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, 2003

            [ ] 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. YES X NO ____

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

     Aggregate  market value of the voting and non-voting  common equity held by
non-affiliates computed by reference to the price at which the common equity was
last sold,  or the  average bid and asked  price of such  common  equity,  as of
January 31, 2003: $330,798,000.

     The number of shares  outstanding  of the  registrant's  common stock as of
September 25, 2003: 17,756,531.

     Certain  responses  in Part III are  incorporated  herein by  reference  to
information  contained in the Company's  definitive Proxy Statement for its 2003
annual  meeting  to  be  filed  on or  before  November  10,  2003  ("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 47 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.

Products

     ANGIOJET(R)  RHEOLYTIC(TM)  THROMBECTOMY  SYSTEM.  The development of blood
clots in various  sites within the  vascular  system is common and is one of the
leading  causes of  morbidity  and death.  Blood clots may be caused by multiple
factors,  including cardiovascular disease, trauma and impediment of normal flow
during  invasive  procedures  or  pressure  impeding  venous  return for example
prolonged bed rest.  If a blood clot becomes large enough,  it can block a blood
vessel,  preventing  oxygenated  blood  from  reaching  the  organ or  tissue it
supplies, a condition called ischemia.  In addition, if a blood clot breaks off,
it can travel through the  bloodstream  (embolize) and block blood flow to other
organs and tissue.  Conditions  caused by blood clots include  acute  myocardial
infarction (heart attack),  stroke,  peripheral ischemia, which can lead to limb
loss,  hemodialysis vascular access failure,  pulmonary embolism,  and deep vein
thrombosis.

     Based on its clinical trial results,  Food and Drug Administration  ("FDA")
clearances,  approximately 195 scientific  journal  articles,  and approximately
150,000  clinical  procedures  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 over a
guidewire  down a  patient's  blood  vessel to the site of the blood  clot.  The
AngioJet  System's drive unit is then  activated,  causing a disposable  pump to
pressurize  sterile saline to approximately  10,000 pounds per square inch (psi)
at the source and send it through the catheter to the tip.  Saline jets enclosed
within the catheter  spray from the catheter tip back up the catheter at several
hundred miles per hour. The operation of high-speed  jets,  contained inside the
catheter,  creates a localized  low-pressure zone around the catheter's tip. The
difference  between the low pressure at the tip and the normal blood pressure in
the vessel draws the blood clot into the catheter through openings near the tip.
The jets then macerate or pulverize the blood clot into  microscopic  fragments,
which are ultimately propelled down the catheter,  out of the patient's body and
into a disposable  collection bag located on the drive unit. The saline jets are
not used directly on the vessel surface to remove material.

<PAGE>

     Currently, the Company markets the XMI(R), XVG(R),  Xpeedior(R) and AVX(TM)
catheters.   Each  of  these   catheters   feature  the  Company's   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  than  previous  catheters  with  "mural
thrombus," the older,  more organized  material that adheres to vessel walls and
can complicate patient outcomes.

     The AngioJet System is a pioneering device for the removal of intravascular
blood  clots in a variety of  clinical  applications.  It is  typically  used in
conjunction with other medical devices,  such as angioplasty balloons and stents
(both  bare  metal and drug  eluting),  and  drugs,  such as  thrombolytics  and
platelet  inhibitors.  The market potential is not readily  quantifiable through
widely published  industry  statistics.  The approach of the Company has been to
estimate  the  total  number  of cases for a given  indication  in a  particular
vascular territory. These statistics are available through industry sources. The
Company  then  estimates  the number of  procedures  that might be  amenable  to
treatment with the AngioJet System,  in conjunction  with other therapies,  both
devices and drugs. In making these estimates for the number of cases amenable to
treatment with the AngioJet System, the Company has relied on its own estimates,
as  well  as  estimates  based  on  data  provided  by  physician   consultants,
presentations at medical industry  conferences,  peer-reviewed journal articles,
security analyst publications, and publications by industry trade and consulting
groups.  In cases where  little or no reliable  data  exist,  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
indicate 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  incidence
worldwide and the Company's estimated AngioJet System annual market potential.

<PAGE>

<TABLE>
<CAPTION>

AngioJet
                                                                                         Estimated                 System
                                                                                           Annual                  Annual
                                                                                         Worldwide                 Market
                                                                                         Incidence               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 (4)                        Embolic Protection in SVG                              306,000                306,000
                                    Intervention
Lungs (4)                           Pulmonary Embolism                                     400,000                200,000
Venous (4)                          Venous Thrombosis                                    1,200,000                144,000

                                                                      Total              9,841,000              2,017,000

</TABLE>

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

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

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

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

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

<PAGE>

Graft Products

     The Company has ceased pursuing  development and  commercialization  of its
graft products and the assets  associated  with these products have been written
off. The Company is not optimistic that the assets can bring  significant  value
in a sale.

Research and Development

     The  Company's   product   development   efforts  are  focused  on  product
enhancements  for  existing  approved  indications,  new  products  for existing
indications,  new products for new clinical  indications and general upgrades to
the  AngioJet  System,  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
2004, the Company's  research and development  expenses are expected to increase
from fiscal 2003 levels in order to expand the current realizable market for the
AngioJet  System,  as well as to expand into new areas,  such as distal  embolic
protection.

     As of September 30, 2003, the Company  employed  approximately 19 full-time
employees  in research  and  development,  including  16 in new product  concept
screening,  prototype building,  product and process development and validation,
and three in regulatory and clinical affairs. The Company performs substantially
all of its research and development activities at its headquarters in Minnesota.
The Company spent $7,503,000, $4,427,000 and $4,820,000 in fiscal 2003, 2002 and
2001,  respectively,  on medical product  research and  development  exclusively
related to the AngioJet System.

Manufacturing

     The Company  assembles  and tests its entire  product line in-house and has
vertically  integrated a number of  processes in an effort to provide  increased
quality and reliability of the components used in the production  process.  Many
of the processes are proprietary and were developed by the Company.  Most of the
Company's raw materials and its components and select  subassemblies used in its
products  are  purchased  from  outside  suppliers  and  are  generally  readily
available  from multiple  sources;  however,  some of the raw material items are
available only from single source suppliers.

     The Company's manufacturing  facilities are subject to periodic inspections
by  regulatory  authorities,   including  Good  Manufacturing  Practice  ("GMP")
compliance  inspections  by the FDA and a Notified  Body, a private sector audit
and test house designated by European Union competent authorities (Ministries of
Health)  to  determine  whether  a product  can  display  the CE mark,  which is
necessary for marketing in the European Union. We have undergone  inspections by
the FDA for GMP compliance and/or our Notified Body each year since 1968.

Marketing and Sales

     The  Company  markets  its  AngioJet  System  primarily  to  interventional
cardiologists, interventional radiologists and vascular surgeons and secondarily
to physician  specialty groups,  such as nephrologists  and osteopaths.  Revenue
from AngioJet System sales in the United States was  approximately  98%, 99% and
99% of fiscal 2003, 2002 and 2001 revenue, respectively.

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

<PAGE>

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

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

     Promotional  activities by the Company are designed primarily to enlist the
support of key medical  opinion  leaders in the United  States and  abroad.  The
Company  believes that  publications in medical  journals and  presentations  at
medical  meetings are important to encourage  broad  acceptance of its products.
Other marketing activities include medical journal advertising, participating in
medical meetings, and supporting physician 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,  distal occlusion devices, and method and apparatus claims
related to the design  and use of  synthetic  vascular  grafts.  The  Company no
longer  considers the graft patents as material to its business  going  forward.
The Company holds 14 United States patents and six foreign  patents  relating to
the AngioJet  System.  Of the 14 U.S.  patents,  ten were filed between 1990 and
1995 and are valid for 17 years  following  issuance.  The  remaining  four were
filed in or after 1998 and are valid for 20 years  following their filing dates.
In addition, the Company has 18 United States and 18 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 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>

     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 and may require significant
time to take effect,  which is costly in an intensive or critical  care setting,
and then may only partially remove the clot. In addition, thrombolytic drugs may
cause  uncontrolled,  life-threatening  bleeding.  Also, other classes of drugs,
specifically  platelet  glycoprotein  llb/llla  inhibitors,  are  being  used to
prevent  blood clots from forming  during  coronary  interventional  procedures.
However,  these  drugs have no proven  benefit  against  clots  already  formed.
Mechanical  devices  such as the  Fogarty-type  catheter  operate by inflating a
balloon past the point of the blood clot and then pulling the balloon  along the
artery,  essentially  dragging  the  blood  clot  out  of  the  patient's  body.
Fogarty-type  catheters  require  surgical  intervention,  which  may  result in
overnight  hospital stays, are more limited in their  applications and may cause
significant vascular trauma.

