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

                                    FORM 10-Q

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

For the quarterly period ended April 30, 2006

                                       or

| |  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
     EXCHANGE ACT OF 1934

For the 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 incorporation   (I.R.S. Employer Identification
                organization)                                   No.)

   9055 Evergreen Blvd NW Minnesota MN                       55433-8003
------------------------------------------       -------------------------------
 (Address of principal executive offices)                    (Zip Code)

                                  783-780-4555
--------------------------------------------------------------------------------
              (Registrant's telephone number, including area code)

Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer.

  Large accelerated filer___  Accelerated filer__X__  Non-accelerated filer___

Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes ____ No __X__

The number of shares outstanding of the Registrant's Common Stock, $.40 par
value, as of May 19, 2006 was 17,191,969.

<PAGE>


                              POSSIS MEDICAL, INC.

                                      INDEX



                                                                            PAGE
                                                                            ----

PART I.                       FINANCIAL INFORMATION

         ITEM 1.  Financial Statements....................................    3

                  Consolidated Balance Sheets, April 30, 2006 and
                  July 31, 2005...........................................    3

                  Consolidated Statements of Income and Comprehensive
                  Income for the three and nine months ended April 30,
                  2006 and 2005...........................................    4

                  Consolidated Statements of Cash Flows for the nine
                  months ended April 30, 2006 and 2005....................    5

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

         ITEM 2.  Management's Discussion and Analysis of Financial
                  Condition and Results of Operations.....................   11

         ITEM 3.  Quantitative and Qualitative Disclosures about Market
                  Risk....................................................   20

         ITEM 4.  Controls and Procedures.................................   20

PART II.          OTHER INFORMATION

         ITEM 1.  Legal Proceedings.......................................   20

         ITEM 2.  Unregistered Sales of Equity Securities and Use of
                  Proceeds................................................   21

         ITEM 6.  Exhibits................................................   22

                  SIGNATURES..............................................   23


                                       2
<PAGE>


PART 1  FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

                      POSSIS MEDICAL, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                                   (UNAUDITED)

ASSETS                                             April 30, 2006  July 31, 2005
                                                   --------------  -------------

CURRENT ASSETS:
  Cash and cash equivalents                        $   4,713,974   $  5,257,244
  Marketable securities                               41,036,630     39,169,811
  Trade receivables (less allowance for doubtful
   accounts and returns of $572,000 and $669,000,
   respectively)                                       8,437,764      8,274,839
  Inventories                                          5,617,599      5,830,204
  Prepaid expenses and other assets                    1,138,039      1,158,214
  Deferred tax asset                                   1,042,000      1,042,000
                                                   --------------  -------------
    Total current assets                              61,986,006     60,732,312

PROPERTY AND EQUIPMENT, net                            4,814,390      4,879,221
DEFERRED TAX ASSET                                    11,200,948     12,113,949
OTHER ASSET                                              723,234        425,914
                                                   --------------  -------------

TOTAL ASSETS                                       $  78,724,578   $ 78,151,396
                                                   ==============  =============

LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:
  Trade accounts payable                           $   1,288,908   $  1,355,402
  Accrued salaries, wages, and commissions             2,288,822      3,212,525
  Other liabilities                                    2,549,845      2,468,669
                                                   --------------  -------------
      Total current liabilities                        6,127,575      7,036,596

OTHER LIABILITIES                                        772,975        526,914

COMMITMENTS AND CONTINGENCIES

SHAREHOLDERS' EQUITY:
  Common stock-authorized, 100,000,000 shares of
   $0.40 par value each; issued and outstanding,
   17,173,504 and 17,326,487 shares, respectively      6,869,402      6,930,595
  Additional paid-in capital                          76,775,966     75,710,188
  Accumulated other comprehensive loss                  (338,000)      (240,000)
  Retained deficit                                   (11,483,340)   (11,812,897)
                                                   --------------  -------------
      Total shareholders' equity                      71,824,028     70,587,886
                                                   --------------  -------------

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY         $  78,724,578   $ 78,151,396
                                                   ==============  =============

See notes to consolidated financial statements.

