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

                                    FORM 10-K
                                AMENDMENT NO. 1

              [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
                       THE SECURITIES EXCHANGE ACT OF 1934
                     FOR THE FISCAL YEAR ENDED JULY 31, 2000

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

                        Commission file number 001-12567
                              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)

     Aggregate  market value of the voting stock held by  non-affiliates  of the
registrant as of September 30, 2000 was approximately $112,705,000.

     The number of shares  outstanding  of the  registrant's  common stock as of
September 30, 2000: 16,696,156.

     Certain  responses  in Part III are  incorporated  herein by  reference  to
information  contained in the Company's  definitive Proxy Statement for its 2000
annual  meeting  to  be  filed  on or  before  November  28,  2000  ("The  Proxy
Statement").

<PAGE>

                              POSSIS MEDICAL, INC.

     This Amendment No. 1 to Possis  Medical,  Inc.'s Annual Report on Form 10-K
is  being  filed  by the  Company  in order to  expand  on and  clarify  certain
disclosures  contained in its  previously  filed  Annual  Report on 10-K for the
fiscal year ended July 31, 2000.  This Amended Form 10-K  contains  revisions to
the business  description  section of the report and to Management's  Discussion
and  Analysis of Financial  Condition  and Results of  Operations.  This amended
report  contains  no  revisions  to  financial  results   previously   reported.


Forward-Looking Statements

     This  report on Form  10-K,  including  the  description  of the  Company's
business and  Management's  Discussion  and Analysis of Financial  Condition and
Results of Operations,  contains certain "forward-looking statements" as defined
in the  Private  Securities  Litigation  Reform  Act of  1995.  Such  statements
relating  to future  events  and  financial  performance,  including  statements
relating to the  Company's  ability to establish an adequate  recurring  revenue
stream from U.S.  AngioJet(R)  System  disposable sales, the ability to maintain
manufacturing  yields at acceptable levels,  changes in the Company's  marketing
strategies,  the ability to grow sales while  maintaining  its current  level of
U.S.  sales force,  the ability to achieve  growing  acceptance  of the AngioJet
System,  the  ability to control  expenses  in order to become  profitable,  the
ability to develop  new  products,  the ability to raise  additional  capital on
acceptable  terms,  the  results of  clinical  trials and the ability to achieve
levels of interest income and interest expense.  These statements  involve risks
and  uncertainties,  and  consequently,  actual results may vary materially from
those projected in the forward-looking statements. It is not possible to foresee
or identify all factors  affecting  the Company's  future  results and investors
therefore  should not  consider  any list of such  factors  to be an  exhaustive
statement of all risks and uncertainties.  Although it is not possible to create
a comprehensive list of all factors that may cause actual results to differ from
the Company's  forward-looking  statements,  these factors include trends toward
managed health care, health care cost containment, the trend of consolidation in
the medical device industry,  difficulties and uncertainties associated with the
lengthy and costly new product development and regulatory  clearance  processes,
changes in government laws and regulations and the enforcement there of that may
be adverse to the Company,  the development of new products by competitors  that
may make our products obsolete,  and economic factors over which the Company has
no control,  including changes in inflation and interest rates.  These and other
risk  factors  set  forth in the risk  factors  included  in  Exhibit  99 to the
Company's registration statement on Form S-3 dated April 17, 2000 are filed with
the Securities and Exchange Commission.



                                     PART I
Item 1.  Business:

General

     Possis Medical, Inc. (the Company) was incorporated in 1956 and went public
in 1960 as Possis Machine  Corporation.  Initial operations consisted of design,
manufacturing,  and sales of  industrial  equipment and a division that provided
temporary technical personnel.  The Company's  involvement with medical products
began in 1976, when it sold its rights to a patented bileaflet  mechanical heart
valve,  which it had obtained from Zinon C. Possis,  the founder of the Company,
to St. Jude Medical,  Inc. for royalty payments based on St. Jude's valve sales.
In 1982 a subsidiary was  established to focus initially on the development of a
synthetic  blood vessel used to bypass blocked  coronary  arteries.  In the late
1980's the Company decided to leverage existing management expertise and entered
the pacemaker lead  business.  The strategic role of the pacemaker lead business
was to  provide  cash  flow to fund the  development  of  synthetic  grafts  and
thrombectomy  systems  and to give the  Company  access to and name  recognition
within the medical  device  industry.  In 1990 the Company  made the decision to
focus on medical products and subsequently divested all non-medical  operations,
beginning with its Technical Services division in September 1991 followed by its
industrial  equipment subsidiary and related land and buildings in January 1994.
These  sales  enabled  Possis  to  focus  its  human  and  financial   resources
exclusively on medical  products,  which are currently in clinical trials and in
early stages of commercialization.

<PAGE>

Products

     ANGIOJET(R) RHEOLYTIC(TM) THROMBECTOMY SYSTEM. The development of blood
clots in various sites within the vascular system is common and is one of the
leading causes of morbidity and death. Blood clots may be caused by multiple
factors, including cardiovascular disease, trauma, impediment of normal flow
during invasive procedures or 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. In addition, if a blood clot breaks off
(emboli), it can travel through the bloodstream and block blood flow to other
organs and tissue. Conditions caused by blood clots include peripheral ischemia,
which can lead to limb loss, vascular access failure, pulmonary embolism, acute
myocardial infarction (heart attack), stroke and deep vein obstruction.

     Currently,  the three primary methods of removing intravascular blood clots
are surgery, drugs and mechanical devices.  Thrombolytic drug treatment involves
the administration of a drug designed to dissolve the blood clot in an intensive
or critical care setting.  Thrombolytic  drugs may require prolonged infusion to
be effective, 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.  Currently, other classes of drugs, specifically glycoprotein llb/llla
inhibitors,  are being used to treat blood clots. Mechanical devices such as the
Fogarty-type catheter operate by inflating a balloon past the point of the blood
clot and then  dragging  the blood clot out of the  patient's  body  through the
artery.  Fogarty-type catheters require surgical intervention,  which may result
in overnight  hospital  stays,  are more limited in their  applications  and may
cause significant vascular trauma.

     The Company believes that its AngioJet System represents a rapid, safe, and
medically effective approach to the removal of blood clots from arteries,  veins
and grafts and offers certain advantages over current methods of treatment.  The
AngioJet System is a non-surgical,  minimally  invasive catheter system designed
for rapidly  removing  blood clots with minimal  vascular  trauma.  The AngioJet
System  consists of three major  components:  a reusable drive unit to power the
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.  In early stages of commercialization and in U.S. clinical
trials,  the  AngioJet  System  has  demonstrated  the  ability  to  safely  and
effectively  remove  blood  clots  within  seconds to minutes  without  surgical
intervention and minimizing the risk of uncontrolled bleeding.

     To operate the AngioJet System, a physician first threads a catheter 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 10,000  pounds  per square  inch (psi) and send it down the  catheter.
Saline jets spray  backwards  down the catheter at half the speed of sound.  The
result is a  jet-action  that 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  an  opening  at the tip.  The jets then  blast the clot  material  into
microscopic fragments which are immediately propelled down the catheter,  out of
the  patient's  body and into a disposable  collection  bag located on the drive
unit.

     The AngioJet Rheolytic  Thrombmectomy System is a pioneering device for the
removal of intracoronary  blood clots in a variety of FDA-approved and off-label
indications.  It is typically  used in conjunction  with other medical  devices,
such as angioplasty  balloons and stents, and drugs, such as thrombolytics.  For
these reasons,  the market potential is not readily  quantifiable through widely
published industry statistics.  The approach of the Company has been to estimate
the total  number  of cases  for a given  indication  in a  particular  vascular
territory.  These statistics are available through industry sources. The Company
then estimates the number of procedures that might be amenable to treatment with
the AngioJet,  in conjunction with other  therapies,  both devices and drugs. In
making these  estimates for the number of cases  amenable to treatment  with the
AngioJet,  the Company  has relied on its own  estimates,  as well as  estimates
based on data  provided  by  physician  consultants,  presentations  at  medical
industry   conferences,   peer-reviewed   journal  articles,   security  analyst
publications, and publications by industry trade and consulting groups. In cases
where little or no reliable data exists,  relatively simple "rules of thumb" are
used to estimate  figures for  statistics  like worldwide  patient  incidence of
certain  conditions.  We believe  that the  totality of these  sources  provides
estimates which are directionally and relatively accurate,  although the Company
cannot guarantee that they are absolutely accurate.



<PAGE>

     The Company's marketing analysis indicates that the versatile AngioJet
System may be effective for the treatment of various blood clot-induced
conditions throughout the vasculature. The following table shows the vascular
territories and indications for which the AngioJet System may be used. In
addition, the table indicates the annual incidences worldwide and the Company's
estimated AngioJet System annual market potential.

<TABLE>
<CAPTION>

                                                                                 AngioJet
                                                              Estimated           System
                                                                Annual            Annual
                                                              Worldwide           Market
                                                              Incidence         Potential
  Vascular Territory               Indication                (Patients)        (Procedures)
<S>                       <C>                                <C>                <C>
Coronary (1)              Heart Attacks & Unstable Angina     5,300,000           550,000
Legs (2)                  Leg Arteries & Bypass Grafts        1,300,000           220,000
A-V Access (3)            Hemodialysis Graft Thrombosis         400,000           190,000
Lungs                     Pulmonary Embolism                  1,000,000           200,000
Cerebral (4)              Ischemic Stroke                     1,900,000           380,000
Venous Cerebral SInus     Stroke                                  4,500             2,000
Cervical Carotid          Stroke                                  6,600             1,000
Venous                    Deep Vein Thrombosis                2,500,000           900,000

                  Total                                      12,411,100         2,443,000

(1) Marketed under March 1999 FDA approval.
(2) Marketed under April 2000 FDA apparoval.
(3) Marketed udnder December 1996 approval.
(4) In clinical trials.

</TABLE>


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

     The VeGAS 2  randomized,  coronary  clinical  trial  compared  the AngioJet
System with the thrombolytic drug, Urokinase.  In the setting of a double-blind,
randomized  trial,  the AngioJet  System  proved to be medically  effective  and
cost-effective  compared to Urokinase.  Cost savings  averaged nearly $5,000 per
patient.  These results have been presented by physician  investigators at major
medical meetings, and they will be published in calendar 2001.

     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
current practices excluding the AngioJet.  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 settings  of  non-randomized
patient sets and not in randomized, clinical trials.


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

     PERMA-SEAL(R) GRAFT. The Perma-Seal Graft is a self-sealing synthetic graft
comprised of silicone elastomers,  with a winding of polyester yarn encapsulated
within its wall, and is manufactured  using proprietary  electrostatic  spinning
technology developed by the Company. The Perma-Seal Graft is implanted in kidney
dialysis  patients to provide  necessary  vascular access.  The Company believes
that its  Perma-Seal  Graft may offer  advantages  over currently used synthetic
grafts because of its needle hole sealing capability.  The Company believes that
this  characteristic  will be effective in sealing  puncture sites in the grafts
with  minimal  compression  time and  bleeding as  compared  to other  currently
available graft products and, as a result,  will reduce dialysis  procedures and
administrative time per patient and the costs associated therewith. In addition,
because of its ability to seal a needle  puncture  without  depending  on tissue
ingrowth,  the  Perma-Seal  Graft may provide an option for patients who require
dialysis  immediately after implant. The Company,  however,  recognizes that the
market potential for this product is limited by its FDA approved labeling, which
specifies that it is aproved for use in dialysis  patients  requiring  immediate
access for  hemodialysis.  The  Company  currently  sells its  Perma-Seal  Graft
through an independent distributor. Due to slow sales by its distributor, fiscal
2001 sales are expected to be minimal.

<PAGE>

     PERMA-FLOW(R)  CORONARY BYPASS GRAFT.  The Perma-Flow  Graft is a synthetic
graft 5mm in diameter for use in coronary  artery  bypass graft (CABG)  surgery.
The Perma-Flow Graft is intended to provide a graft  alternative to patients who
require bypass surgery but have  insufficient or inadequate  native vessels as a
result of repeat  procedures,  trauma,  disease  or other  factors.  The  market
potential  for this graft  product was deemed  smaller than our  pre-development
estimates.  This fact, along with limited capital,  precluded  pursuing a market
for  an  implantable  graft  and a  disposable  product,  the  AngioJet  System,
simultaneously. A business decision was, therefore made to focus on the AngioJet
System business.

     ePTFE  SYNTHETIC  VASCULAR  GRAFT.  In February 1999, the Company  received
510(k)  approval from the FDA to market three  expanded  polytetrafluoroethylene
("ePTFE")  synthetic  vascular grafts.  ePTFE synthetic  vascular grafts are the
most commonly used synthetic grafts in peripheral vessel bypass  procedures.  In
2000, the Company  estimates  270,000  peripheral  grafting  procedures  will be
performed worldwide,  with 200,000 of these in the United States.  Currently the
Company has put all graft development  activities on hold as it concentrates its
efforts on the development on new AngioJet System applications.


