_______________________________________________

                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D. C. 20549

                                    FORM 10-Q


               QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF
                      THE SECURITIES EXCHANGE ACT OF 1934.

                 For the quarterly period ended January 31, 1998


     Commission File Number 0-944

                              POSSIS MEDICAL, INC.

                             9055 Evergreen Blvd NW

                        Minneapolis, Minnesota 55433-8003

                                 (612) 780-4555


     A Minnesota Corporation            IRS Employer ID No. 41-0783184
                        _________________________________

     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___  The  number  of shares
outstanding of the Registrant's Common Stock, $.40 par value, as of February 27,
1998 was 12,208,966.


                        ________________________________
<PAGE>
                                              
                              POSSIS MEDICAL, INC.

                                      INDEX


 
 
                                                                           PAGE


PART I.   FINANCIAL INFORMATION

 ITEM 1.  Financial Statements

          Consolidated Balance Sheets, January 31, 1998
          and July 31, 1997..........................................        3

          Consolidated Statements of Operations for three
          months and six months ended January 31, 1998 and 1997......        4

          Consolidated Statements of Cash Flows for
          six months ended January 31, 1998 and 1997.................        5

          Notes to Consolidated Financial Statements.................        6

 ITEM 2.  Management's Discussion and Analysis of Financial
          Condition and Results of Operations........................        7


PART II.  OTHER INFORMATION

 ITEM 4.  Submission of Matters to a Vote of Security-Holders........       10

 ITEM 6.  Exhibits and Reports on Form 8-K...........................       11

          SIGNATURES.................................................       13
<PAGE>

<TABLE>

                                              POSSIS MEDICAL, INC. AND SUBSIDIARIES
                                                   CONSOLIDATED BALANCE SHEETS

<CAPTION>
 
ASSETS                                                                               January 31, 1998    July 31, 1997
CURRENT ASSETS:                                                                         (Unaudited)    
<S>                                                                                     <C>               <C> 
                    
     Cash and cash equivalents...............................................            $2,680,068       $  3,849,194
     Marketable securities...................................................             5,993,437         10,964,170
     Receivables:
        Trade (less allowances for doubtful accounts:
        $67,000 and $80,000, respectively)...................................               810,768            878,893
        Other................................................................                54,656            120,558
     Inventories:
        Parts................................................................             1,259,995          1,242,580
        Work-in-progress.....................................................             1,202,767            940,918
        Finished goods.......................................................             1,495,575          1,191,870
     Prepaid expenses and other assets.......................................               223,581            264,117
                Total current assets.........................................            13,720,847         19,452,300
PROPERTY:
     Leasehold improvements..................................................             1,207,863          1,166,306
     Machinery and equipment.................................................             3,532,592          3,317,391
     Assets-in-construction..................................................               110,396             51,753
                Total property...............................................             4,850,851          4,535,450
        Less accumulated depreciation........................................             2,154,668          1,906,500
                Property - net...............................................             2,696,183          2,628,950
OTHER ASSETS:
     Goodwill................................................................               305,922            341,922
TOTAL ASSETS.................................................................           $16,722,952        $22,423,172

LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
     Trade accounts payable..................................................          $    536,193        $   648,502
     Accrued salaries, wages, and commissions................................               800,641            762,587
     Current portion of long-term debt.......................................                16,378             28,356
     Clinical trials accrual.................................................               545,124            879,166
     Other liabilities.......................................................               444,489            294,002
                 Total current liabilities...................................              2,342,825          2,612,613

OTHER LIABILITIES............................................................               191,200              --
LONG-TERM DEBT...............................................................               178,413             10,213

SHAREHOLDERS' EQUITY:
     Common stock - authorized, 100,000,000 shares of $.40 par value
         each; issued and outstanding, 12,203,345 shares and 12,121,312
         shares, respectively................................................             4,881,338          4,848,525
     Additional paid-in capital..............................................            41,754,190         41,118,611
     Unearned compensation ..................................................              (651,143)             --
     Unrealized loss on investments..........................................                  (706)            (5,836)
     Retained deficit........................................................           (31,973,165)       (26,160,954)
                 Total shareholders' equity..................................            14,010,514         19,800,346
 
