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

                                    FORM 10-K

              [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
                       THE SECURITIES EXCHANGE ACT OF 1934
                     FOR THE FISCAL YEAR ENDED JULY 31, 2002

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

                          Commission file number 0-944
                              POSSIS MEDICAL, INC.
             (Exact name of registrant as specified in its charter)

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

     9055 Evergreen  Blvd, NW,  Minneapolis,  Minnesota  55433-8003  (Address of
principal executive offices) (Zip Code) Registrant's telephone number, including
area code:  763-780-4555 SECURITIES REGISTERED PURSUANT TO SECTION 12 (b) OF THE
ACT: None  SECURITIES  REGISTERED  PURSUANT TO SECTION 12 (g) OF THE ACT: Common
Stock, 40 Cents Par Value Preferred Shares Purchase Rights

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

     Indicate by check mark if disclosure of delinquent  filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best  of  the  registrant's   knowledge,  in  definitive  proxy  or  information
statements  incorporated  by  reference  in Part  III of this  Form  10-K or any
amendment to this Form 10-K. (X)

     Aggregate  market value of the voting stock held by  non-affiliates  of the
registrant as of September 30, 2002 was approximately $176,438,000.

     The number of shares  outstanding  of the  registrant's  common stock as of
September 30, 2002: 17,280,909.

     Certain  responses  in Part III are  incorporated  herein by  reference  to
information  contained in the Company's  definitive Proxy Statement for its 2002
annual  meeting  to  be  filed  on or  before  November  11,  2002  ("The  Proxy
Statement").

<PAGE>

     PART I Item 1. Business:

General

     Possis  Medical,  Inc.  (the  Company)  is a  developer,  manufacturer  and
marketer of medical devices,  operating in one business segment. The Company was
incorporated in 1956 and has operated several businesses over the last 46 years.
In 1960,  the Company  went  public.  In 1990,  the Company  decided to focus on
medical  products  and changed  its name to Possis  Medical,  Inc.  in 1993.  In
January 1995, the Company  established a 100% owned  subsidiary,  Possis Medical
Europe B.V., in the Netherlands to support  international  product distribution.


Products

     ANGIOJET(R)  RHEOLYTIC(TM)  THROMBECTOMY  SYSTEM.  The development of blood
clots at 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  pressure  impeding  venous  return in  example
prolonged bed rest.  If a blood clot becomes large enough,  it can block a blood
vessel,  preventing  oxygenated  blood  from  reaching  the  organ or  tissue it
supplies, a condition called ischemia.  In addition, if a blood clot breaks off,
it can travel  (embolize)  through the bloodstream and block blood flow to other
organs and tissue.  Conditions  caused by blood clots include  acute  myocardial
infarction (heart attack),  stroke,  peripheral ischemia, which can lead to limb
loss, vascular access failure, pulmonary embolism, and deep vein obstruction.

     Currently,  the three primary methods of removing intravascular blood clots
are surgery,  dissolution  with drugs  (thrombolysis)  and  mechanical  devices.
Thrombolytic  drug treatment  involves the  administration of a drug designed to
soften or dissolve the blood clot in an  intensive  care  setting.  Thrombolytic
drugs may require prolonged  infusion to be effective,  may require  significant
time to take effect,  which is costly in an intensive or critical  care setting,
and then may only partially remove the clot. In addition, thrombolytic drugs may
cause  uncontrolled,  life-threatening  bleeding.  Also, other classes of drugs,
specifically  glycoprotein llb/llla inhibitors,  are being used to prevent blood
clots from forming during coronary  interventional  procedures.  However,  these
drugs have no proven benefit  against clots already formed.  Mechanical  devices
such as the Fogarty-type  catheter operate by inflating a balloon past the point
of the blood clot and then  pulling  the balloon  along the artery,  essentially
dragging  the  blood  clot out of the  patient's  body.  Fogarty-type  catheters
require surgical intervention, which may result in overnight hospital stays, are
more limited in their  applications and may cause  significant  vascular trauma.
Fogarty catheters are not used in all of our indications.

<PAGE>

     Based on its clinical trial results, FDA clearances, 150 scientific journal
articles, and approximately 100,000 cases to date, 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 to rapidly remove
blood clots with minimal vascular trauma.  The AngioJet System consists of three
major  components:  a  reusable  drive unit to power a pump and  monitor  device
performance,  a disposable  single-use pump set that delivers pressurized saline
to the catheter, and a family of disposable,  single-use catheters. The AngioJet
System has demonstrated the ability to safely and effectively remove blood clots
within  seconds  to  minutes  without  surgical  intervention  or  the  risk  of
uncontrolled bleeding.

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

     Currently the Company is marketing the XMI(R),  XVG,  Xpeedior(R) and LF140
catheters.  The XMI, XVG and Xpeedior catheters are the first catheters marketed
by the  Company  featuring  its  proprietary  Cross-Stream(R)  Technology.  This
exclusive technology platform intensifies the action at the tip of the catheter,
which  doubles  the clot  removal  rate and triples  the  treatable  vessel size
compared to other available mechanical thrombectomy devices on the market today.
In addition, Cross-Stream Technology has been able to deal more effectively with
"mural  thrombus,"  the older,  more  organized  material that adheres to vessel
walls and can complicate patient outcomes.

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

     The  Company's   marketing  analysis  and  cumulative  clinical  experience
indicates that the 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  estimated  annual  diagnosis
worldwide and the Company's estimated AngioJet System annual market potential.

<PAGE>

<TABLE>
<CAPTION>

                                                                                                                 AngioJet
                                                                                         Estimated                System
                                                                                           Annual                 Annual
                                                                                          Worldwide               Market
                                                                                          Diagnosis             Potential
Vascular Territory                               Indication                              (Patients)            (Procedures)

<S>                                 <C>                                                  <C>                    <C>
Coronary (1)                        Coronary Thrombosis (Native                          5,300,000                550,000
                                    Arteries and Bypass Grafts)
Legs (2)                            Peripheral Vascular Disease/                         1,300,000                220,000
                                    Thrombosis
A-V Access (3)                      Hemodialysis Graft Thrombosis                          265,000                265,000
Cerebral (4)                        Ischemic Stroke                                      1,070,000                332,000
Coronary (5)                        Embolic Protection in SVG                              306,000                306,000
                                    Intervention
Lungs (5)                           Pulmonary Embolism                                     400,000                200,000
Venous (5)                          Venous Thrombosis                                    1,200,000                144,000

                                                                     Total               9,841,000               2,017000

</TABLE>

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

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

     During 1996 through 1998 the Company sponsored a randomized clinical trial,
VeGAS 2, which compared the AngioJet System with the approved thrombolytic drug,
Urokinase(R),  in the treatment of intracoronary  thrombus.  The AngioJet System
proved  to be  medically  safe and  effective  and  cost-effective  compared  to
Urokinase.  Treatment  with AngioJet  cost, on average,  $5,000 less per patient
than did  treatment  with  Urokinase.  These  results  have  been  presented  by
physician investigators at major medical meetings and have been published in the
October 2001 issue of the American Heart Journal, a peer reviewed publication.

     With  respect  to  other  FDA-approved  indications,   such  as  peripheral
arteries,  the  Company  believes  that  the  AngioJet  System  offers  a unique
combination  of clinical  benefit and  cost-effectiveness,  when  compared  with
medical  management  and  thrombolytic  therapy.  While  the  Company  and  some
physicians have assembled considerable data demonstrating these cost-savings, it
is noted that these savings have been documented only in non-randomized  patient
sets and not in randomized, clinical trials.

<PAGE>

     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 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  could
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  protocol  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.  In May 2001,  the FDA  approved the re-start of patient
enrollment in the TIME 1 clinical  trial. A total of nine patients were enrolled
through  April  30,  2002.   Enrollment  was  temporarily   stopped  to  address
compatibility  issues between the AngioJet  NV150 catheter and the  commercially
available  microcatheter  that was being used to deliver  the NV150.  These were
addressed with the  introduction to the trial a new  microcatheter  developed by
the Company  specifically  to work with the NV150 catheter.  Patient  enrollment
with this new microcatheter is now being restarted.  TIME 1 will enroll up to 30
patients at up to eight  centers in the U.S. to  determine  safety of the device
for this indication.

     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.  A  randomized  clinical
trial  comparing the Perma-Seal  Graft to conventional  Teflon(R)  grafts showed
that the Perma-Seal  Graft provides access sites with minimal  compression  time
and bleeding as compared to other  currently  available graft products and, as a
result,  reduced  administrative  time and the associated costs per patient.  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 limits it to use in dialysis patients requiring immediate access
for  hemodialysis.  Due to the limited  market  potential for this product,  the
Company made a business  decision to focus on the AngioJet System business.  The
assets   associated  with  this  business  have  been  written  off,  and  prior
distribution  agreements have been terminated.  No additional sales are expected
for fiscal 2003 and beyond.  The Company is not  optimistic  that the assets can
bring significant value in a sale.


Research and Development

     The  Company's  product   developments   efforts  are  focused  on  product
enhancements  for  existing  approved  indications,  new  products  for existing
indications, new products for new clinical indications, such as ischemic stroke,
and  general  upgrades  to the  System,  such as to the drive unit and pump set.
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.  In fiscal  2003,  the Company  plans to increase  its  research  and
development  spending  from  historical  levels in order to expand  the  current
realizable  market for the AngioJet System, as well as to expand into new areas,
such as distal occlusion.

     As of September 30, 2002, the Company  employed  approximately 19 full-time
employees  in research  and  development,  including  15 in new product  concept
screening,  prototype building,  product and process development and validation,
and four in regulatory and clinical affairs. The Company performs  substantially
all of its research and development activities at its headquarters in Minnesota.
The Company spent $4,427,000, $4,820,000 and $5,525,000 in fiscal 2002, 2001 and
2000,  respectively,  on medical product research and  development,  exclusively
related to the AngioJet System.

<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 the  Company.  The  Company
believes that as product and process improvements are identified, our ability to
control costs and quality will improve.  Raw  materials,  components  and select
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 (GMP) compliance
inspections  by the  FDA  and  TuV  Product  Services.  TuV is a  notified  body
designated by the European Union competent authorities (Ministries of Health) to
determine whether a product can display the CE mark,  necessary for marketing in
the European Union. We have undergone  inspections by the FDA for GMP compliance
and the TuV each year since 1998. All marketed Company  products  distributed in
the European community currently carry the CE mark.

