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

                                    FORM 10-K
              [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
                       THE SECURITIES EXCHANGE ACT OF 1934
                     FOR THE FISCAL YEAR ENDED JULY 31, 2007

            [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
                       THE SECURITIES EXCHANGE ACT OF 1934
              For transition period from ____________ to___________

                          Commission file number 0-944
                              POSSIS MEDICAL, INC.

             (Exact name of registrant as specified in its charter)

           Minnesota                                    41-0783184
   (State or other jurisdiction            (I.R.S. Employer Identification No.)
of incorporation or organization)



           9055 Evergreen Blvd, NW, Minneapolis, Minnesota 55433-8003
               (Address of principal executive offices) (Zip Code)
        Registrant's telephone number, including area code: 763-780-4555

          SECURITIES REGISTERED PURSUANT TO SECTION 12 (b) OF THE ACT:

            Title of Class           Name of each exchange on which registered
            --------------           -----------------------------------------
     Common Stock, $.40 per value               NASDAQ Global Market
       Preferred Stock Purchase                 NASDAQ Global Market
                Rights

        SECURITIES REGISTERED PURSUANT TO SECTION 12 (g) OF THE ACT: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act.
YES             NO      X
       -------        ------


Indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Act.
YES             NO      X
       -------        ------


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


Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the 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-10K. X .
                          -----

Indicate by check mark whether the registrant is a large  accelerated  filer, an
accelerated  filer or a  non-accelerated  filer.  See definition of "accelerated
filer and large  accelerated  filer" in Rule 12b-2 of the Exchange  Act.  (check
one)
Large                          Accelerated       X      Non-Accelerated
accelerated filer              filer                    filer
                  -------------             ------------             -----------

Indicate by check mark whether the registrant is a shell company (as defined by
Rule 12b-2 of the Act.
YES             NO      X
       ------        ------


Aggregate market value of the voting and non-voting common equity held by
non-affiliates computed by reference to the price at which the common equity was
last sold, or the average bid and asked price of such common equity, as of
January 31, 2007: $226,338,000..

The number of shares outstanding of the registrant's common stock as of
September 20, 2007: 16,962,386.

Certain responses in Part III are incorporated herein by reference from
information contained in the Company's definitive Proxy Statement for its 2007
annual meeting to be filed on or before November 5, 2007 ("The Proxy
Statement").



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                                     PART I
Item 1.  Business:

General

Possis Medical, Inc. is a developer, manufacturer and distributor of medical
devices focused primarily on catheter-based therapies for the treatment of
vascular disorders throughout the body. The company was incorporated in 1956 and
has operated several businesses over the past 50 years. In 1990, the company
decided to focus solely on medical products and, in 1993, changed its name to
Possis Medical, Inc. Currently, the majority of the company's revenue is derived
from sale of its proprietary AngioJet(R) Rheolytic(TM) Thrombectomy System, a
catheter-based system used to remove thrombus (blood clots) from blood vessels.
Currently the company has FDA marketing approval for AngioJet use in coronary
arteries and bypass grafts, peripheral arteries and veins, and dialysis access
grafts and fistulas. Since June 2006, Possis has expanded its product offering
by adding new non-AngioJet endovascular products.

Development of Business

During fiscal 2007 we received FDA clearance for and introduced several products
that are central to our growth plans and upon which our future products will be
based, including, importantly, the new AngioJet Ultra Thrombectomy System. The
Ultra System, which features a simple and fast set-up procedure, sleeker design,
light weight and the flexibility to accommodate more varieties of catheters, is
our next generation of central console. We received FDA clearance for the Ultra
System in December 2006 and it was first used commercially on patients in
January 2007. In fiscal 2007, we received FDA approval to begin marketing the
new Spiroflex(TM) and Spiroflex(R) VG rapid exchange catheters to remove
thrombus from coronary arteries and conduits. The Spiroflex 4 French catheter
provides a highly flexible and kink-resistant catheter optimized for delivery to
smaller vessels and complex anatomy (i.e., tight lesions, tortuous vessels,
etc.). The slightly larger Spiroflex VG provides the same high performance
design, but with increased thrombectomy power for slightly larger vessels and
tougher thrombus. The Ultra Spiroflex thrombectomy set was also approved for
coronary use with the new Ultra System in the last half of fiscal 2007; the
Spiroflex VG thrombectomy set will soon be submitted for similar approval from
the FDA.

In late November 2006, our Xpeedior(R) catheter, in conjunction with our
AngioJet System, received FDA clearance to be marketed for removing large
thrombus from upper- and lower-extremity peripheral veins. In October 2007, our
DVX Catheter received the same market clearance. To date, AngioJet is the only
device specifically cleared for venous thrombectomy which is a large underserved
market.

To further expand the range of products we offer, we now market several new
non-AngioJet products. The SafeSeal(TM) Hemostasis Patch was introduced throught
a distribution agreement in late fiscal 2006 and is used to control bleeding
from the puncture made to perform an endovascular procedure. We also launched
the new Fetch Aspiration Catheter in the middle of fiscal 2007 and Fetch is now
cleared by FDA for general arterial use and specifically for use in coronary
arteries.

In addition, we currently have a third product, the .035" GuardDOG Occlusion
Guidewire System, in limited market release. The GuardDOG System is designed to
temporarily occlude blood flow through the treatment field during vascular
interventions, offering physicians' greater control when employing endovascular
catheter treatments such as AngioJet thrombectomy. We expect to launch the .035"
GuardDOG System later in calendar 2007 and a companion .014" guidewire product
later in fiscal 2008.

To further expand into complementary markets, we made an investment of $2.5
million in December 2006 in Rafael Medical Technologies, a company that is
developing an inferior vena cava filter for thrombus. We have committed to
invest up to an additional $1.5 million in Rafael and have a right, for three
years, to purchase the remaining outstanding shares of Rafael.

Products

In fiscal 2007, 97 percent of our revenues was generated from sales of a single
product line: the Angiojet(R) Rheolytic(TM) Thrombectomy System. The AngioJet
System is a non-surgical, minimally invasive catheter system designed to rapidly
remove blood clots with minimal vascular trauma.

The development of blood clots in various sites within the vascular system is
common and is one of the leading causes of morbidity and death. Blood clots can
be caused by a number of factors, including cardiovascular disease, trauma,
impediment of normal flow during invasive procedures, or physical pressure that
impedes venous return such as occurs during prolonged bed rest. If a blood clot
becomes large enough, it can block a blood vessel, preventing oxygenated blood
from reaching the organ or tissue it supplies, a condition called ischemia. In
addition, if a blood clot breaks free, it can travel through the bloodstream
(embolize) and block blood flow to other organs and tissue. Conditions caused by
blood clots include: myocardial infarction (heart attack), stroke, limb
threatening ischemia, hemodialysis access failure, deep vein thrombosis and
pulmonary embolism.



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We believe the AngioJet System represents a rapid, safe, medically effective and
potentially cost-effective approach to the removal of blood clots from arteries,
veins and grafts. The AngioJet System has demonstrated the ability to safely and
effectively remove blood clots within seconds to minutes without surgical
intervention or the risk of uncontrolled bleeding.

The AngioJet System consists of a reusable console used in combination with
various disposable thrombectomy sets designed for use in various vascular
territories. To operate the system, a physician threads a catheter over a
guidewire down a patient's blood vessel to the site of the blood clot. The
AngioJet System console is then activated, which pressurizes sterile saline to
approximately 10,000 pounds per square inch (psi) at the source and sends it
down the length of the catheter to the tip of the device. Saline jets enclosed
within the catheter spray from the catheter tip back up the catheter at several
hundred miles per hour. The operation of the high-speed jets inside the catheter
creates a localized low-pressure zone around the catheter's tip. The difference
between the low pressure at the catheter tip and the normal blood pressure in
the vessel draws the blood clot into the catheter through openings near the tip.
The jets then break apart and pulverize the blood clot into microscopic
fragments, which are then propelled down the length of the catheter and into a
disposable collection bag. Throughout the procedure, the system console ensures
patient safety by monitoring and regulating the saline flow rate and extraction
of blood clots and excess saline from the patients body.

In December 2006, we received FDA approval for a redesigned version of the
AngioJet System, the AngioJet Ultra System. The new AngioJet Ultra System
provides improved ease-of-use and allows faster set up by physicians and
hospital staff. The new system consists of a new microprocessor-based console
and integrated disposable thrombectomy sets which combine the separate
disposable catheter and pump kit from the previous system into a single
thrombectomy set. In addition to ease of use, the new Ultra System console
provides an unlimited number of operating modes, compared to just three modes
available on the previous electro-mechanical system. We believe that these
unlimited modes will allow for more rapid development and introduction of new
and improved thrombectomy sets and also new interventional tools beyond
thrombectomy. We are currently focused on converting our current install base
from the previous generation system to the new Ultra System and has implemented
various conversion options for customers. These options include outright capital
purchase plans, trade-in programs, and also non capital purchase options
combined with adjusted pricing and minimum purchase requirements for disposable
thrombectomy sets.

Each surgical procedure using our thrombectomy system requires a disposable
thrombectomy set - consisting of specialized catheters designed for specific
forms of procedures and, with the older console, a pump kit. Currently, we
market the XMI(R) (Over the Wire version - OTW), XMI-RX (Rapid Exchange
version), XMI RX +, Spiroflex, XVG(R), Spiroflex VG(R), Xpeedior(R), DVX(TM) and
AVX(R) lines of catheters. Each of these catheters feature our patented
Cross-Stream(R) Technology. This technology intensifies the action at the tip of
the catheter, which doubles the clot removal rate and triples the treatable
vessel size compared to other available mechanical thrombectomy devices on the
market today. In addition, Cross-Stream Technology has been able to deal more
effectively than previous catheters with "mural thrombus," the older, more
organized material that adheres to vessel walls and can complicate patient
outcomes.

We also market products that are complementary to our AngioJet System. In May
2006, we introduced the SafeSeal(TM) Hemostasis Patch. The SafeSeal Patch is a
topical wound dressing that decreases the time it takes to control bleeding from
the puncture made in a blood vessel to perform an endovascular procedure.
Designed to assist manual compression and complement invasive vessel closure
techniques, the SafeSeal Patch specifically targets the more than 7 million
diagnostic and therapeutic procedures performed annually in the U.S. for
coronary and peripheral applications. We estimate the U.S. market potential for
the SafeSeal Patch to be $65 to $85 million in 2008.. The SafeSeal Patch is
marketed in the U.S. to interventional catheterization labs, physicians and
staff by our sales team pursuant to a multi-year distribution agreement with
Medafor.

Markets and Applications

The AngioJet System is designed to remove intravascular blood clots in a variety
of clinical applications. It is typically used in conjunction with other medical
devices, such as angioplasty balloons and stents (both bare metal and drug
eluting), and drugs, such as thrombolytics and platelet inhibitors.

Our marketing analysis and cumulative clinical experience indicate that the
AngioJet System may be effective for the treatment of various blood clot-induced
conditions beyond its current approved indications. Our goal is to extend the
reach of our technology over time to these additional indications through
additional regulatory clearances, predominately in the United States (U.S.).

The AngioJet System currently has FDA clearance for marketing in four clinical
applications: (1) for removal of blood clots in access grafts and native
fistulas used by patients in kidney dialysis (received in December 1996), (2)
for removal of clots in native coronary arteries and coronary bypass grafts
(received in March 1999), (3) for removal of blood clots in peripheral arteries
(received in April 2000) and (4) for the removal of blood clots in peripheral
veins (received in November 2006).



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The following table shows the vascular territories and indications for which we
currently market the AngioJet System or are seeking an indication or
researching. In addition, the table indicates the estimated annual incidence
rate in the U.S. and our estimated Realizable Market Opportunity for the
AngioJet System and adjunctive devices offered by the Company.

      Product             Clinical                   Estimated Realizable U.S.
                                         Reported        Market Opportunity*
                                           Annual
                                            U.S.     (Procedures)  (in millions
                                          Incidence                 of dollars)
-------------------- ------------------- ---------- -------------- -------------
Thrombectomy         Coronary Thrombosis
                      (Native Arteries
                      and Bypass Grafts   2,700,000        100,000   $160 - $180
                     Peripheral Arterial
                      Thrombosis          2,500,000         80,000   $100 - $120
                     Hemodialysis Graft
                      Thrombosis            370,000        370,000   $220 - $240
                     Venous Thrombosis      650,000         60,000    $80 - $100
                     Pulmonary Embolism
                      (1)                   200,000         40,000    $60 - $100
                     Ischemic Stroke (2)    640,000             **            **
                     TOTAL Thrombectomy   7,215,000        650,000   $620 - $740
Aspiration           Aspiration of soft         ***
                      emboli and thrombi
                      from the arterial
                      system                               120,000     $40 - $60
Temporary Occlusion  Temporary vessel          ****
                      occlusion                             80,000    $80 - $100
Access Site          Topical dressing
 Hemostasis           for vascular
                      access sites        1,500,000      1,500,000     $65 - $85
   Total                                                             $805 - $985
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(1) Pending FDA approval.
(2) In research and development phase.

* Realizable market opportunity dollar estimates are for products and clinical
 indications projected to be commercially available in fiscal year 2008.
** To be determined.
*** Estimated incidence same as for coronary thrombosis listed above.
**** Estimated incidence same as for peripheral thrombosis listed above.
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We estimated the total number of cases for a given indication in the foregoing
table based on statistics from industry sources and then estimated the number of
procedures that might be amenable to treatment with the AngioJet System, in
conjunction with other therapies, both devices and drugs. In making these
estimates for the number of cases amenable to treatment with the AngioJet
System, we have relied on our own estimates, as well as estimates based on data
provided by physician consultants, presentations at medical industry
conferences, peer-reviewed journal articles, security analyst publications, and
publications by industry trade and consulting groups. We believe that the
totality of these sources provides estimates that are directionally and
relatively accurate, although the Company cannot guarantee their accuracy.

Clinical Science

Over the years we have sponsored several investigational clinical studies of
AngioJet in order to obtain new market approvals from FDA. In addition, we
sponsor and participate in various marketing clinical studies to better
establish the clinical value of our AngioJet System in various clinical
settings.



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Our most active area has been in coronary use. From 1996 through 1998, we
sponsored VeGAS 2, an investigational randomized clinical trial which compared
the AngioJet System to the approved thrombolytic drug, Urokinase(R), for the
treatment of intracoronary thrombus. The AngioJet System proved to be medically
safe and effective and cost-effective compared to Urokinase. The results were
compelling enough that the FDA granted expedited regulatory review and approval
without convening a Panel review by outside experts. Treatment in the trial with
AngioJet cost an average of $5,000 less per patient than did treatment with
Urokinase. These results have been presented by physician investigators at major
medical meetings and have been published in the October 2001 issue of the
American Heart Journal, and the February 2002 issue of the American Journal of
Cardiology, both peer reviewed publications.

From 2001 through 2004, we sought to expand the use of AngioJet in all-comer
heart attack patients including those in whom thrombus was not visible by
sponsoring the randomized AiMI study. The initial results were released in
August 2004. Unfortunately, the results failed to show that use of AngioJet in
all-comer heart attack patients (more than two-thirds of whom did not have
visible thrombus) was effective in reducing final average infarct size.

The July 2006 issue of the Journal of Invasive Cardiology included a supplement
with observational studies of AngioJet(R) Thrombectomy System use in treating
selected heart attack patients. The supplement detailed "real-world" results
from five patient registries and one randomized trial presented by a panel of
leading interventional cardiologists during the March 2006 annual convention of
the American College of Cardiology (ACC) in Atlanta. These results led the Panel
to conclude in part that "use of the AngioJet with primary percutaneous
catheter-based intervention (PCI) is safe and suggest that the AngioJet may
improve procedural and clinical outcomes in a broad spectrum of real-world
ST-elevation myocardial infarction (STEMI) patients treated with primary PCI."

In August 2007, the Journal of the American College of Cardiology (JACC)
published a clinical study showing favorable results for AngioJet treatment of
heart attack patients with large thrombus (blood clot). The study was conducted
by Dr. George Sianos and colleagues at the ThoraxCenter in Rotterdam, the
Netherlands. The Sianos study demonstrated that AngioJet use to remove large
thrombus prior to placement of a drug-eluting stent (DES) in heart attack
patients is associated with significantly lower rates of subsequent death, heart
attack, and stent thrombosis.

We note that drug-eluting stents (DES) were introduced in the United States in
2003 and grew to represent almost 90 percent of stent placements in the U.S. by
2006. However, starting in 2006 concerns were raised about whether DES carried
an increased risk for stent thrombosis, a sudden, unpredictable, and potentially
fatal event. We believe the Sianos study represents important new real-world
clinical evidence of the positive role AngioJet can play in reducing DES stent
thrombosis.

We are currently sponsoring the JETSTENT study of AngioJet treatment in heart
attack patients with visible thrombus. This European based multi-centered
randomized trial is led by co-principal investigators Dr. David Antoniucci of
the Careggi Institute in Florence, Italy, and Dr. Antonio Colombo of San
Raffaele Hospital, Milan. Enrollment began in December 2005 and 200 patients
were enrolled through July 31, 2007. A total of 500 patients are planned to
complete the study. Our sponsorship of this trial is, in part, intended to
reconfirm the safety and effectiveness of the AngioJet System in heart attack
patients with visible thrombus.

With respect to other FDA-cleared marketing indications such as peripheral
arteries, the Company believes that the AngioJet System offers a unique
combination of clinical benefit and cost-effectiveness when compared to medical
management and thrombolytic therapy. While the Company and some clinical
scientists have assembled considerable data demonstrating these cost-savings, it
is noted that these savings have been documented only in non-randomized patient
sets.

Research and Development

Our product development efforts are focused on product enhancements for existing
approved indications, new products for existing indications, new products for
new clinical indications and general upgrades to the AngioJet System. We are
also working on developing new endovascular products that are beyond the
AngioJet family, of which the GuardDOG distal occlusion guidewire is the
furthest along example. Research and development expenses are generally incurred
for product prototyping and design, development and qualification, development
and validation of manufacturing processes, conduct of investigational clinical
trials, and seeking and obtaining governmental approvals. In fiscal 2008, our
research and development expenses are expected to be between 12 percent to 13
percent of product revenue. We will continue to expand the current realizable
market for the AngioJet System and expand into new areas, such as distal embolic
protection.


