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> 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>
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<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>D-Stat Flowable Hemostat </FONT></H1>
<!-- 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 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. </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 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. In December 2004 we completed enrollment in a 268 patient
clinical study of the use of the D-Stat Flowable in the hemostasis of prepectoral pockets created in pacemaker and defibrillator
implantations. We expect that follow-up should be completed in this “Pocket Protector” clinical study and, assuming
satisfactory data, the PMA will be submitted to the FDA by the middle of 2005. We estimate that the U.S. market opportunity for
this prepectoral pocket indication is greater than 100,000 </FONT></P>
<BR>
<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>5 </FONT></P>
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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>procedures (or $10 million) annually. We also believe that the D-Stat
Flowable has application for use 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>
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<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Langston Dual Lumen Pigtail Catheter </FONT></H1>
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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> At the end of the third
quarter of 2004 we received regulatory clearance in the United States for the Lanston dual lumen pigtail catheter. The Langston
catheter is used for the precise measurement of intravascular pressure gradients, primarily measured to diagnose aortic valve
stenosis. We believe our Langston catheter is the only dual lumen pigtail catheter on the U.S. market that can be used for this
intended indication. </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Our first configuration of
the Langston catheter is in an 8 French size. Due to customer requests, we have recently submitted our 510(k) application for a
smaller 7 French size of the product that we expect will be launched during the second quarter of 2005, and we have prototyped a 6
French size that we believe we could have on the U.S. market by the end of 2005. We believe the U.S. market potential for all of
the Langston catheter product line is $10 million annually. </FONT></P>
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<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>MAX-Support abdominal retraction belt </FONT></H1>
<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> During the first quarter of
2005 we launched the MAX-Support abdominal retraction belt. This product is a tape-free retraction system to expose the femoral
artery puncture site in obese patients. Nationwide, approximately 7% of catheterization laboratory patients require taping of
their belly apron to allow visualization of the femoral crease for the purpose of gaining access for the catheterization. The
Max-Support belt is a tape-free alternative that avoids the discomfort, inefficiencies and time involved in the current practice
of taping. We believe the market potential for the MAX-Support belt is approximately $1 million annually with no existing
competition. </FONT></P>
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<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Acolysis Ultrasound Thrombolysis System </FONT></H1>
<!-- 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. </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 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 eight 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 have 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. We are in the process of working on our next generation Acolysis
ultrasound thrombolysis system. Once we complete our improvement on the current system we will plan and structure a clinical study
in the United States 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 2007. </FONT></P>
<BR>
<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>6 </FONT></P>
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<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Business Strategy </FONT></H1>
<!-- 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. The key steps in achieving our primary objective are the following: </FONT></P>
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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=2%><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=93%><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 knowledge and training are key
factors 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>
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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=2%><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=93%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><I>Expand our Existing Products to Our Existing
Market.</I> Since the end of 2002 we have received clearance for a total of five new product lines to be sold in
the United States through our existing direct sales force to our existing markets. Each of these product lines has generated
material sales, and we believe that each of these product lines has the potential to generate even more sales during 2005 and
beyond. </FONT></TD>
</TR>
</TABLE>
<BR>
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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=2%><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=93%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><I>Develop New Devices to be Sold 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. During 2005 we expect to launch three new product lines in the U.S. – the Skyway
exchange catheter, the SideKick dual access catheter and the D-Stat Foam hemostat, with additional products being developed for an
expected 2006 launch. </FONT></TD>
</TR>
</TABLE>
<BR>
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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=2%><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=93%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><I>Explore Corporate Relationships to Augment our Direct Sales
Force.</I> In markets for our products beyond the interventional physician (such as the trauma market for our
D-Stat Dry 3x3 product) 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>
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<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Sales, Marketing and Distribution </FONT></H1>
<!-- 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,
2004, our direct sales force consisted of approximately 57 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 is 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
strategy, our sales force is clinically trained and is able 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>
<BR>
<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>7 </FONT></P>
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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Our international sales and
marketing strategy has been to sell to interventional cardiologists and interventional radiologists through established
independent distributors in major international markets, subject to required regulatory approvals. In Germany, we created our
wholly-owned subsidiary Vascular Solutions GmbH to sell directly to customers in the German market beginning in the fourth quarter
of 2000. In most of the other major developed markets our products are currently marketed through independent distributors. 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 directly
competitive products. 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="Head Major Left Bold" FSL="Default" -->
<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>New Product Development </FONT></H1>
<!-- 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 $3,400,864 in 2004, $3,670,935 in 2003 and
$3,227,538 in 2002 for research and development activities. To further leverage our efficiencies, 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> In addition to our normal
research and development expenses, in the fourth quarter of 2004 we incurred $210,069 in thrombin qualification expenses relating
to our project to qualify a new source of thrombin. On October 18, 2004, we entered into a supply agreement with Sigma-Aldrich
Fine Chemicals, an operating division of Sigma-Aldrich, Inc. (Sigma) for the supply of thrombin for use in our hemostatic
products. The Sigma contract is the start of our plan to fully qualify a new source of thrombin and to bring the new thrombin
through the regulatory process over the next two years. We expect our total estimated expenditures will be $6.1 million to
complete this project, including the costs associated with the Sigma agreement. Of the total expenditures, we expect approximately
$3.3 million will be for development expenses, $0.3 million will be for capital equipment and $2.5 million will be for the
purchase of inventory of thrombin. The purchase of the $2.5 million in thrombin is expected to be used in our hemostatic products
beginning in 2007. Following the qualification of the Sigma thrombin, we believe we can launch several additional new
thrombin-based surgical products into the existing $200 million annual U.S. thrombin market, which currently has only one
competitor. </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="Head Major Left Bold" FSL="Default" -->
<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Manufacturing </FONT></H1>
<!-- 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 most recently in April 2004 for compliance with the FDA’s quality
systems regulations with no deficiencies noted. In March 2003 we moved to our current facility, and the FDA approved our new
facility in May 2003, also with no deficiencies noted. </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 </FONT></P>
<BR>
<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>8 </FONT></P>
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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>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.
As a result of the favorable price provisions in our current thrombin supply agreement, we expect to increase our inventory of
thrombin by approximately $3 million during the second and third quarters of 2005, which we believe will be sufficient for all of
our thrombin requirements through the end of 2006. 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 entails 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="Head Major Left Bold" FSL="Default" -->
<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Competition </FONT></H1>
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<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 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 D-Stat Dry hemostatic
bandage competes in the noninvasive topical patch market segment of sealing devices. 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>
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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=2%><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=93%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The Syvek™ Patch, manufactured and marketed by Marine Polymer Technologies, Inc. </FONT></TD>
</TR>
</TABLE>
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<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=2%><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=93%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The Closur-P.A.D.™, manufactured by Scion Cardiovascular and distributed by Medtronic, Inc. </FONT></TD>
</TR>
</TABLE>
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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=2%><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=93%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The Chito-Seal™, distributed by Abbott Vascular, Inc. a division of Abbott Laboratories </FONT></TD>
</TR>
</TABLE>
<BR>
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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> The Pronto extraction
catheter competes in the market segment for removal of thrombus 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>
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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> We are aware of five
companies that sell a product for the endovenous laser treatment of varicose veins. These companies are AngioDynamics, biolitec,
Dornier MedTech, CoolTouch and Diomed. Each of these companies’ products contain the same components for the therapy but
differ in procedural training, laser wavelength, custom-designed features and customer support. In addition, VNUS Medical
Technologies sells a radiofrequency alternative to the laser for the treatment of varicose veins. </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>
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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=2%><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=93%><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>
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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=2%><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=93%><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>
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<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=2%><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=93%><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>
<BR>
<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>9 </FONT></P>
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<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> 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>
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<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Regulatory Requirements </FONT></H1>
<!-- MARKER FORMAT-SHEET="Head Left" FSL="Default" -->
<P ALIGN=LEFT><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 Cosmetic Act. The FDA classifies medical devices
into one of three classes based upon controls the FDA considers necessary to reasonably ensure their safety and effectiveness.
Class I devices are subject to general controls such as labeling, 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 PMA 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 </FONT></P>
<BR>
<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>10 </FONT></P>
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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>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>
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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Our D-Stat Flowable, D-Stat
Dry, D-Stat Radial, D-Stat Clamp, Pronto, Langston Catheter 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. We received FDA
clearance for these products in the following months: </FONT></P>
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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=2%><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=93%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>D-Stat Flowable hemostat – February 2002 </FONT></TD>
</TR>
</TABLE>
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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=2%><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=93%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>D-Stat Dry hemostatic bandage – September 2003 </FONT></TD>
</TR>
</TABLE>
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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=2%><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=93%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>D-Stat Radial hemostat band – September 2003 </FONT></TD>
</TR>
</TABLE>
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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=2%><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=93%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Vari-Lase endovenous laser products – June & November
2003 </FONT></TD>
</TR>
</TABLE>
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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=2%><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=93%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Pronto extraction catheter – January 2004 </FONT></TD>
</TR>
</TABLE>
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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=2%><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=93%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>D-Stat Dry 3x3 – March 2004 </FONT></TD>
</TR>
</TABLE>
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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=2%><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=93%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>D-Stat Clamp accessory – June 2004 </FONT></TD>
</TR>
</TABLE>
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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=2%><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=93%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Langston dual lumen pigtail catheter – September 2004
</FONT></TD>
</TR>
</TABLE>
<BR>
<!-- 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, issue a recall, stop future violations and assess civil and
criminal penalties against us, our officers and our employees. </FONT></P>
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<P ALIGN=LEFT><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>
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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=2%><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=93%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>D-Stat Flowable hemostat – November 2001 </FONT></TD>
</TR>
</TABLE>
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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=2%><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=93%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Pronto extraction catheter – June 2003 </FONT></TD>
</TR>
</TABLE>
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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=2%><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=93%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>D-Stat Dry and D-Stat Radial hemostats – September 2003
</FONT></TD>
</TR>
</TABLE>
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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=2%><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=93%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Vari-Lase endovenous laser procedure kit – December 2003
</FONT></TD>
</TR>
</TABLE>
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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=2%><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=93%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Acolysis probe internal manufacturing – November 2003
</FONT></TD>
</TR>
</TABLE>
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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=2%><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=93%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Acolysis controller internal manufacturing – January 2005
</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 Pronto extraction catheter for commercial sale in Japan, which we expect will be completed in the first half of 2005.
</FONT></P>
<BR>
<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>11 </FONT></P>
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<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Third Party Reimbursement </FONT></H1>
<!-- 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.
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="Head Major Left Bold" FSL="Default" -->
<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Patents and Intellectual Property </FONT></H1>
<!-- 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 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 five additional United States patents issued and
seven additional patents pending concerning new versions of our Duett sealing device, our Pronto catheter, our Langston dual lumen
pigtail catheter, our MAX-Support abdominal retraction belt 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, one of our competitors in the endovenous laser therapy market (Diomed) has brought five
separate intellectual property lawsuits against its competitors, including two against us. The interpretation of patents </FONT></P>
<BR>
<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>12 </FONT></P>
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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>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>
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<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>
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<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,” “MAX-Support,” “Langston,” “SideKick,” “Skyway,” 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>
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<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Employees </FONT></H1>
<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> As of December 31, 2004, we
had 144 full time employees. Of these employees, 32 were in manufacturing activities, 72 were in sales and marketing activities,
12 were in research and development activities, 17 were in regulatory, quality assurance and clinical research activities and 11
were in general and administrative functions. We have never had a work stoppage and none of our employees are covered by
collective bargaining agreements. We believe our employee relations are good. </FONT></P>
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<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Executive Officers of the Registrant </FONT></H1>
<!-- 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 4, 2005 are as follows: </FONT></P>
<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 ALIGN=Center WIDTH=600>
<TR VALIGN=Bottom>
<TH COLSPAN=2 align=left><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Name </FONT><HR WIDTH=14% SIZE=1 COLOR=BLACK NOSHADE></TH>
<TH COLSPAN=1><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Age </FONT><HR SIZE=1 COLOR=BLACK NOSHADE></TH><TH></TH>
<TH COLSPAN=1 align=left><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Position </FONT><HR WIDTH=10% SIZE=1 COLOR=BLACK NOSHADE></TH></TR>
<TR VALIGN=Bottom>
<TD WIDTH=26% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Howard Root</FONT></TD>
<TD WIDTH=6% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=2% ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>44</FONT></TD>
<TD WIDTH=6% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=58% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Chief Executive Officer and Director</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>Michael Nagel</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>42</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>Vice President of Sales and Secretary</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>Deborah Neymark</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>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>Vice President of Regulatory Affairs</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>James Quackenbush</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>46</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>Vice President of Manufacturing</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>Gregg Sutton</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </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> </FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Vice President of Research and Development</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>James Hennen</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>32</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>Chief Financial Officer</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
</TABLE>
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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> <B><I>Howard Root</I></B> 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>
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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> <B><I>Michael Nagel</I></B>
has served as our Vice President of Sales 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 </FONT></P>
<BR>
<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>13 </FONT></P>
<HR SIZE=3 COLOR=GRAY NOSHADE>
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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>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>
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<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>
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<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>Gregg Sutton</I></B>
joined us as our Vice President of Research & Development in October 2004. Prior to joining us, Mr. Sutton served as Vice
President of Research & Development with AtriTech, Inc., a development stage interventional medical device company since
January 2000. From 1998 to 2000, he was Vice President of Research & Development of AngioGuard, Inc., an interventional
medical device company that was acquired by Johnson & Johnson in 2000. In 1990 Mr. Sutton co-founded Navarre Biomedical, Inc.,
a manufacturer of interventional radiology products that was acquired by CR Bard in 1997. Prior to 1990 Mr. Sutton held product
engineering positions at St. Jude Medical, Claris Medical and Daig Corporation. Mr. Sutton received a B.S. in Mechanical
Engineering from the University of Minnesota. </FONT></P>
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<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>
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<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Available Information </FONT></H1>
<!-- MARKER FORMAT-SHEET="Para Large Indent" 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 10-Q, 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>
<BR><BR><BR><BR><BR><BR>
<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>14 </FONT></P>
<HR SIZE=3 COLOR=GRAY NOSHADE>
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<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>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 and 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 we may require additional space for our expanding operations before the expiration of this lease. We believe that
there is suitable space available in the local market (although not in our current facility) at reasonable rates that are
available to us if we need expansion space prior to the end of our lease. </FONT></P>
<!-- MARKER FORMAT-SHEET="Head Major Left Bold" FSL="Default" -->
<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>ITEM 3. LEGAL PROCEEDINGS </FONT></H1>
<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 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 device, 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 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>
<!-- 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 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 our Vari-Lase endovenous laser procedure kit we
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 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. Our insurance carrier has accepted their tender of this claim and is
defending this lawsuit. It is not possible to predict the timing or outcome of this 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> On March 4, 2004, we were
named as the defendant in an intellectual property lawsuit brought by Diomed, Inc. in the United States District Court for the
District of Massachusetts. The complaint requested a judgment that our Vari-Lase procedure kit and Vari-Lase laser console
infringe on a single patent held by Diomed, Inc. and asked for relief in the form of an injunction that would prevent us from
selling our Vari-Lase products, compensatory and treble damages caused by the manufacture and sale of our product, and other
costs, disbursements and attorneys’ fees. 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. It is not possible to predict the timing
or outcome of this litigation, including whether it will affect our ability to sell our Vari-Lase products, or to estimate the
amount or range of potential loss, if any. </FONT></P>
<BR>
<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>15 </FONT></P>
<HR SIZE=3 COLOR=GRAY NOSHADE>
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<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="Head Major Left Bold" FSL="Default" -->
<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS </FONT></H1>
<!-- 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 quarter ended December 31, 2004. </FONT></P>
<BR><BR><BR><BR><BR><BR><BR><BR><BR><BR><BR><BR><BR><BR><BR><BR><BR><BR>
<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>16 </FONT></P>
<HR SIZE=3 COLOR=GRAY NOSHADE>
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<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>PART II </FONT></H1>
<!-- MARKER FORMAT-SHEET="Head Sub 1 Left" FSL="Default" -->
<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER
<BR> MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES </FONT></H1>
<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Our
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=50%>
<TR VALIGN=Bottom>
<TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
<TH COLSPAN=1><FONT FACE="Times New Roman, Times, Serif" SIZE=1>High </FONT><HR SIZE=1 COLOR=BLACK NOSHADE></TH><TH></TH>
<TH COLSPAN=1><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Low </FONT><HR SIZE=1 COLOR=BLACK NOSHADE></TH></TR>
<TR VALIGN=Bottom>
<TD WIDTH=52% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>2004</B> </FONT></TD>
<TD WIDTH=8% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=10% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
<TD WIDTH=18% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=10% 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> First Quarter</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>10.690</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>5.090</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=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>14.740</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>8.900</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=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>11.100</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>7.000</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> Fourth Quarter</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>10.750</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>7.730</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR><TD> </TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>2003</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=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> First Quarter</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1.160</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>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=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2.280</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>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=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>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> Fourth Quarter</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>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>5.100</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
</TABLE>
<BR>
<!-- MARKER FORMAT-SHEET="Head Major Left Bold" FSL="Default" -->
<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Holders </FONT></H1>
<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> As of December 31, 2004, we
had 181 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="Head Major Left Bold" FSL="Default" -->
<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Dividends </FONT></H1>
<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> We have paid no cash
dividends on our common stock, and do not intend to pay cash dividends on our common stock in the future. </FONT></P>
<!-- MARKER FORMAT-SHEET="Head Major Left Bold" FSL="Default" -->
<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>ITEM 6. SELECTED FINANCIAL DATA </FONT></H1>
<!-- 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, 2004 and 2003 and for the three years ended December 31, 2004, 2003 and 2002 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, 2002, 2001 and 2000 and for the fiscal years ended December 31, 2001 and 2000 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><BR><BR><BR><BR><BR><BR><BR>
<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><BR>
<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=14><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Year Ended December 31,</FONT><HR 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=2><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2004 </FONT><HR SIZE=1 COLOR=BLACK NOSHADE></TH><TH></TH>
<TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2003 </FONT><HR SIZE=1 COLOR=BLACK NOSHADE></TH><TH></TH>
<TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2002 </FONT><HR SIZE=1 COLOR=BLACK NOSHADE></TH><TH></TH>
<TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2001 </FONT><HR SIZE=1 COLOR=BLACK NOSHADE></TH><TH></TH>
<TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2000 </FONT><HR 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=14><FONT FACE="Times New Roman, Times, Serif" SIZE=1>(in thousands, except per share amounts) </FONT></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> 22,265</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=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></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>6,608</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=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></TR>
<TR>
<TD COLSPAN=3></TD>
<TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#000000 SIZE=1></TD><TD></TD>
<TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#000000 SIZE=1></TD><TD></TD>
<TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#000000 SIZE=1></TD><TD></TD>
<TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#000000 SIZE=1></TD><TD></TD>
<TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#000000 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>15,657</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=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></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>3,401</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=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></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>1,906</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=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></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>11,360</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=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></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>2,138</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=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></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Thrombin qualification</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>210</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=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> 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>—</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=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></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>218</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=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></TR>
<TR>
<TD COLSPAN=3></TD>
<TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#000000 SIZE=1></TD><TD></TD>
<TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#000000 SIZE=1></TD><TD></TD>
<TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#000000 SIZE=1></TD><TD></TD>
<TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#000000 SIZE=1></TD><TD></TD>
<TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#000000 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>19,233</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=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></TR>
<TR>
<TD COLSPAN=3></TD>
<TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#000000 SIZE=1></TD><TD></TD>
<TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#000000 SIZE=1></TD><TD></TD>
<TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#000000 SIZE=1></TD><TD></TD>
<TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#000000 SIZE=1></TD><TD></TD>
<TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#000000 SIZE=1></TD><TD></TD></TR>
<TR><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>(3,576</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(9,778</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
<TD ALIGN=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</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
<TD ALIGN=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</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(9,662</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>68</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=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></TR>
<TR>
<TD COLSPAN=3></TD>
<TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#000000 SIZE=1></TD><TD></TD>
<TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#000000 SIZE=1></TD><TD></TD>
<TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#000000 SIZE=1></TD><TD></TD>
<TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#000000 SIZE=1></TD><TD></TD>
<TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#000000 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>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> (3,508</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</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>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> (8,209</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR>
<TD COLSPAN=3></TD>
<TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#000000 SIZE=2></TD><TD></TD>
<TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#000000 SIZE=2></TD><TD></TD>
<TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#000000 SIZE=2></TD><TD></TD>
<TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#000000 SIZE=2></TD><TD></TD>
<TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#000000 SIZE=2></TD><TD></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Net loss per common share –</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Basic and diluted</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> (0.25</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
<TD ALIGN=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></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>13,952</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=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></TR>
<TR><TD> </TD></TR>
<TR VALIGN=Bottom>
<TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
<TH COLSPAN=14><FONT FACE="Times New Roman, Times, Serif" SIZE=1>As of December 31,</FONT><HR 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=2><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2004 </FONT><HR SIZE=1 COLOR=BLACK NOSHADE></TH><TH></TH>
<TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2003 </FONT><HR SIZE=1 COLOR=BLACK NOSHADE></TH><TH></TH>
<TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2002 </FONT><HR SIZE=1 COLOR=BLACK NOSHADE></TH><TH></TH>
<TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2001 </FONT><HR SIZE=1 COLOR=BLACK NOSHADE></TH><TH></TH>
<TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2000 </FONT><HR 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=14><FONT FACE="Times New Roman, Times, Serif" SIZE=1>(in thousands) </FONT></TH></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Balance Sheet Data:</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, cash equivalents 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> 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>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 7,184</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</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></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>11,833</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=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></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>16,822</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=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></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>13,690</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=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></TR>
</TABLE>
<BR>
<BR><BR><BR><BR><BR><BR><BR><BR><BR><BR><BR><BR>
<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>18 </FONT></P>
<HR SIZE=3 COLOR=GRAY NOSHADE>
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<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS </FONT></H1>
<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> The following discussion of
our financial condition and results of operations should be read in conjunction with our 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 our 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 we believe could cause actual results to differ materially from those contemplated by the
forward looking statements. </FONT></P>
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<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Overview </FONT></H1>
<!-- 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>
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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Since 2003, we have launched
four new interventional product categories: </FONT></P>
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<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=2%><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=93%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><I>D-Stat Dry Hemostatic Bandage.</I> We launched
this product in September 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>
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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=2%><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=93%><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>
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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=2%><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=93%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><I>Vari-Lase endovenous laser procedure kit and laser
console.</I> We launched the procedure kit in the third quarter of 2003 and the laser console in the first
quarter of 2004. The Vari-Lase product is a treatment for superficial venous reflux, otherwise known as varicose veins.
