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, 2004

            [ ] 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 of                    (I.R.S. Employer
  incorporation or organization)                   Identification No.)

           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: None
          SECURITIES REGISTERED PURSUANT TO SECTION 12 (g) OF THE ACT:
                        Common Stock, 40 Cents Par Value
                        Preferred Shares Purchase Rights

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 10-K. __X__

Indicate by checkmark whether the registrant is an accelerated filer (as defined
in Rule 12b-2 of the Act. Yes__X__    No___

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, 2004: $405,879,000.

The number of shares outstanding of the registrant's common stock as of
September 20, 2004: 18,107,785.

Certain responses in Part III are incorporated herein by reference from
information contained in the Company's definitive Proxy Statement for its 2004
annual meeting to be filed on or before November 4, 2004 ("The Proxy
Statement").

                                       1
<PAGE>



                                     PART I
ITEM 1.  BUSINESS:

GENERAL

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 48 years.
In 1990, the Company decided to focus on medical products and changed its name
to Possis Medical, Inc. in 1993.

PRODUCTS

ANGIOJET(R) RHEOLYTIC(TM) THROMBECTOMY SYSTEM. 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 may be caused by multiple factors,
including cardiovascular disease, trauma and impediment of normal flow during
invasive procedures or pressure impeding venous return for example 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 off, it can
travel through the bloodstream (embolize) and block blood flow to other organs
and tissue. Conditions caused by blood clots include acute myocardial infarction
(heart attack), stroke, limb threatening peripheral ischemia, hemodialysis
access graft failure, deep vein thrombosis and pulmonary embolism.

Based on results from its VeGAS IDE coronary clinical trial, Food and Drug
Administration ("FDA") clearances, approximately 220 scientific journal
articles, and approximately 180,000 clinical procedures to date, the Company
believes that its 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 is a non-surgical, minimally
invasive catheter system designed to rapidly remove blood clots with minimal
vascular trauma. The AngioJet System consists of three major components: a
reusable drive unit to power a pump and monitor device performance, a disposable
single-use pump set that delivers pressurized saline to the catheter, and a
family of disposable, single-use catheters. 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.

To operate the AngioJet System, a physician first threads a catheter over a
guidewire down a patient's blood vessel to the site of the blood clot. The
AngioJet System's drive unit is then activated, causing a disposable pump to
pressurize sterile saline to approximately 10,000 pounds per square inch (psi)
at the source and send it through the catheter to the tip. Saline jets enclosed
within the catheter spray from the catheter tip back up the catheter at several
hundred miles per hour. The operation of high-speed jets, contained inside the
catheter, creates a localized low-pressure zone around the catheter's tip. The
difference between the low pressure at the tip and the normal blood pressure in
the vessel draws the blood clot into the catheter through openings near the tip.
The jets then macerate or pulverize the blood clot into microscopic fragments,
which are ultimately propelled down the catheter, out of the patient's body and
into a disposable collection bag located on the drive unit. The saline jets are
not used directly on the vessel surface to remove material.

Currently, the Company markets the XMI(R) (Over the Wire version - OTW), XMI-RX
(Rapid Exchange version), XVG(R), Xpeedior(R) and AVX(TM) lines of catheters.
Each of these catheters feature the Company's patented Cross-Stream(R)
Technology. This exclusive technology platform 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.


                                        2
<PAGE>

The AngioJet System is a pioneering device for the removal of 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. The market potential is not readily quantifiable through
widely published industry statistics. The approach of the Company has been to
estimate the total number of cases for a given indication in a particular
vascular territory. These statistics are available through industry sources. The
Company then estimates 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, the Company has relied on its 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.

The Company's 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. The Company's
goal is to extend the reach of its technology, over time, to these additional
indications through additional regulatory clearances, predominately in the
United States (U.S.). The following table shows the vascular territories and
indications for which the AngioJet System is marketed, or has been reported to
be used. In addition, the table indicates the estimated annual incidence in the
U.S. and the Company's estimated AngioJet System annual market potential.




                                       3
<PAGE>

<TABLE>
<CAPTION>
                                                                                           Angiojet
                                                                   Estimated               System
                                                                    Annual                 Annual
                                                                      U.s.                 Market
                                                                   Incidence              Potential
Vascular Territory                   Indication                    (Patients)            (Procedures)
-----------------------------------------------------------------------------------------------------
<S>                     <C>                                     <C>                      <C>
Coronary (1)            Coronary Thrombosis (Native                2,513,000                251,000
                        Arteries and Bypass Grafts)
Legs (2)                Peripheral Vascular Disease/               2,000,000                200,000
                        Thrombosis
A-V Access (3)          Hemodialysis Graft Thrombosis                524,000                524,000
Cerebral (4)            Ischemic Stroke                              595,000                238,000
Coronary (4)            Embolic Protection in Saphenous              153,000                153,000
                        Vein Graph (SVG) Intervention
Lungs (4)               Pulmonary Embolism                           600,000                300,000
Venous (4)              Venous Thrombosis                            600,000                 60,000
                                                               -------------            -----------
                                                       Total       6,985,000              1,726,000
                                                               =============            ===========
</TABLE>

(1) Marketed under March 1999 FDA approval.
(2) Marketed under April 2000 FDA approval.
(3) Marketed under December 1996 approval.
(4) In research and development phase.

In April 2000, March 1999 and December 1996, the Company received FDA clearances
to commence U.S. marketing of the AngioJet System, for removal of blood clots in
leg arteries, native coronary arteries and coronary bypass grafts and access
grafts used by patients on kidney dialysis, respectively.

During 1996 through 1998, the Company sponsored a randomized clinical trial,
VeGAS 2, which compared the AngioJet System with the approved thrombolytic drug,
Urokinase(R), in 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 regulatory
clearance without convening a Panel. 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,
a peer reviewed publication.

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

In July 2003, the Company completed patient enrollment planned for the TIME 1
clinical study of the AngioJet NV150 catheter system and Possis Microcatheter to
treat acute ischemic stroke. As has been reported, AngioJet treatment in the
study was safe, but clinically significant clot removal was seen in only about
30% of the patients. This outcome was not sufficient to support a Phase 2 study.
The Company intends to continue its research efforts for treating ischemic
stroke along several paths, including using drugs and its device together, to
develop a therapy with the right balance of safety and effectiveness.


                                       4
<PAGE>

From 2001 through 2004, Possis sponsored an on-label marketing study of AngioJet
System in treating acute myocardial infarction (heart attack) patients, the AiMI
study. The purpose of the study was to determine whether heart attack patients
benefited by having smaller final infarcts by adding AngioJet to their
interventional treatment. 480 patients were enrolled at 32 centers. Patients
were randomly assiged to AngioJet treatment followed by balloon and stenting, or
to balloon and stenting alone. Final infact size was measured 2-4 weeks after
treatment via nuclear scan. The initial results were announced in August 2004,
and a complete presentation of results was made at the TCT conference in
September 2004. The clinical presentation made at TCT is available on
WWW.POSSIS.COM. The AiMI study failed to show that adding AngioJet to the
treatment of heart attack patients undergoing balloon and stenting decreased
final infarct size.

In April 2004 the Company signed a three year agreement with Angiometrx, Inc. to
act as the exclusive distributor of the Angiometrx Metricath(TM) products in the
United States. The Metricath System is an innovative, catheter-based technology
that allows cardiologists to quickly and easily measure arterial size during
procedures for treatment of coronary artery disease. Such measurements can be
helpful in selecting appropriately sized stents to achieve optimum patient
outcomes from coronary angioplasty and related stent implantation procedures.
The Metricath System was developed in response to the limitations of existing
measurement technologies, which require large capital investment and which do
not offer the ease of use of the Metricath System. The Metricath(TM) System
recently received FDA 510(k) clearance for sale in the United States in July
2003.

RESEARCH AND DEVELOPMENT

The Company's 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, including the new drive unit, an associated project to combine the pump
and catheter and projects relating to the improvement of the rapid exchange
catheter, distal occlusion guidewires and some concepts for proprietary filters.
Research and development expenses are generally incurred for product design,
development and qualification, development and validation of manufacturing
processes, conduct of clinical trials, and seeking and obtaining governmental
approvals. In fiscal 2004, the Company's research and development expenses are
expected to increase from fiscal 2003 levels in order to expand the current
realizable market for the AngioJet System, as well as to expand into new areas,
such as distal embolic protection.


As of August 31, 2004, the Company employed approximately 27 full-time employees
in research and development, including 23 in new product concept screening,
prototype building, product and process development and validation, and four in
regulatory and clinical affairs. The Company performs substantially all of its
research and development activities at its headquarters in Minnesota. The
Company spent $9,033,000, $7,503,000 and $4,427,000 in fiscal 2004, 2003 and
2002, respectively, on medical product research and development exclusively
related to the AngioJet System.

MANUFACTURING

The Company assembles and tests its entire product line in-house and has
vertically integrated a number of processes in an effort to provide increased
quality and reliability of the components used in the production process. Many
of the processes are proprietary and were developed by the Company. Most of the
Company's raw materials and its components and select subassemblies used in its
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.


                                       5
<PAGE>

The Company's manufacturing facilities are subject to periodic inspections by
regulatory authorities, including Good Manufacturing Practice ("GMP") 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 inspections by the FDA for
GMP compliance and/or our Notified Body each year since 1996.

MARKETING AND SALES

The Company markets its 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 98%, 98% and
99% of fiscal 2004, 2003 and 2002 revenue, respectively.

The Company is currently marketing the AngioJet System for coronary
applications, peripheral vessel and graft applications and hemodialysis graft
thrombosis. The Company anticipates marketing the AngioJet System to
interventional neuroradiologists, neurologists and interventional cardiologists
for stroke treatment if and when FDA marketing approvals are obtained.

The AngioJet System is currently marketed by a direct sales force in the United
States, consisting entirely of Company employees. A single sales force calls on
all the distinct specialties listed above; for example, the Company does not
have specialized coronary or peripheral sales personnel.

The Company is currently marketing its AngioJet System outside the United States
using an independent distributor network except for Germany. The Company hired
an outside consultant to assist it in selling the AngioJet System in Germany in
August 2004. Generally, the distributorship agreements provide that the
distributors, at their own expense, will investigate, negotiate and obtain
regulatory approvals for the Company's products in the specified territory. All
sales made to the Company's independent distributors are denominated in United
States dollars.

Promotional activities by the Company are designed primarily to enlist the
support of key medical opinion leaders in the United States and abroad. The
Company believes that publications in medical journals and presentations at
medical meetings are important to encourage broad acceptance of its 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 the Company's products compared
to conventional treatment.

PATENTS, PATENT APPLICATIONS, LICENSES AND PROPRIETARY RIGHTS

The Company's success depends and will continue to depend in part on its ability
to maintain patent protection for products and processes, to preserve its trade
secrets and to operate without infringing the proprietary rights of third
parties. The Company's policy is to attempt to protect its technology by, among
other things, filing patent applications for technology that it considers
important to the development of its business. The patents held and applied for
by the Company describe method and apparatus claims related to thrombectomy and
atherectomy devices, distal occlusion devices, and method and apparatus claims
related to the design and use of synthetic vascular grafts. The Company no
longer considers the graft patents as material to its business going forward.
The Company holds 19 United States patents and ten foreign patents relating to
the AngioJet System. Of the 19 U.S. patents, ten were filed between 1990 and
1995 and are valid for 17 years following issuance. The remaining four were
filed in or after 1998 and are valid for 20 years following their filing dates.
In addition, the Company has 21 United States and 23 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.


                                       6
<PAGE>

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

COMPETITION

The Company believes that its AngioJet System will face intense competition from
a variety of treatments for the ablation 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.

Currently, the three primary methods of removing intravascular blood clots are
surgery, dissolution with drugs (thrombolysis) and various catheter-based
mechanical methods. 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. Also,
other classes of drugs, specifically platelet glycoprotein llb/llla inhibitors,
are being used to prevent blood clots from forming during coronary
interventional procedures. However, these drugs have no proven benefit against
clots already formed. 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.