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY...................................           $16,722,952        $22,423,172
<FN>
See notes to consolidated financial statements.
</FN>
</TABLE>
                    
<PAGE>

<TABLE>

                                                POSSIS MEDICAL, INC. AND SUBSIDIARIES
                                                CONSOLIDATED STATEMENTS OF OPERATIONS
                                                             (Unaudited)
<CAPTION>

                                                                     For Three Months Ended               For Six Months Ended    
                                                               Jan. 31, 1998       Jan. 31, 1997    Jan. 31, 1998     Jan. 31, 1997
<S>                                                              <C>                <C>               <C>              <C>
REVENUE:
     Medical product sales.................................      $1,214,669         $   163,936       $2,582,652       $   553,090
     Sales agreement and other.............................          --               1,750,000             --           1,750,000
         Total revenues....................................       1,214,669           1,913,936        2,582,652         2,303,090

COST OF SALES AND OTHER EXPENSES:
     Cost of medical products..............................       1,536,613           1,098,887        3,014,652         2,375,139
     Selling, general and administrative...................       1,739,615             985,101        3,255,538         1,695,995
     Research and development..............................       1,086,216           1,058,140        2,457,680         2,135,936
         Total cost of sales and other expenses............       4,362,444           3,142,128        8,727,870         6,207,070

Operating loss.............................................      (3,147,775)         (1,228,192)      (6,145,218)       (3,903,980)

Interest income............................................         137,963             269,942          318,844           525,098
Gain on sale of investments................................          14,163            --                 14,163             7,109

Loss from continuing operations - net......................      (2,995,649)           (958,250)      (5,812,211)       (3,371,773)

Income from discontinued operations-net....................            --               --                 --              111,539

Net loss...................................................     $(2,995,649)          $(958,250)     $(5,812,211)      $(3,260,234)
 
Weighted average number of common
     shares outstanding....................................      12,196,301          12,090,895       12,172,922        12,073,992

Basic and dilutive net income (loss)
per common share:
    Loss from continuing operations........................           $(.25)              $(.08)           $(.48)           $(.28)
    Income from discontinued operations....................              --                  --              --               .01
    Net loss...............................................           $(.25)              $(.08)           $(.48)           $(.27)
<FN>
See notes to consolidated financial statements.
</FN>
</TABLE>

<PAGE>
<TABLE>
                      POSSIS MEDICAL, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Unaudited)
<CAPTION>
                                                                         For Six Months Ended                
                                                                    Jan 31, 1998     Jan 31, 1997
<S>                                                                 <C>              <C>
OPERATING ACTIVITIES:
Net loss ........................................................   $(5,812,211)     $(3,260,234)
Adjustments to reconcile net loss to net
  cash used in operating activities:
     Gain on sale of marketable securities.......................       (14,163)          (7,109)
     Gain on asset disposal......................................        (2,100)          (1,526)
     Depreciation................................................       298,736          241,454
Amortization of goodwill.........................................        36,000           36,000
Stock compensation...............................................       165,157           41,309
(Increase)decrease in receivables...............................        134,027       (1,682,924)
Increase in inventories..........................................      (642,225)        (327,157)
(Increase)decrease in other assets..............................         40,536          (83,291)
Increase (decrease) in trade accounts payable....................      (112,309)          42,238
Increase(decrease) in accrued and other liabilities.............       (240,304)          99,233
Net cash used in operating activities............................    (6,148,856)      (4,902,007)
 
INVESTING ACTIVITIES:
Additions to plant and equipment.................................      (306,713)        (345,060)
Proceeds from the disposal of assets.............................         2,100           20,953
Purchase of marketable securities................................        (7,162)      (1,990,025)
Proceeds from sale/maturity of marketable securities.............     4,997,188        5,011,641
Net cash provided by investing activities  ......................     4,685,413        2,697,509