</FONT></TD>
</TR>
</TABLE>
<BR>
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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=2%><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=93%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><I>Langston dual lumen pigtail catheter.</I> We
received regulatory clearance for this product in September 2004 and launched this product in the fourth quarter of 2004. The
Langston catheter is used to measure the precise measurement of aortic stenosis. </FONT></TD>
</TR>
</TABLE>
<BR>
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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> We believe these four
new recently launched product categories together with sales of our existing Duett, D-Stat Flowable and Acolysis products, will
result in continued substantial revenue growth in the range of $35 million to $40 million for 2005. We also believe that these new
products will increase our gross margin percent to approximately 71% to 73% during 2005. </FONT></P>
<!-- MARKER FORMAT-SHEET="Head Major Left Bold" FSL="Default" -->
<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Results of Operations </FONT></H1>
<!-- MARKER FORMAT-SHEET="Head Left" FSL="Default" -->
<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B><I>Year ended December 31, 2004 compared to year ended December 31, 2003</I></B> </FONT> </P>
<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Net sales increased to
$22,265,000 for the year ended December 31, 2004 from $11,804,000 for the year ended December 31, 2003. Approximately 89% of our
net sales for the year ended December 31, 2004 were to customers in the United States and 11% of the net sales were to customers
in international markets. Net sales by product category were as follows: </FONT></P>
<BR>
<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>19 </FONT></P>
<HR SIZE=3 COLOR=GRAY NOSHADE>
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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=2%><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=93%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Net sales of the D-Stat Dry were $8,831,000 for the year ended
December 31, 2004 compared to $1,085,000 for the year ended December 31, 2003. Our D-Stat Dry product was launched at the end of
the third quarter of 2003. Through December 31, 2004, we have sold our D-Stat Dry to 574 of the estimated 3,000 cardiac and
interventional radiology labs in the United States. </FONT></TD>
</TR>
</TABLE>
<BR>
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<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=2%><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=93%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Net sales of the Pronto were $3,051,000 for the year ended
December 31, 2004 compared to $97,000 for the year ended December 31, 2003. 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 have sold our Pronto to 450 accounts in the United States through December 31, 2004. </FONT></TD>
</TR>
</TABLE>
<BR>
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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=2%><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=93%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Net sales of Vari-Lase products were $2,662,000 for the year ended
December 31, 2004 compared to $255,000 for the year ended December 31, 2003. Our Vari-Lase procedure kit was launched during the
third quarter of 2003 and our Vari-Lase laser console was launched during the first quarter of 2004. We have sold our Vari-Lase
kits to 172 accounts in the United States through December 31, 2004. </FONT></TD>
</TR>
</TABLE>
<BR>
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<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=2%><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=93%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Net sales of our Duett sealing device were $5,973,000 for the year
ended December 31, 2004 compared to $8,995,000 for the year ended December 31, 2003. We expect Duett sales to continue to decline
at a rate of between 20% to 30%, year over year, as we continue to harvest this product and focus on our new higher margin
products. </FONT></TD>
</TR>
</TABLE>
<BR>
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<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=2%><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=93%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Net sales of D-Stat Flowable increased to $1,441,000 for the year
ended December 31, 2004 compared to $1,187,000 for the year ended December 31, 2003, a 21% increase. Our reorder rate for the
D-Stat Flowable in 2004 compared to 2003 has increased to 63% from 58%. </FONT></TD>
</TR>
</TABLE>
<BR>
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<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=2%><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=93%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Net sales of Langston dual lumen pigtail catheter were $133,000
for the year ended December 31, 2004 compared to no sales for the year ended December 31, 2003. In September 2004 we launched the
Langston dual lumen pigtail catheter. </FONT></TD>
</TR>
</TABLE>
<BR>
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<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=2%><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=93%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Net sales of Acolysis products were $174,000 for the year ended
December 31, 2004 compared to $185,000 for the year ended December 31, 2003. The Acolysis products are only sold in international
markets. </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 70% for the year ended December 31, 2004 from 61% for the year ended December 31, 2003. Our selling mix
continues to change to our higher margin products such as our D-Stat Dry which has gross margins greater than 80% and our Pronto
which has gross margins in excess of 75%. We expect gross margins to stabilize in 2005 to approximately 71% to 73%. </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Research and development
expenses decreased 7% to $3,401,000 for the year ended December 31, 2004 from $3,671,000 for the year ended December 31, 2003. The
decrease was related to less outside project spending in 2004 compared to 2003. We expect our research and development expenses to
be approximately $800,000 to $1,000,000 per quarter in 2005 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>
<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Clinical and regulatory
expenses increased 24% to $1,906,000 for the year ended December 31, 2004 from $1,536,000 for the year ended December 31, 2003.
The increase was the result of increased clinical study activity, increased FDA fees and increased number of employees compared to
2003. During 2004 our clinical studies consisted of the “Pocket Protector” study for a new indication of our D-Stat
Flowable product and the D-Stat Dry study to obtain clinical data to support growing sales of the D-Stat Dry. Clinical and
regulatory expenses fluctuate due to the timing of clinical and marketing studies. We expect clinical and regulatory expenses to
be approximately $500,000 to $600,000 per quarter in 2005. </FONT></P>
<BR>
<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>20 </FONT></P>
<HR SIZE=3 COLOR=GRAY NOSHADE>
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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Sales and marketing expenses
increased 18% to $11,360,000 for the year ended December 31, 2004 from $9,646,000 for the year ended December 31, 2003. The
increase in sales and marketing expenses is the direct result of our increase in our direct sales force to 57 employees at the end
of 2004 compared to 47 as of December 31, 2003. We expect to add approximately 10 field sales employees during 2005 to complete
our geographic coverage of the United States. As a result, we expect our sales and marketing expenses to increase to approximately
$3,200,000 to $3,500,000 per quarter in 2005. </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> General and administrative
expenses increased 10% to $2,138,000 for the year ended December 31, 2004 from $1,942,000 for the year ended December 31, 2003.
The increase was primarily the result of higher legal fees relating to the Diomed litigation (see “Legal Proceedings” in
Item 3 of Part I of this Form 10-K) along with higher business insurance in 2004 compared to 2003. We expect general and
administrative expenses to be approximately $550,000 to $650,000 per quarter in 2005. </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Thrombin qualification
project expenses were $210,000 for the year ended December 31, 2004 compared to no expenses for the year ended December 31, 2003.
We expect the total remaining expenses associated with our qualification of the new source of thrombin to be approximately $3.1
million to be incurred over the next two years, with approximately $1.8 million incurred in 2005 and $1.3 million incurred in
2006. </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Amortization of purchased
technology was $218,000 for the year ended December 31, 2004 and $218,000 for the year ended December 31, 2003. 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
$68,000 for the year ended December 31, 2004 from $150,000 for the year ended December 31, 2003 primarily as a result of lower
interest rates and lower cash balances. </FONT></P>
<!-- MARKER FORMAT-SHEET="Head Major Left Bold" FSL="Default" -->
<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Results of Operations </FONT></H1>
<!-- MARKER FORMAT-SHEET="Head Left" FSL="Default" -->
<P ALIGN=LEFT><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 $11,804,000 for the year ended December 31, 2003 from $12,101,000 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>
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<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=2%><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=93%><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 sold our D-Stat Dry to 187 of the estimated 3,000 cardiac and interventional radiology labs in the
United States. </FONT></TD>
</TR>
</TABLE>
<BR>
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<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=2%><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=93%><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. </FONT></TD>
</TR>
</TABLE>
<BR>
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<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=2%><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=93%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Net sales of Vari-Lase products 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.
</FONT></TD>
</TR>
</TABLE>
<BR>
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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=2%><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=93%><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. We expect Duett sales to continue to decline
at a rate of between 20% to 30%, year over year, as we continue to harvest this product. </FONT></TD>
</TR>
</TABLE>
<BR>
<BR>
<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>21 </FONT></P>
<HR SIZE=3 COLOR=GRAY NOSHADE>
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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=2%><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=93%><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 remained steady at 58%. </FONT></TD>
</TR>
</TABLE>
<BR>
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<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=2%><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=93%><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. </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%. </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 $3,671,000 for the year ended December 31, 2003 from $3,228,000 for the year ended December 31, 2002.
The increase was directly related to our increased activity in launching four new products in 2003 and the continued work on the
long term research and development projects. Research and development expenses 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 14% to $1,536,000 for the year ended December 31, 2003 from $1,348,000 for the year ended December 31, 2002.
The expected increase was the result of the approval of the four new products in the second half of 2003 as well as the
“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. </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 $9,646,000 for the year ended December 31, 2003 from $11,964,000 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 drove sales and provided
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. </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 $1,942,000 for the year ended December 31, 2003 from $2,167,000 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. </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 $218,000 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 Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Interest income decreased to $150,000 for the year ended December 31, 2003
from $507,000 for the year ended December 31, 2002 primarily as a result of a reduced cash balance and lower interest rates.
</FONT></P>
<BR>
<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>22 </FONT></P>
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<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Income Taxes </FONT></H1>
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<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>
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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> As of December 31, 2004, we
had net operating loss carryforwards of approximately $57,865,000 for U.S. federal income tax purposes that begin to expire in the
year 2013. As of December 31, 2004, we also had federal and state research and development tax credit carryforwards of
approximately $1,598,000 that begin to expire in the year 2013. As of December 31, 2004, we also had a foreign tax loss
carryforward of approximately $2,358,000 that do 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>
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<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Liquidity and Capital Resources </FONT></H1>
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<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, 2004, we have sold common stock and preferred stock generating aggregate net proceeds of approximately $76.6 million.
At December 31, 2004, we had $7,184,000 in cash, cash equivalents and available-for-sale securities on-hand compared to $5,885,000
at December 31, 2003. </FONT></P>
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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> During the year ended
December 31, 2004, we used $4,115,000 to fund operating activities. The cash used in operating activities was primarily used to
fund our net loss for the period of $3,508,000 and an increase in accounts receivable of $1,723,000, which was offset by
depreciation and amortization of $692,000. The increase in accounts receivable is due to the increase in sales of 89% in 2004 from
2003. During 2004 we generated proceeds of $2,120,000 in investing activities, primarily from the net sales of investment
securities of $3,020,000, offset by net equipment purchases of $900,000. Also during 2004 we generated $6,212,000 in financing
activities, primarily from $5,868,000 we received through the sale of common stock. On March 9, 2004, we sold 888,900 shares of
our common stock at an offering price of $6.75 per share through a private placement. Our net proceeds from the offering were
approximately $5,594,000. </FONT></P>
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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> During the fourth quarter of
2004, we renewed our credit facility with Silicon Valley Bank and increased the line of credit to $5.0 million. 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 $11.0 million and a liquidity coverage of not
less than 1.25 to 1.00. We were in compliance with these covenants at December 31, 2004. As of December 31, 2004, we had no
outstanding balance on the line of credit balance and the availability was $3.1 million. </FONT></P>
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<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 the second and third quarters of 2005, we intend to increase our purchases of thrombin to benefit from the
pricing provisions of the agreement, which we expect will increase our inventory of thrombin by approximately $3.0 million. We
believe that these purchases will satisfy our thrombin requirements for all of 2005 and 2006. </FONT></P>
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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> On October 18, 2004, we
entered into a supply agreement with Sigma-Aldrich Fine Chemicals, an operating division of Sigma-Aldrich, Inc. (Sigma) for the
supply of thrombin. Pursuant to the terms of the agreement, we will be paying for certain development costs of Sigma to allow
Sigma to produce thrombin. We will pay Sigma $570,000 for its development and qualification costs, $182,000 for capital equipment
and $1,725,000 for the first three lots of thrombin. The payments are based on certain milestones over a two year </FONT></P>
<BR>
<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>23 </FONT></P>
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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>period. We do not have any minimum purchase requirements under the contract;
however, if we purchase less than three lots of thrombin in any year Sigma will be released from its agreement not to sell
thrombin in or as a component of a hemostatic product for medical use, and Sigma will have the right to terminate the contract on
30 days notice. </FONT></P>
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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> The Sigma contract is the
start of our plan to fully qualify a new source of thrombin and to bring the new thrombin through the regulatory process by the
end of 2006. We expect total estimated expenditures of $6.1 million to complete this project (including the payments to Sigma),
with approximately $3.3 million in expenses, $0.3 million in capital equipment purchases and $2.5 million in thrombin inventory
purchases. We expect to utilize the thrombin inventory in sales of our hemostatic products starting in 2007. </FONT></P>
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<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 were 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 fulfilled this obligation during 2004. </FONT></P>
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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 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>
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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> The following table
summarizes our contractual cash commitments as of December 31, 2004: </FONT></P>
<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 WIDTH=100%>
<TR VALIGN=Bottom>
<TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
<TH COLSPAN=14><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Payments Due by Period</FONT></TH></TR>
<TR>
<TD COLSPAN=3></TD>
<TD COLSPAN=14 ALIGN=RIGHT><HR NOSHADE COLOR=#000000 SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
<TH COLSPAN=3 align=left><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Contractual Obligations</FONT></TH>
<TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Total</FONT></TH>
<TH COLSPAN=1><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
<TH COLSPAN=2 nowrap><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Less than<BR>1 year</FONT></TH>
<TH COLSPAN=1><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
<TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=1>1-3 years</FONT></TH>
<TH COLSPAN=1><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
<TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=1>4-5 years</FONT></TH>
<TH COLSPAN=1><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
<TH COLSPAN=2 nowrap><FONT FACE="Times New Roman, Times, Serif" SIZE=1>After<BR>5 years</FONT></TH></TR>
<TR>
<TD COLSPAN=2 ALIGN=left><HR NOSHADE COLOR=#000000 SIZE=1 width=50%></TD><TD></TD>
<TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#000000 SIZE=1></TD><TD></TD>
<TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#000000 SIZE=1></TD><TD></TD>
<TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#000000 SIZE=1></TD><TD></TD>
<TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#000000 SIZE=1></TD><TD></TD>
<TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#000000 SIZE=1></TD><TD></TD></TR>
<TR><td> </td></tr>
<TR VALIGN=Bottom>
<TD WIDTH=40% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif">Facility Operating Lease</FONT></TD>
<TD WIDTH=1% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif"> </FONT></TD>
<TD WIDTH=2% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif"> </FONT></TD>
<TD WIDTH=1% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif">$</FONT></TD><TD WIDTH=10% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif"> 1,345,000</FONT></TD>
<TD WIDTH=3% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif"> </FONT></TD>
<TD WIDTH=1% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif">$</FONT></TD><TD WIDTH=10% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif"> 345,000</FONT></TD>
<TD WIDTH=3% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif"> </FONT></TD>
<TD WIDTH=1% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif">$</FONT></TD><TD WIDTH=10% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif"> 1,000,000</FONT></TD>
<TD WIDTH=3% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif"> </FONT></TD>
<TD WIDTH=1% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif">$</FONT></TD><TD WIDTH=4% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif"> —</FONT></TD>
<TD WIDTH=3% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif"> </FONT></TD>
<TD WIDTH=1% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif">$</FONT></TD><TD WIDTH=4% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif"> —</FONT></TD>
<TD WIDTH=2% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif"> </FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif">Sigma Contract Commitment</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif"> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif"> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif"> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif">2,477,000</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif"> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif"> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif">2,388,000</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif"> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif"> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif">89,000</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif"> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif"> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif">—</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif"> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif"> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif">—</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif"> </FONT></TD></TR>
<TR>
<TD COLSPAN=3></TD>
<TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#000000 SIZE=1></TD><TD></TD>
<TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#000000 SIZE=1></TD><TD></TD>
<TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#000000 SIZE=1></TD><TD></TD>
<TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#000000 SIZE=1></TD><TD></TD>
<TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#000000 SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif">Total Contractual Cash Obligations</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif"> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif"> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif">$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif"> 3,822,000</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif"> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif">$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif"> 2,733,000</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif"> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif">$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif"> 1,089,000</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif"> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif">$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif"> —</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif"> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif">$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif"> —</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif"> </FONT></TD></TR>
<TR>
<TD COLSPAN=3></TD>
<TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#000000 SIZE=2></TD><TD></TD>
<TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#000000 SIZE=2></TD><TD></TD>
<TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#000000 SIZE=2></TD><TD></TD>
<TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#000000 SIZE=2></TD><TD></TD>
<TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#000000 SIZE=2></TD><TD></TD></TR>
</TABLE>
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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Principally due to the
thrombin inventory purchases and the Sigma thrombin qualification project, we currently anticipate that we will continue to
experience a negative cash flow until at least the fourth quarter of 2005, at which time we project that we will become cash flow
neutral. We currently believe that our working capital of $11.8 million, anticipated cash from product sales and, if needed, our
$5.0 million credit facility with Silicon Valley Bank will be sufficient to meet our operating and capital requirements until we
reach cash flow neutral in the fourth quarter of 2005. 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; the cost and progress or our thrombin qualification efforts; and other
factors. </FONT></P>
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<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>
<BR>
<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>24 </FONT></P>
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<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Critical Accounting Policies </FONT></H1>
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<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>
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<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>
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<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><I>Inventory</I> </FONT> </P>
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<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. The estimated value of excess, obsolete and slow-moving inventory as well as
inventory with a carrying value in excess of its net realizable value is established by us on a quarterly basis through review of
inventory on hand and assessment of future demand, anticipated release of new products into the market, historical experience and
product expiration. Our stated value of inventory could be materially different if demand for our products decreased because of
competitive conditions or market acceptance, or if products become obsolete because of advancements in the industry. </FONT></P>
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<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><I>Revenue Recognition</I> </FONT> </P>
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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> We recognize revenue in
accordance with generally accepted accounting principles as outlined in the SEC’s Staff Accounting Bulletin No. 104
“Revenue Recognition,” which requires that four basic criteria be met before revenue can be recognized: (i) persuasive
evidence of an arrangement exists; (ii) the price is fixed or determinable; (iii) collectibility is reasonably assured; and (iv)
product delivery has occurred or services have been rendered. We recognize revenue as products are shipped based on FOB shipping
point terms when title passes to customers. We negotiate credit terms on a customer-by-customer basis and products are shipped at
an agreed upon price. All product returns must be pre-approved and, if approved, customers are subject to a 20% restocking charge.
</FONT></P>
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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 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, 2004, this reserve was $20,000 compared to $20,000 at December 31, 2003.
If the historical data we use to calculate these estimates does not properly reflect future returns, revenue could be overstated.
</FONT></P>
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<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><I>Allowance for Doubtful Accounts</I> </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, 2004, this reserve was $160,000 compared to $140,000 at December 31,
2003. 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>
<BR>
<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>25 </FONT></P>
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<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><I>Warranty Costs</I> </FONT> </P>
<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> We provide a warranty for
certain products against defects in material and workmanship for periods of up to 24 months. We record a liability for warranty
claims at the time of sale. The amount of the liability is based on the amount we are charged by our original equipment
manufacturer to cover the warranty period. The original equipment manufacturer includes a year warranty with each product sold to
us. We record a liability for the uncovered warranty period offered to a customer, provided the warranty period offered exceeds
the initial one year warranty period covered by the original equipment manufacturer. At December 31, 2004, this warranty provision
was $33,000 compared to $0 at December 31, 2003. If the assumptions used in calculating the provision were to materially change,
resulting in more defects than anticipated, an additional provision may be required. </FONT></P>
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<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><I>Income Taxes</I> </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, 2004, we recorded a $26.4 million
valuation allowance related to our net deferred tax assets of $26.4 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>
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<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><I>New Accounting Pronouncements</I> </FONT> </P>
<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> In December 2004, the
Financial Accounting Standards Board (FASB) issued Statement No. 123R, “Share-Based Payment” (SFAS 123R), which requires
companies to measure and recognize compensation expense for all stock-based payments at fair value. SFAS 123R is effective
for all interim periods beginning after June 15, 2005. Early adoption is encouraged and retroactive application of the
provisions of SFAS 123R to the beginning of the fiscal year that includes the effective date is permitted, but not required.
