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, 2005

            [ ] 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, 2005: $193,297,000.

The number of shares outstanding of the registrant's  common stock as of October
3, 2005: 17,257,762.

Certain responses in Part III are incorporated herein by reference from
information contained in the Company's definitive Proxy Statement for its 2005
annual meeting to be filed on or before November 3, 2005 ("The Proxy
Statement").

                                        1


<PAGE>

                           Forward-Looking Statements

         We make statements in this Form 10-K that are "forward-looking " and
that may not be achieved. You can identify most of these statements by the use
of words such as "anticipate," "believe," "could," "estimate," "expect,"
"forecast," "intend," "may," "plan," "possible," "project," "should," "will,"
and similar words or expressions. We make forward-looking statements related to
our ability to increase sales of disposable product and capital equipment in the
face of new product introductions from competitors; our ability to obtain
additional regulatory approvals on a timely basis; our ability to obtain
regulatory clearance in new foreign markets; the responses of customer to our
marketing strategies; our ability to retain and motivate skilled employees
especially sales positions; our ability to expand our sales force; the valuation
of the Company's deferred tax asset allowance; our future revenue, earnings,
earnings per share and expense levels; our future equity financing needs; and
our ability to develop new products and enhance existing ones. These
forward-looking statements are based on our current expectations and assumptions
and entail various risks and uncertainties that could cause actual results to
differ materially from those expressed in the forward-looking statements.
Factors that may effect the achievement of these statements include:

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

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

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

                                       2
<PAGE>

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

o        We may not be able to enhance our products rapidly enough to keep pace
         with advances in the medical products industry. The medical products
         market is characterized by rapidly evolving technology. Our future
         success depends on our ability to keep pace with advancing technology
         from competitors and other innovators. Potential competitors have
         developed or are in the process of developing technologies that are, or
         in the future may be, the basis for competitive products, some of which
         may accomplish desired therapeutic effects through entirely different
         methods than the products we are developing. We believe our AngioJet
         System will face intense competition from a variety of treatments for
         the removal of blood clots, including clot-dissolving (thrombolytic)
         drug therapies, surgical intervention, balloon embolectomy, embolic
         protection devices, mechanical and laser thrombectomy devices,
         ultrasound ablators, and other thrombectomy devices based on waterjet
         systems that are currently being developed by other companies.

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


                                       3
<PAGE>

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

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

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


                                       4
<PAGE>

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

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

o        The protections we have adopted may cause takeover offers to be decided
         by the Board rather than our shareholders. Of the 100 million shares of
         capital stock authorized by our amended and restated articles of
         incorporation, 79 million shares are undesignated. Our Board of
         Directors may issue the undesignated shares on terms and with the
         rights, preferences and designations determined by the Board without
         shareholder action. In addition, we have adopted a shareholder rights
         plan that provides for the exercise of preferred share purchase rights
         when a person becomes the beneficial owner of 15% or more of our
         outstanding common stock (subject to certain exceptions). We also are
         subject to provisions of the Minnesota Business Corporation Act that
         limit the voting rights of shares acquired in specified types of
         acquisitions and that restrict specified types of business
         combinations. The existence or issuance of "blank check" stock, the
         existence of our shareholder rights plan and the effect of
         anti-takeover provisions under Minnesota law, individually or in the
         aggregate, may discourage potential takeover attempts and delay, deter
         or prevent a change in control. They also may make the removal of
         management more difficult, which could deprive our shareholders of
         opportunities to sell their shares at prices higher than prevailing
         market prices.

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



                                       5
<PAGE>

                                     PART I
Item 1.  Business:

General

Possis Medical, Inc. 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 49 years. In 1990, we decided
to focus on medical products and changed our name to Possis Medical, Inc. in
1993. Currently virtually all of our revenue is derived from sale of the
Angiojet(R) Rheolytic(TM) Thrombectomy System, a proprietary catheter based
system designed to remove blood clots with minimal vascular trauma.

Development of Business

We continued during fiscal 2005 to introduce products designed to expand the use
and efficacy of our Angiojet System. We received FDA clearance in May 2005 to
begin marketing our DVX(TM) peripheral catheter to break apart and remove
thrombus from leg arteries greater than or equal to 3 mm in diameter and began
marketing that catheter shortly afterward. We also introduced the XMI(R)-RX+
rapid exchange catheter during the fourth quarter, a small-diameter catheter
designed for smaller vessels that delivers several improvements in handling. We
have made substantial progress on a new family of rapid exchange catheters
called Spiroflex(TM) that we believe will prove highly flexible and
kink-resistant, as well as improved versions of our over-the-wire XMI and XVG(R)
catheters, which we expect to introduce in fiscal 2006. Finally we filed a PMA
supplement with the FDA in July for our Angiojet Ultra System. The Ultra
Console, when combined with the new disposable thrombectomy sets that integrated
the current separate catheters and pumps, is designed to provide plug-and-go
convenience for hospital staff.

We also expanded our customer buying arrangements in fiscal 2005, signing
several new group purchase contracts with healthcare groups. These group-buying
contracts are increasingly prevalent in the healthcare industry and we have made
substantial progress in forging relationship with the major medical product
purchasing groups.

The progress we made in new product development and customer relationships was,
however, overshadowed by the negative publicity and market reaction to our
announcement in August 2004 of the results of our AiMI clinical trial. These
results, which indicated no improvement in infarct (heart attack) size through
use of the AngioJet System, caused a marked decrease in our AngioJet product
sales, particularly in the coronary market. This negative publicity contributed
to an overall 10 percent decrease in sales during the year.

Products

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

The development of blood clots in various sites within the vascular system is
common and is one of the leading causes of morbidity and death. Blood clots can
be caused by a number of factors, including cardiovascular disease, trauma,
impediment of normal flow during invasive procedures, or physical pressure that
impedes venous return such as occurs during prolonged bed rest. If a blood clot
becomes large enough, it can block a blood vessel, preventing oxygenated blood
from reaching the organ or tissue it supplies, a condition called ischemia. In
addition, if a blood clot breaks 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.

                                       6
<PAGE>

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

The AngioJet System consists of 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. 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, we market the XMI(R) (Over the Wire version - OTW), XMI-RX (Rapid
Exchange version), XMI RX +, Spiroflex, XVG(R), Xpeedior(R), DVX(TM) and AVX(R)
lines of catheters. Each of these catheters feature our patented Cross-Stream(R)
Technology. This technology intensifies the action at the tip of the catheter,
which doubles the clot removal rate and triples the treatable vessel size
compared to other available mechanical thrombectomy devices on the market today.
In addition, Cross-Stream Technology has been able to deal more effectively than
previous catheters with "mural thrombus," the older, more organized material
that adheres to vessel walls and can complicate patient outcomes.

We also have the exclusive United States rights to distribute the Metricath(TM)
System, a catheter-based technology that allows cardiologists to measure
arterial size during procedures for treatment of coronary artery disease
manufactured by Angiometrix, Inc. These 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 do not offer the ease of use of the
Metricath System. Although the Metricath System received FDA 510(k) clearance
for sale in the United States in July 2003, AngioMetrix has been working to
address several product design issues, and an expanded market release is planned
in the first quarter of fiscal 2006.

                                       7
<PAGE>

Markets and Applications.

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

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

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


<TABLE>
<CAPTION>
                                                        ESTIMATED ANNUAL             REALIZABLE U.S. MARKET OPPORTUNITY
                       CLINICAL                         U.S. INCIDENCE      ------------------------------------------------------
VASCULAR TERRITORY     INDICATION                       (PATIENTS)              (PROCEDURES)           (IN MILLIONS OF DOLLARS)*
---------------------- -------------------------------- ------------------- ------------------------ -----------------------------
<S>                    <C>                              <C>                 <C>                      <C>
Coronary (1)           Coronary Thrombosis (Native          2,589,000                    84,000                $135-145
                       Arteries and Bypass Grafts)
----------------------------------------------------------------------------------------------------------------------------------
Legs (2)               Peripheral Arterial Thrombosis**     2,060,000                    72,000                $140-160
----------------------------------------------------------------------------------------------------------------------------------
A-V Access (3)         Hemodialysis Graft Thrombosis          320,000                   285,000                $175-195
----------------------------------------------------------------------------------------------------------------------------------
Venous (4)             Deep Vein Thrombosis (DVT)**           618,000                    75,000                     ***
----------------------------------------------------------------------------------------------------------------------------------
Lungs (4)              Pulmonary Embolism (PE)                206,000                    38,000                     ***
----------------------------------------------------------------------------------------------------------------------------------
Cerebral (4)           Ischemic Stroke                        613,000               Exploratory                     ***
----------------------------------------------------------------------------------------------------------------------------------
TOTAL                                                       6,406,000                   554,000                $450-500
----------------------------------------------------------------------------------------------------------------------------------

</TABLE>

(1) Marketed under March 1999 FDA approval.
(2) Marketed under April 2000 FDA approval.
(3) Marketed under December 1996 FDA approval.
(4) In Research and Development Phase; realizable market estimates are as
    follows: DVT $140-$200 million; PE $40-$100 million; Stroke is
    exploratory and market size is to be determined.


*        Realizable Market Opportunity dollar estimates are for products and
         clinical indications projected to be commercially available in fiscal
         year 2006.
**       Estimates include opportunity for thrombectomy and adjunctive
         temporary occulsion/protection devices.
***      To be determined.


We estimated the total number of cases for a given indication in the foregoing
table based on statistics from industry sources and then estimated the number of
procedures that might be amenable to treatment with the AngioJet System, in
conjunction with other therapies, both devices and drugs. In making these
estimates for the number of cases amenable to treatment with the AngioJet
System, we have relied on our own estimates, as well as estimates based on data
provided by physician consultants, presentations at medical industry
conferences, peer-reviewed journal articles, security analyst publications, and
publications by industry trade and consulting groups. We believe that the
totality of these sources provides estimates that are directionally and
relatively accurate, although the Company cannot guarantee their accuracy.

                                       8
<PAGE>

The AngioJet System currently has FDA clearance for marketing in three clinical
applications: (1) for removal of blood clots in access grafts used by patients
in kidney dialysis (received in December 1996), (2) for removal of clots in
native coronary arteries and coronary bypass grafts (received in March 1999) and
(3) for removal of blood clots in leg arteries (received in April 2000)

CLINICAL TESTS

During 1996 through 1998, we 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 an Panel reviewed by outside experts. Treatment in
the trial with AngioJet cost an average of $5,000 less per patient than did
treatment with Urokinase. These results have been presented by physician
investigators at major medical meetings and have been published in the October
2001 issue of the AMERICAN HEART JOURNAL, 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, we 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. We intend
to continue our 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.