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

     The AngioJet System is a device for the rapid,  safe and effective  removal
of  intravascular  thrombus  from native  coronary  vessels and  saphenous  vein
grafts, kidney dialysis access grafts, and leg arteries. The AngioJet System has
a unique profile of safety, clinical effectiveness,  and cost-effectiveness.  In
general, it competes against  pharmacological  dissolution of the thrombus using
thrombolytics or platelet glycoprotein  IIb/IIIa inhibitors,  mechanical removal
using other devices,  and against surgical revision of grafts.  Drugs take time,
do not work in a significant  number of cases, 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.

<PAGE>

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

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

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

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

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

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

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

<PAGE>

Employees

     As of September 30, 2003,  the Company had 228 full-time  employees,  three
part-time employees and 14 contract employees.  Of these full-time employees, 19
are in research and development,  90 are in manufacturing and production, 13 are
in quality  assurance,  six are in  facilities/maintenance,  82 are in sales and
marketing  and 18 are in  management or  administrative  positions.  None of the
Company's  employees  are  covered by a  collective  bargaining  agreement,  and
management considers its relations with its employees to be good.

Available Information

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

Item 2.  Properties:

     The  Company  leases   approximately  51,000  square  feet  of  office  and
manufacturing  space  (including  approximately  6,500 square feet of controlled
environment  manufacturing  space) at 9055 Evergreen  Boulevard NW, Minneapolis,
Minnesota 55433-8003.  See Note 9 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 9 of Notes to  Consolidated
Financial Statements in Part II, Item 8, in this Form 10-K.

    Management  believes  these  properties  to be in  good  condition  and are
adequate to meet its current levels of production  and research and  development
activities.  However,  management anticipates additional space will be needed to
meet  expected  future  production  levels and future  research and  development
activities.  Included in the existing lease for the 9055 Evergreen  Boulevard NW
property  is the  option to  purchase  or  continue  to lease with the option of
adding on to the current  location as the need arises.  Management has currently
initiated  discussions with its landlord to evaluate  expansion timing and costs
and expects to complete expansion plans within the next twelve months.

Item 3.  Legal Proceedings:

None

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

None

<PAGE>

Executive Officers of the Registrant:


       Name           Age                       Position

Robert G. Dutcher      58     Chairman, President and Chief Executive Officer

Eapen Chacko           55     Chief Financial Officer and Vice President,
                              Finance and Investor/Public Relations

Irving R. Colacci      50     Vice President, Legal Affairs and Human Resources
General Counsel and
Secretary

James D. Gustafson     47     Vice President, Technology, Product Development
                              and Quality Systems

Shawn F. McCarrey      45     Vice President, Worldwide Sales

Robert J. Scott        58     Vice President, Manufacturing and
                              Information Technology

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

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

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

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

     Shawn F. McCarrey  joined the Company as Director of U.S. Sales in December
1998,  and became Vice  President of U.S. Sales in April 2001 and Vice President
of Worldwide Sales in February 2003. Prior to joining the Company,  Mr. McCarrey
served in a variety of sales  positions  with USCI, a subsidiary  of C.R.  Bard,
Inc., from January 1982 until 1998.

     Robert J. Scott joined the  Company's  medical  subsidiary  in 1985 and has
served as Vice President of Manufacturing since 1993 and Information  Technology
since July 30, 2001.

<PAGE>
                                     PART II

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

     The Company had 1,366 common  shareholders of record at September 30, 2003.
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,
2003 and 2002 are presented below:

                                        2003                      2002
                                 High          Low          High          Low
         QUARTER:
                  First         $12.62      $  9.01        $14.70      $  9.85
                  Second         19.63        11.49         19.00        13.00
                  Third          20.19        14.93         21.15        14.19
                  Fourth         19.79        13.57         15.10         8.91

     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.

Item 6. Selected Financial Data:

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

<TABLE>
<CAPTION>

In Thousands Except per Share Data                            2003           2002           2001           2000           1999

<S>                                                         <C>            <C>            <C>            <C>            <C>
INCOME STATEMENT DATA:
    Products sales...................................       $57,428        $42,471        $30,001        $20,552        $13,210
    Net income (loss):
         Before income taxes.........................        12,013          6,256         (3,304)       (10,590)       (12,021)
         Income tax benefit..........................         4,555         11,526           --             --             --
         After income taxes..........................        16,568         17,782         (3,304)       (10,590)       (12,021)
    Net income (loss) per common share - basic:
         Before income taxes.........................           .69            .37           (.20)          (.67)           .90)
         Income tax benefit..........................           .26            .67           --             --             --
         After income taxes..........................           .95           1.04           (.20)          (.67)          (.90)
    Net income (loss) per common share - diluted:
         Before income taxes.........................           .64            .34           (.20)          (.67)          (.90)
         Income tax benefit..........................           .24            .62           --             --             --
         After income taxes..........................           .88            .96           (.20)          (.67)          (.90)
    Weighted average shares outstanding:
         Basic.......................................        17,502         17,079         16,739         15,697         13,356
         Diluted.....................................        18,889         18,602         16,739         15,697         13,356

BALANCE SHEET DATA:
    Working capital..................................       $38,881        $25,038        $14,405        $16,788        $13,530
    Total assets.....................................        67,765         44,689         22,009         25,004         19,821
    Long-term debt, excluding current maturities.....          --             --             --                7            100
    Shareholders' equity.............................        61,034         39,754         18,071         20,495         16,315

</TABLE>

<PAGE>

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  relate to the Company's
ability to increase  sales of  disposable  product and capital  equipment in the
face of new  product  introductions  from  competitors;  its  ability  to obtain
additional  regulatory  approvals  in a timely  basis;  the  ability  to  obtain
regulatory clearance in new foreign markets; customer responses to the Company's
marketing   strategies;   ability  to  retain  and  motivate  skilled  employees
especially  sales  positions;  ability to expand the sales  force;  deferred tax
asset valuation  allowance;  its outlook  including  future  revenue,  earnings,
earnings per share and expense levels;  future equity  financing  needs; and the
Company's  ability to develop new  products  and enhance  existing  ones.  These
forward-looking statements are based on current expectations and assumptions and
entail various risks and uncertainties that could cause actual results to differ
materially  from those  expressed in such  forward-looking  statements.  Certain
factors that may affect whether these anticipated results occur include clinical
and market  acceptance  of our  products;  factors  affecting  the  health  care
industry such as restricting sales time at interventional  labs;  consolidation,
cost  containment due to rising  expenditures on drug-eluting  stents and trends
toward  managed  care;  changes in  supplier  requirements  by group  purchasing
organizations;  unanticipated  costs or  other  difficulties  and  uncertainties
associated  with  lengthy  and costly new  product  development  and  regulatory
clearance  processes;  changes in governmental laws and regulations;  changes in
reimbursement;  the development of new competitive  products such as filterwires
and compounds that may make our products obsolete; sudden restrictions in supply
of key materials;  and deterioration of general market and economic  conditions.
We also caution you not to place undue reliance on  forward-looking  statements,
which speak only as of the date made. Any or all  forward-looking  statements in
this  report  and in any  other  public  statements  we make  may turn out to be
inaccurate  or false.  They can be affected by inaccurate  assumptions  we might
make or by known or  unknown  risks and  uncertainties.  Except as  required  by
federal   securities   laws,   we   undertake  no   obligation   to  update  any
forward-looking  statement.  A discussion  of these and other factors that could
impact the Company's  future results are set forth in the risk factors  included
in Exhibit 99.1 to this report on Form 10-K.

General

     The  Company  was  incorporated  in 1956 and went  public in 1960 as Possis
Machine Corporation.  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.  The Company evaluates  revenue  performance based on the total
revenues   of  each  major   product   line  and   profitability   based  on  an
enterprise-wide  basis  due to  shared  infrastructures  to make  operating  and
strategic decisions.