We are currently evaluating the impact of SFAS 123R our financial position and results of operations. See Note 2 for
information related to the pro forma effects on our reported net loss and net loss per share of applying the fair value
recognition provisions of the previous Statement of Financial Accounting Standards (SFAS) 123, “Accounting for Stock-Based
Compensation,” to stock-based employee compensation. </FONT></P>
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<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Risk Factors </FONT> </H1>
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<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>
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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2><I>We will not be successful if the interventional medical device community
does not adopt our new products</I> </FONT></P>
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<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>
<BR>
<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>26 </FONT></P>
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<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=2%><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=93%><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>
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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=2%><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=93%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>use our products and obtain acceptable clinical outcomes;
</FONT></TD>
</TR>
</TABLE>
<BR>
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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=2%><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=93%><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>
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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=2%><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=93%><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 limited
experience with sales of our D-Stat Dry hemostatic bandage, Pronto extraction catheter, Vari-Lase endovenous laser and Langston
catheter 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="Head Left" FSL="Default" -->
<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><I>We have limited working capital to pursue our business</I> </FONT> </P>
<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> On December 31, 2004, we had
$7.2 million in cash, cash equivalents and marketable securities and a working capital of $11.8 million. During 2004, our
operating activities resulted in the use of $4.1 million of cash. 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 unable to take advantage of business opportunities, or we
may be required to significantly curtail our business operations. </FONT></P>
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<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><I>We have incurred losses and we may not be profitable in the future</I> </FONT> </P>
<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Default" -->
<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, 2004, we had an accumulated deficit of $63.2 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 net losses through at least the first quarter of 2005. 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>
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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2><I>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</I> </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. We also are the subject of two intellectual property lawsuits concerning our Vari-Lase products. 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>
<BR>
<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>27 </FONT></P>
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<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="Default" -->
<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><I>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</I> </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Default" -->
<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 terminates in May 2005. Because it requires FDA approval, establishing our new supplier for thrombin requires a
lead-time of at least two years and involves significant additional costs. The failure by us to complete our thrombin
qualification project on time and on budget, or the loss of any other key vendor, may limit our ability to manufacture our Duett,
D-Stat Flowable and D-Stat Dry products and could therefore seriously harm our business. </FONT></P>
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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2><I>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</I> </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>
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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=2%><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=93%><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>
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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=2%><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=93%><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>
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<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=2%><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=93%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>the demand for and acceptance of our products; </FONT></TD>
</TR>
</TABLE>
<BR>
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<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=2%><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=93%><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>
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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=2%><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=93%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>our ability to command favorable pricing for our products;
</FONT></TD>
</TR>
</TABLE>
<BR>
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<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=2%><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=93%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>the growth of the market for our devices; </FONT></TD>
</TR>
</TABLE>
<BR>
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<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=2%><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=93%><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>
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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=2%><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=93%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>actions relating to ongoing FDA compliance; </FONT></TD>
</TR>
</TABLE>
<BR>
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<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=2%><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=93%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>the effect of intellectual property disputes; </FONT></TD>
</TR>
</TABLE>
<BR>
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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=2%><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=93%><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>
<BR>
<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>28 </FONT></P>
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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=2%><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=93%><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>
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<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=2%><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=93%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>unanticipated delays or an inability to control costs;
</FONT></TD>
</TR>
</TABLE>
<BR>
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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=2%><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=93%><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>
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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=2%><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=93%><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><I>We may face product liability claims that could result in costly
litigation and significant liabilities</I> </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Default" -->
<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>
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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2><I>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</I> </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. Each of these companies has: </FONT></P>
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<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=2%><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=93%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>better name recognition; </FONT></TD>
</TR>
</TABLE>
<BR>
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<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=2%><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=93%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>broader product lines; </FONT></TD>
</TR>
</TABLE>
<BR>
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<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=2%><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=93%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>greater sales, marketing and distribution capabilities;
</FONT></TD>
</TR>
</TABLE>
<BR>
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<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=2%><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=93%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>significantly greater financial resources; </FONT></TD>
</TR>
</TABLE>
<BR>
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<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=2%><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=93%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>larger research and development staffs and facilities; and
</FONT></TD>
</TR>
</TABLE>
<BR>
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<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=2%><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=93%><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="Default" -->
<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>
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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2><I>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</I> </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>
<BR>
<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>29 </FONT></P>
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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=2%><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=93%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>the ability of our independent distributors to sell our products;
</FONT></TD>
</TR>
</TABLE>
<BR>
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<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=2%><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=93%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>the impact of recessions in economies outside the United States;
</FONT></TD>
</TR>
</TABLE>
<BR>
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<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=2%><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=93%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>greater difficulty in collecting accounts receivable and longer
collection periods; </FONT></TD>
</TR>
</TABLE>
<BR>
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<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=2%><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=93%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>unexpected changes in regulatory requirements, tariffs or other
trade barriers; </FONT></TD>
</TR>
</TABLE>
<BR>
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<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=2%><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=93%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>weaker intellectual property rights protection in some countries;
</FONT></TD>
</TR>
</TABLE>
<BR>
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<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=2%><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=93%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>potentially adverse tax consequences; and </FONT></TD>
</TR>
</TABLE>
<BR>
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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=2%><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=93%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>political and economic instability. </FONT></TD>
</TR>
</TABLE>
<BR>
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<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>
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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2><I>We have limited manufacturing experience and may encounter difficulties in
our manufacturing operations which could seriously harm our business</I> </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Default" -->
<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>
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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2><I>Our business and results of operations may be seriously harmed by changes
in third-party reimbursement policies</I> </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 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="Default" -->
<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>
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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2><I>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</I> </FONT></P>
<BR>
<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>30 </FONT></P>
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<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>
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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=2%><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=93%><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>
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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=2%><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=93%><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>
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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=2%><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=93%><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="Head Major Left Bold" FSL="Default" -->
<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK </FONT></H1>
<!-- 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>
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<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>
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<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. </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>
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<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 Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> We do not have any
indebtedness as of December 31, 2004. If we were to borrow from our revolving credit agreement, we would be exposed to changes in
interest rates. Under our current policies, we do not use interest rate derivative instruments to manage exposure to interest rate
changes. </FONT></P>
<BR><BR><BR><BR>
<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>31 </FONT></P>
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<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA </FONT></H1>
<!-- 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 38 of this Annual Report on Form 10-K. </FONT></P>
<!-- MARKER FORMAT-SHEET="Head Major Left Bold" FSL="Default" -->
<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE </FONT></H1>
<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> No additional disclosure is
required regarding our recent change in independent accountants, as disclosed in our Form 8-K filed on October 1, 2004
and Form 8-K/A filed on October 22, 2004. </FONT></P>
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<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>ITEM 9A. CONTROLS AND PROCEDURES </FONT></H1>
<!-- MARKER FORMAT-SHEET="Head Major Left Bold" FSL="Default" -->
<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Evaluation of disclosure controls and procedures. </FONT></H1>
<!-- 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(e) under the
Exchange Act of 19934 (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 Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>Changes in internal controls.</B> </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, 2004, there has been no change in our internal control over financial reporting (as defined in Rule 13a-15(f)
under the Exchange Act) that has materially affected, or is reasonably likely to materially affect, our internal control over
financial reporting. </FONT></P>
<!-- MARKER FORMAT-SHEET="Head Major Left Bold" FSL="Default" -->
<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Management’s Report on Internal Control Over Financial Reporting. </FONT></H1>
<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Our management is responsible
for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act
Rule 13a-15(f). Our internal control system was designed to provide reasonable assurance to our management and board of
directors regarding the preparation and fair presentation of published financial statements. All internal control systems, no
matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only
reasonable assurance with respect to financial statement preparation and presentation. </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 conducted an
evaluation of the effectiveness of our internal control over financial reporting based on the framework in
<I>Internal Control — Integrated Framework </I>issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Based on our evaluation under the framework in
<I>Internal Control — Integrated Framework</I>, our management concluded that our
internal control over financial reporting was effective as of December 31, 2004. </FONT></P>
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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Our management’s
assessment of the effectiveness of our internal control over financial reporting as of December 31, 2004 has been audited by
Virchow, Krause & Company, LLP, an independent registered public accounting firm, as stated in their report which is included
herein on page 42. </FONT></P>
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<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>ITEM 9B. OTHER INFORMATION </FONT></H1>
<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> No information was required
to be disclosed in a report on Form 8-K in the fourth quarter that was not so disclosed. </FONT></P>
<BR>
<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>32 </FONT></P>
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<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>PART III </FONT></H1>
<!-- MARKER FORMAT-SHEET="Head Major Left Bold" FSL="Default" -->
<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT </FONT></H1>
<!-- 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,” “Committees of the Board 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,
2004. </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 Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> We have adopted a code of
ethics that applies to all of our directors, officers (including our chief executive officer, chief financial officer, chief
accounting officer, and any person performing similar functions) and employees. We have made our Code of Ethics available by
filing it as Exhibit 14 with our 2003 Annual Report on Form 10-K. </FONT></P>
<!-- MARKER FORMAT-SHEET="Head Major Left Bold" FSL="Default" -->
<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>ITEM 11. EXECUTIVE COMPENSATION </FONT></H1>
<!-- 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, 2004. </FONT></P>
<!-- MARKER FORMAT-SHEET="Head Major Left Bold" FSL="Default" -->
<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER MATTERS </FONT></H1>
<!-- 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, 2004. </FONT></P>
<!-- MARKER FORMAT-SHEET="Head Major Left Bold" FSL="Default" -->
<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS </FONT></H1>
<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> None. </FONT></P>
<!-- MARKER FORMAT-SHEET="Head Major Left Bold" FSL="Default" -->
<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES </FONT></H1>
<!-- 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, 2004. </FONT></P>
<BR><BR><BR><BR><BR><BR>
<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>33 </FONT></P>
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<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>PART IV </FONT></H1>
<!-- MARKER FORMAT-SHEET="Head Major Left Bold" FSL="Default" -->
<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES </FONT></H1>
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<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>
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<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>
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<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>Reports of Independent Registered Public Accounting Firms
</FONT></TD>
</TR>
</TABLE>
<BR>
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<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>
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<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>
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<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 Statements of Changes in Shareholders’ Equity
</FONT></TD>
</TR>
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<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>
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<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>
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<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>
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<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>
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<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>
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<BR>
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<TR VALIGN=Top>
<TD WIDTH=7% ALIGN=left nowrap><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Exhibit<BR>
<u>Number</U></FONT></TD>
<TD WIDTH=93% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><BR><U>Description</U></FONT></TD></TR>
<TR VALIGN=Top>
<TD WIDTH=7% ALIGN=left><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 3.1</FONT></TD>
<TD WIDTH=93% 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></TR>
<TR VALIGN=Top>
<TD ALIGN=left><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 3.2</FONT></TD>
<TD ALIGN=LEFT><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></TR>
<TR VALIGN=Top>
<TD ALIGN=left><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 4.1</FONT></TD>
<TD ALIGN=LEFT><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></TR>
<TR VALIGN=Top>
<TD ALIGN=left><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 4.2</FONT></TD>
<TD ALIGN=LEFT><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 No. 333-84089)).</FONT></TD></TR>
<TR VALIGN=Top>
<TD ALIGN=left><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 4.3</FONT></TD>
<TD ALIGN=LEFT><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></TR>
<TR VALIGN=Top>
<TD ALIGN=left><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 4.4</FONT></TD>
<TD ALIGN=LEFT><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 Solutions’ Registration Statement on Form S-1 (File No. 333-84089)).</FONT></TD></TR>
<TR VALIGN=Top>
<TD ALIGN=left><FONT FACE="Times New Roman, Times, Serif" SIZE=2>10.1</FONT></TD>
<TD ALIGN=LEFT><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 30, 2002).</FONT></TD></TR>
<TR VALIGN=Top>
<TD ALIGN=left><FONT FACE="Times New Roman, Times, Serif" SIZE=2>10.2</FONT></TD>
<TD ALIGN=LEFT><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-1 (File No. 333-84089)).</FONT></TD></TR>
</TABLE>
<BR>
<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>34 </FONT></P>
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<TD WIDTH=7% ALIGN=left><FONT FACE="Times New Roman, Times, Serif" SIZE=2>10.3</FONT></TD>
<TD WIDTH=93% ALIGN=LEFT><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></TR>
<TR VALIGN=Top>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>10.4</FONT></TD>
<TD ALIGN=LEFT><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></TR>
<TR VALIGN=Top>
<TD ALIGN=left><FONT FACE="Times New Roman, Times, Serif" SIZE=2>10.5*</FONT></TD>
<TD ALIGN=LEFT><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 10.5 of Vascular Solutions' Form 10-Q for the quarter ended March 31, 2004).</FONT></TD></TR>
<TR VALIGN=Top>
<TD ALIGN=left><FONT FACE="Times New Roman, Times, Serif" SIZE=2>10.6</FONT></TD>
<TD ALIGN=LEFT><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></TR>
<TR VALIGN=Top>
<TD ALIGN=left><FONT FACE="Times New Roman, Times, Serif" SIZE=2>10.7*</FONT></TD>
<TD ALIGN=LEFT><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></TR>
<TR VALIGN=Top>
<TD ALIGN=left><FONT FACE="Times New Roman, Times, Serif" SIZE=2>10.8</FONT></TD>
<TD ALIGN=LEFT><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></TR>
<TR VALIGN=Top>
<TD ALIGN=left><FONT FACE="Times New Roman, Times, Serif" SIZE=2>10.9</FONT></TD>
<TD ALIGN=LEFT><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></TR>
<TR VALIGN=Top>
<TD ALIGN=left><FONT FACE="Times New Roman, Times, Serif" SIZE=2>10.10*</FONT></TD>
<TD ALIGN=LEFT><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></TR>
<TR VALIGN=Top>
<TD ALIGN=left><FONT FACE="Times New Roman, Times, Serif" SIZE=2>10.11</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>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></TR>
<TR VALIGN=Top>
<TD ALIGN=left><FONT FACE="Times New Roman, Times, Serif" SIZE=2>10.12**</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Supply Agreement dated October 18, 2004 by and between Vascular Solutions and Sigma-Aldrich Fine Chemicals, an operating division of Sigma-Aldrich, Inc.</FONT></TD></TR>
<TR VALIGN=Top>
<TD ALIGN=left><FONT FACE="Times New Roman, Times, Serif" SIZE=2>10.13**</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Private Label Purchase Agreement dated September 22, 2003 by and between Vascular Solutions and MedArt Corporation (incorporated by reference to Exhibit 10.18 of Vascular Solutions’ Form 10-Q for the quarter ended September 30, 2003).</FONT></TD></TR>
<TR VALIGN=Top>
<TD ALIGN=left><FONT FACE="Times New Roman, Times, Serif" SIZE=2>10.14</FONT></TD>
<TD ALIGN=LEFT><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 (incorporated by reference to Exhibit 10.14 of Vascular Solutions’ Form 10-K for the year ended December 31, 2003).</FONT></TD></TR>
<TR VALIGN=Top>
<TD ALIGN=left><FONT FACE="Times New Roman, Times, Serif" SIZE=2>10.15</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Amendment to Loan Agreement dated December 9, 2004 by and between Vascular Solutions and Silicon Valley Bank.</FONT></TD></TR>
<TR VALIGN=Top>
<TD ALIGN=left><FONT FACE="Times New Roman, Times, Serif" SIZE=2>10.16*</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Form of Incentive Stock Option Agreement (Plan) (incorporated by reference to Exhibit 10.1 of Vascular Solutions’ 8-K dated September 22, 2004).</FONT></TD></TR>
<TR VALIGN=Top>
<TD ALIGN=left><FONT FACE="Times New Roman, Times, Serif" SIZE=2>10.17*</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Form of Nonqualified Stock Option Agreement (Plan) (incorporated by reference to Exhibit 10.2 of Vascular Solutions’ 8-K dated September 22, 2004).</FONT></TD></TR>
<TR VALIGN=Top>
<TD ALIGN=left><FONT FACE="Times New Roman, Times, Serif" SIZE=2>10.18*</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Form of Board of Director Stock Option Agreement (Plan) (incorporated by reference to Exhibit 10.3 of Vascular Solutions’ 8-K dated September 22, 2004).</FONT></TD></TR>
<TR VALIGN=Top>
<TD ALIGN=left><FONT FACE="Times New Roman, Times, Serif" SIZE=2>14 </FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Code of Ethics (incorporated by reference to Exhibit 14 of Vascular Solutions’ Form 10-K for the year ended December 31, 2003).</FONT></TD></TR>
<TR VALIGN=Top>
<TD ALIGN=left><FONT FACE="Times New Roman, Times, Serif" SIZE=2>21 </FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>List of Subsidiaries</FONT></TD></TR>
<TR VALIGN=Top>
<TD ALIGN=left><FONT FACE="Times New Roman, Times, Serif" SIZE=2>23.1</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Consent of Virchow, Krause & Company, LLP.</FONT></TD></TR>
<TR VALIGN=Top>
<TD ALIGN=left><FONT FACE="Times New Roman, Times, Serif" SIZE=2>23.2</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Consent of Ernst & Young LLP.</FONT></TD></TR>
<TR VALIGN=Top>
<TD ALIGN=left><FONT FACE="Times New Roman, Times, Serif" SIZE=2>24.1</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Power of Attorney (included on signature page).</FONT></TD></TR>
<TR VALIGN=Top>
<TD ALIGN=left><FONT FACE="Times New Roman, Times, Serif" SIZE=2>31.1</FONT></TD>
<TD ALIGN=LEFT><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></TR>
<TR VALIGN=Top>
<TD ALIGN=left><FONT FACE="Times New Roman, Times, Serif" SIZE=2>31.2</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.</FONT></TD></TR>
<TR VALIGN=Top>
<TD ALIGN=left><FONT FACE="Times New Roman, Times, Serif" SIZE=2>32.1</FONT></TD>
<TD ALIGN=LEFT><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></TR>
<TR VALIGN=Top>
<TD ALIGN=left><FONT 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>
</TABLE>
<BR>
<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>35 </FONT></P>
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<TD WIDTH=7% ALIGN=left><FONT FACE="Times New Roman, Times, Serif" SIZE=2>32.2</FONT></TD>
<TD WIDTH=93% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>to Exhibit 10.8 of Vascular Solutions' Registration Statement on Form S-1 (File No. 333-84089)).</FONT></TD></TR>
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<P>_________________ </P>
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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>* Management contract or compensatory
plan or arrangement required to be filed as an Exhibit to this Form 10-K. </font></P>
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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>** Pursuant to Rule 24b-2 of the
Securities Exchange Act of 1934, as amended, confidential portions of these exhibits have
been deleted and filed separately with the Securities and Exchange Commission pursuant to
a request for confidential treatment. </FONT></P>
<BR><BR><BR><BR><BR><BR><BR><BR><BR><BR><BR><BR><BR><BR><BR><BR>
<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>36 </FONT></P>
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<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=4>SIGNATURES </FONT></H1>
<!-- MARKER FORMAT-SHEET="Para Large 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 4th day of February 2005. </FONT></P>
<BR>
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<TR VALIGN=Top>
<TD WIDTH=60% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=37% ALIGN=LEFT colspan=2><FONT FACE="Times New Roman, Times, Serif" SIZE=2>VASCULAR SOLUTIONS, INC.</FONT></TD></TR>
<TR><td> </td></tr>
<TR VALIGN=Top>
<TD WIDTH=60% 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>By:</FONT></TD>
<TD WIDTH=37% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>/s/ Howard Root</FONT></TD></TR>
<TR>
<TD></TD><td></td>
<TD ALIGN=left><HR NOSHADE COLOR=#000000 width=65% SIZE=1></TD></TR>
<TR VALIGN=Top>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><td> </td>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Howard Root<BR>Chief Executive Officer and Director</FONT></TD></TR>
</TABLE>
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<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>
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<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 4th day of February, 2005, by the following persons in the capacities indicated. </FONT></P>
<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 WIDTH=100%>
<TR VALIGN=Top>
<TD WIDTH="35%" ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE=2><U>Signature</u></FONT></TD>
<TD WIDTH="65%" ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE=2><U>Title</u></FONT></TD></TR>
<TR><td> </td></tr>
<TR VALIGN=Top>
<TD WIDTH="35%" ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>/s/ Howard Root</FONT></TD>
<TD WIDTH="65%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Chief Executive Officer and Director</FONT></TD></TR>
<TR VALIGN=Top>
<TD ALIGN="CENTER" WIDTH="35%"><HR NOSHADE COLOR=#000000 SIZE=1 width=90%></TD>
<TD ALIGN="LEFT" WIDTH="65%"><FONT FACE="Times New Roman, Times, Serif" SIZE=2><I>(principal executive officer)</i></FONT></TD></TR>
<TR VALIGN=Top>
<TD ALIGN="CENTER" WIDTH="35%"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Howard Root</FONT></TD></TR>
<TR>
<TD WIDTH="35%" ALIGN="CENTER"></TD>
<TD WIDTH="65%"></TD></TR>
<TR><td> </td></tr>
<TR VALIGN=Top>
<TD ALIGN="CENTER" WIDTH="35%"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>/s/ James Hennen</FONT></TD>
<TD ALIGN="LEFT" WIDTH="65%"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Chief Financial Officer</FONT></TD></TR>
<TR VALIGN=Top>
<TD ALIGN="CENTER" WIDTH="35%"><HR NOSHADE COLOR=#000000 SIZE=1 width=90%></TD>
<TD ALIGN="LEFT" WIDTH="65%"><FONT FACE="Times New Roman, Times, Serif" SIZE=2><I>(principal financial and accounting officer)</i></FONT></TD></TR>
<TR VALIGN=Top>
<TD ALIGN="CENTER" WIDTH="35%"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>James Hennen</FONT></TD></TR>
<TR>
<TD WIDTH="35%" ALIGN="CENTER"></TD>
<TD WIDTH="65%"></TD></TR>
<TR><td> </td></tr>
<TR VALIGN=Top>
<TD ALIGN="CENTER" WIDTH="35%"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>/s/ James Jacoby, Jr.</FONT></TD>
<TD ALIGN="LEFT" WIDTH="65%"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Director</FONT></TD></TR>
<TR>
<TD ALIGN="CENTER" WIDTH="35%"><HR NOSHADE COLOR=#000000 SIZE=1 width=90%></TD></TR>
<TR VALIGN=Top>
<TD ALIGN="CENTER" WIDTH="35%"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>James Jacoby, Jr.</FONT></TD></TR>
<TR>
<TD WIDTH="35%" ALIGN="CENTER"></TD>
<TD WIDTH="65%"></TD></TR>
<TR><td> </td></tr>
<TR VALIGN=Top>
<TD ALIGN="CENTER" WIDTH="35%"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>/s/ Richard Nigon</FONT></TD>
<TD ALIGN="LEFT" WIDTH="65%"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Director</FONT></TD></TR>
<TR>
<TD ALIGN="CENTER" WIDTH="35%"><HR NOSHADE COLOR=#000000 SIZE=1 width=90%></TD></TR>
<TR VALIGN=Top>
<TD ALIGN="CENTER" WIDTH="35%"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Richard Nigon</FONT></TD></TR>
<TR>
<TD WIDTH="35%" ALIGN="CENTER"></TD>
<TD WIDTH="65%"></TD></TR>
<TR><td> </td></tr>
<TR VALIGN=Top>
<TD ALIGN="CENTER" WIDTH="35%"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>/s/ Michael Kopp</FONT></TD>
<TD ALIGN="LEFT" WIDTH="65%"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Director</FONT></TD></TR>
<TR>
<TD ALIGN="CENTER" WIDTH="35%"><HR NOSHADE COLOR=#000000 SIZE=1 width=90%></TD></TR>
<TR VALIGN=Top>
<TD ALIGN="CENTER" WIDTH="35%"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Michael Kopp</FONT></TD></TR>
<TR>
<TD WIDTH="35%" ALIGN="CENTER"></TD>
<TD WIDTH="65%"></TD></TR>
<TR><td> </td></tr>
<TR VALIGN=Top>
<TD ALIGN="CENTER" WIDTH="35%"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>/s/ Paul O'Connell</FONT></TD>
<TD ALIGN="LEFT" WIDTH="65%"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Director</FONT></TD></TR>
<TR>
<TD ALIGN="CENTER" WIDTH="35%"><HR NOSHADE COLOR=#000000 SIZE=1 width=90%></TD></TR>
<TR VALIGN=Top>
<TD ALIGN="CENTER" WIDTH="35%"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Paul O'Connell</FONT></TD></TR>
<TR>
<TD WIDTH="35%" ALIGN="CENTER"></TD>
<TD WIDTH="65%"></TD></TR>
<TR><td> </td></tr>
<TR VALIGN=Top>
<TD ALIGN="CENTER" WIDTH="35%"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>/s/ John Erb</FONT></TD>
<TD ALIGN="LEFT" WIDTH="65%"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Director</FONT></TD></TR>
<TR>
<TD ALIGN="CENTER" WIDTH="35%"><HR NOSHADE COLOR=#000000 SIZE=1 width=90%></TD></TR>
<TR VALIGN=Top>
<TD ALIGN="CENTER" WIDTH="35%"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>John Erb</FONT></TD></TR>
<TR>
<TD WIDTH="35%" ALIGN="CENTER"></TD>
<TD WIDTH="65%"></TD></TR>
<TR><td> </td></tr>
<TR VALIGN=Top>
<TD ALIGN="CENTER" WIDTH="35%"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>/s/ Dr. Gary Dorfman</FONT></TD>
<TD ALIGN="LEFT" WIDTH="65%"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Director</FONT></TD></TR>
<TR>
<TD ALIGN="CENTER" WIDTH="35%"><HR NOSHADE COLOR=#000000 SIZE=1 width=90%></TD></TR>
<TR VALIGN=Top>
<TD ALIGN="CENTER" WIDTH="35%"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Dr. Gary Dorfman</FONT></TD></TR>
</TABLE>
<BR>
<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>37 </FONT></P>
<HR SIZE=3 COLOR=GRAY NOSHADE>
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<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>SCHEDULE II<BR>
VALUATION AND QUALIFYING ACCOUNTS<BR>
YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002 </FONT></H1>
<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 WIDTH=100%>
<TR VALIGN=Bottom>
<TH COLSPAN=3 align=left><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Description</FONT></TH>
<TH COLSPAN=2 nowrap><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Balance at<BR>
Beginning<BR>
of Year</FONT></TH>
<TH COLSPAN=1><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
<TH COLSPAN=2 nowrap><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Additions<BR>
Charged<BR>
to Costs<BR>
and<BR>
Expenses</FONT></TH>
<TH COLSPAN=1><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
<TH COLSPAN=2 nowrap><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Less<BR>
Deductions</FONT></TH>
<TH COLSPAN=1><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
<TH COLSPAN=2 nowrap><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Balance at<BR>
End of Year</FONT></TH></TR>
<TR>
<TD COLSPAN=3></TD>
<TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#000000 SIZE=1></TD><TD></TD>
<TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#000000 SIZE=1></TD><TD></TD>
<TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#000000 SIZE=1></TD><TD></TD>
<TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#000000 SIZE=1></TD><TD></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#CCEEFF">
<TD WIDTH="45%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>YEAR ENDED DECEMBER 31, 2004:</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> 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>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 20,324</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 20,324</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=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 BGCOLOR="#CCEEFF">
<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>140,000</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>33,774</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>13,774</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=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=#000000 SIZE=1></TD><TD></TD>
<TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#000000 SIZE=1></TD><TD></TD>
<TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#000000 SIZE=1></TD><TD></TD>
<TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#000000 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> 160,000</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>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 54,098</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 34,098</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>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 180,000</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR>
<TD COLSPAN=3></TD>
<TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#000000 SIZE=2></TD><TD></TD>
<TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#000000 SIZE=2></TD><TD></TD>
<TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#000000 SIZE=2></TD><TD></TD>
<TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#000000 SIZE=2></TD><TD></TD></TR>
<TR><td> </td></tr>
<TR VALIGN=Bottom BGCOLOR="#CCEEFF">
<TD ALIGN=LEFT colspan=15><FONT FACE="Times New Roman, Times, Serif" SIZE=2>YEAR ENDED DECEMBER 31, 2003:</FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Sales return allowance</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</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=#000000 SIZE=1></TD><TD></TD>
<TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#000000 SIZE=1></TD><TD></TD>
<TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#000000 SIZE=1></TD><TD></TD>
<TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#000000 SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom BGCOLOR="#CCEEFF">
<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>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 160,000</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR>
<TD COLSPAN=3></TD>
<TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#000000 SIZE=2></TD><TD></TD>
<TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#000000 SIZE=2></TD><TD></TD>
<TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#000000 SIZE=2></TD><TD></TD>
<TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#000000 SIZE=2></TD><TD></TD></TR>
<TR><td> </td></tr>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>YEAR ENDED DECEMBER 31, 2002:</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR VALIGN=Bottom BGCOLOR="#CCEEFF">
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Sales return allowance</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</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=#000000 SIZE=1></TD><TD></TD>
<TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#000000 SIZE=1></TD><TD></TD>
<TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#000000 SIZE=1></TD><TD></TD>
<TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#000000 SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom BGCOLOR="#CCEEFF">
<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=#000000 SIZE=2></TD><TD></TD>
<TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#000000 SIZE=2></TD><TD></TD>
<TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#000000 SIZE=2></TD><TD></TD>
<TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#000000 SIZE=2></TD><TD></TD></TR>
</TABLE>
<BR><BR><BR><BR><BR><BR><BR><BR><BR><BR><BR><BR><BR>
<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>38 </FONT></P>
<HR SIZE=3 COLOR=GRAY NOSHADE>
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<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Report of Independent
Registered Public Accounting Firm </FONT></P>
<!-- MARKER FORMAT-SHEET="Head Left" FSL="Default" -->
<P ALIGN=LEFT><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 accompanying consolidated
balance sheet of Vascular Solutions, Inc. as of December 31, 2004, and the related
consolidated statements of operations, changes in shareholders’ equity and cash flows
for the year ended December 31, 2004. These consolidated financial statements are the
responsibility of the company’s management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audit. </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>We conducted our audit in accordance
with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain reasonable assurance about
whether the consolidated financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and disclosures in
the consolidated financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management as well as evaluating the
overall consolidated financial statement presentation. We believe that our audit provides
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 consolidated
financial statements referred to above present fairly, in all material respects, the
financial position of Vascular Solutions, Inc. as of December 31, 2004 and the results of
their operations and their cash flows for the year ended December 31, 2004, in conformity
with U.S. generally accepted accounting principles. </FONT></P>
<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 WIDTH=100%>
<TR VALIGN=Top>
<TD WIDTH=60% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=40% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>/s/ Virchow, Krause & Company, LLP</FONT></TD></TR>
</TABLE>
<!-- MARKER FORMAT-SHEET="Head Left" FSL="Default" -->
<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Minneapolis, Minnesota<BR>
January 21, 2005 </FONT></P>
<BR><BR><BR><BR><BR><BR><BR><BR><BR><BR>
<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><BR>
<!-- MARKER FORMAT-SHEET="Head Minor Center" FSL="Default" -->
<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Report of Independent
Registered Public Accounting Firm </FONT></P>
<!-- MARKER FORMAT-SHEET="Head Left" FSL="Default" -->
<P ALIGN=LEFT><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
sheet of Vascular Solutions, Inc. as of December 31, 2003, and the related statements of
operations, changes in shareholders’ equity, and cash flows for each of the two 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 the standards of the Public Company Accounting Oversight Board (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 the consolidated
results of its operations and its cash flows for each of the two years in the period ended
December 31, 2003, in conformity with U.S. generally accepted accounting principles. </FONT></P>
<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 WIDTH=100%>
<TR VALIGN=Top>
<TD WIDTH=60% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=40% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>/s/ Ernst & Young LLP</FONT></TD></TR>
</TABLE>
<!-- MARKER FORMAT-SHEET="Head Left" FSL="Default" -->
<P ALIGN=LEFT><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><BR><BR><BR>
<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><BR>
<!-- MARKER FORMAT-SHEET="Head Minor Center" FSL="Default" -->
<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Report of Independent
Registered Public Accounting Firm </FONT></P>
<!-- MARKER FORMAT-SHEET="Head Left" FSL="Default" -->
<P ALIGN=LEFT><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>Under date of January 21, 2005,
we reported on the consolidated balance sheet of Vascular Solutions, Inc. as of December
31, 2004, and the related consolidated statements of operations, changes in
shareholders’ equity, and cash flows for the year ended December 31, 2004, as
contained in the annual report on Form 10-K for the year ended December 31, 2004. In
connection with our audit of the aforementioned consolidated financial statements, we have
also audited the related financial statement schedule as listed in the accompanying index.