From 2001 through 2004, we 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,
who were not required to have visible thrombus (clotting) were randomly assigned
to AngioJet treatment followed by balloon and stenting, or to balloon and
stenting alone. Final infarct 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.

We are currently sponsoring the JETSTENT study of AngioJet treatment in heart
attack patients with visible thrombus. This European based multi-centered
randomized trial is led by principal investigator Dr. David Antoniucci of the
Careggi Institute in Florence, Italy, with Dr. Antonio Colombo of San Raffaele
Hospital, Milan, serving as co-principal investigator. Enrollment will begin
later this year, and is targeted for 500 patients total. Our sponsorship of this
trial is, in part, designed to reconfirm the efficacy of the AngioJet System in
coronary applications where there is visible thrombus.


                                       9
<PAGE>


RESEARCH AND DEVELOPMENT

Our product development efforts are focused on product enhancements for existing
approved indications, new products for existing indications, new products for
new clinical indications and general upgrades to the AngioJet System. We are
currently expending development resources in completing the AngioJet Ultra
System, consisting of a new drive console, an associated project to combine the
pump and catheter and projects relating to the improvement of the rapid exchange
catheter and distal occlusion guidewires. Research and development expenses are
generally incurred for product design, development and qualification,
development and validation of manufacturing processes, conduct of
investigational clinical trials, and seeking and obtaining governmental
approvals. In fiscal 2006, our research and development expenses are expected to
decrease from fiscal 2005 levels. We will continue to expand the current
realizable market for the AngioJet System and expand into new areas, such as
distal embolic protection.


As of August 31, 2005, we employed approximately 25 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. We perform substantially all of our research
and development activities at its headquarters in Minnesota. We spent
$10,502,000, $9,033,000, and $7,503,000 in fiscal 2005, 2004 and 2003,
respectively, on medical product research and development.

MANUFACTURING

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

Our 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 and have consistently passed
all inspections by the FDA and/or our Notified Body each year.

MARKETING AND SALES

We market our AngioJet System primarily to interventional cardiologists,
interventional radiologists and vascular surgeons and secondarily to physician
specialty groups, such as nephrologists and osteopaths. Revenue from AngioJet
System sales in the United States was approximately 97%, 98% and 98% of fiscal
2005, 2004 and 2003 revenue, respectively.

We are currently marketing the AngioJet System for coronary applications,
peripheral vessel and graft applications and hemodialysis graft thrombosis. We
anticipate marketing the AngioJet System for deep vein thrombosis (DVT),
pulmonary embolism (PE) and potentially for stroke treatment if and when FDA
marketing approvals are obtained.



                                       10
<PAGE>

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

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

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

PATENTS, PATENT APPLICATIONS, LICENSES AND PROPRIETARY RIGHTS

Our success depends, and will continue to depend, in part on our ability to
maintain patent protection for products and processes, to preserve trade secrets
and to operate without infringing the proprietary rights of third parties. Our
policy is to attempt to protect our technology by, among other things, filing
patent applications for technology that we consider important to the development
of its business. The patents we hold and apply for 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. We no longer consider the graft patents as material
to its business going forward. We hold 25 United States patents and six foreign
patents relating to the AngioJet System filed since 1990. In addition, we have
17 United States and 16 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.

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

COMPETITION

We believe that the AngioJet System will face increasing competition from a
variety of treatments for the 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. The medical products market
is characterized by rapidly evolving technology and increased competition. Our
future success will depend on our ability to keep pace with advancing technology
and competitive innovations. Many of our potential competitors have
significantly greater research and development capabilities, more experience in
obtaining regulatory approvals, established marketing and greater financial and
managerial resources. Many potential competitors have developed or are in the
process of developing technologies that are, or in the future may be, the basis
for competitive products, some of which may employ an entirely different
approach or means of accomplishing the desired therapeutic effect than products
we develop.

                                       11
<PAGE>

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

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

For native coronary arteries, coronary bypass grafts, and peripheral arteries,
there are several catheter-based mechanical devices marketed in the U.S.,
including low-pressure manual aspiration/suction catheters, laser catheters, and
passive debris capture devices such as embolic protection guidewires. The manual
aspiration/suction catheters seek to show a price advantage relative to the
AngioJet System because they do not require a drive unit in order to evacuate
clot. 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 AV-access area, there are numerous mechanical devices, under many
different trade names; no individual device has a dominant share of the market.
This latter market is extremely price sensitive, so devices do not necessarily
gain share because of improved performance and effectiveness alone.

GOVERNMENT REGULATION

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

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

                                       12
<PAGE>

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

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

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

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

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

                                       13
<PAGE>

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

EMPLOYEES

As of August 31, 2005, we had 262 full-time employees, four part-time employees
and 11 contract employees. Of these full-time employees, 25 are in research and
development, 97 are in manufacturing and production, 16 are in quality
assurance, six are in facilities/maintenance, 92 are in sales and marketing and
26 are in management or administrative positions. None of our employees are
covered by a collective bargaining agreement, and management considers its
relations with its employees to be good.

                                        14
<PAGE>



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:

We lease approximately 51,000 square feet of office and manufacturing space
(including approximately 6,500 square feet of controlled environment
manufacturing space) at 9055 Evergreen Boulevard NW, Minneapolis, Minnesota
55433-8003. See Note 8 of Notes to Consolidated Financial Statements in Part II,
Item 8, in this Form 10-K.

We lease approximately 25,000 square feet of additional office and warehouse
space at 9130 and 9144 Springbrook Drive, Minneapolis, Minnesota 55433-8003. See
Note 8 of Notes to Consolidated Financial Statements in Part II, Item 8, in this
Form 10-K.

We lease approximately 800 square feet of office space at 1513 Johnson Ferry
Road, Marietta, Georgia 30062. See Note 8 of Notes to Consolidated Financial
Statements in Part II, Item 8, in this Form 10-K.

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

ITEM 3.  LEGAL PROCEEDINGS:

We were served with a shareholder lawsuit that was filed with the Minnesota
Federal District Court on June 3, 2005, alleging that Possis Medical, Inc. and
named individual officers violated federal securities laws during a period
beginning in 2002. The Complaint seeks class action status and unspecified
damages. We believe that the allegations of the lawsuit are without merit and
are contesting the lawsuit vigorously. We do not believe that the amount of any
potential liability associated with these matters can be estimated at this time,
but an unfavorable resolution of these matters could have a material adverse
effect on our results of operations, financial condition or cash flows.

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

None




                                       15
<PAGE>

EXECUTIVE OFFICERS OF THE REGISTRANT:
<TABLE>
<CAPTION>

              NAME        AGE                    POSITION
--------------------------------------------------------------------------------------------------------
<S>                        <C>      <C>
Robert G. Dutcher          60       Chairman, President and Chief Executive Officer

Jules L. Fisher            51       Vice President, Finance and Chief Financial Officer

Irving R. Colacci          52       Vice President, Legal Affairs and Human Resources
                                    General Counsel and Secretary

James D. Gustafson         49       Senior Executive Vice President, Research, Development,
                                    Engineering, Clinical Evaluation, and Chief Quality Officer

Shawn F. McCarrey          47       Executive Vice President, Worldwide Sales and Marketing

Robert J. Scott            60       Vice President, Manufacturing and Information Technology
</TABLE>


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

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

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

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

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

ROBERT   J. SCOTT joined our medical subsidiary in 1985 and has served as Vice
         President of Manufacturing since 1993 and Information Technology since
         July 30, 2001.




                                       16
<PAGE>




                                     PART II

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

We had 1,237 common shareholders of record at September 2, 2005. Our common
stock is traded on the Nasdaq Stock Market under the symbol POSS. High and low
closing sale prices for each quarter of fiscal years ended July 31, 2005 and
2004 are presented below:



                            2005                               2004
                   ----------------------            ----------------------
                    HIGH             LOW               HIGH           LOW
                   -------         ------            -------         ------
      QUARTER:
          First    $30.76           $9.78             $19.37         $15.56
          Second    13.98           10.50              24.94          15.01
          Third     12.20            8.02              29.79          23.50
          Fourth    11.70            8.28              34.15          24.18



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

SHARE REPURCHASE PROGRAM

On November 12, 2002, our Board of Directors announced a share repurchase
program authorizing us 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 us to repurchase an additional $4,000,000 of our common
shares from time to time, in open market transactions. The March 2004 repurchase
authorization was completed in August 2004. 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 was completed in January 2005. On February 16,
2005 the Board of Directors authorized the repurchase of an additional
$15,000,000 of its common stock from time to time in open market transactions.
The February 2005 authorization will expire in July 2006. We repurchased 20,700
shares during the quarter ended July 31, 2005. We believe that the share
repurchase program is an effective tool to reduce the dilution associated with
the exercise of employee incentive stock options.


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                          2005            2004           2003          2002          2001
                                                       ------------------------------------------------------------------------
INCOME STATEMENT DATA:
<S>                                                        <C>            <C>            <C>           <C>           <C>
Product sales                                              $ 65,053       $ 72,420       $ 57,428      $ 42,471      $ 30,001
Net income (loss):
Before income taxes                                          10,119         18,763         12,013         6,256        (3,304)
Income tax (provision) benefit                               (3,964)        (7,034)         4,555        11,526          --
After income taxes                                            6,155         11,729         16,568        17,782        (3,304)
Net income (loss) per common share - basic:
Before income taxes                                            0.57           1.05           0.69          0.37         (0.20)
Income tax (provision) benefit                                (0.22)         (0.39)          0.26          0.67          --
After income taxes                                             0.35           0.65           0.95          1.04         (0.20)
Net income (loss) per common share - diluted:
    Before income taxes                                        0.55           0.96           0.64          0.34         (0.20)
    Income tax (provision) benefit                            (0.21)         (0.36)          0.24          0.62          --
    After income taxes                                         0.34           0.60           0.88          0.96         (0.20)
Weighted average shares outstanding:
     Basic                                                   17,616         17,936         17,502        17,079        16,739
     Diluted                                                 18,311         19,566         18,889        18,602        16,739
BALANCE SHEET DATA:
Working capital                                            $ 53,544       $ 57,399       $ 38,881      $ 25,038      $ 14,405
Total assets                                                 78,151         86,021         67,765        44,689        22,009
Long-term debt, excluding current maturities                   --             --             --            --            --
Shareholders' equity                                         70,588         77,617         61,034        39,754        18,071
</TABLE>


                                       17
<PAGE>

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

GENERAL

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

The proprietary AngioJet System consists of a drive unit (capital equipment), a
disposable pump set that delivers pressurized saline to a catheter, and a
variety of disposable catheters that are specifically designed for particular
clinical indications. The AngioJet coronary catheter is a Class III medical
device and is marketed in the U.S. under an approved PMA. The AngioJet AV-access
and peripheral arterial catheters are Class II devices and are marketed in the
U.S. under cleared 510(k) submissions.