FINANCING ACTIVITIES:
Proceeds from notes payable......................................       175,000             --
Repayment of long-term debt......................................       (18,778)         (45,164)
Proceeds from issuance of stock and exercise of options..........       138,095          405,931         
Net cash provided by financing activities........................       294,317          360,767

DECREASE IN CASH AND CASH EQUIVALENTS ...........................    (1,169,126)      (1,843,731)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD.................     3,849,194        7,688,507 
CASH AND CASH EQUIVALENTS AT END OF PERIOD   ....................    $2,680,068       $5,844,776

SUPPLEMENTAL CASH FLOW DISCLOSURE: 
Interest paid....................................................    $    4,807       $    3,762
Inventory transferred to fixed assets............................         9,588           30,386
Issuance of restricted stock.....................................       816,300             --
Accrued payroll taxes related to restricted stock................       286,002             --
<FN>
See notes to consolidated financial statements.
</FN>
</TABLE>

<PAGE>


 

                      POSSIS MEDICAL, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.   BASIS OF PRESENTATION

     The  accompanying  unaudited  consolidated  financial  statements have been
prepared in accordance with generally accepted accounting principles for interim
financial  information and with the  instructions to Form 10-Q and Article 10 of
Regulation  S-X.  Accordingly,  they do not include all of the  information  and
footnotes  required by generally  accepted  accounting  principles  for complete
financial statements. In the opinion of management,  all adjustments (consisting
of normal recurring accruals)  considered necessary for a fair presentation have
been included.  The  accompanying  consolidated  financial  statements and notes
should be read in conjunction  with the audited  financial  statements and notes
thereto included in the Company's 1997 Annual Report.
 

2.   INTERIM FINANCIAL STATEMENTS
     Operating  results for the three and six month  periods  ended  January 31,
1998 are not necessarily  indicative of the results that may be expected for the
year ending July 31, 1998.


3.   RECENTLY ISSUED ACCOUNTING STANDARD

     Earnings per Share:

     Effective  January 31,  1998,  the Company  adopted  Statement of Financial
Accounting  Standards  No.  128,  Earnings  per Share.  SFAS No. 128  supersedes
Accounting Principles Board Opinion No. 15, Earnings per Share, and replaces the
presentation of primary earnings per share with a presentation of basic earnings
per share.  It also  requires  dual  presentation  for all entities with complex
capital structures and requires restatement of prior periods' earnings per share
calculations.  The  implementation  of SFAS No. 128 did not impact  earnings per
share because the Company had losses in all periods presented.


4.   EARNINGS (LOSS) PER SHARE

     The  Company's  outstanding  stock  options  and  stock  warrants  were not
included in the  computation  of earnings  per share since the impact would have
been anti-dilutive because of the net loss.

<PAGE>

     ITEM 2.      MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS


Results of Operations
Three and Six Month Periods Ended January 31, 1998 and 1997

     Total  revenues for the three and six month  periods ended January 31, 1998
were $1,215,000 and $2,583,000, respectively. This compared to total revenues of
$1,914,000 and $2,303,000 for the same periods the previous year. Second quarter
1997 total revenues  included  $1,750,000 from the termination and settlement of
the Company's Perma-Seal Graft Supply and Distribution Agreement.  Product sales
for the three and six month periods ending January 31, 1998 increased $1,051,000
and $2,030,000,  respectively, from the previous year. 

     The  significant  growth in product  sales  resulted  from  AngioJet  Rapid
Thrombectomy  System sales which received U.S. FDA marketing clearance for blood
clot removal in dialysis  grafts in December 1996 and  disposable  product sales
began later that same month.  AngioJet System drive unit and disposable sales in
the U.S.  for the  three and six  month  periods  ended  January  31,  1998 were
$1,077,000 and  $2,366,000,  respectively.  This was an increase of $987,000 and
$2,276,000 from the same periods in the previous year.