     FDA inspections  focus on GMP as defined in federal  regulation 21 CFR 820.
These  regulations  define standards for the  manufacturing  and quality systems
used to  produce  medical  devices.  The FDA has  conducted  inspections  of the
Company at regular  intervals  since  1993,  and prior to  approval  of some the
Company  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 defect trending and use of statistical techniques.
Deficiencies  found during the inspections  have been corrected and subsequently
deemed  acceptable  by the FDA.  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  markets  its  AngioJet  System  primarily  to  interventional
cardiologists, interventional radiologists and vascular surgeons and secondarily
to physician  specialty groups,  such as nephrologists  and osteopaths.  Revenue
from AngioJet System sales in the United States was approximately  99%, 99%, and
93% of fiscal 2002, 2001, and 2000 revenue, 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,  consisting  entirely of Company employees.  A single sales force
calls on all the distinct  specialties  listed above; we do not have specialized
coronary or peripheral sales personnel, for example.

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

<PAGE>

     In December 1998, the Company  entered into an exclusive  worldwide  supply
and  distribution  agreement  for its  Perma-Seal  Dialysis  Access  Graft.  The
distributor   defaulted   under  the   agreement   by  failing  to  comply  with
contractually  obligated levels of product purchases and with payment schedules.
In  November  2000,  the  distributor  indicated  its  desire to  terminate  the
distribution  agreement and return unsold  product.  The Company has settled all
outstanding litigation with the Perma-Seal  distributor,  and has terminated the
distribution relationship.

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


Patents, Patent Applications, Licenses and Proprietary Rights

     The  Company's  success  depends and will continue to depend in part on its
ability to maintain  patent  protection for products and processes,  to preserve
its trade secrets and to operate without  infringing the  proprietary  rights of
third parties.  The Company's policy is to attempt to protect its technology by,
among other things,  filing patent applications for technology that it considers
important to the  development of its business.  The patents held and applied for
by the Company  describe method and apparatus claims related to thrombectomy and
atherectomy  devices,  as well as method  and  apparatus  claims  related to the
design and use of synthetic vascular grafts. The Company no longer considers the
graft  patents as material to its  business  going  forward.  The Company  holds
eleven United States patents and four foreign  patents  relating to the AngioJet
System. Of the eleven U.S.  patents,  seven were filed between 1990 and 1995 and
are valid for 17 years following  issuance.  The remaining four were filed in or
after 1998 and are valid for 20 years following their filing dates. In addition,
the  Company has 14 United  States and 22 foreign  patent  applications  pending
relating to the AngioJet  System.  The validity and breadth of claims covered in
medical  technology  patents  involve  complex legal and factual  questions and,
therefore, may be highly uncertain.

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


Competition

     The Company'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,  such as occlusion  balloons,  filters and combined
systems, direct stenting, surgical intervention, balloon embolectomy, mechanical
and laser  thrombectomy  devices,  ultrasound  ablators,  and other thrombectomy
devices  based on waterjet  systems that may currently be under  development  by
other companies.

<PAGE>

     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 System is a device for the rapid,  safe and effective  removal
of  intravascular  thrombus  from native  coronary  vessels and  saphenous  vein
grafts, kidney dialysis access grafts, and leg arteries. The AngioJet System has
a unique profile of safety, clinical effectiveness,  and cost-effectiveness.  In
general, it competes against  pharmacological  dissolution of the thrombus using
thrombolytics  or 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.

     For native coronary arteries and coronary bypass grafts,  there is no other
currently approved mechanical device for clot removal,  or thrombectomy.  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 the FDA attempts to complete review of
these different types of pre-market  submissions within specific  timeframes (90
days  for a  510(k);  180  days  for a PMA),  final  action  by the FDA may take
considerably  longer.  Any  adverse  determination  or  request  for  additional
information could delay market introduction and have a materially adverse effect
on the Company's continued operations.

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

<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 510(k) submissions.

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

     The AngioJet  System received its first clearance for the U.S. market via a
510(k) premarket notification  application approved by the FDA in December 1996,
for use in treating  thrombosed AV access  grafts.  In March 1999,  the AngioJet
System received FDA approval of a PMA 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-Seal Dialysis Access Graft was FDA-approved for marketing under a
PMA in September 1998.

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

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


Employees

     As of September  30, 2002,  the Company had 215 full-time  employees,  four
part-time employees and three contract employees.  Of these full-time employees,
19 are in research and  development,  86 are in  manufacturing  and  production,
twelve are in quality assurance,  six are in  facilities/maintenance,  75 are in
sales and marketing and 17 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.

<PAGE>

     Item 2. Properties:

     The  Company  leases   approximately  51,000  square  feet  of  office  and
manufacturing  space  (including  approximately  6,500 square feet of controlled
environment  manufacturing  space) at 9055 Evergreen  Boulevard NW, Minneapolis,
Minnesota 55433-8003.  See Note 7 of Notes to Consolidated  Financial Statements
in Part II, Item 8, in this Form 10-K.

     The Company  leases  approximately  800 square feet of office space at 1513
Johnson  Ferry  Road,  Marietta,  Georgia.  See Note 7 of Notes to  Consolidated
Financial Statements in Part II, Item 8, in this Form 10-K.

     Management  believes these properties to be in good condition and that they
are adequate and suitable for the Company's foreseeable needs.

     Item 3. Legal Proceedings:

None

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

None

<PAGE>

     Item 4A Executive Officers of the Registrant:


        Name            Age                      Position

  Robert G. Dutcher     57      Chairman, President and Chief Executive Officer

  Eapen Chacko          54      Chief Financial Officer and Vice President,
                                Finance and Investor/Public Relations


  Irving R. Colacci     49      Vice President, Legal Affairs and Human
                                Resources General Counsel and Secretary

  James D. Gustafson    46      Vice President, Technology, Product Development
                                and Quality Systems

  Shawn McCarrey        44      Vice President, U.S. Sales

  T. V. Rao             59      Vice President, Marketing and Worldwide Sales

  Robert J. Scott       57      Vice President, Manufacturing Operations

     Robert G. Dutcher  served as Executive  Vice  President of the Company from
June 1992 until October  1993.  He has served as President  and Chief  Executive
Officer since October 1993.  Mr. Dutcher was elected to Chairman of the Board in
December 2001.

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

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

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

     Shawn F. McCarrey  joined the Company as Director of U.S. Sales in December
1998, and became Vice  President of U.S.  Sales in April 2001.  Prior to joining
the Company,  Mr.  McCarrey  served in a variety of sales positions with USCI, a
subsidiary of C.R. Bard, Inc.from January 1982 until 1998.

     T.V.  Rao joined the  Company in June 1998 as Vice  President  and  General
Manager of the AngioJet  System  business,  and currently  holds the position of
Vice  President of Sales and  Marketing.  Prior to joining the Company,  Mr. Rao
served as Vice  President of Sales and  Marketing for Angeion  Corporation  from
1995 until 1998,  Vice President of Brunswick  Biomedical from 1994 to 1995, and
Director of Product Management at Medtronic, Inc. from 1990 to 1994.

     Robert J. Scott has served as Vice President of Manufacturing Operations of
the Company since 1993.

<PAGE>


                                     PART II

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

     The Company had 1,402 common  shareholders  of record at July 31, 2002. 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, 2002
and 2001 are presented below:

                                        2002                      2001
                                 High           Low         High         Low
         QUARTER:
                  First         $14.70        $ 9.85       $ 8.88       $5.50
                  Second         19.00         13.00         8.13        3.75
                  Third          21.15         14.19         6.35        3.94
                  Fourth         15.10          8.91        13.11        6.10

     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.

<PAGE>

<TABLE>
<CAPTION>

     Item 6. Selected Financial Data:

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

In Thousands Except per Share Data                           2002            2001          2000            1999            1998

<S>                                                        <C>             <C>          <C>             <C>            <C>
INCOME STATEMENT DATA:
  Operating revenues................................       $42,471         $30,001      $ 20,552        $ 13,210       $   6,158
  Net income (loss):
     Before income taxes............................         6,256          (3,304)      (10,590)        (12,021)        (11,969)
     After income taxes.............................        17,782          (3,304)      (10,590)        (12,021)        (11,969)
  Net income (loss) per common share - basic:
     Before income taxes                                       .37            (.20)         (.67)           (.90)           (.98)
     After income taxes.............................          1.04            (.20)         (.67)           (.90)
    (.98)
  Net income (loss) per common share - diluted:
     Before income taxes............................           .34            (.20)         (.67)           (.90)           (.98)
     After income taxes.............................           .96            (.20)         (.67)           (.90)           (.98)
  Weighted average shares outstanding -
     Basic..........................................        17,079          16,739        15,697          13,356          12,191
     Diluted........................................        18,602          16,739        15,697          13,356          12,191

BALANCE SHEET DATA:
  Working capital...................................       $25,038         $14,405      $ 16,788         $13,530         $16,598
  Total assets......................................        44,689          22,009        25,004          19,821          23,897
  Long-term debt, excluding current maturities......          --              --               7             100          11,493
  Shareholders' equity..............................        39,754          18,071        20,495          16,315           8,744

</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

Forward-Looking Statements

     Certain  statements  made  in  Management's   Discussion  and  Analysis  of
Financial  Condition and Results of  Operations  and elsewhere in this Form 10-K
are "forward-looking statements" as defined in the Private Securities Litigation
Reform Act of 1995.  Such statements can be identified by the use of terminology
such as "anticipate,"  "believe,"  "could,"  "estimate,"  "expect,"  "forecast,"
"intend," "may," "plan,"  "possible,"  "project,"  "should," "will," and similar
words or expressions.  Our forward-looking  statements that may occur in company
communications  include  statements  regarding the Company's ability to increase
sales of disposable and capital equipment;  its ability to obtain additional FDA
approvals;  the ability to open up new foreign markets,  such as Japan; customer
responses to the Company's marketing  strategies;  future revenue levels,  gross
margins,  expense  levels;  ability to retain  and  motivate  skilled  employees
especially sales positions; deferred tax asset valuation allowance; earnings per
share;  future equity  financing needs and the Company's  ability to develop new
products and enhance existing ones. These  forward-looking  statements are based
on  current   expectations   and   assumptions  and  entail  various  risks  and
uncertainties  that could cause actual results to differ  materially  from those
expressed in such  forward-looking  statements.  Certain factors that may affect
whether these  anticipated  results occur include clinical and market acceptance
of our products;  factors affecting the health care industry such as restricting
sales time at interventional  labs;  consolidation,  cost containment and trends
toward  managed  care;  changes in  supplier  requirements  by group  purchasing
organizations;   delays,   unanticipated   costs  or  other   difficulties   and
uncertainties  associated  with lengthy and costly new product  development  and
regulatory  clearance  processes;  changes in governmental laws and regulations;
changes in  reimbursement;  the  development  of new  competitive  products  and
compounds that may make our products obsolete;  sudden restrictions in supply of
key materials and  deterioration of general market and economic  conditions.  We
also  caution you not to place undue  reliance  on  forward-looking  statements,
which speak only as of the date made. Any or all  forward-looking  statements in
this  report  and in any  other  public  statements  we make  may turn out to be
inaccurate  or false.  They can be affected by inaccurate  assumptions  we might
make or by known or  unknown  risks and  uncertainties.  Except as  required  by
federal   securities   laws,   we   undertake  no   obligation   to  update  any
forward-looking  statement,  but  investors  are  advised to consult any further
disclosures  by us on this  subject  set forth in the risk  factors  included in
Exhibit 99 to the Company's  Form 10-K for the year ended July 31, 2002 as filed
with the Securities and Exchange Commission.