We expect U.S. AngioJet System sales to grow primarily through obtaining
additional FDA approved product uses, introduction of new catheter models for
existing indications, introduction of AngioJet System-related products, more
face-time selling to existing accounts, peer-to-peer selling, and the
publication of clinical performance and cost-effectiveness data.

CRITICAL ACCOUNTING POLICIES

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

                                       18
<PAGE>

Revenue Recognition

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

Allowance for Returns

Trade 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 of returns. The estimate is
based upon our historical product return experience, customer complaint rates,
information received from our customers and other assumptions that we believe
are reasonable under the circumstances. We review, on a quarterly basis, the
actual returns for the previous quarter and evaluate the adequacy of the
allowance for future returns. Although we believe the amount of the allowance
for returns is appropriate, actual returns incurred could differ from our
original estimate, requiring adjustments to the allowance.

Allowance for Doubtful Accounts

Substantially all of our trade 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. We evaluate the adequacy of the allowance for
doubtful accounts on a quarterly basis. Although we believe the amount of the
allowance for doubtful accounts is appropriate, nonpayment of accounts could
differ from our original estimate, requiring adjustments to the allowance.

Inventories

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

Warranty Reserve

We provide a one-year limited warranty on our AngioJet System drive unit and a
limited warranty on AngioJet System disposable products. We establish a warranty
reserve at the time products are sold that is based upon historical frequency of
claims relating to our products and the cost to replace disposable products and
to repair drive units under warranty. We evaluate the adequacy of the warranty
reserve on a quarterly basis. Although we believe the amount of the warranty
reserve is appropriate, given our historical experience, if actual claims
incurred differ from the original estimate, we would be required to adjust the
reserve.

                                       19
<PAGE>

Deferred Tax Asset Valuation Allowance

We became profitable starting in the third quarter of fiscal 2001 and have
remained profitable since that time. We increased our deferred tax asset by an
additional $466,000 in fiscal 2005, an additional $2,578,000 in fiscal 2004 and
an additional $2,777,000 in fiscal 2003. These increases were related to tax
benefits from disqualified stock options that are recorded directly in the
Consolidated Statement of Changes in Shareholders' Equity. Due to the previous
three full years' operating results projected forward through the carry-forward
period, we reduced our valuation allowance on the deferred tax asset by
$9,778,000 during the fourth quarter of fiscal 2003. The remaining valuation
allowance of $690,000 of the deferred tax asset relate to the research and
development tax credits and may not be realizable.

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, 2005, 2004 and 2003

Summary

Total product sales for fiscal 2005 decreased $7,367,000 or 10% to $65,053,000,
compared to $72,420,000 in fiscal 2004. Total product sales for 2004 increased
$14,992,000, or 26%, to $72,420,000, compared to $57,428,000 in fiscal 2003.

We recorded net income of $6,155,000, or $0.34 per diluted share, in fiscal
2005, compared to net income of $11,729,000, or $0.60 per diluted share, in
fiscal 2004 and net income of $16,568,000, or $0.88 per diluted share, in fiscal
2003. In fiscal 2003, we 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 our income
tax provision of $4,505,000 and resulted in a net income tax benefit of
$4,555,000. The reduction of the deferred tax asset valuation allowance of
$9,060,000 increased net income per share by $0.48 per diluted share.



                                       20

<PAGE>
Operating Expenses

The following table compares dollars (in thousands) and percentage changes in
the Statements of Income between 2005 and 2004 and between 2004 and 2003.


<TABLE>
<CAPTION>

                                                           Increase (Decrease)                            Increase (Decrease)
                                                         -------------------------                      ------------------------
                                    2005        2004       Dollars      Percent   2004         2003       Dollars     Percent
                                   ---------------------------------------------------------------------------------------------
<S>                                 <C>         <C>          <C>            <C>   <C>          <C>          <C>           <C>
  Product Sales                     $ 65,053    $ 72,420     $ (7,367)     -10.2% $ 72,420     $ 57,428     $ 14,992      26.1%

  Operating Expenses
     Cost of medical products         16,967      17,320         (353)      -2.0%   17,320       14,510        2,810      19.4%
     Selling, general and
            administrative            28,625      27,984          641        2.3%   27,984       23,808        4,176      17.5%
     Research and development         10,502       9,033        1,469       16.3%    9,033        7,503        1,530      20.4%
                                   ---------------------------------------------------------------------------------------------
     Total                            56,094      54,337        1,757        3.2%   54,337       45,821        8,516      18.6%

  Operating Income                     8,959      18,083       (9,124)     -50.5%   18,083       11,607        6,476      55.8%

     Other Income                      1,160         680          480       70.6%      680          406          274      67.5%

  Income before income taxes          10,119      18,763       (8,644)     -46.1%   18,763       12,013        6,750      56.2%
  Income taxes (provision) benefit    (3,964)     (7,034)       3,070      -43.6%   (7,034)       4,555      (11,589)   -254.4%
                                   ---------------------------------------------------------------------------------------------
  Net income                        $  6,155    $ 11,729     $ (5,574)     -47.5% $ 11,729     $ 16,568     $ (4,839)    -29.2%
                                   =============================================================================================

The following table shows the Statements of Income as a percentage of product
sales for 2005, 2004 and 2003.

                                             2005        2004         2003
                                         --------------------------------------
  Product Sales                                100.0%      100.0%       100.0%

  Operating Expenses
     Cost of medical products                   26.1%       23.9%        25.3%
     Selling, general and
           administrative                       44.0%       38.6%        41.5%
     Research and development                   16.1%       12.5%        13.1%
                                         --------------------------------------
     Total                                      86.2%       75.0%        79.8%

  Operating Income                              13.8%       25.0%        20.2%

     Other Income                                1.8%        0.9%         0.7%

  Income before income taxes                    15.6%       25.9%        20.9%
  Income taxes (provision) benefit              -6.1%       -9.7%         7.9%
                                         --------------------------------------
  Net income                                     9.5%       16.2%        28.9%
                                         ======================================
</TABLE>


Revenue

U.S. product sales for fiscal 2005 decreased $7,751,000, or 11%, to $63,116,000
compared to $70,867,000 in fiscal 2004. U.S. product sales for fiscal 2004
increased $14,655,000, or 26%, to $70,867,000 compared to $56,212,000 in fiscal
2003. The main factor in the revenue decrease during fiscal 2005 is the negative
impact from the results of the AiMI post-marketing study. Our revenue increased
during fiscal 2004 because of U.S. marketing of the AngioJet System for
additional applications and because of the expansion of our direct sales force.

                                       21
<PAGE>

As of July 31, 2005, we had a total of 1,509 domestic AngioJet System drive
units in the field, compared to 1,317 and 1,062 at the end of the previous two
fiscal years. During fiscal 2005, we sold approximately 47,700 catheters and
pump sets versus approximately 52,100 in fiscal 2004 and 42,500 in fiscal 2003.
This represents an 8% decrease in fiscal 2005 and a 23% increase in fiscal 2004
in unit catheter sales from the previous years. During the fiscal years ended
July 31, 2005, 2004 and 2003, we sold 215 AngioJet System drive units in fiscal
2005, 258 drive units in fiscal 2004 and 212 drive units in fiscal 2003. The
increasing AngioJet System drive unit sales resulted from drive unit promotions
with several of our group purchasing organizations in fiscal 2005 and 2004,
continuing customer acceptance of our expanded and improved coronary and
peripheral catheter product lines and the expansion of our sales force, but was
offset, in 2005, by the negative effects of the AiMI study.

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

Foreign sales of the AngioJet System were $1,938,000 in fiscal 2005, $1,553,000
in fiscal 2004 and $1,215,000 in fiscal 2003. The increase in sales 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. In addition, we hired an outside
consultant to expand product penetration in Germany in fiscal 2005. Limited
foreign sales are primarily due to cost constraints in overseas markets.


Cost of Medical Products

Cost of medical products decreased $353,000 to $16,967,000 in fiscal 2005
compared to fiscal 2004. The decrease was primarily due to the reduction in
AngioJet System product unit sales offset by higher production overhead on lower
units produced combined with an increase in overhead costs. Cost of medical
products increased $2,810,000 to $17,320,000 in fiscal 2004 compared to fiscal
2003. The increase was primarily due to the growth in the U.S. AngioJet System
product sales.

Gross profit decreased by $7,014,000 to $48,086,000, or 74% of product sales, in
fiscal 2005 from $55,100,000, or 76% of product sales in fiscal 2004, but
increased $12,182,000 in fiscal 2004 from $42,918,000 or 75% of product sales in
fiscal 2003. The decrease in the gross profit margin in fiscal 2005 was
primarily due to lower revenue and to a shift to products carrying a lower gross
profit margin. The improvement in gross profit margin in fiscal 2004 was driven
by higher volumes of XMI RX, XMI, XVG and Xpeedior Plus 120 catheters that carry
higher margins than the catheters they replaced. We believe that gross margins
as a percent of sales will be in the lower to mid-seventies for fiscal 2006.




                                       22
<PAGE>




Selling, General and Administrative Expenses

Selling, general and administrative expense increased $642,000 to $28,625,000,
or 44% of product sales, in fiscal 2005 compared to $27,984,000 or 39% of
product sales in fiscal 2004. The primary factors for the expense increase
fiscal 2005 were the additional expenses associated with the growth in the sales
force, increased employee medical benefit costs, increase in Sarbanes-Oxley
related professional fees, increase in executive benefit plan expense, increase
in depreciation, increase in software expense, and an increase in building rent
and operating. These increases were partially offset by a reduction in expenses
associated with marketing clinical trials, a reduction of incentives, a decrease
in sales materials and sales demos, a decrease in outside services and a
decrease in contract labor.