     The  AngioJet  System  drive  unit is a piece of  capital  equipment  which
currently  lists for $80,000 to U.S.  hospitals.  The average  price for the ten
units sold is less than  $80,000,  reflecting  customer  discounts and financing
costs.  The  purchasing  cycle for the AngioJet  System drive unit,  the Company
believes, will average nine to twelve months, depending on the customer's budget
cycle. The Company offers an AngioJet System evaluation program during which, in
return for free  placement of the drive unit,  the hospital  purchases a minimum
number of disposable  catheters and pumps. If the hospital  requires  additional
time to complete the  purchase and chooses to keep the drive unit,  monthly rent
or a charge for each  procedure is generally  made with a portion of rent or per
procedure  payment  applied to the final drive unit purchase  price.  Drive unit
rental  programs are available  and,  through a third party,  the Company offers
various drive unit financing plans including prime interest rate capital leases,
operating leases, deferred payment programs and a plan to acquire the drive unit
through the purchase of a minimum number of marked-up disposable products.
 
     In December 1997 the Company received approval to commence a clinical study
of the AngioJet  System for use in the treatment of stroke caused by blockage of
the carotid arteries, the main vessels supplying blood to the brain. The Company
believes that the treatment of stroke is a significant marketing opportunity for
the AngioJet  System.  The Company expects that U.S.  AngioJet System sales will
grow primarily through the addition of sales people,  the completion of clinical
trials designed to yield additional label-approved product uses, the publication
of clinical  performance  and cost  effectiveness  data and the  introduction of
additional catheter designs.

<PAGE>

     AngioJet System sales outside the United States were modest, $76,000 in the
most recent  quarter.  Capital  equipment,  such as the Company's drive unit, is
very difficult to sell in the  price-sensitive  European market.  The Company is
interviewing  potential AngioJet System independent  distributors for the German
market and expects to have a German  distributor  in place in 1998.  Actions the
Company is taking to improve AngioJet System sales in Europe include  conducting
European cost  effectiveness  studies, a carotid artery study in Germany, a deep
vein thrombosis study in Italy and developing  European physician  advocates for
the AngioJet System.  In Japan,  the coronary  AngioJet System clinical study is
nearing completion and a regulatory filing is planned for 1998 with the Japanese
Ministry of Health and Welfare.  Registrations  are currently being finalized in
Taiwan and the initial  product  shipments  are  expected  in the fourth  fiscal
quarter  of 1998.  The  Company  believes  that the U.S.  market  will  lead the
worldwide growth of AngioJet System sales revenue.

     Vascular graft sales were $52,000 for the three and six month periods ended
January 31, 1998.  This compared to $147,000 for the three and six month periods
ended January 31, 1997.  Perma-Flow Coronary Bypass Graft sales were $53,000 and
$23,000 for the six months  ended  January 31, 1998 and 1997,  respectively.  In
October 1997 Baxter  Healthcare  Corporation,  the  Company's  Perma-Flow  Graft
worldwide distribution partner,  launched the product within the European market
following  the receipt of CE Mark  regulatory  approval.  In  November  1997 the
Company  submitted a Humanitarian  Device Exemption (HDE) application to the FDA
requesting  approval for U.S. marketing of the Perma-Flow Coronary Bypass Graft.
This  exemption  will allow the  Company to market the  product in the U.S.  for
patients  who lack  suitable  vessels of their own to use for the  surgery as it
completes the U.S. clinical study and PMA registration designed to provide broad
marketing approval.  The Company expects a final decision on the HDE application
in the first half of 1998.  The sales for the six months ended  January 31, 1997
included $124,000 to the Company's  worldwide  Perma-Seal  Dialysis Access Graft
distributor.  This  distributor  agreement  was  terminated  in January 1997. In
January  1998  the  Company  engaged  Salomon  Smith  Barney  to  assist  in the
development  and  implementation  of a strategic  plan  designed to maximize the
value of the Company's vascular graft business.

     The  Company is  planning  for  continued  growth in product  sales for the
remainder of fiscal 1998 and beyond and  believes  that most of this growth will
come from AngioJet System sales in the U.S. marketplace.