Research and Development

     The Company's  research and development  program for its existing  products
are focused  primarily  on clinical  testing,  obtaining  necessary  FDA product
registrations  and validating  manufacturing  processes for the AngioJet System.
The  Company's  new  product   development  efforts  are  focused  primarily  on
developing   additional   applications  of  the  AngioJet  Thrombectomy  System,
including neurovascular and large vessel applications.  The Company is exploring
AngioJet System applications for other blood clot conditions, such as removal of
intracranial blood clot in head trauma cases.  Research and development expenses
are  generally  incurred  for product  design,  development  and  qualification,
development and validation of manufacturing process, conduct of clinical trials,
and seeking and obtaining  governmental  approvals.  The Company's  research and
development  expenses  are  expected to stay at its  current  levels or slightly
increase as the  Company  continues  its  clinical  trials and  current  product
development plans.

     As of September 30, 2000, the Company  employed  approximately 37 full-time
employees  in research  and  development,  including  30 in new product  concept
screening,  prototype building,  product and process development and validation,
and seven in regulatory and clinical affairs. The Company performs substantially
all of its research  and  development  activities  at its  headquarters  in Coon
Rapids,  Minnesota, a suburb of Minneapolis,  Minnesota.  The Company spent $5.5
million,  $5.7  million  and  $5.2  million  in  fiscal  2000,  1999  and  1998,
respectively,  on medical  product  research and  development.  AngioJet  System
research  and  development  expense for fiscal  2000,  1999,  and 1998 were $5.5
million, $4.4 million, and $3.1 million,  respectively.  Vascular graft research
and  development  expense  for fiscal  1999 and 1998 were $1.3  million and $2.0
million, respectively.

<PAGE>

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  of the  components  used  in the  production  process.  Many of the
processes are proprietary and were developed by us. The Company believes that as
product and process  improvements  are identified,  our ability to control costs
and quality will improve.  Raw materials,  components and subassemblies  used in
our products are purchased  from outside  suppliers  and are  generally  readily
available from multiple sources.

     Our  manufacturing  facilities  are  subject  to  periodic  inspections  by
regulatory   authorities,   including  Good  Manufacturing  Practice  compliance
inspections  by the FDA and the TuV  Product  Services.  TuV is a notified  body
designated by the European Union nationally competent authorities (Ministries of
Health)  to  determine  whether  a  product  can  display  the CE mark.  We have
undergone inspections by the FDA for Good Manufacturing Practices compliance and
the TuV each year since 1998. All Possis products currently carry the CE mark in
the European Community.

     FDA inspections focus on Good  Manufacturing  Practices (GMP) as defined in
federal  regulation  21CFR820.   These  regulations  define  standards  for  the
manufacturing  and quality systems used to produce medical devices.  The FDA has
conducted  inspections of Possis Medical,  Inc. at regular intervals since 1993,
and prior to approval of some Possis Medical, Inc. marketing applications.  Some
of these inspections have identified deficiencies in our compliance with certain
GMP  requirements,  including  systems  to  address  corrective  and  preventive
actions,  complaint processing,  design and process validation,  material reject
trending and use of statistical techniques. These deficiencies are currently the
subject of a concerted effort to revise our  manufacturing  and quality systems.
The FDA has reviewed our plans for this work and has deemed them  adequate.  The
risk of non-compliance includes seizure,  injunction and/or civil penalties. The
Company does not anticipate any adverse FDA action.

Marketing and Sales

     The  Company  is   marketing   its   AngioJet   System  to   interventional
cardiologists,  interventional  radiologists,  vascular  surgeons  and  also  to
physician  specialty groups,  including  vascular,  cardiovascular  and thoracic
surgeons.  Revenues  from  AngioJet  System  sales  in the  United  States  were
approximately  93%,  91%,  and 93% of  fiscal  2000,  1999,  and 1998  revenues,
respectively.

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

     The AngioJet  System is  currently  marketed by a direct sales force in the
United States.

     The Company is currently  marketing its AngioJet  System outside the United
States using an independent distributor network.  Generally, the distributorship
agreements are for an initial  five-year term and provide that the distributors,
at  their  own  expense,  will  investigate,  negotiate  and  obtain  regulatory
approvals for the Company's products in the specified territory.  All sales made
to the  Company's  independent  distributors  are  denominated  in United States
dollars.

     In December 1998, the Company  entered into an exclusive  worldwide  supply
and distribution  agreement for its Perma-Seal  Dialysis Access Graft. The first
shipment under the distribution agreement was made in January 1999. In September
2000, the distributor was in  non-compliance  with the terms of the distribution
agreement and the Company is currently reviewing its options.

     A goal of the Company is to maximize the value of vascular  graft  products
and  technologies  for its  shareholders.  Its  strategy is to seek  partners to
distribute the products and possibly fund the graft product development program.
In  addition,  the  Company  will  continue to pursue the  possible  sale of the
vascular graft products and technologies.

<PAGE>

     Promotional  activities by the Company are designed primarily to enlist the
support of key medical  opinion  leaders in the United  States and  abroad.  The
Company  believes  that  opinion  leader  publications  in medical  journals and
presentations  at medical  meetings  will be  especially  important to encourage
broad  acceptance of its products.  Other marketing  activities  include medical
journal advertising,  participating in medical meetings,  and supporting studies
designed to gather cost effectiveness data of the Company's products compared to
conventional treatment.


Patents, Patent Applications, Licenses and Proprietary Rights

     The  Company's  success  depends and will continue to depend in part on its
ability to maintain  patent  protection for products and processes,  to preserve
its trade secrets and to operate without  infringing the  proprietary  rights of
third parties.  The Company's policy is to attempt to protect its technology by,
among other things,  filing patent applications for technology that it considers
important to the  development of its business.  The patents held and applied for
by the Company  describe method and apparatus claims related to thrombectomy and
atherectomy  devices,  as well as method  and  apparatus  claims  related to the
design and use of  synthetic  vascular  grafts.  The Company  holds eight United
States patents and three foreign patents relating to the AngioJet System. Of the
eight  U.S.  patents,  six were  filed  between  1990 and 1995 and are valid for
seventeen  years following  issuance.  Two of the  AngioJet-related  patents are
valid for twenty years  following  their 1998 filing  dates.  In  addition,  the
Company has ten United States and twenty-six foreign patent applications pending
relating to the AngioJet  System.  In connection with the Perma-Seal  Graft, the
Company holds two United States and one foreign  patent and four foreign  patent
applications are pending.  Both Perma-Seal patents are valid for seventeen years
following their 1999 and 1998 issuance dates.  The Company  currently holds five
United States patents and seventeen  foreign  patents  related to the Perma-Flow
Graft and has two patent  applications  pending  in the  United  States and five
patent  applications  pending in foreign  jurisdictions.  The Perma-Flow patents
issued between 1984 and 1990 and are valid for seventeen  years  following their
issuance dates. The validity and breadth of claims covered in medical technology
patents  involve  complex legal and factual  questions  and,  therefore,  may be
highly  uncertain.  No  assurance  can  be  given  that  the  Company's  pending
applications  will  result in patents  being  issued  or, if  issued,  that such
patents,  or  the  Company's  existing  patents,   will  provide  a  competitive
advantage, or that competitors of the Company will not design around any patents
issued to the Company. In addition, no assurance can be given that third parties
will not receive patent protection on their own waterjet devices.

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

     There can be no assurance that the Company's non-disclosure  agreements and
other  safeguards  will  protect its  proprietary  information  and  know-how or
provide  adequate  remedies for the Company in the event of unauthorized  use or
disclosure of such information, or that others will not be able to independently
develop such information. There has been substantial litigation regarding patent
and  other  intellectual   property  rights  in  the  medical  device  industry.
Litigation, which could result in substantial cost to and diversion of effort by
the  Company,  may be  necessary to enforce  patents  issued to the Company,  to
protect  trade secrets or know-how  owned by the Company,  to defend the Company
against  claimed  infringement  of the  rights  of others  or to  determine  the
ownership,  scope or  validity  of the  proprietary  rights of the  Company  and
others.  An adverse  determination  in any such  litigation  could  subject  the
Company to significant  liabilities to third parties,  could require the Company
to seek  licenses  from  third  parties  and  could  prevent  the  Company  from
manufacturing, selling or using its products, any of which could have a material
adverse effect on the Company.

<PAGE>

Competition

     The Company's products will compete with a number of different products and
treatment methods for the conditions they address. The Company believes that its
AngioJet System will face intense  competition  from a variety of treatments for
the ablation and removal of blood clots,  including thrombolytic drug therapies,
particulate capture systems,  direct stenting,  surgical  intervention,  balloon
embolectomy, mechanical and laser thrombectomy devices, ultrasound ablators, and
other  thrombectomy  devices based on waterjet  systems that are currently being
developed by other companies.

     The medical products market is characterized by rapidly evolving technology
and intense  competition.  The future  success of the Company will depend on its
ability to keep pace with advancing technology and competitive innovations. Many
potential  competitors  have  significantly  greater  research  and  development
capabilities,   experience  in  obtaining  regulatory   approvals,   established
marketing  and  financial  and  managerial  resources  than  the  Company.  Many
potential  competitors  have  developed  or  are in the  process  of  developing
technologies  that are,  or in the  future  may be,  the  basis for  competitive
products,  some of which may employ an entirely  different  approach or means of
accomplishing  the desired  therapeutic  effect than products being developed by
the Company.

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

     In  the  coronary  area,  there  are  no  other  FDA  approved   mechanical
thrombectomy devices. In the peripheral arteries, there is no other FDA approved
mechanical  device.  In the A-V  access  area,  there  are  numerous  mechanical
devices,  under many different trade names; no individual  device has a dominant
share of the market. This market is extremely price sensitive, so devices do not
necessarily gain share because of improved performance and effectiveness alone.


Government Regulation

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

     FDA regulations place the Company's products in either Class II or III (the
highest  level),  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 for AV access
graft thrombectomy are subject to pre-market notification (510(k) submission) to
the  FDA,  whereas  AngioJet  for  treating  coronary  thrombus  is  subject  to
pre-market  approval  (PMA) by the FDA,  and  subsequent  annual  and  other PMA
supplement  reporting  requirements.  While FDA  attempts to complete  review of
these different types of pre-market  submissions within specific  timeframes (90
days  for a  510(k);  180  days  for a PMA),  final  action  by the FDA may take
considerably  longer.  Any  adverse  determination  or  request  for  additional
information could delay market introduction and have a materially adverse effect
on the Company's continued operations.

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

<PAGE>

     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 510k submissions.


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

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

     The Perma-Sea  Dialysis Access Graft was FDA-approved for marketing under a
PMA in September  1998.  The  Perma-Flow  Coronary  Artery  Bypass Graft was FDA
approved for marketing under an HDE in April 1998.

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

     The Company  conducts  sales and marketing  activities  in various  foreign
countries. The time required to obtain approval to market a product in a foreign
country may be longer or shorter than that  required for FDA  approval,  and the
requirements may differ.  All the Company's  products  currently  display the CE
Mark,  allowing  import to the European Union Approval to display the CE Mark is
dependant  in  part  on  annual   inspections  by  representatives  of  European
regulatory  bodies  to  successfully  demonstrate  compliance  with the ISO 9001
Quality Standards

     There  can  be  no  assurance   that  future   changes  in  regulations  or
interpretations  made by the  FDA or  other  regulatory  bodies,  with  possible
retroactive effect, will not adversely affect the Company.


Employees

     As of September 30, 2000, the Company had 228 full-time employees, and five
contract  employees.  Of  these  full-time  employees,  37 are in  research  and
development,  80 are in manufacturing and production, 18 are in quality systems,
six are in  facilities/maintenance,  67 are in sales and marketing and 20 are in
management or  administrative  positions.  None of the  Company's  employees are
covered by a collective  bargaining  agreement,  and  management  considers  its
relations with its employees to be good.