The medical products market is characterized by rapidly evolving technology and
intense competition. The future success of the Company will depend on its
ability to keep pace with advancing technology and competitive innovations. Many
potential competitors have significantly greater research and development
capabilities, more experience in obtaining regulatory approvals, established
marketing and greater financial and managerial resources than the Company. 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 products being developed by
the Company.

The AngioJet System is a device designed for the rapid, safe and effective
removal of intravascular thrombus from native coronary vessels and saphenous
vein grafts, kidney dialysis access grafts, and leg arteries. The AngioJet
System has a unique profile of safety, clinical effectiveness, and
cost-effectiveness. In general, it competes against pharmacological dissolution
of the thrombus using thrombolytics or platelet glycoprotein IIb/IIIa
inhibitors, mechanical removal using other devices, and against surgical
revision of grafts. Drugs take time, do not work in a significant number of
cases, may have deleterious side effects and can be expensive. Drugs are,
however, easy to administer, particularly in an emergency room setting or in a
community hospital that lacks interventional facilities. In general, drugs have
the biggest market share among the set of procedures that constitute our
potential markets.



                                       7
<PAGE>

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. The Company's research and clinical experience shows that these devices
may not be effective in removing clot, 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 A-V 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 the Company's products and its 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 the Company's 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 A-V
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 the Company's continued operations.

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 they can cost several million dollars. Many of the Company's
products were the subject of such clinical trials in the past, and the Company
expects that some of its 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 Company product is able to be marketed 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 the Company and its products, such as annual establishment
registration, annual product listings, and administration of complaint and
medical device reporting files.



                                       8
<PAGE>

Failure to meet these pervasive FDA requirements could subject the Company
and/or its employees to injunction, prosecution, civil fines, seizure or recall
of products, prohibition of sales or suspension or withdrawal of any previously
granted approvals.

The AngioJet System received its first clearance for the U.S. market via a
510(k) premarket 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) premarket notification for
treating thrombus in leg arteries.

The Company's manufacturing and quality systems are also subject to FDA
regulations requiring compliance with the FDA's current Good Manufacturing
Practice ("GMP"). The FDA conducts periodic on-site inspections of manufacturing
facilities. The Company has successfully undergone several such inspections in
the past. The Company is obliged to address any deficiency noted during such
inspections. If the FDA notices violations of applicable regulations, the
continued marketing of the Company's products may be adversely affected. Such
regulations are subject to change and depend heavily on regulatory
interpretations.

The Company conducts 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, 2004, the Company had 266 full-time employees, three part-time
employees and 12 contract employees. Of these full-time employees, 27 are in
research and development, 99 are in manufacturing and production, 14 are in
quality assurance, eight are in facilities/maintenance, 98 are in sales and
marketing and 20 are in management or administrative positions. None of the
Company's 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 2.  PROPERTIES:

The Company leases 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. See Note 10 of Notes to Consolidated Financial Statements in Part
II, Item 8, in this Form 10-K.


                                       9
<PAGE>


The Company leases approximately 21,000 square feet of additional office and
warehouse space at 9130 Springbrook Boulevard, Minneapolis, Minnesota
55433-8003. See Note 10 of Notes to Consolidated Financial Statements in Part
II, Item 8, in this Form 10-K.

The Company leases approximately 800 square feet of office space at 1513 Johnson
Ferry Road, Marietta, Georgia. See Note 10 of Notes to Consolidated Financial
Statements in Part II, Item 8, in this Form 10-K.

Management believes these properties to be in good condition and are adequate to
meet its current levels of production and research and development activities.
Included in the existing lease for the 9055 Evergreen Boulevard NW property is
the option to purchase or continue to lease with the option of adding on to the
current location as the need arises.


ITEM 3.  LEGAL PROCEEDINGS:

None

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

None



                                       10
<PAGE>




EXECUTIVE OFFICERS OF THE REGISTRANT:


<TABLE>
<CAPTION>
      NAME                AGE                       POSITION
------------------------------------------------------------------------------------------
<S>                        <C>      <C>
Robert G. Dutcher          59       Chairman, President and Chief Executive Officer

Eapen Chacko               56       Vice President, Finance and Chief Financial Officer
Irving R. Colacci          51       Vice President, Legal Affairs and Human Resources
                                    General Counsel and Secretary

James D. Gustafson         48       Vice President, Research, Development and Engineering

Shawn F. McCarrey          46       Vice President, Worldwide Sales

Robert J. Scott            59       Vice President, Manufacturing and Information Technology
</TABLE>

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

EAPEN CHACKO has served as Chief Financial Officer, Vice President of Finance
         and Investor/Public Relations since September 2000. Mr. Chacko joined
         the Company in September 1999 as Vice President of Investor/Public
         Relations. Mr. Chacko was Director of Investor Relations for Fingerhut
         Companies, Inc., a catalog and Internet marketer.

IRVING R. COLACCI joined the Company in 1988 as Secretary and Corporate
         Counsel. Since 1993, he has served as General Counsel and Vice
         President, Legal Affairs and Human Resources.

JAMES D. GUSTAFSON has served as Vice President of the Company since January
         1, 1994 and has been responsible for Quality Assurance and
         Regulatory/Clinical Affairs for the Company since June 1993. In August
         2001, Mr. Gustafson assumed responsibility for the Company's product
         technology and development functions.

SHAWN F. MCCARREY joined the Company as Director of U.S. Sales in December
         1998, and became Vice President of U.S. Sales in April 2001 and Vice
         President of Worldwide Sales in February 2003. Prior to joining the
         Company, 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 the Company's medical subsidiary in 1985 and has served
         as Vice President of Manufacturing since 1993 and Information
         Technology since July 30, 2001.



                                       11
<PAGE>





                                     PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS
        AND ISSUER PURCHASES OF EQUITY SECURITIES:

The Company had 1,257 common shareholders of record at September 17, 2004. The
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, 2004
and 2003 are presented below:

                               2004                       2003
                      ----------------------   -----------------------
                       HIGH           LOW         HIGH          LOW
                       ----           ---         ----          ---
        QUARTER:
          First      $19.37          $15.56      $12.62        $  9.01
          Second      24.94           15.01       19.63          11.49
          Third       29.79           23.50       20.19          14.93
          Fourth      34.15           24.18       19.79          13.57

The Company has not paid cash dividends on its common stock since 1983. The
Company currently does not anticipate paying cash dividends in the foreseeable
future.

SHARE REPURCHASE PROGRAM

On November 12, 2002, the Company's Board of Directors announced a share
repurchase program authorizing the Company to purchase, from time to time, up to
$4,000,000 of its common shares in the open market. The Board of Directors
announced on August 7, 2003 the completion of the initial share repurchase
program and that it had authorized the repurchase of an additional $4,000,000 of
its common shares pursuant to this program. On March 24, 2004, the Board of
Directors announced the completion of the August 7, 2003 extended share
repurchase program and also that it had authorized the Company to repurchase an
additional $4,000,000 of its common shares from time to time, in open market
transactions. The March 2004 repurchase authorization expires in July 2005. On
September 27, 2004 the Board of Directors announced that it authorized the
repurchase of an additional $10,000,000 of its common shares from time to time
in open market transactions. The September 2004 authorization will expire in
July 2005. The Company made no share repurchases during the quarter ended July
31, 2004. The Company feels that its share repurchase program is an effective
tool to reduce the dilution associated with the exercise of employee incentive
stock options.



                                       12
<PAGE>




ITEM 6. SELECTED FINANCIAL DATA:

                             SELECTED FINANCIAL DATA
                      POSSIS MEDICAL, INC. AND SUBSIDIARIES
                              YEARS ENDED JULY 31,

<TABLE>
<CAPTION>
In Thousands Except per Share Data                          2004           2003            2002        2001             2000
                                                        -------------------------------------------------------------------------
INCOME STATEMENT DATA:
<S>                                                      <C>             <C>            <C>         <C>               <C>
     Products sales                                         $ 72,420       $ 57,428      $ 42,471      $ 30,001       $ 20,552
Net income (loss):
Before income taxes                                           18,763         12,013         6,256        (3,304)       (10,590)
Income tax (provision) benefit                                (7,034)         4,555        11,526          --             --
After income taxes                                            11,729         16,568        17,782        (3,304)       (10,590)
Net income (loss) per common share - basic:
Before income taxes                                             1.05           0.69          0.37         (0.20)         (0.67)
Income tax (provision) benefit                                 (0.39)          0.26          0.67          --             --
After income taxes                                              0.65           0.95          1.04         (0.20)         (0.67)
Net income (loss) per common share - diluted:
    Before income taxes                                         0.96           0.64          0.34         (0.20)         (0.67)
    Income tax (provision) benefit                             (0.36)          0.24          0.62          --             --
    After income taxes                                          0.60           0.88          0.96         (0.20)         (0.67)
Weighted average shares outstanding:
     Basic                                                    17,936         17,502        17,079        16,739         15,697
     Diluted                                                  19,566         18,889        18,602        16,739         15,697
BALANCE SHEET DATA:
Working capital                                             $ 57,399       $ 38,881      $ 25,038      $ 14,405       $ 16,788
Total assets                                                  86,021         67,765        44,689        22,009         25,004
Long-term debt, excluding current maturities                    --             --            --            --                7
Shareholders' equity                                          77,617         61,034        39,754        18,071         20,495
</TABLE>



                                       13
<PAGE>




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


                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FORWARD-LOOKING STATEMENTS

Certain statements made in Management's Discussion and Analysis of Financial
Condition and Results of Operations and elsewhere in this Form 10-K are
"forward-looking statements" as defined in the Private Securities Litigation
Reform Act of 1995. Such statements can be identified by the use of terminology
such as "anticipate," "believe," "could," "estimate," "expect," "forecast,"
"intend," "may," "plan," "possible," "project," "should," "will," and similar
words or expressions. Our forward-looking statements relate to the Company's
ability to increase sales of disposable product and capital equipment in the
face of new product introductions from competitors; its ability to obtain
additional regulatory approvals in a timely basis; the ability to obtain
regulatory clearance in new foreign markets; customer responses to the Company's
marketing strategies; the Company's ability to retain and motivate skilled
employees especially sales positions; ability to expand the sales force; the
valuation of the Company's deferred tax asset allowance; its outlook including
future revenue, earnings, earnings per share and expense levels; future equity
financing needs; and the Company's ability to develop new products and enhance
existing ones. These forward-looking statements are based on current
expectations and assumptions and entail various risks and uncertainties that
could cause actual results to differ materially from those expressed in such
forward-looking statements. Certain factors that may affect whether these
anticipated results occur include clinical and market acceptance of our
products; factors affecting the health care industry such as restricting sales
time at interventional labs; consolidation, cost containment due to rising
expenditures on drug-eluting stents and trends toward managed care; changes in
supplier requirements by group purchasing organizations; unanticipated costs or
other difficulties and uncertainties associated with lengthy and costly new
product development and regulatory clearance processes; changes in governmental
laws and regulations; changes in reimbursement; the development of new
competitive products such as filterwires and compounds that may make our
products obsolete; sudden restrictions in supply of key materials; and
deterioration of general market and economic conditions.

We also caution you not to place undue reliance on forward-looking statements,
which speak only as of the date made. Any or all forward-looking statements in
this report and in any other public statements we make may turn out to be
inaccurate or false. They can be affected by inaccurate assumptions we might
make or by known or unknown risks and uncertainties. Except as required by
federal securities laws, we undertake no obligation to update any
forward-looking statement. A discussion of these and other factors that could
impact the Company's future results are set forth in the risk factors included
in Exhibit 99.1 to this report on Form 10-K.