As of August 31, 2007, we employed approximately 30 full-time employees in
research and development, including 27 in new product concept screening,
prototype building, product and process development and validation, and three in
regulatory and clinical affairs. Technical staff from other engineering
departments, such as manufacturing, quality and process engineering also support
R&D efforts. We perform substantially all of our research and development
activities at our headquarters in Minnesota. We spent $9,258,000, $10,907,000,
and $10,502,000, in fiscal 2007, 2006 and 2005, respectively, on medical product
research and development.



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Manufacturing

We assemble and test our entire AngioJet product line in-house and have
vertically integrated a number of processes in an effort to provide increased
quality and reliability. Many of the processes are proprietary. Most of our raw
materials and components and select subassemblies used in our products are
purchased from outside suppliers and are generally readily available from
multiple sources; however, some of the raw material items are available only
from single-source suppliers.

Starting in fiscal 2007, several of our products, including our new AngioJet
Ultra System, were manufactured by outside contractors. Although we believe we
have selected reliable manufacturers, we will generally have less control over
the quality of the manufacturing process for these products and could be subject
to increased rates of return, to other quality problems, or to delivery delays
if our contract manufacturers do not perform.

Our manufacturing facilities are subject to periodic inspections by regulatory
authorities, including the FDA Quality System Regulations (QSR), compliance
inspections by the FDA and a Notified Body, a private sector audit and test
house designated by European Union competent authorities (Ministries of Health)
to determine whether a product may display the CE mark, which is necessary for
marketing in the European Union. We have undergone and have consistently passed
all inspections by the FDA and/or our Notified Body each year.

Marketing and Sales

We market our AngioJet System primarily to interventional cardiologists,
interventional radiologists and vascular surgeons and secondarily to physician
specialty groups, such as nephrologists and osteopaths. Revenue from AngioJet
System sales in the United States was approximately 97%, 96% and 98% of fiscal
2007, 2006, and 2005 overall revenue, respectively.

We currently market the AngioJet System for blood clot removal in coronary
arteries and bypass grafts, peripheral arteries, peripheral veins, hemodialysis
dialysis access grafts and fistulas. We anticipate marketing the AngioJet System
in the future for pulmonary embolism (PE) and potentially for stroke treatment
if and when FDA marketing approvals are obtained.

We currently market the AngioJet System through our own direct sales force in
the United States. A single sales force calls on all the distinct specialties
listed above; for example, the Company does not have separate coronary or
peripheral sales forces.

Outside the United States, and with the exception of Germany, we market the
AngioJet System using an independent distributor network. We hired an outside
consultant to assist it in selling the AngioJet System in Germany in August
2004. Generally, our distributorship agreements provide that the distributors,
at their own expense, will investigate, negotiate and obtain regulatory
approvals for our products in the specified territory. All sales made to our
independent distributors are denominated in United States dollars.

Our promotional activities are designed primarily to enlist the support of key
medical opinion leaders in the United States and abroad. We believe that
publications in medical journals and presentations at medical meetings are
important in encouraging acceptance of our products. Other marketing activities
include medical journal advertising, participating in medical meetings, and
supporting physician courses and studies designed to gather clinical and cost
effectiveness data of our products compared to conventional treatment.

Patents, Patent Applications, Licenses and Proprietary Rights

Our success depends, and will continue to depend, in part on our ability to
maintain patent protection for products and processes, to preserve trade secrets
and to operate without infringing the proprietary rights of third parties. Our
policy is to attempt to protect our technology by, among other things, filing
patent applications for technology that we consider important to the development
of our business. Patents that we consider material and that have issued to us,
and for which we continue to apply, describe method and apparatus claims related
to thrombectomy and atherectomy devices, distal occlusion devices, and other
related inventions. We made our first atherectomy/thrombectomy-related patent
application in 1990 and currently hold 31 United States patents and six foreign
patents relating to our waterjet thrombectomy business and related technology.
In addition, we have 25 United States and 35 foreign patent applications pending
relating to the AngioJet System. The validity and breadth of claims covered in
medical technology patents involve complex legal and factual questions and,
therefore, may be highly uncertain.


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We require all employees to execute non-disclosure agreements upon commencement
of their employment. These agreements provide that all confidential information
developed or made known to the individual during the course of the individual's
employment with us is to be kept confidential and not disclosed to third
parties.

Competition

We believe that the AngioJet System will face increasing competition from a
variety of treatments for the reduction and removal of blood clots, including
thrombolytic drug therapies, particulate capture systems, such as occlusion
balloons, filters and combined systems, direct stenting, surgical intervention,
balloon embolectomy, mechanical and laser thrombectomy devices, ultrasound
ablators, and other thrombectomy devices based on waterjet systems that may
currently be under development by other companies. The medical products market
is characterized by rapidly evolving technology and increased competition. Our
future success will depend on our ability to keep pace with advancing technology
and competitive innovations. Many of our potential competitors have
significantly greater research and development capabilities, more experience in
obtaining regulatory approvals, established marketing and greater financial and
managerial resources. Many potential competitors have developed or are in the
process of developing technologies that are, or in the future may be, the basis
for competitive products, some of which may employ an entirely different
approach or means of accomplishing the desired therapeutic effect than the
products we develop.

Currently, the three primary methods of removing intravascular blood clots are
surgery, dissolution with drugs (thrombolysis) and various catheter-based
mechanical methods. We believe our AngioJet System competes effectively with
thrombolytic drug treatment on the basis of cost, speed, effectiveness and side
effects. Although certain drugs may be considered by some physicians to be
easier to administer than the AngioJet system, thrombolytic drug treatment
involves the administration of a drug designed to soften or dissolve the blood
clot in an intensive care setting. Thrombolytic drugs may require prolonged
infusion to be effective and may require significant time to take effect, which
is costly in an intensive or critical care setting, and then may only partially
remove the clot. In addition, thrombolytic drugs may cause uncontrolled,
life-threatening bleeding. Other classes of drugs, specifically platelet
glycoprotein llb/llla inhibitors, prevent blood clots from forming during
coronary interventional procedures but have no proven benefit against clots
already formed.

We believe the AngioJet System competes effectively against mechanical clot
removal systems on the basis of reduced surgical intervention, reduced trauma
and reduced hospitalization. Mechanical devices such as the Fogarty-type
catheter operate by inflating a balloon past the point of the blood clot and
then pulling the balloon along the artery, essentially dragging the blood clot
out of the patient's body. Fogarty-type catheters require surgical intervention,
which may result in overnight hospital stays, are more limited in their
applications and may cause significant vascular trauma.

For native coronary arteries, coronary bypass grafts, and peripheral arteries,
there are several catheter-based mechanical devices marketed in the U.S.,
including low-pressure manual aspiration/suction catheters, laser catheters, and
passive debris capture devices such as embolic protection guidewires. The manual
aspiration/suction catheters seek to show a price advantage relative to the
AngioJet System because they do not require a drive unit in order to evacuate
clot. Our research and clinical experience shows that these devices are not as
effective in removing clots, particularly in acute settings with large thrombus
burdens. Debris capture devices, such as embolic protection guidewires, often
have associated manual aspiration devices sold with the guidewires; to the
extent that these devices can show a reduction in MACE (major adverse cardiac
events) rates with their use, this can result in lost sales for the AngioJet
System, which is currently an active thrombectomy system. The coronary and
peripheral markets are very sensitive to clinical data and device safety and
effectiveness, and they are less price sensitive.

In the AV-access area, there are numerous mechanical devices, under many
different trade names; no individual device has a dominant share of the market.
This latter market is extremely price sensitive, so devices do not necessarily
gain share because of improved performance and effectiveness alone.

Government Regulation

Government regulation in the United States and other countries is a significant
factor in both our products and our activities, which are regulated by the U.S.
FDA under a number of statutes, including the Food, Drug and Cosmetic ("FDC")
Act.

FDA regulations place our products in either Class II or III (the highest level
of relative risk), based on the extent of both the pre-market approvals and
post-market controls deemed necessary to assure that they are safe and
effective. For example, Class II devices such as the AngioJet System for AV-
access graft thrombectomy are subject to pre-market notification (510(k)
submission) to the FDA, whereas use of the AngioJet System for treating coronary
thrombus is subject to pre-market approval ("PMA") by the FDA, and subsequent
annual and other PMA supplemental reporting requirements. While the FDA attempts
to complete review of these different types of pre-market submissions within
specific timeframes (90 days for a 510(k); 180 days for a PMA), final action by
the FDA may take considerably longer. Any adverse determination or request for
additional information could delay market introduction and have a materially
adverse effect on our continued operations.


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In addition, either a 510(k) or PMA may require the inclusion of data and
analyses from the conduct of investigational clinical trials. Generally, such
clinical trials may be conducted only under an Investigational Device Exemption
("IDE") approved by the FDA. The FDA monitors and oversees the conduct of
clinical trials under an IDE. Such clinical trials typically take several years
to conduct, and can cost several million dollars. Many of our products were the
subject of such clinical trials in the past, and we expect that some of our
future products will also require investigational clinical trials.

The AngioJet Coronary catheter is a Class III device and is marketed in the U.S.
under an approved PMA. The AngioJet AV-access and peripheral arterial thrombus
catheters are Class II devices and are marketed in the U.S. under cleared 510(k)
submissions.

Once a product is cleared for marketing in the U.S., product labeling and
promotional activities are subject to scrutiny by the FDA and, in certain
instances, by the Federal Trade Commission. The FDA imposes other post-marketing
controls on, such as annual establishment registration, annual product listings,
and administration of complaint and medical device reporting files. Failure to
meet these pervasive FDA requirements could subject us and/or our employees to
injunction, prosecution, civil fines, seizure or recall of products, prohibition
of sales or suspension or withdrawal of any previously granted approvals.

We received clearance of the AngioJet Ultra System through an FDA 510(k)
application in December 2006, The AngioJet System received its first clearance
for the U.S. market through a 510(k) pre-market notification cleared by the FDA
in December 1996, for use in treating thrombosed AV access grafts. In March
1999, the AngioJet System received FDA approval of a PMA application for
treating thrombus in coronary arteries and saphenous vein bypass grafts. In May
2000, the AngioJet System received FDA market clearance via another 510(k)
pre-market notification for treating thrombus in leg arteries.

Our manufacturing and quality systems are also subject to FDA regulations
requiring compliance with the FDA's current Quality System Regulations ("QSR").
The FDA conducts periodic on-site inspections of manufacturing facilities. We
have successfully undergone several such inspections in the past. We are obliged
to address any deficiency noted during such inspections. If the FDA detects
violations of applicable regulations, the continued marketing of our products
may be adversely affected. Such regulations are subject to change and depend
heavily on regulatory interpretations.

We conduct sales and marketing activities in various foreign countries. The time
required to obtain approval to market a product in a foreign country may be
longer or shorter than that required for FDA approval, and the requirements may
differ. The AngioJet System displays the CE Mark, allowing import into the
European Union and certain other countries that accept the CE Mark. Approval to
display the CE Mark is dependent, in part, on annual inspections by
representatives of European Notified Bodies to successfully demonstrate
compliance with the ISO 9001 Quality Standards.

Employees

As of August 31, 2007, we had 282 full-time employees, seven part-time employees
and 13 contract employees. Of these full-time employees, 30 are in research and
development, 96 are in manufacturing and production, 17 are in quality
assurance, eight are in facilities/maintenance, 104 are in sales and marketing
and 27 are in management or administrative positions. None of our employees are
covered by a collective bargaining agreement, and management considers its
relations with its employees to be good.

Available Information

We maintain a website at www.possis.com. We make available on our website under
"Investors"--"SEC Filings" and "Financial Results," free of charge, our Annual
Report to shareholders, annual reports on Form 10-K, quarterly reports on Form
10-Q and current reports on Form 8-K and any amendments thereto; and the SEC
filings of its directors and executive officers (Forms 3, 4, and 5) under
Section 16 of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). These links are automatically updated, so the filings and any amendment
thereto also are available immediately after they are made publicly available by
the SEC. These filings also are available by the SEC through the SEC's EDGAR
system at www.sec.gov.

 Item 1A:  Risk Factors

Our operations are subject to a number of risks and uncertainties that may
effect our financial results, our accounting, and the accuracy of the forward
making statements we make in this Form 10-K. We make statements regarding the
timing of product introductions and regulatory approval or permission to market
our products; the size of the potential markets for our products; our ability to
increase sales of disposable product and capital equipment in the face of new
product introductions from competitors; our ability to obtain regulatory
clearance in new foreign markets; the responses of customer to our marketing
strategies; our ability to retain and motivate skilled employees especially
sales positions; our ability to expand our sales force; the valuation of our
deferred tax asset allowance; our future revenue, earnings, earnings per share
and expense levels; our future equity financing needs; and our ability to
develop new products and enhance existing ones. These forward-looking statements
are based on our current expectations and assumptions and entail various risks
and uncertainties that could cause actual results to differ materially from
those expressed in the forward-looking statements. Our actual results may vary
from these expectations because of a number of factors that affect our business,
the most important of which include the following:


                                       8
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<PAGE>
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o    Because we derive virtually all of our revenue from a single product line,
     factors affecting that product line will adversely affect our overall
     results. We have focused our resources on the continued development and
     refinement of our AngioJet (R) System. If we fail to obtain additional
     regulatory approvals, a new competitor emerges, or the medical community
     rejects the use of the AngioJet System for multiple purposes, our business,
     financial condition and results of operations would be materially and
     adversely affected.

o    Although we attempt to establish the clinical value of our products with
     clinical studies, adverse results from those studies have had, and could
     have in the future, a significantly adverse impact on our business. In
     order to support regulatory filings related to new applications for our
     products, and to encourage greater use of our products in applications, we
     periodically sponsor clinical studies. The studies are normally designed to
     be independent and not influenced by the sponsor. If the data from an
     independent study indicates or implies that our products are ineffective,
     or less effective than anticipated, our business would likely be negatively
     affected. For example, we sponsored a three year study on the use of our
     AngioJet System in treating cardiac infarct where visible thrombosis was
     not required that ended in the summer of 2004. When the study did not
     indicate that the AngioJet System had a positive impact on final infarct
     size, the marketplace began questioning the value of our system generally,
     particularly in heart treatment. The negative publicity from these results
     significantly impacted our results for the 2005 and 2006 fiscal years. If
     future studies generated similar results, our operations would be further
     negatively impacted.

o    Because our products are subject to extensive governmental regulation, we
     might not be able to pursue opportunities rapidly or effectively and
     failure to comply with regulatory requirements could subject us to fines,
     penalties and prosecution. Our products and manufacturing activities are
     subject to extensive and rigorous federal and state regulation in the
     United States and various regulatory requirements in other countries.
     Current United States Food and Drug Administration (FDA) enforcement policy
     strictly prohibits the marketing of approved medical devices for unapproved
     uses. Therefore, even if our products receive regulatory approval,
     regulators may significantly limit the indications for which our products
     may be marketed. In addition, the process of obtaining and maintaining
     required regulatory approvals can be lengthy and expensive, and the outcome
     of the process can be uncertain. Moreover, regulatory approvals may be
     withdrawn if we fail to comply with regulatory standards or if unforeseen
     problems arise following the initial marketing of a product. Additionally,
     we are required to adhere to Quality System Regulations promulgated by the
     FDA relating to product design, development, manufacturing, servicing,
     testing and documentation. Failure to comply with applicable Quality System
     Regulations or other regulatory requirements may result in fines, delays or
     suspensions of approvals, injunctions against further distribution of our
     products, seizures or recalls of products, operating restrictions, criminal
     prosecutions or other sanctions, in addition to adverse publicity. The
     adoption of new regulations or changes in existing regulations could
     prevent us from obtaining, or affect the timing of, future regulatory
     approvals and could adversely affect the marketing of our existing
     products. We cannot assure you that we will be able to obtain necessary
     regulatory approvals on a timely basis, if at all. Delays in our receipt of
     or failure to receive regulatory approvals, the loss of previously received
     approvals or our failure to comply with regulatory requirements would have
     a material adverse effect on our business, financial condition and results
     of operations.

o    Our manufacturing would be interrupted if we were unable to use our
     manufacturing facility. We manufacture most of our AngioJet System products
     at our manufacturing facility in Minneapolis, Minnesota. If this facility
     was to be destroyed, shut down or unable to be used for its intended
     purpose, or if the specialized manufacturing equipment we maintain at the
     office is damaged, we would not be able to manufacture the AngioJet System
     products until a replacement facility and equipment was found, and the
     replacement facility and process revalidated. The replacement of the
     manufacturing facility and equipment and the revalidation of the facilities
     could take several months before manufacturing operations could restart.
     The delay engendered by, and the potential cost incurred in, these steps
     would have a material adverse effect on our business, financial condition
     and results of operations.

o    We are currently dependent upon a contract manufacturer for our AngioJet
     Ultra consoles and our failure to obtain supplies from this contractor
     could negatively impact our sales. Final development of our AngioJet Ultra
     Console was completed by a custom medical product design firm and that firm
     currently manufactures the consoles. Although we have obtained and own the
     specifications for the consoles, if we were required to replace the firm,
     we could experience several months delay in deliveries and other issues
     that could reduce our revenue and profitability. o We may not be able to
     enhance our products rapidly enough to keep pace with advances in the
     medical products industry. The medical products market is characterized by
     rapidly evolving technology. Our future success depends on our ability to
     keep pace with advancing technology from competitors and other innovators.
     Potential competitors have developed or are in the process of developing
     technologies that are, or in the future may be, the basis for competitive
     products, some of which may accomplish desired therapeutic effects through
     entirely different methods than the products we are developing. We believe
     our AngioJet System will face intense competition from a variety of
     treatments for the removal of blood clots, including clot-dissolving
     (thrombolytic) drug therapies, surgical intervention, balloon embolectomy,
     embolic protection devices, mechanical and laser thrombectomy devices,
     ultrasound ablators, and other thrombectomy devices based on waterjet
     systems that are currently being developed by other companies.