Item 2.  Properties:

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

<PAGE>

Item 3.  Legal Proceedings:

None

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

None

<PAGE>


                      EXECUTIVE OFFICERS OF THE REGISTRANT


      Name             Age                    Position

Robert G. Dutcher       55    Director,
                              Chief Executive Officer and President

Eapen Chacko            52    Vice President of Finance
                              and Chief Financial Officer

Irving R. Colacci       47    Vice President of Legal Affairs
                              and Human Resources General Counsel and Secretary

James D. Gustafson      44    Vice President of Quality Systems
                              and Regulatory/Clinical Affairs

T. V. Rao               57    Vice President and General Manager

Martin A. Rossing       47    Vice President of Technology and
                               Product Development

Robert J. Scott         55    Vice President of Manufacturing Operations


     Robert G. Dutcher has served as Chief Executive Officer and President,  and
has been a director of the Company since October 1993. Since 1987, he has served
as President and Chief Operating Officer of Possis Holdings,  Inc. (a subsidiary
formerly  known as Possis  Medical,  Inc.).  Prior to joining the  Company,  Mr.
Dutcher had served in several  positions  (most recently as Director of Research
and  Development) at Medtronic,  Inc. Mr. Dutcher  received a master's degree in
biomedical engineering from the University of Minnesota.


     Eapen Chacko has served as Vice  President  of Finance and Chief  Financial
Officer since September 2000. Mr. Chacko joined the Company in September 1999 as
Vice President of Investor/Public Relations.  Before joining Possis Medical, Mr.
Chacko had been Director of Investor Relations for Fingerhut Companies,  Inc., a
$2 billion  direct  marketing  company,  since March 1995.  Mr.  Chacko earned a
master's degree in economics from The Johns Hopkins University.


     Irving R. Colacci has served as Vice  President  and General  Counsel since
December 1993, and as Secretary and Corporate  Counsel of the Company since July
1988.  From 1988 to 1993,  Mr.  Colacci also served in various other  management
positions with the Company and its subsidiaries. Prior to joining the Company in
1988, Mr. Colacci was an associate attorney at Dorsey & Whitney LLP, a major law
firm in Minneapolis.  Mr. Colacci  received his law degree from William Mitchell
College of Law.


     James D.  Gustafson  has served as a Vice  President  of the Company  since
January  1,  1994;  prior  to  this  he was  Director  of  Quality  Systems  and
Regulatory/Clinical  Affairs for Possis Holdings, Inc. since his hire June 1993.
Prior to joining the Company,  Mr.  Gustafson  had served as Manager of Clinical
and  Regulatory  Affairs and of Clinical  Programs at St. Jude Medical,  Inc., a
medical device manufacturer, since June 1989, and as a Senior Clinical Scientist
at Shiley, Inc., Irvine, California,  since March 1985. Mr. Gustafson received a
master's  degree in management from University of Redlands and a master's degree
in biology from the University of California at Irvine.

<PAGE>

     T. V. Rao has  served  as Vice  President  and  General  Manager  of Possis
Medical  since  February  1999.  From June 1988 to  February  1999,  he was Vice
President and General  Manager of the AngioJet System  business.  Before joining
the Company, Mr. Rao served as Vice President of Sales and Marketing for Angeion
Corporation  from  July  1995 to June  1998,  as Vice  President  of  Sales  and
Marketing for Brunswick  Biomedical  Corporation from July 1994 to June 1995 and
served  in  several   positions   (most   recently  as  Director  of  Marketing,
Tachyarrhythmia Business) at Medtronic Inc. since 1980. Mr. Rao holds a master's
degree in business from the College of St. Thomas.


     Martin A.  Rossing  joined  Possis  Medical,  Inc. in March of 2000 as Vice
President of Technology and Product  Development.  Prior to joining the Company,
Mr.  Rossing  served in several  positions,  most  recently  as Sr.  Director of
Implantable Defibrilator Development, at Medtronic since 1973. Mr. Rossing holds
a MBA from Minnesota's Carlson School of Management.


     Robert J. Scott has served as Vice  President of the Company since December
1993, as Vice President of  Manufacturing  Operations of Possis  Holdings,  Inc.
since 1988 and was Director of  Manufacturing  Operations  for Possis  Holdings,
Inc. from 1984 through 1988. Prior to joining the Company,  Mr. Scott had served
as a consultant to various medical and nonmedical manufacturing companies and as
Manufacturing  Manager for Aequitron  Medical,  Inc. and  Resistance  Technology
Incorporated  and  in  various  corporate  and  technical   positions  for  Daig
Corporation  and  Medtronic,   Inc.  Mr.  Scott  has  an  associates  degree  in
electronics  and a bachelor  of science  degree in  business  from  Northwestern
College.

<PAGE>

                                     PART II

     Item 5. Market for the Registrant's  Common Equity and Related  Stockholder
Matters:

     The Company had 1,613 common  shareholders  of record at July 31, 2000. The
common stock is traded on The Nasdaq  Stock  Market under the symbol POSS.  High
and low closing sale prices for each quarter of fiscal years ended July 31, 2000
and 1999 are presented below:

<TABLE>


                                           2000                  1999
                                     High       Low        High        Low
   <S>                              <C>        <C>        <C>        <C>
   QUARTER:
     First.................         $12.50     $8.06      $ 9.88     $ 4.31
     Second................          11.37      7.63       11.38       6.75
     Third.................          14.12      8.28       14.88       7.50
     Fourth................           8.63      6.00       12.50      10.31

</TABLE>

     The Company has not paid cash dividends on its common stock since 1983. The
Company  currently  intends to retain all  earnings  for use in its business and
does not anticipate paying cash dividends in the foreseeable future.

     On March 6, 2000,  the Company sold an  aggregate  of  1,594,049  shares of
Common Stock and warrants to purchase a total of 318,810  shares of Common Stock
for aggregate  consideration of $15,000,000.  The securities were privately sold
to accredited  investors.  Gerard, Klauer & Mattison received a placement fee of
$900,000 in connection with the private placement. The warrant exercise price is
$12.67 per share,  and the warrants are  exercisable for a period of four years.
The securities were sold pursuant to Rule 506 of Regulation D promulgated  under
the Securities Exchange Act of 1934.

<PAGE>


Item 6. Selected Financial Data:

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

<TABLE>
<CAPTION>

In Thousands Except Per Share Data
                                                       2000           1999              1998             1997              1996
<S>                                                <C>             <C>              <C>              <C>               <C>
INCOME STATEMENT DATA:
Operating revenues-
     Continuing operations......................    $ 20,428       $ 13,123          $  6,118         $  4,834          $  1,606
Net income (loss):
     Continuing operations......................     (10,590)       (12,021)          (11,969)          (8,608)           (8,578)
Discontinued operations.........................        --             --                --                112               405
Net income (loss) per common share -
     basic and diluted:
     Continuing operations......................        (.67)          (.90)             (.98)            (.71)             (.74)
     Discontinued operations....................          --             --                --              .01               .04
Weighted average shares outstanding -
    basic and diluted...........................      15,697         13,356            12,191           12,099            11,611

BALANCE SHEET DATA:
    Working capital.............................    $ 16,788        $13,530           $16,598          $16,840           $24,780
Total assets....................................      25,004         19,821            23,897           22,423            29,361
Long-term debt,
        excluding current maturities............           7            100            11,493               10                39
Shareholders' equity............................      20,495         16,315             8,744           19,800            27,597

</TABLE>



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



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

General

     The  Company  was  incorporated  in 1956 and went  public in 1960 as Possis
Machine Corporation.  Initial operations consisted of design,  manufacturing and
sales of industrial  equipment and a division that provided temporary  technical
personnel.  The Company's  involvement with medical products began in 1976, when
it sold its rights to a patented bileaflet  mechanical heart valve, which it had
obtained from Zinon C. Possis, the founder of the Company,  to St. Jude Medical,
Inc. for royalty  payments based on St. Jude's valve sales. In 1982 a subsidiary
was  established  to focus  initially on the  development  of a synthetic  blood
vessel used to bypass blocked coronary arteries.  In the late 1980's the Company
decided to leverage existing management expertise and entered the pacemaker lead
business.  The strategic role of the pacemaker lead business was to provide cash
flow to fund the development of synthetic grafts and thrombectomy systems and to
give the  Company  access to and name  recognition  within  the  medical  device
industry. In 1990 the Company made the decision to focus on medical products and
subsequently divested all non-medical  operations,  beginning with its Technical
Services  division  in  September  1991  followed  by its  industrial  equipment
subsidiary  and related land and  buildings in January  1994.  In March 1994 the
Company sold its pacemaker lead business  because it  anticipated  that revenues
from this business would decrease due to a pacemaker lead technology shift. This
sale enabled Possis to focus its resources  exclusively  on its other  products,
which are currently in clinical trials and in early stages of commercialization.

<PAGE>

     The Company operates in one business segment -- the manufacture and sale of
medical devices. Possis Medical, Inc. 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.

     Over the past  several  fiscal  years,  the  Company has  transitioned  its
revenue  stream from pacemaker  leads and royalty  revenues to revenues from the
sale  of  its  new  products.   The  resulting  cash  flow,  together  with  the
approximately  $34.0 million net proceeds  from the Company's  calendar 1994 and
1995 common stock offerings,  the $12.0 million gross proceeds from the issuance
of 5%  convertible  subordinated  debentures  in 1998,  the $7.0  million  gross
proceeds from the  Company's  1999 private  placement of common  stock,  and the
$15.0 million gross proceeds from the Company's 2000 private placement of common
stock, have been used to fund the Company's  operations,  including research and
development related to its products.  Over 98% of fiscal 2000 revenues were from
product sales in the United  States.  The  importance  of United States  revenue
generation is expected to continue for the foreseeable future.


Results of Operations

Fiscal Years ended July 31, 2000, 1999 and 1998

     Total product sales for 2000 increased  $7,305,000,  or 56%, to $20,428,000
compared  to  $13,123,000  in 1999.  Total  product  sales  for  1999  increased
$7,005,000,  or 115%, to  $13,123,000  compared to $6,118,000 in 1998.  The main
factors  in the  revenue  increase  were  the  April  2000  and  March  1999 FDA
clearances to commence  U.S.  marketing of the AngioJet  Rheolytic  Thrombectomy
System (AngioJet System), with labeling claims for removal of blood clots in leg
(peripheral)  arteries and in symptomatic  native coronary arteries and coronary
bypass grafts. U.S. AngioJet System product revenue was $19,029,000, $12,040,000
and $5,662,000 for fiscal 2000, 1999 and 1998, respectively.  This represents an
increase  of 58% and 113% in fiscal  2000 and 1999,  respectively,  compared  to
prior years.

Revenue - AngioJet

     As of July 31, 2000 the Company had a total of 493 domestic AngioJet System
drive units in the field, compared to 300 and 191 at the end of the previous two
fiscal years. During fiscal 2000 the Company sold approximately 16,100 catheters
and pump sets  versus  approximately  9,100  and 4,700 in fiscal  1999 and 1998,
respectively. This represents a 77% and 94% increase in unit catheter sales from
the previous years. The significant increases in unit catheter sales were due to
the April 2000 and March 1999 FDA  clearances to commence U.S.  marketing of the
AngioJet  System  with  labeling  claims  for  removal  of  blood  clots  in leg
(peripheral)  arteries and in symptomatic  native coronary arteries and coronary
bypass  grafts.  During the fiscal years ended July 31, 2000,  1999 and 1998 the
Company sold 138, 162 and 29 AngioJet  System  drive  units,  respectively.  The
decrease  in  AngioJet  System  drive unit sales in fiscal  2000 was due to cost
constraints at U.S.  hospitals  related to the Balanced  Budget Act of 1997. The
Balanced  Budget Reform Act of 1997 ("BBA")  mandated the removal of $17 billion
from  hospital  operating  budgets  by the end of 2002 and $61  billion by 2010.
Hospitals  responded  to this  mandate by freezing or reducing  expenditures  in
major cost centers such as the pharmacy,  and by deferring  purchases of capital
equipment such as the AngioJet drive unit. The extent of these cost  constraints
across  hospitals  and  within   departments  of  the  same  hospital  were  not
proportional,  and  depend  on the  unique  revenue,  cost  and  capital  budget
situation of the institution in question.  The significant  increase in AngioJet
System drive unit sales in fiscal 1999 was due to the FDA approval in March 1999
for use in the native coronary arteries and coronary bypass grafts.