<PAGE>

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. In
1990 the Company made the decision to focus on medical products and subsequently
divested all non-medical operations.

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

     The Company generates revenue from the sale of its products.  The resulting
cash flow,  together with the net proceeds  from the  Company's  debt and equity
offerings,  has been used to fund the Company's  operations,  including research
and  development  related  to its  products.  Approximately  99% of fiscal  2002
revenues were from product sales in the United States.  The importance of United
States revenue generation is expected to continue for the foreseeable future.


Critical Accounting Policies

     The consolidated  financial  statements include accounts of the Company and
all  wholly-owned  subsidiaries.  The  preparation  of financial  statements  in
conformity with accounting  principles  generally  accepted in the United States
requires  management to make estimates and assumptions in certain  circumstances
that  affect  amounts  reported  in  the  accompanying   consolidated  financial
statements  and related  footnotes.  In preparing  these  financial  statements,
management has made its best estimates and judgments of certain amounts included
in the  financial  statements,  giving due  consideration  to  materiality.  The
Company's  most critical  accounting  policies are those  described  below.  The
Company does not believe there is a great  likelihood that materially  different
amounts would be reported  related to the accounting  policies  described below.
However,  application  of these  accounting  policies  involves  the exercise of
judgment and use of  assumptions  as to future  uncertainties  and, as a result,
actual results could differ from these estimates.  For a detailed  discussion of
these and other accounting  policies,  see Note 1 to the Consolidated  Financial
Statements.

<PAGE>

Revenue Recognition

     Revenues  associated with products that are already  maintained at customer
locations are recognized  when the Company  receives a valid purchase order from
the customer.  At this time,  ownership and risk of loss is  transferred  to the
customer.  Revenues  associated  with  products  that are not  maintained at the
customer  locations are  recognized and title and risk of loss is transferred to
the  customer  when a valid  purchase  order is received  and the  products  are
received at the customer's location.  Provisions for returns are recorded in the
same period the related revenues are recognized.

Allowance for Returns

     Accounts  receivable  are  reduced  by an  allowance  for items that may be
returned  in the  future.  The  estimated  allowance  for  returns is based upon
historical   experience,   information   received  from  our  customers  and  on
assumptions  that  are  believed  to  be  reasonable  under  the  circumstances.
Management,  on a quarterly  basis,  evaluates the adequacy of the allowance for
returns.  Management  believes  the  amount  of the  allowance  for  returns  is
appropriate;  however,  actual  returns  incurred could differ from the original
estimate, requiring adjustments to the allowance.

Allowance for Doubtful Accounts

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

Inventories

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

Warranty Reserve

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

<PAGE>

Deferred Tax Asset Valuation Allowance

     The Company became profitable starting in the third quarter of fiscal 2001.
It has maintained  profitability for six quarters,  including the fourth quarter
of fiscal 2002.  Prior to the fourth quarter of fiscal 2002, the Company reduced
its net  deferred  tax asset to zero  through a valuation  allowance  due to the
uncertainty of realizing  such asset.  In the fourth quarter of fiscal 2002, the
Company  reassessed the likelihood that the deferred tax asset will be recovered
from future taxable income.

     Based on the previous two full years' operating results projected  forward,
the Company has reduced its  valuation  allowance  on the  deferred tax asset by
$12,269,000.  Management will continue to assess the likelihood that the balance
of the deferred tax assets will be realizable  and the valuation  allowance will
be adjusted  accordingly.  The Company  expects that if  operations  continue to
improve in fiscal 2003,  the remaining  valuation  allowance  will be reduced to
zero by the end of fiscal 2003.


Results of Operations

Fiscal Years Ended July 31, 2002, 2001 and 2000

     Total  product  sales for fiscal  2002  increased  $12,470,000,  or 42%, to
$42,471,000,  compared to  $30,001,000  in fiscal 2001.  Total product sales for
fiscal  2001  increased  $9,449,000,   or  46%,  to  $30,001,000,   compared  to
$20,552,000  in  fiscal  2000.  The  Company  recorded  pre-tax  net  income  of
$6,256,000,  or $0.34 per diluted share, for fiscal 2002. This compared to a net
loss of $3,304,000, or $0.20 per diluted share, in fiscal 2001 and a net loss of
$10,590,000,  or $0.67 per diluted  share,  in fiscal 2000. In fiscal 2002,  the
Company  recorded a benefit for income taxes in the amount of $11,526,000 due to
the reduction of the deferred tax asset  valuation  allowance.  This resulted in
net  income  after  income  taxes in fiscal  2002 of  $17,782,000,  or $0.96 per
diluted share.

Revenue - AngioJet System

     U.S. AngioJet System revenue for fiscal 2002 increased $12,480,000, or 42%,
to  $42,033,000  compared to $29,553,000 in fiscal 2001.  U.S.  AngioJet  System
revenue for fiscal 2001 increased $10,400,000 or 54%, to $29,553,000 compared to
$19,153,000  in  fiscal  2000.  The  Company  markets  the  AngioJet   Rheolytic
Thrombectomy System (AngioJet System) worldwide. The AngioJet System consists of
a drive unit (capital) that powers a disposable  pump and a family of disposable
catheters, each aimed at a specific indication. The main factors in the AngioJet
System  revenue  increase  were  increased  sales  resulting  from  the  Company
commencing  U.S.  marketing  of the  AngioJet  System with  additional  labeling
claims.  During fiscal 2002, 2001 and 2000, the Company began U.S.  marketing of
four new catheters for the removal of blood clots in leg (peripheral)  arteries;
the XVG 135 in April 2002,  the XMI 135 in March 2001,  the  Xpeedior 100 in May
2000 and the LF140 in April 2000. In addition, the Company received clearance to
market the  Company's  XMI catheter  for coronary use in December  2001 and it's
Xpeedior 60 catheter for removal of blood clots from  dialysis  access grafts in
April  2000.  The  XVG,  XMI and  Xpeedior  catheters  feature  its  proprietary
Cross-Stream  Technology.  This exclusive  technology  platform  intensifies the
action at the tip of the  catheter,  which  doubles  the clot  removal  rate and
triples  the  treatable  vessel  size  compared  to other  available  mechanical
thrombectomy devices on the market today. In addition,  Cross-Stream  Technology
has been able to deal more  effectively with "mural  thrombus," the older,  more
organized  material  that  adheres to vessel  walls and can  complicate  patient
results.

     As of July 31,  2002,  the  Company  had a total of 863  domestic  AngioJet
System  drive  units  in the  field,  compared  to 669 and 493 at the end of the
previous two years.  During fiscal 2002, the Company sold  approximately  33,300
catheters and pump sets versus approximately 25,200 in fiscal 2001 and 16,100 in
fiscal 2000. This represents a 32% and 57% increase in unit catheters sales from
the previous years.  During the fiscal years ended July 31, 2002, 2001 and 2000,
the  Company  sold 161,  160 and 138  AngioJet  System  drive  units  worldwide,
respectively.  The number of AngioJet System drive unit sales in fiscal 2002 and
2001 resulted from a continued  increase in market  penetration  and the overall
acceptance of the AngioJet System by physicians.

<PAGE>

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

     The  Company  expects  U.S.  AngioJet  System  sales  to  continue  to grow
primarily  through  obtaining  additional  Food  and Drug  Administration  (FDA)
approved  product  uses,  introduction  of  new  catheter  models  for  existing
indications,  introduction of AngioJet  System-related  products, more face-time
selling to existing  accounts,  peer-to-peer  selling,  and the  publication  of
clinical performance and cost-effectiveness data.


     Foreign sales of the AngioJet System were $438,000 in fiscal 2002, $372,000
in fiscal  2001 and  $393,000 in fiscal  2000.  The  limited  foreign  sales are
primarily 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  (MHW).  The
Company believes that we have assembled all the information  required by the MHW
in support of our LF140 coronary catheter  submission.  Our prospective Japanese
distributor must make the submission of this information in response to the last
set of questions from MWH. Our prospective  Japanese  distributor will make this
submission  dependent on reaching a commercial  agreement with the Company.  The
Company is currently  negotiating with its prospective  Japanese  distributor to
resolve key issues relating to regulatory  submissions,  ownership of regulatory
approvals  for our  coronary  products  and  distribution  following  regulatory
approval.

     The Company  believes  that the  treatment  of blood clots in the  coronary
vessels,  peripheral vessels,  vessels in the brain and vascular grafts, provide
significant worldwide marketing opportunities for the AngioJet System.

<PAGE>

Revenue - Vascular Grafts

     Revenue from Perma-Seal(R)Dialysis Access Grafts was $75,000 in fiscal 2001
and  $1,006,000 in fiscal 2000.  The Company  received no revenue in fiscal 2002
from Perma-Seal  Dialysis Access Grafts.  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 distributor  defaulted
under the agreement by failing to comply with contractually  obligated levels of
product purchases and with payment schedules.  In November 2000, the distributor
indicated its desire to terminate the  distribution  agreement and return unsold
product. The Company has settled all outstanding  litigation with the Perma-Seal
distributor,  and has terminated the distribution  relationship.  The settlement
had no impact on the  financial  statements as the related  accounts  receivable
balances had been  appropriately  written down in prior  periods.  No additional
sales of Perma-Seal Dialysis Access Grafts are expected.

     The assets of this  business  have been written off, and the Company is not
optimistic that the assets can bring significant value in a sale.