                                       9
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o    Larger companies in the medical products industry may be in a better
     position to compete for our customers. Many of the companies developing
     competing devices have substantially greater capital and substantially
     greater resources for and experience in research and development,
     regulatory matters, manufacturing and marketing than we have. These
     companies will be serious competitors for us and may succeed in developing
     products that are more effective and/or less costly than the AngioJet
     System. Furthermore, these companies may be more successful than we are in
     manufacturing and marketing their products. Our competitors or others may
     develop technologies, products or procedures that are more effective than
     any we are developing or that may render our technology and products
     obsolete or noncompetitive. The advent of new devices, procedures or new
     pharmaceutical agents could hinder our ability to compete effectively and
     could have a material adverse effect on our business, financial condition
     and results of operations.

o    We may not be able to adequately secure our position through intellectual
     property protection. Our success depends and will continue to depend in
     part on our ability to maintain patent protection for our products and
     processes, to preserve our trade secrets and to operate without infringing
     the proprietary rights of third parties. We attempt to protect our
     technology by filing patent applications for technology that we consider
     important to the development of our business, among other measures
     described below. Claims relating to medical technology patents involve
     complex legal and factual questions. Therefore, their outcomes are highly
     uncertain. We cannot assure you that our pending applications will result
     in patents being issued to us or that either our new patents or our
     existing patents will give us a competitive advantage. Moreover, our
     competitors may design around any patents issued to us, third parties may
     receive patent protection on their own waterjet devices, and others may
     hold or receive patents containing claims that may cover products developed
     by us. We require all our employees to execute non-disclosure and
     intellectual property assignment agreements when they are first employed.
     We cannot assure you, however, that these agreements and other safeguards
     will protect our proprietary information and know-how, or that they will
     provide us adequate remedies in the event of unauthorized use or disclosure
     of confidential information. We also cannot assure you that others will be
     unable to develop such information independently.

o    The intellectual property litigation to which we might be required to
     resort to protect our products could be costly and unfavorable results
     could damage our business. The medical device industry has seen much
     litigation with respect to patent and other intellectual property rights.
     Litigation may be necessary for us to enforce our patents, to protect our
     trade secrets and know-how, to defend against claimed infringement of
     others' rights or to determine the ownership, scope or validity of the
     proprietary rights of Possis Medical, Inc. and others. However, litigation
     also could be extremely costly to us and could divert our resources and
     efforts away from our products and day-to-day business matters. If the
     litigation had an adverse outcome, it could subject us to substantial
     liabilities to third parties, require us to seek licenses from third
     parties and prevent us from manufacturing, selling or using our products.
     Any of these results could have a material adverse effect on our business,
     financial condition and results of operations.

o    Many of our sales are subject to reimbursement by third party agencies or
     private insurers of agencies and changes in eligibility or rates of
     reimbursement could adversely affect our business. Health care providers
     (such as hospitals and physicians) that purchase medical devices like the
     AngioJet System for the treatment of patients generally rely on third-party
     payors like Medicare, Medicaid and private insurance plans to reimburse all
     or part of the costs associated with the health care services they provide.
     In certain foreign markets, the pricing of and profits generated by health
     care products are subject to government control. In some states, Medicare
     and Medicaid payors reimburse hospitals for inpatient medical procedures at
     a pre-determined rate based on diagnosis-related groups. Currently, we do
     not believe that U.S. reimbursement rates are a material impediment to
     adoption of our therapy. If these rates do not include, and third-party
     payors do not otherwise provide, adequate reimbursement to health care
     providers for the cost of our products, our products will not gain wide
     market acceptance and our financial results will suffer. The market for our
     products also could be adversely affected by future legislation to reform
     the nation's health care system or by changes in industry practices
     regarding reimbursement. We cannot assure you that the reimbursement rates
     of third-party payors will allow us to price our products at levels
     sufficient to realize an appropriate return on our investment in product
     development.


                                       10
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o    We may not be able to retain all of our key personnel. We depend greatly on
     a limited number of key management and technical personnel. Moreover,
     because of the highly technical nature of our business, our ability to
     continue our technological developments and to market our products--and
     thereby develop a competitive edge in the marketplace--depends in large
     part on our ability to attract and retain qualified technical and key
     management personnel. Competition for qualified personnel is intense, and
     we cannot assure you that we will be able to attract and retain the
     individuals we need. The loss of key personnel, or our inability to hire or
     retain qualified personnel, could have a material adverse effect on our
     business, financial condition and results of operations.

o    We may be subject to product liability claims, for which insurance coverage
     may be insufficient. The manufacture and sale of our products may subject
     us to product liability claims. The United States Supreme Court has held
     that, despite a company's compliance with FDA regulations, it may not be
     shielded from common-law negligent-design claims or manufacturing and
     labeling claims based on state laws. Product liability insurance is
     expensive and in the future may not be available on acceptable terms, if at
     all. We cannot assure you that the coverage limits of our product liability
     insurance policies will be adequate if a product liability claim is brought
     against us. A successful claim or series of claims against us that exceeds
     our insurance coverage could have a material adverse effect on our
     business, financial condition and results of operations. Moreover, whether
     or not successful, product liability litigation would likely divert the
     attention of our key personnel and could adversely affect our reputation
     and the marketability of our technology and products. Consequently, any
     product liability litigation could have a material adverse effect on our
     business, financial condition and results of operations.

o    The protections we have adopted may cause takeover offers to be decided by
     the Board rather than our shareholders. Of the 100 million shares of
     capital stock authorized by our amended and restated articles of
     incorporation, 81 million shares are undesignated. Our Board of Directors
     may issue the undesignated shares on terms and with the rights, preferences
     and designations determined by the Board without shareholder action. In
     addition, we have adopted a shareholder rights plan that provides for the
     exercise of preferred share purchase rights when a person becomes the
     beneficial owner of 20% or more of our outstanding common stock (subject to
     certain exceptions). We also are subject to provisions of the Minnesota
     Business Corporation Act that limit the voting rights of shares acquired in
     specified types of acquisitions and that restrict specified types of
     business combinations. The existence or issuance of "blank check" stock,
     the existence of our shareholder rights plan and the effect of
     anti-takeover provisions under Minnesota law, individually or in the
     aggregate, may discourage potential takeover attempts and delay, deter or
     prevent a change in control. They also may make the removal of management
     more difficult, which could deprive our shareholders of opportunities to
     sell their shares at prices higher than prevailing market prices.

o    We depend on single-source suppliers. We depend on single-source suppliers
     for some of the raw materials used in the manufacture of our products. If
     we cannot obtain key raw materials from our suppliers, we cannot assure you
     that the materials will be available from other suppliers, that other
     suppliers will agree to supply the materials to us, or that our use of the
     other suppliers would be approved by the FDA. Although we believe our
     supply of raw materials currently is adequate for the needs of our
     business, we cannot assure you that new sources of supply will be available
     when needed. Any interruption in our supply of raw materials could have a
     material adverse effect on our ability to manufacture our products until a
     new source of supply is located and, therefore, could have a material
     adverse effect on our business, financial condition and results of
     operations.

o    Investments in third-party device companies and/or products may not provide
     the anticipated returns. An element of our strategic plan is to evaluate
     and act on opportunities to acquire products, technologies and/or companies
     that provide an attractive enhancement to our current product portfolio and
     future growth. As part of this strategy, in December 2006, we invested $2.5
     million in Rafael Medical, Inc., to secure a 15% ownership position and an
     option to purchase the company outright. If this or other similar
     investments become impaired, the resultant losses could have a material
     adverse effect on our business, financial condition and results of
     operations.

Item 1B.  Unresolved Staff Comments

None

Item 2.  Properties:

We lease approximately 51,000 square feet of office and manufacturing space
 (including approximately 6,500 square feet of controlled environment
 manufacturing space) at 9055
Evergreen Boulevard NW, Minneapolis, Minnesota 55433-8003. We lease
approximately 25,000 square feet of additional office and warehouse space at
9130 and 9144 Springbrook Drive, Minneapolis, Minnesota 55433-8003. We lease
approximately 800 square feet of office space at 1513 Johnson Ferry Road,
Marietta, Georgia 30062. See Note 7 of Notes to Financial Statements in Part II,
Item 8, in this Form 10-K.


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We believe these properties to be in good condition and are adequate to meet our
current levels of production, research and development and necessary corporate
business activities. Included in the existing lease for the 9055 Evergreen
Boulevard NW property is the option to purchase the facility, extend the lease
term in two five-year increments, of which we are one and one-half years into
the first of the two five year extension options, and/or add on to the current
location as the need arises.

Item 3.  Legal Proceedings:

We were served with a shareholder lawsuit filed with the Minnesota Federal
District Court on June 3, 2005, alleging that Possis Medical, Inc. and named
individual officers violated federal securities laws. The Complaint seeks class
action status and unspecified damages. The suit was dismissed with prejudice by
order of the Court on February 1, 2007. Plaintiffs have filed an appeal from the
Court's order and the appeal is still pending. We continue to believe that the
allegations of the lawsuit are without merit and are contesting the appeal of
the trial court's decision. While we do not believe that the amount of any
potential liability associated with these matters can be accurately estimated at
this time, we believe we have adequate insurance coverage to cover any potential
damages and expenses. However, an unfavorable resolution of these matters could
have a material adverse effect on our results of operations, financial condition
or cash flows.

Item 4.  Submission of Matters to a Vote of Security Holders:

None

Executive Officers of the Registrant:

<TABLE>
<CAPTION>
        Name             Age               Position
--------------------------------------------------------------------------------


<S>                     <C>         <C>
Robert G. Dutcher       62          Chairman, President and Chief Executive Officer

Jules L. Fisher         53          Vice President, Finance and Chief Financial Officer

Irving R. Colacci       54          Vice President, Legal Affairs and Human Resources
                                    General Counsel and Secretary; Chief Governance Officer

James D. Gustafson      51          Senior Vice President, Research, Development,
                                    Engineering, Clinical Evaluation, and Chief Quality Officer

Shawn F. McCarrey       49          Executive Vice President, Worldwide Sales and Marketing

Robert J. Scott         62          Vice President, Manufacturing and Information Technology; Chief
                                    Security Officer
</TABLE>


Robert G. Dutcher joined our medical subsidiary in 1985 as its General Manager
      and became its President. He served as our Executive Vice President from
      June 1992 until October 1993. He has served as President and Chief
      Executive Officer since October 1993. Mr. Dutcher was elected Chairman of
      the Board in December 2001.

Jules L. Fisher joined us as Chief Financial Officer, Vice President of Finance
      in May 2005. Prior to that time, Mr. Fisher served as a consultant with
      Certes Financial Pros since November 2004 and was Corporate Controller of
      American Medical Systems from February to September 2004. Mr. Fisher was
      the Chief Financial Officer of Medical CV, Inc. from December 2001 to
      February 2004. From 1996 until December 2001, Mr. Fisher served as Vice
      President and Chief Financial Officer at Minntech Corporation.

Irving R. Colacci joined us in 1988 as Secretary and Corporate Counsel. Since
      1993, he has served as General Counsel and Vice President, Legal Affairs
      and Human Resources; in August 2005 he was designated as Chief Governance
      Officer.

James D. Gustafson has served as a Vice President since January 1, 1994, and has
      been responsible for our Quality Assurance and Regulatory/Clinical Affairs
      since June 1993. In August 2001, Mr. Gustafson assumed responsibility
      research, development, and engineering functions, and in August 2005
      assumed responsibility for all clinical evaluation activities, and was
      designated Chief Quality Officer.


                                       12
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Shawn F. McCarrey became our Director of U.S. Sales in December 1998 and became
      Vice President of U.S. Sales in April 2001, Vice President of Worldwide
      Sales in February 2003 and Executive Vice President of Worldwide Sales and
      Marketing in 2005. Prior to December 1988, Mr. McCarrey served in a
      variety of sales positions with USCI, a subsidiary of C.R. Bard, Inc.,
      from January 1982 until 1998.

Robert J. Scott joined our medical subsidiary in 1985 and has served as Vice
      President of Manufacturing since 1993 and Information Technology since
      July 30, 2001. In August 2005 he was designated as Chief Security Officer.

                                     PART II

Item 5. Market for the Registrant's Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities:

We had 1,240 common shareholders of record on September 17, 2007. Our common
stock is traded on the Nasdaq Stock Market under the symbol POSS. High and low
closing sale prices for each quarter of fiscal years ended July 31, 2007 and
2006 are presented below:

                            2007                          2006
               ------------------------------ ----------------------------
                    High            Low           High           Low
               ------------------------------ ----------------------------
QUARTER:
First                   $11.20         $ 8.45        $13.39          $9.90
Second                   13.48          10.12         12.97           9.40
Third                    13.91          11.58         10.26           8.90
Fourth                   13.40          10.41          9.85           7.77

We have not paid cash dividends on our common stock since 1983. We do not
currently anticipate paying cash dividends in the foreseeable future.

Share Repurchase Program

In December 2006, our Board of Directors authorized the repurchase of an
additional $15,000,000 of common stock from time to time in open market
transactions. The December 2006 authorization will expire in December 2008. We
repurchased 376,490 shares during the year ended July 31, 2007. We believe that
the share repurchase program is an effective tool to reduce the dilution
associated with our stock based incentive compensation plans.

During the three months ended July 31, 2007, we repurchased an aggregate of
226,752 shares of our common stock pursuant to the repurchase program. The
following table details those purchases on a monthly basis:

<TABLE>
<CAPTION>
                    Company Repurchases of Equity Securities

                                               (c) Total Number of  (d) Maximum Number
                                                Shares Purchased      (or Approximate
                 (a) Total      (b) Average        as Part of        Dollar Value) of
                  number of     Price Paid per  Publicly Announced  Shares that May Yet
                   Shares           Share       Plans or Programs   Be Purchased Under
                  Purchased                                            the Plans or
                                                                          Programs
-------------- --------------- --------------- ------------------- ---------------------
May 1, 2007 to
<S>                     <C>             <C>                 <C>     <C>
May 31, 2007            35,000          $11.75              35,000
-------------- --------------- --------------- ------------------- ---------------------
June 1, 2007
 to
June 30, 2007          131,503          $11.75             131,503
-------------- --------------- --------------- ------------------- ---------------------
July 1, 2007
 to
July 31, 2007           60,249          $10.93              60,249           $10,587,000
-------------- --------------- --------------- ------------------- ---------------------
   Total               226,752          $11.18             226,752           $10,587,000
-------------- --------------- --------------- ------------------- ---------------------
</TABLE>

PERFORMANCE GRAPH


Set forth below is a graph showing the five-year cumulative returns through July
31, 2007, of our common stock as compared with the NASDAQ Composite, NASDAQ
Medical Equipment Russell 2000 Index ,and a peer group, index comprised of seven
companies in the medical device industry with similar cardiovascular markets. In
fiscal 2006 the graph compared our common stock with the Russell 2000 Index and
the peer group. In Fiscal 2008 the graph will compare our common stock only with
the NASDAQ Composite index and NASDAQ Medical Equipment index. The Russell 2000
Index and the Peer Group will no longer be included on the graph. We decided to
discontinue use of the Russell 2000 Index in future periods because our common
stock is no longer included in the Russell 2000 index. We decided to discontinue
use of the peer group because of changes in the individual companies that
comprise the peer group, which currently includes Arthrocare Corp.; Cardiac
Science, Inc.; Datascope Corp.; Kensey Nash Corp.; Merit Medical Systems, Inc.;
Novoste Corp.; Spectranetics Corp. The graph assumes an investment of $100.00 in
our common stock in each of the indexes on July 31, 2002, and the reinvestment
of all dividends.


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                     [Please see Supplemental PDF for Graph]


                                        Cumulative Total Return
                           ----------------------------------------------------
                              7/02     7/03    7/04     7/05      7/06     7/07
                           ------- -------- ------- -------- --------- --------
POSSIS MEDICAL, INC.        100.00   172.62  290.06   118.66     84.79   112.78
RUSSELL 2000                100.00   123.11  144.11   179.82    187.45   210.17
NASDAQ Composite            100.00   128.66  142.78   164.72    161.10   197.04
NASDAQ Medical Equipment    100.00   129.09  164.64   194.71    186.52   241.51
PEER GROUP                  100.00   141.06  166.40   192.16    206.25   215.21
-------------------

(1)  Arthrocare Corp.; Cardiac Science, Inc.; Datascope Corp.; Kensey Nash
     Corp.; Merit Medical Systems, Inc.; Novoste Corp.; Spectranetics Corp.


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Item 6. Selected Financial Data:

                             SELECTED FINANCIAL DATA
                              POSSIS MEDICAL, INC.
                              YEARS ENDED JULY 31,
<TABLE>
<CAPTION>

In Thousands Except per Share Data          2007         2006          2005          2004         2003
                                      ----------- ------------ ------------- ------------- ------------
INCOME STATEMENT DATA:
<S>                                      <C>         <C>           <C>           <C>           <C>
     Product sales                       $66,655     $ 61,879      $ 65,053      $ 72,420      $57,428
     Gross profit margin                      69%          72%           74%           76%          75%
Net income:
Before income taxes                          909        2,532        10,119        18,763       12,013
Income tax (provision) benefit              (853)      (1,723)       (3,964)       (7,034)       4,555
After income taxes                            56          809         6,155        11,729       16,568
Net income per common share - diluted:
Before income taxes                         0.05         0.14          0.55          0.96         0.64
Income tax (provision) benefit             (0.05)       (0.09)        (0.21)        (0.36)        0.24
After income taxes                          0.00         0.05          0.34          0.60         0.88
Weighted average shares outstanding:
     Basic                                17,122       17,224        17,616        17,936       17,502
     Diluted                              17,708       17,825        18,311        19,566       18,889
BALANCE SHEET DATA:
Cash and Marketable Securities           $42,872     $ 48,116      $ 44,427      $ 48,171      $31,944
Working capital                           56,405       57,158        53,544        57,399       38,881
Total assets                              83,921       81,952        78,151        86,021       67,765
Shareholders' equity                      73,288       72,904        70,588        77,617       61,034
CASH FLOW DATA:
Operating cash flow                      $ 2,586     $  8,470      $ 11,919      $ 17,375      $12,995
</TABLE>

On August 1, 2005, (beginning of fiscal 2006) we adopted Statement of Financial
Accounting Standards No. 123(R), Share Based Payment (SFAS 123R), which resulted
October 12, 2007


share) for fiscal 2007 and $3,462,000 of pre-tax expense, or ($2,962,000 after
tax, or $0.17 per diluted share) for fiscal 2006. Stock-based compensation for
fiscal 2005, 2004 and 2003 was $0. See Note 4 to the Financial Statements.