     The Company generates revenue from the sale of its products.  The resulting
cash flow,  together with the net proceeds  from the  Company's  debt and equity
offerings,  has been used to fund the Company's  operations,  including research
and  development  related  to its  products.  Approximately  98% of fiscal  2003
revenues were from product sales in the United States. The high concentration of
United States  revenue  generation  is expected to continue for the  foreseeable
future.

<PAGE>

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 of
America  requires  management  to make  estimates  and  assumptions  in  certain
circumstances  that affect  amounts  reported in the  accompanying  consolidated
financial  statements  and  related  footnotes.  In  preparing  these  financial
statements,  management  has made its best  estimates  and  judgments of certain
amounts  included  in the  financial  statements,  giving due  consideration  to
materiality. The Company's most critical accounting policies are those described
below.  Application  of these  accounting  policies  involves  the  exercise  of
judgment and use of  assumptions  as to future  uncertainties  and, as a result,
actual results could differ from these estimates. Revenue Recognition

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

Allowance for Returns

     Accounts  receivable  are  reduced  by an  allowance  for items that may be
returned in the future.  The allowance requires us to make estimates at the time
the account receivable is recorded  concerning the likelihood for returns in the
future. The estimate is based upon historical  experience,  information received
from our customers and 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

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

<PAGE>

Warranty Reserve

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

Deferred Tax Asset Valuation Allowance

     The Company became profitable starting in the third quarter of fiscal 2001.
It has maintained  profitability for ten quarters,  including the fourth quarter
of fiscal 2003.  Prior to the fourth quarter of fiscal 2002, the Company reduced
its net  deferred  tax asset to zero  through a valuation  allowance  due to the
uncertainty of realizing such asset.  In the fourth  quarters of fiscal 2003 and
2002, the Company  reassessed the likelihood that the deferred tax asset will be
recovered  from  future  taxable  income.  Due to the  previous  two full years'
operating  results  projected  forward  through the  carry-forward  period,  the
Company reduced its valuation  allowance on the deferred tax asset by $9,060,000
and $12,269,000 during the fourth quarter of fiscal 2003 and 2002, respectively.
Management  believes the remaining  valuation allowance is necessary as $740,000
of the  deferred  tax asset  will not be  realizable  due to the  expiration  of
research and development tax credits.

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

<PAGE>

Results of Operations

Fiscal Years Ended July 31, 2003, 2002 and 2001

     Total  product  sales for fiscal  2003  increased  $14,957,000,  or 35%, to
$57,428,000,  compared to  $42,471,000  in fiscal 2002.  Total product sales for
fiscal  2002  increased  $12,470,000,  or  42%,  to  $42,471,000,   compared  to
$30,001,000  in  fiscal  2001.  The  Company  recorded  pre-tax  net  income  of
$12,013,000, or $0.64 per diluted share, in fiscal 2003 and $6,256,000, or $0.34
per diluted share, in fiscal 2002. This compared to a net loss of $3,304,000, or
$0.20 per diluted share, in fiscal 2001. In fiscal 2003, the Company  recorded a
benefit for income taxes in the amount of $9,060,000 due to the reduction of the
deferred tax asset  valuation  allowance  and changes in temporary  differences.
This income tax benefit offset the Company's  income tax provision of $4,505,000
and  resulted  in a net income tax  benefit of  $4,555,000  and  resulted in net
income after income  taxes in fiscal 2003 of  $16,568,000,  or $0.88 per diluted
share.  In fiscal 2002,  the Company  recorded a benefit for income taxes in the
amount of $11,526,000  due to the reduction of the deferred tax asset  valuation
allowance.  This  resulted in net income  after  income  taxes in fiscal 2002 of
$17,782,000, or $0.96 per diluted share.

Revenue - AngioJet System

     U.S. AngioJet System revenue for fiscal 2003 increased $14,179,000, or 34%,
to  $56,212,000  compared to $42,033,000 in fiscal 2002.  U.S.  AngioJet  System
revenue for fiscal 2002 increased $12,404,000 or 42%, to $42,033,000 compared to
$29,629,000 in fiscal 2001. The Company markets the AngioJet  System  worldwide.
The AngioJet System  consists of a drive unit (capital  equipment) that powers a
disposable pump and a family of disposable  catheters,  each aimed at a specific
indication.  The main  factors in the  AngioJet  System  revenue  increase  were
increased  sales  resulting from the Company  commencing  U.S.  marketing of the
AngioJet System with additional  labeling claims and the expansion of its direct
sales force. During fiscal 2003, 2002 and 2001, the Company began U.S. marketing
of three  new  catheters  for the  removal  of blood  clots in leg  (peripheral)
arteries: the Xpeedior(R) Plus 120 in August 2002, the XVG in April 2002 and the
XMI in March 2001.  In addition,  the Company  received  clearance to market the
Company's  XMI  catheter for  coronary  use in December  2001.  The XVG, XMI and
Xpeedior catheters feature the Company's 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  than previous  catheters  with "mural  thrombus,"  the older,  more
organized  material  that  adheres to vessel  walls and can  complicate  patient
results.

     As of July 31,  2003,  the Company had a total of 1,062  domestic  AngioJet
System  drive  units  in the  field,  compared  to 863 and 669 at the end of the
previous two years.  During fiscal 2003, the Company sold  approximately  42,500
catheters and pump sets versus approximately 33,300 in fiscal 2002 and 25,200 in
fiscal 2001. This represents a 28% and 32% increase in unit catheters sales from
the previous years.  During the fiscal years ended July 31, 2003, 2002 and 2001,
the  Company  sold 212,  161 and 160  AngioJet  System  drive  units  worldwide,
respectively.  The number of AngioJet  System  drive unit sales in fiscal  2003,
2002 and 2001 resulted from a continued  increase in market  penetration and the
overall acceptance of the AngioJet System by physicians.

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

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

<PAGE>

     Foreign  sales of the  AngioJet  System  were  $1,215,000  in fiscal  2003,
$438,000 in fiscal 2002 and  $372,000 in fiscal  2001.  The increase in sales in
fiscal 2003 is primarily  due to the  introduction  of the XMI and XVG catheters
and the  increase in drive unit sales in the  European  market.  The Company has
recently   expanded  the  sales  territory  of  one  of  its  existing  European
distributors to expand product  penetration in Europe. 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 Company
has decided to independently pursue an alternative regulatory strategy that will
utilize the Company's U.S. coronary clinical trial results and extensive body of
published  clinical  studies which is expected to result in regulatory  approval
and satisfactory  reimbursement for the AngioJet System with the XMI catheter in
treating coronary  thrombus.  Currently,  the Japanese Ministry is reviewing the
Company's  regulatory  approval  submission.  The Company has  responded  to two
rounds of questions and are waiting for their response to the Company's answers.
Once the Company  receives  regulatory  approval,  the Company will apply for an
appropriate  national  medical  insurance  reimbursement.   The  timing  of  the
regulatory  approval and  satisfactory  reimbursement is dependent upon Japanese
Ministry response to the Company submissions.

<PAGE>

Revenue - Vascular Grafts

     Revenue from Perma-Seal  Dialysis Access Grafts was $75,000 in fiscal 2001.
The  Company  received no revenue in fiscal  2003 and 2002,  respectively,  from
Perma-Seal  Dialysis Access Grafts.  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 14% in fiscal
2003 and 8% in fiscal 2002.  The increases are primarily due to the  significant
growth in the U.S. AngioJet System product sales.  Medical product gross margins
improved by $13,137,000  in fiscal 2003 and  $11,517,000 in fiscal 2002 over the
prior years. The gross margin  percentage in fiscal 2003 was 75% compared to 70%
in fiscal 2002 and 61% in fiscal  2001.  The  improvement  in gross  margins was
driven by higher  volumes of XMI, XVG and Xpeedior Plus 120 catheters that carry
higher  margins than the catheters  they replaced and an improvement in the XMI,
XVG and Xpeedior Plus 120 product  catheter mix in the year ended July 31, 2003.
This was partially offset by the impact of higher international sales versus the
prior year.  The Company  believes  that gross  margins will continue to improve
slightly 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 $4,455,000 in fiscal
2003 and  $2,126,000 in fiscal 2002, as compared to prior  periods.  The primary
factors  for the  expense  increase  for fiscal  2003 were  increased  sales and
marketing  expenses  related to the expansion of the Company's U.S. direct sales
organization  for the  AngioJet  System,  increased  commission  expense  due to
increased  AngioJet  System  product  sales,  increased  marketing  fees for the
national  purchasing  contracts,  increased patient  enrollment in the Company's
marketing studies, increased sales demos and sales materials,  increased outside
services  and higher  medical  insurance  expense.  The 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.  In fiscal 2002 and 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 2004.