     Cost of medical  products  increased  40% and 27% in the 1998 three and six
month  periods,  respectively,  over  the same  periods  in the  previous  year.
AngioJet System production costs increased $378,000 and $558,000,  respectively,
in the 1998 three and six month  periods as compared to the previous  year.  The
increase is  primarily  due to the  significant  growth in the  AngioJet  System
product sales.  Although still negative,  medical product gross margins improved
by  $613,000  and  $1,390,000,  respectively,  in the 1998  three  and six month
periods,   as  compared  to  the  previous  year.  The  Company   believes  that
manufacturing  costs per unit will be reduced and gross margins will continue to
improve as product sales and related production volumes continue to grow.

<PAGE>

     Selling,  general and administrative  expenses, in the three and six months
ended  January  31,  1998,  increased  $755,000  and  $1,560,000,  respectively,
compared to the same periods a year ago. The primary  factor is increased  sales
and  marketing  expense  related to the  establishment  of a direct  U.S.  sales
organization  to sell the  AngioJet  Rapid  Thrombectomy  System and expenses of
marketing  the product in the United  States.  The Company  plans to continue to
grow its field sales  organization  during fiscal 1998,  and sales and marketing
expenditures are expected to grow significantly in the current year and beyond.

     Research  and  development  expenses,  in the  three and six  months  ended
January 31, 1998,  increased 3% and 15%,  respectively,  over the previous year.
The increase is primarily due to increased  expenses of conducting  the AngioJet
System U.S.  coronary  clinical  trial and the cost of  developing  new AngioJet
System applications.  Vascular graft research and development expenses decreased
22% and 8%, respectively,  from the prior year. The decrease is primarily due to
the  Company's   Perma-Seal   Dialysis  Graft  clinical  trial  completing  it's
enrollment  in May 1997.  The Company  believes  that  research and  development
expenses  will  continue to  increase as it  completes  the  development  of its
current products, invests in the development of new AngioJet Thrombectomy System
applications, new vascular grafts and new AngioJet technology-based products.

     Interest  income has decreased in the most recent periods due to the use of
the Company's cash reserves in funding the Company's operations.

     The Company recorded the final income relating to the sale of its Technical
Service division during the first quarter of fiscal 1997.


Liquidity and Capital Resources

     Cash, cash equivalents,  and marketable  securities  totaled  $8,674,000 at
January 31, 1998 versus $14,813,000 at July 31, 1997.

     Net cash usage for the six months end January 31, 1998 averaged  $1,023,000
per month,  consistent with the Company's  expectations.  Most of the $6,149,000
cash  used in  operations  in the most  recent  six  month  period is due to the
$5,812,000 net loss. The other primary use of cash is the increase in inventory.
The Company believes that product sales of the AngioJet System, primarily in the
U.S., will yield meaningful sales growth going forward. Concurrently,  sales and
marketing  expenditures are planned to increase with the sales growth.  Research
and development  expenditures  are expected to grow as well. The Company expects
to  report a loss for the last two  quarters  of the  current  fiscal  year.  In
addition,  the Company  expects that increasing  working capital  investments in
trade  receivables  and inventory  will be required to support  growing  product
sales.

<PAGE>

     The Company is  currently  evaluating  its  options  for  raising  capital.
Additional capital will be sought in fiscal 1998.


Year 2000

     The Company plans to form a team in the current  quarter,  that will assess
and address the possible  exposures  related to the year 2000 issue. The Company
does  not use  internally  developed  computer  software  and is  therefore  not
anticipating major  reprogramming  efforts.  The Company's primary financial and
operational system has been assessed and is certified "Year 2000 Compliant." The
financial  impact of the year 2000 issue is not  expected  to be material to the
Company's consolidated financial position, results of operations and cash flows.