The specific purposes of the non-GAAP financial measures for income per common
share "before income taxes" relates to the utilization of net operating loss
carryover for tax purposes in fiscal year 2003. Breaking this out separately is
intended to disclose to the investor the significance of the net operating loss
utilization to earnings per share.

Item 7.  Management's Discussion and Analysis of Financial Condition and
             Results of Operation:

General

We develop, manufacture, and market medical devices for mechanical thrombectomy
in native coronary arteries and coronary bypass grafts, leg arteries and in
kidney dialysis access grafts and native fistulas. Our primary product, the
AngioJet Rheolytic Thrombectomy System (AngioJet System) uses miniaturized
waterjet technology, which enables interventional cardiologists, interventional
radiologists, vascular surgeons, and other specialists to remove blood clots
throughout the body.

The proprietary first generation AngioJet System consists of the 3000 drive unit
(capital equipment), a disposable pump set that delivers pressurized saline to a
catheter, and a variety of disposable catheters that are specifically designed
for particular clinical indications. For our new AngioJet Ultra System we
combine the disposable catheters with a pump that we sell as integrated
disposable thrombectomy sets. We launched the new AngioJet Ultra Thrombectomy
System in January 2007. The AngioJet Ultra System consists of the
next-generation Ultra Console (capital equipment) with a combined single
disposable Thrombectomy set (catheter and pump) that delivers pressurized
saline. Disposable catheter sets are specifically designed to treat particular
clinical indications. The new Ultra System features a simple and fast setup
process, the flexibility to use a broad range of catheters, a sleeker design,
lighter weight, and handling improvements that make it significantly easier to
maneuver than the first generation drive unit. AngioJet coronary catheters are
Class III medical devices marketed in the U.S. under an approved PMA. The
AngioJet AV-Access and peripheral arterial catheters are Class II devices that
are marketed in the U.S. under cleared 510(k) submissions.


                                       15
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We expect U.S. AngioJet System sales to grow primarily through obtaining
additional FDA approved product uses, introduction of new catheter models for
existing indications, introduction of AngioJet System-related products, more
face-time selling to existing accounts, peer-to-peer selling, and the
publication of clinical performance and cost-effectiveness data. For fiscal
2008, we also expect significant contribution to sales from our new AngioJet
Ultra System consoles.

Critical Accounting Policies

Our financial statements include accounts of Possis Medical, Inc. The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires us to make estimates
and assumptions in certain circumstances that affect amounts reported in the
accompanying financial statements and related footnotes. In preparing these
financial statements, we have made our best estimates and applied our best
judgment of certain amounts included in the financial statements, giving due
consideration to materiality. Our most critical accounting policies are those
described below. Application of these accounting policies involves the exercise
of judgment and use of assumptions as to future uncertainties and, as a result,
actual results could differ from these estimates.

Revenue Recognition

Revenues associated with AngioJet drive units and the consoles that are
maintained at customer locations are recognized, and title and risk of loss on
those drive units is transferred to the customer when we receive a valid
purchase order from the customer. Revenue is not recognized for AngioJet drive
units and consoles that are maintained at customer locations as evaluation drive
units or consoles. We do not lease AngioJet drive units and consoles. Revenues
associated with products other than drive units or consoles that are shipped to
customers from our facilities are recognized, and title and risk of loss are
transferred to the customer, when a valid purchase order is received and the
products are received at the customer's location. Provisions for returns are
recorded in the same period the related revenues are recognized. Revenue
recognition for drive unit and console extended warranties is amortized on a
straight-line basis over the life of the warranty period that is generally
twelve months.

Allowance for Returns

Trade receivables are reduced by an allowance for items that may be returned in
the future. The allowance requires us to make estimates at the time the account
receivable is recorded concerning the likelihood of returns. The estimate is
based upon our historical product return experience, customer complaint rates,
information received from our customers and other assumptions that we believe
are reasonable under the circumstances. We review, on a quarterly basis, the
actual returns for the previous quarter and evaluate the adequacy of the
allowance for future returns. Although we believe the amount of the allowance
for returns is appropriate, actual returns incurred could differ from our
original estimate, requiring adjustments to the allowance that effect the
results during the period of adjustment.

Allowance for Doubtful Accounts

Substantially all of our trade receivables are due from health care facilities
located in the United States. We provide for an allowance for uncollectible or
"doubtful" accounts based upon the age of our outstanding receivables and the
payment history and creditworthiness of each customer. We evaluate the adequacy
of the allowance for doubtful accounts on a quarterly basis. Although we believe
the amount of the allowance for doubtful accounts is appropriate, nonpayment of
accounts could differ from our original estimate, requiring adjustments to the
allowance.

Inventories

We value inventories at the lower of cost or market. In order to determine the
market value of inventory, on a quarterly basis, we assess the inventory
quantities on hand to estimate future usage and sales and, if necessary, set up
an obsolescence reserve for inventory deemed excess or obsolete to estimate
market value. Although we believe the amount of the reserve for inventory
obsolescence is appropriate, the amount of our inventory that becomes obsolete
may differ from our original estimate, requiring adjustments to the reserve.

Deferred Tax Asset Valuation Allowance

We record deferred tax assets primarily from federal and state net operating
loss carryovers and from research and development tax credit carryovers and to
the extent the utilization of those loss carryovers and credits is doubtful, we
record an allowance against the deferred tax assets. Generally, during periods
of sustained profitability no allowance is recorded unless there is a specific
credit that cannot be applied before it expires, or a loss in a jurisdiction
that cannot be applied in other jurisdictions. We became profitable starting in
fiscal 2001 and have remained profitable since. In fiscal 2007, we increased the
valuation allowance against our deferred tax asset to $1,504,000 because of
research and development tax credits that may exceed the limits imposed by
Federal and State tax jurisdictions on use of credits and that may therefore not
be realizable in future years.


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Stock-Based Compensation

On December 16, 2004, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 123 (revised 2004),
Share-Based Payment (123(R)), effective for a company's first fiscal year
beginning after June 15, 2005, SFAS No. 123(R) supersedes Accounting Principles
Board Opinion No. 25, Accounting for Stock Issued to Employees. SFAS No. 123(R)
requires all share-based compensation, including grants of stock options, to be
recognized in the statements of earnings. On August 1, 2005 we adopted SFAS No.
123(R), and elected the modified prospective transition method. This method
permits us to apply the new requirements on a prospective basis. Our net income
for fiscal 2007 and 2006, reflected stock-based compensation expense of
$3,289,000 ($2,528,000 after tax, or $0.14 per diluted share) and $3,462,000
($2,962,000 after tax, or $0.17 per diluted share). Our fiscal 2005 net income
does not reflect stock-based compensation expense on stock options. Fiscal 2005
stock-based compensation expense on stock options under SFAS 123(R) would have
been $5,292,000 ($3,169,000 after tax, or $0.16 per diluted share)




                                       17
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Results of Operations

      Fiscal Years Ended July 31, 2007, 2006 and 2005


Operating Expenses

The following table compares dollars (in thousands) and percentage changes in
the Statements of Income between 2007 and 2006 and between 2006 and 2005.

<TABLE>
<CAPTION>

                                                   Increase (Decrease)                         Increase (Decrease)
                                2007       2006    Dollars     Percent         2006      2005  Dollars    Percent

<S>                         <C>        <C>         <C>             <C>     <C>       <C>      <C>             <C>
  Product Sales             $ 66,655   $ 61,879    $  4,776        7.7%    $ 61,879  $ 65,053 $ (3,174)       (4.9%)

  Operating Expenses

     Cost of medical
      products                20,340     17,114       3,226       18.9%      17,114    16,967      147     .9     %
     Selling, general and
      admin.                  38,248     32,990       5,258       15.9%      32,990    28,625    4,365        15.2%
     Research and
      development              9,258     10,907      (1,649)     (15.1%)     10,907    10,502      405         3.9%

     Total                    67,846     61,012       6,834       11.2%      61,012    56,094    4,918         8.8%

  Operating Income (Loss)     (1,191)       867      (2,059)    (237.2%)        867     8,959   (8,091)      (90.3%)

     Other Income              2,100      1,664         436       26.2%       1,664     1,160      504        43.4%

  Income before income
   taxes                         909      2,532      (1,623)     (64.1%)      2,532    10,119   (7,587)      (75.0%)
  Income taxes (provision)
  benefit                       (853)    (1,723)        870      (50.5%)     (1,723)   (3,964)   2,241       (56.5%)
  Net income                $     56   $    809    $   (753)     (93.1%)   $    809  $  6,155 $ (5,346)      (86.9%)
</TABLE>

<TABLE>
<CAPTION>

The following table shows the Statements of Income as a percentage of product sales for 2007, 2006 and 2005.

                                2007       2006        2005

<S>                            <C>        <C>         <C>
  Product Sales                100.0%     100.0%      100.0%

  Operating Expenses
     Cost of medical
      products                  30.5%      27.7%       26.1%
     Selling, general and
           administrative       57.4%      53.3%       44.0%
     Research and
      development               13.9%      17.6%       16.1%
     Total                     101.8%      98.6%       86.2%

  Operating Income (Loss)       (1.8%)      1.4%       13.8%

     Other Income                3.2%       2.7%        1.8%

  Income before income
   taxes                         1.4%       4.1%       15.6%
  Income taxes provision        (1.3%)     (2.8%)      (6.1%)
  Net income                     0.1%       1.3%        9.5%
</TABLE>

On August 1, 2005, (beginning of fiscal 2006) we adopted Statement of Financial
Accounting Standards No. 123(R), Share Based Payment (SFAS 123(R), which
resulted in $3,289,000 of pre-tax expense, or ($2,528,000 after tax, or $0.14
per diluted share) for fiscal 2007 and $3,462,000 of pre-tax expense, or
($2,962,000 after tax, or $0.17 per diluted share) for fiscal 2006. Stock-based
compensation prior to implementation of SFAS 123(R) in fiscal 2006 was reflected
as a financial statement footnote disclosure. See Note 4 to the Financial
Statements.


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Revenue

Total product sales for 2007 increased $4,775,000, or 8 percent, to $66,655,000,
compared to $61,879,000 in fiscal 2006. Total product sales for fiscal 2006
decreased $3,174,000 or 5 percent to $61,879,000, compared to $65,053,000 in
fiscal 2005.


The revenue increase during fiscal 2007 relates to the introduction of the
AngioJet(R) Ultra Thrombectomy System and increased peripheral (medium length
catheters) sales partially offset by a reduction in coronary (long length
catheters) and AV sales (short length catheters). In addition, the increase was
partially due to the introduction of the SafeSeal Hemostasis Patch and Fetch
Aspiration Catheter. Fiscal 2007 revenue was negatively impacted some what due
to a trade-in program designed to facilitate customer conversion to the new
Ultra System Console from the first generation drive unit Customers who upgrade
to an Ultra System Console within one year of the first generation drive unit
purchase are eligible for this trade-in program and receive a credit towards the
purchase of an Ultra Console.

Fiscal 2006 revenue decreased primarily due to the negative impact from the
results of the AiMI post-marketing study impacting our coronary, or long
catheter sales. Fiscal 2006 revenue was also affected by higher than normal
sales force turnover.

Our fiscal 2007 allowance for sales returns increased due to the introduction of
the AngioJet Ultra Thrombectomy System. First generation disposable catheters
and pumps can not be used with the new Ultra System. Conversely, Ultra System
disposable thrombectomy sets are not usable with the first generation AngioJet
System. Customers who either purchased the Ultra Console or received an Ultra
Console under an evaluation program could return their first generation
catheters and pump sets for credit. As a result, our allowance for sales returns
increased to 2.5 percent of gross revenue in fiscal 2007, compared to 1.1
percent in fiscal 2006, and 1.0 percent in fiscal 2005. In fiscal 2007 the
majority of the returns were incurred in the last half of the fiscal year after
the Ultra System was launched..

We sold 82 AngioJet System first-generation drive units and 113 Ultra System
consoles worldwide in fiscal 2007, 156 drive units in fiscal 2006 and 215 drive
units in fiscal 2005. The Ultra consoles were first introduced for sale in
January 2007. As of July 31, 2007, we had a total of 2,144 AngioJet System drive
units and Ultra System consoles in the field world wide, compared to 1,822 and
1,645 at the end of the fiscal 2006 and 2005, respectively.

During fiscal 2007, we sold a total of approximately 47,300 catheters and pump
sets world wide versus approximately 47,000 in fiscal 2006 and 49,300 in fiscal
2005. This represents a 1 percent increase in fiscal 2007 and an 5 percent
decrease in fiscal 2006 in unit catheter sales from the previous years.

We employ a variety of flexible drive unit and console sale programs, including
outright sale and various evaluation programs. The purchasing cycle for the
AngioJet System drive unit and Ultra consoles varies depending on the customer's
budget cycle and is normally approximately six months from the beginning of the
marketing cycle. We have signed contracts with seven hospital purchasing groups
to increase market penetration. These hospital purchasing groups evaluate and
screen new medical technologies, and negotiate pre-determined discounts on
behalf of their members, and. By working with these hospital purchasing groups,
we are placed on their recommended vendor list, and in some instances receive
marketing support from the purchasing group supported by a marketing fee that we
pay. These discounts and marketing fees have been offset by the increase in our
sales to the member hospitals of the purchasing group. There has been no
material negative effect on our margins due to these discounts and marketing
fees. The discounts reduce gross revenue on the income statement, while
marketing fees are included in selling, general and administrative expense on
the income statement.

International sales of the AngioJet System were $2,073,000 in fiscal 2007,
$2,021,000 in fiscal 2006 and $1,938,000 in fiscal 2005. The modest increase in
sales is primarily due to the introduction of the Fetch manual aspiration
catheter and SpiroFlex catheter sales in the European market. The AngioJet Ultra
Thrombectomy System is currently not being sold internationally.

Cost of Medical Products/Gross Profit Margin

Cost of medical products increased $3,226,000 to $20,340,000 in fiscal 2007
compared to fiscal 2006. The increase was primarily due to an increase in
product unit sales including AngioJet sales, Fetch and SafeSeal, combined with
slightly higher product costs on the new Ultra System product line.

Gross profit increased $1,550,000 to $46,315,000 or 69.5 percent of product
sales in fiscal 2007 from $44,765,000 or 72.3 percent of product sales in fiscal
2006. The increase in gross profit was primarily due to the increase in sales
volume offset by a shift in overall sales mix to lower-margin Ultra System
Consoles from higher margin disposables, combined with slightly higher product
costs on the new Ultra System line.


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Cost of medical products increased $147,000 to $17,114,000 in fiscal 2006
compared to fiscal 2005. The increase was primarily due to higher production
overhead on lower production unit volumes combined with an increase in
compensation charges under SFAS 123(R) of $418,000, offset by the reduction in
AngioJet unit sales.

Gross profit decreased by $3,321,000 to $44,765,000 or 72.3 percent in fiscal
2006 from $48,086,000, or 73.9 percent of product sales in fiscal 2005. The
decrease in the gross profit margin in fiscal 2006 and 2005 was primarily due to
lower revenue unit volume.

Selling, General and Administrative Expenses

Selling, general and administrative expense increased $5,258,000 to $38,248,000,
or 57.4 percent of product sales, in fiscal 2007 from $32,990,000 or 53.3
percent of product sales in fiscal 2006. The primary factors for the expense
increase for fiscal 2007 were sales force additions, commissions, and a new
sales compensation plan which contributed $4,306,000 or 82 percent of the
overall increase. Additional increases in fiscal 2007 included sales samples,
convention, and travel expense.

Selling, general and administrative expense increased $4,365,000 to $32,990,000,
or 53.3 percent of product sales, in fiscal 2006 from $28,625,000 or 44.0
percent of product sales in fiscal 2005. The expense increase for fiscal 2006
was attributable primarily to SFAS 123(R) stock-based compensation charges which
contributed $2,279,000 or over half of the overall increase. We also had
increased expenditures in fiscal 2006, however, in marketing, clinical study,
and in the proportionate amount of salary, incentives and benefits for field
sales personnel resulting from turnover.

We currently have a U.S. sales force of approximately 87 employees and expect
that will be sufficient to grow sales and service our current customer base for
the AngioJet System through fiscal 2008. We expect selling, general and
administrative costs to decline as a percent of revenue starting in the second
half of fiscal 2008.

Research and Development Expenses

Research and development expenses decreased $1,650,000 to $9,258,000, or 13.9
percent of product sales, in fiscal 2007 compared to $10,907,000 or 17.6 percent
of product sales in fiscal 2006. The decrease was primarily due to the
completion of the new AngioJet Ultra System Console and associated project to
combine the pump and catheter disposables.

Research and development expenses increased $405,000 to $10,907,000, or 17.6
percent of product sales, in fiscal 2006 compared to $10,502,000 or 16.1 percent
of product sales in fiscal 2005. The increase was primarily due to SFAS 123(R)
impact of $765,000. Excluding the impact of SFAS 123(R), overall research and
development expenses would have decreased by $360,000.

We believe that research and development expenses for AngioJet System
applications and related products in fiscal 2008 will approximate 12 percent to
13 percent of product sales. Research and development expense levels are
dependent upon the continuing development of its current products and investment
in the development of new AngioJet System thrombectomy applications and related
products.


Interest Income

Interest income increased $300,000 to $2,113,000 in fiscal 2007 compared to
$1,813,000 in fiscal 2006. Fiscal 2006 interest income increased $539,000 in
fiscal 2006 from $1,274,000 in fiscal 2005. The increases are due to the
investing of excess cash and cash equivalents in a portfolio of marketable
securities and to the interest rate levels. Fiscal 2008 interest income levels
will be dependent on the amount of excess cash and cash equivalents invested and
the interest rates.

Loss On Sale of Securities

Loss on sales of securities was $13,000 in fiscal 2007, $148,000 in fiscal 2006,
and $114,000 in 2005. The losses were due to interest rate increases that
reduced the fair market value of the investments in marketable securities.
Future gains and losses on the sale of securities will be primarily dependent on
interest rate fluctuations.

Provision for Income Taxes

We recorded a provision for income taxes of $853,000, or approximately 94
percent of income before income taxes, for fiscal 2007. We recorded a provision
for income taxes of $1,723,000 and $3,964,000, or approximately 68 percent, and
39 percent of income before income taxes, for fiscal years 2006 and 2005,
respectively.