Selling, general and administrative expense increased $4,175,000 to $27,984,000,
or 39% of product sales, in fiscal 2004 from $23,808,000 or 41% of product sales
in fiscal 2003. 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. These expenses were partially offset by a reduction in patient
enrollment associated with marketing clinical trials and software and computer
depreciation.

We expect that the current U.S. sales force will be sufficient to grow sales and
service our current customer base for the AngioJet System through fiscal 2006.

Research and Development Expenses

Research and development expenses increased $1,469,000 to $10,502,000, or 16% of
product sales, in fiscal 2005 compared to $9,033,000, or 12% of product sales in
fiscal 2004. 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, DVX peripheral catheter,
and projects relating to the improvement of the rapid exchange catheter and the
distal occlusion guidewires.

Research and development expenses increased $1,530,000 to $9,033,000, or 12% of
product sales, in fiscal 2004 compared to $7,503,000 or 13% of product sales 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.

We believe that research and development expenses for AngioJet System
applications and related products will decrease in fiscal 2006 over fiscal 2005
levels. Research and Development expense levels are dependent upon the
continuing development of its current products and investment in the development
of new AngioJet System thrombectomy applications and related products including
clinical trials.




                                       23
<PAGE>




Interest Income

Interest income increased $542,000 to $1,274,000 in fiscal 2005 compared to
$732,000 in fiscal 2004, and increased $375,000 in fiscal 2004 from $357,000 in
fiscal 2003. The increases are due to the investing of excess cash and cash
equivalents in an enhanced cash management portfolio of marketable securities
and to the recent interest rate increases. The Company expects interest income
to increase in fiscal 2006 as compared to fiscal 2005 due to positive operating
cash flows and an expected interest rate increase.

Loss (Gain) On Sale of Securities

Loss on sales of securities was $114,000 in fiscal 2005 and $53,000 in 2004 .
Gain on sales of securities was $50,000 in fiscal 2003. The losses in fiscal
2005 and 2004 were due to interest rate increases that reduced the fair market
value of the investments in marketable securities. Future gain (loss) on sale of
securities is dependent on interest rate fluctuations.

(Provision) Benefit for Income Taxes

We recorded a provision for income taxes of $3,964,000, or approximately 39.2%
of income before income taxes, for fiscal 2005. 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 the Company recorded a benefit for income
taxes of $4,555,000. The benefit for income taxes in fiscal 2003 was due to the
reversal of the valuation allowance on our net deferred tax asset .

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

We became profitable starting in the third quarter of fiscal 2001 and have
maintained profitability since. Prior to the fourth quarter of fiscal 2002, and
due to the uncertainty of realizing the value of our deferred tax asset, we had
established a valuation allowance equal to 100 percent of the value of the tax
asset, reducing the amount of such asset reflected on our balance sheet to zero
.. In the fourth quarters of fiscal 2003 and 2002, we reassessed the likelihood
that the deferred tax asset would 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 reductions in the allowance resulted in a tax benefit, which was partially
offset by changes in temporary differences.

We increased our deferred tax asset by an additional $466,000 in fiscal 2005,
$2,578,000 in fiscal 2004 and $2,777,000 in fiscal 2003, as a result of the tax
benefit from exercise of disqualified stock options that are recorded directly
in the Consolidated Statement of Changes in Shareholders' Equity. The remaining
valuation allowance of $690,000 of the deferred tax asset relate to the research
and development tax credits and may not be realizable.

Effects of Inflation
Inflation and changes in prices, had very little effect on our net revenue and
net income from operations for fiscal 2005.

                                       24
<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

Our cash, cash equivalents and marketable securities totaled approximately
$44,427,000 at July 31, 2005 compared to $48,171,000 at July 31, 2004. The
primary factor in the decrease was cash used in financing activities to
repurchase company stock.

During fiscal 2005, we generated $11,919,000 of cash from operating activities,
which resulted primarily from $6,155,000 net income, depreciation of $2,341,000,
a decrease in deferred tax assets of $3,374,000, stock compensation expense of
$159,000 and a decrease in accounts receivable of $1,957,000. These sources of
cash from operations were partially offset by cash used to fund an increase in
inventories of $1,021,000, an increase in prepaid expenses and other assets of
$424,000, and a decrease in accounts payable and accrued liabilities of
$840,000. 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 carry-forwards to offset
current taxes payable. The $1,957,000 decrease in receivables was due to
decrease in revenue in fiscal 2005 as compared to fiscal 2004. Inventory
increased as we built additional units to meet the anticipated increase in
demand of the AngioJet System that was not realized because of the negative
impact of the AiMI post-marketing study results. The decrease in trade accounts
payable and accrued liabilities was due to the timing of the payments.

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

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

During fiscal 2004, we generated $17,375,000 of cash from operating activities,
which resulted primarily from $11,729,000 net income, depreciation of
$1,813,000, a decrease in deferred tax assets of $6,554,000, non-cash stock
compensation expense of $142,000, an increase in accounts payable and accrued
liabilities of $1,673,000. These cash sources were partially offset by cash used
in operations to fund 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. 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.

We used $15,916,000 of cash in investing activities in fiscal 2004. This
includes a net purchase of $12,708,000 of marketable securities and property and
equipment purchases of $3,259,000.

We generated $2,170,000 of cash from financing activities in fiscal 2004, ,
resulting from cash received in connection with the exercise of stock options
and warrants of $7,190,000, offset by the repurchase of 243,400 shares of our
common stock for $5,020,000 .

                                       25
<PAGE>

During fiscal 2003, we generated $12,995,000 of cash from operating activities,
which resulted primarily from $16,568,000 net income, depreciation of
$2,085,000, non-cash stock compensation expense of $161,000, and an increase in
accounts payable and accrued liabilities of $1,781,000. These cash sources were
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.
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.

We used $28,658,000 in investing activities in fiscal 2003, including
$27,272,000 to purchase marketable securities and $1,428,000 to purchase
property and equipment. Net cash provided by financing activities was $1,889,000
in fiscal 2003, consisting of $5,883,000 of cash received upon exercise of stock
options and warrants, offset by $3,994,000 used to repurchase of 246,900 shares
of our common stock.

Except with respect to lease obligations and purchase obligations, we do not
have any substantial commitments for capital expenditures. The following table
sets forth contractual obligations at July 31, 2005:

<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 Obligations         $ 2,126,000        $   417,000         $  857,000           $   667,000            $ 185,000
Purchase Obligations                  3,478,000          3,478,000                 --                    --                   --
Other Long-Term Liabilities           1,083,000            271,000            406,000               406,000                   --
                            -----------------------------------------------------------------------------------------------------
Total                               $ 6,687,000        $ 4,166,000         $1,263,000           $ 1,073,000            $ 185,000
                                    ===========        ===========         ==========           ===========            =========
</TABLE>


With over $44 million of cash and marketable securities, we believe our cash on
hand and funds from operations will be sufficient to cover both our short-term
and long-term operating requirements.

OFF-BALANCE SHEET ARRANGEMENTS

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

OUTLOOK

We expect that overall revenue from the AngioJet System, primarily in the United
States, will be in the range of $69 million to $74 million in fiscal 2006. We
expect that gross margin for fiscal 2006 will be in the low to mid-seventies as
a percent of total sales. The Company expects selling, general and
administrative expenses to increase in fiscal 2006 due to anticipated growth in
revenue. The Company believes that research and development expense for AngioJet
System applications and related products will decrease in fiscal 2006 over
fiscal 2005 levels. Research and development expense levels are dependent upon
the continuing development of its current products and investment in the
development of new AngioJet System thrombectomy applications and related
products, including clinical trials. Including the impact of stock-based
compensation expense, the Company anticipates net income per diluted share of
$0.24 to $0.34 for fiscal 2006. The impact of expensing stock-based compensation
per FAS No. 123(R) is anticipated to be approximately $0.04 per diluted share
for the first quarter and $0.16 per diluted share for fiscal year 2006. FAS No.
123(R) requires all companies to measure compensation expense for all
share-based payments (including employee stock options) at fair value and
recognize the expense over the related service period. In addition, the Company
expects that increasing working capital investments in trade receivables and
inventory will be required to support projected growing product sales. The
Company expects to repurchase its common stock from time-to-time in open market
transactions when it deems appropriate.


                                       26
<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. Loss on sales of securities was $114,000 in fiscal 2005 and
$53,000 in 2004 . Gain on sales of securities was $50,000 in fiscal 2003. The
losses in fiscal 2005 and 2004 were due to interest rate increases that reduced
the fair market value of the investments in marketable securities. Future gain
(loss) on sale of securities is dependent on interest rate fluctuations.

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.


                                       27
<PAGE>


Item 8. Financial Statements and Supplementary Data:


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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

We have audited the accompanying consolidated balance sheets of Possis Medical,
Inc. and subsidiaries (the "Company") as of July 31, 2005 and 2004, 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, 2005. Our audits also included the financial statement schedule
listed in the Index at Item 15. These financial statements and financial
statement schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on the financial statements and
financial statement schedule based on our audits.

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

In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company at July 31, 2005 and
2004, and the results of their operations and their cash flows for each of the
three years in the period ended July 31, 2005, 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.

We have also audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the effectiveness of the Company's
internal control over financial reporting as of July 31, 2005, based on the
criteria established in Internal Control-Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission and our report
dated October 13, 2005 expressed an unqualified opinion on management's
assessment of the effectiveness of the Company's internal control over financial
reporting and an unqualified opinion on the effectiveness of the Company's
internal control over financial reporting.