GENERAL

The Company was incorporated in 1956 and went public in 1960 as Possis Machine
Corporation. The Company's involvement with medical products began in 1976. In
1990, the Company made the decision to focus exclusively on medical products and
subsequently divested all non-medical operations.

The Company operates in one business segment -- the manufacture and sale of
medical devices. The Company evaluates revenue performance based on the total
revenues of each major product line and profitability based on an
enterprise-wide basis due to shared infrastructures to make operating and
strategic decisions.




                                       14
<PAGE>

The Company generates revenue from the sale of its products. The resulting cash
flow, together with the net proceeds from the Company's debt and equity
offerings, has been used to fund the Company's operations, including research
and development related to its products. Approximately 98% of fiscal 2004
revenues were from product sales in the United States. The high concentration of
United States revenue generation is expected to continue for the foreseeable
future.

CRITICAL ACCOUNTING POLICIES

The Company's consolidated financial statements include accounts of the Company
and all wholly-owned subsidiaries. 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 in certain
circumstances that affect amounts reported in the accompanying consolidated
financial statements and related footnotes. In preparing these financial
statements, management has made its best estimates and judgments of certain
amounts included in the financial statements, giving due consideration to
materiality. The Company's 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 products that are already maintained at customer
locations are recognized and ownership and risk of loss are transferred to the
customer when the Company receives a valid purchase order from the customer.
Revenues associated with products that are not maintained at the customer
locations 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.

Allowance for Returns

Accounts receivable 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 for returns in the
future. The estimate is based upon historical product return experience,
customer complaint rates, information received from our customers and
assumptions that are believed to be reasonable under the circumstances.
Management, on a quarterly basis, reviews the actual returns for the previous
quarter and evaluates the adequacy of the allowance for future returns.
Management believes the amount of the allowance for returns is appropriate;
however, actual returns incurred could differ from the original estimate,
requiring adjustments to the allowance.

Allowance for Doubtful Accounts

Substantially all of the Company's receivables are due from health care
facilities located in the United States. The estimated allowance for doubtful
accounts is based upon the age of the outstanding receivables and the payment
history and creditworthiness of each customer. Management, on a quarterly basis,
evaluates the adequacy of the allowance for doubtful accounts. Management
believes the amount of the allowance for doubtful accounts is appropriate;
however, nonpayment of accounts could differ from the original estimate,
requiring adjustments to the allowance.


                                       15
<PAGE>

Inventories

Inventories are valued at the lower of cost or market. In order to determine the
market value of inventory on a quarterly basis, management assesses the
inventory quantities on hand to estimated future usage and sales and, if
necessary, writes down inventory deemed excess or obsolete to estimated market
value.

Warranty Reserve

The Company provides a one-year limited warranty on its AngioJet System drive
unit and a limited warranty on AngioJet System disposable products. The Company
establishes a warranty reserve at the time products are sold that is based upon
historical frequency of claims relating to the Company's products and the cost
to replace disposable products and to repair drive units under warranty.
Management, on a quarterly basis, evaluates the adequacy of the warranty
reserve. Management believes the amount of the warranty reserve is appropriate,
given our historical experience; however, actual claims incurred could differ
from the original estimate, requiring adjustments to the reserve.

Deferred Tax Asset Valuation Allowance

The Company became profitable starting in the third quarter of fiscal 2001. It
has maintained profitability for fourteen quarters, including the fourth quarter
of fiscal 2004. Prior to the fourth quarter of fiscal 2002, the Company reduced
its net deferred tax asset to zero through a valuation allowance due to the
uncertainty of realizing such asset. In the fourth quarters of fiscal 2004, 2003
and 2002, the Company reassessed the likelihood that the deferred tax asset will
be recovered from future taxable income. Due to the previous three full years'
operating results projected forward through the carry-forward period, the
Company reduced its valuation allowance on the deferred tax asset by $9,778,000
and $13,713,000 during the fourth quarter of fiscal 2003 and 2002, respectively.
Management believes the remaining valuation allowance is necessary as $690,000
of the deferred tax asset will not be realizable due to the expiration of
research and development tax credits.

In our Selected Financial Data, Management's Discussion and Analysis, and Notes
to Consolidated Financial Statements, the Company makes reference to a non-GAAP
(general accepted accounting principles) financial measure - income per common
share before income taxes. The Company believes that this non-GAAP financial
measure is useful to investors because it provides investors with another
measure to consider, in conjunction with the GAAP results that may be helpful to
meaningfully compare the Company's operating performance. It is especially
useful for fiscal 2003 and 2002, when the Company had an unusual tax benefit due
to the reduction of the tax valuation allowance. In each case that the Company
makes reference to a non-GAAP financial measure, the Company also provides a
reconciliation to the comparable GAAP financial measures.

RESULTS OF OPERATIONS

Fiscal Years Ended July 31, 2004, 2003 and 2002

Total product sales for fiscal 2004 increased $14,992,000, or 26%, to
$72,420,000, compared to $57,428,000 in fiscal 2003. Total product sales for
fiscal 2003 increased $14,957,000, or 35%, to $57,428,000, compared to
$42,471,000 in fiscal 2002. The Company recorded net income of $11,729,000, or
$0.60 per diluted share, in fiscal 2004. The Company recorded pre-tax net income
of $12,013,000, or $0.64 per diluted share, in fiscal 2003 and $6,256,000, or
$0.34 per diluted share, in fiscal 2002. In fiscal 2003, the Company recorded a
benefit for income taxes in the amount of $9,060,000 due to the reduction of the
deferred tax asset valuation allowance and changes in temporary differences.
This income tax benefit offset the Company's income tax provision of $4,505,000
and resulted in a net income tax benefit of $4,555,000 and resulted in net
income after income taxes in fiscal 2003 of $16,568,000, or $0.88 per diluted
share. In fiscal 2002, the Company recorded a benefit for income taxes in the
amount of $11,526,000 due to the reduction of the deferred tax asset valuation
allowance. This resulted in net income after income taxes in fiscal 2002 of
$17,782,000, or $0.96 per diluted share.



                                       16
<PAGE>

Revenue - AngioJet System

U.S. AngioJet System revenue for fiscal 2004 increased $14,655,000, or 26%, to
$70,867,000 compared to $56,212,000 in fiscal 2003. U.S. AngioJet System revenue
for fiscal 2003 increased $14,179,000 or 34%, to $56,212,000 compared to
$42,033,000 in fiscal 2002. The Company markets the AngioJet System worldwide.
The AngioJet System consists of a drive unit (capital equipment) that powers a
disposable pump and a family of disposable catheters, each aimed at a specific
indication. The main factors in the AngioJet System revenue increase were
increased sales resulting from the Company commencing U.S. marketing of the
AngioJet System with additional labeling claims and the expansion of its direct
sales force. During fiscal 2004, 2003 and 2002, the Company began U.S. marketing
of three new catheters for the removal of blood clots in leg (peripheral)
arteries: the XMI(R) Rapid Exchange catheter (XMI RX) in February 2004, the
Xpeedior(R) Plus 120 in August 2002, and the XVG in April 2002. In addition, the
Company received clearance to market the Company's XMI RX catheter for coronary
use in May 2004.

As of July 31, 2004, the Company had a total of 1,317 domestic AngioJet System
drive units in the field, compared to 1,062 and 863 at the end of the previous
two fiscal years. During fiscal 2004, the Company sold approximately 52,100
catheters and pump sets versus approximately 42,500 in fiscal 2003 and 33,300 in
fiscal 2002. This represents a 23% and 28% increase in unit catheter sales in
2004 and 2003 from the previous years. During the fiscal years ended July 31,
2004, 2003 and 2002, the Company sold 258, 212 and 161 AngioJet System drive
units worldwide, respectively. The number of AngioJet System drive unit sales in
fiscal 2004, 2003 and 2002 resulted from a drive unit promotion with one of our
group purchasing organizations in fiscal 2004, continuing customer acceptance of
our expanded and improved coronary and peripheral catheter product lined and the
expansion of our sales force.

The Company employs a variety of flexible drive unit acquisition programs
including outright purchase and various evaluation programs. The purchasing
cycle for the AngioJet System drive unit varies depending on the customer's
budget cycle and is generally around six months from the beginning of the
marketing cycle. The Company has signed contracts with seven purchasing groups
in order to accelerate orders and increase market penetration. These purchasing
groups evaluate and screen new medical technologies on behalf of their members,
and once they recommend a technology, such as the AngioJet System, they
negotiate pre-determined discounts on behalf of their members. The benefit for
the Company is access to the recommended vendor list, along with marketing
support provided by the purchasing group. The purchasing groups receive a
marketing fee on their member purchases from the Company. These discounts and
marketing fees have been offset by the increase in sales to the member hospitals
of the purchasing group. There has been no material negative effect on the
Company's 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.

The Company expects U.S. AngioJet System sales to continue to grow primarily
through obtaining additional Food and Drug Administration (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.

                                       17
<PAGE>



Foreign sales of the AngioJet System were $1,553,000 in fiscal 2004, $1,215,000
in fiscal 2003 and $438,000 in fiscal 2002. The increase in sales in fiscal 2004
and 2003 is primarily due to the introduction of the XMI RX, XMI and XVG
catheters and the increase in drive unit sales in the European market. Limited
foreign sales are primarily due to cost constraints in overseas markets. In
European markets, where public sector funds are more crucial for hospital
operation, Euro devaluations generated higher public sector deficits, which, in
turn, forced reductions in hospital procedure and equipment budgets. In Japan,
the Company is pursuing a regulatory strategy that utilizes the Company's U.S.
coronary clinical trial results and extensive body of published clinical
studies, which is expected to result in regulatory approval for the AngioJet
System with the XMI catheter in treating coronary thrombus. Currently, the
Japanese Ministry of Health and Welfare (MHW) is reviewing the Company's
regulatory approval submission. Once the Company receives regulatory approval,
the Company will apply for an appropriate national medical insurance
reimbursement. The timing of the regulatory approval and reimbursement decision
is dependent upon the Japanese MHW response to the Company's submissions.


Cost of Medical Products

Cost of medical products, compared to prior years, increased 19% in fiscal 2004
and 14% in fiscal 2003. The increases are primarily due to the significant
growth in the U.S. AngioJet System product sales. Medical product gross margins
improved by $12,182,000 to $55,100,000 in fiscal 2004 and by $13,137,000 to
$42,918,000 in fiscal 2003 over the prior years. The gross margin percentage in
fiscal 2004 was 76% compared to 75% in fiscal 2003 and 70% in fiscal 2002. The
improvement in gross margins was driven by higher volumes of XMI RX, XMI, XVG
and Xpeedior Plus 120 catheters that carry higher margins than the catheters
they replaced. In fiscal 2003 an improvement in the XMI, XVG and Xpeedior Plus
120 product catheter mix also improved the gross margins. This was partially
offset by the impact of higher international sales versus the prior year. The
Company believes that the gross margin percentage will be in the mid-seventies
for fiscal 2005.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased $4,175,000 to $27,984,000
in fiscal 2004 and by $4,455,000 to $23,808,000 in fiscal 2003, as compared to
prior periods. The primary factors for the expense increase for fiscal 2004 were
increased sales and marketing expenses related to the expansion of the Company's
U.S. direct sales organization for the AngioJet System, increased overall
compensation, contract labor and fringe benefits, increased marketing fees for
the national purchasing contracts, increased sales demos and sales materials,
increased professional fees and outside services and an increase in patent
expense. This expense was partially offset by a reduction in patient enrollment
associated with marketing clinical trials and software and computer
depreciation. The primary factors for the expense increase for fiscal 2003 were
increased sales and marketing expenses related to the expansion of the Company's
U.S. direct sales organization for the AngioJet System, increased commission
expense due to increased AngioJet System product sales, increased marketing fees
for the national purchasing contracts, increased patient enrollment in the
Company's marketing studies, increased sales demos and sales materials,
increased outside services and higher medical insurance expense. The Company
recently added one European salesperson and expects that the current U.S. sales
force will be sufficient to continue to grow sales and service the current
customer base for the Company's AngioJet System through fiscal 2005.