                                       20
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For fiscal 2007, our effective tax rate was 94 percent on a GAAP basis and 38
percent as adjusted to exclude the impact of SFAS 123 (R). The increase in the
GAAP effective tax rate in the current year is primarily attributable to the
treatment of incentive stock options (or ISO's) under SFAS 123 (R) and the level
of income before income taxes. Unless there is a disqualifying disposition, we
are not entitled to a deduction upon exercise of an ISO and although SFAS 123(R)
now requires us to recognize expense over the vesting period, there is no
offsetting tax benefit. In contrast, we are entitled to a deduction, and tax
benefit, upon exercise of non-qualified stock options. Approximately 33 percent
of stock-based compensation expense is related to ISO's in fiscal 2007 so the
impact on our GAAP effective tax rate is significant.

For fiscal 2006, our effective tax rate was 68 percent on a GAAP basis and 37
percent as adjusted to exclude the impact of SFAS 123 (R). The increase in the
GAAP effective tax rate in the current year is attributable to the treatment of
incentive stock options (or ISO's) under SFAS 123 (R) as described above.
Approximately 63 percent of stock-based compensation expense for fiscal 2006 was
related ISO's so the impact on our GAAP effective tax rate was significant.

During fiscal 2005, we determined that the scope of our operations caused us to
have nexus in states in which we had not previously filed corporate state income
tax returns. We filed the appropriate corporate state income tax returns in
these states, including returns for prior years, to obtain the appropriate net
operating loss carry-forwards. We expensed an additional $165,000 of corporate
state income tax expense relating to the filing of these state corporate income
tax returns during fiscal 2005.

We increased our deferred tax asset by an additional $78,000 in fiscal 2007,
$56,000 in fiscal 2006, and $466,000 in fiscal 2005, as a result of the tax
benefit from exercise of stock options and an associated disqualifying
disposition that are recorded directly in the Statement of Changes in
Shareholders' Equity. In fiscal 2006, we performed a study of our research and
development tax credit for the fiscal years 1995 through 2005. This analysis
resulted in a net increase in the our net research and development tax credits
that can be carried forward of $594,000. The valuation allowance against the
deferred tax asset was increased by $91,000 in fiscal 2007 to $1,504,000. Of
this allowance, $1,296,000 relates to research and development tax credits that
may not be realizable. An additional $153,000 valuation allowance relates to the
capital loss carryover.

Net Income
We recorded net income of $56,000, or $0.00 per diluted share, in fiscal 2007,
compared to net income of $809,000, or $0.05 per diluted share, in fiscal 2006
and net income of $6,155,000, or $0.34 per diluted share, in fiscal 2005. SFAS
No.123(R) was adopted on August 1, 2006. Our net income for fiscal 2005 does not
reflect the impact of adopting SFAS No.123(R). The impact on the fiscal 2005 net
income if SFAS No.123(R) was included is stock-based compensation expense, net
of tax, of $2,986,000 or $0.16 per diluted share.

Liquidity and Capital Resources

Our cash, cash equivalents, and marketable securities totaled approximately
$42,872,000 at July 31, 2007 compared to $48,116,000 at July 31, 2006. The
primary factors in the decrease were the repurchase of our common stock for
$4,413,000, investment in Rafael Medical of $2,613,000 and capital expenditures
of $1,744,000 which was partially offset by the cash provided by operations of
$2,586,000.

During fiscal 2007, we generated $2,586,000 of cash from operating activities,
which resulted primarily from $56,000 net income, depreciation of $2,889,000, a
decrease in deferred tax assets of $389,000, non-cash stock-based compensation
expense of $4,050,000, and an increase in accounts payable and accrued
liabilities of $1,335,000. These cash sources were partially offset by increases
in accounts receivables of $291,000, inventories of $4,310,000, and in prepaid
expenses and other assets of $1,548,000. The stock-based compensation includes
the expensing of stock options under SFAS 123 (R). The increase in trade
accounts payable and accrued liabilities was due to the timing of the payments,
including an increase in accrued compensation which was paid subsequent to
year-end. Trade receivables increased in fiscal 2007 due to the increase in
product sales. Inventory increased due to the introduction of new products in
fiscal 2007, primarily the AngioJet Ultra System. The increase in prepaid
expenses is primarily due to increase in deposits with inventory vendors.

We generated $389,000 of cash from investing activities in fiscal 2007. This
includes the net proceeds from marketable securities of $4,727,000, offset
partially by the investment in Rafael Medical of $2,613,000 and the purchase of
$1,744,000 of property and equipment.

We used $3,817,000 of cash in financing activities in fiscal 2007, to repurchase
of 376,500 shares of our common stock for $4,413,000, offset partially by
$596,000 of cash received in connection with the exercise of stock options.

During fiscal 2006, we generated $8,470,000 of cash from operating activities,
which resulted primarily from $809,000 net income, depreciation of $2,564,000, a
decrease in deferred tax assets of $1,220,000, stock-based compensation expense
of $3,554,000, and an increase in accounts payable and accrued liabilities of
$1,674,000. These cash sources were partially offset by increases in inventories
of $662,000, and in prepaid expenses and other assets of $802,000. The
stock-based compensation includes the expensing of stock options under SFAS 123
(R). The increase in trade accounts payable and accrued liabilities was due to
the timing of the payments, including an increase in accrued compensation which
was paid subsequent to year-end. Inventory increased due to the introduction of
new products in fiscal 2006. The increase in prepaid expenses is primarily due
to increase in deposits with inventory vendors.


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We used $7,938,000 in investing activities in fiscal 2006. This includes the net
purchase of marketable securities of $5,776,000 and the purchase of $2,164,000
of property and equipment.

We used $2,283,000 of cash in financing activities in fiscal 2006, which
resulted from the repurchase of 312,500 shares of our common stock for
$3,163,000, offset partially by the cash received in connection with the
exercise of stock options for $919,000.

During fiscal 2005, we generated $11,919,000 of cash from operating activities,
which resulted primarily from $6,155,000 net income, depreciation of $2,341,000,
a decrease in deferred tax assets of $3,374,000, and a decrease in accounts
receivable of $1,957,000. These sources of cash from operations were partially
offset by cash used to fund an increase in inventories of $1,021,000, an
increase in prepaid expenses and other assets of $424,000, and a decrease in
accounts payable and accrued liabilities of $840,000. The $1,957,000 decrease in
receivables was due to decrease in revenue in fiscal 2005 as compared to fiscal
2004. Inventory increased as we built additional units to meet the anticipated
increase in demand of the AngioJet System that was not realized because of the
negative impact of the AiMI post-marketing study results. The decrease in trade
accounts payable and accrued liabilities was due to the timing of the payments.

We used $1,368,000 of cash in investing activities during fiscal 2005. This
includes proceeds from the sale of marketable securities of $279,000 and the
purchase of $1,661,000 of property and equipment.

We used $13,706,000 of cash in financing activities in fiscal 2005, which
resulted from the repurchase of 1,133,100 shares of our common stock for
$14,961,000, offset partially by the cash received in connection with the
exercise of stock options for $1,256,000.

Cash from operating activities in fiscal 2007, 2006, and 2005 reflect
depreciation for company-owned drive units at customer locations, as well as
property and equipment. In addition, the decrease in the deferred tax asset in
fiscal years 2007, 2006, and 2005 was due to the utilization of the net
operating loss carry-forwards to offset current taxes payable.


Except with respect to lease obligations, purchase obligations and our
commitment to provide $1,500,000 of financing to Rafael Medical, we do not have
any substantial commitments for capital expenditures. The following table sets
forth contractual obligations at July 31, 2007:

<TABLE>
<CAPTION>
                                                    Payments Due By Period
                                                 Less than 1
                                     Total           year       1 - 3 Years    4 - 5 Years
<S>                              <C>               <C>         <C>           <C>
Operating Lease Obligations      $    1,290,000    $   438,000 $     667,000 $        185,000
Purchase Obligations                  9,291,000      9,291,000            --               --
Rafael Medical Obligations       $    1,500,000    $ 1,500,000            --               --
Other Long-Term Liabilities             681,000        275,000       406,000               --

Total                            $   12,762,000    $11,504,000 $   1,073,000 $        185,000
                                 ============== ============== ============= ================
</TABLE>


o    Operating Lease Obligations - See Note 8 to the Financial Statements.
o    Purchase Obligations - These are open committed purchase orders for
     inventory and operational expenses.
o    Rafael Medical Obligations - See Note 5 to the Financial Statements.
o    Other Long-Term Liabilities - See Note 2 to the Financial Statements.

With over $42 million of cash and marketable securities, we believe our cash on
hand and funds from operations will be sufficient to cover both our short-term
and long-term operating requirements.


                                       22
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Off-Balance Sheet Arrangements

We do not have any material off-balance-sheet financial arrangements.

ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk:

We primarily invest our excess cash in a professionally managed, institutional
fixed income portfolio of short duration. The market risk on a diversified
portfolio of relatively short duration is minimal, while enhancing returns above
money market levels. Loss on sales of securities was $13,000 in fiscal 2007,
$148,000 in fiscal 2006 and $114,000 in 2005. The losses were due to interest
rate increases that reduced the fair market value of the investments in
marketable securities. Future gain (loss) on sale of securities is dependent on
interest rate fluctuations.

Our foreign product sales are in U.S. Dollars ("USD") except for product sales
in Germany, which are in euro's. The German product sales were minimal during
fiscal 2007. We have a foreign bank account in which the German product sales
receipts are deposited and immediately transferred to the operating bank account
in the United States. The balance in the German bank account was zero as of July
31, 2007.


                                       23
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<PAGE>
--------------------------------------------------------------------------------

Item 8. Financial Statements and Supplementary Data:

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of Possis Medical, Inc.:

We have audited the accompanying balance sheets of Possis Medical, Inc. (the
"Company") as of July 31, 2007 and 2006, and the related statements of income
and comprehensive income, shareholders' equity, and cash flows for each of the
three years in the period ended July 31, 2007. Our audits also included the
financial statement schedule listed in the Index at Item 15. These financial
statements and financial statement schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on the
financial statements and financial statement schedule based on our audits.


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.


In our opinion, such financial statements present fairly, in all material
respects, the financial position of Possis Medical, Inc. at July 31, 2007 and
2006, and the results of its operations and its cash flows for each of the
three years in the period ended July 31, 2007, in conformity with accounting
principles generally accepted in the United States of America. Also, in our
opinion, such financial statement schedule, when considered in relation to the
basic financial statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.


As discussed in Note 4 to the financial statements, the Company changed its
method of accounting for shared-based payments in 2006.


We have also audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the effectiveness of the Company's
internal control over financial reporting as of July 31, 2007, based on the
criteria established in Internal Control--Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission and our report
dated October 12, 2007, expressed an unqualified opinion on management's
assessment of the effectiveness of the Company's internal control over financial
reporting and an unqualified opinion on the effectiveness of the Company's
internal control over financial reporting.


DELOITTE & TOUCHE LLP


Minneapolis, MN
October 12, 2007


                                       24
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<PAGE>
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                              POSSIS MEDICAL, INC.
                                 BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                  July 31, 2007          July 31, 2006
                                                         ---------------------- ----------------------
ASSETS

CURRENT ASSETS:
<S>                                                              <C>                    <C>
Cash and cash equivalents (Note 1)                               $   2,664,607          $   3,505,796
Marketable securities (Note 1)                                      40,207,324             44,610,130
Trade receivables (less allowance for doubtful accounts
 and returns of $1,131,000 and $580,000, respectively)               8,647,569              8,356,776
Inventories (Note 1)                                                 9,351,888              5,915,950
Prepaid expenses and other assets                                    2,955,583              1,663,322
Deferred tax assets (Note 3)                                         2,010,000              1,331,000
                                                         ---------------------- ----------------------
    Total current assets                                            65,836,971             65,382,974

PROPERTY AND EQUIPMENT, net (Note 1)                                 4,872,574              5,090,198

DEFERRED TAX ASSET, net (Note 3)                                     9,518,000             10,756,000

INVESTMENT IN RAFAEL MEDICAL (Note 5)                                2,612,887                     --

OTHER ASSET (Note 2)                                                 1,080,889                723,262
                                                         ---------------------- ----------------------

TOTAL ASSETS                                                     $  83,921,321          $  81,952,434
                                                         ====================== ======================

LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:
Trade accounts payable                                           $   2,558,413          $   2,040,367
Accrued salaries, wages, and commissions                             4,503,546              3,468,961
Other liabilities                                                    2,369,801              2,715,421
                                                         ---------------------- ----------------------
Total current liabilities                                            9,431,760              8,224,749

OTHER LIABILITIES (Note 2)                                           1,201,743                823,975

COMMITMENTS AND CONTINGENCIES (Note 8)

SHAREHOLDERS' EQUITY (Note 4):
Common stock-authorized, 100,000,000 shares of
 $0.40 par value each; issued and outstanding, 16,894,416
 and 17,146,825 shares, respectively                                 6,757,766              6,858,730
Additional paid-in capital                                          77,538,548             77,378,276
  Accumulated other comprehensive loss                                 (60,000)              (329,000)
  Retained deficit                                                 (10,948,496)           (11,004,296)
                                                         ---------------------- ----------------------
Total shareholders' equity                                          73,287,818             72,903,710
                                                         ---------------------- ----------------------

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                       $  83,921,321          $  81,952,434
                                                         ====================== ======================
</TABLE>

See notes to financial statements.


                                       25
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                              POSSIS MEDICAL, INC.
                              STATEMENTS OF INCOME
                            AND COMPREHENSIVE INCOME
                               YEARS ENDED JULY 31
<TABLE>
<CAPTION>
                                                               2007            2006            2005

<S>                                                   <C>              <C>             <C>
Product sales (Note 9)                                $ 66,654,592     $61,879,378     $65,053,329
Cost of sales and other expenses:
    Cost of medical products                            20,339,796      17,114,312      16,966,874
    Selling, general and administrative                 38,248,241      32,990,441      28,625,132
    Research and development                             9,257,731      10,907,289      10,501,719
                                                   ---------------- --------------- ---------------
        Total cost of sales and other expenses          67,845,768      61,012,042      56,093,725
                                                   ---------------- --------------- ---------------
Operating income (loss)                                 (1,191,176)        867,336       8,959,604
Interest income                                          2,113,296       1,812,900       1,274,149
Loss on sale of securities                                 (12,860)       (148,476)       (114,401)
                                                   ---------------- --------------- ---------------
Income before income taxes                                 909,260       2,531,760      10,119,352
Income tax provision (Note 3)                              853,460       1,723,159       3,963,934
                                                   ---------------- --------------- ---------------
Net income                                                  55,800         808,601       6,155,418
Other comprehensive income (loss), net of tax -
    Unrealized gain (loss) on securities                   269,000         (89,000)       (104,000)
                                                   ---------------- --------------- ---------------
Comprehensive income                                  $    324,800     $   719,601     $ 6,051,418
                                                   ================ =============== ===============

Net income per common share:
    Basic                                             $       0.00     $      0.05     $      0.35
    Diluted                                           $       0.00     $      0.05     $      0.34
Weighted average number of common shares
 outstanding:
    Basic                                               17,122,391      17,223,562      17,616,072
    Diluted                                             17,707,745      17,824,739      18,310,906
</TABLE>

See notes to financial statements.


                                       26
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                              POSSIS MEDICAL, INC.
                            STATEMENTS OF CASH FLOWS
                               YEARS ENDED JULY 31
<TABLE>
<CAPTION>
                                                               2007             2006            2005
OPERATING ACTIVITIES:
<S>                                                      <C>              <C>             <C>
    Net income                                           $      55,800    $     808,601   $   6,155,418
    Adjustments to reconcile net income to net
        cash provided by operating activities:
    Depreciation                                             2,888,670        2,563,704       2,341,170
    Deferred income taxes                                      389,000        1,219,949       3,374,000
    Stock-based compensation expense                         4,049,520        3,553,804         159,000
    Loss on sale of securities                                 114,628          190,442         136,405
    Loss on disposal of assets                                   4,601            5,980          80,651
    (Increase) decrease in trade receivables                  (290,793)         (81,937)      1,957,341
    Increase in inventories                                 (4,310,360)        (662,482)     (1,020,509)
    Increase in prepaid expenses and other assets           (1,649,888)        (802,456)       (424,171)
    Increase (decrease) in trade accounts payable              442,122          643,283        (436,292)
    Increase (decrease) in accrued and other
     liabilities                                               893,199        1,030,849        (403,697)
                                                       ---------------- ---------------- ---------------
             Net cash provided by operating activities       2,586,499        8,469,737      11,919,316
                                                       ---------------- ---------------- ---------------
INVESTING ACTIVITIES:
     Additions to property and equipment                    (1,743,596)      (2,163,523)     (1,660,969)
     Proceeds from sale of fixed assets                         18,295            1,280          13,660
     Investment in Rafael Medical                           (2,612,887)              --              --
     Proceeds from sale/maturity of marketable
      securities                                            90,207,893       42,234,346      58,664,204
     Purchase of marketable securities                     (85,480,715)     (48,010,107)    (58,385,017)
                                                       ---------------- ---------------- ---------------
     Net cash provided by (used in) investing
      activities                                               388,990       (7,938,004)     (1,368,122)
                                                       ---------------- ---------------- ---------------
FINANCING ACTIVITIES:
     Proceeds from issuance of stock and exercise
          of options                                           596,296          918,585       1,255,710
   Excess tax benefits from stock-based compensation                --          (39,000)             --
     Repurchase of common stock                             (4,412,974)      (3,162,766)    (14,961,444)
                                                       ---------------- ---------------- ---------------
            Net cash used in financing activities           (3,816,678)      (2,283,181)    (13,705,734)
                                                       ---------------- ---------------- ---------------
DECREASE IN CASH AND CASH EQUIVALENTS                         (841,189)      (1,751,448)     (3,154,540)
CASH AND CASH EQUIVALENTS AT BEGINNING
      OF YEAR                                                3,505,796        5,257,244       8,411,784
                                                       ---------------- ---------------- ---------------
CASH AND CASH EQUIVALENTS AT END OF YEAR                 $   2,664,607    $   3,505,796   $   5,257,244
                                                       ================ ================ ===============

SUPPLEMENTAL CASH FLOW DISCLOSURE:
Cash paid for income taxes                               $     617,700    $     467,710   $     666,958
Issuance of restricted stock                                   591,707          266,600          36,000
Disqualified stock options                                      78,000           56,000         466,000
</TABLE>

See notes to financial statements.