                                       3
<PAGE>

<TABLE>
<CAPTION>
<S>     <C>                                    <C>           <C>           <C>           <C>
                      POSSIS MEDICAL, INC. AND SUBSIDIARIES
           CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
           FOR THE THREE AND NINE MONTHS ENDED APRIL 30, 2006 AND 2005
                                   (UNAUDITED)

                                                    Three Months Ended          Nine Months Ended
                                               --------------------------- ---------------------------
                                                 April 30,     April 30,     April 30,     April 30,
                                                    2006          2005          2006          2005
                                               ------------- ------------- ------------- -------------
Product sales                                  $ 15,224,827  $ 15,101,977  $ 45,829,609  $ 48,772,849

Cost of sales and other expenses:
  Cost of medical products                        4,399,791     4,155,261    12,532,922    12,743,018
  Selling, general and administrative             8,409,593     6,858,222    24,314,577    21,126,743
  Research and development                        2,869,967     2,589,657     8,577,064     7,631,492
                                               ------------- ------------- ------------- -------------
    Cost of sales and other expenses             15,679,351    13,603,140    45,424,563    41,501,253
                                               ------------- ------------- ------------- -------------

Operating (loss) income                            (454,524)    1,498,837       405,046     7,271,596
  Interest income                                   464,966       320,095     1,296,048       913,228
  Loss on sale of securities                       (110,839)     (121,105)     (136,326)     (101,074)
                                               ------------- ------------- ------------- -------------

(Loss) income before income taxes                  (100,397)    1,697,827     1,564,768     8,083,750
Provision for income taxes                          177,211       682,000     1,235,211     3,205,886
                                               ------------- ------------- ------------- -------------

Net (loss) income                                  (277,608)    1,015,827       329,557     4,877,864

Other comprehensive (loss) income, net of tax:
Unrealized (loss) gain on securities                (18,000)        9,000       (98,000)        4,000
                                               ------------- ------------- ------------- -------------
Comprehensive (loss) income                    $   (295,608) $  1,024,827  $    231,557  $  4,881,864
                                               ============= ============= ============= =============

Weighted average number of common
 shares outstanding:
  Basic                                          17,166,955    17,405,676    17,237,723    17,722,145
  Diluted                                        17,166,955    17,871,140    17,700,222    18,470,555

Net (loss) income per common share:
  Basic                                        $      (0.02) $       0.06  $       0.02  $       0.28
                                               ============= ============= ============= =============
  Diluted                                      $      (0.02) $       0.06  $       0.02  $       0.26
                                               ============= ============= ============= =============
</TABLE>


                                       4
<PAGE>


                      POSSIS MEDICAL, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                FOR THE NINE MONTHS ENDED APRIL 30, 2006 AND 2005
                                   (UNAUDITED)

                                                        2006            2005
                                                   -------------   -------------
OPERATING ACTIVITIES:
Net income                                         $    329,557    $  4,877,864
  Adjustments to reconcile net income to net cash
   provided by operating activities:
  Depreciation                                        1,892,534       1,729,323
  Gain on asset disposal                                     --          24,454
  Stock-based compensation expense                    2,684,804         150,000
  Loss on sale of marketable securities                 178,264         118,585
  Deferred taxes                                        986,001       2,732,776
  (Increase) decrease in trade receivables             (162,925)      2,577,137
  Increase in inventories                              (216,131)     (1,182,302)
  (Increase) decrease in prepaid expenses and other
   assets                                              (277,145)         67,129
  Decrease in trade accounts payable                   (183,113)       (431,268)
  Decrease in accrued and other liabilities            (365,866)     (1,466,604)
                                                   -------------   -------------
    Net cash provided by operating activities         4,865,980       9,197,094
                                                   -------------   -------------

INVESTING ACTIVITIES:
  Additions for property and equipment               (1,282,348)     (1,225,541)
  Proceeds from sale of fixed assets                         --           8,860
  Proceeds from sale of marketable securities        35,478,379      49,395,440
  Purchase of marketable securities                 (37,681,462)    (48,768,528)
                                                   -------------   -------------
    Net cash used in investing activities            (3,485,431)       (589,769)
                                                   -------------   -------------

FINANCING ACTIVITIES:
  Proceeds from issuance and sale of stock              702,017         925,241
  Excess tax benefits from stock-based compensation     (13,000)             --
  Repurchase of common stock                         (2,612,836)    (14,741,028)
                                                   -------------   -------------
    Net cash used in financing activities            (1,923,819)    (13,815,787)
                                                   -------------   -------------

DECREASE IN CASH AND CASH EQUIVALENTS                  (543,270)     (5,208,462)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD      5,257,244       8,411,784
                                                   -------------   -------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD         $  4,713,974    $  3,203,322
                                                   =============   =============

SUPPLEMENTAL CASH FLOW DISCLOSURE:
  Cash paid for income taxes                       $    306,510    $    593,600
  Issuance of restricted stock                          266,600          36,000
  Fixed asset additions in accounts payable             116,619          78,350
  Inventory transferred to property and equipment         7,736          39,358


See notes to consolidated financial statements.