Cost of Medical Products

     Cost of medical products,  compared to prior years,  increased 8% in fiscal
2002 and 16% in fiscal 2001. The increases are primarily due to the  significant
growth in the U.S. AngioJet System product sales.  Medical product gross margins
improved by $11,517,000  in fiscal 2002 and $7,852,000 in fiscal 2001,  over the
prior year.  The gross margin  percentage in fiscal 2002 was 70% compared to 61%
in fiscal 2001 and 51% in fiscal  2000.  The  improvement  in gross  margins was
driven by higher  volumes of XMI, XVG and Xpeedior  catheters  that carry higher
margins than the catheters  they replaced and an improvement in the XMI, XVG and
LF140 product catheter mix in the year ended July 31, 2002. The Company believes
that gross margins will continue to improve as product sales and related volumes
continue to grow and as product and process improvements are made.

Selling, General and Administrative Expenses

     Selling, general and administrative expenses increased $2,126,000 in fiscal
2002 and  $1,165,000 in fiscal 2001, as compared to prior  periods.  The primary
factors  for the  expense  increase  for fiscal  2002 were  increased  sales and
marketing  expenses  related to the expansion of the Company's U.S. direct sales
organization  for the  AngioJet  System,  increased  commission  expense  due to
increased  AngioJet  System  product  sales,  increased  marketing  fees for the
national  purchasing  contracts,  increased patient  enrollment in the Company's
marketing   studies  and  an  increase  in  management  and  key  employee  cash
compensation.  The primary factors for the expense increase for fiscal 2001 were
increased sales and marketing expenses related to the expansion of the Company's
U.S. direct sales  organization  for the AngioJet System,  increased  commission
expense due to increased AngioJet System product sales, increased marketing fees
for the  national  purchasing  contracts,  and  increased  computer and software
depreciation.  In fiscal 2001,  expense  increases were partially  offset by the
reduction in costs  related to a work force  reduction  in January  2001, a 2001
Special Equity  Compensation  Program,  discussed in the next  paragraph,  and a
reduction in sales product  demonstrations and samples. The Company expects that
the current U.S.  sales force will be  sufficient  to continue to grow sales and
service the current  customer base for the  Company's  AngioJet  System  through
fiscal 2003.

     The Company issued stock option awards totaling  1,800,865 shares in fiscal
2001. In August 2000, stock option awards of 443,800 were issued that related to
the Company's fiscal 2000 performance, since the fiscal 2000 year ended in July.
In fiscal  2001,  the  Company  was  faced  with two  issues:  1)  potential  of
additional  dilutive  financing due to the prospect of continuing losses, and 2)
the hiring away of key employees by competitors. Consequently, 403,885 net stock
option  awards  were issued to conserve  cash and reduce  expenses.  These stock
option awards reduced  management and key employee cash  compensation  and sales
commission by approximately  $810,000. An additional 733,800 stock option awards
were  issued to retain  management  and key  employees  in fiscal  2001.  Of the
733,800 stock option  awards,  539,800 relate to fiscal 2001  performance  stock
option awards that are normally issued in August 2001, subsequent to fiscal 2001
year-end.  Accelerating  these  awards  was,  in the  opinion of  management,  a
necessary  and  effective  retention  tool to ensure the  continuity of business
growth and the achievement of profitability goals.

<PAGE>

Research and Development Expenses

     Research  and  development  expense  decreased 8% in fiscal 2002 and 13% in
fiscal 2001, as compared to prior periods. The decreases in fiscal 2002 and 2001
are due to the timing of  outlays  in  different  stages of  development  of new
AngioJet System  applications  and related  products.  The Company believes that
research and development  expense for AngioJet System  applications  and related
products will increase in fiscal 2003 as the Company  completes the  development
of its current  products and invests in the  development of new AngioJet  System
thrombectomy applications and related products including clinical trials.

Interest Income

     Interest income  decreased  $224,000 in fiscal 2002 from fiscal 2001 due to
declining market interest rates.  Interest income  decreased  $107,000 in fiscal
2001 from fiscal 2000 due to use of cash to fund operations. The Company expects
interest  income to increase  slightly in fiscal 2003 as compared to fiscal 2002
due to an anticipated increase in cash and cash equivalents.

Benefit For Income Taxes

     The Company became profitable starting in the third quarter of fiscal 2001.
It has maintained  profitability for six quarters,  including the fourth quarter
of fiscal 2002.  Prior to the fourth quarter of fiscal 2002, the Company reduced
its net  deferred  tax asset to zero  through a valuation  allowance  due to the
uncertainty of realizing  such asset.  In the fourth quarter of fiscal 2002, the
Company  reassessed the likelihood that the deferred tax asset will be recovered
from future  taxable  income.  Due to the  previous  two full  years'  operating
results projected  forward,  the Company has reduced its valuation  allowance on
the deferred tax asset by $12,269,000.  $11,526,000 is recorded as a tax benefit
in fiscal 2002. The remaining  $743,000  relates to  disqualified  stock options
that are  recorded in the  Consolidated  Statement  of Changes in  Shareholders'
Equity.  Management  will continue to assess the likelihood  that the balance of
the deferred tax asset will be realizable  and the valuation  allowance  will be
adjusted accordingly. The Company expects that if operations continue to improve
in fiscal 2003, the remaining valuation allowance will be reduced to zero by the
end of fiscal 2003.

Effects of Inflation

     Due to the low rate of inflation and small changes in prices there has been
very little effect on the Company's net revenues and net income from  operations
as of fiscal 2002. Net income from operations has been slightly  affected due to
higher employment costs.

<PAGE>

Liquidity and Capital Resources

     The Company's cash and cash equivalents totaled  approximately  $18,557,000
at July 31, 2002 compared to $9,516,000 at July 31, 2001. The primary factors in
the increase were cash provided by operations of $6,966,000  and the issuance of
stock and  exercise of stock  options  and  warrants  of  $2,997,000,  which was
partially offset by capital expenditures of $903,000.

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


     During fiscal 2001, cash used in operating activities was $2,755,000, which
resulted primarily from the $3,304,000 net loss, an expense reimbursement from a
city  government of $102,000,  an increase in receivables  of $1,328,000,  and a
decrease in trade  accounts  payable of $595,000,  partially  offset by non-cash
charges,  a decrease in  inventories,  and an  increase  in accrued  liabilities
totaling  $2,638,000.  The  expense  reimbursement  from  a city  government  of
$102,000  relates  to debt  forgiven  by the  city  government  due the  Company
achieving minimum headcount  employment  objectives.  The $1,328,000 increase in
receivables  was due to increase in revenue in fiscal 2001 as compared to fiscal
2000.  The  $595,000  decrease  in trade  accounts  payable was due to timing of
year-end payables,  especially for software and computer upgrades.  The decrease
in  inventories  of $218,000  was due to record  sales,  implementation  of lean
manufacturing initiatives and the write-down of certain raw material inventories
related to the LF140  catheter  during the fourth  quarter of fiscal 2001.  Cash
provided by investing  activities was  $22,545,000 of proceeds from the maturity
of  marketable  securities,  offset by  purchase  of  marketable  securities  of
$13,628,000  and the purchase of property and equipment of $1,334,000.  Net cash
provided by financing  activities  was  $633,000,  which  resulted from the cash
received in connection  with the issuance of stock and exercise of stock options
of $638,000.

     During fiscal 2000, cash used in operating activities was $8,818,000, which
resulted  primarily from the $10,590,000  net loss and a $1,231,000  increase in
inventory,  partially offset by non-cash charges, a decrease in receivables, and
an increase in accounts payable totaling $3,044,000.  The $1,231,000 increase in
inventories  was due to the increase in the number of evaluation  drive units in
the  field  as of July 31,  2000 as  compared  to July  31,  1999 and due to the
expected  increase in future AngioJet System revenue.  The $123,000  decrease in
receivables  was due to reduction in days sales  outstanding  for U.S.  AngioJet
System  receivables  as of July  31,  2000 as  compared  to July 31,  1999.  The
$1,037,000  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  $10,756,000,  which
resulted  from the purchase of  marketable  securities  of  $24,122,000  and the
purchase  of property  and  equipment  of  $1,852.000,  partially  offset by the
proceeds from the maturity of marketable  securities  of  $15,205,000.  Net cash
provided by financing  activities was  $14,476,000,  which resulted from the net
proceeds of the $14,019,000 private placement offering and the exercise of stock
options of approximately $500,000.

<PAGE>

Outlook

     The  Company  expects  that  overall  revenue  from  the  AngioJet  System,
primarily  in the  United  States,  will be in the range of $53  million  to $57
million in fiscal  2003.  Gross margin for fiscal 2003 is expected to be between
70%  and  75%  of  total  sales.  The  Company  expects  selling,   general  and
administrative  expenses to increase in fiscal 2003 due to anticipated growth in
revenue. Research and development expenditures are expected to increase from the
fiscal 2002 level as the Company  completes  development of projects and invests
in  development of new AngioJet  System  thrombectomy  applications  and related
products  including  clinical  trials.  The Company expects diluted earnings per
share  before  taxes for the full  year in the range of $0.50 to $0.60.  The net
income  after tax diluted  earnings per share is estimated to be in the range of
$0.31 to $0.38,  not including  any  potential tax benefit  related to a further
reduction of the deferred tax asset valuation  allowance.  The quarterly revenue
progression will be affected by the timing of new product  introductions as well
as the timing of expenses related to marketing and clinical trials. In addition,
the  Company  expects  that  increasing  working  capital  investments  in trade
receivables and inventory will be required to support growing product sales.


     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  2002,  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.

     The Company does not have any debt or off balance sheet liabilities.


     Item 8. Financial Statements and Supplementary Data:


Report of Management

     Management of Possis Medical Inc., is responsible  for the integrity of the
financial  information  presented  in  this  10-K.  The  consolidated  financial
statements have been prepared in accordance with accounting principles generally
accepted in the United States. Where necessary,  they reflect estimates based on
management's judgment.

     Management  relies  upon  established  accounting  procedures  and  related
systems of  internal  control  for  meeting  its  responsibilities  to  maintain
reliable  financial  records.  These systems are designed to provide  reasonable
assurance  that  assets  are  safeguarded  and that  transactions  are  properly
recorded and executed in accordance with management's intentions.

     The  Audit  Committee  of the  Board  of  Directors  meets  regularly  with
management and its  independent  accountants to discuss audit scope and results,
internal control  evaluations,  and other accounting,  reporting,  and financial
matters. The independent  accountants have access to the Audit Committee without
management's presence.


/s/
Robert G. Dutcher
Chairman, President and Chief Executive Officer



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

<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, 2002 and 2001 and
the related  consolidated  statements of operations,  cash flows, and changes in
shareholders'  equity for each of the three  years in the period  ended July 31,
2002. Our audits also included the financial  statement  schedules listed in the
Index  at  Item  15.  These  consolidated  financial  statements  and  financial
statement  schedules 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  auditing  standards  generally
accepted 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, 2002 and 2001 and the  results of their  operations
and their  cash flows for each of the three  years in the period  ended July 31,
2002, in conformity with accounting  principles generally accepted in the United
States of America.  Also, in our opinion,  such financial  statement  schedules,
when considered in relation to the basic financial  statements taken as a whole,
present fairly, in all material respects, the information set forth therein.