/s/ DELOITTE & TOUCHE LLP
-------------------------

Minneapolis, Minnesota
October 13, 2005


                                       28
<PAGE>




                      POSSIS MEDICAL, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>

                                                                   JULY 31, 2005           JULY 31, 2004
                                                                   -------------           -------------
               ASSETS

CURRENT ASSETS:
<S>                                                                <C>                     <C>
Cash and cash equivalents (NOTE 1)                                  $  5,257,244            $  8,411,784
Marketable securities (NOTE 1)                                        39,169,811              39,759,403
Trade receivables (less allowance for doubtful  accounts and
 returns of $669,000 and $536,000, respectively)                       8,274,839              10,232,180
Inventories (NOTE 1)                                                   5,830,204               5,389,653
Prepaid expenses and other assets                                      1,158,214                 958,616
Deferred tax assets (NOTE 4)                                           1,042,000                 890,000
                                                                    ------------            ------------
     Total current assets                                             60,580,312              65,641,636

PROPERTY AND EQUIPMENT, net (NOTE 1)                                   4,879,221               5,073,775

DEFERRED TAX ASSET, net (NOTE 4)                                      12,113,949              15,103,949

OTHER ASSET (NOTE 3)                                                     425,914                 201,341
                                                                    ------------            ------------
TOTAL ASSETS                                                        $ 78,151,396            $ 86,020,701
                                                                    ============            ============

LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:
Trade accounts payable                                              $  1,355,402            $  1,791,694
Accrued salaries, wages, and commissions                               3,212,525               4,228,804
Other liabilities                                                      2,468,669               2,222,465
                                                                    ------------            ------------
 Total current liabilities                                             7,036,596               8,242,963

OTHER LIABILITIES (NOTE 3)                                               526,914                 160,536

COMMITMENTS AND CONTINGENCIES (NOTE 8)

SHAREHOLDERS' EQUITY (NOTE 5):
Common stock-authorized, 100,000,000 shares of $0.40 par
  value each; issued and outstanding, 17,326,487 and
  18,254,942 shares, respectively                                      6,930,595               7,301,977
Additional paid-in capital                                            75,725,188              88,434,540
    Unearned compensation                                                (15,000)                (15,000)
    Accumulated other comprehensive loss                                (240,000)               (136,000)
    Retained deficit                                                 (11,812,897)            (17,968,315)
                                                                    ------------            ------------
         Total shareholders' equity                                   70,587,886              77,617,202
                                                                    ------------            ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                          $ 78,151,396            $ 86,020,701
                                                                    ============            ============
</TABLE>


See notes to consolidated financial statements.



                                       29
<PAGE>



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


<TABLE>
<CAPTION>
                                                               2005                 2004                   2003
                                                           ------------------------------------------------------
<S>                                                        <C>                  <C>                  <C>
Product sales (NOTE 9)                                     $ 65,053,329         $ 72,420,168         $ 57,427,709
Cost of sales and other expenses:
    Cost of medical products                                 16,966,874           17,320,094           14,510,064
    Selling, general and administrative                      28,625,132           27,983,585           23,808,304
    Research and development                                 10,501,719            9,033,207            7,502,763
                                                           ------------         ------------         ------------
        Total cost of sales and other expenses               56,093,725           54,336,886           45,821,131
                                                           ------------         ------------         ------------
Operating income                                              8,959,604           18,083,282           11,606,578
Interest income                                               1,274,149              731,809              356,495
(Loss) gain on sale of securities                              (114,401)             (52,580)              49,687
                                                           ------------         ------------         ------------
Income before income taxes                                   10,119,352           18,762,511           12,012,760
Income tax (provision) benefit (NOTE 4)                      (3,963,934)          (7,033,790)           4,555,000
                                                           ------------         ------------         ------------
Net income                                                    6,155,418           11,728,721           16,567,760
Other comprehensive loss, net of tax -
    Unrealized loss on securities                              (104,000)             (36,000)            (100,000)
                                                           ------------         ------------         ------------
Comprehensive income                                       $  6,051,418         $ 11,692,721         $ 16,467,760
                                                           ============         ============         ============
Net income per common share:
    Basic                                                  $       0.35         $       0.65         $       0.95
    Diluted                                                $       0.34         $       0.60                 0.88
Weighted average number of common shares outstanding:
    Basic                                                    17,616,072           17,935,974           17,501,573
    Diluted                                                  18,310,906           19,565,530           18,889,245
</TABLE>


See notes to consolidated financial statements.




                                       30
<PAGE>




                      POSSIS MEDICAL, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                               YEARS ENDED JULY 31
<TABLE>
<CAPTION>
                                                                             2005              2004               2003
                                                                       --------------------------------------------------
OPERATING ACTIVITIES:
<S>                                                                    <C>                <C>                <C>
    Net income                                                         $  6,155,418       $ 11,728,721       $ 16,567,760
    Adjustments to reconcile net income to net
        cash provided by operating activities:
    Depreciation                                                          2,341,170          1,813,476          2,084,604
    Deferred income taxes                                                 3,374,000          6,554,030         (4,798,000)
    Stock compensation expense                                              159,000            141,646            160,550
    Loss (gain) on sale of securities                                       136,405             52,580            (49,687)
    Loss (gain) on disposal of assets                                        80,651            (47,236)             6,226
    Decrease (increase) in trade receivables                              1,957,341         (2,265,786)        (2,093,036)
    Increase in inventories                                              (1,020,509)        (1,800,360)          (697,387)
    (Increase) decrease in prepaid expenses and other assets               (424,171)          (475,000)            32,679
    (Decrease) increase in trade accounts payable                          (436,292)           205,918            323,065
    (Decrease) increase in accrued and other liabilities                   (403,697)         1,466,971          1,458,291
                                                                       ------------       ------------       ------------
             Net cash provided by operating activities                   11,919,316         17,374,960         12,995,065
                                                                       ------------       ------------       ------------
INVESTING ACTIVITIES:
     Additions to property and equipment                                 (1,660,969)        (3,258,644)        (1,427,781)
     Proceeds from sale of fixed assets                                      13,660             49,924             41,211
     Proceeds from sale/maturity of marketable securities                58,943,391         31,631,026         54,299,309
     Purchase of marketable securities                                  (58,664,204)       (44,338,786)       (81,570,845)
                                                                       ------------       ------------       ------------
     Net cash used in investing activities                               (1,368,122)       (15,916,480)       (28,658,106)
                                                                       ------------       ------------       ------------
FINANCING ACTIVITIES:
     Proceeds from issuance of stock and exercise
          of options and warrants                                         1,255,710          7,190,378          5,883,234
     Repurchase of common stock                                         (14,961,444)        (5,020,016)        (3,993,914)
                                                                       ------------       ------------       ------------
            Net cash (used in) provided by financing activities         (13,705,734)         2,170,362          1,889,320
                                                                       ------------       ------------       ------------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS                         (3,154,540)         3,628,842        (13,773,721)
CASH AND CASH EQUIVALENTS AT BEGINNING
      OF YEAR                                                             8,411,784          4,782,942         18,556,663
                                                                       ------------       ------------       ------------
CASH AND CASH EQUIVALENTS AT END OF YEAR                               $  5,257,244       $  8,411,784       $  4,782,942
                                                                       ============       ============       ============
SUPPLEMENTAL CASH FLOW DISCLOSURE:
Disqualified stock options                                             $    466,000       $  2,578,000       $  2,777,000
Cash paid for income taxes                                                  666,958            353,876            287,977
Issuance of restricted stock                                                 36,000             36,000             36,000
Inventory transferred to fixed assets                                        36,958             12,960             47,951
</TABLE>


See notes to consolidated financial statements.




                                       31
<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, 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 5)                     --           --           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 5)                                    --           --           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
   Employee stock purchase plan           37,580       15,032         416,007      --           --            --         431,039
   Stock options issued to directors
   (NOTE 5)                                 --           --           123,000      --           --            --         123,000
   Stock options and warrants
   exercised                             164,311       65,724         758,946      --           --            --         824,670
                                                                                                                         466,000
   Disqualified stock options               --           --              --        --           --         466,000
   Stock grants                            2,754        1,102          34,898   (36,000)        --            --            --
   Unearned stock compensation
        amortization                        --           --              --      36,000         --            --          36,000
   Unrealized loss on investments           --           --              --        --       (104,000)         --        (104,000)
   Common stock repurchased           (1,133,100)    (453,240)    (14,508,203)     --           --            --     (14,961,443)
   Net income                               --           --              --        --           --       6,155,418     6,155,418
                                     -------------------------------------------------------------------------------------------
BALANCE AT JULY 31, 2005              17,326,487  $ 6,930,595    $ 75,725,188 $ (15,000)   $(240,000) $(11,812,897) $ 70,587,886
                                     ===========  ===========    ============ =========    =========  ============  ============
</TABLE>

See notes to consolidated financial statements.




                                       32
<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
in 1993 changed its name to Possis Medical, Inc. 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 2005 and 2004, 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,
2005 and 2004 are classified as available-for-sale and consist primarily of U.S.
government securities and corporate/municipal bonds. These investments are
reported at fair value with a net unrealized loss for the years ended July 31,
2005 and 2004 of approximately $104,000 and $36,000, respectively, net of tax
effect, which is included in other comprehensive loss as of July 31, 2005 and
2004. 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, 2005 and 2004 is approximately as follows:



<TABLE>
<CAPTION>
                                                U.S.Govt.     Corporate      Municipal           Mutual
                                               Securities       Bonds         Bonds               Funds         Total
                                               -----------   -----------   ------------         ---------    ------------
                                                                           July 31, 2005
                                               --------------------------------------------------------------------------
<S>                                            <C>            <C>           <C>                <C>          <C>
      Cost..................................   $24,175,000   $ 6,806,000    $ 7,948,000        $  632,000    $ 39,561,000
      Gross unrealized losses...............      (222,000)      (40,000)      (129,000)            --           (391,000)
                                               ------------  -----------    -----------         ---------    ------------
      Fair value............................   $23,953,000   $ 6,766,000    $ 7,819,000        $  632,000    $ 39,170,000


                                                                           July 31, 2004
                                               --------------------------------------------------------------------------
      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
</TABLE>



                                       33
<PAGE>

The following information recaps marketable securities for the years ended
July 31, 2005 and 2004:

<TABLE>
<CAPTION>

                                                        July 31, 2005
                      ------------------------------------------------------------------------------
                       U.S. Govt.      Corporate        Municipal         Mutual
                       Securities         Bonds            Bonds           Funds          Total
                      ------------    --------------   --------------   -------------   ------------
<S>                   <C>             <C>              <C>              <C>             <C>
Proceeds from sales   $ 27,416,000    $      697,000   $    1,270,000   $  29,281,000   $ 58,664,000
                      ============    ==============   ==============   =============   ============
Net gain realized     $     40,000    $         --     $         --     $        --     $     40,000
                      ============    ==============   ==============   =============   ============
Net loss realized     $    171,000    $       (5,000)  $         --     $        --     $   (166,000)
                      ============    ==============   ==============   =============   ============

<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)
                      ============    ==============   ==============   =============   ============
</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:


                                                  2005           2004
                                               -----------   -----------

                 Finished goods................$ 2,149,599   $ 2,018,152
                 Work-in-process...............  1,206,364     1,260,449
                 Raw materials.................  2,474,241     2,111,052
                                               -----------   -----------

                                               $ 5,830,204   $ 5,389,653
                                               ===========   ===========


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>
                                                      2005              2004               LIFE
                                                  -----------      -------------       -------------
<S>                                               <C>                  <C>             <C>
                  Leasehold improvements          $ 2,295,999          2,189,955       7-10 years
                  Equipment                        10,329,650          9,525,117       3 to 10 years
                  Assets in construction              222,467            526,793       N/A
                                                  -----------      -------------
                                                   12,848,116         12,241,865
                  Less accumulated depreciation    (7,968,895)        (7,168,090)
                                                  -----------      -------------
                  Property and equipment - net    $ 4,879,221      $   5,073,775
                                                  ===========      =============
</TABLE>



IMPAIRMENT OF LONG-LIVED ASSETS 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. No impairment
losses were recorded during fiscal 2005, 2004 and 2003, respectively.