     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
commissions 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  the  issuance  of 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  increased 70% in fiscal 2003 as compared
to fiscal 2002. The increase was largely due to the timing of expenses  incurred
for various R&D projects  including the new drive unit, rapid exchange  catheter
and the distal protection balloon. Research and development expense decreased 8%
in fiscal 2002 as compared to fiscal 2001. The decrease in fiscal 2002 is 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 2004 over  fiscal  2003 levels as the Company  completes  the
development  of its  current  products  and  invests in the  development  of new
AngioJet  System  thrombectomy   applications  and  related  products  including
clinical trials.

Interest Income

     Interest  income  increased  $102,000 in fiscal 2003 from fiscal 2002.  The
increase  is due to the  investing  of excess  cash and cash  equivalents  in an
enhanced cash  management  portfolio of marketable  securities.  Interest income
decreased  $224,000  in fiscal 2002 from  fiscal  2001 due to  declining  market
interest rates.  The Company expects  interest income to increase in fiscal 2004
as compared to fiscal 2003 as cash is generated from operations.

Benefit for Income Taxes

     The Company became profitable starting in the third quarter of fiscal 2001.
It has maintained profitability for ten quarters. Prior to the fourth quarter of
fiscal  2002,  the Company  reduced its net deferred tax asset to zero through a
valuation  allowance  due to the  uncertainty  of realizing  such asset.  In the
fourth  quarters of fiscal 2003 and 2002, the Company  reassessed the likelihood
that the deferred tax asset will be recovered from future taxable income. Due to
the previous two full years' operating  results projected  forward,  the Company
reduced its  valuation  allowance on the deferred  tax asset by  $9,778,000  and
$13,713,000  during the fourth  quarter of fiscal  2003 and 2002,  respectively.
These amounts are offset by changes in temporary differences. In fiscal 2003 and
2002, the Company  increased the deferred tax asset by an additional  $2,777,000
and  $743,000,  respectively  related to tax  benefit  from  disqualified  stock
options that are recorded  directly in the Consolidated  Statement of Changes in
Shareholders'  Equity.  Management believes the remaining valuation allowance is
necessary as $740,000 of the deferred  tax asset will not be  realizable  due to
the expiration of research and development tax credits.

Effects of Inflation

     Due to the low rate of  inflation  and small  changes in prices,  there has
been very  little  effect on the  Company's  net  revenues  and net income  from
operations as of fiscal 2003.

<PAGE>

Liquidity and Capital Resources

     The Company's cash,  cash  equivalents  and marketable  securities  totaled
approximately  $31,944,000  at July 31, 2003 compared to $18,557,000 at July 31,
2002.  The primary  factors in the increase  were cash provided by operations of
$12,995,000 and the issuance of stock and exercise of stock options and warrants
of $5,883,000,  which was partially  offset by the repurchase of Company's stock
for $3,994,000 and capital expenditures of $1,428,000.

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

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

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

<PAGE>

     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.

Off-Balance Sheet Obligations

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

Outlook

     The  Company  expects  that  overall  revenue  from  the  AngioJet  System,
primarily  in the  United  States,  will be in the range of $70  million  to $73
million in fiscal 2004.  Gross margin  percent for fiscal 2004 is expected to be
in the  mid-seventies  as a percent of total sales. The Company expects selling,
general  and  administrative   expenses  to  increase  in  fiscal  2004  due  to
anticipated growth in revenue and an increase in marketing  scientific  studies.
Research and development  expenditures  are expected to increase from the fiscal
2003 level as the  Company  completes  development  of  projects  and invests in
development  of  new  AngioJet  System  thrombectomy  applications  and  related
products  including  clinical  trials.  The Company expects diluted earnings per
share for the full year in the range of $0.54 to $0.62.  The  quarterly  revenue
and earnings  progression  should build steadily  through the year from a low in
the first  quarter,  with the profile being  affected by the timing of the rapid
exchange catheter  introduction and regulatory  approvals as well as the patient
enrollment rates in key clinical and marketing 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  a   professionally   managed,
institutional  fixed income  portfolio of short  duration.  The market risk on a
diversified  portfolio of relatively short duration is minimal,  while enhancing
returns above money market levels.

     The product sales for the Company's foreign  subsidiary are in U.S. Dollars
("USD"). As of July 31, 2003, the Company's foreign bank accounts were closed.



Item 8. Financial Statements and Supplementary Data:

<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, 2003 and 2002 and
the related  consolidated  statements of  operations  and  comprehensive  income
(loss),  cash flows and  changes in  shareholders'  equity for each of the three
years in the period ended July 31, 2003.  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, 2003 and 2002 and the  results of their  operations
and comprehensive income (loss) and their cash flows for each of the three years
in the period ended July 31, 2003,  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 15, 2003

<PAGE>


                      POSSIS MEDICAL, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>




                                                                      July 31, 2003         July 31, 2002
ASSETS

<S>                                                                    <C>                   <C>
CURRENT ASSETS:
  Cash and cash equivalents (Note 1).............................      $ 4,782,942           $18,556,663
  Marketable securities..........................................       27,161,223                --
  Trade receivables (less allowance for doubtful
     accounts and returns of $507,000 and
     $582,000, respectively).....................................        7,966,394             5,873,358
  Inventories (Note 1)...........................................        4,165,253             4,134,817
  Prepaid expenses and other assets..............................          729,936               762,615
  Deferred tax asset (Note 4)....................................          806,000               646,000
       Total current assets......................................       45,611,748            29,973,453

PROPERTY AND EQUIPMENT, net (Note 1).............................        3,055,335             3,092,644

DEFERRED TAX ASSET (Note 4)......................................       19,098,000            11,623,000

TOTAL ASSETS.....................................................      $67,765,083           $44,689,097

LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:
  Trade accounts payable.........................................      $ 1,585,776           $ 1,262,711
  Accrued salaries, wages, and commissions.......................        2,777,189             2,471,557
  Other liabilities..............................................        2,367,645             1,200,763
       Total current liabilities.................................        6,730,610             4,935,031

COMMITMENTS AND CONTINGENCIES (Note 9)

SHAREHOLDERS' EQUITY (Note 5):
  Common stock-authorized, 100,000,000 shares
     of $0.40 par value each; issued and outstanding,
     17,757,531 and 17,274,222 shares, respectively..............        7,103,013             6,909,689
  Additional paid-in capital.....................................       83,743,496            79,128,073
  Unearned compensation..........................................          (15,000)              (18,900)
  Accumulated other comprehensive loss...........................         (100,000)               --
  Retained deficit...............................................      (29,697,036)          (46,264,796)
       Total shareholders' equity................................       61,034,473            39,754,066

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.......................      $67,765,083           $44,689,097



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

<PAGE>




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

<TABLE>
<CAPTION>

                                                                            2003               2002               2001


<S>                                                                     <C>                <C>                <C>
Products sales (Note 10)      .................................         $57,427,709        $42,470,693        $30,000,547

Cost of sales and other expenses:
     Cost of medical products .................................          14,510,064         12,689,835         11,736,253
     Selling, general and administrative.......................          23,808,304         19,352,991         17,227,164
     Research and development..................................           7,502,763          4,426,663          4,820,037

         Total cost of sales and other expenses................          45,821,131         36,469,489         33,783,454

Operating income (loss)........................................          11,606,578          6,001,204         (3,782,907)
Interest income................................................             356,495            254,519            478,496
Gain on sale of securities.....................................              49,687               --                 --

Income (loss) before income taxes..............................          12,012,760          6,255,723         (3,304,411)

Income tax benefit (Note 4)....................................           4,555,000         11,526,000               --

Net income (loss)..............................................          16,567,760         17,781,723         (3,304,411)


Other comprehensive loss, net of tax -
     Unrealized loss on securities.............................            (100,000)              --                 --

Comprehensive income (loss)....................................         $16,467,760        $17,781,723        $(3,304,411)