                                       5
<PAGE>


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

1.   BASIS OF PRESENTATION

     The accompanying unaudited consolidated financial statements have been
     prepared in accordance with accounting principles generally accepted in the
     United States of America 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
     accounting principles generally accepted in the United States of America
     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 accompanying notes thereto included in the
     Company's 2005 Annual Report.

     INTERIM FINANCIAL STATEMENTS

     Operating results for the three and nine months ended April 30, 2006 are
     not necessarily indicative of the results that may be expected for the year
     ending July 31, 2006.

2.   NET INCOME PER COMMON SHARE

     Basic income per common share is computed by dividing net income for the
     period by the weighted average number of common shares outstanding during
     the period. Diluted income per share is computed using the treasury stock
     method by dividing net income by the weighted average number of common
     shares plus the dilutive effect of outstanding stock options, and shares
     issuable under the employee stock purchase plan.

     The following table presents a reconciliation of the numerators and
     denominators of basic and diluted earnings per share:

                             Three Months Ended            Nine Months Ended
                                  April 30,                    April 30,
                         --------------------------- ---------------------------
                             2006          2005          2006          2005
                         ------------- ------------- ------------- -------------
Numerator:
 Net (loss) income       $   (277,608) $  1,015,827  $    329,557  $  4,877,864
                         ============= ============= ============= =============

Denominator:
 Weighted average common
  shares outstanding       17,166,955    17,405,676    17,237,723    17,722,145

 Effect of potentially
  dilutive securities:
   Stock options and other         --       465,464       462,499       748,410
                         ------------- ------------- ------------- -------------
 Weighted average common
  shares outstanding,
  assuming dilution        17,166,955    17,871,140    17,700,222    18,470,555
                         ============= ============= ============= =============

Basic earnings per share $      (0.02) $       0.06  $       0.02  $       0.28
Diluted earnings per
 share                   $      (0.02) $       0.06  $       0.02  $       0.26

     Potentially dilutive securities include stock options, non-vested share
     awards and shares issuable under our employee stock purchase plan (ESPP).

     The computation of dilutive shares outstanding excluded options to purchase
     1,924,000 and 1,760,000 shares of common stock for the three months ended
     April 30, 2006 and 2005 and 1,844,000 and 1,276,000 shares of common stock
     for the nine months ended April 30, 2006 and 2005, respectively. These
     amounts were excluded because the options exercise prices were greater than
     the weighted average closing market price of our common stock for the
     periods presented and therefore, the effect would be antidilutive (i.e.,
     including such options would result in higher earnings per share.)

                                       6
<PAGE>


3.   STOCK BASED-COMPENSATION

     We have stock-based compensation plans under which we issue stock options,
     non-vested share awards and discounted purchase rights under an employee
     stock purchase (Section 423) plan (ESPP). Employee and director stock
     options issued prior to July 31, 2005 have a ten-year term. Employee stock
     options issued subsequent to July 31, 2005 have a five-year term.
     Outstanding stock options issued to employees generally vest over a
     four-year period, however, on occasion the Company has issued options that
     vest based upon achieving corporate objectives or stock price performance.
     Outstanding stock options issued to directors vest over the following
     periods, based on the basis for issuance: a) six months - stock options in
     lieu of compensation for services rendered as directors, b) four years -
     annual grants of stock options and c) stock price performance with a
     seven-year cliff period - service award options. Directors receive an
     annual non-vested share award that vests upon continued employment (time
     based) of one year. Our ESPP permits employees to purchase stock at 85% of
     the market price of our common stock at the end of the quarterly purchase
     period.