     Of the 582 drive units in the field at the end of the most recent  quarter,
179  are  company-owned  and  are  being  used  by  customers  on  some  form of
evaluation.  The other 69  percent  of drive  units in the field have been sold.
Rental units are minimal and  immaterial  to revenue.  The change in this mix in
recent quarters has had a relatively minimal impact on margins.

<PAGE>

     Currently  the Company  lists its AngioJet  System  drive unit,  considered
capital equipment,  at $35,000 to U.S. Hospitals.  The Company employs a variety
of flexible drive unit acquisition programs including outright purchase, rental,
and capital free  program.  The capital free program  allows the customer to use
the drive unit in  exchange  for an  increase in the  catheter  unit price.  The
purchasing  cycle for the AngioJet  System drive unit varies from purchasing the
drive  unit with no  evaluation  to an  evaluation  period of up to six  months,
depending  on the  customer's  budget  cycle.  The Company has  recently  signed
contracts with three large purchasing  groups in order to accelerate  orders and
increase marketing penetration.  These purchasing groups acquire drive units for
their member hospitals at pre-negotiated  discounts. The large purchasing groups
received a modest  discount on their  purchases from the Company.  This discount
has been offset with the  increase  of sales with the large  purchasing  groups.
There has been no material negative effect on the Company's margins due to these
discounts.


     The  Company  expects  U.S.  AngioJet  System  sales  to  continue  to grow
primarily through obtaining  additional FDA approved product uses,  introduction
of new  catheter  models for  existing  indications,  more face time  selling to
existing  accounts,  peer-to-peer  selling,  and  the  publication  of  clinical
performance and cost effectiveness data. The recent sales increases are believed
to be generated  primarily from the FDA approval  received in April 2000 for use
of the AngioJet System for removal of blood clots in leg (peripheral)  arteries,
and the FDA  approval  received in May 2000 for its new Xpeedior  catheters  for
removing clots from dialysis access grafts.

     In April 2000,  the Company  received FDA clearance to market the Company's
LF140  catheter  for  treating  thrombus  in  leg  (peripheral)  arteries.  This
clearance  makes  the  AngioJet   System  the  first  and  only   new-generation
thrombectomy device with FDA-approved labeling for this indication. In May 2000,
the  Company  received  FDA  clearance  to market  its new  Xpeedior  60 and 100
catheters for removing clots from dialysis access grafts. The Xpeedior catheters
are the first  catheters  marketed by Possis  Medical  based on its  proprietary
Cross-Stream(TM)  Technology. This exclusive technology platform intensifies the
action at the tip of the  catheter,  which  doubles  the clot  removal  rate and
triples  the  treatable  vessel  size  compared  to other  available  mechanical
thrombectomy devices on the market today. In addition,  Cross-Stream  Technology
can deal more  effectively  with "mural  thrombus,"  the older,  more  organized
material that adheres to vessel walls and can complicate patient results.

     In  October  1999,   the  Company   received  full  FDA  approval  for  its
Investigational  Device Exemption (IDE) application for the clinical trial (Time
1) of the AngioJet System in the treatment of severe acute ischemic stroke.  The
first  patient was enrolled in May 2000.  After the first five patients had been
treated in the TIME 1 clinical trial for ischemic  stroke,  a planned review was
conducted.  This review  concluded  that the AngioJet  NV150  neurocatheter  can
access the middle  cerebral artery where most ischemic  strokes occur,  and that
the device can effectively remove clot from this territory. The review suggested
changes to the protocl covering a variety of areas, including patient selection,
exclusion criteria,  and specifications for physician technique in deploying and
moving  the  device  in  the  cerebral  vasculature.  Physician  reviewers  also
suggested changes to the device,  to improve the  trackability,  flexibility and
efficacy  profile.  Estimated  costs in making  these  enhancements  is  between
$500,000 and $1,000,000.  Patient enrollment in TIME 1 will continue after these
enhancements  are in place,  anticipated  for February 2001. Due to the start of
the stroke clinical  trial,  the Company has stopped  enrolling  patients in the
clinical trial of the AngioJet  System for use in the treatment of stroke caused
by the blockage of the carotid arteries, the main vessels supplying blood to the
brain.  A total of five patients were  enrolled in the carotid  stroke  clinical
trial  (ReACT).  Carotid  patients  proved  to be an  extremely  sick  subset of
patients  with  multiple  complications.  Although our device  initially  showed
favorable results in use for carotids (successful thrombus removal), the Company
estimated that the ischemic  stroke market was larger and more amenable to early
intervention using mechanical means.

<PAGE>

     Foreign sales of the AngioJet System during fiscal 2000, 1999 and 1998 were
$393,000, $491,000 and $351,000, respectively. The limited foreign sales are due
to cost constraints in overseas markets. In foreign markets, where public sector
funds are more  crucial for  hospital  operation,  Euro  devaluations  generated
higher public sector  deficits,  which, in turn,  forced  reductions in hospital
procedure and equipment budgets. In Japan, the coronary AngioJet System clinical
study was  completed  in April 1998 and a  regulatory  filing was  completed  in
November  1999 with the  Japanese  Ministry  of  Health  and  Welfare.  Japanese
approval  for  coronary  use of the  AngioJet  System is  expected by the end of
calendar 2000 or in early calendar 2001.

Revenue - Vascular Grafts

     During fiscal 2000, 1999 and 1998, sales of  Perma-Seal(R)  Dialysis Access
Grafts were  $1,006,000,  $593,000 and $0,  respectively.  In September 1998 the
Company  received FDA  marketing  approval for its  Perma-Seal  Dialysis  Access
Graft. In December 1998, the Company entered into an exclusive  worldwide supply
and distribution  agreement for its Perma-Seal  Dialysis Access Graft. The first
shipment  under  this  distribution  agreement  was  made in  January  1999.  In
September 2000, the distributor  failed to comply with  contractually  obligated
levels of product  purchases and failed to comply with payment  schedules.  This
put the distributor in  non-compliance.  The Company is currently  reviewing its
options.  Sales of Perma-Seal  Dialysis Access Grafts are expected to be minimal
in fiscal 2001.

     During 1998,  sales of  Perma-Flow(R)Coronary  Bypass  Grafts were $105,000
through a distributor.  In April 1998, the Company received  Humanitarian Device
Exemption (HDE) approval from the FDA, allowing U.S. marketing of the Perma-Flow
Cornonary Bypass Graft for patients who require coronary bypass surgery, but who
have  inadequate  blood  vessels of their own for use in the  surgery.  In March
1999,  the  distribution  agreement with the Company's  independent  distributor
expired. Currently the Company is exploring strategic options relating to future
development and commercialization of the product.

     In February 1999,  the Company  received  510(k)  clearance from the FDA to
market three expanded  polytetrafluoroethylene  (ePTFE) synthetic grafts.  ePTFE
synthetic  grafts are the most  commonly  used  synthetic  grafts in  peripheral
vessel bypass procedures.

     A goal of the Company is to maximize the value of these graft  products and
technologies  for  its  shareholders.  Its  strategy  is  to  seek  partners  to
distribute the products and possibly fund the graft product development program.
In  addition,  the  Company  will  continue to pursue the  possible  sale of its
vascular  graft  products  and  technologies.  While the  Company  works  toward
completing these  activities,  it has placed vascular graft product  development
and  production on hold and due to the  uncertainty,  management has written off
various  vascular  graft assets in the current year. In fiscal 2000, the Company
wrote down $213,000 of fixed assets and $125,922 of goodwill. The value of these
vascular  graft assets was  determined  to be impaired  due to the  reduction of
sales by the Company's vascular graft distributor.

<PAGE>

Cost of Medical Products

     Cost of medical products, compared to prior years, increased 27% and 36% in
fiscal 2000 and 1999,  respectively.  The  increases  are  primarily  due to the
significant growth in the AngioJet product sales.  Medical product gross margins
improved by $5,172,000  and  $4,917,000  in fiscal 2000 and 1999,  respectively,
compared to prior  years.  The gross  margin  percentage  in fiscal 2000 was 51%
compared  to 40% and 5% in  fiscal  1999 and 1998.  The  Company  believes  that
manufacturing  costs per unit will be reduced and gross margins will continue to
improve as product sales and related volumes  continue to grow and as identified
product and process improvements are made.

Selling, General and Administrative Expense

     Selling,  general and  administrative  expenses  increased  $4,442,000  and
$4,055,000 in fiscal 2000 and 1999, respectively,  as compared to prior periods.
The primary factors are increases in sales and marketing expenses related to the
establishment  of a U.S.  direct sales  organization to sell the AngioJet System
and market the product in the United States. Based upon early physician interest
and the  AngioJet  System FDA  approvals  for  coronary  and leg artery use, the
Company has grown the U.S.  sales  marketing  organization  from 53 employees in
July 1999 to 67  employees  in July 2000.  The Company  expects that the current
level of the  U.S.  sales  force  will be able to grow  sales  and  service  the
customer base for the Company's AngioJet System through fiscal 2001.

Research and Development

     Research and development expenses decreased 4% in fiscal 2000 and increased
11% in fiscal 1999,  as compared to prior  periods.  The decrease in fiscal 2000
was due mainly to the shutdown of graft  product  development.  The reduction in
graft  product  development  was offset by an  increase  in  development  of new
AngioJet  System  applications.  The  increase  in  fiscal  1999  was due to the
development  of new AngioJet  System  applications.  The Company  believes  that
research and  development  will increase as it completes the  development of its
current products and invests in development of new AngioJet System  thrombectomy
applications and new high-pressure waterjet technology-based products.

Interest Income

     Interest income  increased  $110,000 in fiscal 2000 from fiscal 1999 due to
the gross proceeds of $15,000,000  received from the private placement  offering
in March  2000.  Interest  income  decreased  $14,000 in fiscal 1999 from fiscal
1998. The gross proceeds of $7,000,000  received in May and June 1999 was offset
by the cash reserves used to fund the operations.  The Company expects  interest
income to decrease in fiscal 2001 as the  Company's  cash  reserves  are used to
fund the Company's operations.

Interest Expense

     Interest expense decreased  $372,000 in fiscal 2000 as compared to 1999 due
to the 5% convertible subordinated debentures being converted into the Company's
common stock in March 1999.  Interest expense increased  $341,000 in fiscal 1999
as  compared  to  1998  due  to  issuance  of the  5%  convertible  subordinated
debentures in July 1998.  The Company  expects  interest  expense to stay at low
levels in fiscal 2001 unless a line of credit  through a bank is obtained.  If a
line of credit is  obtained,  the  amount of  increase  in  interest  expense is
dependent  upon how much is borrowed,  the interest rate, and the length of time
the borrowing is outstanding.

<PAGE>

Liquidity and Capital Resources

     The Company's cash,  cash  equivalents  and marketable  securities  totaled
approximately $12,971,000 at July 31, 2000, an increase of $3.8 million from the
prior year.  The primary  factors in the increase of the Company's cash position
was the net  proceeds of $14.0  million from the private  placement  offering in
March 2000 which was  partially  offset by cash used in operating  activities of
$8.8 million and capital expenditures of approximately $1.9 million.

     During  fiscal 2000,  cash used in operating  activities  was $8.8 million,
which  resulted  primarily  from  the  $10.6  net loss  and a $1.2  increase  in
inventory,  partially offset by non-cash charges, a decrease in receivables, and
an increase in accounts payable totaling $3.0 million. The $1.2 million increase
in inventories  was due to the increase in the number of evaluation  drive units
in the field as if July 31,  2000 as  compared  to July 31,  1999 and due to the
expected  increase in future Angio-Jet System revenue.  The $100,000 decrease in
receivables was due to reduction in days sales  outstanding  for U.S.  Angio-Jet
System  receivables  as of July 31,2000 as compared to July 31,  1999.  The $1.0
million  increase in accounts  payable was due to the purchasing of software and
computers toward the end of fiscal 2000. The capital  expenditures  were paid in
August 2000. Cash used in investing  activities was $10.8 million which resulted
from the purchase of marketable  securities of $24.1 million and the purchase of
plant and equipment of $1.9 million,  partially  offset by the proceeds from the
maturity  of  marketable  securities  of $15.2  million.  Net cash  provided  by
financing activities was $14.5 million,  which resulted from the net proceeds of
the  private  placement  offering  of $14.0  million  and the  exercise of stock
options of $462,000.