Deloitte & Touche LLP
Minneapolis, Minnesota
September 12, 2002

<PAGE>



                      POSSIS MEDICAL, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS



<TABLE>
<CAPTION>


                                                                                      July 31, 2002           July 31, 2001
ASSETS

<S>                                                                                   <C>                      <C>
CURRENT ASSETS:
     Cash and cash equivalents (Note 1)..................................              $18,556,663              $ 9,515,751
     Trade receivables (less allowance for doubtful
          accounts and returns of $582,000 and
          $659,000, respectively)........................................                5,873,358                4,268,114
     Inventories (Note 1)................................................                4,134,817                4,216,629
     Prepaid expenses and other assets...................................                  762,615                  342,995
     Deferred tax asset (Note 3).........................................                  646,000                     --
               Total current assets......................................               29,973,453               18,343,489

PROPERTY AND EQUIPMENT, net (Notes 1 and 2)..............................                3,092,644                3,665,751

DEFERRED TAX ASSET (Note 3)..............................................               11,623,000                     --

TOTAL ASSETS.............................................................              $44,689,097              $22,009,240



LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:
     Trade accounts payable..............................................              $ 1,262,711              $ 1,321,485
     Accrued salaries, wages, and commissions............................                2,471,557                1,532,912
     Current portion of long-term debt (Note 2)..........................                     --                     94,310
     Other liabilities...................................................                1,200,763                  989,556
              Total current liabilities..................................                4,935,031                3,938,263

COMMITMENTS AND CONTINGENCIES (Note 7)

SHAREHOLDERS' EQUITY (Note 4):
     Common stock-authorized, 100,000,000 shares
         of $0.40 par value each; issued and outstanding,
          17,274,222 and 16,822,023 shares, respectively.................                6,909,689                6,728,809
     Additional paid-in capital..........................................               78,385,073               75,411,387
     Unearned compensation...............................................                  (18,900)                 (22,700)
Retained deficit.........................................................              (45,521,796)             (64,046,519)
          Total shareholders' equity.....................................               39,754,066               18,070,977

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY...............................              $44,689,097              $22,009,240



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

<PAGE>

<TABLE>
<CAPTION>



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




                                                                              2002                 2001                2000


<S>                                                                       <C>                  <C>                <C>
Products sales (Note 8)       ....................................        $42,470,693          $30,000,547        $ 20,551,704

Cost of sales and other expenses:
     Cost of medical products ....................................         12,689,835           11,736,253          10,139,799
Selling, general and administrative...............................         19,352,991           17,227,164          16,062,207
Research and development..........................................          4,426,663            4,820,037           5,525,431

         Total cost of sales and other expenses...................         36,469,489           33,783,454          31,727,437

Operating income (loss)...........................................          6,001,204           (3,782,907)        (11,175,733)
Interest income...................................................            254,519              478,496             585,352

Net income (loss) before income taxes.............................          6,255,723           (3,304,411)        (10,590,381)

Benefit for income taxes (Note 3).................................         11,526,000                 --                  --

Net income (loss).................................................        $17,781,723          $(3,304,411)       $(10,590,381)





Net income (loss) per common share:
     Basic      ..................................................              $1.04                $(.20)              $(.67)
     Diluted    ..................................................              $ .96                $(.20)              $(.67)

Weighted average number of common shares outstanding:
     Basic      ..................................................         17,078,759           16,739,277          15,697,135
     Diluted    ..................................................         18,602,156           16,739,277          15,697,135
























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

<PAGE>

<TABLE>
<CAPTION>

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



                                                                             2002                  2001                2000

OPERATING ACTIVITIES:
    <S>                                                                   <C>                   <C>                <C>
    Net income (loss) ................................................    $17,781,723           $(3,304,411)       $(10,590,381)
    Adjustments to reconcile net income (loss) to net
         cash provided by (used in) operating activities:
    Depreciation......................................................      2,119,240             1,950,533           1,195,848
    Stock compensation expense........................................        186,940               196,199             271,534
    Expense reimbursement from city government........................        (83,866)             (101,938)               --
    Writedown due to impairment of assets.............................         70,000                87,582             338,922
    (Gain) loss on disposal of assets.................................         (3,850)                8,564               6,345
    Amortization......................................................           --                     --               72,000
    (Increase) decrease in trade receivables..........................     (1,605,244)           (1,327,617)            122,814
    (Increase) decrease in inventories................................       (635,188)              217,959          (1,230,513)
    Increase in other current assets..................................       (419,620)              (64,504)            (30,584)
    Increase in deferred tax assets...................................    (11,526,000)                 --                  --
    (Decrease) increase in trade accounts payable.....................        (58,774)             (594,578)          1,036,890
    Increase (decrease) in accrued and other current liabilities......      1,140,205               177,499             (10,489)
      Net cash provided by (used in) operating activities.............      6,965,566            (2,754,712)         (8,817,614)
INVESTING ACTIVITIES:
    Additions to property and equipment...............................       (902,627)           (1,334,142)         (1,851,510)
    Proceeds from sale of fixed assets................................          7,344                 1,402              13,192
    Proceeds from sale/maturity of marketable securities..............           --              22,545,000          15,205,000
    Purchase of marketable securities.................................           --             (13,627,749)        (24,122,251)
      Net cash (used in) provided by investing activities.............       (895,283)            7,584,511         (10,755,569)
FINANCING ACTIVITIES:
    Proceeds from issuance of stock and exercise
         of options and warrants......................................      2,997,151               637,941          14,480,598
    Repayment of long-term debt.......................................        (26,522)               (5,418)             (4,990)
      Net cash provided by financing activities.......................      2,970,629               632,523          14,475,608
INCREASE (DECREASE) IN CASH AND
    CASH EQUIVALENTS..................................................      9,040,912             5,462,322          (5,097,575)
CASH AND CASH EQUIVALENTS AT BEGINNING
    OF YEAR...........................................................      9,515,751             4,053,429           9,151,004
CASH AND CASH EQUIVALENTS AT END OF YEAR..............................    $18,556,663           $ 9,515,751        $  4,053,429

SUPPLEMENTAL CASH FLOW DISCLOSURE:

Disqualified stock options............................................    $   743,000           $      --          $       --
Issuance of restricted stock..........................................         36,000                23,900              59,000
Accrued payroll taxes related to restricted stock.....................        (12,600)               46,643              18,080
Inventory transferred to fixed assets.................................           --                    --                23,280
Cancellation of restricted stock......................................           --                    --                 1,977







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

<PAGE>

<TABLE>
<CAPTION>
                                               POSSIS MEDICAL, INC. AND SUBSIDIARIES
                                                     CONSOLIDATED STATEMENTS OF
                                                  CHANGES IN SHAREHOLDERS' EQUITY



                                                                                     Unearned
                                             Common Stock           Additional         Stock
                                        Number of                    Paid-in          Compen-       Retained
                                         Shares          Amount      Capital          sation         Deficit            Total

<S>                                    <C>           <C>           <C>               <C>          <C>                <C>
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

    Employee stock purchase plan...        52,493        20,997        160,128            --              --             181,125
    Stock options issued to
      directors and physicians
      (Note 4).....................          --            --          170,190            --              --             170,190
    Stock options exercised........        72,127        28,851        427,965            --              --             456,816
    Stock grants...................         5,000         2,000         13,500         (23,900)           --              (8,400)
    Unearned stock compensation
      amortization.................          --            --             --            26,009            --              26,009
    Stock retired..................        (8,539)       (3,416)        58,459            --              --              55,043
    Net loss.......................          --            --             --              --        (3,304,411)       (3,304,411)
BALANCE AT JULY 31, 2001...........    16,822,023     6,728,809     75,411,387         (22,700)    (64,046,519)       18,070,977

    Employee stock purchase plan...        63,242        25,297        213,023            --              --             238,320
    Stock options issued to
      directors and physicians
      (Note 4).....................          --            --          147,140            --              --             147,140
    Stock options and
      warrants exercised...........       387,708       155,083      2,603,748            --              --           2,758,831
    Stock grants...................         2,124           850         22,550         (36,000)           --             (12,600)
    Unearned stock compensation
      amortization.................          --            --             --            39,800            --              39,800
    Stock retired..................          (875)         (350)       (12,775)           --              --             (13,125)
    Disqualified stock options.....          --            --             --              --           743,000           743,000
    Net income.....................          --            --             --              --        17,781,723        17,781,723
BALANCE AT JULY 31, 2002...........    17,274,222    $6,909,689    $78,385,073        $(18,900)  $(45,521,796)       $39,754,066


<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.  (the  Company) is a  developer,
manufacturer and marketer of medical devices, operating in one business segment.
The Company was  incorporated in 1956 and has operated  several  businesses over
the last 46 years. In 1990, the Company decided to focus on medical products and
changed its name to Possis  Medical,  Inc. in 1993. In January 1995, the Company
established  a  100%  owned  subsidiary,  Possis  Medical  Europe  B.V.,  in the
Netherlands  to  support  international  product  distribution.  Possis  Medical
received AngioJet Rheolytic  Thrombectomy System U.S. marketing approval for use
in arterio-venous  (AV) access  hemodialysis grafts in December 1996, for use in
native  coronary  arteries and coronary bypass grafts in March 1999, and for use
in leg arteries in April 2000.

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

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

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

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

     Marketable  Securities  During  2001  and  2000  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,
which approximates fair value.

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

                                              2002             2001

     Finished goods..................      $1,444,973       $1,935,590
     Work-in-process.................         805,911        1,432,536
     Raw materials...................       1,883,933          848,503

                                           $4,134,817       $4,216,629

<PAGE>


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

                                         2002           2001          Life
   Leasehold improvements             $1,454,833     $1,454,833   10 years
   Equipment                           7,536,959      6,814,596   3 to 10 years
   Assets in construction                138,271        255,502   N/A
                                       9,130,063      8,524,931
   Less accumulated depreciation       6,037,419      4,859,180
   Property and equipment - net       $3,092,644     $3,665,751


     Goodwill Goodwill was being amortized on a straight-line  basis over 13-1/2
years,  based on the remaining  life of patent rights  related to the Perma-Flow
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.