                                       27
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<PAGE>
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                              POSSIS MEDICAL, INC.
                                  STATEMENTS OF
                         CHANGES IN SHAREHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                                    Common Stock
                                              ------------------------   Additional   Unrealized
                                               Number of                  Paid-in       loss on       Retained
                                                 Shares      Amount        Capital     securities     Deficit         Total
                                              ------------ ----------- -------------- ------------ -------------- --------------
<S>                                            <C>         <C>         <C>             <C>         <C>            <C>
BALANCE AT JULY 31, 2004                       18,254,942  $7,301,977  $  88,419,540   $ (136,000) $ (17,968,315) $  77,617,202
  Employee stock purchase plan                     37,580      15,032        416,007           --             --        431,039
  Stock options issued to directors (Note 4)           --          --        123,000           --             --        123,000
  Stock options exercised                         164,311      65,724        758,946           --             --        824,670
  Disqualified stock options                           --          --        466,000           --             --        466,000
  Stock grants                                      2,754       1,102         (1,102)          --             --             --
  Restricted stock compensation                        --          --         36,000           --             --         36,000
  Unrealized loss on investments                       --          --             --     (104,000)            --       (104,000)
  Common stock repurchased                     (1,133,100)   (453,240)   (14,508,203)          --             --    (14,961,443)
  Net income                                           --          --             --           --      6,155,418      6,155,418
                                              ------------ ----------- -------------- ------------ -------------- --------------
BALANCE AT JULY 31, 2005                       17,326,487   6,930,595     75,710,188     (240,000)   (11,812,897)    70,587,886
                                              ============ =========== ============== ============ ============== ==============
  Employee stock purchase plan                     61,665      24,666        489,533           --             --        514,199
  Stock options issued to directors (Note 4)           --          --        137,750           --             --        137,750
  Stock options exercised                          55,506      22,202        382,184                                    404,386
  Disqualified stock options                           --          --         56,000           --             --         56,000
  Stock grants                                     21,947       8,779         (8,779)          --             --             --
  Restricted stock cancelled                       (6,289)     (2,516)       (79,430)          --             --        (81,946)
  Restricted stock compensation                        --          --        266,600                                    266,600
  Unrealized loss on investments                       --          --             --      (89,000)            --        (89,000)
  Common stock repurchased                       (312,491)   (124,996)    (3,037,770)          --             --     (3,162,766)
  Stock compensation                                   --          --      3,462,000           --             --      3,462,000
  Net income                                           --          --             --           --        808,601        808,601
                                              ------------ ----------- -------------- ------------ -------------- --------------
BALANCE AT JULY 31, 2006                       17,146,825   6,858,730     77,378,276     (329,000)   (11,004,296)    72,903,710
                                              ============ =========== ============== ============ ============== ==============
  Employee stock purchase plan                     30,099      12,040        281,612           --             --        293,652
  Stock options issued to directors (Note 4)           --          --        171,625           --             --        171,625
  Stock options exercised                          48,102      19,240        283,405           --             --        302,645
  Disqualified stock options                           --          --         78,000           --             --         78,000
  Stock grants                                     66,564      26,626        (26,626)          --             --             --
  Restricted stock cancelled                      (20,684)     (8,274)       (22,861)          --             --        (31,135)
  Restricted stock compensation                        --          --        368,495           --             --        368,495
  Unrealized gain on investments                       --          --             --      269,000             --        269,000
  Common stock repurchased                       (376,490)   (150,596)    (4,262,378)          --             --     (4,412,974)
  Stock compensation                                   --          --      3,289,000           --             --      3,289,000
  Net income                                                                                              55,800         55,800
                                              ------------ ----------- -------------- ------------ -------------- --------------
  BALANCE AT JULY 31, 2007                     16,894,416  $6,757,766  $  77,538,548   $  (60,000) $ (10,948,496) $  73,287,818
                                              ============ =========== ============== ============ ============== ==============
</TABLE>

See notes to financial statements.


                                       28
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NOTES TO FINANCIAL STATEMENTS

1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Business Possis Medical, Inc. (the "Company") is a developer,
manufacturer and marketer of medical devices, operating in one business segment.
The Company was incorporated in 1956 and has operated several businesses over
the last 50 years. In 1990, the Company decided to focus on medical products and
in 1993 changed its name to Possis Medical, Inc. The Company's primary product ,
the AngioJet Rheolytic Thrombectomy System, received U.S. marketing approval for
use in arterio-venous (AV) access hemodialysis grafts and native fistulas in
December 1996, for use in native coronary arteries and coronary bypass grafts in
March 1999, and for use in leg arteries in April 2000.

The Company's thrombectomy products utilize new technology, and the production
processes and equipment used to manufacture them are unique and have been
designed and constructed by Company employees. In addition, the medical device
industry is subject to the laws and oversight of the United States Food and Drug
Administration as well as non-U.S. regulatory bodies in countries where the
Company does business.

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

Cash Equivalents The Company considers highly liquid investments with original
maturities of three months or less to be cash equivalents.

Marketable Securities During fiscal 2007 and 2006, the Company primarily
invested its excess cash and cash equivalents in a professionally managed
portfolio of marketable securities. All Company securities in this portfolio as
of July 31, 2007 and 2006 are classified as available-for-sale and consist
primarily of U.S. government securities and corporate/municipal bonds. These
investments are reported at fair value with a net unrealized gain (loss) for the
years ended July 31, 2007, 2006 and 2005, of approximately $269,000, ($89,000)
and ($104,000), respectively, net of tax effect, which is included in other
comprehensive income (loss). The cost of securities sold is based on the
specific identification method. No impairment losses were recorded during fiscal
years 2007, 2006, and 2005.

Information regarding the Company's available-for-sale marketable securities as
of July 31, 2007 and 2006 is as follows:

<TABLE>
<CAPTION>
                               U.S.Govt.       Corporate        Municipal         Mutual
                              Securities         Bonds            Bonds           Funds         Total
                           ----------------- -------------- ----------------- -------------- ------------

                                                           July 31, 2007
                           ------------------------------------------------------------------------------

<S>                             <C>             <C>              <C>            <C>          <C>
  Cost                          $18,949,000     $9,483,000       $11,200,000    $   672,000  $40,304,000
  Gross unrealized losses           (35,000)       (27,000)          (35,000)            --      (97,000)
  Fair value                    $18,914,000     $9,456,000       $11,165,000    $   672,000  $40,207,000


                                                           July 31, 2006
                           ------------------------------------------------------------------------------

  Cost                          $22,028,000     $9,544,000       $    16,000    $13,557,000  $45,145,000
  Gross unrealized losses          (267,000)      (104,000)               --       (164,000)    (535,000)
  Fair value                    $21,761,000     $9,440,000       $    16,000    $13,393,000  $44,610,000
</TABLE>


                                       29
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The following information recaps marketable securities for the years ended July
31, 2007 and 2006:

                                             July 31, 2007
                     -----------------------------------------------------------
<TABLE>
<CAPTION>

                  U.S. Govt.      Corporate     Municipal    Mutual Funds
                   Securities        Bonds         Bonds                        Total
                 -------------- -------------- ------------- ------------- --------------
Proceeds from
<S>              <C>            <C>            <C>           <C>           <C>
 sales           $  41,185,000  $  12,403,000  $  6,756,000  $  29,864,000 $  90,208,000
                 ============== ============== ============= ============= ==============
Net gain realized$          --  $          --  $         --  $          -- $          --
                 ============== ============== ============= ============= ==============
Net loss realized$     (63,000) $     (34,000) $    (17,000) $          -- $    (114,000)
                 ============== ============== ============= ============= ==============
</TABLE>
<TABLE>
<CAPTION>

                                            July 31, 2006
                     ------------------------------------------------------------
                 U.S. Govt.     Corporate     Municipal    Mutual Funds
                   Securities       Bonds         Bonds                        Total
                 -------------- ------------- ------------- ------------- --------------
Proceeds from
<S>              <C>            <C>           <C>           <C>           <C>
 sales           $  15,980,000  $  4,139,000  $  2,144,000  $  19,971,000 $  42,234,000
                 ============== ============= ============= ============= ==============
Net gain realized$          --  $      1,000  $         --  $          -- $       1,000
                 ============== ============= ============= ============= ==============
Net loss realized$    (184,000) $     (5,000) $     (2,000) $          -- $    (191,000)
                 ============== ============= ============= ============= ==============
</TABLE>

Inventories

Inventories are stated at the lower of cost (on the first-in, first-out basis)
or market. Inventory balances at July 31 were as follows:

                                                       2007           2006
                                                    ------------   ------------
                   Finished goods                   $4,206,290     $2,021,448
                   Work-in-process                    2,544,172      1,381,157
                   Raw materials                      2,601,426      2,513,345
                                                    ------------   ------------
                                                    $9,351,888     $5,915,950
                                                    ============   ============

Property and Equipment

Property is carried at cost and depreciated using the straight-line method over
the estimated useful lives of the various assets. Property and equipment
balances and corresponding lives at July 31 were as follows:

<TABLE>
<CAPTION>
                                              2007              2006            Life
                                       ----------------- ----------------- --------------
<S>                                     <C>               <C>                  <C>
Leasehold improvements                  $     2,928,531   $     2,805,467      5-10 years
Equipment                                    12,437,219        11,532,405   3 to 10 years
Assets in construction                          468,623           482,071             N/A
                                       ----------------- -----------------
                                             15,834,373        14,819,943
Less accumulated depreciation               (10,961,799)       (9,729,745)
                                       ----------------- -----------------
Property and equipment - net            $     4,872,574   $     5,090,198
                                       ================= =================
</TABLE>

Impairment of Long-Lived Assets

Management of the Company periodically reviews the carrying value of property
and equipment owned by the Company by comparing the carrying value of these
assets with their related expected future net cash flows. Should the sum of the
related expected future net cash flows be less than the carrying value,
management will determine whether an impairment loss should be recognized. An
impairment loss would be measured by the amount by which the carrying value of
the asset exceeds the fair value of the asset. No impairment losses were
recorded during fiscal 2007, 2006 and 2005.


                                       30
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Income Taxes

The Company accounts for income taxes under SFAS No. 109, "Accounting for Income
Taxes." Deferred taxes are provided on an asset and liability method whereby
deferred tax assets are recognized for deductible temporary differences and
operating loss or tax credit carryforwards, and deferred tax liabilities are
recognized for taxable temporary differences. Temporary differences are the
variances between the amounts of assets and liabilities recorded for income tax
and financial reporting purposes. Deferred tax assets are reduced by a valuation
allowance to reflect the possibility that some portion or all of the deferred
tax assets may not be realized.

Derivative Instruments and Hedging Activities

All contracts that contain provisions meeting the definition of a derivative
also meet the requirements of, and have been designated as, normal purchases or
sales. The Company's policy is to not enter into contracts with terms that
cannot be designated as normal purchases or sales.

Revenue Recognition

Revenues associated with AngioJet drive units that are maintained at customer
locations are recognized, and title and risk of loss on those drive units is
transferred to the customer when we receive a valid purchase order from the
customer. Revenue is not recognized for AngioJet drive units that are maintained
at customer locations as evaluation drive units. We do not lease AngioJet drive
units. Revenues associated with products that are shipped to customers from our
facilities are recognized, and title and risk of loss are transferred to the
customer, when a valid purchase order is received and the products are received
at the customer's location. Provisions for returns are recorded in the same
period the related revenues are recognized.

Revenue recognition for drive unit extended warranties is amortized on a
straight-line basis over the life of the warranty period that is generally
twelve months.

Shipping and Handling

The Company recognizes all amounts billed to customers in a sales transaction
related to shipping and handling as product sales. The Company records costs
related to shipping and handling in cost of medical products.

Fair Value of Financial Instruments

The carrying value of all financial instruments approximates fair value due to
the short-term nature of the instruments.

Net Income Per Common Share

Net income per common share for fiscal 2007, 2006 and 2005 is computed by
dividing net income by the weighted average number of common shares outstanding.
Options representing 1,652,538, 1,787,072, and 1,328,814, shares of common stock
at July 31, 2007, 2006 and 2005, respectively, have been excluded from the
computations because their effect would have been antidilutive.

Fair Value Measurements


In March 2006, the FASB issued FASB No. 157, "Fair Value Measurements". This
Statement defines fair value, establishes a framework for measuring fair value
in generally accepted accounting principles (GAAP), and expands disclosures
about fair value measurements. This Statement applies under other accounting
pronouncements that require or permit fair value measurements, the Board having
previously concluded in those accounting pronouncements that fair value is the
relevant measurement attribute. Accordingly, this Statement does not require any
new fair value measurements. However, for some entities, the application of this
Statement will change current practice. This Statement is effective for
financial statements issued for fiscal years beginning after November 15, 2007,
and interim periods within those fiscal years. Earlier application is
encouraged, provided that the reporting entity has not yet issued financial
statements for that fiscal year, including financial statements for an interim
period within that fiscal year. Adoption is not expected to have a material
impact on the Company's earnings, financial position or cash flows.


Accounting for Uncertainty in Income Taxes


                                       31
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In June 2006, The FASB issued FASB Interpretation No. 48. "Accounting for
Uncertainty in Income Taxes", an Interpretation of FASB Statement No. 109. This
Interpretation clarifies the accounting for uncertainty in income taxes
recognized in an enterprise's financial statements in accordance with FASB
Statement No. 109, Accounting for Income Taxes. This Interpretation prescribes a
recognition threshold and measurement attribute for the financial statement
recognition and measurement of a tax position taken or expected to be taken in a
tax return. This Interpretation also provides guidance on derecognition,
classification, interest and penalties, accounting in interim periods,
disclosure, and transition. The evaluation of a tax position in accordance with
this Interpretation is a two-step process. The first step is recognition: The
enterprise determines whether it is more likely than not that a tax position
will be sustained upon examination, including resolution of any related appeals
or litigation processes, based on the technical merits of the position. In
evaluating whether a tax position has met the more-likely-than-not recognition
threshold, the enterprise should presume that the position will be examined by
the appropriate taxing authority that has full knowledge of all relevant
information. The second step is measurement: A tax position that meets the
more-likely-than-not recognition threshold is measured to determine the amount
of benefit to recognize in the financial statements. The tax position is
measured at the largest amount of benefit that is greater than 50 percent likely
of being realized upon ultimate settlement. This Interpretation is effective for
fiscal years beginning after December 15, 2006. Earlier application of the
provisions of this Interpretation is encouraged if the enterprise has not yet
issued financial statements, including interim financial statements, in the
period this Interpretation is adopted. The Company is in the process of
evaluating the impact of adopting this interpretation.


Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans


In September 2006, the FASB issued FASB No. 158, "Employers' Accounting for
Defined Benefit Pension and Other Postretirement Plans". This Statement improves
financial reporting by requiring an employer to recognize the overfunded or
underfunded status of a defined benefit postretirement plan (other than a
multiemployer plan) as an asset or liability in its statement of financial
position and to recognize changes in that funded status in the year in which the
changes occur through comprehensive income of a business entity or changes in
unrestricted net assets of a not-for-profit organization. This Statement also
improves financial reporting by requiring an employer to measure the funded
status of a plan as of the date of its year-end statement of financial position,
with limited exceptions. This Statement is effective for financial statements
issued for fiscal years beginning after December 15, 2006, and interim periods
within those fiscal years. Earlier application is encouraged, provided that the
reporting entity has not yet issued financial statements for that fiscal year,
including financial statements for an interim period within that fiscal year.
Adoption is not expected to have a material impact on our earnings, financial
position or cash flows.


The Fair Value Option for Financial Assets and Liabilities


In February 2007, the FASB issued FASB No. 159, "The Fair Value Option for
Financial Assets and Liabilities". This Statement permits entities to choose to
measure many financial instruments and certain other items at fair value. The
objective is to improve financial reporting by providing entities with the
opportunity to mitigate volatility in reported earnings caused by measuring
related assets and liabilities differently without having to apply complex hedge
accounting provisions. This Statement is expected to expand the use of fair
value measurement, which is consistent with the Board's long-term measurement
objectives for accounting for financial instruments. This Statement is effective
for financial statements issued for fiscal years beginning after November 15,
2007, and interim periods within those fiscal years. Earlier application is
encouraged, provided that the reporting entity has not yet issued financial
statements for that fiscal year, including financial statements for an interim
period within that fiscal year. Adoption is not expected to have a material
impact on our earnings, financial position or cash flows.

2. EXECUTIVE BENEFIT PLAN

Effective February 1, 2004, the Company entered into a Supplemental Executive
Retirement Deferred Compensation Agreement (SERP) with the Company's Chief
Executive Officer (CEO). The Agreement requires the Company to establish an
account on behalf of the CEO and to fund it yearly until the CEO reaches 65
years of age or early retirement, whichever comes first. The estimated yearly
funding amount is approximately $203,000 for seven years. The target benefit is
an annual benefit, for a ten-year period, equal to one-half of the CEO's base
compensation at the time benefits become payable under the SERP.

In fiscal 2005, the Company established a Nonqualified Profit Sharing Plan (the
"Plan") for executive officers. The Plan requires annual awards based upon
target goals and contribution levels established by the Board of Directors. The
Plan requires the Company to establish an account on behalf of each participant
and to credit the participant account yearly. The estimated yearly funding
amount for the 2007, 2006 and 2005 Plan Year is $63,000, $51,000, and $50,000,
respectively. The target benefit is an annual benefit, for a ten-year period,
equal to one-tenth of the participant's account at the time benefits become
payable under the Plan. The fiscal 2007 benefit was funded subsequent to year
end.

Total compensation expense resulting from the SERP and Plan for fiscal 2007,
2006 and 2005 is approximately $378,000, $296,000, and $344,000, respectively,
which is included in selling, general and administrative expenses. As of July
31, 2007 and 2006, the assets of $1,081,000 and $723,000 and liabilities of
$1,202,000 and $824,000 relating to the SERP and Plan are included in the
balance sheet under the captions Other Assets and Other Liabilities.


                                       32
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<PAGE>
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3.  INCOME TAXES

At July 31, 2007, the Company had net operating loss carry-forwards of
approximately $9,118,000 for federal tax purposes, which expire in 2020 through
2025, and $6,390,000 for Minnesota tax purposes, which expire in 2013 through
2016.