     During fiscal 1999,  cash used in operating  activities  was $11.9 million,
which resulted primarily from $12.0 million net loss, a $1.9 million increase in
receivables  and  $366,000  decrease in accounts  payable,  partially  offset by
depreciation,  amortization,  stock  compensation  and an  increase  in  accrued
liabilities  totaling $2.4 million. The $1.9 million increase in receivables was
due to the  significant  increase  in the  revenue in fiscal 1999 as compared to
fiscal 1998. The $366,000 reduction in accounts payable was due to the timing of
when  payables  are paid.  The  $788,000  increase  in accrued  liabilities  was
primarily due to the increase in accrued  salaries,  wages and commissions.  The
increase in accrued  salaries,  wages and commissions was due to the increase in
personnel and in revenue in fiscal 1999 as compared to fiscal 1998. Cash used in
investing  activities  was  $700,000  which  was  used  to  purchase  plant  and
equipment.  Net cash provided by financing  activities  was $7.9 million,  which
resulted  from  the net  proceeds  of the  private  placement  offering  of $6.7
million,  the  exercise of stock  warrants of $828,000 and the exercise of stock
options of $417,000.  As of March 1999, all of the 5%  convertible  subordinated
debentures and related  accrued  interest  totaling $12.3 million were converted
into  approximately  1.7 million  shares of the  Company's  commons  stock at an
average conversion price of $7.12 per share.

     During fiscal 1998,  cash used in operating  activities  was $11.8 million,
which  resulted  primarily  from a $12.0  million  net loss  and a $1.8  million
increase in receivables,  inventories and other current assets, partially offset
by depreciation,  amortization,  stock compensation, and an increase in accounts
payable and accrued liabilities totaling $2.0 million. The $1.6 million increase
in inventory was due to the  significant  increase in the revenue in fiscal 1998
as compared to fiscal 1997. The $597,000 increase in accounts payable was due to
the fee in conjunction with the 5% convertible  subordinated debentures included
in accounts  payable as of July 31, 1998. This fee was paid in August 1998. Cash
provided by investing activities was $10.4 million,  which resulted from the net
proceeds  from the  sale/maturity  of marketable  securities  of $11.0  million,
offset by additions to plant and  equipment  of $614,000.  Net cash  provided by
financing  activities  was $11.4  million,  which resulted from the net proceeds
from the issuance of 5%  convertible  subordinated  debentures of $11.1 million,
proceeds  from  long-term  debt of $175,000 and the exercise of stock options of
$142,000.

<PAGE>

     The Company believes that product sales of the AngioJet  System,  primarily
from the U.S.,  will yield  meaningful  sales growth going forward.  The Company
expects the current level of the U.S. sales force will be able to grow sales and
service the customer base for the Company's  AngioJet  System through the fiscal
year 2001. Research and development expenditures are expected to increase as the
Company  completes  the  development  of its  current  products  and  invests in
development  of  new  AngioJet   System   thrombectomy   applications   and  new
high-pressure  waterjet  technology-based  products.  Possis expects to report a
loss for fiscal 2001, which is expected to be less than the fiscal 2000 loss. In
addition,  the Company  expects that increasing  working capital  investments in
trade  receivables  and inventory  will be required to support  growing  product
sales.  The Company has no plan to raise  additional  outside  capital in fiscal
2001,  although  there can be no assurance that  additional  capital will not be
required  during that time.  Subsequent to fiscal 2001 the Company  expects that
its operations  will become  profitable and that no additional  outside  capital
will be needed to fund its  current  operations.  However,  debt  financing  and
additional  outside  capital will be  considered  if the terms are  favorable in
order to facilitate the growth of the Company.


Change of Control Plan

     On September 15, 1999, the Company's  Board of Directors  approved a Change
in Control  Termination Pay Plan that provides,  at the discretion of the Board,
salary and benefit continuation  payments to executive officers and selected key
management and technical  personnel in the event they are  terminated  within 24
months  of a change  in  control.  At this  time,  the  Board of  Directors  has
committed to a three-year salary and benefit  continuation for the Company's CEO
and  two-year  salary  and  benefit  continuations  for  other  Named  Executive
Officers.  In  addition,  the  Company's  other  officers,  key  management  and
technical  personnel  are entitled to salary and benefit  continuation  benefits
ranging in  duration  from six to 24  months.  The Board of  Directors  has also
recognized  the  potential  for  additional  payments  upon a change in  control
notwithstanding employment status following a change in control. Such payments ,
however, are at the discretion of the Board.


New Accounting Pronouncements

     In June 1998,  SFAS No. 133,  "Accounting  for Derivative  Instruments  and
Hedging  Activities"  was  issued.  SFAS No.  133  establishes  a new  model for
accounting for  derivatives  and hedging  activities and supersedes and amends a
number  of  existing  accounting  standards.  SFAS  No.  133  requires  that all
derivatives  be recognized in the balance sheet at their fair market value,  and
the corresponding derivative gains or losses be either reported in the statement
of operations or as a deferred item depending on the type of hedge  relationship
that exists with  respect to such  derivative.  The  adoption of SFAS No. 133 in
fiscal 2000 had no material effect on the consolidated financial statements.

<PAGE>

Forward-Looking Statements

     Management's  Discussion and Analysis of Financial Condition and Results of
Operations  and  certain  other  sections  of this Form  10-K,  contain  certain
"forward-looking  statements"  as defined in the Private  Securities  Litigation
Reform Act of 1995.  Such  statements  relating to future  events and  financial
performance, including statements relating to the Company's ability to establish
an adequate  recurring  revenue  stream from U.S.  AngioJet(R)System  disposable
sales,  the  ability to  maintain  manufacturing  yields at  acceptable  levels,
changes in the Company's marketing  strategies,  the ability to grow sales while
maintaining  its  current  level of U.S.  sales  force,  the  ability to achieve
growing  acceptance of the AngioJet  System,  the ability to control expenses in
order to become profitable,  the ability to develop new products, the ability to
raise additional capital on acceptable terms, the results of clinical trials and
the ability to achieve  levels of interest  income and interest  expense.  These
statements involve risks and uncertainties, and consequently, actual results may
vary materially from those projected in the  forward-looking  statements.  It is
not possible to foresee or identify all factors  affecting the Company's  future
results and investors  therefore should not consider any list of such factors to
be an exhaustive  statement of all risks and  uncertainties.  Although it is not
possible to create a  comprehensive  list of all factors  that may cause  actual
results to differ from the Company's forward-looking  statements,  these factors
include  trends toward managed health care,  health care cost  containment,  the
trend  of  consolidation  in  the  medical  device  industry,  difficulties  and
uncertainties associated with the lengthy and costly new product development and
regulatory clearance  processes,  changes in government laws and regulations and
the enforcement there of that may be adverse to the Company,  the development of
new products by competitors  that may make our products  obsolete,  and economic
factors  over which the Company has no control,  including  changes in inflation
and interest  rates.  These and other risk factors set forth in the risk factors
included in Exhibit 99 to the Company's registration statement on Form S-3 dated
April 17, 2000 are filed with the Securities and Exchange Commission.


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

     The Company  invests  its excess cash in money  market  mutual  funds.  The
market risk on such investments is minimal.

     The product sales for the Company's foreign  subsidiary are in U.S. Dollars
("USD").  At the end of July  2000,  the  amount  of  currency  held in  foreign
exchange was approximately  $1,000 USD. The market risk on the Company's foreign
subsidiary operations is minimal.

     At July 31, 2000, all of the Company's  outstanding  long-term debt carries
interest at a fixed  rate.  There is no  material  market  risk  relating to the
Company's long-term debt.

<PAGE>

INDEPENDENT AUDITORS' REPORT


To the Shareholders of Possis Medical, Inc.:

     We have  audited the  accompanying  consolidated  balance  sheets of Possis
Medical,  Inc. and  subsidiaries  (the Company) as of July 31, 2000 and 1999 and
the related  consolidated  statements of operations,  comprehensive  loss,  cash
flows,  and changes in  shareholders'  equity for each of the three years in the
period ended July 31, 2000.  Our audits also  included the  financial  statement
schedule listed in the Index at Item 14. These consolidated financial statements
and  financial  statement  schedule  are  the  responsibility  of the  Company's
management.  Our  responsibility is to express an opinion on these  consolidated
financial statements based on our audits.

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

     In our opinion,  such consolidated  financial statements present fairly, in
all  material  respects,  the  financial  position of Possis  Medical,  Inc. and
subsidiaries  as of July 31, 2000 and 1999 and the  results of their  operations
and their  cash flows for each of the three  years in the period  ended July 31,
2000, in conformity with accounting  principles generally accepted in the United
States of America. Also, in our opinion, such financial statement schedule, when
considered  in  relation  to the basic  financial  statements  taken as a whole,
presents fairly, in all material respects, the information set forth therein.



Deloitte & Touche LLP
Minneapolis, Minnesota
September 1, 2000

<PAGE>


                      POSSIS MEDICAL, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>




                                                                                    July 31, 2000               July 31, 1999
<S>                                                                                  <C>                         <C>
ASSETS

CURRENT ASSETS:
    Cash and cash equivalents (Note 1)........................................       $  4,053,429                $9,151,004
    Markektable securities....................................................          8,917,251                  --
    Receivables:
      Trade (less allowance for doubtful accounts and returns
          of $672,000 and $489,000, respectively).............................          2,940,497                 3,063,311
    Inventories (Note 1):
      Parts...................................................................          1,441,137                 1,218,910
      Work-in-process.........................................................          1,551,524                 1,596,313
      Finished goods..........................................................          2,107,677                 1,556,482
    Prepaid expenses and other assets.........................................            278,491                   247,907

           Total current assets...............................................         21,290,006                16,833,927


PROPERTY (Notes 1 and 2):
    Leasehold improvements....................................................          1,363,902                 1,274,814
    Machinery and equipment...................................................          5,688,540                 4,143,032
    Assets in construction....................................................            305,474                   258,114
                                                                                                                  7,357,916
5,675,960....................................................................
    Less accumulated depreciation.............................................          3,643,976                 2,887,025
         Property - net.......................................................          3,713,940                 2,788,935

OTHER ASSETS:
    Goodwill (Note 1).........................................................            --                        197,922

TOTAL ASSETS..................................................................        $25,003,946               $19,820,784

<FN>

See notes to consolidated financial statements.
</FN>
</TABLE>

<PAGE>


                      POSSIS MEDICAL, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                                   (continued)
<TABLE>
<CAPTION>


                                                                                     July 31, 2000             July 31, 1999
<S>                                                                                 <C>                         <C>
LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:
    Trade accounts payable.............................................              $  1,916,063                $  879,173
    Accrued salaries, wages, and commissions...........................                 1,603,061                 1,605,680
    Current portion of long-term debt (Note 2).........................                   179,949                    92,490
    Other liabilities..................................................                   802,989                   726,940
Total current liabilities..............................................                 4,502,062                 3,304,283

LONG-TERM DEBT (Notes 1 and 2).........................................                     7,279                    99,728

OTHER LIABILITIES  (Note 4)............................................                     --                      102,000

COMMITMENTS AND CONTINGENCIES (Note 6)

SHAREHOLDERS' EQUITY (Note 4):
    Common stock-authorized, 100,000,000 shares
         of $ .40 par value each; issued and outstanding,
        16,700,942 and 14,998,360 shares, respectively.................                 6,680,377                 5,999,344
    Additional paid-in capital.........................................                74,581,145                60,608,623
    Unearned compensation..............................................                   (24,809)                 (141,467)
Retained deficit.......................................................               (60,742,108)              (50,151,727)
Total shareholders' equity.............................................                20,494,605                16,314,773
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.............................               $25,003,946               $19,820,784

<FN>
See notes to consolidated financial statements.
</FN>
</TABLE>

<PAGE>


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

<TABLE>
<CAPTION>

                                                                             2000                 1999                1998
<S>                                                                       <C>                  <C>                  <C>
REVENUES:
     Medical products sales (Note 7)..............................        $20,427,704          $13,123,479          $6,117,850