     Prior to August 1, 2005, we applied Accounting Principles Board Opinion No.
     25, Accounting for Stock Issued to Employees, and related Interpretations
     in accounting for these plans. No stock-based compensation expense was
     recognized in our statements of income prior to fiscal 2006 for stock
     option awards, as the exercise price was equal to the market price of our
     stock on the date of grant. In addition, we did not recognize any
     stock-based compensation expense for our ESPP as it is intended to be a
     plan that qualifies under Section 423 of the Internal Revenue Code of 1986,
     as amended. Finally, we recognized stock-based compensation expense for
     non-vested share awards as discussed in Note 5, Common Stock, of the Notes
     to Consolidated Financial Statements of our Annual Report on Form 10-K, for
     the fiscal year ended July 31, 2005.

     On August 1, 2005, we adopted the fair value recognition provisions of
     Statement of Financial Accounting Standards (SFAS) No. 123 (revised 2004),
     Share-Based Payment (123(R)), requiring us to recognize expense related to
     the fair value of our stock-based compensation awards. We elected the
     modified prospective transition method as permitted by SFAS No. 123(R).
     Under this transition method, stock-based compensation expense for the
     three and nine months ended April 30, 2006, includes: (a) compensation
     expense for all stock-based compensation awards granted prior to, but not
     yet vested as of July 31, 2005, based on the grant date fair value
     estimated in accordance with the original provisions of SFAS No. 123,
     Accounting for Stock-Based Compensation; and (b) compensation expense for
     all stock-based awards granted subsequent to July 31, 2005, based on the
     grant-date fair value estimated in accordance with the provisions of SFAS
     No. 123(R). We recognized compensation expense for stock options and
     non-vested share awards, that are either market-based or time-based, on a
     straight-line basis over the requisite service period of the award. Total
     stock-based compensation expense included in our statement of income for
     the three and nine months ended April 30, 2006, was $976,000 ($820,000, net
     of tax) and $2,602,000 ($2,252,000, net of tax), respectively. In
     accordance with the modified prospective transition method of SFAS No.
     123(R), financial results for prior periods have not been restated.

     Prior to the adoption of SFAS No. 123(R), we reported all tax benefits
     resulting from the exercise of stock options as operating cash flows in our
     consolidated statements of cash flows. In accordance with SFAS No. 123(R),
     for the nine months ended April 30, 2006, we revised our statement of cash
     flows presentation to report the excess tax benefits from the exercise of
     stock options as financing cash flows. For the nine months ended April 30,
     2006, $13,000 of excess tax benefits were reported as financing cash flows
     rather than operating cash flows.

                                       7
<PAGE>


     The following table illustrates the effect on net income and earnings per
     share if we had applied the fair value recognition provisions of SFAS No.
     123 to stock-based employee compensation during the three and nine months
     ended April 30, 2005.

                                                   Three Months     Nine Months
                                                       Ended           Ended
                                                      April 30,       April 30,
                                                        2005            2005
                                                   -------------   -------------

     Net Income - as reported                      $  1,015,827    $  4,877,864
        Deduct: Additional stock-based compensation
        expense determined under fair value method
        for all awards, net of tax                     (671,000)     (1,959,000)
                                                   -------------   -------------
        Pro forma                                  $    344,827    $  2,918,864
                                                   =============   =============
     Earnings per share:
     Basic - as reported                           $       0.06    $       0.28
        Deduct: Additional stock-based compensation
        expense determined under fair value method
        for all awards, net of tax                        (0.04)          (0.12)
                                                   -------------   -------------
        Basic pro forma                            $       0.02    $       0.16
                                                   =============   =============


     Diluted - as reported                         $       0.06    $       0.26
        Deduct: Additional stock-based compensation
        expense determined under fair value method
        for all awards, net of tax                        (0.04)          (0.10)
                                                   -------------   -------------
              Diluted - pro forma                  $       0.02    $       0.16
                                                   =============   =============
     Weighted average common shares outstanding
        Basic                                        17,405,676      17,722,145
        Diluted                                      17,871,140      18,470,555

     For purposes of this pro forma disclosure, the value of the stock-based
     compensation was amortized to expense on a straight-line basis over the
     period it is vested or earned. Forfeitures were estimated based on
     historical experience.