                                       34
<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 AngioJet drive units that are
maintained at customer locations are recognized, and title and risk of loss on
those drive units is transferred to the customer when we receive a valid
purchase order from the customer. Revenue is not recognized for AngioJet drive
units that are maintained at customer locations as evaluation drive units. We do
not lease AngioJet drive units. Revenues associated with products that are
shipped to customers from our facilities are recognized, and title and risk of
loss are transferred to the customer, when a valid purchase order is received
and the products are received at the customer's location. Provisions for returns
are recorded in the same period the related revenues are recognized.

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

SHIPPING AND HANDLING The Company recognizes all amounts billed to customers in
a sales transaction related to shipping and handling 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 2005, 2004
and 2003 is computed by dividing net income by the weighted average number of
common shares outstanding. Options representing 1,328,814, 41,600, and 228,850,
shares of common stock at July 31, 2005, 2004 and 2003, 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.

ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND EQUITY SECURITIES In November
2003 and March 2004, the Emerging Issues Task Force (EITF) reached a consensus
on EITF Issue No. 03-1, "The Meaning of Other-Than-Temporary Impairment and Its
Application to Certain Investments." The consensus reached requires companies to
apply new guidance for evaluating whether an investment is
other-than-temporarily impaired and also requires quantitative and qualitative
disclosure of debt and equity securities, classified as available-for-sale or
held-to-maturity, that are determined to be only temporarily impaired at the
balance sheet date. The Company incorporated the required disclosures for
investments accounted for under SFAS No. 115, "Accounting for Certain
Investments in Debt and Equity Securities," as required in the fourth quarter of
fiscal year 2004. In September 2004, the consensus was indefinitely delayed as
it relates to the measurement and recognition of impairment losses for all
securities in the scope of paragraphs 10-20 of EITF 03-1. The disclosures
prescribed by EITF No. 03-1 and guidance related to impairment measurement prior
to the issuance of this consensus continue to remain in effect. Adoption is not
expected to have a material impact on the Company's consolidated earnings,
financial position or cash flows.


                                       35
<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 did
not 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 an effect on the Company's
consolidated balance sheet, statements of income, or cash flows.

ACCOUNTING FOR ASSET RETIREMENT OBLIGATIONS In April 2005, the FASB issued FIN
No. 47 to clarify the scope and timing of liability recognition for conditional
asset retirement obligations pursuant to SFAS No. 143 - "Accounting for Asset
Retirement Obligations". The interpretation requires that a liability be
recorded for the fair value of an asset retirement obligation, if the fair value
is estimable, even when the obligation is dependent on a future event. FIN No.
47 further clarified that uncertainty surrounding the timing and method of
settlement of the obligation should be factored into the measurement of the
conditional asset retirement obligation rather than affect whether a liability
should be recognized. Implementation is required to be effective no later than
the end of fiscal years ending after Dec. 15, 2005. Additionally, FIN No. 47
will permit but not require restatement of interim financial information during
any period of adoption. Both recognition of a cumulative change in accounting
and disclosure of the liability on a pro forma basis are required for transition
purposes. The Company is evaluating the impact of FIN No. 47, however, it is not
expected to have a material impact on results of operations or financial
position.

ACCOUNTING FOR STOCK-BASED COMPENSATION In December 2004, the FASB revised
Statement supersedes Accounting Principles board (APB) Opinion No. 25,
Accounting for Stock Issued to Employees, which resulted in no stock-based
employee compensation cost related to stock options if the options granted had
an exercise price equal to the market value of the underlying common stock on
the date of grant. SFAS No. 123R requires recognition of employee services
provided in exchange for a share-based payment based on the grant date fair
market value. In April 2005, the required effective date of SFAS No. 123R was
deferred to the fiscal year beginning after June 15, 2005. As of the effective
date, this Statement applies to all new awards granted as well as awards
modified, repurchased, or cancelled. Additionally, compensation cost for
stock-based awards that has not previously been recognized will be recognized as
the remaining service is rendered. The Company plans to apply SFAS No. 123R
prospectively as of August 1, 2005. The Company is in the process of determining
the potential impact on its consolidated financial statements upon adoption.

                                       36
<PAGE>

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.

INVENTORY COSTS In November 2004, the Financial Accounting Standards Board
issued SFAS No. 151, "Inventory costs, an amendment of ARB No. 43, Chapter 4."
SFAS No. 151 requires that abnormal amounts of idle capacity and spoilage costs
should be excluded from the cost of inventory and expensed when incurred. SFAS
No. 151 was effective for the Company on July 1,2005. The adoption of this
standard did not have an effect on the Company's consolidated balance sheet,
statements of income, or cash flows.

2. STOCK BASED COMPENSATION

Pursuant to Statement of Financial Accounting Standards (SFAS) No. 123,
Accounting for Stock-Based Compensation, we apply the recognition and
measurement principles of Accounting Principles Board (APB) Opinion No. 25,
Accounting for Stock Issued to Employees, to our stock options and other
stock-based compensation plans. In accordance with APB Opinion No. 25,
compensation cost for stock options is recognized in income based on the excess,
if any, of the quoted market price of the stock at the grant date of the award
or other measurement date over the amount an employee must pay to acquire the
stock. The exercise price for stock options granted to employees equals the fair
market value of our common stock at the date of grant, thereby resulting in no
recognition of compensation expense.

The following table illustrates the effect on net income and earnings per share
if we had applied the fair value recognition provisions of SFAS No. 123 to
stock-based employee compensation.

<TABLE>
<CAPTION>
                                                              2005                       2004                       2003
                                                        ---------------            ---------------           ----------------
         Net income:
<S>                                                          <C>                     <C>                       <C>
                  As reported.......................         $6,155,418              $11,728,721               $16,567,760
                  Pro forma.........................          2,986,418                8,530,721                13,820,760

         Net income per share - basic:
                 As reported........................         $     0.35              $      0.65               $      0.95
                 Pro forma..........................               0.17                     0.48                      0.79

         Net income per share - diluted:
                 As reported........................         $     0.34              $      0.60               $      0.88

                 Pro forma..........................               0.16                     0.44                      0.73
</TABLE>

                                       37
<PAGE>


The fair value of options granted under the various option plans during fiscal
2005, 2004, and 2003 was estimated on the date of grant using the Black-Sholes
option pricing model with the following weighted average assumptions and
results:

<TABLE>
<CAPTION>
                                                                          2005                 2004                  2003
                                                                      ----------            ----------           ----------
<S>                                                                    <C>
         Dividend yield......................................              None                  None                 None
         Expected volatility.................................             54-68%                54-64%               60-80%
         Risk-free interest rate.............................           4.1-4.5%              3.9-4.7%             3.4-4.3%
         Expected life of option.............................           63-84 mo.              120 mo.              120 mo.
         Fair value of options on grant date.................         $7,635,000            $6,645,000           $4,395,000
                                                                      ==========            ==========           ==========
</TABLE>


Effective August 1, 2005, we will apply SFAS No. 123R on a prospective basis.


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 approximately $203,000 for seven years. The target benefit is
an annual benefit, for a ten-year period, equal to one-half of the CEO's base
compensation at the time benefits become payable under the SERP.

For the 2005 and 2006 Plan Year, the Company established a Nonqualified Profit
Sharing Plan (the "Plan") for a select group of key management employees. The
Plan requires annual awards based upon target goals and contribution levels
established by the Board of Directors. The Plan requires the Company to
establish an account on behalf of each participant and to credit the participant
account yearly. The estimated yearly funding amount for the 2005 and 2006 Plan
Year is $50,000 and $60,000, respectively. The target benefit is an annual
benefit, for a ten-year period, equal to one-tenth of the participant's account
at the time benefits become payable under the Plan.

Total compensation expense resulting from the SERP and Plan for fiscal 2005 and
2004 is $344,000 and $162,000, respectively, which is included in selling,
general and administrative expenses. As of July 31, 2005 and 2004, the assets of
$426,000 and $201,000 and liabilities of $527,000 and $161,000 relating to the
SERP and Plan are included in the balance sheet under the caption Other Assets
and Other Liabilities.

4. INCOME TAXES

At July 31, 2005, the Company had net operating loss carry-forwards of
approximately $23,373,000 for federal tax purposes, which expire in 2013 through
2021, and $9,647,000 for Minnesota tax purposes, which expire in 2012 through
2016.

In addition, at July 31, 2005, the Company has approximately $2,710,000 in
federal and state tax credits, substantially all of which are research and
development tax credits, which expire from 2008 through 2025, and approximately
$664,000 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 in future
years.

                                       38
<PAGE>


The components of the income tax expense (benefit) as of July 31, 2005, 2004 and
2003 are as follows:

<TABLE>
<CAPTION>
                                                                2005                     2004                     2003
                                                            -----------              -----------             ------------
         Current:
<S>                                                         <C>                      <C>                     <C>
             Federal.................................       $   219,000              $   260,000             $    243,000

         Deferred:
             Federal.................................         3,189,000                6,540,000               (4,494,000)
                   State.............................           555,934                  233,790                 (304,000)
                                                            -----------              -----------             ------------
                                                              3,744,934                6,773,790               (4,798,000)
                                                            -----------              -----------             ------------
         Total income tax expense (benefit)                 $ 3,963,934              $ 7,033,790             $ (4,555,000)
                                                            ===========              ===========             ============
</TABLE>


Deferred tax assets and liabilities as of July 31, 2005 and 2004 are described
in the table below.