COST OF SALES AND OTHER EXPENSES:
     Cost of medical products ....................................         10,015,799            7,883,865           5,794,901
     Selling, general and administrative..........................         16,052,830           11,611,113           7,555,616
     Research and development ....................................          5,525,431            5,743,866           5,193,787
     Interest....................................................               9,377              381,179              40,599
         Total cost of sales and other expenses...................         31,603,437           25,620,023          18,584,903

Operating loss....................................................        (11,175,733)         (12,496,544)        (12,467,053)

Interest income...................................................            585,352              475,113             489,610
Gain on sale of investments  .....................................              --                   --                  8,101

Net loss .........................................................       $(10,590,381)        $(12,021,431)       $(11,969,342)

Weighted average number
     of common shares outstanding - basic and diluted.............         15,697,135           13,355,822          12,191,477
Loss per common share - basic and diluted:

Net loss .........................................................          $(.67)              $(.90)              $(.98)

</TABLE>



                  CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
                               YEARS ENDED JULY 31

<TABLE>
<CAPTION>

                                                                           2000                 1999                1998
<S>                                                                      <C>                  <C>                 <C>
Net loss .........................................................       $(10,590,381)        $(12,021,431)       $(11,969,342)
Unrealized gain on investments....................................              --                   --                  5,836
Comprehensive loss................................................       $(10,590,381)        $(12,021,431)       $(11,963,506)

<FN>
See notes to consolidated financial statements.
</FN>
</TABLE>

<PAGE>


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

<TABLE>
<CAPTION>

                                                                             2000                 1999                1998
<S>                                                                       <C>                   <C>                 <C>
OPERATING ACTIVITIES:
     Net loss .........................................................   $(10,590,381)         $(12,021,431)       $(11,969,342)
Adjustments to reconcile net loss to net
         cash used in operating activities:
     Gain on sale of marketable securities.............................         --                     --                 (8,101)
Loss on disposal of assets.............................................          6,345                 4,312              15,237
Depreciation...........................................................      1,195,848             1,035,105             774,027
Amortization...........................................................         72,000               204,077              84,832
     Writedown due to impairment of assets.............................        338,922                 --                  --
     Stock compensation to employees and stock options
         issued to non-employees.......................................        271,534               341,462             441,694
     Decrease (increase) in receivables................................        122,814            (1,915,748)           (148,112)
     Increase in inventories...........................................     (1,230,513)              (58,002)         (1,613,285)
     (Increase) decrease in other current assets.......................        (30,584)               65,251             (57,920)
     Increase (decrease) in trade accounts payable.....................      1,036,890              (366,379)            597,052
     (Decrease) increase in accrued and other current liabilities......        (10,489)              787,795             113,110
         Net cash used in operating activities.........................     (8,817,614)          (11,923,558)        (11,770,808)
INVESTING ACTIVITIES
     Additions to plant and equipment..................................     (1,851,510)             (693,398)           (614,074)
     Proceeds from sale of fixed assets................................         13,192                16,656               2,100
     Purchase of marketable securities.................................    (24,122,251)                --                (13,612)
     Proceeds from sale/maturity of marketable securities..............     15,205,000                 --             10,991,719
         Net cash provided by (used in) investing activities...........    (10,755,569)             (676,742)         10,366,133
FINANCING ACTIVITIES:
     Proceeds from issuance of stock and exercise
         of options and warrants.......................................     14,480,598             7,926,761             142,406
     Repayment of long-term debt.......................................         (4,990)              (14,069)            (28,356)
     Proceeds from notes payable and long-term debt....................          --                   21,074          12,175,000
     Deferred debt issue costs.........................................          --                  (24,255)           (891,776)
         Net cash provided by financing activities.....................     14,475,608             7,909,511          11,397,274
(DECREASE) INCREASE IN CASH AND
    CASH EQUIVALENTS...................................................     (5,097,575)           (4,690,789)          9,992,599
CASH AND CASH EQUIVALENTS AT BEGINNING
   OF YEAR.............................................................      9,151,004            13,841,793           3,849,194
CASH AND CASH EQUIVALENTS AT END OF YEAR...............................   $  4,053,429          $  9,151,004         $13,841,793

SUPPLEMENTAL CASH FLOW DISCLOSURE:
Interest paid..........................................................   $      1,235          $      1,643         $     1,262
Issuance of restricted stock...........................................         59,000                20,250             919,106

Inventory transferred to fixed assets..................................         23,280                32,201              16,288
Accrued payroll taxes related to restricted stock......................         18,080                83,230             325,397

Cancellation of restricted stock.......................................          1,977                40,381               --

Conversion of subordinated debentures and accrued
     interest into common stock........................................          --               12,346,174               --
Deferred debt issue costs and original issue discount
     netted against conversion of subordinated debentures..............          --                1,371,122               --

Issuance of stock to settle litigation.................................          --                  225,000               --

Warrants issued related to convertible debt............................          --                    --                600,000

<FN>
See notes to consolidated financial statements.
</FN>
</TABLE>

<PAGE>

                      POSSIS MEDICAL, INC. AND SUBSIDIARIES
                           CONSOLIDATED STATEMENTS OF
                         CHANGES IN SHAREHOLDERS' EQUITY

<TABLE>
<CAPTION>

                                                                             Unearned       Unrealized
                                    Common Stock                Additional    Stock          Loss on
                                     Number of                    Paid-in     Compen-        Invest-       Retained
                                      Shares         Amount       Capital     sation          ments        Deficit         Total
<S>                                  <C>          <C>           <C>           <C>            <C>         <C>            <C>

BALANCE AT JULY 31, 1997...........  12,121,312   $4,848,525    $41,118,611   $    --         $(5,836)    $(26,160,954) $19,800,346
    Employee stock purchase plan...       7,811        3,124         69,909        --            --             --           73,033
    Stock options issued to
      directors and physicians
       (Note 4)....................        --           --           60,455        --            --             --           60,455
    Stock options exercised........      23,940        9,576         59,797        --            --             --           69,373
    Stock grants...................      65,559       26,224        567,485    (919,106)         --             --         (325,397)
    Unearned stock compensation
      amortization.................        --           --             --       430,046          --             --          430,046
    Warrants issued................        --           --          600,000        --            --             --          600,000
    Unrealized gain on
      investments..................        --           --             --          --           5,836           --            5,836
    Net loss.......................        --           --             --          --            --        (11,969,342) (11,969,342)
BALANCE AT JULY 31, 1998...........  12,218,622    4,887,449     42,476,257    (489,060)         --        (38,130,296)   8,744,350
    Employee stock purchase plan ..      19,881        7,952        106,181        --            --             --          114,133
    Stock options issued to
      directors and physicians
       (Note 4)....................        --           --           54,349        --            --             --           54,349
    Stock options exercised........      66,200       26,480        276,687        --            --             --          303,167
    Stock grants...................       2,500        1,000         11,250     (20,250)         --             --           (8,000)
    Unearned stock compensation
      amortization.................        --           --             --       327,462          --             --          327,462
    Litigation settlement..........      22,785        9,114        215,886        --            --             --          225,000
    Stock retired..................     (12,814)      (5,126)        55,976      40,381          --             --           91,231
    Warrants exercised.............     120,000       48,000        780,000        --            --             --          828,000
    Debentures converted...........   1,733,334      693,334     10,281,718        --            --             --       10,975,052
    Private placement
       stock offering..............     827,852      331,141      6,350,319        --            --             --        6,681,460
    Net loss.......................        --           --             --          --            --         (12,021,431) 12,021,431)
BALANCE AT JULY 31, 1999...........  14,998,360    5,999,344     60,608,623    (141,467)         --         (50,151,727) 16,314,773
    Employee stock purchase plan...      51,999       20,800        270,180        --            --             --          290,980
    Stock options issued to
      directors and physicians
       (Note 4)....................        --           --           97,853        --            --             --           97,853
    Stock options exercised........      58,682       23,473        147,634        --            --             --          171,107
    Stock grants...................       5,000        2,000         37,000     (59,000)         --             --          (20,000)
    Unearned stock compensation
      amortization.................        --           --             --       173,681          --             --          173,681
    Stock retired..................      (7,148)      (2,860)        38,963       1,977          --             --           38,080
    Private placement
       stock offering..............   1,594,049      637,620     13,380,892        --            --             --       14,018,512
    Net loss.......................        --           --             --          --            --       (10,590,381)  (10,590,381)

BALANCE AT JULY 31, 2000...........  16,700,942   $6,680,377    $74,581,145    $(24,809)     $   --      $(60,742,108)  $20,494,605

<FN>
See notes to consolidated financial statements.
</FN>
</TABLE>

<PAGE>


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.       NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     Nature of Business 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 44 years.
In 1990 the Board of Directors decided to focus on medical  products,  which led
to the  sale  of the  Technical  Services  Division  in 1991  and  the Jet  Edge
industrial  waterjet  business  in 1994.  In March  1994  the  Company  sold its
pacemaker lead business  because it anticipated that revenues from this business
would decline due to a pacemaker lead technology  shift. The name of the Company
was  changed to Possis  Medical,  Inc.  in 1993.  In January  1995,  the Company
established  a  100%  owned  subsidiary,  Possis  Medical  Europe  B.V.,  in the
Netherlands  to  support  international  product  distribution.  Possis  Medical
received AngioJet Rheolytic  Thrombectomy System U.S. marketing approval for use
in 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  and graft products  utilize new technology and
the production processes,  and production 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  ("FDA")  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.  (the   Company)  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.

     Inventories  Inventories  are stated at the lower of cost (on the first-in,
first-out basis) or market.

     Property,  Depreciation,  and Amortization  Property is carried at cost and
depreciated  using the  straight-line  method over the estimated useful lives of
the assets at the following annual rates:

        Leasehold improvements...................  10%
        Machinery and equipment................... 10-33%

     Deferred Debt Issue Costs Deferred debt issue costs were being amortized on
a  straight-line  basis over six years,  based on the term of the 5% convertible
subordinated   debentures   due  2004.  In  FY99,  all  of  the  5%  convertible
subordinated  debentures  were  converted into the Company's  common stock.  All
unamoritzed deferred debt issue costs were offset against equity.

<PAGE>

     Original  Issue Discount  Original issue discount was being  amortized on a
straight-line  basis  over six  years,  based on the term of the 5%  convertible
subordinated  debentures due 2004. The original amount of $600,000 was the value
associated  with the detachable  stock warrants  issued in conjunction  with the
convertible  subordinated  debentures.  In  FY99,  all  of  the  5%  convertible
subordinated  debentures  were  converted into the Company's  common stock.  All
unamortized original issue discount was offset against equity.

     Goodwill  Goodwill was being amortized on a  straight-line  basis over 13.5
years, based on the remaining life of patent rights related to the Perma-Flow(R)
Graft  acquired  in 1988.  As of July  31,  2000,  the  value  of  Goodwill  was
determined to be impaired, and the remaining balance of $125,922 was written off
as of July 31, 2000. Accumulated amortization at July 31, 1999 was $789,500.

     Income  Taxes The Company  accounts  for income  taxes under  Statement  of
Financial  Accounting Standard ("SFAS") No. 109,  "Accounting for Income Taxes."
Certain items are  accounted for income tax purposes in a different  period than
for financial statement purposes.

     Revenue  Recognition  Revenues  associated  with  products that are already
maintained at customer  locations are  recognized  when the Company  reaceives a
valid purchase order from the customer.  Revenues  associated with products that
are not maintained at the customer locations are recognized when a valid purchse
order is received and when the products are shipped. At this time, ownership and
risk of loss is transferred to the customer.

     Fair Value of Financial  Instruments  Marketable  securities are carried at
fair  value.  The  carrying  value of all other  financial  instruments,  except
long-term  debt,  approximates  fair value due to the  short-term  nature of the
instrument.  The carrying value of long-term debt approximates fair value due to
the fixed interest rates being consistent with current market rates of interest.

     Loss Per  Share  Loss per share for 2000,  1999,  and 1998 is  computed  by
dividing  the  net  loss  by  the  weighted  average  number  of  common  shares
outstanding.   Warrants,   options,  and  convertible  debentures   representing
2,549,264, 1,882,288 and 2,511,762 shares of common stock at July 31, 2000, 1999
and 1998,  respectively,  have been excluded from the  computations  because the
effect is antidilutive.

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

     Marketable  Securities  During  2000 and  1999,  the  Company  invested  in
commercial  paper  with  original  maturities  of less  than six  months.  These
instruments are classified as held to maturity and carried at amortized cost.