This financial statement schedule is the responsibility of the Company’s management.
Our responsibility is to express an opinion on this financial statement schedule based on
our audit. </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>In our opinion, such financial
statement schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly, in all material respects, the information
set forth therein. </FONT></P>
<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 WIDTH=100%>
<TR VALIGN=Top>
<TD WIDTH=60% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=40% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>/s/ Virchow, Krause & Company LLP</FONT></TD></TR>
</TABLE>
<!-- MARKER FORMAT-SHEET="Head Left" FSL="Default" -->
<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Minneapolis, Minnesota<BR>
January 21, 2005 </FONT></P>
<BR><BR><BR><BR><BR><BR><BR><BR><BR><BR><BR><BR><BR>
<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><BR>
<!-- MARKER FORMAT-SHEET="Head Minor Center" FSL="Default" -->
<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Report of Independent
Registered Public Accounting Firm </FONT></P>
<!-- MARKER FORMAT-SHEET="Head Left" FSL="Default" -->
<P ALIGN=LEFT><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 management’s
assessment, included in the accompanying Management’s Report on Internal Control Over
Financial Reporting appearing under Item 9A, that Vascular Solutions, Inc. (the
“Company”) maintained effective internal control over financial reporting as of
December 31, 2004, based on the criteria established in Internal Control – Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO). Vascular Solutions, Inc.‘s management is responsible for maintaining
effective internal control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting. Our responsibility is to
express an opinion on management’s assessment and an opinion on the effectiveness of
the Company’s internal control over financial reporting based on our audit. </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>We conducted our audit in accordance
with standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain reasonable assurance about
whether effective internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over financial
reporting, evaluating management’s assessment, testing and evaluating the design and
operating effectiveness of internal control, and performing such other procedures as we
considered necessary in the circumstances. We believe that our audit provides 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>A company’s internal control
over financial reporting is a process designed to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles. A
company’s internal control over financial reporting includes those policies and
procedures that (1) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the company; and (3)
provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the company’s assets that could have a material
effect on the financial statements. </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Because of its inherent limitations,
internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk
that controls may become inadequate because of changes in conditions, or that the degree
of compliance with the policies and procedures may deteriorate. </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>In our opinion, management’s
assessment that Vascular Solutions, Inc. maintained effective internal control over
financial reporting as of December 31, 2004, is fairly stated, in all material respects,
based on criteria established in Internal Control – Integrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Also in our
opinion, Vascular Solutions, Inc. maintained, in all material respects, effective internal
control over financial reporting as of December 31, 2004, based on criteria established in
Internal Control – Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>We have also audited, in accordance
with the standards of the Public Company Accounting Oversight Board (United States), the
accompanying consolidated balance sheet of Vascular Solutions, Inc. as of December 31,
2004 and the related consolidated statements of operations, changes in shareholder’s
equity and cash flows for the year ended December 31, 2004, and our report dated January
21, 2005, expresses an unqualified opinion on those consolidated financial statements. </FONT></P>
<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 WIDTH=100%>
<TR VALIGN=Top>
<TD WIDTH=60% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=40% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>/s/ Virchow, Krause & Company, LLP</FONT></TD></TR>
</TABLE>
<!-- MARKER FORMAT-SHEET="Head Left" FSL="Default" -->
<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Minneapolis, Minnesota<BR>
January 21, 2005 </FONT></P>
<BR>
<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><BR>
<!-- MARKER FORMAT-SHEET="Head Minor Center" FSL="Default" -->
<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>Vascular Solutions, Inc. </b></FONT></P>
<!-- MARKER FORMAT-SHEET="Head Minor Center" FSL="Default" -->
<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2><b>Consolidated Balance Sheets</b> </FONT></P>
<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="75%" ALIGN="CENTER">
<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>December 31</FONT></TH></TR>
<TR VALIGN=Bottom>
<TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
<TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2004</FONT></TH>
<TH COLSPAN=1><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
<TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2003</FONT></TH></TR>
<TR>
<TD COLSPAN=3></TD>
<TD COLSPAN=5 ALIGN=RIGHT><HR NOSHADE COLOR=#000000 SIZE=1></TD><TD></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#CCEEFF">
<TD WIDTH="67%" 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> </FONT></TD><TD WIDTH="11%" 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> </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>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 BGCOLOR="#CCEEFF">
<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>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B> 7,183,891</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> 2,864,913</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> </FONT></TD><TD ALIGN=RIGHT><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> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>3,019,693</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR VALIGN=Bottom BGCOLOR="#CCEEFF">
<TD ALIGN=LEFT colspan=9><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Accounts receivable, net of reserves of $180,000 and $160,000 at</FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> December 31, 2004 and 2003, 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> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>3,533,857</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>1,810,443</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR VALIGN=Bottom BGCOLOR="#CCEEFF">
<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>3,658,836</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>3,186,274</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>588,638</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>462,154</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR>
<TD COLSPAN=3></TD>
<TD COLSPAN=5 ALIGN=RIGHT><HR NOSHADE COLOR=#000000 SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom BGCOLOR="#CCEEFF">
<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> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>14,965,222</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>11,343,477</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR><TD> </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> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>1,374,146</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>948,602</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR VALIGN=Bottom BGCOLOR="#CCEEFF">
<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> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>482,595</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>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=5 ALIGN=RIGHT><HR NOSHADE COLOR=#000000 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>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B> 16,821,963</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>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 12,992,174</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR>
<TD COLSPAN=3></TD>
<TD COLSPAN=5 ALIGN=RIGHT><HR NOSHADE COLOR=#000000 SIZE=2></TD><TD></TD></TR>
<TR><td> </td></tr>
<TR VALIGN=Bottom BGCOLOR="#CCEEFF">
<TD ALIGN=LEFT colspan=9><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>Liabilities and shareholders' equity</b></FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Current liabilities:</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR VALIGN=Bottom BGCOLOR="#CCEEFF">
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Accounts payable</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B> 856,613</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> 750,762</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>1,612,684</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>1,111,049</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR VALIGN=Bottom BGCOLOR="#CCEEFF">
<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> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>663,017</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>258,228</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR>
<TD COLSPAN=3></TD>
<TD COLSPAN=5 ALIGN=RIGHT><HR NOSHADE COLOR=#000000 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> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>3,132,314</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>2,120,039</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR><td> </td></tr>
<TR VALIGN=Bottom BGCOLOR="#CCEEFF">
<TD ALIGN=LEFT colspan=9><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Commitments</FONT></TD></TR>
<TR><td> </td></tr>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>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 BGCOLOR="#CCEEFF">
<TD ALIGN=LEFT colspan=9><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Common stock, $0.01 par value:</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 BGCOLOR="#CCEEFF">
<TD ALIGN=LEFT colspan=9><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Issued and outstanding shares - 14,350,937 - 2004;</FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 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>
<TD ALIGN=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>143,509</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>129,892</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR VALIGN=Bottom BGCOLOR="#CCEEFF">
<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> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>76,675,125</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>70,422,926</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> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>100,992</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>41,356</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR VALIGN=Bottom BGCOLOR="#CCEEFF">
<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> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>(63,229,977</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>(59,722,039</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR>
<TD COLSPAN=3></TD>
<TD COLSPAN=5 ALIGN=RIGHT><HR NOSHADE COLOR=#000000 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> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>13,689,649</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>10,872,135</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR>
<TD COLSPAN=3></TD>
<TD COLSPAN=5 ALIGN=RIGHT><HR NOSHADE COLOR=#000000 SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom BGCOLOR="#CCEEFF">
<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>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B> 16,821,963</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> 12,992,174</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR>
<TD COLSPAN=3></TD>
<TD COLSPAN=5 ALIGN=RIGHT><HR NOSHADE COLOR=#000000 SIZE=2></TD><TD></TD></TR>
</TABLE>
<!-- MARKER FORMAT-SHEET="Head Left" FSL="Default" -->
<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><I>See accompanying notes</i> </FONT></P>
<BR>
<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>43 </FONT></P>
<HR SIZE=3 COLOR=GRAY NOSHADE>
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<!-- MARKER PAGE="sheet: 0; page: 0" -->
<BR><BR>
<!-- MARKER FORMAT-SHEET="Head Minor Center" FSL="Default" -->
<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>Vascular Solutions, Inc. </b></FONT></P>
<!-- MARKER FORMAT-SHEET="Head Minor Center" FSL="Default" -->
<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>Consolidated Statements of Operations </b></FONT></P>
<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="75%" ALIGN="CENTER">
<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=2><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2004</FONT></TH>
<TH COLSPAN=1><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
<TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2003</FONT></TH>
<TH COLSPAN=1><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
<TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2002</FONT></TH></TR>
<TR>
<TD COLSPAN=3></TD>
<TD COLSPAN=8 ALIGN=RIGHT><HR NOSHADE COLOR=#000000 SIZE=1></TD><TD></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#CCEEFF">
<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>$</FONT></TD><TD WIDTH="12%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B> 22,265,022</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>$</FONT></TD><TD WIDTH="12%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 11,804,328</FONT></TD>
<TD WIDTH="4%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD WIDTH="12%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 12,100,526</FONT></TD>
<TD WIDTH="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>6,607,718</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>4,570,242</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=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></TR>
<TR>
<TD COLSPAN=3></TD>
<TD COLSPAN=8 ALIGN=RIGHT><HR NOSHADE COLOR=#000000 SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom BGCOLOR="#CCEEFF">
<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>15,657,304</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>7,234,086</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=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></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 BGCOLOR="#CCEEFF">
<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>3,400,864</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>3,670,935</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>3,227,538</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>1,906,473</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>1,535,989</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=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></TR>
<TR VALIGN=Bottom BGCOLOR="#CCEEFF">
<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>11,360,046</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>9,645,920</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>11,963,907</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>2,137,831</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>1,942,483</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=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></TR>
<TR VALIGN=Bottom BGCOLOR="#CCEEFF">
<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"><B>—</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>3,750,000</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> Thrombin qualification</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>210,069</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></TR>
<TR VALIGN=Bottom BGCOLOR="#CCEEFF">
<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>217,500</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>145,000</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR>
<TD COLSPAN=3></TD>
<TD COLSPAN=8 ALIGN=RIGHT><HR NOSHADE COLOR=#000000 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>19,232,783</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>17,012,827</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=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></TR>
<TR>
<TD COLSPAN=3></TD>
<TD COLSPAN=8 ALIGN=RIGHT><HR NOSHADE COLOR=#000000 SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom BGCOLOR="#CCEEFF">
<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>(3,575,479</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>(9,778,741</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
<TD ALIGN=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></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>67,541</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>150,342</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=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></TR>
<TR>
<TD COLSPAN=3></TD>
<TD COLSPAN=8 ALIGN=RIGHT><HR NOSHADE COLOR=#000000 SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom BGCOLOR="#CCEEFF">
<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>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B> (3,507,938</B> </FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> (9,628,399</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> (14,978,914</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR>
<TD COLSPAN=3></TD>
<TD COLSPAN=8 ALIGN=RIGHT><HR NOSHADE COLOR=#000000 SIZE=2></TD><TD></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Basic and diluted net loss per common share</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B> (0.25</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>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> (0.75</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</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></TR>
<TR>
<TD COLSPAN=3></TD>
<TD COLSPAN=8 ALIGN=RIGHT><HR NOSHADE COLOR=#000000 SIZE=2></TD><TD></TD></TR>
<TR VALIGN=Bottom BGCOLOR="#CCEEFF">
<TD ALIGN=LEFT colspan=12><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Shares used in computing basic and diluted</FONT></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>
<TD ALIGN=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>13,952,278</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>12,858,765</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=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></TR>
<TR>
<TD COLSPAN=3></TD>
<TD COLSPAN=8 ALIGN=RIGHT><HR NOSHADE COLOR=#000000 SIZE=2></TD><TD></TD></TR>
</TABLE>
<!-- MARKER FORMAT-SHEET="Head Left" FSL="Default" -->
<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><I>See accompanying notes </I></FONT></P>
<BR>
<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><BR>
<!-- MARKER FORMAT-SHEET="Head Minor Center" FSL="Default" -->
<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>Vascular Solutions, Inc.</b> </FONT></P>
<!-- MARKER FORMAT-SHEET="Head Minor Center" FSL="Default" -->
<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2><b>Consolidated Statements of Changes in Shareholders’ Equity</b> </FONT></P>
<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 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> </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=6><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Common Stock</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
<TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Additional<BR>Paid-In</FONT></TH>
<TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH><TH></TH>
<TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Accumulated</FONT></TH></TR>
<TR VALIGN=Bottom>
<TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
<TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Shares</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
<TH COLSPAN=1><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
<TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Amount</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
<TH COLSPAN=1><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
<TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Capital</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
<TH COLSPAN=1><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
<TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Other</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
<TH COLSPAN=1><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
<TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Deficit</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
<TH COLSPAN=1><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
<TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Total</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#CCEEFF">
<TD WIDTH="38%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Balance at December 31, 2001</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>13,327,002</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>133,270</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>70,712,174</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>(100,834</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>(35,114,726</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>35,629,884</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>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 BGCOLOR="#CCEEFF">
<TD ALIGN=LEFT colspan=21><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Issuance of common stock under the</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 BGCOLOR="#CCEEFF">
<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 BGCOLOR="#CCEEFF">
<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 BGCOLOR="#CCEEFF">
<TD ALIGN=LEFT colspan=21><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Comprehensive loss:</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 BGCOLOR="#CCEEFF">
<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=#000000 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 colspan=16></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=17 ALIGN=RIGHT><HR NOSHADE COLOR=#000000 SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom BGCOLOR="#CCEEFF">
<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>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> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>659</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>81,710</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=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>82,369</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR VALIGN=Bottom BGCOLOR="#CCEEFF">
<TD ALIGN=LEFT colspan=21><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Issuance of common stock under the</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>195,876</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,959</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>123,972</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=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>125,931</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR VALIGN=Bottom BGCOLOR="#CCEEFF">
<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>(153,400</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(1,534</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(138,099</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>—</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=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>(139,633</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>40,545</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=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>40,545</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 BGCOLOR="#CCEEFF">
<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>(9,628,399</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(9,628,399</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>22,089</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=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>22,089</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=#000000 SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom BGCOLOR="#CCEEFF">
<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 colspan=15></td><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(9,606,310</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR>
<TD COLSPAN=3></TD>
<TD COLSPAN=17 ALIGN=RIGHT><HR NOSHADE COLOR=#000000 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>12,989,170</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 129,892</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 70,422,926</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 41,356</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> (59,722,039</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 10,872,135</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR VALIGN=Bottom BGCOLOR="#CCEEFF">
<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>227,300</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>2,272</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>341,305</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=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>343,577</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 BGCOLOR="#CCEEFF">
<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>245,567</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2,456</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>273,463</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=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>275,919</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> Sale of common stock in private</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 BGCOLOR="#CCEEFF">
<TD ALIGN=LEFT colspan=21><FONT FACE="Times New Roman, Times, Serif" SIZE=2> placement at $6.75 per share in</FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> March 2004, net of offering costs</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>888,900</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>8,889</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>5,583,672</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=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>5,592,561</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR VALIGN=Bottom BGCOLOR="#CCEEFF">
<TD ALIGN=LEFT colspan=21><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Deferred compensation related to</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>53,759</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(53,759</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
<TD ALIGN=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 BGCOLOR="#CCEEFF">
<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>11,788</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=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>11,788</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 BGCOLOR="#CCEEFF">
<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>(3,507,938</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(3,507,938</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>101,607</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=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>101,607</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=#000000 SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom BGCOLOR="#CCEEFF">
<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 colspan=15></td><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(3,406,331</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR>
<TD COLSPAN=3></TD>
<TD COLSPAN=17 ALIGN=RIGHT><HR NOSHADE COLOR=#000000 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, 2004</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>14,350,937</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 143,509</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 76,675,125</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 100,992</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>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> (63,229,977</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 13,689,649</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR>
<TD COLSPAN=3></TD>
<TD COLSPAN=17 ALIGN=RIGHT><HR NOSHADE COLOR=#000000 SIZE=2></TD><TD></TD></TR>
</TABLE>
<!-- MARKER FORMAT-SHEET="Head Left" FSL="Default" -->
<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><I>See accompanying notes.</I> </FONT></P>
<BR>
<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><BR>
<!-- MARKER FORMAT-SHEET="Head Minor Center" FSL="Default" -->
<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>Vascular Solutions, Inc.</b> </FONT></P>
<!-- MARKER FORMAT-SHEET="Head Minor Center" FSL="Default" -->
<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>Consolidated Statements of Cash Flows</b> </FONT></P>
<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="75%" ALIGN="CENTER">
<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=2><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2004</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
<TH COLSPAN=1><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
<TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2003</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
<TH COLSPAN=1><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
<TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2002</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#CCEEFF">
<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"><B></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="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>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B> (3,507,938</B> </FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> (9,628,399</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
<TD ALIGN=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 BGCOLOR="#CCEEFF">
<TD ALIGN=LEFT colspan=12><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Adjustments to reconcile net loss to net cash used</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 BGCOLOR="#CCEEFF">
<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>474,026</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>386,196</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=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></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>217,500</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>145,000</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR VALIGN=Bottom BGCOLOR="#CCEEFF">
<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>11,788</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>40,545</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=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> 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 BGCOLOR="#CCEEFF">
<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>(1,723,414</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>(452,497</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
<TD ALIGN=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></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>(472,562</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>(1,053,758</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
<TD ALIGN=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></TR>
<TR VALIGN=Bottom BGCOLOR="#CCEEFF">
<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>(126,484</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>(135,381</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
<TD ALIGN=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></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>105,851</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>(20,316</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
<TD ALIGN=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></TR>
<TR VALIGN=Bottom BGCOLOR="#CCEEFF">
<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>906,424</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>229,370</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=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></TR>
<TR>
<TD COLSPAN=3></TD>
<TD COLSPAN=8 ALIGN=RIGHT><HR NOSHADE COLOR=#000000 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>(4,114,809</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>(10,416,740</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
<TD ALIGN=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></TR>
<TR VALIGN=Bottom BGCOLOR="#CCEEFF">
<TD ALIGN=LEFT colspan=12><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>Investing activities</b></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"><B>—</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>(1,550,203</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR VALIGN=Bottom BGCOLOR="#CCEEFF">
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Purchase of 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> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>(899,570</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>(538,913</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
<TD ALIGN=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></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>—</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>(10,695,249</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
<TD ALIGN=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></TR>
<TR VALIGN=Bottom BGCOLOR="#CCEEFF">
<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>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>22,590,000</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>42,485,052</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR>
<TD COLSPAN=3></TD>
<TD COLSPAN=8 ALIGN=RIGHT><HR NOSHADE COLOR=#000000 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 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>2,120,123</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>11,355,838</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=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></TR>