     Impairment  of  Long-Lived  Assets  In fiscal  2002,  the  Company  adopted
Statement of Financial  Accounting  Standards ("SFAS") No. 144,  "Accounting for
the Impairment or Disposal of Long-Lived Assets." SFAS No. 144 replaces SFAS No.
121,  "Accounting  for the  Impairment of Long-Lived  Assets and for  Long-Lived
Assets to be Disposed  Of." The  Financial  Accounting  Standards  Board  (FASB)
issued  SFAS No.  144 to  establish  a  single  accounting  model,  based on the
framework  established  in SFAS No.  121,  as SFAS No. 121 did not  address  the
accounting for a segment of a business accounted for as a discontinued operation
under Accounting Principle Board (APB) Opinion No. 30, "Reporting the Results of
Operations  - Reporting  the Effects of Disposal of a Segment of a Business  and
Extraordinary,  Unusual and Infrequent  Occurring Events and Transactions." SFAS
No. 144 also resolves significant implementation issues related to SFAS No. 121.
The  provisions  of SFAS No. 144 are to be applied  prospectively.  There was no
impact on the Company's  financial  statements  due to adoption of SFAS No. 144.
Impairment of long-lived  assets 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 fair
market value of an asset, when the estimated future undiscounted cash flows from
the asset are less than the  carrying  value of the  asset.  In fiscal  2002 and
2001,  the Company wrote down $70,000 and $87,582 of a fixed asset  (included in
selling,  general and administrative expense). The value of this fixed asset was
determined to be impaired due to the unlikely continued use of this fixed asset.
The Company wrote the asset down to net  realizable  value.  In fiscal 2000, the
Company wrote down $213,000 of fixed assets (included in cost of goods sold) and
$125,922 of goodwill (included in 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.

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

<PAGE>

     Revenue  Recognition  Revenues  associated  with  products that are already
maintained at customer  locations  are  recognized  when the Company  receives a
valid purchase order from the customer.  At this time ownership and risk of loss
is transferred to the customer.  Revenues  associated with products that are not
maintained at the customer  locations are recognized when a valid purchase order
is received and the products are received at the  customer's  location.  At this
time  title and risk of loss is  transferred  to the  customer.  Provisions  for
returns are provided for in the same period the related revenues are recorded.

     Shipping and Handling In fiscal 2001, the Company  adopted  Emerging Issues
Task Force ("EITF") 00-10,  "Accounting  for Shipping and Handling  Costs." EITF
00-10 requires all amounts billed to customers in a sales transaction related to
shipping and handling to be classified  as product  sales.  The Company  records
costs related to shipping and handling in cost of medical products. Prior period
product  sales and cost of medical  products have been adjusted for this change,
which had no effect on previously reported net losses.

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

     Income (Loss) Per Share Income per share for fiscal 2002 and loss per share
for fiscal 2001 and fiscal 2000 is computed by dividing net income (loss) by the
weighted  average  number of common  shares  outstanding.  Warrants  and options
representing 373,468, 3,826,089 and 2,549,264 shares of common stock at July 31,
2002,  2001 and 2000,  respectively,  have been excluded  from the  computations
because their effect is antidilutive.

     Reclassifications  Certain  reclassifications  have been made to the fiscal
2001 and fiscal 2000 financial statements to conform to the presentation used in
the fiscal 2002 financial  statements.  The  reclassifications  had no effect on
shareholders' equity or net losses as previously reported.

     Derivative  Instruments and Hedging  Activities In fiscal 2000, the Company
adopted  SFAS No.  133,  "Accounting  for  Derivative  Instruments  and  Hedging
Activities,"  as amended by SFAS No. 138,  "Accounting  for  Certain  Derivative
Instruments and Certain Hedging Activities." SFAS No. 133 establishes accounting
and reporting  standards for derivative  instruments and for hedging activities.
It requires that all  derivatives,  including those embedded in other contracts,
be  recognized  as  either  assets  or  liabilities  and  that  those  financial
instruments  be measured at fair value.  The  accounting for changes in the fair
value of derivatives  depends on their intended use and designation.  Management
has reviewed the  requirements of SFAS No. 133 and has determined that they have
no free-standing or embedded derivatives.  All contracts that contain provisions
meeting the definition of a derivative also meet the  requirements  of, and have
been designated as, normal  purchases and sales.  The Company's policy is to not
use  free-standing  derivatives  and to not enter into contracts with terms that
cannot be designated as normal purchases or sales.


     Accounting for Asset Retirement Obligations In August 2001, the FASB issued
SFAS No.  143,  "Accounting  for Asset  Retirement  Obligations."  SFAS No.  143
requires  entities  to  record  the  fair  value  of a  liability  for an  asset
retirement obligation in the period in which it is incurred.  When the liability
is  initially  recorded,  the  entity  capitalizes  the cost by  increasing  the
carrying  amount of the related  long-lived  asset.  Over time, the liability is
accreted  to its  present  value  each  period,  and  the  capitalized  cost  is
depreciated  over the useful life of the related asset.  Upon  settlement of the
liability,  an entity either settles the  obligation for its recorded  amount or
incurs a gain or loss upon settlement. SFAS No. 143 is effective for the Company
in fiscal 2003. The Company has not yet determined the impact of SFAS No. 143 on
its financial position and results of operations.

<PAGE>

<TABLE>
<CAPTION>

     2. LONG-TERM DEBT

    <S>                                                                             <C>                <C>
    Long-term debt at July 31, 2002 and 2001 is as follows:

                                                                                        2002             2001

    Note payable, interest at 4.5%, interest and principal due June
      1999 and August 2001, collateralized by the Company's equipment..........     $    --            $87,500
    Notes payable - other .....................................................          --              6,810

                                                                                         --             94,310
    Less current maturities
                                                                                         --             94,310
                                                                                    $    --            $   --

</TABLE>

     In fiscal 2001, the Company's  note payable and accrued  interest to a city
government in the amount of $101,938 was forgiven.  The note payable and accrued
interest were forgiven due to achieving minimum headcount employment  objectives
with the city government.

     In August 2002, the Company's  note payable and accrued  interest to a city
government in the amount of $83,538 was  forgiven.  The note payable and accrued
interest  were  forgiven  due  to  maintaining   minimum  headcount   employment
objectives with the city government.

     3. INCOME TAXES

     At July 31,  2002,  the Company had net  operating  loss  carryforwards  of
approximately $53,378,000 for federal tax purposes, which expire in 2010 through
2021, and $15,587,000  for Minnesota tax purposes,  which expire in 2010 through
2016.

     In addition, at July 31, 2002, the Company has approximately $2,408,000 and
$772,000 in federal and state tax credits,  respectively,  substantially  all of
which are research and development  tax credits,  which expire from 2003 through
2019, and approximately  $65,000  alternative  minimum tax credit which does not
expire.

<PAGE>

<TABLE>
<CAPTION>

     Deferred  tax  assets  and  liabilities  as of July  31,  2002 and 2001 are
described in the table below.

                                                                                          2002                       2001

     <S>                                                                              <C>                      <C>
     Current assets (liabilities):
     Allowance for doubtful accounts and returns.........................             $   271,000              $     298,000
     Inventory...........................................................                 188,000                    252,000
     Employee compensation and benefits..................................                 126,000                    111,000
     Other  .............................................................                  61,000                     79,000
                                                                                          646,000                    740,000
     Valuation allowance.................................................                    --                     (740,000)
     Net    .............................................................             $   646,000              $        --


     Long-term assets:
     Net operating losses................................................             $19,219,000                $20,710,000
     Amortization of patents.............................................                 532,000                    459,000

     Tax credits.........................................................               2,421,000                  2,421,000
     Depreciation........................................................                 (31,000)                   (99,000)
                                                                                       22,141,000                 23,491,000
     Valuation allowance.................................................             (10,518,000)               (23,491,000)
     Net    .............................................................             $11,623,000              $        --

</TABLE>

     The effective income tax rate differed from the U.S. federal statutory rate
for each of the three years ended July 31, 2002, 2001 and 2000 as follows:

<TABLE>
                                                                             2002                  2001                2000

    <S>                                                                  <C>                    <C>                 <C>
    Tax expense (benefit) on income (loss) from
         continuing operations computed at
         statutory rate of 35%...............................            $  2,190,000           $(1,157,000)        $(3,707,000)
    Change in valuation allowance............................             (13,713,000)            1,047,000           3,644,000
    Other....................................................                  (3,000)              110,000              63,000
    Total income tax (benefit) expense.......................            $(11,526,000)          $      --           $      --

</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.

     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.

<PAGE>

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

     The total number of shares of stock reserved and available for distribution
under the 1999 Plan originally was 2,000,000  shares,  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, 2002,  there were  2,941,974  shares  reserved for  outstanding
options  under all plans and 671,263  shares  available  for granting of options
under the 1999 Plan.

     In fiscal 2002, 2001 and 2000, the Company granted 7,915, 40,289 and 13,609
compensatory  options,  respectively,  to its outside  directors in lieu of cash
payments for  directors  fees.  Fiscal 2002,  2001 and 2000 options were granted
under the 1999  Plan.  These  options  vest six  months  after date of grant and
expire not more than ten years from date of grant.  The expense  associated with
compensatory  options to outside directors were approximately  $67,000,  $89,000
and $55,000 for the years ended July 31, 2002, 2001 and 2000, respectively.

     In fiscal 2002, 2001 and 2000, the Company granted 1,000,  13,000 and 5,000
compensatory  options,  respectively,  to  various  physicians  in  lieu of cash
payments for  services.  The  Company's  policy is to treat these  options under
variable plan accounting in accordance  with SFAS No. 123 and related  Emergency
Issues Task Force  Issues.  These  options were granted  under the 1999 Plan and
vest ratably over a six month to a four year period and expire not more than ten
years from date of grant. The expense  associated with non-employee  options was
approximately  $50,000,  $81,000 and $43,000 for the years ended July 31,  2002,
2001 and 2000, respectively.