In addition, at July 31, 2007, the Company has approximately $3,999,000 in
federal and state tax credits, all of which are research and development tax
credits, which expire from 2008 through 2027, and an approximately $938,000
alternative minimum tax credit, which does not expire. The Company established a
valuation allowance for $1,296,000 against these research and development tax
credits as a portion of them may not be realizable in future years. In fiscal
2007, an additional $33,000 valuation allowance relates to the capital loss
carryover, an additional $76,000 valuation allowance was established that
relates to state research and development tax credits and reduced by $18,000
that relates to state net operating loss carryforwards.

The components of the income tax expense as of July 31, 2007, 2006 and 2005 are
as follows:

<TABLE>
<CAPTION>

                                                  2007              2006              2005
                                     ----------------- ----------------- -----------------
Current:
<S>                                    <C>                <C>              <C>
     Federal                           $       135,000    $      158,000   $       219,000
     State                                    329,.460           241,159           269,934
                                     ----------------- ----------------- -----------------
                                               464,460           399,159           488,934
Deferred:
     Federal                                   474,000           810,000         3,189,000
     State                                     (85,000 )         514,000           286,000
                                     ----------------- ----------------- -----------------
                                               389,000         1,324,000         3,475,000
                                     ----------------- ----------------- -----------------
Total income tax expense               $       853,460    $    1,723,159   $     3,963,934
                                     =================  ================ =================
</TABLE>

Deferred tax assets and liabilities as of July 31, 2007 and 2006 are described
in the table below.


                                                           2007            2006
                                                 --------------- ---------------
Current Assets (liabilities):
   Allowance for doubtful accounts and returns     $    488,000    $    228,000
   Inventory                                            740,000         479,000
   Deferred Revenue                                     478,000         429,000
   Employee compensation and benefits                   287,000         183,000
   Other                                                 17,000          12,000
                                                 --------------- ---------------
   Net                                             $  2,010,000    $  1,331,000
                                                 =============== ===============
Long-term assets (liabilities):
   Net operating loss carry-forwards               $  3,513,000    $  5,855,000
   Amortization of patents                            1,125,000         975,000
   Tax credits                                        4,943,000       4,643,000
   Compensation                                       1,679,000         779,000
   Depreciation                                        (429,000)       (411,000)
   Unrealized loss on investments                        38,000         208,000
   Capital loss carry-forward                           153,000         120,000
                                                 --------------- ---------------
                                                     11,022,000      12,169,000
   Valuation allowance                               (1,504,000)     (1,413,000)
                                                 --------------- ---------------
   Net                                             $  9,518,000    $ 10,756,000
                                                 =============== ===============


                                       33
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<PAGE>
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The effective income tax rate differed from the U.S. federal statutory rate for
each of the three years ended July 31, 2007, 2006 and 2005 as follows:

<TABLE>
<CAPTION>
                                                          2007             2006           2005
                                                     --------------- --------------- -------------
Tax expense (benefit) on income from
     continuing operations computed at
     statutory rate of 34% for fiscal 2007 and 2006
<S>                                                  <C>               <C>           <C>
      and 35% for fiscal 2005                        $      309,000    $    861,000  $   3,542,000
Research and development tax credits                       (169,000)     (1,168,000)            --
Change in valuation allowance                                91,000         723,000             --
FASB 123(R) compensation expense                            440,000         740,000             --
Other                                                       182,460         567,159        421,934
                                                     --------------- --------------- -------------
Total income tax expense                             $      853,460    $  1,723,159  $   3,963,934
                                                     =============== =============== =============
</TABLE>

Deferred tax benefit of $78,000. $56,000, and $466,000 in fiscal 2007, 2006 and
2005, respectively, relate to disqualifying dispositions of incentive stock
options, which were recorded directly in equity.

4.SHAREHOLDERS' EQUITY

Stock Based Compensation

We have stock-based compensation plans under which we issue stock options,
non-vested share awards and discounted purchase rights under an employee stock
purchase (Section 423) plan (ESPP). Employee and director stock options issued
prior to July 31, 2005 have a ten-year term. Employee stock options issued
subsequent to July 31, 2005 have a five-year term. Outstanding stock options
issued to employees generally vest over a four-year period however, on occasion
the Company has issued options that vest based upon achieving corporate
objectives or stock price performance. Outstanding stock options issued to
directors vest over the following periods, based on the basis for issuance: a)
six months - stock options in lieu of compensation for services rendered as
directors, b) four years - annual grants of stock options and c) stock price
performance with a seven-year cliff period - service award options. Directors
receive an annual non-vested share award that vests upon continued employment
(time based) of one year. Our ESPP permits employees to purchase stock at 85% of
the market price of our common stock at the end of the quarterly purchase
period.

Prior to August 1, 2005, we applied Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees, and related Interpretations in
accounting for these plans. No stock-based compensation expense was recognized
in our statements of income prior to fiscal 2006 for stock option awards, as the
exercise price was equal to the market price of our stock on the date of grant.
In addition, we did not recognize any stock-based compensation expense for our
ESPP as it is intended to be a plan that qualifies under Section 423 of the
Internal Revenue Code of 1986, as amended.


On August 1, 2005, we adopted the fair value recognition provisions of Statement
of Financial Accounting Standards (SFAS) No. 123 (revised 2004), Share-Based
Payment (123(R)), requiring us to recognize expense related to the fair value of
our stock-based compensation awards. We elected the modified prospective
transition method as permitted by SFAS No. 123(R). Under this transition method,
stock-based compensation expense for fiscal 2007 and 2006, includes: (a)
compensation expense for all stock-based compensation awards granted prior to,
but not yet vested as of July 31, 2005, based on the grant date fair value
estimated in accordance with the original provisions of SFAS No. 123, Accounting
for Stock-Based Compensation; and (b) compensation expense for all stock-based
awards granted subsequent to July 31, 2005, based on the grant-date fair value
estimated in accordance with the provisions of SFAS No. 123(R). We recognized
compensation expense for stock options and non-vested share awards, that are
either market-based or time-based, on a straight-line basis over the requisite
service period of the award. Total stock-based compensation expense for stock
options issued to employees included in our statement of income for fiscal 2007
and 2006, was $3,289,000 (2,528,000, net of tax) and $3,462,000 ($2,962,000, net
of tax), respectively. In accordance with the modified prospective transition
method of SFAS No. 123(R), financial results for prior periods have not been
restated. We included additional stock-based compensation of $172,000 and
$138,000 resulting from discounted stock options issued to directors for fiscal
2007 and 2006, and $589,000 and $36,000 resulting from amortization of
restricted stock issued to employees and directors in fiscal 2007 and 2006.
Fiscal 2006 stock compensation was reduced by $82,000 relating to cancelled
restricted stock.

The following table illustrates the effect on net income and earnings per share
as if we had applied the fair value recognition provisions of SFAS 123 to
stock-based compensation for fiscal 2005 under FAS 123 prior to revision.


                                       34
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<PAGE>
--------------------------------------------------------------------------------



                                                2005

                                            As Reported
Net income, as reported                  $       6,155,418

Deduct: Stock-based compensation expense
    determined under fair value method
     for
all awards, net of tax                          (3,169,000)
Net income, pro forma                    $       2,986,418

Net income per common share
  Basic-as reported                      $            0.35
  Basic-pro forma                        $            0.17

  Diluted-as reported                    $            0.34
  Diluted-pro forma                      $            0.16


Prior to the adoption of SFAS No. 123(R), we reported all tax benefits resulting
from the exercise of stock options as operating cash flows in our statements of
cash flows. In accordance with SFAS No. 123(R), for fiscal 2007 and 2006, we
revised our statement of cash flows presentation to report the excess tax
benefits from the exercise of stock options as financing cash flows. For fiscal
2007 and 2006, $78,000 and $39,000, respectively, of excess tax benefits were
reported as financing cash flows rather than operating cash flows.

We estimated the fair values using the Black-Scholes option-pricing model prior
to August 1, 2005 and using the Actuarial Binomial option-pricing model
subsequent to July 31, 2005, modified for dividends and using the following
assumptions:

                                             2007         2006         2005
                                             ----         ----         ----
Dividend yield                               None         None         None
Expected volatility                        54-57%       38-60%       54-68%
Risk-free interest rate                  4.7-5.1%     3.7-5.1%     4.1-4.5%
Expected life of option                 49-50 mo.   46-102 mo.    63-84 mo.
Fair  value of  options on grant date  $1,795,000   $2,579,000   $7,635,000
                                       ==========   ==========   ==========

Forfeitures are estimated based on historical experience.

o    Risk-free interest rate is based on the U.S. Treasury interest rates whose
     term is consistent with the expected life of our stock options.
o    In 2007 and 2006 we used an independent valuation advisor to assist us in
     computing expected stock price volatility. In fiscal 2005, we used
     historical market price data.
o    We estimate the expected life of stock options based upon historical
     experience

Common Stock Repurchased

The Company's Board of Directors authorized share repurchase program of
$15,000,000 in February 2005 and $15,000,000 in December 2006. As of July 31,
2007, the share repurchase authorization remaining is $10,587,000.

During fiscal 2005, in open market transactions, the Company repurchased
1,133,100 shares of its common stock, at an average price of approximately
$13.20 per share. During fiscal 2006, in open market transactions, the Company
repurchased 312,491 shares of its common stock at an average price of
approximately $10.12 per share. During fiscal 2007, in open market transactions,
the company repurchased 376,490 shares of its common stock at an average price
of approximately $11.72 per share.

Since the inception of its repurchase programs, the Company has repurchased
2,312,381 shares of its common stock at an average price of approximately $13.64
per share.


                                       35
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<PAGE>
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Stock Options

In December 1999, the Company established the 1999 Stock Compensation Plan (the
1999 Plan), which replaced the 1992 Stock Compensation Plan (the 1992 Plan).
Although the 1992 Plan remains in effect for options outstanding, no new options
may be granted under this plan.

The 1999 Plan authorizes awards of the following type of equity-based
compensation: incentive stock options, nonqualified stock options, stock
appreciation rights, restricted stock, deferred stock, annual grants of stock
options to directors, stock options to directors in lieu of compensation for
services rendered as directors, and other stock-based awards valued in whole or
in part by reference to stock of the Company. No incentive stock options may be
granted on or after December 16, 2009, nor shall such options remain valid
beyond ten years following the date of grant.

The total number of shares of stock reserved and available for distribution
under the 1999 Plan originally was 2,000,000 shares, all of which may be issued
as incentive stock options. The total number of shares of stock reserved and
available for distribution under the 1999 Plan has been increased annually since
August 1, 2000 by 2 percent of the number of shares of the Company's common
stock outstanding on July 31 of the prior fiscal year.

At July 31, 2007, there were 3,324,666 shares reserved for outstanding options
under all plans and 370,764 shares were available for granting of options under
the 1999 Plan.

In fiscal 2007, 2006 and 2005, the Company granted 25,464, 27,494, and 18,807
compensatory options, respectively, to its outside directors in lieu of cash
payments for directors fees. These options vest six months after date of grant
and expire not more than ten years from date of grant. The expense associated
with compensatory options to outside directors was approximately $172,000,
$138,000, and $123,000 for the years ended July 31, 2007, 2006 and 2005,
respectively.


A summary of changes in outstanding options for each of the three years ended
July 31 follows:

<TABLE>
<CAPTION>
                                                 2007         2006          2005
                                            ------------ ------------ --------------
<S>                                            <C>          <C>            <C>
Shares under option at beginning of year       3,208,179    3,062,409      2,652,263
Options granted                                  406,364      555,994        735,231
Options exercised                               (48,102)     (55,506)      (167,078)
Options canceled                               (241,775)    (354,718)      (158,007)
                                            ------------ ------------  -------------
Shares under option at end of year             3,324,666    3,208,179      3,062,409
                                            ============ ============  =============
Shares exercisable at end of year              2,228,388    2,078,399      1,992,450
                                            ============ ============  =============
</TABLE>

Stock option weighted-average exercise prices during fiscal 2007, 2006 and 2005
are summarized below:

<TABLE>
<CAPTION>
                                                    2007         2006           2005
                                             ------------ ------------- -------------
<S>                                           <C>          <C>           <C>
Outstanding at beginning of year              $     11.55  $     11.78   $      11.08
Granted                                              9.70        11.63          13.66
Exercised                                            6.29         7.29           5.15
Canceled                                            15.52        14.27          15.74
Outstanding at end of year                    $     11.12  $     11.55   $      11.78
                                             ============ ============  =============
</TABLE>


                                       36
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<PAGE>
--------------------------------------------------------------------------------

 The following table summarizes information concerning options outstanding and
exercisable options as of July 31, 2007:


<TABLE>
<CAPTION>
                               Weighted-
                                Average
                               Remaining
  Range of                    Contractual
  Exercise       Shares         Life in    Weighted-Average     Shares      Weighted-Average
    Price       Outstanding      Years      Exercise Price    Exercisable    Exercise Price
------------- -------------- ------------- ---------------- --------------- ----------------
<S>              <C>             <C>        <C>                 <C>          <C>
 $   1 - 6       548,956         3.27       $     4.82          548,956      $     4.82
    6 - 12      1,158,560        4.07             8.22          683,206            7.79
    12 - 17      922,850         3.99            13.06          514,600           13.22
    17 - 21      663,700         6.38            17.95          459,126           18.08
    21 - 29       30,600         6.74            27.18          22,500            27.16
</TABLE>


Non-Vested Share Awards

The fair value of non-vested market-based and time-based share awards is
determined based on generally accepted valuation techniques and the closing
market price of our stock on the date of grant. A summary of the status of our
market-based and time-based share awards for each of the three years ended July
31 follows:

                                             2007          2006           2005
                                    ------------- ------------- --------------
Outstanding at beginning of year           3,594         2,754          1,884
Granted                                   66,564        21,947          2,754
Vested                                   (46,300)      (14,818)        (1,884)
Forfeited/canceled                       (20,684)       (6,289)            --
                                    ------------- ------------- --------------
Outstanding at end of year                 3,174         3,594          2,754
                                    ============= ============= ==============

Share awards fair value during fiscal 2007, 2006 and 2005 are summarized below:


                                            2007         2006           2005
                                    ------------ ------------ --------------
Outstanding at beginning of year     $      8.36  $     11.70   $      28.60
Granted                                     8.89        12.15          13.08
Vested                                      9.03        12.47          13.08
Forfeited/canceled                          8.66        13.03             --
Outstanding at end of year           $     11.12  $      8.36   $      11.70
                                    ============ ============  =============

The aggregate intrinsic value of options outstanding and exercisable as of July
31, 2007, (the amount by which the market price of the stock on July 31, 2007,
exceeded the exercise price of the stock on the date of grant) was $6,850,000
and $5,744,000, respectively.

In August 2006, the Company issued 63,390 shares of restricted stock to
management and executives of the Company as part of the fiscal 2006 management
incentive program. The restricted stock vested when our stock price closed at
$11.26 or greater for twenty consecutive trading days, which occurred on
December 22, 2006. The $548,957 fair market value of the restricted stock was
expensed in fiscal 2007 as compensation expense. We cancelled 20,684 shares of
restricted stock due to management and executives electing to receive fewer
shares in lieu of paying withholding taxes.

In fiscal 2007, the Company granted 3,174 shares of restricted stock to the
Board of Directors under the terms of the 1999 Plan, which vest in twelve
months. The fair market value of the restricted shares was approximately $35,000
as of July 31, 2007. In case of termination of a member of the Board of
Directors, unvested shares are forfeited.


                                       37
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In August, 2005, the Company issued 18,353 shares of restricted stock to
executives of the Company as part of the fiscal 2005 management incentive
program. The restricted stock vested when our stock price closed at $13.00 or
greater, which occurred on August 31, 2005. The $230,600 fair market value of
the restricted stock was expensed in fiscal 2005 as compensation expense. We
cancelled 6,289 shares of restricted stock due to executives electing to receive
fewer shares in lieu of paying withholding taxes.


In fiscal 2006, the Company granted 3,594 shares of restricted stock to the
Board of Directors under the terms of the 1999 Plan, which vest in twelve
months. The fair market value of the restricted shares was approximately $30,000
as of July 31, 2006. In case of termination of a member of the Board of
Directors, unvested shares are forfeited.

In fiscal 2005, the Company granted 2,754 shares of restricted stock to the
Board of Directors under the terms of the 1999 Plan, which vest in twelve
months. The fair market value of the restricted shares was approximately $32,000
as of July 31, 2005. In case of termination of a member of the Board of
Directors, unvested shares are forfeited.

Employee Stock Purchase Plan

The Employee Stock Purchase Plan, effective January 1, 1991, enables eligible
employees, through payroll deduction, to purchase the Company's common stock at
the end of each calendar quarter. For fiscal 2007 and 2006, the purchase price
is 85 percent of the fair market value of the stock on the last day of the
calendar quarter. The Company issued 30,099 shares in fiscal 2007, 61,665 shares
in fiscal 2006, and 37,580 shares in fiscal 2005 under this Plan. Prior to
amendment in fiscal 2006, the plan enabled eligible employees to purchase shares
at the lower of 85 percent of the fair market value of the stock on the first or
last day of the calendar year.

5.  INVESTMENT IN RAFAEL MEDICAL


We invested in Rafael Medical Technologies, Inc. (Rafael), a company developing
an inferior vena cava (IVC) filter named SafeFlo(R). In December 2006, we
invested $2.5 million in a series of preferred stock of Rafael that represents a
15 percent ownership interest and also executed a stock purchase agreement that
provides us a right for a period of three-year to purchase the remaining capital
stock of Rafael that is or may become outstanding. We have committed to provide
up to an additional $1.5 million as requested by Rafael in secured debt
financing if necessary during this three year period at Rafael's election, none
of which is outstanding at July 31, 2007. The preferred stock purchase agreement
provides us with a number of rights as an investor. The total investment on the
balance sheet of $2,613,000 reflects $113,000 of transaction related costs that
were capitalized. As of July 31, 2007, management has determined that there is
no impairment in the value of its investment in Rafael which is accounted for
under the cost method.