  Forward-Looking Statements

     This  Management's  Discussion  and  Analysis of  Financial  Condition  and
Results of Operations contains certain  "forward-looking  statements" as defined
in the  Private  Securities  Litigation  Reform  Act of  1995.  Such  statements
relating to future events and financial performance, including the submission of
applications  to  the  FDA,  revenue  and  expense  levels  and  future  capital
requirements,   are   forward-looking   statements   that   involve   risks  and
uncertainties,  including  the  Company's  ability to meet its timetable for FDA
submissions,  the review time at the FDA which is out of the Company's  control,
changes  in  the  Company's  marketing  strategies,  the  Company's  ability  to
establish  product  distribution  channels,  changes in  manufacturing  methods,
market  acceptance  of the  AngioJet  System,  changes  in the levels of capital
expenditures  by hospitals,  the levels of sales of the Company's  products that
can be achieved  and other  risks  detailed  from time to time in the  Company's
various Securities and Exchange Commission filings.

 Part II.  OTHER INFORMATION

ITEM 4. Submission of Matters to a Vote of Security Holders

     a. The 1997 annual meeting of shareholders of Possis Medical, Inc. was held
on December 9, 1997. 

<PAGE>

     b. By the following vote,  management's  nominees were elected as directors
of the  Corporation  for one year or until  their  successors  are  elected  and
qualified:
                                              FOR               AGAINST

              Donald C. Wegmiller          10,439,836            226,882
              Dean Belbas                  10,459,088            207,630
              Seymour J. Mansfield         10,474,004            192,714
              Demetre M. Nicoloff, MD      10,482,620            184,098
              Robert G. Dutcher            10,429,757            236,961
              Ann M. Possis                10,438,878            227,840
 
     c. By a vote of 4,687,786 in the  affirmative,  1,387,972 in the  negative,
120,462 abstaining and 4,468,498 being counted as broker non-votes, the proposed
amendment to the Corporation's  "1992 Stock  Compensation Plan" (the "Plan") was
ratified.  The  amendment  increases  the number of shares to the Plan each year
from 2% to 3% of the total  number of shares  outstanding  and to  increase  the
maximum  number  of  shares  of Common  Stock  that may be  issued  pursuant  to
Incentive Stock Options to 2,000,000 shares.

     d. By a vote of  5,966,559  in the  affirmative,  352,593 in the  negative,
104,052 abstaining and 4,243,514 being counted as broker non-votes, the proposed
amendment to the  Corporation's  "1991 Employee  Stock  Purchase" (the "Purchase
Plan") was  ratified.  The purpose of the Purchase  Plan is to encourage  equity
ownership  by  all  employees  by  providing  an  opportunity  to  purchase  the
Corporation's  Common Shares at an attractive price. The amendment  shortens the
eligibility  waiting period so that  full-time  employees as of the first day of
each  Purchase Plan Year shall be eligible to  participate  in the Purchase Plan
for that year. Previously, an additional one-year waiting period was imposed.

     e. By a vote of 10,527,777 in the  affirmative,  70,207 in the negative and
68,734  abstaining,  ratified  the  appointment  of Deloitte & Touche LLP as the
Company's certified public accountants.

<PAGE>

ITEM 6. Exhibits and Reports on Form 8-K

     (a) 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.

  Exhibit      Form              Date Filed                  Description        

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

     3.2       S-2            Amendment No. 1      Bylaws as amended and 
                              August 9, 1994       restated to date
   
     27                                            Financial data schedule.


     (b) Reports on Form 8-K

     Possis Medical,  Inc. filed no reports on Form 8-K during the quarter ended
January 31, 1998.

<PAGE> 

SIGNATURES

     Pursuant to the  requirements  of the Securities  Exchange Act of 1934, the
registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.

                                     POSSIS MEDICAL, INC.


DATE:  March 5, 1998                 BY:  /s/ Robert G. Dutcher              
                                        ROBERT G. DUTCHER
                                        President and Chief Executive Officer



DATE:  March 5, 1998                 BY:  /s/ Russel E. Carlson              
                                        RUSSEL E. CARLSON
                                        Vice President of Finance and
                                        Chief Financial Officer