<TR VALIGN=Bottom BGCOLOR="#CCEEFF">
<TD ALIGN=LEFT colspan=12><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>Financing activities</B></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>343,577</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>82,369</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>20,000</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR VALIGN=Bottom BGCOLOR="#CCEEFF">
<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>5,868,480</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>125,931</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=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>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>—</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>(139,633</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
<TD ALIGN=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>
<TD COLSPAN=3></TD>
<TD COLSPAN=8 ALIGN=RIGHT><HR NOSHADE COLOR=#000000 SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom BGCOLOR="#CCEEFF">
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Net cash provided by (used in) 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>6,212,057</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>68,667</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=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></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>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 BGCOLOR="#CCEEFF">
<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>101,607</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>22,089</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=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=8 ALIGN=RIGHT><HR NOSHADE COLOR=#000000 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>4,318,978</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>1,029,854</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=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></TR>
<TR VALIGN=Bottom BGCOLOR="#CCEEFF">
<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>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=8 ALIGN=RIGHT><HR NOSHADE COLOR=#000000 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>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B> 7,183,891</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>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 2,864,913</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</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>
<TD COLSPAN=3></TD>
<TD COLSPAN=8 ALIGN=RIGHT><HR NOSHADE COLOR=#000000 SIZE=2></TD><TD></TD></TR>
</TABLE>
<!-- MARKER FORMAT-SHEET="Head Left" FSL="Default" -->
<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><I>See accompanying notes.</i> </FONT></P>
<BR>
<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>46 </FONT></P>
<HR SIZE=3 COLOR=GRAY NOSHADE>
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<BR><BR>
<!-- MARKER FORMAT-SHEET="Head Major Left Bold" FSL="Default" -->
<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1. Description of Business </FONT></H1>
<!-- 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 current principle
product lines consist of the following medical devices: </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=2%><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=93%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>D-Stat
Dry™ hemostatic bandage, a topical pad with a bandage used to control surface
bleeding, </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=2%><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=93%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Pronto™ extraction
catheter, a mechanical system 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=2%><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=93%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Vari-Lase® endovenous
laser system, a laser console and procedure kit used for the treatment of 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=2%><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=93%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Duett™ sealing
device, used to seal the puncture site following catheterization procedures, </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=2%><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=93%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>D-Stat® Flowable
hemostat, a thick, yet flowable, mixture used to control bleeding, </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=2%><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=93%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Langston™ dual
lumen pigtail catheter, used for the measurement of differential arterial pressures, </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=2%><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=93%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>MAX-Support™ abdominal
retraction belt, used to allow femoral access in obese patients, 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=2%><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=93%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Acolysis® ultrasound
(sold in international markets 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, the Company generates
ideas and creates new interventional medical devices, and then delivers the products directly to the physician through their
direct domestic sales force and their international distribution network. The Company was incorporated in the state of Minnesota
in December 1996 and began operations in February 1997. </FONT></P>
<!-- MARKER FORMAT-SHEET="Head Major Left Bold" FSL="Default" -->
<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2. Summary of Significant Accounting Policies </FONT></H1>
<!-- MARKER FORMAT-SHEET="Head Left" FSL="Default" -->
<P ALIGN=LEFT><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="Head Left" FSL="Default" -->
<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><I>Segment Reporting</I> </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>A business segment is a
distinguishable component of an enterprise that is engaged in providing an individual
product or service or a group of related products or services and that is subject to risks
and returns that are different from those of other business segments. The Company’s
segments have similar economic characteristics and are similar in the nature of the
products sold, type of customers, methods used to distribute the Company’s products
and regulatory environment. Management believes that the Company meets the criteria
for aggregating its operating segments into a single reporting segment. </FONT></P>
<!-- MARKER FORMAT-SHEET="Head Left" FSL="Default" -->
<P ALIGN=LEFT><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="Head Left" FSL="Default" -->
<P ALIGN=LEFT><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. The accumulated
other comprehensive income for the foreign currency translation adjustment at December 31,
2004 and 2003 was $143,660 and $42,052, respectively. </FONT></P>
<BR>
<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>47 </FONT></P>
<HR SIZE=3 COLOR=GRAY NOSHADE>
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<BR><BR>
<!-- MARKER FORMAT-SHEET="Head Major Left Bold" FSL="Default" -->
<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2. Summary of
Significant Accounting Policies (continued) </FONT></H1>
<!-- MARKER FORMAT-SHEET="Head Left" FSL="Default" -->
<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><I>Fair Value of Financial
Instruments </I></FONT></P>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The carrying amount for cash and cash
equivalents, accounts receivable, accounts payable, and accrued expenses approximates fair
value due to the immediate or short-term maturity of these financial instruments. </FONT></P>
<!-- MARKER FORMAT-SHEET="Head Left" FSL="Default" -->
<P ALIGN=LEFT><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>
<!-- MARKER FORMAT-SHEET="Head Left" FSL="Default" -->
<P ALIGN=LEFT><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. The Company deposits its cash in high quality financial
institutions. The balances, at times may exceed federally insured limits. </FONT></P>
<!-- MARKER FORMAT-SHEET="Head Left" FSL="Default" -->
<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><I>Credit risk and allowance
for doubtful accounts </I></FONT></P>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The Company maintains allowances for
doubtful accounts for estimated losses resulting from the inability of our customers to
make required payments. This allowance is regularly evaluated by the Company for adequacy
by taking into consideration factors such as past experience, credit quality of the
customer base, age of the receivable balances, both individually and in the aggregate, and
current economic conditions that may affect a customer’s ability to pay. Accounts
receivable over 60 days past due are considered past due. The Company does not accrue
interest on past due accounts receivable. Receivables are written off only after all
collection attempts have failed and are based on individual credit evaluation and the
specific circumstances of the customer. At December 31, 2004 and 2003, the allowance for
doubtful accounts was $160,000 and $140,000, respectively. </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>All product returns must be
pre-approved and, if approved, customers are subject to a 20% restocking charge. The
Company analyzes the rate of historical returns when evaluating the adequacy of the
allowance for sales returns, which is included with the allowance for doubtful accounts on
our balance sheet. At December 31, 2004 and 2003, the sales and return allowance was
$20,000 and $20,000, respectively. </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Accounts receivable are shown net of
the combined total of the allowance for doubtful accounts and allowance for sales returns
of $180,000 and $160,000 at December 31, 2004 and 2003, respectively. </FONT></P>
<!-- MARKER FORMAT-SHEET="Head Left" FSL="Default" -->
<P ALIGN=LEFT><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. <B><I>
</I></B><I></I>There were no material realized gains or losses on the sales of
available-for-sale securities during the years ended December 31, 2004, 2003 and
2002. For purposes of determining gross realized gains or losses, the cost of
available-for-sale securities is based on specific identification. </FONT></P>
<BR>
<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><BR>
<!-- MARKER FORMAT-SHEET="Head Major Left Bold" FSL="Default" -->
<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2. Summary of
Significant Accounting Policies (continued) </FONT></H1>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>At December 31, 2004 and 2003, 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 WIDTH=50%>
<TR VALIGN=Bottom>
<TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
<TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2004</FONT></TH>
<TH COLSPAN=1><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
<TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2003</FONT></TH></TR>
<TR>
<TD COLSPAN=3></TD>
<TD COLSPAN=6 ALIGN=RIGHT><HR NOSHADE COLOR=#000000 SIZE=1></TD></TR>
<TR VALIGN=Bottom>
<TD WIDTH=64% 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=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"><B>—</B> </FONT></TD>
<TD WIDTH=11% 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>2,021,567</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>—</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>998,126</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 ALIGN=RIGHT><HR NOSHADE COLOR=#000000 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>—</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>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>3,019,693</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR>
<TD COLSPAN=3></TD>
<TD COLSPAN=6 ALIGN=RIGHT><HR NOSHADE COLOR=#000000 SIZE=2></TD></TR>
</TABLE>
<!-- MARKER FORMAT-SHEET="Head Left" FSL="Default" -->
<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><I>Inventories</I> </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Inventories are stated at the lower
of cost (first-in, first-out method) or market. Appropriate consideration is given to
deterioration, obsolescence and other factors in evaluating net realizable value.
Inventories are comprised of the following at December 31: </FONT></P>
<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 WIDTH=50%>
<TR VALIGN=Bottom>
<TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
<TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2004</FONT></TH>
<TH COLSPAN=1><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
<TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2003</FONT></TH></TR>
<TR>
<TD COLSPAN=3></TD>
<TD COLSPAN=6 ALIGN=RIGHT><HR NOSHADE COLOR=#000000 SIZE=1></TD></TR>
<TR VALIGN=Bottom>
<TD WIDTH=64% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Raw materials</FONT></TD>
<TD WIDTH=1% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=2% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=1% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD WIDTH=9% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B> 2,378,619</B> </FONT></TD>
<TD WIDTH=11% 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> 2,100,775</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>221,547</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>260,887</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>1,058,670</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>824,612</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 ALIGN=RIGHT><HR NOSHADE COLOR=#000000 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> 3,658,836</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> 3,186,274</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 ALIGN=RIGHT><HR NOSHADE COLOR=#000000 SIZE=2></TD></TR>
</TABLE>
<!-- MARKER FORMAT-SHEET="Head Left" FSL="Default" -->
<P ALIGN=LEFT><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 WIDTH=50%>
<TR VALIGN=Top>
<TD WIDTH=64% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Manufacturing equipment</FONT></TD>
<TD WIDTH=36% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>3 to 5 years</FONT></TD></TR>
<TR VALIGN=Top>
<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=Top>
<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=Top>
<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>Remaining term of the lease</FONT></TD></TR>
<TR VALIGN=Top>
<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="Head Left" FSL="Default" -->
<P ALIGN=LEFT><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.
To date, the Company has determined that no impairment of long-lived assets exists. </FONT></P>
<!-- MARKER FORMAT-SHEET="Head Left" FSL="Default" -->
<P ALIGN=LEFT><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 in
accordance with generally accepted accounting principles as outlined in the SEC’s
Staff Accounting Bulletin No. 104 “Revenue Recognition,” which requires that
four basic criteria be met before revenue can be recognized: (i) persuasive evidence of an
arrangement exists; (ii) the price is fixed or determinable; (iii) collectibility is
reasonably assured; and (iv) product delivery has occurred or services have been rendered.
The Company recognizes revenue as products are shipped based on FOB shipping point terms
when title passes to customers. The Company negotiates credit terms on a
customer-by-customer basis and products are shipped at an </font></p>
<BR>
<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>49 </FONT></P>
<HR SIZE=3 COLOR=GRAY NOSHADE>
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<BR><BR>
<!-- MARKER FORMAT-SHEET="Head Major Left Bold" FSL="Default" -->
<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>2. Summary of Significant Accounting Policies (continued)</B> </FONT></H1>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>agreed upon price. All product returns must be pre-approved and, if approved,
customers are subject to a 20% restocking charge. </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. </FONT></P>
<!-- MARKER FORMAT-SHEET="Head Left" FSL="Default" -->
<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><I>Shipping and handling
costs </I></FONT></P>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>In accordance with the Emerging Issues
Task Force (EITF) issue 00-10, “Accounting for Shipping and Handling Fees and
Costs,” the Company includes shipping and handling revenues in net sales and shipping
and handling costs in cost of sales. </FONT></P>
<!-- MARKER FORMAT-SHEET="Head Left" FSL="Default" -->
<P ALIGN=LEFT><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="Head Left" FSL="Default" -->
<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><I>Warranty Costs </I></FONT></P>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Effective during the year ended
December 31, 2004, certain of the Company’s products are covered by warranties
against defects in material and workmanship for periods of up to 24 months. The Company
records a liability for warranty claims at the time of sale. The amount of the liability
is based on the amount the Company is charged from their original equipment manufacturer
to cover the warranty period. The original equipment manufacturer includes a year warranty
with each product sold to the Company. The Company records a liability for the uncovered
warranty period offered to a customer, provided the warranty period offered exceeds the
initial one year warranty period covered by the original equipment manufacturer. </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Warranty provisions and claims for
the year ended December 31, 2004, were as follows: </FONT></P>
<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 WIDTH=75%>
<TR VALIGN=Top>
<TD WIDTH=20% ALIGN=center><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Twelve Months End</FONT></TD>
<TD WIDTH=20% ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Beginning Balance</FONT></TD>
<TD WIDTH=20% ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Warrant</FONT></TD>
<TD WIDTH=20% ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Warranty Claims</FONT></TD>
<TD WIDTH=20% ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Ending</FONT></TD></TR>
<TR>
<TD ALIGN=RIGHT colspan=5><HR NOSHADE COLOR=#000000 SIZE=1></TD></TR>
<TR VALIGN=Top>
<TD ALIGN=center><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B> December 31, 200</B> </FONT></TD>
<TD ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>$—</B> </FONT></TD>
<TD ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>$32,895</B> </FONT></TD>
<TD ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>$—</B> </FONT></TD>
<TD ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>$32,895</B> </FONT></TD></TR>
</TABLE>
<!-- MARKER FORMAT-SHEET="Head Left" FSL="Default" -->
<P ALIGN=LEFT><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, 2004, the Company had a stock-based employee compensation
plan, which is described more fully in Note 10. The Company accounts for the plan 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 the plan 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>
<BR>
<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>50 </FONT></P>
<HR SIZE=3 COLOR=GRAY NOSHADE>
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<BR><BR>
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<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2. Summary of
Significant Accounting Policies (continued) </FONT></H1>
<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 WIDTH=70%>
<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=2><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2004</FONT></TH>
<TH COLSPAN=1><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
<TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2003</FONT></TH>
<TH COLSPAN=1><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
<TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2002</FONT></TH></TR>
<TR>
<TD COLSPAN=3></TD>
<TD COLSPAN=8 ALIGN=RIGHT><HR NOSHADE COLOR=#000000 SIZE=1></TD><TD></TD></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>$</FONT></TD><TD WIDTH=11% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B> (3,507,938</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>$</FONT></TD><TD WIDTH=11% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> (9,628,399</FONT></TD>
<TD WIDTH=4% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
<TD WIDTH=1% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD WIDTH=11% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> (14,978,914</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>(1,231,418</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>(573,355</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
<TD ALIGN=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></TR>
<TR>
<TD COLSPAN=3></TD>
<TD COLSPAN=8 ALIGN=RIGHT><HR NOSHADE COLOR=#000000 SIZE=1></TD><TD></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>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B> (4,739,356</B> </FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> (10,201,754</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> (17,319,008</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR>
<TD COLSPAN=3></TD>
<TD COLSPAN=8 ALIGN=RIGHT><HR NOSHADE COLOR=#000000 SIZE=2></TD><TD></TD></TR>
<TR><TD> </td></tr>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Net loss per common share:</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Basic and diluted - as reported</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B> (0.25</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>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> (0.75</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</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></TR>
<TR>
<TD COLSPAN=3></TD>
<TD COLSPAN=8 ALIGN=RIGHT><HR NOSHADE COLOR=#000000 SIZE=2></TD><TD></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>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B> (0.34</B> </FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> (0.79</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
<TD ALIGN=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></TR>
<TR>
<TD COLSPAN=3></TD>
<TD COLSPAN=8 ALIGN=RIGHT><HR NOSHADE COLOR=#000000 SIZE=2></TD><TD></TD></TR>
</TABLE>
<!-- 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 WIDTH=70%>
<TR VALIGN=Bottom>
<TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
<TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2004</FONT></TH>
<TH COLSPAN=1><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
<TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2003</FONT></TH>
<TH COLSPAN=1><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
<TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2002</FONT></TH></TR>
<TR>
<TD COLSPAN=3></TD>
<TD COLSPAN=8 ALIGN=RIGHT><HR NOSHADE COLOR=#000000 SIZE=2></TD><TD></TD></TR>
<TR VALIGN=Bottom>
<TD WIDTH=51% 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=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="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>6.50 </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="11%" ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>6.38 </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="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>6.50 </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>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="CENTER" WIDTH="11%"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>94% </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="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>98% </FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times 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>101% </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>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="CENTER" WIDTH="11%"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>3.85%</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="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>3.54%</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times 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>4.30%</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 weighted average fair value of
options granted with an exercise price equal to the deemed stock price on the date of
grant during 2004, 2003 and 2002 was $5.77, $0.71 and $1.58, respectively. </FONT></P>
<!-- MARKER FORMAT-SHEET="Head Left" FSL="Default" -->
<P ALIGN=LEFT><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. Deferred tax assets
are reduced by a valuation allowance to the extent that realization of the related
deferred tax asset is not assured. </FONT></P>
<!-- MARKER FORMAT-SHEET="Head Left" FSL="Default" -->
<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><I>Net Loss Per Common 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 common share is computed by dividing net
loss by the weighted average common shares outstanding during the periods presented.
Diluted net loss per common 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 common share because the effect of outstanding options and warrants is
antidilutive. </FONT></P>
<!-- MARKER FORMAT-SHEET="Head Left" FSL="Default" -->
<P ALIGN=LEFT><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, 2004. </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</font></p>
<BR>
<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>51 </FONT></P>
<HR SIZE=3 COLOR=GRAY NOSHADE>
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<BR><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>annually or as changes in
circumstances or the occurrence of events suggest the remaining value is not recoverable. </FONT></P>
<!-- MARKER FORMAT-SHEET="Head Left" FSL="Default" -->
<P ALIGN=LEFT><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 December 2004, the Financial
Accounting Standards Board (FASB) issued Statement No. 123R, <I>Share-Based Payment
</I>(SFAS 123R), which requires companies to measure and recognize compensation expense
for all stock-based payments at fair value. SFAS 123R is effective for all interim
periods beginning after June 15, 2005. Early adoption is encouraged and retroactive
application of the provisions of SFAS 123R to the beginning of the fiscal year that
includes the effective date is permitted, but not required. The Company is currently
evaluating the impact of SFAS 123R on its financial position and results of
operations. See elsewhere in this Note 2 for information related to the pro forma
effects on the Company’s reported net loss and net loss per common share of applying
the fair value recognition provisions of the previous Statement of Financial Accounting
Standards (SFAS) 123, <I>Accounting for Stock-Based Compensation</I>, to stock-based
employee compensation. </FONT></P>
<!-- MARKER FORMAT-SHEET="Head Major Left Bold" FSL="Default" -->
<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>3. Acquisition of
Certain Assets of Angiosonics, Inc. </FONT></H1>
<!-- 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="Head Major Left Bold" FSL="Default" -->
<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>4. Goodwill and Other
Intangible Assets </FONT></H1>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>As discussed elsewhere 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 in 2005 and approximately $72,500 in 2006. </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, 2004 were as follows: </FONT></P>
<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 WIDTH=70%>
<TR VALIGN=Bottom>
<TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
<TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Carrying<BR>Amount</FONT></TH>
<TH COLSPAN=1><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
<TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Accumulated<BR>
Amortization</FONT></TH>
<TH COLSPAN=1><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
<TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Net</FONT></TH></TR>
<TR>
<TD COLSPAN=3></TD>
<TD COLSPAN=8 ALIGN=RIGHT><HR NOSHADE COLOR=#000000 SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
<TD WIDTH=50% 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=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> 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>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 580,000</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 290,000</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>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=8 ALIGN=RIGHT><HR NOSHADE COLOR=#000000 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>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 1,062,595</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 580,000</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> 482,595</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR>
<TD COLSPAN=3></TD>
<TD COLSPAN=8 ALIGN=RIGHT><HR NOSHADE COLOR=#000000 SIZE=2></TD><TD></TD></TR>
</TABLE>
<BR>
<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><BR>
<!-- MARKER FORMAT-SHEET="Head Major Left Bold" FSL="Default" -->
<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>4. Goodwill and Other Intangible Assets (continued) </FONT></H1>
<!-- 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 WIDTH=70%>
<TR VALIGN=Bottom>
<TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
<TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Carrying<BR>Amount</FONT></TH>
<TH COLSPAN=1><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
<TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Accumulated<BR>
Amortization</FONT></TH>
<TH COLSPAN=1><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
<TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Net</FONT></TH></TR>
<TR>
<TD COLSPAN=3></TD>
<TD COLSPAN=8 ALIGN=RIGHT><HR NOSHADE COLOR=#000000 SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
<TD WIDTH=50% 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=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> 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=8 ALIGN=RIGHT><HR NOSHADE COLOR=#000000 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>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 1,062,595</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</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=8 ALIGN=RIGHT><HR NOSHADE COLOR=#000000 SIZE=2></TD><TD></TD></TR>
</TABLE>
<!-- MARKER FORMAT-SHEET="Head Major Left Bold" FSL="Default" -->
<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>5. Property and Equipment </FONT></H1>
<!-- 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 WIDTH=70%>
<TR VALIGN=Bottom>
<TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
<TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2004</FONT></TH>
<TH COLSPAN=1><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
<TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2003</FONT></TH></TR>
<TR>
<TD COLSPAN=3></TD>
<TD COLSPAN=5 ALIGN=RIGHT><HR NOSHADE COLOR=#000000 SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
<TD WIDTH=59% 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=14% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B></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=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> 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>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B> 1,564,848</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> 1,174,787</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>923,374</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>875,431</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>241,685</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>240,359</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>205,514</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>123,614</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>328,303</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>289,014</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR>
<TD COLSPAN=3></TD>
<TD COLSPAN=5 ALIGN=RIGHT><HR NOSHADE COLOR=#000000 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"><B>3,263,724</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>2,703,205</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>(1,889,578</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>(1,754,603</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR>
<TD COLSPAN=3></TD>
<TD COLSPAN=5 ALIGN=RIGHT><HR NOSHADE COLOR=#000000 SIZE=1></TD><TD></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>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B> 1,374,146</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> 948,602</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR>
<TD COLSPAN=3></TD>
<TD COLSPAN=5 ALIGN=RIGHT><HR NOSHADE COLOR=#000000 SIZE=2></TD><TD></TD></TR>
</TABLE>
<!-- MARKER FORMAT-SHEET="Head Major Left Bold" FSL="Default" -->
<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>6. Private Placement </FONT></H1>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>On March 9, 2004, we sold 888,900
shares of our common stock at an offering price of $6.75 per share for net proceeds of
$5,592,561 in a private placement </FONT></P>
<!-- MARKER FORMAT-SHEET="Head Major Left Bold" FSL="Default" -->
<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>7. Line of Credit </FONT></H1>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>On December 13, 2004, the Company
modified the secured asset-based loan and security agreement dated December 31, 2003. This
line of credit is a one-year, $5,000,000 facility with availability based primarily on
eligible customer receivables and inventory. The interest rate is prime plus 0.5%. As of
December 31, 2004, the Company had no outstanding loan balance against the facility. Based
on the Company’s eligible customer receivables, inventory and cash balances,
$3,069,000 was available for borrowing as of December 31, 2004. The fee for the unused
portion of the line of credit is $2,125 per quarter. The facility fee of $25,000 is
payable upon the first advance. This line of credit includes two covenants: minimum
tangible net worth of $11,000,000 and a liquidity coverage of not less than 1.25 to 1.00.