6.  ACCRUED WARRANTY COSTS

The Company estimates the amount of warranty claims on sold product that may be
incurred based on current and historical data. The actual warranty expense could
differ from the estimates made by the Company based on product performance. A
summary of changes in the Company's product warranty liability of each of the
three years ended July 31 follows:

<TABLE>
<CAPTION>
                                            2007           2006             2005
                                       -------------- ------------- -----------------
Accrued warranty costs at beginning of
<S>                                     <C>            <C>             <C>
 year                                   $     91,500   $   146,500     $     293,500
Payments made for warranty costs            (514,200)     (401,400)         (494,700)
Accrual for product costs                    565,200       346,400           347,700
                                       -------------- ------------- -----------------
Accrued warranty costs at the end of
 year                                   $    142,500   $    91,500     $     146,500
                                       ============== ============= =================
</TABLE>


7. 401 k PLAN

The Company has an employee savings and profit sharing plan for all qualified
employees who have completed six months of service. Company contributions are
made at the discretion of the Board of Directors subject to the maximum amount
allowed under the Internal Revenue Code. Contributions for the years ended July
31, 2007, 2006 and 2005 were $445,000, $372,000, and $358,000, respectively.


                                       38
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<PAGE>
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8.  COMMITMENTS AND CONTINGENCIES

The Company's operations are conducted from a leased facility under an operating
lease that expires in fiscal 2011. The lease can be canceled by either party
with notice and payment of a termination fee.

The Company is also leasing administrative, shipping and warehouse facilities
under an operating lease that expires in fiscal 2009 and is leasing a sales
office under an operating lease that expires in 2008.

Total rental expense charged to operations was approximately $441,000, $426,000,
and $406,000, for the years ended July 31, 2007, 2006, and 2005, respectively.

Future minimum payments under the non-cancelable operating leases at July 31,
2007 are:


                 Year Ending July             Amount
               ------------------ -----------------
                             2008          $438,000
                             2009           394,000
                             2010           273,000
                             2011           185,000
                                         ----------
           Total minimum lease payments  $1,290,000
                                         ==========

We were served with a shareholder lawsuit filed with the Minnesota Federal
District Court on June 3, 2005, alleging that Possis Medical, Inc. and named
individual officers violated federal securities laws. The Complaint seeks class
action status and unspecified damages. The suit was dismissed with prejudice by
order of the Court on February 1, 2007. Plaintiffs have filed an appeal from the
Court's order and the appeal is still pending. We continue to believe that the
allegations of the lawsuit are without merit and are contesting the lawsuit
vigorously. While we do not believe that the amount of any potential liability
associated with these matters can be accurately estimated at this time, we
believe we have adequate insurance coverage to cover any potential damages and
expenses. However, an unfavorable resolution of these matters could have a
material adverse effect on our results of operations, financial condition or
cash flows.

9. SEGMENT AND GEOGRAPHIC INFORMATION AND CONCENTRATION OF CREDIT RISK

The Company's operations are in one business segment; the design, manufacture
and distribution of cardiovascular and vascular medical devices. The Company
evaluates revenue performance based on the worldwide revenues of each major
product line and profitability based on an enterprise-wide basis due to shared
infrastructures to make operating and strategic decisions.
Total revenues from sales in the United States and outside the United States for
each of the three years ended July 31, 2007, 2006 and 2005 are as follows:

                                      2007          2006            2005
                                  ------------- -------------- ----------------
United States                     $  64,581,303 $   59,858,452 $     63,115,776
Outside the United States             2,073,289      2,020,926        1,937,553
                                  ------------- -------------- ----------------
Total revenues                    $  66,654,592 $   61,879,378 $     65,053,329
                                  ============= ============== ================

In fiscal 2007, 2006, and 2005 there were no individual customers with sales
exceeding 10 percent of total revenues.

10. SELECTED QUARTERLY FINANCIAL DATA (Unaudited) Fiscal Year Ended July 31,
    2007

                                 Fiscal Year Ended July 31, 2007
                      -------------------------------------------------------
                          First        Second         Third        Fourth
                         Quarter       Quarter       Quarter       Quarter
Product sales         $  15,603,881 $  15,806,085 $  16,239,689 $  19,004,937
Gross profit             11,195,687    11,068,685    11,046,343    13,004,081
Net income (loss)          (233,649)      173,700        44,069        71,680

                                       39
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<PAGE>
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Net income (loss) per common share
         Basic                          $   (.01)  $    .01 $    .00  $    .00
         Diluted                        $   (.01)  $    .01 $    .00  $    .00

<TABLE>
<CAPTION>
                                             Fiscal Year Ended July 31, 2006
                                 ---------------------------------------------------------
                                       First        Second      Third              Fourth
                                      Quarter       Quarter    Quarter            Quarter
<S>                               <C>           <C>          <C>           <C>
Product sales                     $  15,475,674 $ 15,129,108 $15,224,827   $    16,049,769
Gross profit                         11,245,519   11,226,132  10,825,036        11,468,379
Net income (loss)                       265,602      341,562    (277,608)          479,044
</TABLE>

Net income (loss) per common
share
         Basic                    $.02       $.02        $ .02     $.03
         Diluted                  $.01       $.02        $(.02)    $.03


Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure:

During fiscal 2007 and 2006, there were no changes in or disagreements with the
Company's independent registered public accounting firm on accounting procedures
or accounting and financial disclosures.

Item 9A.  Controls and Procedures

Evaluation of disclosure controls and procedures
------------------------------------------------

Under the supervision and with the participation of our management, including
our Chief Executive Officer and Chief Financial Officer, we evaluated the
effectiveness of the design and operation of our disclosure controls and
procedures as defined in Rule 13a-15(e) under the Exchange Act. Based upon that
evaluation, the Chief Executive Officer and Chief Financial Officer concluded
that, as of the end of the period covered by this report, our disclosure
controls and procedures were effective in ensuring that information required to
be disclosed by us in the reports we file or submit under the Exchange Act is
recorded, processed, summarized and reported within the time periods specified
in applicable rules and forms and that such information is accumulated and
communicated to our management, including our Chief Executive Officer and Chief
Financial Officer, in a manner that allows timely decisions regarding required
disclosure.


                                       40
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<PAGE>
--------------------------------------------------------------------------------

Internal control over financial reporting
-----------------------------------------

MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

Our management is responsible for establishing and maintaining adequate internal
control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f)
under the Securities Exchange Act of 1934. Our internal control system is
designed to provide reasonable assurance to our management and board of
directors regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with generally
accepted accounting principles. Our internal control over financial reporting
includes those policies and procedures that:

- Pertain to the maintenance of records that, in reasonable detail, accurately
and fairly reflect the transactions and dispositions of the assets of the
company;

- 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

- 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.

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 or procedures may deteriorate.

Management assessed the effectiveness of Possis Medical Inc.'s internal control
over financial reporting as of July 31, 2007. In making this assessment, we used
the criteria set forth by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO) in Internal Control -- Integrated Framework. Based on
management's assessment and those criteria, it believes that, as of July 31,
2007, Possis Medical, Inc. maintained effective internal control over financial
reporting.

Possis Medical, Inc.'s independent registered public accounting firm has audited
management's assessment of the effectiveness of Possis Medical, Inc.'s internal
control over financial reporting as of

July 31, 2007, as stated in the Report of Independent Registered Public
Accounting Firm, [appearing under Item 9A], which expresses unqualified opinions
on management's assessment and on the effectiveness of Possis Medical, Inc.'s
internal controls over financial reporting as of July 31, 2007.



                                        /s/ Robert G. Dutcher
                                        ---------------------------------------
                                        Robert G. Dutcher
                                        Chief Executive Officer

October 12, 2007


                                        /s/ Jules L. Fisher
                                        ---------------------------------------
                                        Jules L. Fisher
                                        Chief Financial Officer
October 12, 2007


                                       41
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<PAGE>
--------------------------------------------------------------------------------

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of Possis Medical, Inc.:

We have audited management's assessment, included in the accompanying
Management's Report on Internal Control over Financial Reporting, that Possis
Medical, Inc. (the "Company") maintained effective internal control over
financial reporting as July 31, 2007, based on criteria established in Internal
Control--Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission. The Company'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.


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 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 opinions.


A company's internal control over financial reporting is a process designed by,
or under the supervision of, the company's principal executive and principal
financial officers, or persons performing similar functions, and effected by the
company's board of directors, management, and other personnel 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.


Because of the inherent limitations of internal control over financial
reporting, including the possibility of collusion or improper management
override of controls, material misstatements due to error or fraud may not be
prevented or detected on a timely basis. Also, projections of any evaluation of
the effectiveness of the internal control over financial reporting to future
periods are subject to the risk that the controls may become inadequate because
of changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.


In our opinion, management's assessment that the Company maintained effective
internal control over financial reporting as of July 31, 2007, is fairly stated,
in all material respects, based on the criteria established in Internal
Control--Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Also in our opinion, the Company
maintained, in all material respects, effective internal control over financial
reporting as of July 31, 2007, based on the criteria established in Internal
Control--Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission.


We have also audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the financial statements and
financial statement schedule as of and for the year ended July 31, 2007, of the
Company and our report dated October 12, 2007 expressed an unqualified opinion
on those financial statements and financial statement schedule.


DELOITTE & TOUCHE LLP


Minneapolis, MN
October 12, 2007


                                       42
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<PAGE>
--------------------------------------------------------------------------------

Item 9B.  Other Information

None.
                                    PART III

Item 10.  Directors and Executive Officers of the Registrant:

Information under the heading "Election of Directors" and "Section 16(a)
Beneficial Ownership Reporting Compliance" in the Proxy Statement is
incorporated herein by reference. The information regarding executive officers
is included in Part I of this report under the caption "Executive Officers of
the Registrant."

Item 11.  Executive Compensation:

Information regarding compensation of directors and officers for the fiscal year
ended July 31, 2007 is in the Proxy Statement under the heading "Election of
Directors" and "Executive Compensation" and is incorporated herein by reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters:

The security ownership of certain beneficial owners and management is contained
in the Proxy Statement under the heading "Security Ownership of Certain
Beneficial Owners and Management" and is incorporated herein by reference.

Information regarding securities authorized for issuance under equity
compensation plans is contained in the Proxy Statement under the heading
"Securities Authorized for Issuance Under Equity Compensation Plans" and is
incorporated herein by reference.

Item 13.  Certain Relationships and Related Transactions:

Information regarding related party transactions is contained under the heading
"Certain Relationships and Related Transactions" in the Proxy Statement and is
incorporated herein by reference.

Item 14.  Principal Accountant Fees and Services:

Information under the heading "Audit Committee Report and Payment of Fees to
Accountants" in the Proxy Statement is incorporated herein by reference.

                                     PART IV

Item 15.  Exhibits and Financial Statement Schedules:

(a) 1. Financial Statements

The following financial statements of the Company, accompanied by a Report of
Independent Registered Public Accounting Firm, are contained in Part II, Item 8:

     Balance Sheets, July 31, 2007 and 2006
     Statements of Income and Comprehensive Income for each of the three
            years in the period ended July 31, 2007
     Statements of Cash Flows for each of the three years in the period
            ended July 31, 2007
     Statements of Changes in Shareholders' Equity for each of the three years
            in the period ended July 31, 2007
     Notes to Financial Statements

      2. Financial Statement Schedules

The following financial statement schedules are submitted herewith:


                                       43
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<PAGE>
--------------------------------------------------------------------------------

     SCHEDULE II - Valuation Accounts for each of the three years in the period
ended July 31, 2007 Other schedules are omitted because they are not required or
are not applicable or because the required information is included in the
financial statements listed above.

      3. Exhibits

Certain of the following exhibits are incorporated by reference from prior
filings. The form with which each exhibit was filed and the date of filing are
indicated on the following pages.

<TABLE>
<CAPTION>
<S>                <C>                                <C>
                   10-K    Fiscal year                Articles of incorporation, as amended
      3.1                  ended                      and restated to date
                           July 31, 1994

      3.2          10-K    Fiscal year ended          Bylaws, as amended and restated
                           July 31, 1999              to date

      4.1          8-A     December 13,               Rights Agreement, dated December 12,
                                                      1996 1996, between the Company and
                                                      Norwest Bank Minnesota N.A., as
                                                      rights agent

      10.1          S-1    June 30, 1988              Form of indemnification agreement with
                                                      officers and directors of Registrant
    * 10.2          S-8    June 16, 1998              1992 Stock Compensation Plan

    * 10.3         10-K    Fiscal year ended          Form of nonqualified stock option
                           July 31, 1993              agreement for officers (1992 Plan)

    * 10.4         10-K    Fiscal year ended          Form of incentive stock option
                           July 31, 1993              agreement for officers (1992 Plan)

    * 10.5         10-K    Fiscal year ended          Form of nonqualified stock option
                           July 31, 1993              agreement for 1992 directors' fees
                                                      (1992 Plan)
      10.6          10-Q   Quarter ended              Lease agreement for corporate
                           January 31, 1996           headquarters and manufacturing
                                                      facility dated December 15, 1995

      10.7          10-Q   Quarter ended              Lease agreement for additional corporate
                           January 31, 2004           and manufacturing facilities dated
                                                      March 1, 2004

    * 10.8         10-K    Fiscal year ended          Change in Control Termination
                           July 31, 2001              Pay Plan - Amended effective April 3, 2001

    * 10.9         10-K    Fiscal year ended          1999 Stock Compensation Plan
                           July 31, 1999

    * 10.10        10-K    Fiscal year ended          Form of nonqualified stock option agreement
                           July 31, 2002              (1999 Plan)

    * 10.11        10-K    Fiscal year ended          Form of incentive stock option agreement
                           July 31, 2002              (1999 Plan)

    * 10.12        10-K    Quarter ended              Supplemental Executive Retirement
                           January 31, 2004           Deferred Compensation Agreement dated
                                                      February 1, 2004
</TABLE>


                                       44
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<PAGE>
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
<S>                <C>                                <C>
      10.13         10-Q   Fiscal year ended          Lease agreement for additional corporate
                           July 31, 2005              and manufacturing facilities dated
                                                      May 26, 2004

      10.14         10-K   Fiscal year ended          Minnetronix Development and Production
                           July 31, 2006              Agreement

      21                   Filed with                 Subsidiaries of registrant
                           this 10-K

      23                   Filed with                 Consent of independent registered
                           this 10-K                  public accounting firm

      31.1                 Filed with                 Certification of Chief Executive Officer
                           this 10-K                  pursuant to Section 302 of the
                                                      Sarbanes-Oxley Act

      31.2                 Filed with                 Certification of Chief Financial Officer
                           this 10-K                  pursuant to Section 02 of the
                            3
                                                      Sarbanes-Oxley Act

      32.1                 Filed with                 Certification of Chief Executive Officer
                           this 10-K                  pursuant to Section 906 of the
                                                      Sarbanes-Oxley Act

      32.2                 Filed with                 Certification of Chief Financial Officer
                           this 10-K                  pursuant to Section 906 of the
                                                      Sarbanes-Oxley Act
</TABLE>

* Indicates management contract or compensatory plan or arrangement.

                                   SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Company has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.

                                          POSSIS MEDICAL, INC.

Dated:  October 12, 2007                  by: /s/ Jules L. Fisher
                                                  ------------------------------
                                          Jules L. Fisher
                                          Chief Financial Officer and
                                          Vice President of Finance


                                       45
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<PAGE>
--------------------------------------------------------------------------------

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the date indicated.

<TABLE>
<CAPTION>
         Signature                           Title                        Date

<S>                          <C>                                    <C>
/s/ Robert G. Dutcher        Chairman, President and Chief          October 12, 2007
----------------------------  Executive Officer
Robert G. Dutcher            (Principal Executive Officer)


/s/ Jules L. Fisher          Chief Financial Officer and Vice       October 12, 2007
----------------------------  President of Finance
Jules L. Fisher              (Principal Financial and Principal
                              Accounting Officer)


/s/ Mary K. Brainerd         Director                               October 12, 2007
----------------------------
Mary K. Brainerd


/s/ Seymour J. Mansfield     Lead Director                          October 12, 2007
----------------------------
Seymour J. Mansfield


/s/ William C. Mattison, Jr. Director                               October 12, 2007
----------------------------
William C. Mattison, Jr.


/s/ Whitney A. McFarlin      Director                               October 12, 2007
----------------------------
Whitney A. McFarlin


/s/ Donald C. Wegmiller      Director                               October 12, 2007
----------------------------
Donald C. Wegmiller


/s/ Rodney A. Young          Director                               October 12, 2007
----------------------------
Rodney A. Young
</TABLE>


                                       46
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<PAGE>
--------------------------------------------------------------------------------

                                                                     SCHEDULE II

                              POSSIS MEDICAL, INC.

VALUATION ACCOUNTS
YEARS ENDED JULY 31, 2007, 2006 AND 2005


<TABLE>
<CAPTION>

  ---------------------------------------------------------------------------------------
  Column A                   Column B         Column C         Column D          Column E
  ---------------------------------------------------------------------------------------

                                              Additions
                            Balance at       Charged to
                            Beginning       (Reversal of)      Deductions       Balance at
 Description                 of Year         Expenses         Write-offs       End of Year
 -----------                 -------         --------         ----------       -----------

Allowance for doubtful accounts and returns - deducted from trade receivables in
the balance sheet:

<S>                       <C>               <C>          <C>                  <C>
Year ended July 2007      $  580,000        $1,727,000   $  1,176,000         $  1,131,000
Year ended July 2006         670,000           690,000        778,000              580,000
Year ended July 2005         536,000           682,000        548,000              670,000
</TABLE>



Valuation allowance on deferred tax asset:
<TABLE>
<CAPTION>

<S>                        <C>          <C>              <C>                    <C>
Year ended July 2007       $  1,413,000 $      91,000          --          $    1,504,000
Year ended July 2006            690,000       723,000          --               1,413,000
Year ended July 2005            690,000            --          --                 690,000
</TABLE>


                                       47
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<PAGE>
--------------------------------------------------------------------------------

                              POSSIS MEDICAL, INC.
                             FORM 10-K - ITEM 15(a)3

                                  EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number          Description

<S>         <C>
  21        Subsidiaries of Possis Medical, Inc.

  23        Consent of Independent Registered Public Accounting Firm

  31.1      Certification of Chief Executive Officer pursuant to Section 302 of the
            Sarbanes-Oxley Act of 2002

  31.2      Certification of Chief Financial Officer pursuant to Section 302 of the
            Sarbanes-Oxley Act of 2002

  32.1      Certification of Chief Executive Officer pursuant to Section 906 of the
            Sarbanes-Oxley Act of 2002

  32.2      Certification of Chief Financial Officer pursuant to Section 906 of the
            Sarbanes-Oxley Act of 2002
</TABLE>


                                       48
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