                                       18
<PAGE>




Research and Development Expenses

Research and development expense increased 20% to $9,033,000 in fiscal 2004 as
compared to $7,503,000 in fiscal 2003. The increase was largely due to the
timing of expenses incurred for various research and development projects
including the new drive unit, an associated project to combine the pump and
catheter, and projects relating to the improvement of the rapid exchange
catheter, the distal occlusion guidewires and the power pulse spray projects.
Research and development expense increased 70% in fiscal 2003 to $ 7,503,000 as
compared to $4,427,000 in fiscal 2002. The increase was largely due to the
timing of expenses incurred for various R&D projects including the new drive
unit, rapid exchange catheter and the distal protection balloon. The Company
believes that research and development expense for AngioJet System applications
and related products will increase in fiscal 2005 over fiscal 2004 levels as the
Company completes the development of its current products and invests in the
development of new AngioJet System thrombectomy applications and related
products including clinical trials.


Interest Income

Interest income increased $375,000 to $732,000 in fiscal 2004 and increased
$102,000 to $356,000 in fiscal 2003 from the previous fiscal year. The increase
is due to the investing of excess cash and cash equivalents in an enhanced cash
management portfolio of marketable securities. The Company expects interest
income to increase in fiscal 2005 as compared to fiscal 2004 as cash is
generated from operations.

(Provision) Benefit for Income Taxes

The Company recorded a provision for income taxes of $7,034,000 or approximately
37.5% of income before income taxes for fiscal 2004. In fiscal 2003 and 2002 the
Company recorded a benefit for income taxes of $4,555,000 and $11,526,000,
respectively. The benefit for income taxes was due to the reduction of the net
deferred tax asset valuation allowance.

The Company became profitable starting in the third quarter of fiscal 2001. It
has maintained profitability for fourteen quarters, including the fourth quarter
of fiscal 2004. Prior to the fourth quarter of fiscal 2002, the Company reduced
its net deferred tax asset to zero through a valuation allowance due to the
uncertainty of realizing such asset. In the fourth quarters of fiscal 2003 and
2002, the Company reassessed the likelihood that the deferred tax asset will be
recovered from future taxable income. Due to the previous three full years'
operating results projected forward, the Company reduced its valuation allowance
on the deferred tax asset by $9,778,000 and $13,713,000 during the fourth
quarter of fiscal 2003 and 2002, respectively. These amounts are offset by
changes in temporary differences.

In fiscal 2004, 2003 and 2002, the Company increased the deferred tax asset by
an additional $2,578,000, $2,777,000 and $743,000, respectively related to tax
benefit from disqualified stock options that are recorded directly in the
Consolidated Statement of Changes in Shareholders' Equity. Management believes
the remaining valuation allowance is necessary as $690,000 of the deferred tax
asset will not be realizable due to the expiration of research and development
tax credits.

Effects of Inflation

Due to the low rate of inflation and small changes in prices, there has been
very little effect on the Company's net revenues and net income from operations
as of fiscal 2004.


                                       19
<PAGE>


LIQUIDITY AND CAPITAL RESOURCES

The Company's cash, cash equivalents and marketable securities totaled
approximately $48,171,000 at July 31, 2004 compared to $31,944,000 at July 31,
2003. The primary factors in the increase were cash provided by operations of
$17,375,000 and the issuance of stock and exercise of stock options and warrants
of $7,190,000, which was partially offset by the repurchase of Company's stock
for $5,020,000 and capital expenditures of $3,259,000.

During fiscal 2004, cash provided by operating activities was $17,375,000, which
resulted primarily from $11,729,000 net income, depreciation of $1,813,000, a
decrease in deferred tax assets of $6,554,000, stock compensation expense of
$142,000, an increase in accounts payable and accrued liabilities of $1,673,000,
partially offset by an increase in receivables of $2,266,000, an increase in
inventories of $1,800,000 and an increase in prepaid expenses and other assets
of $475,000. Depreciation includes company-owned drive units at customer
locations, as well as property and equipment. The decrease in the deferred tax
asset was due to the utilization of the net operating loss carryovers to offset
current taxes payable. 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. The $2,266,000
increase in receivables was due to increase in revenue in fiscal 2004 as
compared to fiscal 2003. Inventory increased due to the increase in demand for
the AngioJet System. Cash used in investing activities was $15,916,000. This
includes the net purchase of marketable securities of $12,708,000 of marketable
securities and the purchase of $3,259,000 of property and equipment. Net cash
provided by financing activities was $2,170,000, which resulted from the cash
received in connection with the exercise of stock options and warrants for
$7,190,000, offset by the repurchase of 243,400 shares for $5,020,000 of the
Company's stock in the open market transactions.

During fiscal 2003, cash provided by operating activities was $12,995,000, which
resulted primarily from $16,568,000 net income, depreciation of $2,085,000,
stock compensation expense of $161,000, an increase in accounts payable and
accrued liabilities of $1,781,000, partially offset by an increase in
receivables of $2,093,000, an increase in inventories of $697,000 and an
increase in deferred tax assets of $4,798,000. Depreciation includes
company-owned drive units at customer locations, as well as property and
equipment. The increase in trade accounts payable and accrued liabilities was
due to the timing of the payments, an increase in accrued clinical and marketing
trials, an increase in accrued outside services and an increase in deferred
drive unit warranty revenue. The $2,093,000 increase in receivables was due to
increase in revenue in fiscal 2003 as compared to fiscal 2002. Inventory
increased due to the increase in demand for the AngioJet System. Deferred tax
assets increased due to the reduction of the valuation allowance. Cash used in
investing activities was $28,658,000. This includes the net purchase of
marketable securities of $27,272,000 of marketable securities and the purchase
of $1,428,000 of property and equipment. Net cash provided by financing
activities was $1,889,000, which resulted from the cash received in connection
with the exercise of stock options and warrants for $5,883,000, offset by the
repurchase of 246,900 shares for $3,994,000 of the Company's stock in the open
market transactions.


                                       20
<PAGE>


During fiscal 2002, cash provided by operating activities was $6,966,000, which
resulted primarily from $17,782,000 net income, depreciation of $2,119,000,
stock compensation expense of $187,000, write-down due to the impairment of
assets of $70,000 and an increase in accrued liabilities of $1,140,000. The net
cash provided by operations was partially offset by an expense reimbursement
from a city government of $84,000, an increase in receivables of $1,605,000, an
increase in inventories of $635,000, an increase in other current assets of
$420,000, an increase in deferred tax assets of $11,526,000 and a decrease in
accounts payable of $59,000. Depreciation includes company-owned drive units at
customer locations, as well as property and equipment. The increase in accrued
liabilities was due to the timing of the payments and the increase in accrued
corporate incentives. The expense reimbursement from a city government of
$84,000 relates to debt forgiven by the city government due to the Company
achieving minimum headcount employment objectives. The $1,605,000 increase in
receivables was due to increase in revenue in fiscal 2002 as compared to fiscal
2001. Inventory increased due to the increase in demand for the AngioJet System.
The increase in other current assets was due to the increase in prepaid
insurance and a grant receivable. The Company received a grant from the National
Institute of Neurological Disorders and Stroke in the amount of $248,000. The
grant helped fund development of the AngioJet NV150 catheter for ischemic
stroke. The Company received the grant funds subsequent to July 31, 2002.
Deferred tax assets increased due to the reduction of the valuation allowance.
The $59,000 decrease in trade accounts payable was due to timing of year-end
payables. Cash used in investing activities of $895,000 was primarily due to
$903,000 for the purchase of property and equipment. Net cash provided by
financing activities was $2,971,000, which resulted from the cash received in
connection with the issuance of stock and exercise of stock options and warrants
of $2,997,000.

The Company expects its cash on hand and funds from operations to be sufficient
to cover both short-term and long-term operating requirements.

OFF-BALANCE SHEET ARRANGEMENTS

The Company does not have any debt or off-balance-sheet financial arrangements.


OUTLOOK  -

The Company expects that overall revenue from the AngioJet System,
primarily in the United States, will be in the range of $75 million to $80
million in fiscal 2005. Gross margin percent for fiscal 2005 is expected to be
in the mid-seventies as a percent of total sales. The Company expects selling,
general and administrative expenses to increase in fiscal 2005 due to
anticipated growth in revenue. Research and development expenditures are
expected to increase from the fiscal 2004 level as the Company completes
development of projects and invests in development of new AngioJet System
thrombectomy applications and related products including clinical trials. The
Company expects diluted earnings per share for the full year in the range of
$0.57 to $0.62. In addition, the Company expects that increasing working capital
investments in trade receivables and inventory will be required to support
growing product sales. The Company expects to repurchase its common stock from
time-to-time, in open market transactions when it deems appropriate.

CONTRACTUAL OBLIGATIONS

Payments due by period for our contractual obligations at July 31, 2004 are as
follows:

<TABLE>
<CAPTION>
                                           Payments Due By Period
--------------------------------------------------------------------------------------------------
                                           Less than 1
                           Total              year        1-3 Years   4-5 Years       Thereafter
                        --------------------------------------------------------------------------
<S>                     <C>                <C>             <C>          <C>           <C>
Operating Lease         $ 1,336,000        $   375,000     $ 726,000    $235,000      $     --
Obligations
Purchase Obligations      4,772,000          4,772,000            --         -
Other Long-Term           1,218,000            203,000       406,000     406,000        203,000
Liabilities

                        --------------------------------------------------------------------------
Total                   $ 7,326,000        $ 5,350,000    $1,132,000    $641,000      $ 203,000
                        ===========        ===========    ==========    ========      =========
</TABLE>


                                       21
<PAGE>

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK:

The Company invests its 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.

The product sales for the Company's foreign subsidiary are in U.S. Dollars
("USD"). As of July 31, 2004, the Company's foreign bank accounts were closed.



                                       22
<PAGE>

Item 8. Financial Statements and Supplementary Data:


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Possis Medical, Inc.

We have audited the accompanying consolidated balance sheets of Possis Medical,
Inc. and subsidiaries as of July 31, 2004 and 2003, and the related consolidated
statements of income and comprehensive income, cash flows and changes in
shareholders' equity for each of the three years in the period ended July 31,
2004. Our audits also included the financial statement schedule listed in the
index at Item 15. These consolidated financial statements and financial
statement schedule are the responsibility of the management of Possis Medical,
Inc. and subsidiaries. Our responsibility is to express an opinion on these
consolidated financial statements and financial statement schedule based on our
audits.

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

In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Possis Medical, Inc. and
subsidiaries as of July 31, 2004 and 2003, and the results of their operations
and their cash flows for each of the three years in the period ended July 31,
2004, 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 consolidated financial statements taken as a
whole, presents fairly in all material respects the information set forth
therein.