Net income (loss) per common share:
     Basic      ...............................................               $0.95              $1.04             $(0.20)
     Diluted    ...............................................               $0.88              $0.96             $(0.20)

Weighted average number of common shares outstanding:
     Basic      ...............................................          17,501,573         17,078,759         16,739,277
     Diluted    ...............................................          18,889,245         18,602,156         16,739,277



<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



                                                                         2003               2002               2001

OPERATING ACTIVITIES:
<S>                                                                  <C>                <C>                <C>
     Net income (loss) ...........................................   $16,567,760        $17,781,723        $(3,304,411)
     Adjustments to reconcile net income (loss) to net
         cash provided by (used in) operating activities:
     Depreciation.................................................     2,084,604          2,119,240          1,950,533
     Deferred income taxes........................................    (4,798,000)       (11,526,000)              --
     Stock compensation expense...................................       160,550            186,940            196,199
     Gain on sale of securities...................................       (49,687)              --                 --
     Expense reimbursement from city government...................          --              (83,866)          (101,938)
     Writedown due to impairment of assets........................          --               70,000             87,582
     Loss (gain) on disposal of assets............................         6,226             (3,850)             8,564
     Increase in trade receivables................................    (2,093,036)        (1,605,244)        (1,327,617)
     (Increase) decrease in inventories...........................      (697,387)          (635,188)           217,959
     Decrease (increase) in other current assets..................        32,679           (419,620)           (64,504)
     Increase (decrease) in trade accounts payable................       323,065            (58,774)          (594,578)
     Increase in accrued and other current liabilities............     1,458,291          1,140,205            177,499
        Net cash provided by (used in) operating activities.......    12,995,065          6,965,566         (2,754,712)
INVESTING ACTIVITIES:
     Additions to property and equipment..........................    (1,427,781)          (902,627)        (1,334,142)
     Proceeds from sale of fixed assets...........................        41,211              7,344              1,402
     Proceeds from sale/maturity of marketable securities.........    54,299,309               --           22,545,000
     Purchase of marketable securities............................   (81,570,845)              --          (13,627,749)
        Net cash (used in) provided by investing activities          (28,658,106)          (895,283)         7,584,511
FINANCING ACTIVITIES:
    Proceeds from issuance of stock and exercise
         of options and warrants..................................     5,883,234          2,997,151            637,941
    Common stock repurchased......................................    (3,993,914)              --                 --
    Repayment of long-term debt...................................          --              (26,522)            (5,418)
        Net cash provided by financing activities.................     1,889,320          2,970,629            632,523
(DECREASE) INCREASE IN CASH AND
     CASH EQUIVALENTS.............................................   (13,773,721)         9,040,912          5,462,322
CASH AND CASH EQUIVALENTS AT BEGINNING
     OF YEAR......................................................    18,556,663          9,515,751          4,053,429
CASH AND CASH EQUIVALENTS AT END OF YEAR..........................   $ 4,782,942        $18,556,663        $ 9,515,751

SUPPLEMENTAL CASH FLOW DISCLOSURE:

Disqualified stock options........................................   $ 2,777,000        $   743,000        $      --
Cash paid for income taxes........................................       287,977               --                 --
Issuance of restricted stock......................................        36,000             36,000             23,900
Inventory transferred to fixed assets.............................        47,951               --                 --
Accrued payroll taxes related to restricted stock.................          --              (12,600)            46,643




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

<PAGE>

<TABLE>
<CAPTION>

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




                                          Common Stock                      Additional     Stock       Unrealized
                                     Number of                   Paid-in     Compen-      Loss on       Retained
                                      Shares        Amount       Capital      sation     Securities     Deficit         Total

<S>                                 <C>          <C>          <C>           <C>         <C>          <C>             <C>
BALANCE AT JULY 31, 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 5).....................       --           --         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 5).....................       --           --         147,140       --           --              --          147,140
    Stock options and
      warrants exercised...........    387,708      155,083     2,603,748       --           --              --        2,758,831
    Disqualified stock options.....       --           --         743,000       --           --              --          743,000
    Stock grants...................      2,124          850        22,550    (36,000)        --              --          (12,600)
    Unearned stock compensation
      amortization.................       --           --            --       39,800         --              --           39,800
    Stock retired..................       (875)        (350)      (12,775)      --           --              --          (13,125)
    Net income.....................       --           --            --         --           --        17,781,723     17,781,723
BALANCE AT JULY 31, 2002........... 17,274,222    6,909,689    79,128,073    (18,900)        --       (46,264,796)    39,754,066

    Employee stock purchase plan...     25,267       10,107       354,923       --           --              --          365,030
    Stock options issued to
      directors and physicians
      (Note 5)                            --           --         120,650       --           --              --          120,650
    Stock options and warrants
      exercised....................    703,993      281,597     5,236,607       --           --              --        5,518,204
    Disqualified stock options.....       --           --       2,777,000       --           --              --        2,777,000
    Stock grants...................      2,010          804        35,196    (36,000)        --              --             --
    Unearned stock compensation
      amortization...............         --           --            --       39,900         --              --           39,900
    Unrealized loss on investments.       --           --            --         --       (100,000)           --         (100,000)
    Stock retired..................     (1,061)        (424)      (13,799)      --           --              --          (14,223)
    Common stock repurchased.......   (246,900)     (98,760)   (3,895,154)      --           --              --       (3,993,914)
    Net income.....................       --           --            --         --           --        16,567,760     16,567,760
BALANCE AT JULY 31, 2003........... 17,757,531   $7,103,013   $83,743,496   $(15,000)   $(100,000)   $(29,697,036)   $61,034,473



<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 47 years. In 1990, the Company decided to focus on medical products and
changed its name to Possis  Medical,  Inc. in 1993. In January 1995, the Company
established  a  100%  owned  subsidiary,  Possis  Medical  Europe  B.V.,  in the
Netherlands to support international product distribution.  The Company received
AngioJet  Rheolytic  Thrombectomy  System  U.S.  marketing  approval  for use in
arterio-venous  (AV) access  hemodialysis  grafts in December  1996,  for use in
native  coronary  arteries and coronary bypass grafts in March 1999, and for use
in leg arteries in April 2000.

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

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

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

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

     Marketable  Securities  During fiscal 2003, the Company invested its excess
cash and cash  equivalents in a professionally  managed  portfolio of marketable
securities.  All Company  securities  in this  portfolio as of July 31, 2003 are
classified  as  available-for-sale  and  consist  primarily  of U.S.  government
securities and corporate  bonds.  These  investments  are reported at fair value
with a net unrealized loss of approximately  $100,000,  net of tax effect, which
is  included  in  other  comprehensive  loss as of July  31,  2003.  The cost of
securities sold is based on the specific identification method.

<PAGE>

<TABLE>
<CAPTION>

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

                                                 U.S.Govt.       Corporate      Municipal      Mutual
                                                Securities         Bonds          Bonds         Funds        Total

      <S>                                      <C>              <C>            <C>           <C>          <C>
      Cost..................................   $18,196,000      $6,630,000     $1,333,000    $1,162,000   $27,321,000
      Gross unrealized losses...............      (129,000)         (7,000)       (24,000)         --        (160,000)
      Fair value............................   $18,067,000      $6,623,000     $1,309,000    $1,162,000   $27,161,000

</TABLE>


The following information for the year ended July 31, 2003 is as follows:

<TABLE>
                                                 U.S.Govt.       Corporate       Mutual
                                                Securities         Bonds         Funds          Total
      <S>                                      <C>               <C>          <C>            <C>
      Proceeds from sales...................   $16,409,000       $368,000     $37,522,000    $54,299,000
      Net gain realized.....................   $    51,000       $  3,000     $      --      $    54,000
      Net loss realized.....................   $    (2,000)      $ (2,000)    $      --      $    (4,000)

</TABLE>

<PAGE>

     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:

                                     2003               2002

    Finished goods..........      $1,866,397         $1,883,933
    Work-in-process.........         884,451            805,911
    Raw materials...........       1,414,405          1,444,973

                                  $4,165,253         $4,134,817


     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:

                                            2003         2002       Life


    Leasehold improvements.............  $1,540,965   $1,454,833  10 years
    Equipment..........................   7,148,702    7,536,959  3 to 10 years
    Assets in construction.............     503,722      138,271  N/A
                                          9,193,389    9,130,063
    Less accumulated depreciation......   6,138,054    6,037,419
    Property and equipment - net.......  $3,055,335   $3,092,644