     A summary of changes in  outstanding  options  for each of the three  years
ended July 31, 2002 follows:

<TABLE>
                                                                        2002                    2001                   2000

     <S>                                                              <C>                     <C>                    <C>
     Shares under option at
        beginning of year..............................               3,246,061               1,969,236              1,621,070
     Options granted...................................                 295,045               1,800,865                586,109
     Options exercised.................................                (379,884)                (72,127)               (58,682)
     Options canceled..................................                (219,248)               (451,913)              (179,261)
     Shares under option at end of year................               2,941,974               3,246,061              1,969,236
     Shares exercisable at end of year.................               1,878,695               1,009,283              1,011,298

</TABLE>

     Stock option weighted  average exercise prices during fiscal 2002, 2001 and
2000 are summarized below:

<TABLE>
                                                                        2002                 2001                2000

     <S>                                                               <C>                  <C>                 <C>
     Outstanding at beginning of year.....................             $ 7.54               $10.43              $10.89
     Granted      ........................................              16.45                 5.19                8.97
     Exercised    ........................................               7.38                 6.33                3.53
     Canceled     ........................................               9.09                10.27               12.56
     Outstanding at end of year...........................               8.43                 7.54               10.43

</TABLE>

<PAGE>

<TABLE>
<CAPTION>

     The following table summarizes  information  concerning options outstanding
and exercisable options as of July 31, 2002:

                                                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          1,092,691              8.04                 4.45                804,090             4.80
            6 - 12         1,170,671              7.06                 7.72                653,396             7.98
           12 - 17           359,912              5.40                14.45                302,825            14.35
           17 - 21           318,700              7.44                17.88                118,384            18.22

</TABLE>

     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  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 each year in
fiscal 2000 and 2001 and 2,000 shares of restricted  stock to an employee  under
the terms of the 1999 Plan which vest in fiscal 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.

     In fiscal 2001, the Company granted 5,000 shares of restricted  stock to an
employee under the terms of the 1999 Plan,  which vest 2,500 shares each year in
fiscal years 2002 and 2003. The fair market value of the  restricted  shares was
approximately  $61,000 as of July 31, 2001.  Approximately $8,000 was accrued to
pay the estimated  withholding taxes on those shares as management believes that
the  employee  will  elect  to  receive  fewer  shares  in  lieu of  paying  the
withholding  taxes. In case of termination of the employee,  unvested shares are
forfeited.  Unearned  compensation of approximately  $24,000 was recorded at the
date of grant and is being recognized over the vesting period.

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

     In fiscal 2002, 2001 and 2000, total compensation  expense of approximately
$40,000, $26,000 and $174,000, respectively, were 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 No. 123, the Company has elected
to continue following the guidance of APB No. 25 for measurement and recognition
of  stock-based  transactions  with  employees.  No  compensation  cost has been
recognized  for stock  options  issued under the 1999 and 1992 Plans because the
exercise  price for all options  granted was at least equal to the fair value of
the common stock at the date of grant 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
fiscal 2002, 2001 and 2000, consistent with the method provided in SFAS No. 123,
the  Company's  net income (loss) and income (loss) per share would have been as
follows:

<TABLE>
                                                             2002                       2001                      2000
  <S>                                                    <C>                        <C>                      <C>
  Net income (loss):
     As reported...................................      $17,781,723                $(3,304,411)             $(10,590,381)
     Pro forma.....................................       13,602,723                 (7,184,411)              (13,283,866)

  Income (loss) per share - basic:
     As reported...................................            $1.04                      $(.20)                    $(.67)
     Pro forma.....................................              .80                       (.43)                     (.85)

  Income (loss) per share - diluted:
     As reported...................................            $ .96                      $(.20)                    $(.67)
     Pro forma.....................................              .73                       (.43)                     (.85)

</TABLE>

     The fair value of options  granted  under the various  option  plans during
fiscal  2002,  2001,  and 2000 was  estimated  on the  date of grant  using  the
Black-Sholes   option  pricing  model  with  the  following   weighted   average
assumptions and results:

<TABLE>
                                                             2002                       2001                      2000

  <S>                                                     <C>                        <C>                       <C>
  Dividend yield...................................             None                       None                      None
  Expected volatility..............................          79%-86%                        82%                       85%
  Risk-free interest rate..........................             5.4%                       3.0%                      6.0%
  Expected life of option..........................          120 mo.                    120 mo.                   120 mo.
  Fair value of options on grant date..............       $4,179,000                 $8,648,000                $4,362,000

</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, 2002.  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.

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

     In May and June 1999,  the  Company  issued  106,509  and 17,669  warrants,
respectively,  to various  investors in conjunction  with the Company's  private
placement  offering.  These  warrants  expire  in May  and  June  2003  and  are
exercisable into common stock at $11.43 and $11.69, respectively.  During fiscal
2002,  19,150  of these  warrants  were  exercised.  As of July 31,  2002,  the
remaining 105,028 warrants were outstanding and unexercised.

     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.  During  fiscal
2002,  13,984  of  these  warrants  were  exercised.  As of July 31,  2002,  the
remaining 304,826 warrants were outstanding and unexercised.

<PAGE>

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

<TABLE>
                                                                              2002                   2001                  2000

    <S>                                                                     <C>                     <C>                   <C>
    Warrants outstanding at beginning of year....................            580,028                580,028               261,218
    Warrants issued..............................................               --                     --                 318,810
    Warrants exercised...........................................            (33,134)                  --                    --
    Warrants expired.............................................           (110,640)                  --                    --
    Warrants outstanding at end of year..........................            436,254                580,028               580,028

</TABLE>

     Employee Stock  Purchase Plan The Employee  Stock Purchase Plan,  effective
January 1, 1991,  enables  eligible  employees,  through payroll  deduction,  to
purchase  the  Company's  common  stock at the end of each  calendar  year.  The
purchase  price is the lower of 85% of the fair market value of the stock on the
first or last day of the calendar  year.  The Company  issued  63,242  shares in
fiscal 2002, 52,493 shares in fiscal 2001 and 51,999 shares in fiscal 2000 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,  2002,  2001 and 2000  were  $276,196,  $250,179  and
$260,482, respectively.


     6. RELATED PARTY TRANSACTIONS

     A Director of the Company at times performs  outside legal services for the
Company.  During  fiscal 2002,  2001 and 2000 the amount of these  services were
approximately  $2,000,  $74,000  and  $1,000,  respectively.  A Director  of the
Company is a Principal of an investment banking firm that performed services for
the Company and which received fees of $925,000 during fiscal 2000 in connection
with a private placement financing by the Company.


7.  COMMITMENTS AND CONTINGENCIES

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

     The Company is also leasing a sales  office  under an operating  lease that
expires  in  2005.  The  future  annual  rentals  on this  operating  lease  are
approximately $15,000 per year through 2005.

     Total rental  expense  charged to operations  was  approximately  $261,000,
$258,000  and  $260,000  for the years  ended  July 31,  2002,  2001,  and 2000,
respectively.

<PAGE>

     Future minimum payments under the  non-cancelable  operating leases at July
31, 2002 were:


               Year Ended
                July 31                                 Amount
                 2003                                  $257,000
                 2004                                   257,000
                 2005                                   257,000
                 2006                                   151,000
                 Total minimum lease payments          $922,000



     8. SEGMENT AND GEOGRAPHIC INFORMATION AND CONCENTRATION OF CREDIT RISK

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

     Total  revenues  from sales in the United  States  and  outside  the United
States for each of the three  years  ended July 31,  2002,  2001 and 2000 are as
follows:

                                      2002           2001           2000

   United States...............   $42,032,901    $29,628,777    $20,158,934
   Outside the United States...       437,792        371,770        392,770
   Total revenues..............   $42,470,693    $30,000,547    $20,551,704


     In fiscal 2002, 2001 and 2000 there were no individual customers with sales
exceeding 10% of total revenues.

     9. 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
distributor   defaulted   under  the   agreement   by  failing  to  comply  with
contractually  obligated levels of product purchases and with payment schedules.
In  November  2000,  the  distributor  indicated  its  desire to  terminate  the
distribution  agreement and return unsold  product.  The Company has settled all
outstanding litigation with the Perma-Seal  distributor,  and has terminated the
distribution  relationship.  The  settlement  had no  impact  on  the  financial
statements.

<PAGE>


     10. SELECTED QUARTERLY FINANCIAL DATA (Unaudited)

<TABLE>
<CAPTION>
                                                                               Fiscal Year Ended July 31, 2002
                                                                  First            Second            Third            Fourth
                                                                 Quarter           Quarter          Quarter           Quarter

<S>                                                            <C>              <C>              <C>               <C>
Product Sales...........................................       $9,585,268       $10,223,788      $10,755,468       $11,906,169
Gross profit............................................        6,585,286         7,013,293        7,601,264         8,581,015
Net income-before income taxes..........................          938,528         1,625,349        1,686,922         2,004,924
Net income-after income taxes...........................          938,528         1,625,349        1,686,922        13,530,924

Net income per common share-before income taxes
   Basic................................................           $ 0.06            $ 0.10           $ 0.10            $ 0.12
   Diluted..............................................             0.05              0.09             0.09              0.11

Net income per common share-after income taxes
   Basic................................................           $ 0.06            $ 0.10           $ 0.10            $ 0.78
   Diluted..............................................             0.05              0.09             0.09              0.74

</TABLE>

<TABLE>
<CAPTION>
                                                                               Fiscal Year Ended July 31, 2001
                                                                  First            Second            Third            Fourth
                                                                 Quarter           Quarter          Quarter           Quarter

<S>                                                            <C>              <C>              <C>              <C>
Product Sales...........................................       $6,578,110       $ 6,947,017      $ 7,411,418      $ 9,064,002
Gross profit............................................        3,463,065         3,993,346        4,865,420        5,943,113
Net income-before income taxes..........................       (2,371,958)       (1,598,409)          28,726          637,232
Net income-after income taxes...........................       (2,371,958)       (1,598,409)          28,726          637,232

Net income per common share-before income taxes
   Basic and diluted....................................           $(0.14)           $(0.10)          $  --             $ 0.04

Net income per common share-after income taxes
   Basic and diluted....................................           $(0.14)           $(0.10)          $  --             $ 0.04

</TABLE>


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

     During fiscal 2002 and 2001, 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, 2002 is in the Proxy Statement  under the heading  "Election
of  Directors"  and  "Executive  Compensation"  and is  incorporated  herein  by
reference.


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

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

     Information  regarding  securities  authorized  for  issuance  under equity
compensation  plans is  contained  in the  Proxy  Statement  under  the  heading
"Securities  authorized  for  issuance  under equity  compensation  plan" and is
incoroporated herein by reference.

     Item 13. Certain Relationships and Related Transactions:

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


     Item 14. Controls and Procedures

     (a) Evaluation of disclosure controls and procedures.  The term "disclosure
controls and  procedures"  is defined in Rules  13a-14(c)  and  15d-14(c) of the
Securities and Exchange Act of 1934 ("Exchange  Act").  These rules refer to the
controls  and other  procedures  of a company  that are  designed to ensure that
information  required to be  disclosed by a company in the reports that it files
under the Exchange Act is recorded,  processed,  summarized and reported  within
required  time  periods.  Our chief  executive  officer and our chief  financial
officer have evaluated the  effectiveness of the Company's  disclosure  controls
and  procedures  as of a date  within 90 days  before the filing of this  yearly
report  (the  "Evaluation  Date"),  and  they  have  concluded  that,  as of the
Evaluation  Date,  such controls and procedures  were effective at ensuring that
required  information  will be disclosed on a timely basis in our reports  filed
under the Exchange Act.