     DELOITTE & TOUCHE LLP

Minneapolis, Minnesota
October 8, 2004









                                       23
<PAGE>


                      POSSIS MEDICAL, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                    31-JUL-04                31-JUL-03
                                                                  ------------            ------------
               ASSETS

CURRENT ASSETS:
<S>                                                               <C>                     <C>
Cash and cash equivalents (NOTE 1)                                $  8,411,784            $  4,782,942
Marketable securities (NOTE 1)                                      39,759,403              27,161,223
Trade receivables (less allowance for doubtful  accounts and
 returns of $536,000 and $507,000, respectively)                    10,232,180               7,966,394
Inventories (NOTE 1)                                                 5,389,653               4,165,253
Prepaid expenses and other assets                                      958,616                 729,936
Deferred tax asset (NOTE 5)                                            890,000                 806,000
                                                                  ------------            ------------
      Total current assets                                          65,641,636              45,611,748

PROPERTY AND EQUIPMENT, net (NOTE 1)                                 5,073,775               3,055,335

DEFERRED TAX ASSET (NOTE 5)                                         15,103,949              19,098,000


OTHER ASSET (NOTE 3)                                                   201,341                    --
                                                                                          ------------

TOTAL ASSETS                                                      $ 86,020,701            $ 67,765,083
                                                                  ============            ============

LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:
 Trade accounts payable                                           $  1,791,694            $  1,585,776
Accrued salaries, wages, and commissions                             4,228,804               2,777,189
Other liabilities                                                    2,222,465               2,367,645
                                                                  ------------            ------------
     Total current liabilities                                       8,242,963               6,730,610

OTHER LIABILITES (NOTE 3)                                              160,536                    --

COMMITMENTS AND CONTINGENCIES (NOTE 10)

SHAREHOLDERS' EQUITY (NOTE 6):
Common stock-authorized, 100,000,000 shares of $0.40 par
  value each; issued and outstanding, 18,254,942 and
  17,757,531 shares, respectively                                    7,301,977               7,103,013
     Additional paid-in capital                                     88,434,540              83,743,496
     Unearned compensation                                             (15,000)                (15,000)
     Accumulated other comprehensive loss                             (136,000)               (100,000)
     Retained deficit                                              (17,968,315)            (29,697,036)
                                                                  ------------            ------------
         Total shareholders' equity                                 77,617,202              61,034,473
                                                                  ------------            ------------

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                        $ 86,020,701            $ 67,765,083
                                                                  ============            ============
</TABLE>


See notes to consolidated financial statements.



                                       24
<PAGE>



                      POSSIS MEDICAL, INC. AND SUBSIDIARIES
                        CONSOLIDATED STATEMENTS OF INCOME
                            AND COMPREHENSIVE INCOME
                               YEARS ENDED JULY 31


<TABLE>
<CAPTION>
                                                            2004            2003           2002
                                                        -------------------------------------------
<S>                                                     <C>             <C>            <C>
Products sales (NOTE 11)                                $ 72,420,168    $ 57,427,709   $ 42,470,693
Cost of sales and other expenses:
    Cost of medical products                              17,320,094      14,510,064     12,689,835
    Selling, general and administrative                   27,983,585      23,808,304     19,352,991
    Research and development                               9,033,207       7,502,763      4,426,663
                                                        ------------    ------------   ------------
        Total cost of sales and other expenses            54,336,886      45,821,131     36,469,489
                                                        ------------    ------------   ------------
Operating income                                          18,083,282      11,606,578      6,001,204
Interest income                                              731,809         356,495        254,519
(Loss) gain on sale of securities                            (52,580)         49,687             --
                                                        ------------    ------------   ------------
Income before income taxes                                18,762,511      12,012,760      6,255,723
Income tax (provision) benefit (NOTE 5)                   (7,033,790)      4,555,000     11,526,000
                                                        ------------    ------------   ------------
Net income                                                11,728,721      16,567,760     17,781,723
Other comprehensive loss, net of tax -
    Unrealized loss on securities                            (36,000)       (100,000)           --
                                                        ------------    ------------   -----------
Comprehensive income                                    $ 11,692,721    $ 16,467,760   $ 17,781,723
                                                        ============    ============   ============
Net income per common share:
    Basic                                               $       0.65    $       0.95   $       1.04
    Diluted                                             $       0.60    $       0.88   $       0.96
Weighted average number of common shares outstanding:
    Basic                                                 17,935,974      17,501,573     17,078,759
    Diluted                                               19,565,530      18,889,245     18,602,156
</TABLE>



See notes to consolidated financial statements.


                                       25
<PAGE>




                      POSSIS MEDICAL, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                               YEARS ENDED JULY 31


<TABLE>
<CAPTION>
                                                                   2004           2003            2002
                                                               --------------------------------------------
OPERATING ACTIVITIES:
<S>                                                            <C>             <C>             <C>
    Net income                                                 $ 11,728,721    $ 16,567,760    $ 17,781,723
    Adjustments to reconcile net income to net
        cash provided by operating activities:
    Depreciation                                                  1,813,476       2,084,604       2,119,240
    Deferred income taxes                                         6,554,030      (4,798,000)    (11,526,000)
    Stock compensation expense                                      141,646         160,550         186,940
    Loss (gain) on sale of securities                                52,580         (49,687)           --
    Expense reimbursement from city government                         --              --           (83,866)
    Writedown due to impairment of assets                              --              --            70,000
    (Gain) loss on disposal of assets                               (47,236)          6,226          (3,850)
    Increase in trade receivables                                (2,265,786)     (2,093,036)     (1,605,244)
    Increase in inventories                                      (1,800,360)       (697,387)       (635,188)
    (Increase) decrease in prepaid expenses and other assets       (475,000)         32,679        (419,620)
    Increase (decrease) in trade accounts payable                   205,918         323,065         (58,774)
    Increase in accrued and other liabilities                     1,466,971       1,458,291       1,140,205
                                                               ------------    ------------    ------------
             Net cash provided by operating activities           17,374,960      12,995,065       6,965,566
                                                               ------------    ------------    ------------
INVESTING ACTIVITIES:
     Additions to property and equipment                         (3,258,644)     (1,427,781)       (902,627)
     Proceeds from sale of fixed assets                              49,924          41,211           7,344
     Proceeds from sale/maturity of marketable securities        31,631,026      54,299,309            --
      Purchase of marketable securities                         (44,338,786)    (81,570,845)           --
                                                               ------------    ------------    ------------
     Net cash used in investing activities                      (15,916,480)    (28,658,106)       (895,283)
                                                               ------------    ------------    ------------
FINANCING ACTIVITIES:
     Proceeds from issuance of stock and exercise
          of options and warrants                                 7,190,378       5,883,234       2,997,151
     Repurchase of common stock                                  (5,020,016)     (3,993,914)           --
      Repayment of long-term debt                                      --              --           (26,522)
                                                               ------------    ------------    ------------
            Net cash provided by financing activities             2,170,362       1,889,320       2,970,629
                                                               ------------    ------------    ------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                  3,628,842     (13,773,721)      9,040,912
CASH AND CASH EQUIVALENTS AT BEGINNING
      OF YEAR                                                     4,782,942      18,556,663       9,515,751
                                                               ------------    ------------    ------------
CASH AND CASH EQUIVALENTS AT END OF YEAR                       $  8,411,784    $  4,782,942    $ 18,556,663
                                                               ============    ============    ============
SUPPLEMENTAL CASH FLOW DISCLOSURE:
Disqualified stock options                                     $  2,578,000    $  2,777,000    $    743,000
Cash paid for income taxes                                          353,876         287,977            --
Issuance of restricted stock                                         36,000          36,000          36,000
Inventory transferred to fixed assets                                12,960          47,951            --

Accrued payroll taxes related to restricted stock                      --              --           (12,600)

</TABLE>


See notes to consolidated financial statements.


                                       26
<PAGE>






                      POSSIS MEDICAL, INC. AND SUBSIDIARIES
                           CONSOLIDATED STATEMENTS OF
                         CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
                                           Common Stock
                                     -------------------------  Additional    Stock    Unrealized
                                       Number of                  Paid-in     Compen-  loss on      Retained
                                        Shares       Amount       Capital     sation   securities    Deficit        Total
                                     -----------  ------------  -----------  --------- ----------- ------------ -------------
<S>                                   <C>         <C>          <C>           <C>          <C>     <C>           <C>
BALANCE AT JULY 31, 2001              16,822,023  $ 6,728,809  $ 75,411,387  $(22,700)      --    $(64,046,519) $ 18,070,977
Employee stock purchase plan              63,242       25,297       213,023      --         --            --         238,320
Stock options issued to directors
   and physicians (NOTE 6)                  --           --         147,140      --         --            --         147,140
Stock options and
   warrants exercised                    387,708      155,083     2,603,748      --         --            --       2,758,831
Disqualified stock options                  --           --         743,000      --         --            --         743,000
Stock grants                               2,124          850        22,550   (36,000)      --            --         (12,600)
 Unearned stock compensation
Amortization                                --           --            --      39,800       --            --          39,800
Stock retired                               (875)        (350)      (12,775)     --         --            --         (13,125)
Net income                                  --           --            --        --         --      17,781,723    17,781,723
                                     ---------------------------------------------------------------------------------------
BALANCE AT JULY 31, 2002              17,274,222    6,909,689    79,128,073   (18,900)      --     (46,264,796)   39,754,066
Employee stock purchase plan              25,267       10,107       354,923      --         --            --         365,030
Stock options issued to directors
and physicians (NOTE 6)                     --           --         120,650      --         --            --         120,650
Stock options and
   warrants exercised                    703,993      281,597     5,236,607      --         --            --       5,518,204
Disqualified stock options                  --           --       2,777,000      --         --            --       2,777,000
Stock grants                               2,010          804        35,196   (36,000)      --            --            --
  Unearned stock compensation
Amortization                                --           --            --      39,900       --            --          39,900
Unrealized loss on investments              --           --            --        --     (100,000)         --        (100,000)
Stock retired                             (1,061)        (424)      (13,799)     --         --            --         (14,223)
Common stock repurchased                (246,900)     (98,760)   (3,895,154)     --         --            --      (3,993,914)
Net income                                  --           --            --        --         --      16,567,760    16,567,760
                                     ---------------------------------------------------------------------------------------
BALANCE AT JULY 31, 2003              17,757,531    7,103,013    83,743,496   (15,000)  (100,000)  (29,697,036)   61,034,473
Employee stock purchase plan              24,814        9,926       367,713      --         --            --         377,639
Stock options issued to directors
(NOTE 6)                                    --           --         105,646      --         --            --         105,646
Stock options and warrants exercised     714,113      285,644     6,527,095      --         --            --       6,812,739
Disqualified stock options                  --           --       2,578,000      --         --            --       2,578,000
Stock grants                               1,884          754        32,246   (36,000)      --            --            --
Unearned stock compensation
     amortization                           --           --            --      36,000       --            --          36,000
Unrealized loss on investments              --           --            --        --      (36,000)         --         (36,000)
Common stock repurchased                (243,400)     (97,360)   (4,922,656)     --         --            --      (5,020,016)
Net income                                  --           --            --        --         --      11,728,721    11,728,721
                                     ---------------------------------------------------------------------------------------
BALANCE AT JULY 31, 2004              18,254,942  $ 7,301,977  $ 88,434,540  $(15,000) $(136,000) $(17,968,315) $ 77,617,202
                                     ===========  ===========  ============  ========  =========  ============  ============
</TABLE>

See notes to consolidated financial statements.


                                       27
<PAGE>

NOTES TO CONSOLIDATED 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 48 years. In 1990, the Company decided to focus on medical products and
changed its name to Possis Medical, Inc. in 1993. In January 1995, the Company
established a 100% owned subsidiary, Possis Medical Europe B.V., in the
Netherlands to support international product distribution. The Company received
AngioJet Rheolytic Thrombectomy System U.S. marketing approval for use in
arterio-venous (AV) access hemodialysis grafts 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.

BASIS OF CONSOLIDATION The consolidated financial statements include the
accounts of Possis Medical, Inc. and its wholly-owned subsidiaries: Possis
Holdings, Inc., JEI Liquidation, Inc. ("Jet Edge") and Possis Medical Europe
B.V., after elimination of intercompany accounts and transactions.

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 2004 and 2003, the Company 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,
2004 and 2003 are classified as available-for-sale and consist primarily of U.S.
government securities and corporate bonds. These investments are reported at
fair value with a net unrealized loss for the years ended July 31, 2004 and 2003
of approximately $36,000 and $100,000, respectively, net of tax effect, which is
included in other comprehensive loss as of July 31, 2004 and 2003. The cost of
securities sold is based on the specific identification method.