     Impairment of Long-Lived Assets In September 2001, the Financial Accounting
Standards  Board ("FASB")  issued  Statement of Financial  Accounting  Standards
("SFAS")  No. 144,  "Accounting  for the  Impairment  or Disposal of  Long-Lived
Assets," which addresses  financial  accounting and reporting for the impairment
or disposal of long-lived assets. Although SFAS No. 144 supersedes SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be  Disposed  of,"  it  retains  many  of the  fundamental  provisions  of  that
statement.  Management of the Company periodically reviews the carrying value of
property equipment owned by the Company by comparing the carrying value of these
assets with their related expected future net cash flows.  Should the sum of the
related  expected  future  net cash  flows  be less  than  the  carrying  value,
management will determine  whether an impairment  loss should be recognized.  An
impairment  loss would be measured by the amount by which the carrying  value of
the asset  exceeds  the fair value of the asset.  In fiscal  2002 and 2001,  the
Company wrote down $70,000 and $87,582, respectively, of a fixed asset (included
in selling,  general and administrative  expense). The value of this fixed asset
was  determined  to be impaired due to the unlikely  continued use of this fixed
asset. The Company wrote the asset down to net realizable value. The adoption of
SFAS  No.  144 on  August 1,  2002  did not  have  an  effect  on the  Company's
consolidated balance sheet, results of operations, or cash flows.

<PAGE>

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

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

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

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

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

     Income  (Loss) Per Share Income per share for fiscal 2003 and 2002 and loss
per share for fiscal  2001 is  computed  by  dividing  net income  (loss) by the
weighted  average  number of common  shares  outstanding.  Warrants  and options
representing  228,850,  373,468 and 3,826,089 shares of common stock at July 31,
2003,  2002 and 2001,  respectively,  have been excluded  from the  computations
because their effect is antidilutive.

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

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

<PAGE>

     Consolidation  of  Variable  Interest  Entities In January  2003,  the FASB
issued FIN 46,  "Consolidation of Variable  Interest  Entities." FIN 46 provides
guidance on the identification of variable interest entities, and the assessment
of a company's  interests in a variable  interest  entity to  determine  whether
consolidation  is appropriate.  FIN 46 requires the  consolidation of a variable
interest  entity by the primary  beneficiary if the entity does not  effectively
disperse  risks  among the  parties  involved.  FIN 46  applies  immediately  to
variable  interest  entities created after January 31, 2003 and is effective for
periods  beginning  after  December  15,  2003 for  existing  variable  interest
entities.  As the Company has no exposures to especial purpose entities or other
off-balance-sheet  arrangements, the Company does not expect the adoption of FIN
46 to have a  material  effect  on the  Company's  consolidated  balance  sheet,
results of operations, or cash flows.

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

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

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

2.  STOCK BASED COMPENSATION

     Effective August 1, 1996, the Company adopted SFAS No. 123, "Accounting for
Stock-Based Compensation." As permitted by SFAS No. 123, the Company has elected
to continue following the guidance of APB No. 25 for measurement and recognition
of  stock-based  transactions  with  employees.  No  compensation  cost has been
recognized  for stock  options  issued under the 1999 and 1992 Plans because the
exercise  price for all options  granted was at least equal to the fair value of
the common stock at the date of grant.  If  compensation  cost for the Company's
stock option and employee  purchase plans had been determined  based on the fair
value at the  grant  dates  for  grants  during  fiscal  2003,  2002  and  2001,
consistent with the method provided in

<PAGE>

     SFAS No. 123, the  Company's  net income (loss) and income (loss) per share
would have been as follows:

                                             2003         2002         2001

  Net income (loss):
     As reported........................ $16,567,760  $17,781,723  $(3,304,411)
     Pro forma..........................  13,820,760   13,602,723   (7,184,411)

  Income (loss) per share - basic:
     As reported........................       $0.95        $1.04        $(0.20)
     Pro forma..........................        0.79         0.80         (0.43)

  Income (loss) per share - diluted:
     As reported........................       $0.88       $ 0.96        $(0.20)
     Pro forma..........................        0.73         0.73         (0.43)

     The fair value of options  granted  under the various  option  plans during
fiscal  2003,  2002 and  2001 was  estimated  on the  date of  grant  using  the
Black-Sholes   option  pricing  model  with  the  following   weighted   average
assumptions and results:

                                               2003         2002         2001

  Dividend yield........................        None         None         None
  Expected volatility...................      60-80%       79-86%          82%
  Risk-free interest rate...............    3.4-4.3%         5.4%         3.0%
  Expected life of option...............     120 mo.      120 mo.      120 mo.
  Fair value of options on grant date...  $4,395,000   $4,179,000   $8,648,000


3.  LONG-TERM DEBT

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

4.  INCOME TAXES

     At July 31, 2003,  the Company had net  operating  loss  carry-forwards  of
approximately $46,251,000 for federal tax purposes, which expire in 2010 through
2021, and $14,478,000  for Minnesota tax purposes,  which expire in 2010 through
2016.

     In addition, at July 31, 2003, the Company has approximately  $2,619,000 in
federal tax credits, substantially all of which are research and development tax
credits,  which  expire  from  2004  through  2022,  and  approximately  $65,000
alternative  minimum tax credit which does not expire. The Company established a
valuation  allowance for $740,000  against these  research and  development  tax
credits as a portion of them may not be  realizable  due to expiration in future
years.

<PAGE>

<TABLE>
<CAPTION>

     The components of the income tax benefit as of July 31, 2003, 2002 and 2001
are as follows:

                                                             2003                    2002               2001
         <S>                                             <C>                    <C>                    <C>
         Current:
             Federal.................................    $   243,000            $    --                $  --

         Deferred:
             Federal.................................     (4,494,000)            (10,758,000)             --
             State...................................       (304,000)               (768,000)             --
                                                          (4,798,000)            (11,526,000)             --
         Total income tax benefit....................    $(4,555,000)           $(11,526,000)           $ --

</TABLE>

     Deferred  tax  assets  and  liabilities  as of July  31,  2003 and 2002 are
described in the table below.

<TABLE>
                                                                              2003                 2002
     <S>                                                                  <C>                 <C>
     Current assets:
     Allowance for doubtful accounts and returns.......................   $  255,000          $   271,000
     Inventory.........................................................      272,000              188,000
     Employee compensation and benefits................................      148,000              126,000
     Other  ...........................................................      131,000               61,000

                                                                             806,000              646,000
     Valuation allowance...............................................         --                   --
     Net    ...........................................................   $  806,000          $   646,000


     Long-term assets (liabilities):
     Net operating losses..............................................   $16,760,000         $19,219,000
     Amortization of patents...........................................       591,000             532,000
     Tax credits.......................................................     2,619,000           2,421,000
     Depreciation......................................................      (132,000)            (31,000)
                                                                           19,838,000          22,141,000
     Valuation allowance...............................................      (740,000)        (10,518,000)
     Net    ...........................................................   $19,098,000         $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, 2003, 2002 and 2001 as follows:

<TABLE>
                                                                     2003                2002                 2001
    <S>                                                          <C>                <C>                 <C>
    Tax expense (benefit) on income (loss) from
         continuing operations computed at
         statutory rate of 35%..............................     $ 4,204,000        $  2,190,000        $(1,157,000)
    Change in valuation allowance...........................      (9,778,000)         13,713,000)         1,047,000
    Change in valuation allowance related to
         disqualified stock options.........................         952,000                --                 --
    Other...................................................          67,000              (3,000)           110,000
    Total income tax benefit................................     $(4,555,000)       $(11,526,000)       $      --

</TABLE>

     Deferred  tax  benefit  of  $2,777,000  and  $743,000  in  2003  and  2002,
respectively, relate to disqualified stock options which is recorded directly in
equity.

<PAGE>

5.   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 expired in May and June
2003.

     Common  Stock  Repurchased  During the first  quarter of fiscal  2003,  the
Company's Board of Directors  authorized its initial share repurchase program of
$4,000,000.  During  fiscal  2003,  in open  market  transactions,  the  Company
repurchased  246,900  shares  of  its  common  stock,  at an  average  price  of
approximately $16.18 per share, thereby completing the $4,000,000 authorization.
In July 2003, the Company's  Board of Directors  authorized the repurchase of up
to an  additional  $4,000,000  of its common  shares from time to time,  in open
market transactions.  This additional  repurchase  authorization expires in July
2004.  The purpose of this program is to offset  dilution  from  current  equity
incentive programs.