     (b)  Changes  in  internal  controls.  We  maintain  a system  of  internal
accounting  controls that are designed to provide reasonable  assurance that our
books and records  accurately  reflect our transactions and that our established
policies and  procedures  are  carefully  followed.  For the year ended July 31,
2002,  there were no  significant  changes to our internal  controls or in other
factors that could significantly  affect our internal controls,  and we have not
identified any significant  deficiencies or material  weaknesses in our internal
controls.

<PAGE>


                                     PART IV


     Item 15. 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, 2002 and 2001
     Consolidated Statements of Operations for each of the three years in the
        period ended July 31, 2002
     Consolidated Statements of Cash Flows for each of the three years in the
        period ended July 31, 2002.
     Consolidated Statements of Changes in Shareholders' Equity for each of the
        three years in the period ended July 31, 2002.
     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,         Rights Agreement, dated December 12,
                   1996                 1996, between the Company and
                                        Norwest Bank Minnesota N.A., as
                                        rights agent

   4.2    10-K     November 23,         Debenture Agreement with St. Paul
                   1966                 Fire and Marine Company and
                                        Western Life Insurance Company
                                        and form of debenture rates and
                                        warrants

   4.3    8-K      May 12, 1999         Form of Warrant to investors of the
                                        Purchase  Agreement dated May 11,
                                        1999

   4.4    8-K      March 14, 2000       Private placement Purchase Agreement
                                        dated March 6, 2000 between the
                                        Company and the investors listed
                                        therein

   4.5    8-K      March 14, 2000       Registration Rights Agreement between
                                        the Company and the investors in the
                                        Purchase Agreement dated March 6,
                                        2000

   4.6    8-K      March 14, 2000       Form of Warrant to investors of the
                                        Purchase Agreement dated March 6,
                                        2000

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

* 10.2    10-K     Fiscal year ended    Form of incentive stock option
                   July 31, 1989        agreement for officers

* 10.3    10-K     Fiscal year ended    Form of stock option agreement for
                   July 31, 1989        directors

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

* 10.5    10-K     Fiscal year ended    Form of nonqualified stock option
                   July 31, 1993        agreement for officers (1992 Plan)

* 10.6    10-K     Fiscal year ended    Form of incentive stock option
                   July 31, 1993        agreement for officers (1992 Plan)

<PAGE>

Exhibit   Form         Date Filed                       Description


* 10.7    10-K     Fiscal year ended    Form of nonqualified stock option
                   July 31, 1993        agreement for 1992 directors' fees
                                        (1992 Plan)

  10.8    10-Q     Quarter ended        Lease agreement for corporate
                   January 31, 1996     headquarters and manufacturing
                                        facility dated December 15, 1995

* 10.9    10-K     Fiscal Year ended    Change in Control Termination
                   July 31, 2001        Pay Plan - Amended  effective April
                                        3, 2001

* 10.10   10-K     Fiscal year ended    1999 Stock Compensation Plan
                   July 31, 1999

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

* 10.12   10-K     Fiscal year ended    Form of incentive stock option
                   July 31, 2002        agreement(1999 Plan)

  21      10-K     Fiscal year ended    Subsidiaries of registrant
                   July 31, 2002

  23      10-K     Fiscal year ended    Consent of independent certified
                   July 31, 2002        public accountants

  99.1    10-K     Fiscal year ended    Risk Factors
                   July 31, 2002

  99.2    10-K     Fiscal year ended    Certification of Chief Executive
                   July 31, 2002        Officer pursuant to Section 906 of
                                        the Sarbanes-Oxley Act

  99.3    10K      Fiscal year ended    Certification of Chief Financial
                   July 31, 2002        Officer pursuant to Section 906 of
                                        the Sarbanes-Oxley Act


     * 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, 2002.

<PAGE>


SIGNATURES

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

POSSIS MEDICAL, INC.

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


Dated:  October 29, 2002

<PAGE>


SECTION 302 CERTIFICATION



I, Robert G. Dutcher, certify that:

     1. I have reviewed this annual report on Form 10-K of Possis Medical, Inc.;

     2. Based on my  knowledge,  this annual  report does not contain any untrue
statement of a material fact or omit to state a material fact  necessary to make
the statements made, in light of the  circumstances  under which such statements
were made,  not  misleading  with  respect to the period  covered by this annual
report;

     3. Based on my knowledge,  the financial  statements,  and other  financial
information  included  in this annual  report,  fairly  present in all  material
respects the financial  condition,  results of operations  and cash flows of the
registrant as of, and for, the periods presented in this annual report;

     4. The  registrant's  other  certifying  officers and I are responsible for
establishing and maintaining  disclosure  controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

     a. designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others  within those  entities,  particularly  during the
period in which this annual report is being prepared;

     b. evaluated the effectiveness of the registrant's  disclosure controls and
procedures  as of a date  within 90 days prior to the filing date of this annual
report (the "Evaluation Date"); and

     c. presented in this annual report our conclusions  about the effectiveness
of the  disclosure  controls and  procedures  based on our  evaluation as of the
Evaluation Date;

     5. The registrant's other certifying  officers and I have disclosed,  based
on our most  recent  evaluation,  to the  registrant's  auditors  and the  audit
committee  of  registrant's  board  of  directors  (or  persons  performing  the
equivalent functions):

     a. all  significant  deficiencies  in the design or  operation  of internal
controls  which  could  adversely  affect  the  registrant's  ability to record,
process,  summarize  and  report  financial  data  and have  identified  for the
registrant's auditors any material weaknesses in internal controls; and

     b. any fraud,  whether or not material,  that involves  management or other
employees who have a significant role in the registrant's internal controls; and

     6. The registrant's other certifying  officers and I have indicated in this
annual report whether there were significant  changes in internal controls or in
other factors that could  significantly  affect internal controls  subsequent to
the date of our most recent  evaluation,  including any corrective  actions with
regard to significant deficiencies and material weaknesses.

Date: October 29, 2002

                                               Robert G. Dutcher
                                               Chairman, President and
                                               Chief Executive Officer

<PAGE>


SECTION 302 CERTIFICATION



I, Eapen Chacko, certify that:

     1. I have reviewed this annual report on Form 10-K of Possis Medical, Inc.;

     2. Based on my  knowledge,  this annual  report does not contain any untrue
statement of a material fact or omit to state a material fact  necessary to make
the statements made, in light of the  circumstances  under which such statements
were made,  not  misleading  with  respect to the period  covered by this annual
report;

     3. Based on my knowledge,  the financial  statements,  and other  financial
information  included  in this annual  report,  fairly  present in all  material
respects the financial  condition,  results of operations  and cash flows of the
registrant as of, and for, the periods presented in this annual report;

     4. The  registrant's  other  certifying  officers and I are responsible for
establishing and maintaining  disclosure  controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

     a. designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others  within those  entities,  particularly  during the
period in which this annual report is being prepared;

     b. evaluated the effectiveness of the registrant's  disclosure controls and
procedures  as of a date  within 90 days prior to the filing date of this annual
report (the "Evaluation Date"); and

     c. presented in this annual report our conclusions  about the effectiveness
of the  disclosure  controls and  procedures  based on our  evaluation as of the
Evaluation Date;

     5. The registrant's other certifying  officers and I have disclosed,  based
on our most  recent  evaluation,  to the  registrant's  auditors  and the  audit
committee  of  registrant's  board  of  directors  (or  persons  performing  the
equivalent functions):

     a. all  significant  deficiencies  in the design or  operation  of internal
controls  which  could  adversely  affect  the  registrant's  ability to record,
process,  summarize  and  report  financial  data  and have  identified  for the
registrant's auditors any material weaknesses in internal controls; and

     b. any fraud,  whether or not material,  that involves  management or other
employees who have a significant role in the registrant's internal controls; and

     6. The registrant's other certifying  officers and I have indicated in this
annual report whether there were significant  changes in internal controls or in
other factors that could  significantly  affect internal controls  subsequent to
the date of our most recent  evaluation,  including any corrective  actions with
regard to significant deficiencies and material weaknesses.

Date: October 29, 2002
                                               Eapen Chacko
                                               Chief Financial Officer and
                                               Vice President of Finance

<PAGE>




SIGNATURES

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

     Signature                          Title                        Date

/s/ Robert G. Dutcher           Chairman, President and        October 29, 2002
Robert G. Dutcher               Chief Executive Officer


/s/ Eapen Chacko                Chief Financial Officer        October 29, 2002
Eapen Chacko                    Vice President of Finance


/s/ Mary K. Brainerd            Director                       October 29, 2002
Mary K. Brainerd


/s/ Seymour J. Mansfield        Director                       October 29, 2002
Seymour J. Mansfield


/s/ William C. Mattison, Jr.    Director                       October 29, 2002
William C. Mattison, Jr.


/s/ Whitney A. McFarlin         Director                       October 29, 2002
Whitney A. McFarlin


/s/ Donald C. Wegmiller         Director                       October 29, 2002
Donald C. Wegmiller


/s/ Rodney A. Young             Director                       October 29, 2002
Rodney A. Young


<PAGE>










                              POSSIS MEDICAL, INC.


VALUATION ACCOUNTS
YEARS ENDED JULY 31, 2002, 2001 AND 2000

<TABLE>
<CAPTION>


         Column A                                Column B              Column C              Column D

                                                                      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:

<S>                                            <C>                   <C>                     <C>
Year ended July 31, 2002                       $   659,000           $1,305,000              $ 1,382,000               $   582,000
Year ended July 31, 2001                           672,000            1,297,000                1,310,000                   659,000
Year ended July 31, 2000                           489,000              502,000                  319,000                   672,000



Valuation allowance on
deferred tax asset:

Year ended July 31, 2002                       $24,231,000           $     --                $13,713,000               $10,518,000
Year ended July 31, 2001                        23,184,000            1,047,000                     --                  24,231,000
Year ended July 31, 2000                        19,540,000            3,644,000                     --                  23,184,000
</TABLE>

<PAGE>







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

                                  EXHIBIT INDEX
Exhibit
Number                              Description



 10.11   Form of nonqualified stock option agreement (1999 Plan)

 10.12   Form of incentive stock option agreement (1999 Plan)

 21      Subsidiaries of Possis Medical, Inc.

 23      Consent of independent certified public accountants

 99.1    Risk Factors

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

 99.3    Certification of Chief Financial Officer pursuant to Section 906 of the
         Sarbanes-Oxley Act

<PAGE>