     Impairment  of  Long-Lived  Assets  SFAS  No.  121,   "Accounting  for  the
Impairment of Long-Lived  Assets and for  Long-Lived  Assets to be Disposed Of,"
requires that  long-lived  assets be reviewed for impairment  whenever events or
changes in circumstances indicate that the carrying value of an asset may not be
recoverable.  An impairment loss is recognized,  based on the difference between
the carrying value and the discounted cash flows of an asset, when the estimated
future  undiscounted  cash flows from the asset are less than the carrying value
of the asset.  In fiscal 2000,  the Company  wrote down $213,000 of fixed assets
(included  in cost of goods sold) and  $125,922 of goodwill  (included  selling,
general and  administrative  expense)  related to the Company's  vascular  graft
business.  The value of these vascular  assets was determined to be impaired due
to the reduction of sales by the Company's vascular graft distributor.

<PAGE>

     Derivative  Instruments and Hedging  Activities In June 1998, SFAS No. 133,
"Accounting for Derivative  Instruments and Hedging Activities" was issued. SFAS
No. 133  establishes  a new model for  accounting  for  derivatives  and hedging
activities and supersedes and amends a number of existing accounting  standards.
SFAS No. 133 requires that all derivatives be recognized in the balance sheet at
their fair market value,  and the  corresponding  derivative  gains or losses be
either  reported in the statement of operations or as a deferred item  depending
on the type of hedge  relationship  that exists with respect to such derivative.
The  adoption  of SFAS No.  133 in  fiscal  2000 had no  material  effect on the
consolidated financial statements.

2.       LONG-TERM DEBT

<TABLE>
<CAPTION>

     Long-term debt at July 31, 2000 and 1999 is as follows:                                        2000              1999

     <S>                                                                                       <C>                <C>
     Note payable, interest at 4.5%, interest and principal due June
        1999 and June 2001, collateralized by the Company's equipment...................       $ 175,000          $ 175,000
     Notes payable, interest at 8.25%, principal and interest
        payable monthly, final payment due October 2002, collateralized by the
        Company's equipment.............................................................          12,228             17,218

                                                                                                 187,228            192,218
       Less current maturities..........................................................        (179,949)           (92,490)

                                                                                               $   7,279          $  99,728

</TABLE>

     In July 1998,  the Company  received  $12,000,000  gross  proceeds from the
issuance of 5% convertible subordinated debentures due 2004 and 110,640 warrants
valued  at  $600,000.  During  the  year  ended  July  31,  1999,  all of the 5%
convertible  subordinated  debentures  and  related  accrued  interest  totaling
$12,346,174  were converted into 1,733,334  shares of the Company's common stock
at an average  conversion price of $7.12 per share. The warrants are exercisable
for common stock at $15.58 per share.

3.       INCOME TAXES

     At July 31,  2000,  the Company had net  operating  loss  carryforwards  of
approximately $55,285,000 for federal tax purposes, which expire in 2003 through
2019, and $16,344,000  for Minnesota tax purposes,  which expire in 2003 through
2014.

     In addition, at July 31, 2000 the Company has approximately  $2,115,000 and
$546,000 in federal and state tax credits,  respectively,  substantially  all of
which are research and development  tax credits,  which expire from 2001 through
2014, and a $65,182 AMT credit which does not expire.

<PAGE>

     Deferred  tax  assets  and  liabilities  as of July  31,  2000 and 1999 are
described in the table below. The Company reduced its net deferred tax assets to
zero through a valuation  allowance  due to the  uncertainty  of realizing  such
assets:


<TABLE>

                                                                                       2000                       1999

<S>                                                                               <C>                         <C>
     Current assets (liabilities):
     Allowance for doubtful accounts and returns.........................         $   262,000                 $  171,000
     Inventory...........................................................             365,000                    179,000
     Employee compensation and benefits..................................             286,000                    334,000
     Other  .............................................................              35,000                     25,000
                                                                                      948,000                    709,000
     Valuation allowance.................................................            (948,000)                  (709,000)
     Net    .............................................................         $      --                   $     --

     Long-term assets:
     Net operating losses................................................         $19,917,000               $ 16,518,000
     Amortization of patents.............................................             407,000                    365,000
     Tax credits.........................................................           2,674,000                  2,674,000
     Depreciation........................................................             208,000                   (263,000)
                                                                                   23,206,000                 19,294,000
     Valuation allowance.................................................         (23,206,000)               (19,294,000)
     Net    .............................................................         $      --                 $       --

</TABLE>

     The effective income tax rate differed from the U.S. federal statutory rate
for each of the three years ended July 31, 2000, 1999 and 1998 as follows:

<TABLE>
                                                                   2000                      1999                 1998

<S>                                                            <C>                      <C>                  <C>
     Tax benefit on loss from
        continuing operations computed at
        statutory rate of 34%..........................        $(3,601,000)              $(4,087,000)         $(4,069,000)
     Decrease in tax benefit due to non-recognizable
        benefits of net operating loss
        carry-forwards and others......................          3,601,000                 4,087,000            4,069,000
     Total income tax expense
        continuing operations..........................        $      --                 $      --            $      --

</TABLE>


4.   COMMON STOCK

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

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

<PAGE>

     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).  The 1992 Plan replaced the 1985 and 1983 plans.  Although
the 1992, 1985 and 1983 plans remain in effect for options  outstanding,  no new
options may be granted under these plans.

     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,  a maximum of 2,000,000 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 are being
increased  annually beginning on 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, 2000,  there were  1,969,236  shares  reserved for  outstanding
options under all plans and 1,843,891  shares  available for granting of options
under the 1999 Plan.

     In fiscal 2000, 1999 and 1998, the Company granted 13,609, 11,477 and 8,874
compensatory  options,  respectively,  to its outside  directors in lieu of cash
payments for  directors  fees.  Fiscal 2000 options were granted  under the 1999
Plan.  Fiscal 1999 and 1998  options  were  granted  under the 1992 Plan.  These
options  vest six months  after date of grant and expire not more than ten years
from date of grant.

     In fiscal 2000, 1999 and 1998, the Company  granted 5,000,  6,000 and 2,000
compensatory  options,  respectively,  to  various  physicians  in  lieu of cash
payments for  services.  The  Company's  policy is to treat these  options under
variable  plan  accounting  in  accordance  with FASB 123 and EITF 96-18.  These
options were granted  under the 1992 Plan and vest ratably over a six month to a
four year  period and  expire  not more than ten years  from date of grant.  The
expense associated with non-employee  options were $43,000,  $14,000 and $12,000
for the years ended July 31, 2000, 1999 and 1998, respectively.

     A summary of changes in  outstanding  options  for each of the three  years
ended July 31, 2000 follows:

<TABLE>

                                                                 2000                     1999                      1998
     <S>                                                  <C>                        <C>                       <C>
     Shares under option at
        beginning of year............................         1,621,070                 1,443,571                 1,212,944
     Options granted.................................           586,109                   460,877                   302,674
     Options exercised...............................           (58,682)                  (66,200)                  (23,940)
     Options canceled................................          (179,261)                 (217,178)                  (48,107)
     Shares under option at end of year..............         1,969,236                 1,621,070                 1,443,571
     Shares exercisable at end of year...............         1,011,298                   859,866                   691,209
     Exercise price of options granted...............       $4.06-13.75               $3.52-15.50               $5.50-16.69
     Exercise price of options exercised.............       $1.00-13.13                $3.75-8.75                $1.00-5.75
     Market price of options exercised...............       $7.25-13.89               $7.43-14.95              $13.13-19.25
     Aggregate market value of options
        exercised....................................          $478,408                  $603,877                  $424,396

</TABLE>

<PAGE>


     Stock option weighted average exercise prices during 2000, 1999 and 1998
are summarized below:

<TABLE>
                                                  2000      1999      1998

<S>                                              <C>       <C>       <C>
  Outstanding at beginning of year..........     $10.89    $12.10    $11.63
  Granted  .................................       8.97      7.79     13.55
  Exercised.................................       3.53      5.72      4.20
  Canceled .................................      12.56     13.98     13.79
  Outstanding at end of year................      10.43     10.89     12.10

</TABLE>

     The following table summarizes information concerning options outstanding
and exercisable options as of July 31, 2000:

<TABLE>

                                               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            143,869              5.08              $  4.97                140,197          $  4.94
            6 - 12         1,149,878              7.53                 8.43                384,250             8.39
           12 - 17           521,939              6.59                14.06                367,751            14.13
           17 - 21           153,550              6.16                18.12                119,100            18.12

</TABLE>

     In fiscal 1998, the Company  granted  65,559 shares of restricted  stock to
employees  under the terms of the 1992 Plan,  which vest 21,853 shares each year
in fiscal years 1999, 2000 and 2001.  Approximately  $325,000 was accrued to pay
the estimated  withholding taxes on those shares as management believes that the
employees  will elect to receive fewer shares in lieu of paying the  withholding
taxes.  In case of termination of the employees,  unvested shares are forfeited.
Unearned compensation of $919,106 was recorded at the date of grant and is being
recognized over the vesting period.

     In fiscal 1999,  the Company  granted 2,500 shares of  restricted  stock to
employees under the terms of the 1992 Plan, which vest 1,250 shares each year in
fiscal  years  2000  and  2001.  Approximately  $8,000  was  accrued  to pay the
estimated  withholding  taxes on those shares as  management  believes  that the
employees  will elect to receive fewer shares in lieu of paying the  withholding
taxes.  In case of termination of the employees,  unvested shares are forfeited.
Unearned  compensation of $20,250 was recorded at the date of grant and is being
recognized over the vesting period.

     In fiscal 2000, the Company granted 3,000 shares of restricted  stock to an
employee  under the terms of the 1992 Plan,  which  vest 1,500  shares in fiscal
years 2000 and 2001 and 2,000 shares of  restricted  stock to an employee  under
the terms of the 1999 Plan which vest in fiscal year 2001. Approximately $20,000
was accrued to pay the estimated withholding taxes on those shares as management
believes that the employees will elect to receive fewer shares in lieu of paying
the withholding taxes. In case of termination of the employees,  unvested shares
are  forfeited.  Unearned  compensation  of $59,000 was  recorded at the date of
grant and is being recognized over the vesting period.

     As of July 31, 2000, there were 14,836 shares of restricted stock that vest
in  September  2000.  The  fair  market  value  of  the  restricted  shares  was
approximately $96,000.

     In fiscal  2000,  1999 and 1998,  total  compensation  expense of $173,681,
$327,462 and $430,046,  respectively,  was recognized on these  restricted stock
grants.

<PAGE>

     Effective August 1, 1996, the Company adopted SFAS No. 123, "Accounting for
Stock-Based  Compensation." As permitted by SFAS 123, the Company has elected to
continue following the guidance of APB No. 25 for measurement and recognition of
stock-based   transactions  with  employees.   No  compensation  cost  has  been
recognized  for stock  options  issued under the 1999 and 1992 Plans because the
exercise  price for all options  granted was at least equal to the fair value of
the common stock at the date of grant except as noted  previously  in this note.
If compensation  cost for the Company's stock option and employee purchase plans
had been determined based on the fair value at the grant dates for grants during
2000,  1999 and 1998,  consistent  with the method provided in SFAS No. 123, the
Company's net loss and loss per share would have been as follows:

<TABLE>

                                                              2000                      1999                     1998
     <S>                                                  <C>                      <C>                      <C>
     Net loss:
        As reported....................................   $(10,590,381)            $(12,021,431)            $(11,969,342)
        Pro forma    ..................................    (13,283,866)             (14,312,062)             (14,122,375)
     Loss per share - basic and diluted:
        As reported....................................   $       (.67)            $       (.90)            $       (.98)
        Pro forma......................................           (.85)                   (1.07)                   (1.16)

</TABLE>

     The fair value of options  granted  under the various  option  plans during
2000,  1999 and 1998 was  estimated on the date of grant using the  Black-Sholes
option-pricing  model  with  the  following  weighted  average  assumptions  and
results:

<TABLE>
                                                               2000                       1999                     1998

     <S>                                                 <C>                        <C>                     <C>
     Dividend yield....................................        None                       None                     None
     Expected volatility...............................         85%                        78%                      47%
     Risk-free interest rate...........................        6.0%                       5.5%                     6.5%
     Expected life of option...........................     120 mo.                    120 mo.                  120 mo.
     Fair value of options on grant date...............  $4,362,357                 $2,964,817               $2,795,547

</TABLE>

     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, 2000.  These  warrants do not
have an  expiration  date  and  must be  exercised  if the  market  value of the
Company's  common  stock  exceeds  $22.73  per share  for any sixty  consecutive
calendar days.