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

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

     The total number of shares of stock reserved and available for distribution
under the 1999 Plan originally was 2,000,000 shares,  all of which may be issued
as incentive  stock  options.  The total number of shares of stock  reserved and
available  for  distribution  under  the 1999 Plan is 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, 2003,  there were  2,761,253  shares  reserved for  outstanding
options  under all plans and  627,586  shares  were  available  for  granting of
options under the 1999 Plan.

     In fiscal 2003, 2002 and 2001, the Company granted 11,648, 7,915 and 40,289
compensatory  options,  respectively,  to its outside  directors in lieu of cash
payments for directors  fees.  These options vest six months after date of grant
and expire not more than ten years from date of grant.  The  expense  associated
with  compensatory  options to outside  directors  was  approximately  $104,000,
$67,000  and  $89,000  for the  years  ended  July  31,  2003,  2002  and  2001,
respectively.

     In fiscal 2002 and 2001, the Company granted 1,000 and 13,000  compensatory
options,  respectively,  to  various  physicians  in lieu of cash  payments  for
services.  The Company's  policy is to treat these  options under  variable plan
accounting  in  accordance  with SFAS No. 123 and related  Emerging  Issues Task
Force guidance.  These options were granted under the 1999 Plan and vest ratably
over a six-month  to a four-year  period and expire not more than ten years from
date  of  grant.   The  expense   associated  with   non-employee   options  was
approximately  $16,000,  $50,000 and $81,000 for the years ended July 31,  2003,
2002 and 2001, respectively.

<PAGE>

<TABLE>
<CAPTION>

     A summary of changes in  outstanding  options  for each of the three  years
ended July 31, 2003 follows:

                                                                         2003                    2002                   2001

     <S>                                                              <C>                     <C>                    <C>
     Shares under option at
        beginning of year..............................               2,941,974               3,246,061              1,969,236
     Options granted...................................                 441,698                 295,045              1,800,865
     Options exercised.................................                (538,199)               (379,884)               (72,127)
     Options canceled..................................                 (84,220)               (219,248)              (451,913)
     Shares under option at end of year................               2,761,253               2,941,974              3,246,061
     Shares exercisable at end of year.................               1,903,952               1,878,695              1,009,283


</TABLE>

     Stock option weighted-average  exercise prices during fiscal 2003, 2002 and
2001 are summarized below:

<TABLE>
                                                                   2003            2002            2001

     <S>                                                          <C>             <C>             <C>
     Outstanding at beginning of year.....................        $ 8.43          $ 7.54          $10.43
     Granted      ........................................         12.81           16.45            5.19
     Exercised    ........................................          7.37            7.38            6.33
     Canceled     ........................................         10.51            9.09           10.27
     Outstanding at end of year...........................          9.36            8.43            7.54

</TABLE>

     The following table summarizes  information  concerning options outstanding
and exercisable options as of July 31, 2003:

<TABLE>
<CAPTION>
                                                Weighted-
                                                 Average
           Range of                             Remaining           Weighted-                              Weighted-
           Exercise           Shares         Contractual Life        Average               Shares           Average
            Price          Outstanding          in Years         Exercise Price          Exercisable      Exercise Price

          <S>                <C>                  <C>               <C>                   <C>              <C>
          $ 1 - 6            822,232              7.00              $ 4.43                913,850          $ 4.59
            6 - 12           940,544              6.43                7.63                562,299            7.77
            2 - 17           643,177              6.75               13.46                297,428           14.49
           17 - 21           355,300              6.87               17.93                130,375           18.22

</TABLE>

     In fiscal 1999,  the Company  granted 1,250 shares of  restricted  stock to
employees  under  the  terms  of the  1992  Plan,  which  vest in  fiscal  2001.
Approximately $4,000 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 $10,125 was
recorded at the date of grant and was recognized over the vesting period.

     In fiscal 2000, the Company granted 1,500 shares of restricted  stock to an
employee under the terms of the 1992 Plan, which vested in fiscal 2001 and 2,000
shares of restricted stock to an employee under the terms of the 1999 Plan which
vested in fiscal 2001.  Approximately  $15,000 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 $43,000 was  recorded  at the date of grant and was  recognized
over the vesting period.

<PAGE>

     In fiscal 2001, the Company granted 5,000 shares of restricted  stock to an
employee  under the terms of the 1999 Plan,  which vested 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 was recognized over the vesting period.

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

     In fiscal 2003, the Company granted 2,010 shares of restricted stock to the
Board of  Directors  under  the  terms of the 1999  Plan,  which  vest in twelve
months. The fair market value of the restricted shares was approximately $34,000
as of July 31, 2003. In case of termination of 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 2003, 2002 and 2001, total compensation  expense of approximately
$40,000, $40,000 and $26,000, respectively,  were recognized on these restricted
stock grants.

     Stock  Warrants  Stock   purchase   warrants  held  by  unrelated   parties
representing  the right to purchase 26,400 shares of the Company's  common stock
at $8.52 a share were  outstanding  as of July 31, 2003.  These  warrants 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 common stock
purchase  warrants  in  conjunction  with a  private  placement  of  convertible
debentures  and are  exercisable  into common  stock at $15.58 per share.  These
warrants expired on July 15, 2002.

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

     In March 2000, the Company issued 318,810 warrants to various  investors in
conjunction with the Company's private placement offering. These warrants expire
in March 2004 and are  exercisable  into common stock at $12.67.  During  fiscal
2003 and 2002,  83,046 and 13,984 of these warrants were  exercised.  As of July
31, 2003, the remaining 221,780 warrants were outstanding and unexercised.

<PAGE>

<TABLE>
<CAPTION>

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

                                                                              2003                   2002                  2001

    <S>                                                                     <C>                    <C>                    <C>
    Warrants outstanding at beginning of year....................            436,254                580,028               580,028
    Warrants issued..............................................               --                     --                    --
    Warrants exercised...........................................           (184,324)               (33,134)                 --

    Warrants expired.............................................             (3,750)              (110,640)                 --

    Warrants outstanding at end of year..........................            248,180                436,254               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  25,267  shares in
fiscal  2003,  63,242  shares in fiscal 2002,  and 52,493  shares in fiscal 2001
under this Plan.


6.   ACCRUED WARRANTY COSTS

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

<TABLE>
                                                                                      2003              2002             2001

<S>                                                                                 <C>               <C>              <C>
Accrued warranty costs at beginning of year....................................     $123,000          $123,000         $114,000
Payments made for warranty costs...............................................     (226,200)         (130,700)        (223,600)
Accrual for product costs......................................................      249,700           130,700          232,600
Accrued warranty costs at end of year..........................................     $146,500          $123,000         $123,000

</TABLE>

7.   401 K PLAN

     The  Company has an  employees'  savings  and profit  sharing  plan for all
qualified   employees  who  have  completed  six  months  of  service.   Company
contributions  are made at the  discretion of the Board of Directors  subject to
the maximum amount allowed under the Internal  Revenue Code.  Contributions  for
the years  ended  July 31,  2003,  2002 and 2001  were  $303,766,  $276,196  and
$250,179, respectively.

8.   RELATED PARTY TRANSACTIONS

     A Director of the Company at times performs  outside legal services for the
Company.  During  fiscal  2002  and  2001,  the  amount  of these  services  was
approximately $2,000 and $74,000, respectively.


9.  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 $16,000 per year through 2005.

     Total rental  expense  charged to operations  was  approximately  $262,000,
$261,000,  and  $258,000  for the years  ended July 31,  2003,  2002,  and 2001,
respectively.

<PAGE>

     Future minimum payments under the  non-cancelable  operating leases at July
31, 2003 were:


                    Year Ended
                      July 31                                  Amount
                       2004                                   $258,000
                       2005                                    258,000
                       2006                                    242,000
             Total minimum lease payments                     $758,000


10.  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,  2003,  2002 and 2001 are as
follows:

                                       2003          2002          2001

    United States................. $56,212,396   $42,032,901   $29,628,777
    Outside the United States.....   1,215,313       437,792       371,770
    Total revenues................ $57,427,709   $42,470,693   $30,000,547


     In fiscal 2003,  2002,  and 2001 there were no  individual  customers  with
sales exceeding 10% of total revenues.