The Company was in compliance with these covenants at December 31, 2004. </FONT></P>
<!-- MARKER FORMAT-SHEET="Head Major Left Bold" FSL="Default" -->
<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>8. Leases </FONT></H1>
<!-- 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 lease was approximately
$343,000, $336,000, and $303,100 for the years ended December 31, 2004, 2003, and 2002,
respectively. </FONT></P>
<BR>
<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>53 </FONT></P>
<HR SIZE=3 COLOR=GRAY NOSHADE>
<!-- *************************************************************************** -->
<!-- MARKER PAGE="sheet: 0; page: 0" -->
<BR><BR>
<!-- MARKER FORMAT-SHEET="Head Major Left Bold" FSL="Default" -->
<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>8. Leases (continued) </FONT></H1>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Future minimum lease commitments
under this operating lease as of December 31, 2004 are as follows: </FONT></P>
<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 WIDTH=25%>
<TR VALIGN=Bottom>
<TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
<TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
<TD WIDTH=81% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2005</FONT></TD>
<TD WIDTH=1% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=4% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=1% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD WIDTH=11% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 345,024</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>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>359,208</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>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>366,300</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>274,725</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=#000000 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> 1,345,257</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=#000000 SIZE=2></TD><TD></TD></TR>
</TABLE>
<!-- MARKER FORMAT-SHEET="Head Major Left Bold" FSL="Default" -->
<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>9. Income Taxes </FONT></H1>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>At December 31, 2004, the Company had
net operating loss carryforwards of approximately $57,865,000 for federal income tax
purposes that are available to offset future taxable income and begin to expire in the
year 2013. At December 31, 2004, the Company also had federal and Minnesota research and
development tax credit carryforwards of approximately $1,598,000, which begin to expire in
the year 2013. At December 31, 2004, the Company has foreign tax loss carryforwards of
approximately $2,358,000 that do not expire. No benefit has been recorded for any loss or
credit 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, 2004 and 2003 are as follows: </FONT></P>
<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 WIDTH=70%>
<TR VALIGN=Bottom>
<TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
<TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2004</FONT></TH>
<TH COLSPAN=1><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
<TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2003</FONT></TH></TR>
<TR>
<TD COLSPAN=3></TD>
<TD COLSPAN=5 ALIGN=RIGHT><HR NOSHADE COLOR=#000000 SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
<TD WIDTH=65% 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=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"><B></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=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 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>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B> 24,089,000</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> 22,394,000</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>1,598,000</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>1,353,000</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>61,000</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>183,000</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>253,000</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>131,000</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>172,000</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>96,000</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>244,000</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>64,000</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR>
<TD COLSPAN=3></TD>
<TD COLSPAN=5 ALIGN=RIGHT><HR NOSHADE COLOR=#000000 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"><B>26,417,000</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>24,221,000</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>(26,417,000</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>(24,221,000</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR>
<TD COLSPAN=3></TD>
<TD COLSPAN=5 ALIGN=RIGHT><HR NOSHADE COLOR=#000000 SIZE=1></TD><TD></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"><B> —</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></TR>
<TR>
<TD COLSPAN=3></TD>
<TD COLSPAN=5 ALIGN=RIGHT><HR NOSHADE COLOR=#000000 SIZE=2></TD><TD></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. The increase in the valuation allowance was $2,196,000,
$4,150,000 and $5,425,000 for the years ending December 31, 2004, 2003 and 2002,
respectively. </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 WIDTH=70%>
<TR VALIGN=Bottom>
<TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
<TH COLSPAN=2 align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2004</FONT></TH>
<TH COLSPAN=1><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
<TH COLSPAN=2 align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2003</FONT></TH>
<TH COLSPAN=1><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
<TH COLSPAN=2 align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2002</FONT></TH></TR>
<TR>
<TD COLSPAN=3></TD>
<TD COLSPAN=9 ALIGN=RIGHT><HR NOSHADE COLOR=#000000 SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
<TD WIDTH=55% 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=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=10% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(34.0</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=10% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(34.0</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=10% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(34.0</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>State income taxes, net of federal benefit</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>(6.0</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(6.0</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(6.0</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>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>3.0</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1.0</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1.0</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>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>(3.0</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(1.0</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
<TD ALIGN=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>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>40.0</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>40.0</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>39.0</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 ALIGN=RIGHT><HR NOSHADE COLOR=#000000 SIZE=1></TD><TD></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=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=9 ALIGN=RIGHT><HR NOSHADE COLOR=#000000 SIZE=2></TD><TD></TD></TR>
</TABLE>
<BR>
<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>54 </FONT></P>
<HR SIZE=3 COLOR=GRAY NOSHADE>
<!-- *************************************************************************** -->
<!-- MARKER PAGE="sheet: 0; page: 0" -->
<BR><BR>
<!-- MARKER FORMAT-SHEET="Head Major Left Bold" FSL="Default" -->
<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>10. Stock Options and
Warrants </FONT></H1>
<!-- MARKER FORMAT-SHEET="Head Left" FSL="Default" -->
<P ALIGN=LEFT><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, 2004, the Company had reserved 3,400,000 shares of
common stock under the Stock Option Plan. Under the Stock Option Plan, incentive stock
options must be granted at an exercise price not less than the fair market value of the
Company’s common stock on the grant date. The exercise price of a nonqualified option
granted under the Stock Option Plan must not be less than 50% of the fair market value of
the Company’s common stock on the grant date. Prior to the initial public offering in
July 2000, the Board of Directors determined the fair value of the common shares
underlying options by assessing the business progress of the Company as well as the market
conditions for medical device companies and other external factors. The options expire on
the date determined by the Board of Directors but may not extend more than ten years from
the grant date. The Stock Option Plan also permits the granting of stock appreciation
rights, restricted stock, and other 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>
<!-- 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=100%>
<TR VALIGN=Bottom>
<TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
<TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Shares<BR>
Available<BR>
for Grant</FONT></TH>
<TH COLSPAN=1><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
<TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Plan Options<BR>
Outstanding</FONT></TH>
<TH COLSPAN=1><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
<TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Exercise<BR>
Price</FONT></TH>
<TH COLSPAN=1><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
<TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Weighted Average<BR>
Exercise<BR>
Price</FONT></TH></TR>
<TR>
<TD COLSPAN=3></TD>
<TD COLSPAN=11 ALIGN=RIGHT><HR NOSHADE COLOR=#000000 SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
<TD WIDTH=37% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Balance at December 31, 2001</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=10% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>49,789</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=10% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,574,811</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> $1.50-$16.50</FONT></TD>
<TD WIDTH=3% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=1% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD WIDTH=4% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 5.45</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=3% 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> 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=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> 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> </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=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1.83</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> 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> </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=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2.00</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> 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> </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=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>6.25</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 ALIGN=RIGHT><HR NOSHADE COLOR=#000000 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>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> </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=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>3.94</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 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=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> 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> </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=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>0.89</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> 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> </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=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1.25</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> 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> </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=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2.49</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 ALIGN=RIGHT><HR NOSHADE COLOR=#000000 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>1,043,574</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=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>0.78-12.00</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2.50</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 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=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> 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>(357,000</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>357,000</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>6.74-10.89</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>7.75</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> 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>(166,745</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>0.78-7.31</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2.03</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> 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>50,265</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(50,265</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>0.84-7.48</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2.92</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 ALIGN=RIGHT><HR NOSHADE COLOR=#000000 SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>Balance at December 31, 2004</B> </FONT></TD><TD ALIGN=LEFT><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"><B> </B> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>1,236,839</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>1,645,161</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> $0.78-$12.00</B> </FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B> </B> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>$</B> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B> 3.68</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=6 ALIGN=RIGHT><HR NOSHADE COLOR=#000000 SIZE=2></TD><TD></TD></TR>
</TABLE>
<BR>
<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>55 </FONT></P>
<HR SIZE=3 COLOR=GRAY NOSHADE>
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<BR><BR>
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<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>10. Stock Options and
Warrants (continued) </FONT></H1>
<!-- 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, 2004: </FONT></P>
<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 WIDTH=100%>
<TR VALIGN=Bottom>
<TH COLSPAN="3" WIDTH="19%" STYLE="text-indent:48; direction:ltr;"><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></TH>
<TH COLSPAN=9><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Options Exercisable</FONT></TH></TR>
<TR>
<TD COLSPAN="3" WIDTH="19%" STYLE="text-indent:48; direction:ltr;"></TD>
<TD COLSPAN=8 ALIGN=RIGHT><HR NOSHADE COLOR=#000000 SIZE=1></TD><TD></TD>
<TD COLSPAN=5 ALIGN=RIGHT><HR NOSHADE COLOR=#000000 SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
<TH COLSPAN="3" WIDTH="19%"><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Range of<BR>
Exercise Prices</FONT></TH>
<TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Outstanding<BR>
as of December<BR>
31, 2004</FONT></TH>
<TH COLSPAN=1><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
<TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Weighted<BR>
Average<BR>
Remaining<BR>
Contractual Life</FONT></TH>
<TH COLSPAN=1><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
<TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Weighted<BR>
Average<BR>
Exercise Price</FONT></TH>
<TH COLSPAN=1><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
<TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Exercisable<BR>
as of<BR>
December 31,<BR>
2004</FONT></TH>
<TH COLSPAN=1><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
<TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Weighted<BR>
Average<BR>
Exercise Price</FONT></TH></TR>
<TR>
<TD COLSPAN="11" ALIGN="RIGHT" WIDTH="19%" STYLE="text-indent:48; direction:ltr;"><HR NOSHADE COLOR=#000000 SIZE=1></TD><TD></TD>
<TD COLSPAN=8 ALIGN=RIGHT><HR NOSHADE COLOR=#000000 SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
<TD WIDTH="19%" ALIGN="LEFT" STYLE="text-indent:68; direction:ltr;"><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=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" STYLE="text-indent:48; direction:rtl;"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>80,750</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="7%" ALIGN="RIGHT" STYLE="text-indent:30; direction:rtl;"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>8.1</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="7%" ALIGN="RIGHT" STYLE="text-indent:20; direction:rtl;"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$0.79</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="14%" ALIGN="RIGHT" STYLE="text-indent:40; direction:rtl;"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>73,055</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="7%" ALIGN="RIGHT" STYLE="text-indent:24; direction:rtl;"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> $0.79</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" WIDTH="19%" STYLE="text-indent:68; direction:ltr;"><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" WIDTH="14%" STYLE="text-indent:48; direction:rtl;"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>592,590</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN="RIGHT" WIDTH="7%" STYLE="text-indent:30; direction:rtl;"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>8.1</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN="RIGHT" WIDTH="7%" STYLE="text-indent:20; direction:rtl;"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>0.84</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN="RIGHT" WIDTH="14%" STYLE="text-indent:40; direction:rtl;"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>427,335</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN="RIGHT" WIDTH="7%" STYLE="text-indent:24; direction:rtl;"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>0.84</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN="LEFT" WIDTH="19%" STYLE="text-indent:68; direction:ltr;"><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" WIDTH="14%" STYLE="text-indent:48; direction:rtl;"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>260,766</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN="RIGHT" WIDTH="7%" STYLE="text-indent:30; direction:rtl;"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>5.6</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN="RIGHT" WIDTH="7%" STYLE="text-indent:20; direction:rtl;"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>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" WIDTH="14%" STYLE="text-indent:40; direction:rtl;"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>219,106</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN="RIGHT" WIDTH="7%" STYLE="text-indent:24; direction:rtl;"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2.08</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN="LEFT" WIDTH="19%" STYLE="text-indent:68; direction:ltr;"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 2.52- 6.00</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" WIDTH="14%" STYLE="text-indent:48; direction:rtl;"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>261,650</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" WIDTH="7%" STYLE="text-indent:30; direction:rtl;"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>5.0</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN="RIGHT" WIDTH="7%" STYLE="text-indent:20; direction:rtl;"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>5.63</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN="RIGHT" WIDTH="14%" STYLE="text-indent:40; direction:rtl;"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>255,590</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN="RIGHT" WIDTH="7%" STYLE="text-indent:24; direction:rtl;"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>5.67</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN="LEFT" WIDTH="19%" STYLE="text-indent:68; direction:ltr;"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 6.01- 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" WIDTH="14%" STYLE="text-indent:48; direction:rtl;"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>246,835</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN="RIGHT" WIDTH="7%" STYLE="text-indent:30; direction:rtl;"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>8.7</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN="RIGHT" WIDTH="7%" STYLE="text-indent:20; direction:rtl;"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>6.73</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN="RIGHT" WIDTH="14%" STYLE="text-indent:40; direction:rtl;"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>27,385</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN="RIGHT" WIDTH="7%" STYLE="text-indent:24; direction:rtl;"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>6.68</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN="LEFT" WIDTH="19%" STYLE="text-indent:68; direction:ltr;"><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" WIDTH="14%" STYLE="text-indent:48; direction:rtl;"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>202,570</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" WIDTH="7%" STYLE="text-indent:30; direction:rtl;"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>8.3</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN="RIGHT" WIDTH="7%" STYLE="text-indent:20; direction:rtl;"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>8.89</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN="RIGHT" WIDTH="14%" STYLE="text-indent:40; direction:rtl;"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>133,780</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" WIDTH="7%" STYLE="text-indent:24; direction:rtl;"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>9.14</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR>
<TD COLSPAN="3" WIDTH="19%" STYLE="text-indent:48; direction:ltr;"></TD>
<TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#000000 SIZE=1></TD><TD></TD>
<TD COLSPAN=3></TD>
<TD COLSPAN=3></TD>
<TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#000000 SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN="LEFT" WIDTH="19%" STYLE="text-indent:68; direction:ltr;"><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=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" WIDTH="14%" STYLE="text-indent:48; direction:rtl;"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>1,645,161</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" WIDTH="7%" STYLE="text-indent:30; direction:rtl;"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>7.3</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" WIDTH="7%" STYLE="text-indent:20; direction:rtl;"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>$3.68</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" WIDTH="14%" STYLE="text-indent:40; direction:rtl;"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>1,136,251</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" WIDTH="7%" STYLE="text-indent:24; direction:rtl;"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>$3.28</B> </FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B> </B> </FONT></TD></TR>
<TR>
<TD COLSPAN="3" WIDTH="19%" STYLE="text-indent:48; direction:ltr;"></TD>
<TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#000000 SIZE=2></TD><TD></TD>
<TD COLSPAN=3></TD>
<TD COLSPAN=3></TD>
<TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#000000 SIZE=2></TD><TD></TD></TR>
</TABLE>
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<P ALIGN=LEFT><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 2004, 2003, and 2002, the Company
recorded $53,759, $0 and $1,858, respectively, of deferred compensation in connection with
certain nonqualified stock options granted to medical advisory board members. The weighted
average fair value of these options was $4.12. 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 $11,788, $40,545 and $74,668 for the
years ended December 31, 2004, 2003, and 2002, respectively. </FONT></P>
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<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><I><B>Warrants</b></i></FONT></P>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>As of December 31, 2004, the Company
had the following warrants outstanding and exercisable: </FONT></P>
<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 WIDTH=70%>
<TR VALIGN=Bottom>
<TH COLSPAN="3" WIDTH="14%" STYLE="text-indent:18; direction:rtl;"><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Exercise Price</FONT></TH>
<TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Outstanding as of<BR>
December 31, 2004</FONT></TH>
<TH COLSPAN=1><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
<TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Expiration Date</FONT></TH></TR>
<TR>
<TD COLSPAN="9" ALIGN="RIGHT" WIDTH="14%" STYLE="text-indent:18; direction:rtl;"><HR NOSHADE COLOR=#000000 SIZE=1></TD></TR>
<TR VALIGN=Bottom>
<TD WIDTH="14%" ALIGN="RIGHT" STYLE="text-indent:18; direction:rtl;"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1.50</FONT></TD><TD WIDTH=1% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></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="19%" ALIGN="RIGHT" STYLE="text-indent:48; direction:rtl;"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>70,400</FONT></TD>
<TD WIDTH=8% ALIGN=LEFT><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>January 31, 2007</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></TR>
<TR VALIGN=Bottom>
<TD ALIGN="RIGHT" WIDTH="14%" STYLE="text-indent:18; direction:rtl;"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1.50</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" WIDTH="19%" STYLE="text-indent:48; direction:rtl;"><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=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><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN="RIGHT" WIDTH="14%" STYLE="text-indent:18; direction:rtl;"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>3.00</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" WIDTH="19%" STYLE="text-indent:48; direction:rtl;"><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=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><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR>
<TD COLSPAN="6" ALIGN="RIGHT" WIDTH="14%" STYLE="text-indent:18; direction:rtl;"><HR NOSHADE COLOR=#000000 SIZE=1></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN="RIGHT" WIDTH="14%" STYLE="text-indent:18; direction:rtl;"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$2.13</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" WIDTH="19%" STYLE="text-indent:48; direction:rtl;"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>162,900</FONT></TD>
<TD ALIGN=LEFT><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=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
</TABLE>
<!-- MARKER FORMAT-SHEET="Head Major Left Bold" FSL="Default" -->
<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>11. Employee Stock Purchase Plan </FONT></H1>
<!-- 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 1,100,000 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 2004, 2003 and 2002, 245,567 shares,
195,876 shares, and 152,737 shares, respectively, were issued under the Purchase Plan. At
December 31, 2004, 415,626 shares were available for issuance under the Purchase Plan. </FONT></P>
<BR>
<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>56 </FONT></P>
<HR SIZE=3 COLOR=GRAY NOSHADE>
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<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>12. Stock Repurchase Program </FONT></H1>
<!-- 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, respectively. In October 2003, the Board of Directors terminated
the stock repurchase program. </FONT></P>
<!-- MARKER FORMAT-SHEET="Head Major Left Bold" FSL="Default" -->
<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>13. Employee Retirement
Savings Plan </FONT></H1>
<!-- 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 $73,056, $74,258, and
$91,170 for contributions to the Plan for the years ended December 31, 2004, 2003,
and 2002, respectively. </FONT></P>
<!-- MARKER FORMAT-SHEET="Head Major Left Bold" FSL="Default" -->
<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>14. Concentrations of
Credit and Other Risks </FONT></H1>
<!-- 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>
<!-- 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, 2004, 2003 and 2002. </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.
No customers were more than 5% of gross accounts receivable as of December 31, 2004 and
2003. 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 WIDTH=50%>
<TR VALIGN=Bottom>
<TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
<TH COLSPAN=2 align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2004</FONT></TH>
<TH COLSPAN=1><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
<TH COLSPAN=2 align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2003</FONT></TH>
<TH COLSPAN=1><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
<TH COLSPAN=2 align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2002</FONT></TH></tr>
<TR>
<TD colspan=3> </td><TD COLSPAN="9"><HR NOSHADE COLOR=#000000 SIZE=1></TD></TR>
<TR VALIGN=Bottom>
<TD WIDTH=36% 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>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>87</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>89</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>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>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>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>11</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
</TABLE>
<!-- MARKER FORMAT-SHEET="Head Major Left Bold" FSL="Default" -->
<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>15. Related Party Sales </FONT></H1>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>In fiscal 2004, 2003 and 2002, the
Company sold $278,620, $0 and $0 of product to a company in which a board member of the
Company is a Vice President. As of December 31, 2004 and 2003, the Company had an accounts
receivable balance due of $57,000 and $0 from this related party company. </FONT></P>
<BR>
<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>57 </FONT></P>
<HR SIZE=3 COLOR=GRAY NOSHADE>
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<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>16. Dependence on Key Suppliers </FONT></H1>
<!-- MARKER FORMAT-SHEET="Head Left" FSL="Default" -->
<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>King Pharmaceuticals </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 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 2005 and 2006. </FONT></P>
<!-- MARKER FORMAT-SHEET="Head Left" FSL="Default" -->
<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Sigma </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>On October 18, 2004, the Company
entered into a supply agreement with Sigma-Aldrich Fine Chemicals, an operating division
of Sigma-Aldrich, Inc. (Sigma) for the supply of thrombin to the Company. Pursuant to the
terms of the agreement, the Company will be paying for certain development costs of Sigma
to allow Sigma to produce thrombin. The Company will pay Sigma $570,360 for its
development and qualification costs, $181,560 for capital equipment and $1,725,000 for the
first three lots of thrombin. The payments are based on certain milestones over a two year
period. The contract terminates after ten years and is automatically extended for up to
five additional successive one year terms unless one party delivers notice of termination
at least one year prior to the scheduled termination of the agreement. During the term of
the contract, Sigma has agreed not to sell thrombin of the type developed for the Company
under the contract in or as a component of a hemostatic product for medical use. The
Company does not have any minimum purchase requirements under the contract; however, if
the Company purchases less than three lots of thrombin in any year then (i) Sigma will be
released from its agreement not to sell thrombin in or as a component of a hemostatic
product for medical use, and (ii) Sigma will have the right to terminate the contract on
30 days notice. </FONT></P>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The Sigma contract is the start of
the Company’s plan to fully qualify a new source of thrombin and to bring the new
thrombin through the regulatory process over the next two years. The cost associated with
the Sigma agreement are part of the Company’s total estimated expenditures of $6.1
million (including the payments to Sigma) to complete this project. Approximately $3.3
million of the $6.1 million is for thrombin qualification expenses, $0.3 million is for
capital equipment and $2.5 million is for the purchase of thrombin. The purchase of the
$2.5 million in thrombin is expected to be used in the Company’s hemostat products
starting in 2007. </FONT></P>
<!-- MARKER FORMAT-SHEET="Head Major Left Bold" FSL="Default" -->
<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>17. Commitments and Contingencies </FONT></H1>
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>All legal costs related to litigation are charged to operations as incurred.</FONT></P>
<!-- MARKER FORMAT-SHEET="Head Left" FSL="Default" -->
<P ALIGN=LEFT><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>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>
<BR>
<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>58 </FONT></P>
<HR SIZE=3 COLOR=GRAY NOSHADE>
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<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>17. Commitments and
Contingencies (continued) </FONT></H1>
<!-- MARKER FORMAT-SHEET="Head Left" FSL="Default" -->
<P ALIGN=LEFT><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 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="Head Left" FSL="Default" -->
<P ALIGN=LEFT><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 Company’s Vari-Lase endovenous laser
procedure kit the Company 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 Company’s Vari-Lase procedure kit. The
complaint requests monetary damages and an injunction on the sale of the Company’s
Vari-Lase procedure kit. The Company believes that the allegations included in the
complaint are wholly without merit, have filed their answer to the complaint, and intend
to defend this litigation vigorously. The Company’s insurance carrier has accepted
their tender of this claim and is defending this lawsuit. It is not possible to predict
the timing or outcome of this litigation, including whether it will affect the
Company’s ability to sell its 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>On March 4, 2004, the Company was
named as the defendant in an intellectual property lawsuit brought by Diomed, Inc. in the
United States District Court for the District of Massachusetts. The complaint requested a
judgment that the Company’s Vari-Lase procedure kit and Vari-Lase laser console
infringe on a single patent held by Diomed, Inc. and asked for relief in the form of an
injunction that would prevent the Company from selling their Vari-Lase products,
compensatory and treble damages caused by the manufacture and sale of the Company’s
product, and other costs, disbursements and attorneys’ fees. The Company believes
that the allegations included in the complaint are wholly without merit, have filed their
answer to the complaint, and intend to defend this litigation vigorously. It is not
possible to predict the timing or outcome of this litigation, including whether it will
affect the Company’s ability to sell their Vari-Lase products, or to estimate the
amount or range of potential loss, if any. </FONT></P>
<!-- MARKER FORMAT-SHEET="Head Left" FSL="Default" -->
<P ALIGN=LEFT><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
was obligated to purchase laser consoles with an aggregate purchase price of $1,197,000
for its Vari-Lase business during the first year of the agreement, which commenced in
December 2003. The Company fulfilled its laser console purchase requirement of $1,197,000
during 2004. </FONT></P>
<BR>
<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>59 </FONT></P>
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<BR><BR>
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<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>18. Quarterly Financial
Data (Unaudited, in Thousands, Except per Share Data) </FONT></H1>
<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 WIDTH=70%>
<TR VALIGN=Bottom>
<TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2004</FONT></TH>
<TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Fourth<BR>Quarter</FONT></TH>
<TH COLSPAN=1><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
<TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Third<BR>
Quarter</FONT></TH>
<TH COLSPAN=1><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
<TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Second<BR>Quarter</FONT></TH>
<TH COLSPAN=1><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
<TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=1>First<BR>
Quarter</FONT></TH></TR>
<TR>
<TD COLSPAN=14 ALIGN=RIGHT><HR NOSHADE COLOR=#000000 SIZE=1></TD></TR>
<TR VALIGN=Bottom>
<TD WIDTH=39% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Net sales</FONT></TD>
<TD WIDTH=1% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=3% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=1% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD WIDTH=9% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 6,650</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>$</FONT></TD><TD WIDTH=9% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 5,931</FONT></TD>
<TD WIDTH=5% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=1% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD WIDTH=9% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 5,246</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=9% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 4,438</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>4,652</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>4,290</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>3,673</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>3,043</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>(599</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(445</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(1,021</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>(1,511</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>(573</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
<TD ALIGN=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</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(999</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(1,499</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> (0.04</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> (0.03</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> (0.07</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> (0.11</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR><td> </td></tr>
<TR VALIGN=Bottom>
<TD ALIGN=center><FONT FACE="Times New Roman, Times, Serif" SIZE=1><B> 2003</b></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>
<TR>
<TD COLSPAN=3 ALIGN=RIGHT><HR NOSHADE COLOR=#000000 SIZE=1></TD></TR>
<TR VALIGN=Bottom>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Net sales</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 3,403</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 2,708</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 2,725</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 2,968</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>2,242</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,607</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,639</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,746</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>(1,981</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(2,415</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(2,724</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(2,659</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>(1,963</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(2,385</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(2,683</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(2,597</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> (0.15</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> (0.19</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> (0.21</FONT></TD>
<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
<TD ALIGN=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></TR>
</TABLE>
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<DOCUMENT>
<TYPE>EX-10.12
<SEQUENCE>2
<FILENAME>vasc050575_ex10-12.txt
<TEXT>
EXHIBIT 10.12
SUPPLY AGREEMENT
----------------
THIS AGREEMENT is made as of the 18th day of October, 2004, by and
between Sigma-Aldrich Fine Chemicals, an operating division of Sigma-Aldrich
Inc., having an office at 3050 Spruce Street, St. Louis, MO 63103 ("Seller"),
and Vascular Solutions, Inc., having an office at 6464 Sycamore Court,
Minneapolis, MN 55369 ("Buyer").