     On September 15, 1994,  warrants to purchase 120,000 shares of common stock
at $6.90 per share were issued to John G. Kinnard & Company in conjunction  with
the Company's  September 1994 public stock  offering.  In November  1998,  these
warrants were exercised.

     In July  1998,  the  Company  issued to  various  investors  110,640  stock
purchase  warrants  in  conjunction  with a  private  placement  of  convertible
debentures  (See  Note  2).  These  warrants  expire  on July  15,  2002 and are
exercisable into common stock at $15.58 per share. As of July 31, 2000, all such
warrants were outstanding and unexercised.

     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  expire  in May  and  June  2003  and  are
exercisable into common stock at $11.43 and $11.69, respectively. As of July 31,
2000, all such warrants were outstanding and unexercised.

<PAGE>

     In March 2000, the Company issued 318,810 warrants to various  investors in
conjunction with the Company's private placement offering. These warrants expire
in March 2004 and are  exercisable  into common stock at $12.67.  As of July 31,
2000, all such warrants were outstanding and unexercised.

     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  51,999  shares in
2000, 19,881 shares in 1999 and 7,811 shares in 1998 under this Plan.

5.       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,  2000,  1999 and 1998 were  $260,482,  $208,563,  and
$154,863, respectively.

6.       COMMITMENTS AND CONTINGENCIES

     The  Company's  medical  products  operation  is  conducted  from a  leased
facility under an operating  lease which expires in 2006.  Rental payments under
the lease are  guaranteed by a letter of credit in the amount of $20,000 at July
31, 2000.  Rental  expense  charged to  operations  was $243,008 in fiscal 2000,
$241,674 in fiscal 1999 and $241,674 in 1998.

     The  lease  is  noncancelable  before  April  2001,  after  which it can be
canceled with notice and payment of a termination fee.

     The  Company is  leasing a sales  office  under an  operating  lease  which
expires  in  2002.  The  future  annual  rentals  on this  operating  lease  are
approximately $14,000 per year through 2002.

     Future minimum payments under the  non-cancelable  operating leases at July
31, 2000 were:

             Year Ended
              July 31                                  Amount

                2001                                  $256,000
                2002                                   256,000
                2003                                   242,000
                2004                                   242,000
                2005                                   242,000
                2006 and thereafter                    242,000

                Total minimum lease payments        $1,480,000

<PAGE>

7.       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.
Possis  Medical,  Inc.  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,  2000,  1999 and 1998 are as
follows:

                                        2000            1999           1998

  United States..............       $20,034,934     $12,632,300     $5,766,817
  Outside the United States..           392,770         491,179        351,033
  Total revenues.............       $20,427,704     $13,123,479     $6,117,850

     In 2000,  1999 and 1998  there  were no  individual  customers  with  sales
exceeding 10% of total revenues.

8.       PRODUCT SUPPLY AND DISTRIBUTION AGREEMENTS

     In December 1998, the Company  entered into an exclusive  worldwide  supply
and distribution  agreement for its Perma-Seal  Dialysis Access Graft. The first
shipment under this  agreement was made in January 1999. In September  2000, the
distributor was in non-compliance  with the terms of the distribution  agreement
and the Company is currently reviewing its options.

<PAGE>

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

     During fiscal 1999 and 2000, there were no changes in or disagreements with
the Company's  independent certified public accountants on accounting procedures
or accounting and financial disclosures.

<PAGE>


                                    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, 2000 is in the Proxy Statement and is incorporated herein by
reference.


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

     The security  ownership of certain  beneficial  owners and management is in
the  Proxy  Statement  under  the  heading  "Common  Stock   Ownership"  and  is
incorporated herein by reference.


Item 13.  Certain Relationships and Related Transactions:

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

<PAGE>

                                     PART IV


Item 14.  Exhibits, Financial Statement Schedules, and Reports on Form 8-K:

(a)   1. Financial Statements

     The  following  financial  statements  of the  Company,  accompanied  by an
Independent Auditors' Report, are contained in Part II, Item 8:

     Consolidated Balance Sheets, July 31, 2000 and 1999
     Consolidated Statements of Operations for each of the three years in the
       period ended July 31, 2000
     Consolidated Statements of Comprehensive Loss for each of the three years
       in the period ended July 31, 2000.
     Consolidated Statements of Cash Flows for each of the three years in the
       period ended July 31, 2000.
     Consolidated Statements of Changes in Shareholders' Equity for each of the
       three years in the period ended July 31, 2000.
     Notes to Consolidated Financial Statements

      2. Schedules

The following financial statement schedules are submitted herewith:


         SCHEDULE II - Valuation Accounts

     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 three pages.

<PAGE>



 Exhibit   Form       Date Filed                   Description

   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

   4.2      8-K   July 24, 1998        Form of Redeemable Warrant to
                                       purchasers of the Convertible
                                       Debt dated July 15, 1998

   4.3     10-K   November 23, 1966    Debenture Agreement with St. Paul
                                       Fire and Marine Company and
                                       Western Life Insurance Company
                                       and form of debenture rates and
                                       warrants

   4.4      8-K   May 12, 1999         Private placement Purchase Agreement
                                       dated May 11, 1999 between the Company
                                       and the investors listed therein

   4.5      8-K   May 12, 1999         Registration Rights Agreement between
                                       the Company and the investors in the
                                       Purchase Agreement dated May 11, 1999

   4.6      8-K   May 12, 1999         Form of Warrant to investors of the
                                       Purchase  Agreement dated May 11, 1999

   4.7      8-K   March 14, 2000       Private placement Purchase Agreement
                                       dated March 6, 2000 between the Company
                                       and the investors listed therein.

   4.8      8-K   March 14, 2000       Registration Rights Agreement between the
                                       Company and the investors in the Purchase
                                       Agreement dated March 6, 2000.

   4.9      8-K   March 14, 2000       Form of Warrant to investors of the
                                       Purchase Agreement dated March 6, 2000

   10.1     S-2   Amendment No.1       License agreement with Imperial
                  August 9, 1994       Chemical Industries Plc., dated
                                       April 15, 1991

<PAGE>

  Exhibit   Form    Date Filed                    Description

   10.2     S-2   Amendment No.1       License agreement with the
                  August 9, 1994       University of Liverpool, dated
                                       May 10, 1990

   10.3     S-1   June 30, 1988        Form of indemnification agreement
                                       with officers and directors of
                                       Registrant

*  10.4     S-8   February 7, 1990     1983 Incentive Stock Option Plan as
                                       amended to date

*  10.5     S-1   June 30, 1988        1985 Nonqualified Stock Option
                                       Plan as amended to date

*  10.6     10-K  Fiscal year ended    Form of incentive stock option
                  July 31, 1989        agreement for officers

*  10.7     10-K  Fiscal year ended    Form of stock option agreement for
                  July 31, 1989        directors

*  10.8     S-8   June 16, 1998        1992 Stock Compensation Plan

*  10.9     10-K  Fiscal year ended    Form of restricted stock agreement
                  July 31, 1993        for officers (1992 Plan)

*                 10.10 10-K Fiscal year ended Form of nonqualified stock option
                  July 31, 1993 agreement for officers (1992 Plan)

*                 10.11 10-K Fiscal year ended Form of incentive stock option
                  July 31, 1993 agreement for officers (1992 Plan)

*                 10.12 10-K Fiscal year ended Form of nonqualified stock option
                  July 31, 1993 agreement for 1992 directors' fees
                                       (1992 Plan)

*                 10.13 10-K Fiscal year ended Form of nonqualified stock option
                  July 31, 1993 agreement for 1990 directors' fees

*                 10.14 10-K Fiscal year ended Form of nonqualified stock option
                  July 31, 1993 agreement for 1989 directors' fees

   10.15    10-Q  Quarter ended        Supply & distribution agreement
                  January 31, 1995     with Bard Vascular Systems
                                       Division, C.R.Bard, Inc.

   10.16    10-Q  Quarter ended        Lease agreement for corporate
                  January 31, 1996     headquarters and manufacturing
                                       facility dated December 15, 1995.

<PAGE>

Exhibit     Form     Date Filed                  Description

   10.17    8-K   March 28, 1996       Supply and distribution agreement
                                       with Edwards CVS Division, Baxter
                                       Healthcare Corporation

   10.18    10-K  Fiscal Year ended    Addendum to Distributor Agreement
                  July 31, 1998        with Edwards CVS Division, Baxter
                                       Healthcare Corporation dated
                                       May 1, 1998

*  10.19    10-K  Fiscal Year ended    Change in Control Termination
                  July 31, 1999        Pay Plan

*  10.20    10-K  Fiscal year ended    1999 Stock Compensation Plan
                  July 31, 1999

   21       10-K  Fiscal year ended    Subsidiaries of registrant
                  July 31, 1995

   23       10-K  Fiscal year ended    Consent of independent certified
                        July 31, 2000 public accountants

   27                                  Financial data schedule

   99       S-3   April 17, 2000       Investment risk factors


* Indicates management contract or compensatory plan or arrangement.

(b)   Reports on Form 8-K

     Possis Medical,  Inc. filed no reports on Form 8-K during the quarter ended
July 31, 2000.

<PAGE>


SIGNATURES

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

POSSIS MEDICAL, INC.

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

Dated:  October 24, 2000

<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/ Donald C. Wegmiller         Chairman of the Board          March 15, 2001
Donald C. Wegmiller


/s/ Robert G. Dutcher           Director, President and         March 15, 2001
Robert G. Dutcher               Chief Executive Officer


/s/ Eapen Chacko                Vice President of Finance       March 15, 2001
Eapen Chacko                    Chief Financial Officer


/s/ Dean Belbas                 Director                        March 15, 2001
Dean Belbas


/s/ Seymour J. Mansfield        Director                        March 15, 2001
Seymour J. Mansfield


/s/ Whitney A. McFarlin         Director                        March 15, 2001
Whitney A. McFarlin


/s/ William C. Mattison, Jr.    Director                        March 15, 2001
William C. Mattison, Jr.


/s/ Rodney A. Young             Director                        March 15, 2001
Rodney A. Young

<PAGE>


                                                                   SCHEDULE II

                              POSSIS MEDICAL, INC.

VALUATION ACCOUNTS
YEARS ENDED JULY 31, 2000, 1999 AND 1998


         Column A             Column B       Column C     Column D    Column E
                                            Additions
                              Balance at Charged to
                              Beginning     Costs and   Deductions   Balance at
        Description           of Year       Expenses    Write-offs   End of Year

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

Year ended July 31, 2000     $ 489,000     $ 502,000     $ 319,000    $ 672,000
Year ended July 31, 1999       150,000       584,000       245,000      489,000
Year ended July 31, 1998        80,000       140,000        70,000      150,000


Valuation allowance on deferred tax asset:

Year ended July 31, 2000   $20,003,000    $4,151,000     $   --     $24,154,200
Year ended July 31, 1999    14,915,000     5,008,000         --      20,003,000
Year ended July 31, 1998    10,695,000     4,220,000         --      14,915,000

<PAGE>





                              POSSIS MEDICAL, INC.
                             FORM 10-K - ITEM 14(a)3

                                  EXHIBIT INDEX
Exhibit
Number                              Description


   23             Consent of independent certified public accountants

   27             Financial data schedule

<PAGE>

                                                                    EXHIBIT 23





INDEPENDENT AUDITORS' CONSENT



     We consent to the  incorporation by reference in  Post-Effective  Amendment
No.  1 to  Registration  Statement  No.  33-5467  on  Form  S-8,  Post-Effective
Amendment No. 1 to Registration Statement No. 33-33416 on Form S-8, Registration
Statement No. 33-39987 on Form S-8, Registration  Statement No. 33-56728 on Form
S-8,  and  Registration  Statement  No.  333-57289  on  Form  S-8,  Registration
Statement No.  333-39726 on Form S-8,  Registration  Statement No.  333-33746 on
Form S-3, and  Registration  Statement  No.  333-80291 on Form S-3 of our report
dated  September 1, 2000,  appearing in the Annual Report on Form 10-K of Possis
Medical, Inc. for the year ended July 31, 2000.



Deloitte & Touche LLP
Minneapolis, Minnesota


<PAGE>