11.  SELECTED QUARTERLY FINANCIAL DATA (Unaudited)

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

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

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



<FN>
     (1) Fourth  Quarter  2003 Net  Income  reflects a  reduction  of  valuation
allowance of $9,778,000.
</FN>

</TABLE>

<PAGE>

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

<S>                                                             <C>              <C>              <C>               <C>
Products 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
Income-before income taxes..................................       938,528         1,625,349        1,686,922         2,004,924
Income tax benefit..........................................          --                --               --          11,526,000
Net income-after income taxes...............................       938,528         1,625,349        1,686,922        13,530,924(2)

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
Income tax benefit
         Basic..............................................         $ --              $ --             $ --              $0.66
         Diluted............................................           --                --               --               0.63
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


<FN>
     (2) Fourth  quarter  2002 Net  Income  reflects a  reduction  of  valuation
allowance of $13,713,000.
</FN>
</TABLE>

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

     During fiscal 2003 and 2002, there were no changes in or disagreements with
the Company's  independent certified public accountants on accounting procedures
or accounting and financial disclosures.

Item 9A.  Controls and Procedures

Evaluation of disclosure controls and procedures

     Under  the  supervision  and  with  the  participation  of our  management,
including our Chief Executive Officer and Chief Financial Officer,  we evaluated
the  effectiveness  of the design and operation of our  disclosure  controls and
procedures  (as defined in Rule  13a-15(e)  and 15d-15(e)  under the  Securities
Exchange Act of 1934 (the  "Exchange  Act")).  Based upon that  evaluation,  the
Chief Executive  Officer and Chief Financial  Officer  concluded that, as of the
end of the period covered by this report, our disclosure controls and procedures
are adequately  designed to ensure that information  required to be disclosed by
us in the  reports  we  file or  submit  under  the  Exchange  Act is  recorded,
processed,  summarized  and  reported,  within  the time  periods  specified  in
applicable rules and forms.

Changes in internal control over financial reporting

     During the fiscal quarter ended July 31, 2003,  there has been no change in
our internal  control over financial  reporting (as defined in Rule 13a-15(f) or
15d-15(f) under the Exchange Act) that has materially affected, or is reasonably
likely to materially affect, our internal control over financial reporting.

<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."

Code of Ethics

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

Audit Committee Financial Expert

     The Company's  Board of Directors has  determined  that the Company has one
"financial  expert,"  as  defined  under  Item  401  of  Regulation  S-K  of the
Securities  Exchange  Act of 1934,  currently  serving  on its Audit  Committee.
Whitney A. McFarlin,  the member of the Company's Audit Committee deemed to be a
financial expert,  has served as the Chief Executive Officer and director of two
public  companies and one private  company.  Mr.  McFarlin is  independent  from
management as defined by Item 7(d)(3), of Schedule 14A.

Item 11.  Executive Compensation:

     Information regarding compensation of directors and officers for the fiscal
year ended July 31, 2003 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  plans" and is
incorporated herein by reference.

Item 13.  Certain Relationships and Related Transactions:

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

<PAGE>


Item 14.  Principal Accountant Fees and Services:

     Pursuant  to SEC  Release  No.  33-8183  (as  corrected  by SEC Release No.
33-8183A),  the disclosure requirements of this item are not currently effective
for the Company.


                                     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, 2003 and 2002

     Consolidated  Statements of Operations and Comprehensive  Income (Loss) for
each of the three years in the period ended July 31, 2003

     Consolidated  Statements  of Cash Flows for each of the three  years in the
period ended July 31, 2003

     Consolidated  Statements of Changes in Shareholders' Equity for each of the
three years in the period ended July 31, 2003

     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 pages.

<PAGE>

Exhibit   Form       Date Filed                    Description

  3.1     10-K    Fiscal year ended    Articles of incorporation, as amended
                  July 31, 1994        and restated to date

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

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

  4.2     10-K    November 23, 1996    Debenture Agreement with St. Paul
                                       Fire and Marine Company and
                                       Western Life Insurance Company
                                       and form of debenture rates and
                                       warrants

  4.3     8-K     March 14, 2000       Private placement Purchase Agreement
                                       dated March 6, 2000 between the Company
                                       and the investors listed therein

  4.4     8-K     March 14, 2000       Registration Rights Agreement between the
                                       Company and the investors in the Purchase
                                       Agreement dated March 6, 2000

  4.5     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     S-8     June 16, 1998        1992 Stock Compensation Plan

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

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

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

 10.6     10-Q    Quarter ended        Lease agreement for corporate
                  January 31, 1996     headquarters and manufacturing
                                       facility dated December 15, 1995

*10.7     10-K    Fiscal year ended    Change in Control Termination
                  July 31, 2001        Pay Plan - Amended  effective April 3,
                                       2001
<PAGE>

Exhibit   Form       Date Filed                    Description

*10.8     10-K    Fiscal year ended    1999 Stock Compensation Plan
                  July 31, 1999

*10.9     10-K    Fiscal year ended    Form of nonqualified stock option
                  July 31, 2002        agreement(1999 Plan)

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

 21       10-K    Fiscal year ended    Subsidiaries of registrant
                  July 31, 2003

 23       10-K    Fiscal year ended    Consent of independent certified
                  July 31, 2003        public accountants

 31.1     10-K    Fiscal year ended    Certification of Chief Executive Officer
                  July 31, 2003        pursuant to Section 302 of the
                                       Sarbanes-Oxley Act

 31.2     10-K    Fiscal year ended    Certification of Chief Financial Officer
                  July 31, 2003        pursuant to Section 302 of the
                                       Sarbanes-Oxley Act

 32.1     10-K    Fiscal year ended    Certification of Chief Executive Officer
                  July 31, 2003        pursuant to Section 906 of the
                                       Sarbanes-Oxley Act

 32.2     10-K    Fiscal year ended    Certification of Chief Financial Officer
                  July 31, 2003        pursuant to Section 906 of the
                                       Sarbanes-Oxley Act

 99.1     10-K    Fiscal year ended    Risk Factors
                  July 31, 2003


     * Indicates management contract or compensatory plan or arrangement.

(b)   Reports on Form 8-K

     During the quarter ended July 31, 2003,  the Company filed a Report on Form
8-K on May 13, 2003 under Item 9 reporting third quarter earnings.

<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
         Chief Financial Officer and
         Vice President of Finance


Dated:  October 29, 2003

<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, 2003
Robert G. Dutcher            Chief Executive Officer
                             (Principal Executive Officer)


/s/ Eapen Chacko             Chief Financial Officer          October 29, 2003
Eapen Chacko                 Vice President of Finance
                             (Principal Financial and
                             Principal Accounting Officer)

/s/ Mary K. Brainerd         Director                         October 29, 2003
Mary K. Brainerd


/s/ Seymour J. Mansfield     Director                         October 29, 2003
Seymour J. Mansfield


/s/ William C. Mattison, Jr. Director                         October 29, 2003
William C. Mattison, Jr.


/s/ Whitney A. McFarlin      Director                         October 29, 2003
Whitney A. McFarlin


/s/ Donald C. Wegmiller      Director                         October 29, 2003
Donald C. Wegmiller


/s/ Rodney A. Young          Director                         October 29, 2003
Rodney A. Young

<PAGE>









                                   SCHEDULE II

                              POSSIS MEDICAL, INC.

<TABLE>
<CAPTION>

VALUATION ACCOUNTS
YEARS ENDED JULY 31, 2003, 2002 AND 2001




         Column A                                Column B              Column C           Column D           Column E


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

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

Year ended July 31, 2003                       $   582,000         $    845,000         $   920,000         $   507,000
Year ended July 31, 2002                           659,000            1,305,000           1,382,000             582,000
Year ended July 31, 2001                           672,000            1,297,000           1,310,000             659,000



Valuation allowance on
deferred tax asset:

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

Year ended July 31, 2001                        23,184,000            1,047,000               --             24,231,000

</TABLE>

<PAGE>


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

                                  EXHIBIT INDEX
  Exhibit
  Number                              Description



    21        Subsidiaries of Possis Medical, Inc.

    23        Independent Auditors Consent

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

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

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

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

    99.1      Risk Factors