<TABLE>
<CAPTION>
                                                                                       2005                       2004
                                                                                  -------------              ------------
Current assets:
<S>                                                                               <C>                        <C>
     Allowance for doubtful accounts and returns .............................    $    269,000               $    220,000
     Inventory ...............................................................         366,000                    297,000
     Deferred Revenue ........................................................         374,000                    259,000
     Employee compensation and benefits ......................................         184,000                    167,000
     Other ...................................................................        (151,000)                   (53,000)
                                                                                  ------------               ------------
                                                                                     1,042,000                    890,000
     Valuation allowance .....................................................            --                         --
                                                                                  ------------               ------------
     Net .....................................................................    $  1,042,000               $    890,000
                                                                                  ============               ============
     Long-term assets (liabilities):
     Net operating loss carry-forwards .......................................    $  8,794,949               $ 12,318,949
     Amortization of patents .................................................         857,000                    714,000
     Tax credits .............................................................       3,374,000                  2,913,000
     Compensation ............................................................         205,000                          -
     Depreciation ............................................................        (427,000)                  (152,000)
                                                                                  ------------               ------------
                                                                                    12,803,949                 15,793,949
     Valuation allowance .....................................................        (690,000)                  (690,000)
                                                                                  ------------               ------------
     Net .....................................................................    $ 12,113,949               $ 15,103,949
                                                                                  ============               ============
</TABLE>



The effective income tax rate differed from the U.S. federal statutory rate for
each of the three years ended July 31, 2005, 2004 and 2003 as follows:

<TABLE>
<CAPTION>
                                                                    2005                 2004                   2003
                                                                 ----------           -----------            -----------
<S>                                                           <C>                    <C>                    <C>
Tax expense (benefit) on income (loss) from
         continuing operations computed at
         statutory rate of 35% .........................         $3,542,000           $ 6,567,000            $ 4,204,000
Change in valuation allowance ..........................               --                 (50,000)            (9,778,000)
Change in valuation allowance related to
         disqualified stock options ....................               --                    --
                                                                                                                 952,000
Other ..................................................            421,934               516,790                 67,000
                                                                 ----------           -----------            -----------
Total income tax expense (benefit) .....................         $3,963,934           $ 7,033,790            $(4,555,000)
                                                                 ==========           ===========            ===========
</TABLE>




Deferred tax benefit of $466,000 and $2,578,000 in 2005 and 2004, respectively,
relate to disqualified stock options, which is recorded directly in equity.

5. COMMON STOCK

COMMON STOCK REPURCHASED During the first quarter of fiscal 2003, the Company's
Board of Directors authorized its initial shares repurchase program of
$4,000,000. Subsequent to the initial authorization, the Company's Board of
Directors authorized additional share repurchase programs of $4,000,000 in July
2003 and March 2004, $10,000,000 in August 2004 and $15,000,000 in February
2005. As of July 31, 2005, the share repurchase authorization remaining is
$13,160,000.
                                       39
<PAGE>

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. During fiscal 2004, in open market transactions, the Company repurchased
243,400 shares of its common stock, at an average price of approximately $20.62
per share. During fiscal 2005, in open market transactions, the Company
repurchased 1,133,100 shares of its common stock, at an average price of
approximately $13.20 per share.

Since the inception of its repurchase programs, the Company has repurchased
1,623,400 shares of its common stock at an average price of approximately $14.77
per share.

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

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

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

At July 31, 2005, there were 3,060,722 shares reserved for outstanding options
under all plans and 335,053 shares were available for granting of options under
the 1999 Plan.

In fiscal 2005, 2004 and 2003, the Company granted 18,807, 11,074, and 11,648
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 $123,000,
$106,000, and $104,000 for the years ended July 31, 2005, 2004 and 2003,
respectively.

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

<TABLE>
<CAPTION>
                                                                2005            2004            2003
                                                             ---------       ---------       ---------
<S>                                                          <C>             <C>             <C>
Shares under option at beginning of year                     2,652,263       2,761,253       2,941,974
Options granted                                                735,231         469,274         441,698
Options exercised                                             (167,078)       (519,534)       (538,199)
Options canceled                                              (159,694)        (58,730)        (84,220)
                                                             ----------      ---------       ---------
Shares under option at end of year                           3,060,722       2,652,263       2,761,253
                                                             =========       =========       =========
Shares exercisable at end of year                            1,990,763       1,906,119       1,903,952
                                                             =========       =========       =========
</TABLE>

                                       40
<PAGE>


Stock option weighted-average exercise prices during fiscal 2005, 2004 and 2003
are summarized below:


<TABLE>
<CAPTION>
                                                              2005              2004         2003
                                                            -------          --------      -------
<S>                                                         <C>               <C>           <C>
Outstanding at beginning of year                            $ 11.08           $  9.36       $ 8.43
Granted                                                       13.66             18.91        12.81
Exercised                                                      5.15              8.65         7.37
Canceled                                                      15.74             14.58        10.51
Outstanding at end of year                                  $ 11.78           $ 11.08       $ 9.36
                                                            =======           =======       ======
</TABLE>

 The following table summarizes information concerning options outstanding and
exercisable options as of July 31, 2005:


<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                577,691              5.07               $ 4.74                577,691          $ 4.74
      6 - 12                866,880              6.04                 7.93                628,788            7.67
     12 - 17                663,877              5.55                13.52                407,815           13.77
     17 - 21                912,674              3.97                17.96                367,019           18.16
     21 - 34                 39,600              8.77                27.54                  9,450           27.54
----------------------------------------------------------------------------------------------------------------------
</TABLE>




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 2005, the Company granted 2,754 shares of restricted stock to the
Board of Directors under the terms of the 1999 Plan, which vest in twelve
months. The fair market value of the restricted shares was approximately $32,000
as of July 31, 2005. In case of termination of a member of the Board of
Directors, unvested shares are forfeited. Unearned compensation of $36,000 was
recorded at the date of the grant and is being recognized over the vesting
period.

In fiscal 2005, 2004 and 2003, total compensation expense of approximately
$36,000, $36,000 and $36,000, respectively, were recognized on these restricted
stock grants.

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.


                                       41
<PAGE>

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, 101,278 of these warrants were
exercised. 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 and 2003, 206,381
and 83,046 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>
                                                                            2005              2004              2003
                                                                      ----------------- ----------------- ------------------
<S>                                                                    <C>                <C>                <C>
        Warrants outstanding at beginning of year                            --                  248,180            436,254
        Warrants issued                                                      --                     --                --
        Warrants exercised                                                   --                 (206,381)          (184,324)
        Warrants expired                                                     --                  (41,799)            (3,750)
                                                                      ----------------- ----------------- ------------------
        Warrants outstanding at end of year                                  --                --                   248,180
                                                                      ================= ================= ==================
</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 37,580 shares in fiscal 2005, 24,814
shares in fiscal 2004, and 25,267 shares in fiscal 2003 under this Plan.


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

<TABLE>
<CAPTION>
                                                                       2005                  2004                  2003
                                                                    ---------             ---------             ----------
<S>                                                                 <C>                   <C>                   <C>
Accrued warranty costs at beginning of year ......................  $ 293,500             $ 146,500             $ 123,000
Payments made for warranty costs .................................   (494,700)             (334,900)             (226,200)
Accrual for product costs ........................................    347,700               481,900               249,700
                                                                    ---------             ---------             ---------
Accrued warranty costs at end of year ............................  $ 146,500             $ 293,500             $ 146,500
                                                                    =========             =========             =========
</TABLE>


7.  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, 2005, 2004 and 2003 were $357,958, $408,860, and $303,766, respectively.


8. COMMITMENTS AND CONTINGENCIES

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


                                       42
<PAGE>

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 2006.

Total rental expense charged to operations was approximately $406,000, $269,000,
and $262,000, for the years ended July 31, 2005, 2004, and 2003, respectively.

Future minimum payments under the non-cancelable operating leases at July 31,
2005 are:



           YEAR ENDING JULY          AMOUNT
           -----------------        --------
                 2006             $  417,000
                 2007                426,000
                 2008                431,000
                 2009                394,000
                 2010                273,000
                                  ----------
    Total minimum lease payments  $1,941,000
                                  ==========


The Company has been served with a shareholder lawsuit that was filed with the
Minnesota Federal District Court on June 3, 2005, alleging that Possis Medical,
Inc. and named individual officers violated federal securities laws during a
period beginning in 2002. The Complaint seeks class action status and
unspecified damages. The Company believes that the allegations of the lawsuit
are without merit and is contesting the lawsuit vigorously. The Company does not
believe that the amount of any potential liability associated with these matters
can be estimated at this time, but an unfavorable resolution could have a
material adverse effect on results of operations, financial condition or cash
flows.

9. SEGMENT AND GEOGRAPHIC INFORMATION AND CONCENTRATION OF CREDIT RISK

The Company's operations are in one business segment; the design, manufacture
and distribution of cardiovascular and vascular medical devices. The Company
evaluates revenue performance based on the worldwide revenues of each major
product line and profitability based on an enterprise-wide basis due to shared
infrastructures to make operating and strategic decisions.

Total revenues from sales in the United States and outside the United States for
each of the three years ended July 31, 2005, 2004 and 2003 are as follows:


<TABLE>
<CAPTION>
                                                        2005                     2004                     2003
                                                    -----------              -----------              -----------
<S>                                                 <C>                      <C>                      <C>
     United States .............................    $63,115,776              $70,867,103              $56,212,396
     Outside the United States .................      1,937,553                1,553,065                1,215,313
                                                    -----------              -----------              -----------
Total revenues .................................    $65,053,329              $72,420,168              $57,427,709
                                                    ===========              ===========              ===========
</TABLE>


In fiscal 2005, 2004, and 2003 there were no individual customers with sales
exceeding 10% of total revenues.

10. SUBSEQUENT EVENTS

On August 29, 2005, the Company issued 18,353 shares of restricted stock to
executives of the Company as part of the fiscal 2005 management incentive
program. The fair market value of the restricted stock was $230,600. The
restricted stock vests at the time the Company's stock price closes at $13.00 or
greater. On August 31, 2005 the Company's stock price closed at $13.03. The
$230,600 was expensed in fiscal 2005 as compensation expense.