Information regarding the Company's available-for-sale marketable securities as
of July 31, 2004 and 2003 is approximately as follows:

<TABLE>
<CAPTION>
                              U.s.govt.        Corporate         Municipal       Mutual
                             Securities          Bonds            Bonds           Funds            Total
                            ------------      ------------     -------------    -----------    ------------
                                                          July 31, 2004
                            -------------------------------------------------------------------------------
<S>                         <C>               <C>              <C>              <C>            <C>
Cost ...................... $ 21,737,000      $ 8,644,000      $ 5,997,000      $3,598,000     $ 39,976,000
Gross unrealized losses ...     (152,000)         (16,000)         (49,000)           --           (217,000)
                            ------------      -----------      -----------      ----------     ------------
Fair value ................ $ 21,585,000      $ 8,628,000      $ 5,948,000      $3,598,000     $ 39,759,000
                            ============      ===========      ===========      ==========     ============
                                                          July 31, 2003
                            ------------------------------------------------------------------------------
Cost ...................... $ 18,196,000      $ 6,630,000      $ 1,333,000      $1,162,000     $ 27,321,000
Gross unrealized losses ...     (129,000)          (7,000)         (24,000)           --           (160,000)
                            ------------      -----------      -----------      ----------     ------------
Fair value ................ $ 18,067,000      $ 6,623,000      $ 1,309,000      $1,162,000     $ 27,161,000
                            ============      ===========      ===========      ==========     ============
</TABLE>

                                       28
<PAGE>


The following information recaps marketable securities for the year ended July
31, 2004 and 2003:



<TABLE>
<CAPTION>


                                                         July 31, 2004
                        -------------------------------------------------------------------------------
                        U.S. Govt.        Corporate       Municipal         Mutual
                         Securities         Bonds           Bonds            Funds            Total
                        ------------      ----------      ----------     -------------     ------------
<S>                     <C>               <C>             <C>            <C>               <C>
Proceeds from sales     $ 10,510,000      $  488,000      $  183,000     $  20,450,000     $ 31,631,000
                        ============      ==========      ==========     =============     ============
Net gain realized       $     29,000      $    1,000      $     --       $        --       $     30,000
                        ============      ==========      ==========     =============     ============
Net loss realized       $    (82,000)     $     --        $     --       $        --       $    (82,000)
                        ============      ==========      ==========     =============     ============

                                                         July 31, 2003
                        -------------------------------------------------------------------------------
Proceeds from sales     $ 16,409,000      $  368,000      $     --       $  37,522,000     $ 54,299,000
                        ============      ==========      ==========     =============     ============
Net gain realized       $     51,000      $    3,000      $     --       $        --       $     54,000
                        ============      ==========      ==========     =============     ============
Net loss realized       $     (2,000)     $   (2,000)     $     --       $        --       $     (4,000)
                        ============      ==========      ==========     =============     ============
</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:


                                                         2004        2003
                                                     ----------   ----------

Finished goods ..................................... $2,018,152    $1,866,397
Work-in-process ....................................  1,260,449       884,451
Raw materials ......................................  2,111,052     1,414,405
                                                     ----------    ----------
                                                     $5,389,653    $4,165,253
                                                     ==========    ==========


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>
                                            2004                  2003                LIFE
                                       -------------         ------------         ------------
<S>                                    <C>                   <C>                  <C>
Leasehold improvements                 $  2,189,955          $  1,540,965         7-10 years
Equipment                                 9,525,117             7,148,702         3 to 10 years
Assets in construction                      526,793               503,722         N/A
                                       -------------         ------------
                                         12,241,865             9,193,389
Less accumulated depreciation            (7,168,090)           (6,138,054)
                                       -------------         ------------
Property and equipment - net           $  5,073,775          $  3,055,335
                                       =============         ============
</TABLE>


IMPAIRMENT OF LONG-LIVED ASSETS In September 2001, the Financial Accounting
Standards Board ("FASB") issued Statement of Financial Accounting Standards
("SFAS") No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets," which addresses financial accounting and reporting for the impairment
or disposal of long-lived assets. Although SFAS No. 144 supersedes SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of," it retains many of the fundamental provisions of that
statement. Management of the Company periodically reviews the carrying value of
property 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. In fiscal 2002, the Company wrote
down $70,000 of a fixed asset (included in selling, general and administrative
expense). The value of this fixed asset was determined to be impaired due to the
unlikely continued use of this fixed asset. The Company wrote the asset down to
net realizable value. The adoption of SFAS No. 144 on August 1, 2002 did not
have an effect on the Company's consolidated balance sheet, results of
operations, or cash flows.


                                       29
<PAGE>

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 products that are already
maintained at customer locations are recognized when the Company receives a
valid purchase order from the customer. At this time ownership and risk of loss
is transferred to the customer. Revenues associated with products that are not
maintained at the customer locations are recognized when a valid purchase order
is received and the products are received at the customer's location. At this
time title and risk of loss is transferred to the customer. Provisions for
returns are provided for in the same period the related revenues are recorded.
Revenue recognition for drive unit extended warranties is amortized on a
straight-line basis over the life of the warranty period.

SHIPPING AND HANDLING The Company recognizes all amounts billed to customers in
a sales transaction related to shipping and handling to be classified 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 2004, 2003
and 2002 is computed by dividing net income by the weighted average number of
common shares outstanding. Warrants and options representing 41,600, 228,850,
and 373,468 shares of common stock at July 31, 2004, 2003 and 2002,
respectively, have been excluded from the computations because their effect is
antidilutive.

RECLASSIFICATIONS Certain reclassifications have been made to prior years'
financial statements to conform to the current year presentation. Such
reclassifications had no effect on net income or shareholders' equity as
previously reported.


                                       30
<PAGE>

GUARANTOR'S ACCOUNTING AND DISCLOSURE REQUIREMENTS FOR GUARANTEES In November
2002, the FASB issued FASB Interpretation No. ("FIN") 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others". FIN 45 clarifies the requirements for a
guarantor's accounting for and disclosure of certain guarantees issued and
outstanding. The initial recognition and measurement provisions of FIN 45 are
applicable to guarantees issued or modified after December 31, 2002. The
disclosure requirements of FIN 45 are effective for financial statements of
interim or annual periods ending after December 15, 2002. The adoption of FIN 45
did not have an impact on the Company's financial statement disclosures and is
not expected to have an impact on the Company's consolidated balance sheet,
statements of income, or cash flows.

CONSOLIDATION OF VARIABLE INTEREST ENTITIES In December 2003, the FASB issued
FIN 46R, "Consolidation of Variable Interest Entities." FIN 46R provides
guidance on the identification of variable interest entities, and the assessment
of a company's interests in a variable interest entity to determine whether
consolidation is appropriate. FIN 46R requires the consolidation of a variable
interest entity by the primary beneficiary if the entity does not effectively
disperse risks among the parties involved. FIN 46R applies immediately to
variable interest entities created after January 31, 2003 and is effective for
periods beginning after March 15, 2004 for existing variable interest entities.
The adoption of FIN 46R by the Company did not have a material effect on the
Company's consolidated balance sheet, statements of income, or cash flows.

ACCOUNTING FOR ASSET RETIREMENT OBLIGATIONS In fiscal 2003, the Company adopted
SFAS No. 143, "Accounting for Asset Retirement Obligations." SFAS No. 143
requires entities to record the fair value of a liability for an asset
retirement obligation in the period in which it is incurred. When the liability
is initially recorded, the entity capitalizes the cost by increasing the
carrying amount of the related long-lived asset. Over time, the liability is
accreted to its present value each period, and the capitalized cost is
depreciated over the useful life of the related asset. Upon settlement of the
liability, an entity either settles the obligation for its recorded amount or
incurs a gain or loss upon settlement. The adoption of SFAS No. 143 did not have
a material impact on the Company's consolidated balance sheet, statements of
income, or cash flows.

ACCOUNTING FOR STOCK-BASED COMPENSATION In December 2002, the FASB issued
Statement of Financial Accounting Standards No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure" ("SFAS 148"), which amends Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"). SFAS 148 provides alternative methods of transition
for a voluntary change to the fair value based method of accounting for
stock-based employee compensation. In addition, SFAS 148 amends the disclosure
requirements of SFAS 123 to require more prominent and more frequent disclosures
in financial statements of the effects of stock-based compensation. The
transition guidance and annual disclosure provisions of SFAS 148 are effective
for fiscal years ending after December 15, 2002. The interim disclosure
provisions are effective for financial reports containing condensed financial
statements for interim periods beginning after December 15, 2002, and such
disclosures have been provided in Note 2. The adoption of SFAS 148 did not have
a material impact on the Company's consolidated balance sheet, statements of
income, or cash flows.

ACCOUNTING FOR CERTAIN FINANCIAL INSTRUMENTS In May 2003, the FASB issued SFAS
No. 150, "Accounting for Certain Financial Instruments with Characteristics of
Both Liabilities and Equity". SFAS No. 150 establishes standards for how an
issuer classifies and measures certain financial instruments with
characteristics of both liabilities and equity. It requires that an issuer
classify a financial instrument that is within its scope as a liability (or an
asset in some circumstances). Many of those instruments were previously
classified as equity. This statement is effective for financial instruments
entered into or modified after May 31, 2003, and otherwise is effective at the
beginning of the first interim period beginning after June 15, 2003. The
adoption of this standard did not have an effect on the Company's consolidated
balance sheet, statements of income, or cash flows.


                                       31
<PAGE>

2. STOCK BASED COMPENSATION

Effective August 1, 1996, the Company adopted SFAS No. 123, "Accounting for
Stock-Based Compensation." As permitted by SFAS No. 123, the Company has elected
to continue following the guidance of APB No. 25 for measurement and recognition
of stock-based transactions with employees. No compensation cost has been
recognized for stock options issued under the 1999 and 1992 Plans because the
exercise price for all options granted was at least equal to the fair value of
the common stock at the date of grant. If compensation cost for the Company's
stock option and employee purchase plans had been determined based on the fair
value at the grant dates for grants during fiscal 2004, 2003, and 2002,
consistent with the method provided in SFAS No. 123, the Company's net income
and income per share would have been as follows:



<TABLE>
<CAPTION>

                                          2004                2003                2002
                                     --------------      --------------      --------------

Net income:
<S>                                  <C>                 <C>                 <C>
   As reported ................      $   11,728,721      $   16,567,760      $   17,781,723
   Pro forma ..................           8,530,721          13,820,760          13,602,723

Net income per share - basic:
   As reported ................      $         0.65      $         0.95      $         1.04
   Pro forma ..................                0.48                0.79                0.80

Net income per share - diluted:
   As reported ................      $         0.60      $         0.88      $         0.96
   Pro forma ..................                0.44                0.73                0.73
                                     ==============      =============       ==============
</TABLE>


The fair value of options granted under the various option plans during fiscal
2004, 2003, and 2002 was estimated on the date of grant using the Black-Sholes
option pricing model with the following weighted average assumptions and
results:


<TABLE>
<CAPTION>
                                                        2004                 2003                2002
                                                   -------------         -------------      -------------
<S>                                                <C>                   <C>                 <C>
Dividend yield ..................................           None                  None               None
Expected volatility .............................         54-64%                60-80%             79-86%
Risk-free interest rate .........................       3.9-4.7%              3.4-4.3%                5.4%
Expected life of option .........................        120 mo.               120 mo.            120 mo.
Fair value of options on grant date .............  $   6,645,000         $   4,395,000      $   4,179,000
                                                   =============         =============      =============
</TABLE>


3. 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 $202,805 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. Total compensation expense
for fiscal 2004 is $162,000, which is included in selling, general and
administrative expenses. As of July 31, 2004 the asset of $201,000 and liability
of $161,000 relating to the SERP are included in the balance sheet under the
caption Other Assets and Other Liabilities.



                                       32
<PAGE>





4. LONG-TERM DEBT

In fiscal 2002, the Company's note payable and accrued interest to a city
government in the amount of $83,866 was forgiven. The note payable and accrued
interest were forgiven due to maintaining minimum headcount employment
objectives with the city government.