The following table summarizes the stock option transactions for the nine months
ended April 30, 2006:

                                    Options                         Weighted-
                                                   Weighted-         Average
                                                    Average         Remaining
                                                Exercise Price     Contractual
                                                   Per Share     Term (in years)

Outstanding on July 31, 2005       3,062,000        $11.78
    Granted                          531,000        $11.78
    Exercised                        (29,000)        $9.00
    Forfeited/Canceled              (261,000)       $14.45
                                  ===========   ==============
Outstanding on April 30, 2006      3,303,000        $11.59             5.56
                                  ===========   ==============   ===============
Exercisable on April 30, 2006      2,081,000        $10.51             4.75
                                  ===========   ==============   ===============

                                       8
<PAGE>


     The aggregate intrinsic value of options (the amount by which the market
     price of the stock on date of exercise exceeded the market price of the
     stock on the date of grant) exercised during the three months ended April
     30, 2006 and 2005, was $0 and $108,000, respectively; and during the nine
     months ended April 30, 2006 and 2005, was $69,000 and $870,000,
     respectively.

     We estimated the fair values using the Black-Scholes option-pricing model
     prior to August 1, 2005 and using the Actuarial Binomial option-pricing
     model subsequent to July 31, 2005, modified for dividends and using the
     following assumptions:

                                                   2006               2005 (1)
                                            ------------------  ----------------
         Risk-free rate (2)                        3.7 - 4.5%        4.1 - 4.5%
         Expected dividend yield                           0%                0%
         Expected stock price volatility (3)         38 - 55%          54 - 68%
         Expected life of stock options (4)  3.86 - 8.5 years          10 years
         Fair value per option                  $4.38 - $6.86    $6.04 - $19.88

     1.   Forfeitures are estimated based on historical experience.
     2.   2006 - Based on the U.S. Treasury interest rates whose term is
          consistent with the expected life of our stock options. 2005 - Based
          on the ten-year U.S. Treasury constant maturity interest rate.
     3.   In 2006 we used an outside valuation advisor to assist us in more
          accurately projecting expected stock price volatility. We used
          historical market price data.
     4.   We estimate the expected life of stock options based upon historical
          experience.

     Net cash proceeds from the exercise of stock options were $258,000 and
     $494,000 for the nine months ended April 30, 2006 and 2005, respectively.

     The actual income tax benefit realized from stock option exercises totaled
     $13,000 and $314,000 for the nine months ended April 30, 2006 and 2005,
     respectively.

     Non-Vested Share Awards

     The fair value of non-vested market-based and time-based share awards is
     determined based on generally accepted valuation techniques and the closing
     market price of our stock on the date of grant. A summary of the status of
     our market-based and time-based share awards as of April 30, 2006 and
     changes during the nine-month period ended April 30, 2006, is as follows:

         Market-Based and Time-Based Share Awards      Shares         Fair Value
         ----------------------------------------     --------        ----------
         Outstanding at July 31, 2005                   2,754           $11.70
         Granted                                       21,947            12.15
         Vested                                       (14,818)           12.47
         Forfeited/Canceled                            (6,289)           13.03
         Outstanding at April 30, 2006                  3,594           $ 9.76

     There were 2,754 time-based share awards vested during the nine months
     ended April 30, 2006. As of April 30, 2006, there was $24,000 of
     unrecognized compensation expense related to non-vested time-based share
     awards that is expected to be recognized over the next eight months.

4.   ACCOUNTING PRONOUNCEMENT

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

                                       9
<PAGE>


5.   MARKETABLE SECURITIES

     During the quarter ended April 30, 2006, we invested excess cash and cash
     equivalents in a professionally managed portfolio of marketable securities.
     All securities in this portfolio are classified as available-for-sale and
     consist primarily of U.S. government securities and corporate bonds. These
     investments are reported at fair value. The unrealized loss, net of taxes,
     on these investments, of approximately $18,000 and $98,000 for the three
     and nine months ended April 30, 2006 is included within other comprehensive
     loss. The unrealized gain, net of taxes, on these investments of
     approximately $9,000 and $4,000, respectively, for the three and nine
     months ended April 30, 2005 is included within other comprehensive income.
     The net unrealized loss included in shareholders' equity as of April 30,
     2006 and 2005 was $338,000 and $132,000, net of tax.