WHEREAS, Seller has the experience and capability to manufacture and
supply thrombin solution from bovine plasma as further described in Attachment
1, and
WHEREAS, Buyer desires to have available on a coordinated continuing
basis a supply of said product,
NOW, THEREFORE, in consideration of the premises and mutual covenants
and conditions contained herein, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
-----------
For the purposes of this Agreement, the following words and phrases
shall have the following meanings:
1.1 "Affiliate" shall mean with respect to any specified Person,
any other Person that directly or indirectly through one or
more intermediaries, controls, or is controlled by, or is
under common control with, the Person specified. For purposes
of this definition, "control" including, with correlative
meanings, the terms "controlled by" and "under common control
with" means ownership directly or indirectly of more than
fifty percent (50%) of the equity capital having the right to
vote for election of directors in the case of a corporation
and more than fifty percent (50%) of the beneficial interest
in the case of a business entity other than a corporation.
1.2 "Agreement" shall mean this Supply Agreement.
1.3 "GMP shall mean that the Product will be manufactured in
accordance with ICH Q7A to be used in preparation of a "drug
product" as defined in accordance with 21CFR211.
** The appearance of a double asterisk denotes confidential information that has
been omitted from the exhibit and filed separately, accompanied by a
confidential treatment request, with the Securities and Exchange Commission
pursuant to Rule 24b-2 of the Securities Exchange Act of 1934.
1 of 23
Initials:
Buyer ______
Seller ______
<PAGE>
1.4 "Contract Year" shall mean the period of twelve (12) months
from and including the Effectiveness Date and each subsequent
consecutive period of twelve (12) months during the
continuance of this Agreement.
1.5 "Effectiveness Date" shall mean the earlier of the date that
Buyer receives approval from the FDA for the inclusion of
Seller's Product in at least one of Buyer's hemostasis
products for sale in the United States and January 1, 2007.
1.6 "FDA" shall mean the United States Food & Drug Administration,
or any successor organization.
1.7 "Government Approvals" shall mean any approvals, licenses,
permits, registrations or authorizations, howsoever called, of
any United States or foreign regulatory agency, department,
bureau or other government entity necessary for Seller's
manufacture, use, storage, transport or sale of the Product.
1.8 "Lot" shall mean a manufacturing lot of the Product with a
sufficient quantity of components to result in a final yield
of at least ** units of the Product.
1.9 "QSR's" shall mean the Quality System Regulations of the FDA.
1.10 "Person" shall mean any individual, corporation, company,
limited liability company, partnership, business trust,
business association, governmental entity, governmental
authority or other legal entity.
1.11 "Product" shall mean thrombin solution from bovine plasma as
described in Attachment 1 attached hereto and/or alternatively
termed the API or Active Pharmaceutical Ingredient.
1.12 "Specifications" shall mean the specifications for the Product
set out in Attachment 1 attached hereto, as shall be amended
from time to time by mutual written agreement of the parties.
1.13 "Term" shall mean from the date of this Agreement to the
expiration of the Tenth Contract Year, unless extended or
terminated as provided for herein.
ARTICLE II
PURCHASE AND DELIVERY
---------------------
2.1 During the Term of this Agreement, Seller agrees to
manufacture and sell and Buyer agrees to purchase the Product
on the terms and conditions stated in this Agreement
2 of 23
Initials:
Buyer ______
Seller ______
<PAGE>
2.2 Purchase orders for the Product will be placed on Buyer's
standard purchase order form then in effect. All terms and
conditions of this Agreement shall supersede any terms or
conditions of Buyer's or Seller's ordering or shipment forms
which modify or are otherwise inconsistent with the terms and
conditions of this Agreement. All shipments of Product will be
supplied by Seller in accordance with the Specifications in
Attachment 1.
2.3 All Product sold by Seller to Buyer shall be F.O.B. St. Louis,
Missouri. Seller shall retain title and bear the risk of loss
on the Product until such time as a shipment has been
delivered to the carrier designated by Buyer or, if no such
designation has occurred, Seller's regular carrier.
2.4 Seller shall package and ship the Product in a commercially
reasonable manner in accordance with Buyer's reasonable
instructions. At Buyer's option, Seller will procure insurance
on the shipments against damage to or loss of the Product. Any
such shipping insurance so provided by Seller will be
subsequently billed to Buyer, and Buyer will reimburse Seller
for the actual costs of such insurance. No partial shipments
shall be made without Buyer's written consent.
2.5 In the event that any portion of the shipment of the Product
received by Buyer fails to conform to the Specifications,
Buyer may reject the non-conforming Product shipment by giving
written notice to Seller within ninety (90) days of Buyer's
receipt of the Product, which notice shall specify the manner
in which the Product fails to meet the Specifications. In the
event a Product defect could not have been ascertained by
Buyer upon reasonable inspection of the Product and analysis
thereof, then the ninety (90) day time period referred to
herein shall not apply provided that (i) Buyer notifies Seller
promptly upon having reason to know of such Product defect
(but in any event no later than twelve (12) months from date
of delivery) and (ii) the limitation on remedy and liability
set out in Paragraph 2.8 shall apply with respect thereto.
2.6 In the event Seller does not agree that any such Product
failed to meet the Specifications and Seller and Buyer cannot
reach agreement with respect to such Product, Seller will
submit the question of whether the Product failed to meet the
Specifications to an independent laboratory selected by Seller
and approved by Buyer for determination. The findings of such
laboratory shall be binding upon Seller and Buyer and the cost
of such determination shall be paid by the party in error.
3 of 23
Initials:
Buyer ______
Seller ______
<PAGE>
2.7 Subject to Sections 2.5 and 2.6, Seller shall replace any
Product not conforming to the Specifications forthwith, at its
expense, or if it is unable to make prompt replacement, Seller
shall either credit Buyer's account or refund any payment made
on the nonaccepted Product, depending on Buyer's account
balance, within forty-five (45) days of Seller's receipt of
notice of Buyer's non-acceptance. Buyer shall return, at
Seller's expense, the nonaccepted Product to Seller.
2.8 Except as provided for under Paragraph 6.5 regarding Seller's
indemnification obligations for third party claims, the
remedies described in Section 2.5 and 2.7 shall be Buyer's
sole remedy and Seller's only liability to Buyer hereunder
with respect thereto.
2.9 By the beginning of each calendar quarter (January 1, April 1,
July 1 and October 1), Buyer shall submit to Seller (i) a
binding order setting forth the quantities, delivery dates and
shipping instructions for Product delivery for the calendar
quarter commencing three months following such date, and (ii)
a non-binding forecast for delivery of Product for the next
following twelve (12) months. Binding orders shall be
considered firm and non-cancelable, however, Buyer may request
an increase to a binding order and Seller agrees to use
commercially reasonable efforts to supply such additional
Product in accordance with the terms and conditions of this
Agreement. The forecast will be used to determine the volume
purchase price for the Contract Year, which shall be adjusted
immediately if the actual amount of purchases during such
Contract Year exceeds or is less than the forecasted amount.
2.10 Each purchase order issued by Buyer shall be in full
increments of one (1) Lot.
2.11 Seller agrees that during the Term of this Agreement, Seller
and its Affiliates will not directly or indirectly sell the
Product or any derivative of the Product in or as a component
of a hemostatic product for medical use. The foregoing
restriction shall be conditioned upon and subject to Buyer's
continuing purchase of at least three (3) Lots of the Product
each Contract Year during the Term of this Agreement. In the
event that Buyer fails to purchase at least three (3) Lots of
Product during any such Contract Year, Seller shall not be
obligated to the foregoing restriction and at its sole
discretion may terminate this Agreement upon thirty (30) days
written notice to Buyer.
4 of 23
Initials:
Buyer ______
Seller ______
<PAGE>
ARTICLE III
QUALITY STANDARDS
-----------------
3.1 All raw materials are defined by engineering drawings or
specifications. Approved vendors must be designated on the
drawings/specs. Raw materials will be supplied by Seller.
Seller will use standard operating procedures which define the
sampling methodology and the analytical methods used to assure
that the raw materials meet the defined specifications. Seller
will notify Buyer in writing of any changes to the
specifications, sampling or test methods of raw materials or
any changes in approved vendors.
3.2 Seller shall be responsible for and shall provide all
packaging materials and printed materials associated with the
Product. This includes, but is not limited to, container
labels, container cartons and packaging material. Seller shall
be responsible for compliance with all Federal, State and
Local laws and regulations concerning packaging and labeling
materials, and for obtaining any necessary regulatory
approvals of printed materials, artwork and copy. Seller shall
obtain prior approval from Buyer before revising any printed
packaging components, primary container components and any
Buyer-supplied packaging components used in the Product.
3.3 Materials not found to meet Specifications will be considered
non-conforming. Seller shall determine the future usability of
non-conforming materials. Actions taken to investigate the
non-conformance and to justify the release of the batch of
material must be fully documented. Copies of all documentation
associated with non-conformance of materials used shall be
maintained by Seller.
3.4 The manufacturing process or traveler shall be maintained by
the Document Control / Quality Control group within Seller.
These documents shall be reviewed and approved by Buyer
according to Buyer's requirements. Listed on Buyer's Purchase
Order will be the types of changes to the manufacturing
process or traveler that require approval by Buyer prior to
implementation. Each Lot of product produced must be assigned
a unique batch or lot number. Any deviation from the specified
manufacturing process must be documented in the batch record
or traveler. Seller shall have a system to document the
deviation, the investigation that was undertaken and the
conclusion drawn from that investigation. The documentation
associated with any deviation in the manufacturing process
shall become part of the batch record.
3.5 Seller is responsible for ensuring that equipment is routinely
calibrated, inspected, maintained and qualified for use.
Calibration must be traceable to national or international
standards and the calibration status must be clearly
identified on the equipment.
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3.6 Buyer must be provided with a copy of the top-level history
record (traveler/batch record) for the Product manufactured,
if so requested by Buyer. Seller agrees to maintain all
records that support this document (e.g.,
inspection/acceptance records for subassemblies and
components) for the Term of this Agreement.
3.7 All in-process and finished Product testing shall be conducted
by Seller using validated test methods. Upon reasonable
request, Seller shall provide Buyer with a certificate of
analysis indicating each test parameter, test method, test
result and the corresponding acceptance criteria for each
batch/lot of product manufactured or packaged, as well as a
statement indicating that all associated documentation has
been reviewed and approved by the appropriate quality control
unit.
3.8 Seller is responsible for obtaining and maintaining file
samples.
3.9 Seller will allow GMP audits to be performed by approved
representatives of Buyer during normal business hours upon
reasonable advance notice and not to exceed two per year.
Buyer reserves the right to request additional audits of
Seller in the event that special circumstances require
additional investigation, such as product recalls or other
quality assurance issues.
3.10 Process/product and cleaning validation shall be performed by
Seller using protocols developed according to industry
standards. Seller shall be responsible for conducting the
validation studies and maintaining validation reports. Seller
is responsible for operating within validated parameters.
3.11 Seller agrees to manufacture in a manufacturing environment
such that the particulate and microbial levels are within the
Specifications. If no Specifications are defined, then no
particular manufacturing environment requirements are
necessary beyond applicable GMP guidelines. Where particulate
and microbial levels are required for the Product, then the
facilities and raw materials used during the manufacturing and
packaging process shall be monitored for these factors. Seller
shall be responsible for the establishment and institution of
a monitoring program to assure that the Product will meet the
required particulate and microbial levels and shall maintain
the records obtained from this monitoring program.
3.12 Buyer shall maintain distribution records which contain all of
the appropriate information as specified in 21 CFR, Section
211.198. Handling and documentation of returned product from
end-users is the responsibility of Buyer.
3.13 Buyer is responsible for investigating and handling complaints
from end-users. Seller shall cooperate with Buyer's
investigations, including providing manufacturing-related
records as they relate to the investigation.
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3.14 Seller warrants that all federal environmental and safety
requirements are being and will be followed at its facilities.
Buyer shall have the right to inspect at reasonable times
during normal business hours, and on reasonable prior notice,
the operations, records and facilities of Seller wherein
Products are manufactured, tested and stored for shipping for
the purpose of quality assurance auditing and to evaluate
compliance with applicable environmental and occupational
health and safety laws and regulations.
3.15 Seller shall notify Buyer of significant incidents relating to
production of the Product, including but not limited to the
following (i) fatalities and/or significant injuries or
occupations illnesses; (ii) incidents resulting in property
damage of $50,000 or more; (iii) environmental releases
reportable to regulatory agencies; (iv) regulatory agency
inspections alleging non-compliance; and (v) request for
information, notices of violations or other communication from
a governmental agency relating to environmental or
occupational health and safety compliance.
3.16 At Buyer's request, Seller shall provide copies of all
relevant environmental licenses and permits pertaining to its
operation and shall notify Buyer of any change in status.
3.17 At Buyer's request, Seller will provide Buyer with copies of
all applicable insurance certificates.
3.18 Unless otherwise stated in this Agreement, Seller is
responsible for compliance to all Federal, State and Local
laws and regulations as they apply to Seller's business.
3.19 Seller shall cooperate with Buyer's reasonable requests for
information and assistance in all FDA and international
regulatory filings, audits and approvals. Seller shall
promptly notify Buyer of any announced or unannounced FDA or
foreign authority inspection relating to the manufacture of
the Product. Seller shall permit a representative of Buyer to
be present at Seller's facilities during any inspection
relating to the manufacture of the Product. Seller shall
immediately provide Buyer with copies of any resulting
document of action (FDA Form 483 inspectional observation
report, regulatory letters, etc.) resulting from these audits.
Should either Seller or Buyer receive any such document of
action related to the Product, it shall immediately notify the
other and shall provide to the other an opportunity to the
extent feasible under the circumstances to provide input to
any response to any such document of action. Seller shall
cooperate with Buyer to address any GMP deficiencies noted
during any FDA audit.
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ARTICLE IV
PRICING
-------
4.1 During the First Contract Year, Buyer will pay Seller the
purchase price specified in Attachment 2 for each Lot of
Product ordered and shipped to Buyer. The prices for each
Contract Year subsequent to the First Contract Year shall be
adjusted for inflation, effective the first day of such
Contract Year. The adjusted price will be the price for the
prior Contract Year plus an inflation factor equal to the
12-month average percentage increase in total compensation for
private industry workers for the period ending the most recent
December 31 as indicated on Table 3 of the EMPLOYMENT COST
INDEX published by the Bureau of Labor Statistics of the
United States Department of Labor or, if the EMPLOYMENT COST
INDEX should cease to be published, any comparable category in
a comparable index agreeable to both parties, in any case
multiplied by the prior Contract Year's price.
4.2 Seller shall invoice Buyer on each shipment of the Product,
and payment shall be made in all cases net 30 days from the
date of shipment. Any invoiced amounts due but not paid from
and after the date due shall accrue a service charge of 1% per
month or the maximum rate allowed by law, whichever is lower.
Such prices do not include, and Buyer shall pay for, any
excise, sales, use or like taxes resulting from the sale of
the Product to Buyer.
4.3 In addition to the adjustment provided in Section 4.1 of this
Agreement, Seller may implement an increase to the purchase
price if (i) Buyer requires a change to the manufacturing
processes, testing requirements or raw materials for the
Product, (ii) Seller is required to make a change to the
manufacturing processes, testing requirements or raw materials
for the Product, or (iii) the cost of raw materials for the
Product increases. The amount of increase to the purchase
price will be equal to the actual amount of increased cost to
Seller, and will apply to all quantity levels of the purchase
price as listed on Attachment 2. If Seller increases the
purchase price pursuant to this Section 4.3, Seller will send
a price increase notice to Buyer, together with documentation
of the cost increase, and such price increase shall take
effect immediately for any future binding orders placed by
Buyer.
ARTICLE V
DEVELOPMENT WORK
----------------
5.1 Seller and Buyer agree and understand that development work
will be required to be performed to allow Seller's manufacture
of the Product, and that successful completion of this
development work will be required prior to ordering any
Product under this Agreement.
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5.2 Seller agrees to perform the development or transfer of the
appropriate analytical methods for raw material, in-process
and release testing to the GMP facility. This work will
include reformatting of Standard Operating Procedures to GMP
quality control format and instrumentation, validation of
methods and performing raw material acceptance testing and
final release testing. The development work specified in this
Section 5.2 will be performed at a total cost of ** to be paid
by Buyer to Seller upon completion of this phase of
development work.
5.3 Seller agrees to conduct development trials to establish
whether Seller can produce material that meets the
Specifications by a process that includes the isolation of a
partially purified intermediate. This development work will
determine the suitability of the intermediate regarding
stability and yield and also define critical parameter limits
for the process. Upon successful completion, a draft batch
record (Seller's Master Manufacturing Formula) will be
written, and the process transferred to the GMP facility.
Progression of the project requires agreement of Seller and
Buyer of successful completion of the development work
specified in this Section 5.3. The development work specified
in this Section 5.3 will be performed at a total cost of ** to
be paid by Buyer to Seller upon completion of this phase of
development work.
5.4 Seller will use its best reasonable efforts to complete the
development work specified in Sections 5.2 and 5.3 within five
(5) months from the date of this Agreement. Buyer understands
that the completion of the work is subject to several
uncertainties which may extend this planned completion date.
5.5 Upon completion of the development work specified in Sections
5.2 and 5.3, Seller will undertake the production of one (1)
batch of ** units of Product in Seller's GMP facility meeting
the Specifications. The production of one (1) batch of **
units of Product will be performed by Seller at a total cost
of ** to be paid by Buyer to Seller upon delivery of the same.
All work will be performed using controlled documents, and
Seller's QC group will perform release tests.
5.6 Upon successful completion of the work outlined in Section
5.5, Seller shall manufacture and sell to Buyer three (3) Lots
of Product at the pricing set forth in Attachment 2. Seller
will use its best efforts to manufacture the first Lot in
accordance with the Specifications in a manner to make the
Product suitable for use by Buyer; however, no assurance is
made that the Product from the first Lot will be in full
accordance with the Specifications. All Lots of Product
manufactured after the first Lot must be according to the
Specifications in order to make the Product suitable for use
by Buyer. During and upon successful completion of
manufacturing the third Lot of Product, Seller shall validate
its processes at a cost to Buyer of **. In the event that the
Seller requires Product manufacturing to be relocated to
another facility following completion of process validation
work, Seller agrees to cover the cost of any additional
validations required as a result of the relocation Upon
completion of process validations, Seller shall promptly
perform
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the stability studies outlined in Attachment 3 at Buyer's cost
as outlined in Attachment 3.
5.7 Seller will use its best reasonable efforts to complete (i)
the development work specified in Section 5.5 within two (2)
months following the completion of the development work
specified in Sections 5.2 and 5.3, and (ii) the manufacturing
work specified in Section 5.6 within ten (10) months
thereafter. Buyer understands that the completion of the work
is subject to several uncertainties which may extend this
planned completion date.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
------------------------------
6.1 Each party represents and warrants to the other that the
execution of this Agreement and the full performance and
enjoyment of the rights of Seller and Buyer under this
Agreement will not breach or in any way be inconsistent with
the terms and conditions of any license, contract,
understanding or agreement, whether express, implied, written
or oral between the warranting party and any third party.
6.2 Seller represents and warrants that, to the best of its
knowledge as of the date of this Agreement, no patents, patent
applications if issued, or any other proprietary rights of any
third party would be infringed by the manufacture, use or sale
of the Product.
6.3 Seller warrants that all Product supplied pursuant to this
Agreement shall be free from defects in materials and
workmanship, shall be of merchantable quality, shall conform
to the requirement of applicable federal and state regulatory
requirements, shall have all necessary Government Approvals
and shall meet the Specifications. At Buyer's request, Seller
shall certify in writing that it is in substantial compliance
with all applicable environmental and occupational health and
safety laws and regulations.
6.4 SELLER DISCLAIMS ALL OTHER WARRANTIES, EXPRESS OR IMPLIED,
INCLUDING, WITHOUT LIMITATION, ANY IMPLIED WARRANTIES OF
MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE. BUYER
IS SOLELY RESPONSIBLE FOR DETERMINING THAT THE PRODUCT
PROVIDED BY SELLER HEREUNDER IS OF GOOD QUALITY, FREE FROM
DEFECTS, CONFORMS TO THE SPECIFICATIONS AND IS MERCHANTABLE.
6.5 Subject to Section 6.6, Seller shall indemnify, defend and
hold harmless Buyer from all actions, losses, claims, demands,
damages, costs and liabilities (including reasonable
attorneys' fees) to which Buyer is or may become subject
insofar as they arise out of or are alleged or claimed to
arise out of (i) personal injury, death
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or property damage sustained by any person(s) resulting from
the use of any Product manufactured by Seller, (ii) any breach
by Seller of any of its obligations under this Agreement or
warranties of Seller, or (iii) any negligent or willful act or
omission by Seller or its employee, agents or subcontractors.
6.6 Subject to Section 6.5, Buyer shall indemnify, defend and hold
harmless Seller from all actions, losses, claims, demands,
costs and liabilities (including reasonable attorney's fees)
to which Seller is or may become subject insofar as they arise
out of or are alleged or claimed to arise out of (i) any
breach by Buyer of any of its obligations under this
Agreement, (ii) any negligent or willful act or omission by
Buyer or its employees, agents or subcontractors, (iii)
personal injury, death or property damage sustained by any
person(s) resulting from the use of Product manufactured by
Buyer or by a third party at the direction of Buyer, or (iv)
any labeling, advertising or promotional materials used by
Buyer.
6.7 A party entitled to indemnification hereunder agrees to give
prompt written notice to the indemnifying party after the
receipt by such party of any written notice of the
commencement of any action, suit, proceeding or investigation
or threat thereof made in writing for which such party will
claim indemnification pursuant to this Agreement and cooperate
fully with the indemnifying party in conducting such defense.
Unless, in the reasonable judgment of the indemnified party, a
conflict of interest may exist between the indemnified party
and the indemnifying party with respect to a claim, the
indemnifying party may assume the defense of such claim with
counsel reasonably satisfactory to the indemnified party. If
the indemnifying party is not entitled to, or elects not to,
assume the defense of a claim, it will not be obligated to pay
the fees and expenses of more than one counsel with respect to
such claim. The indemnifying party will not be subject to any
liability for any settlement made without its consent, which
shall not be unreasonably withheld.