5. INCOME TAXES

At July 31, 2004, the Company had net operating loss carry-forwards of
approximately $33,012,000 for federal tax purposes, which expire in 2010 through
2021, and $11,725,000 for Minnesota tax purposes, which expire in 2010 through
2016.

In addition, at July 31, 2004, the Company has approximately $2,913,000 in
federal tax credits, substantially all of which are research and development tax
credits, which expire from 2007 through 2023, and approximately $472,000
alternative minimum tax credit which does not expire. The Company established a
valuation allowance for $690,000 against these research and development tax
credits as a portion of them may not be realizable due to expiration in future
years.

The components of the income tax expense (benefit) as of July 31, 2004, 2003 and
2002 are as follows:


<TABLE>
<CAPTION>
                                                     2004               2003            2002
                                                  ------------      ------------    -------------
Current:
<S>                                               <C>               <C>              <C>
    Federal .................................     $    260,000      $    243,000     $         --
Deferred:
    Federal .................................        6,540,000        (4,494,000)     (10,758,000)
    State ...................................          233,790          (304,000)        (768,000)
                                                  ------------      ------------     ------------
                                                     6,773,790        (4,798,000)     (11,526,000)
                                                  ------------      ------------     ------------
Total income tax expense (benefit) ..........     $  7,033,790      $ (4,555,000)    $(11,526,000)
                                                  ============      ============     ============
</TABLE>

Deferred tax assets and liabilities as of July 31, 2004 and 2003 are described
in the table below.


<TABLE>
<CAPTION>
                                                                    2004                          2003
                                                                ------------                 ------------
Current assets:
<S>                                                             <C>                          <C>
     Allowance for doubtful accounts and returns                $    220,000                 $    255,000
     Inventory .................................                     297,000                      272,000
     Employee compensation and benefits ........                     167,000                      148,000
     Other .....................................                     206,000                      131,000
                                                                ------------                 ------------
                                                                     890,000                      806,000
     Valuation allowance .......................                        --                           --
                                                                ------------                 ------------
     Net .......................................                $    890,000                 $    806,000
                                                                ============                 ============
     Long-term assets (liabilities):
     Net operating losses ......................                $ 12,318,949                 $ 16,760,000
     Amortization of patents ...................                     714,000                      591,000
     Tax credits ...............................                   2,913,000                    2,619,000
     Depreciation ..............................                    (152,000)                    (132,000)
                                                                ------------                 ------------
                                                                  19,838,000                   15,793,949
     Valuation allowance .......................                    (690,000)                    (740,000)
                                                                ------------                 ------------
     Net .......................................                $ 15,103,949                 $ 19,098,000
                                                                ============                 ============
</TABLE>




                                       33
<PAGE>



<PAGE>



The effective income tax rate differed from the U.S. federal statutory rate for
each of the three years ended July 31, 2004, 2003 and 2002 as follows:

<TABLE>
<CAPTION>
                                                              2004                          2003               2002
                                                           -----------                  ------------       ------------
<S>                                                        <C>                          <C>                <C>
Tax expense (benefit) on income (loss) from
     continuing operations computed at
     statutory rate of 35% ................                $  6,567,000                 $  4,204,000       $  2,190,000
Change in valuation allowance .............                     (50,000)                  (9,778,000)       (13,713,000)
Change in valuation allowance related to
     disqualified stock options ...........                        --                        952,000
     Other ................................                     516,790                       67,000             (3,000)
                                                           ------------                 ------------       ------------
     Total income tax expense (benefit) ...                $  7,033,790                 $ (4,555,000)      $(11,526,000)
                                                           ============                 ============       ============
</TABLE>

Deferred tax benefit of $2,578,000 and $2,777,000 in 2004 and 2003,
respectively, relate to disqualified stock options which is recorded directly in
equity.

6. COMMON STOCK

PRIVATE PLACEMENT OFFERINGS In March 2000, in conjunction with a private
placement offering, the Company issued 1,594,049 shares of its common stock to
various investors and received $15,000,000 in gross proceeds. The Company
incurred issuance costs of $981,488. In addition, the Company issued 318,810
warrants to purchase shares of its common stock. The exercise price was $12.67
per share. These warrants expired in March 2004.

In May and June 1999, in conjunction with a private placement offering, the
Company issued 827,852 shares of its common stock to various investors and
received $7,000,000 in gross proceeds. The Company incurred issuance costs of
$300,000. In addition, the Company issued 124,178 warrants to purchase shares of
its common stock. The exercise price was $11.43 per share for 106,509 warrants
and $11.69 per share for 17,669 warrants. These warrants expired in May and June
2003.

COMMON STOCK REPURCHASED During the first quarter of fiscal 2003, the Company's
Board of Directors authorized its initial share repurchase program of
$4,000,000. During fiscal 2003, in open market transactions, the Company
repurchased 246,900 shares of its common stock, at an average price of
approximately $16.18 per share, thereby completing the $4,000,000 authorization.
In July 2003, the Company's Board of Directors authorized the repurchase of up
to an additional $4,000,000 of its common shares from time to time, in open
market transactions. During fiscal 2004, the Company repurchased 203,500 shares
of its common stock at an average price of approximately $19.40 per share,
thereby completing the July 2003 authorization. In March 2004, the Company's
Board of Directors authorized the repurchase of an additional $4,000,000 of its
common shares from time to time, in open market transactions. As of July 31,
2004, the Company had repurchased 39,900 shares of its common stock at an
average price of approximately $26.85 per share under the March 2004
authorization that expires in July 2005. Since the inception of its repurchase
programs, the Company has repurchased 490,300 shares of its common stock at an
average price of approximately $18.38 per share.

In August 2004, the Company's Board of Directors authorized the repurchase of an
additional $10,000,000 of its common shares from time to time, in open market
transactions. Subsequent to July 31, 2004 and through September 1, 2004, the
Company repurchased 175,000 shares of its common stock at an average price of
approximately $18.04 per share, thereby completing the March 2004 authorization.
The purpose of this program is to offset dilution from current equity incentive
programs.

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.


                                       34
<PAGE>

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% of the number of shares of the Company's common stock
outstanding on July 31 of the prior fiscal year.

At July 31, 2004, there were 2,652,263 shares reserved for outstanding options
under all plans and 559,995 shares were available for granting of options under
the 1999 Plan.

In fiscal 2004, 2003 and 2002, the Company granted 11,074, 11,648, and 7,915
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 $106,000,
$104,000, and $67,000 for the years ended July 31, 2004, 2003 and 2002,
respectively.

In fiscal 2002 and 2001, the Company granted 1,000 and 13,000 compensatory
options, respectively, to various physicians in lieu of cash payments for
services. The Company's policy is to treat these options under variable plan
accounting in accordance with SFAS No. 123 and related Emerging Issues Task
Force guidance. These options were granted under the 1999 Plan and vest ratably
over a six-month to a four-year period and expire not more than ten years from
date of grant. The expense associated with non-employee options was
approximately $16,000 and $50,000 for the years ended July 31, 2003 and 2002,
respectively.

A summary of changes in outstanding options for each of the three years ended
July 31, 2004 follows:


<TABLE>
<CAPTION>
                                                           2004                2003               2002
                                                        ----------          ----------         ----------
<S>                                                    <C>                  <C>                <C>
Shares under option at beginning of year                 2,761,253           2,941,974          3,246,061
Options granted                                            469,274             441,698            295,045
Options exercised                                         (519,534)           (538,199)          (379,884)
Options canceled                                           (58,730)            (84,220)          (219,248)
                                                        ----------          ----------         ----------
Shares under option at end of year                       2,652,263           2,761,253          2,941,974
                                                        ==========          ==========         ==========
Shares exercisable at end of year                        1,906,119           1,903,952          1,878,695
                                                        ==========          ==========         ==========
</TABLE>


                                       35
<PAGE>


<PAGE>



Stock option weighted-average exercise prices during fiscal 2004, 2003 and 2002
are summarized below:


<TABLE>
<CAPTION>
                                                  2004               2003             2002
                                                ---------         ----------       ---------
<S>                                             <C>               <C>              <C>
Outstanding at beginning of year                $    9.36         $    8.43        $    7.54
Granted                                             18.91             12.81            16.45
Exercised                                            8.65              7.37             7.38
Canceled                                            14.58             10.51             9.09
Outstanding at end of year                      $   11.08         $    9.36        $    8.43
                                                =========         ==========       =========
</TABLE>

The following table summarizes information concerning options outstanding and
exercisable options as of July 31, 2004:

<TABLE>
<CAPTION>
                                              Weighted-
                                              Average
         Range of                             Remaining            Weighted-                                Weighted-
          Exercise           Shares         Contractual Life        Average               Shares             Average
           Price           Outstanding         in Years          Exercise Price         Exercisable       Exercise Price
----------------------------------------------------------------------------------------------------------------------------
<S>                          <C>                  <C>               <C>                    <C>              <C>
          $ 1 - 6            684,183              6.13              $  4.65                675,684          $  4.64
            6 - 12           694,566              5.71                 7.72                617,771             7.70
           12 - 17           614,214              6.05                13.60                331,239            14.06
           17 - 21           617,700              7.60                18.37                281,425            18.00
           21 - 34            41,600              9.73                27.35                     --            --
----------------------------------------------------------------------------------------------------------------------------
</TABLE>

In fiscal 2002, the Company granted 2,124 shares of restricted stock to the
Board of Directors under the terms of the 1999 Plan, which vested in 2002. The
fair market value of the restricted shares was approximately $21,000 as of July
31, 2002. Approximately $13,000 was accrued to pay the estimated withholding
taxes on those shares as management believes that the Board of Directors will
elect to receive fewer shares in lieu of paying the withholding taxes. In case
of termination of a member of the Board of Directors, unvested shares are
forfeited. Unearned compensation of $36,000 was recorded at the date of grant
and was recognized over the vesting period.

In fiscal 2003, the Company granted 2,010 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 $34,000
as of July 31, 2003. In case of termination of a member of the Board of
Directors, unvested shares are forfeited. Unearned compensation of $36,000 was
recorded at the date of grant and was recognized over the vesting period.

In fiscal 2004, the Company granted 1,884 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 $54,000
as of July 31, 2004. In case of termination of a member of the Board of
Directors, unvested shares are forfeited. Unearned compensation of $36,000 was
recorded at the date of grant and is being recognized over the vesting period.

In fiscal 2004, 2003 and 2002, total compensation expense of approximately
$36,000, $40,000 and $40,000, respectively, were recognized on these restricted
stock grants.


                                       36
<PAGE>


STOCK WARRANTS Stock purchase warrants held by unrelated parties representing
the right to purchase 26,400 shares of the Company's common stock at $8.52 a
share were outstanding as of July 31, 2003. These warrants were cancelled in
fiscal 2004 following the expiration of the mandatory notice period.

In July 1998, the Company issued to various investors 110,640 common stock
purchase warrants in conjunction with a private placement of convertible
debentures and are exercisable into common stock at $15.58 per share. These
warrants expired on July 15, 2002.

In May and June 1999, the Company issued 106,509 and 17,669 warrants,
respectively, to various investors in conjunction with the Company's private
placement offering. These warrants are exercisable into common stock at $11.43
and $11.69, respectively. During fiscal 2003 and 2002, 101,278 and 19,150 of
these warrants were exercised, respectively. The remaining unexercised warrants
of 3,750 expired in May 2003.

In March 2000, the Company issued 318,810 warrants to various investors in
conjunction with the Company's private placement offering. These warrants were
exercisable into common stock at $12.67. During fiscal 2004, 2003, and 2002,
206,381, 83,046 and 13,984 of these warrants were exercised. The remaining
15,399 warrants expired in March 2004.