                                       43
<PAGE>

Subsequent to year-end the Company repurchased 99,600 shares of its common
stock, at an average price of approximately $10.98 per share. This was part of
the repurchase program authorized by the Board of Directors in February 2005.

11. SELECTED QUARTERLY FINANCIAL DATA (Unaudited)


<TABLE>
<CAPTION>
                                                      FISCAL YEAR ENDED JULY 31, 2005
                                                      -------------------------------
                                          First           Second           Third           Fourth
                                         Quarter          Quarter          Quarter         Quarter
                                       -----------      -----------     -----------      -----------
<S>                                    <C>              <C>             <C>              <C>
Product sales                          $17,501,988      $16,168,884     $15,101,977      $16,280,480
Gross profit                            13,197,649       11,885,466      10,946,716       12,056,624
Net income                               2,192,875        1,669,161       1,015,827        1,277,554

Net income per common share
          Basic                        $      0.12      $      0.09     $      0.06       $     0.07
          Diluted                             0.11             0.09            0.06             0.07


<CAPTION>

                                                      FISCAL YEAR ENDED JULY 31, 2004
                                                      -------------------------------
                                          First           Second          Third            Fourth
                                         Quarter         Quarter          Quarter          Quarter
                                       -----------      -----------     -----------      -----------
<S>                                     <C>             <C>             <C>               <C>
Product 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
Net income                               1,927,099        3,118,301       3,095,693         3,587,628

Net income per common share
          Basic                        $      0.11      $      0.18     $      0.17       $     0.20
          Diluted                             0.10             0.16            0.16             0.18

</TABLE>



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

During fiscal 2005 and 2004, there were no changes in or disagreements with the
Company's independent registered public accounting firm on accounting procedures
or accounting and financial disclosures.

                                       44


<PAGE>



ITEM 9A.  CONTROLS AND PROCEDURES

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

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

INTERNAL CONTROL OVER FINANCIAL REPORTING

MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

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

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

- Provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and

- Provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of the company's assets that could
have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting
may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.

Management assessed the effectiveness of Possis Medical Inc.'s internal control
over financial reporting as of July 31, 2005. In making this assessment, we used
the criteria set forth by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO) in Internal Control -- Integrated Framework. Based on
management's assessment and those criteria, it believes that, as of July 31,
2005, Possis Medical, Inc. maintained effective internal control over financial
reporting.
                                       45


<PAGE>



Possis Medical, Inc.'s independent registered public accounting firm has audited
management's assessment of the effectiveness of Possis Medical, Inc.'s internal
control over financial reporting as of December 31, 2004, as stated in the
Report of Independent Registered Public Accounting Firm, (appearing under Item
9A), which expresses unqualified opinions on management's assessment and on the
effectiveness of Possis Medical, Inc.'s internal controls over financial
reporting as of July 31, 2005.


                                              /S/ ROBERT G. DUTCHER
                                              --------------------------
                                              Robert G. Dutcher
                                              Chief Executive Officer
                                              October 7, 2005

                                              /S/ JULES L. FISHER
                                              --------------------------
                                              Jules L. Fisher
                                              Chief Financial Officer
                                              October 7, 2005


                                       46
<PAGE>



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF POSSIS MEDICAL, INC.:

We have audited management's assessment, included in the accompanying
Management's Report on Internal Control over Financial Reporting under Item 9A,
that Possis Medical, Inc. and subsidiaries (the "Company") maintained effective
internal control over financial reporting as of July 31, 2005, based on criteria
established in Internal Control--Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission. The Company's management is
responsible for maintaining effective internal control over financial reporting
and for its assessment of the effectiveness of internal control over financial
reporting. Our responsibility is to express an opinion on management's
assessment and an opinion on the effectiveness of the Company's internal control
over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over
financial reporting, evaluating management's assessment, testing and evaluating
the design and operating effectiveness of internal control, and performing such
other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinions.

A company's internal control over financial reporting is a process designed by,
or under the supervision of, the company's principal executive and principal
financial officers, or persons performing similar functions, and effected by the
company's board of directors, management, and other personnel to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. A company's internal control over
financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company's
assets that could have a material effect on the financial statements.

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

In our opinion, management's assessment that the Company maintained effective
internal control over financial reporting as of July 31, 2005, is fairly stated,
in all material respects, based on the criteria established in Internal
Control--Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Also in our opinion, the Company
maintained, in all material respects, effective internal control over financial
reporting as of July 31, 2005, based on the criteria established in Internal
Control--Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission.

We have also audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the consolidated financial
statements and financial statement schedule as of and for the year ended July
31, 2005 of the Company, and our report dated October 13, 2005 expressed an
unqualified opinion on those financial statements and financial statement
schedule.

/s/ DELOITTE & TOUCHE LLP
Minneapolis, Minnesota
October 13, 2005

                                       47
<PAGE>

ITEM 9B.  OTHER INFORMATION

None.
                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT:

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


ITEM 11.  EXECUTIVE COMPENSATION:

Information regarding compensation of directors and officers for the fiscal year
ended July 31, 2005 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.


                                       48
<PAGE>



ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS:

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

ITEM 14.  PRINCIPAL ACCOUNTANT FEES AND SERVICES:

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

                                     PART IV


ITEM 15.  EXHIBITS AND FINANCIAL STATEMENT SCHEDULES:

(a) 1. Financial Statements

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

     Consolidated Balance Sheets, July 31, 2005 and 2004
     Consolidated Statements of Income and Comprehensive Income for each of the
         three years in the period ended July 31, 2005
     Consolidated Statements of Cash Flows for each of the three years in the
         period ended July 31, 2005
     Consolidated Statements of Changes in Shareholders' Equity for each of the
         three years in the period ended July 31, 2005
     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, 2005

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.

                                       49
<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, 1996                  Rights Agreement, dated December 12, 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

     10.13        10-K              Fiscal year ended                  Angiometrx Metricath Distribution Agreement
                                    July 31, 2004                      dated April 16, 2004

     10.14        10-Q              Fiscal year ended                  Lease agreement for additional corporate
                                    July 31, 2005                      and manufacturing facilities dated
                                                                       May 26, 2004

     21           10-K              Fiscal year ended                  Subsidiaries of registrant
                                                                       July 31, 2005

     23           10-K              Fiscal year ended                  Consent of independent registered
                                    July 31, 2005                      public accounting firm
</TABLE>


                                       50
<PAGE>

<TABLE>
<CAPTION>

EXHIBIT         FORM              DATE FILED                                 DESCRIPTION
-----------------------------------------------------------------------------------------------------------------------------------
<S>             <C>               <C>                                  <C>
     31.1         10-K              Fiscal year ended                  Certification of Chief Executive Officer
                                    July 31, 2005                      pursuant to Section 302 of the
                                                                       Sarbanes-Oxley Act

     31.2         10-K              Fiscal year ended                  Certification of Chief Financial Officer
                                    July 31, 2005                      pursuant to Section 302 of the
                                                                       Sarbanes-Oxley Act

     32.1         10-K              Fiscal year ended                  Certification of Chief Executive Officer
                                    July 31, 200                       pursuant to Section 906 of the
                                                                       Sarbanes-Oxley Act

     32.2         10-K              Fiscal year ended                  Certification of Chief Financial Officer
                                    July 31, 2005                      pursuant to Section 906 of the
                                                                       Sarbanes-Oxley Act
</TABLE>



* Indicates management contract or compensatory plan or arrangement.





                                   SIGNATURES

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


                                              POSSIS MEDICAL, INC.

                                              by: /S/ JULES L. FISHER
                                              --------------------------------
                                              Jules L. Fisher
                                              Chief Financial Officer and
                                              Vice President of Finance



Dated:  October 7, 2005



                                       51
<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.

     Signature                 Title                           Date

/s/ Robert G. Dutcher          Chairman, President and         October 7, 2005
Robert G. Dutcher              Chief Executive Officer
                               (Principal Executive Officer)


/s/ Jules L. Fisher            Chief Financial Officer and     October 7, 2005
Jules L. Fisher                Vice President of Finance
                               (Principal Financial and
                               Principal Accounting Officer)

/s/ Mary K. Brainerd           Director                        October 7, 2005
Mary K. Brainerd


/s/ Seymour J. Mansfield       Lead Director                   October 7, 2005
Seymour J. Mansfield


/s/ William C. Mattison, Jr.   Director                        October 7, 2005
William C. Mattison, Jr.


/s/ Whitney A. McFarlin        Director                        October 7, 2005
Whitney A. McFarlin


/s/ Donald C. Wegmiller        Director                        October 7, 2005
Donald C. Wegmiller


/s/ Rodney A. Young            Director                        October 7, 2005
Rodney A. Young





                                       52
<PAGE>







                                                                     SCHEDULE II

                              POSSIS MEDICAL, INC.



VALUATION ACCOUNTS
YEARS ENDED JULY 31, 2005, 2004 AND 2003

<TABLE>
<CAPTION>

              COLUMN A                            COLUMN B          COLUMN C                 COLUMN D           COLUMN E
--------------------------------------------------------------------------------------------------------------------------
Allowance for doubtful accounts and returns
- deducted from trade receivables in the
balance sheet:


                                                 Beginning        (Reversal of)             Deductions        Balance at
    Description                                   of Year            Expenses               Write-offs       End of Year
------------------------                        -----------      -----------------       -----------------    ------------
<S>                                            <C>              <C>                     <C>                    <C>
Year ended July 31, 2005                        $   536,000      $         682,000       $         548,000      $670,000
                                                ===========      =================       =================      ========
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
                                                ===========      =================       =================      ========


Valuation allowance on
deferred tax asset:

Year ended July 31, 2005                        $   690,000      $            --         $            --        $690,000
                                                ===========      =================       =================      ========
Year ended July 31, 2004                            740,000                   --                    50,000       690,000
                                                ===========      =================       =================      ========
Year ended July 31, 2003                         10,518,000             (9,778,000)                   --         740,000
                                                ===========      =================       =================      ========

</TABLE>



                                       53
<PAGE>









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

                                  EXHIBIT INDEX
Exhibit
Number          Description


10.14    Lease agreement for additional corporate and manufacturing facilities
         dated May 26, 2004

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



                                       54