6.8 The provisions and obligations of this Article VI shall
survive any termination of this Agreement.
ARTICLE VII
RECALLS AND RETURNS
-------------------
7.1 In the event of a recall involving any Buyer finished product
containing Product supplied hereunder is required by a
governmental agency or authority of competent jurisdiction or
if recall is deemed advisable by Buyer, such recall shall be
promptly implemented and administered by Buyer in a manner
which is appropriate and reasonable under the circumstances
and conformity with accepted trade practices. Subject to
Paragraph 7.2, in the event that a recall is required as a
result of Buyer's breach of its obligations hereunder, all
costs and expenses incurred in connection therewith will be
borne by Buyer. Subject to
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Paragraph 7.2, in the event that a recall is required as a
result of Seller's breach of its obligations hereunder, all
costs and expenses incurred in connection therewith shall be
borne by Seller.
7.2 Notwithstanding anything in this Agreement to the contrary, in
the event of any recall, neither party shall be liable to the
other party for special, incidental or consequential damages,
loss of profit or loss of use, whether a claim arises in tort
or contract. The limitation on liability provided for herein
shall apply even in the event of the fault, negligence or
strict liability of the party that may be responsible for the
liability associated with such recall or the Products
recalled.
7.3 The provisions and obligations of this Article VII shall
survive any termination of this Agreement.
ARTICLE VIII
CONFIDENTIALITY
---------------
8.1 During the term of this Agreement each party may disclose
information to the other party that is of a confidential or
proprietary nature. Information which is designated in writing
to be confidential or, if disclosed orally, reduced to writing
and designated as confidential within thirty (30) days of such
disclosure (Confidential Information) shall be maintained in
confidence by the receiving party and not disclosed to third
parties except upon the disclosing party's prior written
consent. It shall be understood, however, that Confidential
Information shall not include, and the obligations of
confidentiality and nondisclosure shall not apply to,
disclosed information that:
a) is or becomes publicly available through no fault of
the receiving party;
b) is disclosed without restriction to the receiving
party by a third party entitled to disclose it;
c) is already known to the receiving party at the time
of disclosure by the disclosing party as shown by its
prior written records;
d) is developed independently by an employee or
consultant of the receiving party who had no
knowledge of disclosures made under this Agreement;
or
e) is required to be disclosed in compliance with a
governmental regulation or judicial or administrative
process.
8.2 No right or license, either expressed or implied, under any
patent or other intellectual property right is granted
hereunder.
8.3 The obligations of confidentiality and non-disclosure shall
remain in effect and survive for a period of five (5) years
from the termination of this Agreement.
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ARTICLE IX
TERM AND TERMINATION
--------------------
9.1 Unless sooner terminated in accordance with its terms, this
Agreement shall terminate upon the completion of the Tenth
Contract Year. This Agreement shall be automatically extended
for up to five (5) additional successive one year terms unless
one party delivers notice of termination at least one year
prior to the scheduled termination of this Agreement.
9.2 If either party defaults in the performance or observation of
any of its material obligations under this Agreement, the
non-defaulting party may terminate this Agreement if such
default is not cured within thirty (30) days after written
notice thereof, which notice shall contain a specific
identification of the default. Failure to terminate this
Agreement for any default or breach shall not constitute a
waiver by the aggrieved party of its right to sue for damages
or its right to terminate this Agreement for any other default
or breach.
9.3 If Buyer fails to purchase at least three (3) Lots of Product
in any Contract Year, Seller may terminate this Agreement if
Buyer has not corrected such deficiency by issuing a
definitive purchase order to Seller within thirty (30) days
after written notice thereof.
9.4 Either party may terminate this Agreement upon written notice
in the event that the other party files for bankruptcy,
liquidation, dissolution, or takes similar action seeking
protection against creditors under insolvency laws, or has
entered against it involuntarily a decree in bankruptcy or
similar decree which remains in effect for sixty (60) days.
9.5 This Agreement may be terminated upon the mutual written
agreement of the parties.
9.6 Expiration or earlier termination of this Agreement will not
extinguish rights or obligations previously accrued or vested.
9.7 Upon the expiration of this Agreement or its earlier
termination, Seller will use its best efforts to assist Buyer
in the transfer of relevant manufacturing technology and
information not considered to be Seller's proprietary
information to another qualified manufacturing site and Buyer
will pay Seller for all such efforts in an amount mutually
agreed upon by the parties prior to transfer of information.
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ARTICLE X
TRADEMARKS AND TRADE NAMES
--------------------------
10.1 Buyer and Seller hereby acknowledge that neither party now has
and shall not hereafter acquire, any interest in any of the
other party's trademarks, trade names, service marks or logos
appearing on the labels or packaging materials containing the
Product. No party shall, without the prior written consent of
the affected party, use in advertising, publicity or
otherwise, the name, trademark, logo, symbol or other image of
the other party.
10.2 Neither party will issue or disseminate any press release or
statement, nor initiate any communication of information
regarding the existence or the terms of this Agreement,
written or oral, to the communications media or a third party
without the prior written consent of the other party.
10.3 The obligations of this Article shall remain in effect and
survive the termination of this Agreement.
ARTICLE XI
ASSIGNMENT AND AMENDMENT
------------------------
11.1 This Agreement may not be assigned by either party without the
prior written consent of the other, except that either party
may assign this Agreement to any corporation with which it may
merge or consolidate, or to which it may transfer all or
substantially all of its assets to which this Agreement
relates, without obtaining the consent of the other party,
provided the assignee agrees to be bound, in written notice
sent to the other party, by the terms and conditions of this
Agreement. Subject to the foregoing, this Agreement shall be
binding upon and shall inure to the benefit of the parties
hereto and their respective successors and assigns.
11.2 Except as otherwise provided herein, this Agreement may not be
amended, supplemented or otherwise modified except by an
instrument in writing signed by both parties.
ARTICLE XII
NOTICES
-------
12.1 Any notice provided for under this Agreement shall be in
writing, shall be deemed to have been sufficiently provided
and effectively made as of the delivery date if
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hand-delivered, or as of the date received if sent by courier
service or mailed by registered or certified mail, postage
prepaid, and addressed to the receiving party at its
respective address as follows:
If to Buyer:
Vascular Solutions, Inc.
6464 Sycamore Court
Minneapolis, MN 55369
Attn: Chief Executive Officer
If to Seller:
Sigma-Aldrich Fine Chemicals
3050 Spruce Street
St. Louis, MO 63103
ARTICLE XIII
INDEPENDENT CONTRACTOR
----------------------
13.1 The relationship of the parties under this Agreement is that
of the independent contractors and not as agents of each other
or parties or joint venturers, and neither party shall have
the power to bind the other in any way with respect to any
obligation to any third party unless a specific power of
attorney is provided for such purpose. Each party shall be
solely responsible for its own employees and operations.
ARTICLE XIV
FORCE MAJEURE
-------------
14.1 Neither party shall be liable to the other for failure to
perform its obligations under this Agreement where such
failure is caused by strikes, fires, embargoes, any
governmental act or regulation, acts of God, acts of war,
insurrection, riot or civil disturbance, or any other cause
not under the control of the defaulting party. If any event of
force majeure should occur, the affected party shall promptly
give notice thereof to the other party, and the affected party
shall use its best effort to cure or correct any such event of
force majeure.
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ARTICLE XV
MISCELLANEOUS
-------------
15.1 Should one of the provisions of this Agreement become or prove
to be null and void, such will be without effect on the
validity of this Agreement as a whole. Both parties will,
however, endeavor to replace the void provision by a valid one
that in its economic effect is most consistent with the void
provision. Both parties must agree to any such replacement
provision in writing.
15.2 This Agreement shall be governed by and construed in
accordance with the laws of the State of Missouri without
regard to principles of conflicts of laws.
15.3 This Agreement constitutes the entire understanding between
the parties regarding the subject matter hereof and neither
Buyer nor Seller has relied on any representation not
expressly set forth or referred to in this Agreement.
15.4 Each party hereto agrees to execute, acknowledge and deliver
such further instruments, and to do all such other acts, as
may be necessary or appropriate in order to carry out the
purposes and intent of this Agreement.
15.5 The waiver by either party of a breach of any provision
contained herein shall be in writing and shall in no way be
construed as a waiver of any succeeding breach of such
provision or the waiver of the provision itself.
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IN WITNESS WHEREOF, the duly authorized representatives of the parties
hereto have caused this Agreement to be executed in duplicated originals.
VASCULAR SOLUTIONS, INC. SIGMA-ALDRICH FINE CHEMICALS
By: _______________________ By: ___________________________
Name: _______________________ Name: ___________________________
Title: _______________________ Title: ___________________________
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Attachment 1 - Specifications
The Product shall consist of one Lot of thrombin solution from bovine
plasma, with an expected final yield of at least ** units of thrombin per Lot.
Seller shall attempt to maximize the final yield of each Lot, and Seller shall
not decrease the amount of source material in any Lot without the approval of
Buyer. Each Lot shall contain a Certificate of Analysis from Seller in the Form
attached hereto and a Certificate of U.S. Origin of the bovine material.
Finished specifications of the Product are as follows:
<TABLE>
<CAPTION>
---------------------------------------------- ----------------------------------- ------------------- ----------------
TEST DESCRIPTION [Test Code] SPECIFICATION SPECIFICATION TESTING
RANGE LABORATORY
---------------------------------------------- ----------------------------------- ------------------- ----------------
<S> <C> <C> <C>
** ** ** **
---------------------------------------------- ----------------------------------- ------------------- ----------------
** ** ** **
---------------------------------------------- ----------------------------------- ------------------- ----------------
** ** ** **
---------------------------------------------- ----------------------------------- ------------------- ----------------
** ** ** **
---------------------------------------------- ----------------------------------- ------------------- ----------------
** ** ** **
---------------------------------------------- ----------------------------------- ------------------- ----------------
** ** ** **
---------------------------------------------- ----------------------------------- ------------------- ----------------
** ** ** **
---------------------------------------------- ----------------------------------- ------------------- ----------------
** ** ** **
---------------------------------------------- ----------------------------------- ------------------- ----------------
** ** ** **
---------------------------------------------- ----------------------------------- ------------------- ----------------
** ** ** **
-----------------------------------------------------------------------------------------------------------------------
**
-----------------------------------------------------------------------------------------------------------------------
</TABLE>
Each Lot shall be stored either as a frozen liquid or lyophilized
powder at a concentration of ** unit aliquots per container. Lot shall be
shipped in bulk to Buyer at a monitored temperature of less than ** with
appropriate protective packaging.
**
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CERTIFICATE OF ANALYSIS, TO BE ON COMPANY LETTER HEAD
Certificate of Analysis
DESCRIPTION __________________________
PART NUMBER __________________________
LOT NUMBER __________________________
QUANTITY ______________________________ EXPIRATION DATE ___________
<TABLE>
<CAPTION>
- -------------------------------------------------- ----------------------------------- -------------------
TEST DESCRIPTION SPECIFICATION Result
- -------------------------------------------------- ----------------------------------- -------------------
<S> <C> <C>
** **
- -------------------------------------------------- ----------------------------------- -------------------
** **
- -------------------------------------------------- ----------------------------------- -------------------
** **
- -------------------------------------------------- ----------------------------------- -------------------
** **
- -------------------------------------------------- ----------------------------------- -------------------
** **
- -------------------------------------------------- ----------------------------------- -------------------
** **
- -------------------------------------------------- ----------------------------------- -------------------
** **
- -------------------------------------------------- ----------------------------------- -------------------
** **
- -------------------------------------------------- ----------------------------------- -------------------
** **
- -------------------------------------------------- ----------------------------------- -------------------
** **
- -------------------------------------------------- ----------------------------------- -------------------
** **
- -------------------------------------------------- ----------------------------------- -------------------
** **
- -------------------------------------------------- ----------------------------------- -------------------
</TABLE>
Sigma Aldrich certifies that the above test results are correct, and conform to
the specification requirements defined above.
Attached is the material of animal origin certifications for this specific lot
of Thrombin. These certifications meet the requirements set forth in EN 12442.
- -----------------------------------
Quality Assurance Date
Sigma Aldrich Fine Chemicals
CERTIFICATE OF ANALYSIS, TO BE ON COMPANY LETTER HEAD
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CERTIFICATE OF MATERIAL OF ANIMAL ORIGIN
Certificate Number _________________
Country in which animal was slaughtered ____________________
Country of Origin ____________________
Approval Number of Slaughterhouse ____________________
Establishment Name and Location ____________________
Material of (Animal Species) ____________________
Age of Animal ____________________
Nature of tissue or Organ ____________________
Packaging Materials used ____________________
Number of Containers/Packages ____________________
Name of Veterinarian ____________________
Collection Dates ____________________
- ----------------------------------------------------
Quality Assurance Date
Sigma Aldrich Fine Chemicals
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Attachment 2 - Pricing
The price for each of the first three Lots of Product purchased
pursuant to Section 5.6 shall be **; provided, however, that if the first Lot of
Product as manufactured is not suitable for Buyer's commercial use, the price of
the first Lot of Product shall be lowered to an amount equal to Seller's actual
costs of manufacture of the first Lot of Product and a fourth Lot of Product
shall be manufactured at a price of **. In addition, with the purchase price of
the first Lot of Product Buyer shall pay Seller an amount equal to ** for
one-time equipment expenses for the purchase of equipment dedicated to the
production of the Product. The equipment purchased with this one-time payment
shall be as follows:
**
**
The price for each subsequent Lot of Product purchased under this
Agreement through the end of the First Contract Year shall be determined
according to the following table:
- ------------------------------------- ----------------------------------
TOTAL NUMBER OF LOTS PURCHASED IN
THE CONTRACT YEAR PRICE PER LOT
- ------------------------------------- ----------------------------------
1 **
- ------------------------------------- ----------------------------------
2 **
- ------------------------------------- ----------------------------------
3 **
- ------------------------------------- ----------------------------------
4 **
- ------------------------------------- ----------------------------------
5-6 **
- ------------------------------------- ----------------------------------
7-8 **
- ------------------------------------- ----------------------------------
9 or more **
- ------------------------------------- ----------------------------------
The price for Product purchased in each Contract Year after the First
Contract Year shall be adjusted pursuant to Sections 4.1 and 4.3 of this
Agreement.
21 of 23
Initials:
Buyer ______
Seller ______
<PAGE>
Attachment 3
------------
CORPORATE QUALITY CONTROL
-------------------------
Stability Studies
-----------------
STUDY DESIGN
o ACCELERATED: 0, 1, 2, 3, AND 6 MONTHS AT 2-8 (DEGREE)C
o LONG-TERM: 0, 3, 6, 9, 12, 18, AND 24 MONTHS AT -20 (DEGREE)C
ASSUMPTIONS
o ACCELERATED AND LONG TERM WILL BE RUN CONCURRENTLY.
o RELEASE TESTING WILL BE USED FOR TIME 0.
o STABILITY STUDIES BEGIN WITHIN 4 WEEKS OF RELEASE.
o DOES NOT INCLUDE INTERMEDIATE CONDITION TESTING AND STORING OR
ADDITIONAL TESTING OF SAMPLE.
o DEGRADATION STUDIES: PERFORMED PRIOR TO STABILITY STUDIES
UNLESS OTHERWISE SPECIFIED
DELIVERABLES:
o SUBMISSION AND APPROVAL OF LONG TERM AND ACCELERATED PROTOCOLS
BEFORE STABILITY STUDIES BEGIN
o DATA TABLES AVAILABLE AT EACH INTERVAL AS REQUESTED
o FINAL REPORT AT THE COMPLETION OF EACH PROTOCOL
ESTIMATED TIME REQUIREMENTS FOR STABILITY STUDIES FOR 1 LOT
- --------------------------------- --------------------- -------------------
ACCELERATED LONG-TERM
- --------------------------------- --------------------- -------------------
** ** **
- --------------------------------- --------------------- -------------------
** ** **
- --------------------------------- --------------------- -------------------
**
- --------------------------------- --------------------- -------------------
**
- --------------------------------- --------------------- -------------------
**
- --------------------------------- --------------------- -------------------
** ** **
- --------------------------------- --------------------- -------------------
HOURS TO COMPLETE STUDY ** **
- --------------------------------- --------------------- -------------------
HRS. TO PREPARE PROTOCOL ** **
- --------------------------------- --------------------- -------------------
HRS. TO LAUNCH STUDY ** **
- --------------------------------- --------------------- -------------------
HRS. TO PREPARE INTERIM REPORTS ** **
- --------------------------------- --------------------- -------------------
HRS. TO PREPARE FINAL REPORT ** **
- --------------------------------- --------------------- -------------------
TOTAL HRS. FOR ALL PHASES OF ** **
STUDY
- --------------------------------- --------------------- -------------------
**
22 of 23
Initials:
Buyer ______
Seller ______
<PAGE>
Summary For Stability Studies
-----------------------------
o ESTIMATED COST FOR ACCELERATED STUDY: **
o ESTIMATED COST LONG-TERM STUDY: **
o ESTIMATED COST FOR ACCELERATED AND LONG-TERM STUDIES = **
DEGRADATION STUDIES - POSSIBLE FORCED DEGRADATION PROCESSES AND TESTING
**
23 of 23
Initials:
Buyer ______
Seller ______
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.15
<SEQUENCE>3
<FILENAME>vasc050575_ex10-15.txt
<TEXT>
EXHIBIT 10.15
SILICON VALLEY BANK
AMENDMENT TO LOAN AGREEMENT
BORROWER: VASCULAR SOLUTIONS, INC.
DATE: DECEMBER 9, 2004
THIS AMENDMENT TO LOAN AGREEMENT ("Amendment") is entered into between
Silicon Valley Bank ("Silicon") and the borrower named above ("Borrower"), with
reference to the following facts:
A. Silicon and Borrower are parties to that certain Loan and Security
Agreement, with an Effective Date of December 31, 2003 (as amended, the "Loan
Agreement"). (The Loan Agreement and all other present and future documents,
instruments and agreements relating thereto are referred to herein collectively
as the "Loan Documents". Capitalized terms used in this Agreement which are not
defined herein shall have the meanings set forth in the Loan Agreement.)
B. The parties desire to amend the Loan Agreement as set forth in this
Amendment.
The parties agree as follows:
1. REVOLVING MATURITY DATE. The definition of "Revolving Maturity
Date," which is contained in Section 13.1 of the Loan Agreement, is hereby
amended from "December 31, 2004" to "December 29, 2005".
2. COMMITTED REVOLVING LINE. The amount "$3,000,000" contained in the
definition of "Committed Revolving Line," which is contained in Section 13.1 of
the Loan Agreement, is hereby amended from said "$3,000,000" to "$5,000,000.
3. INTEREST RATE. The first full sentence of Section 2.3(a) of the Loan
Agreement - Interest Rate - reads as follows:
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.
Said sentence is hereby amended to read as follows:
Revolving Advances accrue interest on the outstanding
principal balance at a PER ANNUM rate equal to one-half of one
percentage point (0.50%) above the Prime Rate.
<PAGE>
4. FACILITY FEE. The amount "$15,000" contained in the first full
sentence of Section 2.4(a) of the Loan Agreement is hereby amended to read
"$25,000."
5. UNUSED LINE FEE. The amount "$1,250" contained in the first full
sentence of Section 2.4(c) of the Loan Agreement is hereby amended to read
"$2,125."
6. BORROWING BASE. Subpart "B" of the definition of "Borrowing Base"
contained in Section 13.1 of the Loan Agreement reads as follows:
(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.
Said subpart "B" is hereby amended to read as follows:
(B) up to 25% of Eligible Inventory, provided that Advances
hereunder based on Eligible Inventory shall at no time exceed
the lesser of (i) $1,500,000 or (ii) 33% of the amount of
Eligible Accounts, as applicable from time to time.
7. TANGIBLE NET WORTH. Section 6.7 of the Loan Agreement reads as
follows:
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.
Said Section 6.7 is hereby amended to read as follows:
Borrower will maintain at all times:
(i) TANGIBLE NET WORTH. A Tangible Net Worth of more than
$11,000,000.
(ii) LIQUIDITY COVERAGE. A ratio of (A) unrestricted
domestic cash (and equivalents) plus the amount of
Eligible Accounts, divided by (B) the aggregate
amount of Obligations outstanding hereunder, of not
less than 1.25 to 1.00.
8. REPRESENTATIONS TRUE. Borrower represents and warrants to Silicon
that all representations and warranties set forth in the Loan Agreement, as
amended hereby, are true and correct.
-2-
<PAGE>
9. GENERAL PROVISIONS. This Amendment, the Loan Agreement, any prior
written amendments to the Loan Agreement signed by Silicon and Borrower, and the
other Loan Documents set forth in full all of the representations and agreements
of the parties with respect to the subject matter hereof and supersede all prior
discussions, representations, agreements and understandings between the parties
with respect to the subject hereof. Except as herein expressly amended, all of
the terms and provisions of the Loan Agreement, and all other Loan Documents
shall continue in full force and effect and the same are hereby ratified and
confirmed. This Amendment is part of the Loan Agreement and its terms are
incorporated herein.
BORROWER: SILICON:
VASCULAR SOLUTIONS, INC. SILICON VALLEY BANK
BY BY
------------------------------------ ----------------------------------
President or Vice President TITLE
--------------------------------
-3-
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-21
<SEQUENCE>4
<FILENAME>vasc050575_ex21.txt
<TEXT>
EXHIBIT 21
SUBSIDIARIES
Vascular Solutions, GmbH (Germany)
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-23.1
<SEQUENCE>5
<FILENAME>vasc050575_ex23-1.txt
<TEXT>
EXHIBIT 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in the Registration
Statement (Form S-8 File No. 333-54164) of Vascular Solutions, Inc. of our
reports dated January 21, 2005 relating to the consolidated financial
statements, the financial statement schedule, management's assessment of the
effectiveness of internal control over financial reporting and the effectiveness
of internal control over financial reporting, which appear in this annual report
on Form 10-K for the year ended December 31, 2004.
/s/ VIRCHOW, KRAUSE & COMPANY, LLP
Minneapolis, Minnesota
February 10, 2005
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-23.2
<SEQUENCE>6
<FILENAME>vasc050575_ex23-2.txt
<TEXT>
EXHIBIT 23.2
Consent of Independent Registered Public Accounting Firm
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, 2004.
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.
/s/ Ernst & Young LLP
Minneapolis, Minnesota
February 3, 2005
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-31.1
<SEQUENCE>7
<FILENAME>vasc050575_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)) and internal
control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) 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) designed such internal control over financial reporting, or
caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable
assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes
in accordance with generally accepted accounting principles;
(c) 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
(d) 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):
<PAGE>
(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
(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 4, 2005 By: /s/ Howard Root
-----------------------------
Howard Root
CHIEF EXECUTIVE OFFICER
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-31.2
<SEQUENCE>8
<FILENAME>vasc050575_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)) and internal
control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) 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) designed such internal control over financial reporting, or
caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable
assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes
in accordance with generally accepted accounting principles;
(c) 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
(d) 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):
<PAGE>
(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
(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 4, 2005 By: /s/ James Hennen
--------------------------
James Hennen
CHIEF FINANCIAL OFFICER
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-32.1
<SEQUENCE>9
<FILENAME>vasc050575_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, 2004, as filed with the
Securities and Exchange Commission (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 4, 2005
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-32.2
<SEQUENCE>10
<FILENAME>vasc050575_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, 2004, as filed with the
Securities and Exchange Commission (the "Report"), I, James Hennen, Chief
Financial 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/ James Hennen
--------------------------------
James Hennen
Chief Financial Officer
February 4, 2005
</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
-----END PRIVACY-ENHANCED MESSAGE-----