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


<TABLE>
<CAPTION>
                                                           2004           2003        2002
                                                         --------      ---------   ----------
<S>                                                       <C>          <C>         <C>
Warrants outstanding at beginning of year                 248,180        436,254     580,028
Warrants issued .........................                    --             --          --
Warrants exercised ......................                (206,381)      (184,324)    (33,134)
Warrants expired ........................                 (41,799)        (3,750)   (110,640)
                                                         --------       --------    --------
Warrants outstanding at end of year .....                    --          248,180     436,254
                                                         ========       ========    ========
</TABLE>


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 year. The purchase price is
the lower of 85% of the fair market value of the stock on the first or last day
of the calendar year. The Company issued 24,814 shares in fiscal 2004, 25,267
shares in fiscal 2003, and 63,242 shares in fiscal 2002 under this Plan.


7. 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>
                                                              2004                      2003                      2002
                                                           ---------                 ---------                 ---------
<S>                                                        <C>                       <C>                       <C>
Accrued warranty costs at beginning of year                $ 146,500                 $ 123,000                 $ 123,000
Payments made for warranty costs ..........                 (334,900)                 (226,200)                 (130,700)
Accrual for product costs .................                  481,900                   249,700                   130,700
                                                           ---------                 ---------                 ---------
Accrued warranty costs at end of year .....                $ 293,500                 $ 146,500                 $ 123,000
                                                           =========                 =========                 =========
</TABLE>




                                       37
<PAGE>




8. 401 K PLAN

The Company has an employees' 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, 2004, 2003 and 2002 were $408,860, $303,766, and $276,196, respectively.

9. RELATED PARTY TRANSACTIONS

A Director of the Company at times performs outside legal services for the
Company. During fiscal 2002, the amount of these services was approximately
$2,000.


10. COMMITMENTS AND CONTINGENCIES

The Company's medical products operation is conducted from a leased facility
under an operating lease which expires in fiscal 2006. The lease can be canceled
by either party with notice and payment of a termination fee.

The Company is also leasing administrative and shipping facilities under an
operating lease that expires in fiscal 2009.

The Company is also leasing a sales office under an operating lease that expires
in 2005. The future annual rentals on this operating lease are approximately
$16,000 per year through 2005.

Total rental expense charged to operations was approximately $269,000, $262,000,
and $261,000, for the years ended July 31, 2004, 2003, and 2002, respectively.

Future minimum payments under the non-cancelable operating leases at July 31,
2004 are:


                YEAR ENDING JULY            AMOUNT
                ----------------          ---------
                       2005               $375,000
                       2006                361,000
                       2007                365,000
                       2008                127,000
                       2009                108,000
                                       -----------
          Total minimum lease payments  $1,336,000
                                       ===========




                                       38
<PAGE>




11. 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, 2004, 2003 and 2002 are as follows:


<TABLE>
<CAPTION>
                                            2004              2003             2002
                                         -----------      -----------      -----------
<S>                                      <C>              <C>              <C>
United States ........................   $70,867,103      $56,212,396      $42,032,901
Outside the United States ............     1,553,065        1,215,313          437,792
                                         -----------      -----------      -----------
Total revenues .......................   $72,420,168      $57,427,709      $42,470,693
                                         ===========      ===========      ===========
</TABLE>


In fiscal 2004, 2003, and 2002 there were no individual customers with sales
exceeding 10% of total revenues.

12. SELECTED QUARTERLY FINANCIAL DATA (Unaudited)

<TABLE>
<CAPTION>
                                                                            Fiscal Year Ended July 31, 2004
                                                       -------------------------------------------------------------------------
                                                             First             Second             Third               Fourth
                                                            Quarter            Quarter            Quarter             Quarter
<S>                                                    <C>                <C>                <C>                 <C>
Products sales                                         $   15,602,288     $   17,448,677     $   19,329,399      $   20,039,804
Gross profit                                               11,783,057         13,481,532         14,548,022          15,287,463
Income-before income taxes                                  3,083,099          4,988,201          4,957,744           5,733,467
Income tax provision                                       (1,156,000)        (1,869,900)        (1,862,051)         (2,145,839)
Net income-after income taxes                               1,927,099          3,118,301          3,095,693           3,587,628

Income per common share-before income taxes
             Basic                                              $0.17              $0.28              $0.28               $0.32
             Diluted                                             0.16               0.26               0.25                0.29
Income tax provision per common share
             Basic                                             ($0.07)            ($0.11)            ($0.10)             ($0.12)
             Diluted                                            (0.06)             (0.10)             (0.09)              (0.11)
Net income per common share-after income taxes
             Basic                                              $0.11              $0.18              $0.17               $0.20
             Diluted                                             0.10               0.16               0.16                0.18

</TABLE>



                                       39
<PAGE>



<TABLE>
<CAPTION>
                                                                            Fiscal Year Ended July 31, 2003
                                                       -------------------------------------------------------------------------
                                                             First             Second             Third               Fourth
                                                            Quarter            Quarter            Quarter             Quarter
<S>                                                    <C>                <C>                <C>                 <C>

Products sales                                             $12,681,903      $14,321,660     $14,625,124        $15,799,022
Gross profit                                                 9,293,205       10,467,899      11,044,344         12,112,197
Income-before income taxes                                   2,439,654        3,418,166       2,921,530          3,233,410
Income tax (provision) benefit                                (915,000)      (1,282,000)     (1,097,000)         7,849,000
Net income-after income taxes                                1,524,654        2,136,166       1,824,530         11,082,410(1)

Income per common share-before income taxes
             Basic                                               $0.14            $0.20           $0.17              $0.18
             Diluted                                              0.13             0.18            0.15               0.17
Income tax (provision) benefit per common share
             Basic                                              ($0.05)          ($0.08)         ($0.07)             $0.44
             Diluted                                             (0.05)           (0.07)          (0.05)              0.41
Net income per common share-after income taxes
             Basic                                               $0.09            $0.12           $0.10              $0.62
             Diluted                                              0.08             0.11            0.10               0.58
</TABLE>


(1)  Fourth quarter 2003 Net Income reflects a reduction of valuation allowance
     of $9,778,000.



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

During fiscal 2004 and 2003, there were no changes in or disagreements with the
Company's independent certified public accountants 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 are adequately designed to ensure 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.

CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

During the fiscal quarter ended July 31, 2004, there has been no change in our
internal control over financial reporting (as defined in Rule 13a-15(f) under
the Exchange Act) that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.


                                       40
<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."

CODE OF ETHICS

The Company has adopted a Code of Ethics that applies to its principal executive
officer, principal financial officer, principal accounting officer or
controller, as well as all other employees and the directors of the Company. The
Code of Ethics, which the Company calls its Code of Business Conduct and Ethics,
is posted on the Company' s website: WWW.POSSIS.COM on the Company page. The
Company intends to satisfy the disclosure requirements under Item 10 of Form 8-K
regarding an amendment to, or a waiver from, a provision of its Code of Business
Conduct and by posting such information on the aforementioned website.

ITEM 11.  EXECUTIVE COMPENSATION:

Information regarding compensation of directors and officers for the fiscal year
ended July 31, 2004 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
          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.


                                       41
<PAGE>


                                     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:

     Consolidated Balance Sheets, July 31, 2004 and 2003
     Consolidated Statements of Income and Comprehensive Income for each of the
         three years in the period ended July 31, 2004
     Consolidated Statements of Cash Flows for each of the three years in the
         period ended July 31, 2004
     Consolidated Statements of Changes in Shareholders' Equity for each of the
         three years in the period ended July 31, 2004
     Notes to Consolidated Financial Statements

      2. Financial Statement Schedules

The following financial statement schedules are submitted herewith:


     SCHEDULE II - Valuation Accounts for each of the three years in the period
ended July 31, 2004

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.




                                       42
<PAGE>



<TABLE>
<CAPTION>

 EXHIBIT         FORM              DATE FILED                                 DESCRIPTION
--------------------------------------------------------------------------------------------------------------------
<S>              <C>                <C>                                <C>
      3.1         10-K              Fiscal year ended                  Articles of incorporation, as amended
                                                                       July 31, 1994 and restated to date

      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>



                                       43
<PAGE>




<TABLE>
<CAPTION>

EXHIBIT         FORM              DATE FILED                                 DESCRIPTION
------------------------------------------------------------------------------------------------------------------------------
<S>             <C>                 <C>                                <C>
    10.13         10-K              Fiscal year ended                  Angiometrx Metricath Distribution Agreement
                                    July 31, 2004                     dated April 16, 2004

     21           10-K              Fiscal year ended                  Subsidiaries of registrant
                                    July 31, 2004

     23           10-K              Fiscal year ended                  Consent of independent certified
                                    July 31, 2004                      public accountants

     31.1         10-K              Fiscal year ended                  Certification of Chief Executive Officer
                                    July 31, 2004                      pursuant to Section 302 of the
                                                                       Sarbanes-Oxley Act

     31.2         10-K              Fiscal year ended                  Certification of Chief Financial Officer
                                    July 31, 2004                      pursuant to Section 302 of the
                                                                       Sarbanes-Oxley Act

     32.1          10-K             Fiscal year ended                  Certification of Chief Executive Officer
                                    July 31, 2004                      pursuant to Section 906 of the
                                                                       Sarbanes-Oxley Act

     32.2         10-K              Fiscal year ended                  Certification of Chief Financial Officer
                                    July 31, 2004                      pursuant to Section 906 of the
                                                                       Sarbanes-Oxley Act

     99.1         10-K              Fiscal year ended                  Risk Factors
                                    July 31, 2004
</TABLE>


* Indicates management contract or compensatory plan or arrangement.




                                       44
<PAGE>





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.

by:      /S/      Eapen Chacko
    -----------------------------------------
                  Eapen Chacko
                  Chief Financial Officer and
                  Vice President of Finance


Dated:  October 12, 2004




                                       45
<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                     October 12, 2004
-------------------------           Chief Executive Officer
Robert G. Dutcher                   (Principal Executive Officer)


/s/ Eapen Chacko                    Chief Financial Officer and                 October 12, 2004
-------------------------           Vice President of Finance
Eapen Chacko                        (Principal Financial and
                                    Principal Accounting Officer)


/s/ Mary K. Brainerd                Director                                    October 12, 2004
-------------------------
Mary K. Brainerd


/s/ Seymour J. Mansfield            Lead Director                               October 12, 2004
-------------------------
Seymour J. Mansfield


/s/ William C. Mattison, Jr.        Director                                    October 12, 2004
---------------------------
William C. Mattison, Jr.


/s/ Whitney A. McFarlin             Director                                    October 12, 2004
-------------------------
Whitney A. McFarlin


/s/ Donald C. Wegmiller             Director                                    October 12, 2004
-------------------------
Donald C. Wegmiller


/s/ Rodney A. Young                 Director                                    October 12, 2004
-------------------------
Rodney A. Young

</TABLE>


                                       46
<PAGE>









                                                                     SCHEDULE II

                              POSSIS MEDICAL, INC.



VALUATION ACCOUNTS
YEARS ENDED JULY 31, 2004, 2003 AND 2002

<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 31, 2004                    $     507,000      $      603,000         $     574,000        $     536,000
                                            =============      ==============         =============        =============
Year ended July 31, 2003                          582,000             845,000               920,000              507,000
                                            =============      ==============         =============        =============
Year ended July 31, 2002                          659,000           1,305,000             1,382,000              582,000
                                            =============      ==============         =============        =============


Valuation allowance on deferred tax asset:



Year ended July 31, 2004                    $     740,000      $         --           $      50,000        $     690,000
                                            =============      ==============         =============        =============
Year ended July 31, 2003                       10,518,000          (9,778,000)                 --                740,000
                                            =============      ==============         =============        =============
Year ended July 31, 2002                       24,231,000         (13,713,000)                 --             10,518,000
                                            =============      ==============         =============        =============

</TABLE>

                                       47
<PAGE>






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

                                  EXHIBIT INDEX
Exhibit
Number                              Description

         10.13    Angiometrx Metricath Distribution Agreement

         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

         99.1     Risk Factors



                                       48