6.   INVENTORIES

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

                                       April 30, 2006    July 31, 2005
                                       --------------   --------------

           Finished goods              $   2,115,254    $   2,149,599
           Work-in-process                 1,047,859        1,206,364
           Raw materials                   2,454,486        2,474,241
                                       --------------   --------------
                                       $   5,617,599    $   5,830,204
                                       ==============   ==============

7.   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 were as follows:

                                      April 30,      July 31,
                                         2006          2005           Life
                                    ------------- -------------  ---------------
       Leasehold improvements       $  2,682,963  $  2,295,999       5-10 years
       Equipment                      11,027,785    10,329,650    3 to 10 years
       Assets in construction            322,016       222,467         N/A
                                    ------------- -------------
                                      14,032,764    12,848,116
       Less accumulated depreciation  (9,218,374)   (7,968,895)
                                    ------------- -------------
       Property and equipment - net $  4,814,390  $  4,879,221
                                    ============= =============

8.   SEGMENT AND GEOGRAPHIC INFORMATION AND CONCENTRATION OF CREDIT RISK

     Our operations are in one business segment: the design, manufacture and
     distribution of endovascular medical devices. We evaluate 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.

                                       10
<PAGE>


Total revenues from sales in the United States and outside the United States are
as follows:

                              Three Months Ended          Nine Months Ended
                                   April 30,                   April 30,
                         ------------- ------------- ------------- -------------
                             2006          2005          2006          2005
                         ------------- ------------- ------------- -------------

     United States       $ 14,764,000  $ 14,689,690  $ 44,437,327  $ 47,505,552
     Non-United States        460,827       412,287     1,392,282     1,267,297
                         ------------- ------------- ------------- -------------
     Total Revenues      $ 15,224,827  $ 15,101,977  $ 45,829,609  $ 48,772,849
                         ============= ============= ============= =============

9.   COMMON STOCK

     During the nine months ended April 30, 2006, stock options for the purchase
     of 29,000 shares of the Company's common stock were exercised at prices
     between $3.94 and $12.44 per share resulting in proceeds of $258,000.
     During the nine months ended April 30, 2005, stock options for the purchase
     of 97,787 shares of the Company's common stock were exercised at prices
     between $3.88 and $16.66 per share resulting in proceeds of $494,000.

     During the nine months ended April 30, 2006 and 2005, we issued 52,264 and
     37,580 shares in connection with our employee stock purchase plan.

     On August 29, 2005, we issued 18,353 shares of restricted stock to
     executives of the Company as part of the fiscal 2005 management incentive
     program. The restricted stock vested when our stock price closed at $13.00
     or greater, which occurred, on August 31, 2005. The $230,600 fair market
     value of the restricted stock was expensed in fiscal 2005 as compensation
     expense. We cancelled 6,289 shares of restricted stock due to executives
     electing to receive fewer shares in lieu of paying withholding taxes.

     During the nine months ended April 30, 2006, we repurchased 249,600 shares
     in the public market at prices between $9.89 and $11.06 per share for
     $2,613,000. During the nine months ended April 30, 2005, we repurchased
     1,112,400 shares in the public market at stock prices between $9.35 and
     $18.34 per share for $14,741,000.

10.  ACCRUED WARRANTY COSTS

     We estimate 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. The following table presents the changes in our product
     warranty liability:

           Accrued warranty costs at July 31, 2005          $ 146,500
           Payments made for warranty costs                  (308,800)
           Provision for product costs                        268,800
                                                            ----------
           Accrued warranty costs at April 30, 2006         $ 106,500
                                                            ==========

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

Our Business

Possis Medical Inc. develops, manufactures, and markets pioneering medical
devices for mechanical thrombectomy in native coronary arteries and coronary
bypass grafts, leg arteries and in kidney dialysis access grafts. Our primary
product, the AngioJet(R) RheolyticTM Thrombectomy System (AngioJet System) uses
miniaturized waterjet technology, which enables interventional cardiologists,
interventional radiologists, vascular surgeons, and other specialists to
rapidly, safely and effectively remove blood clots throughout the body.


                                       11
<PAGE>


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

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

Critical Accounting Policies

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

Revenue Recognition

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

Allowance for Returns

Trade receivables are reduced by an allowance for items that may be returned in
the future. The allowance requires us to make estimates at the time the account
receivable is recorded concerning the likelihood of returns. The estimate is
based upon our historical product return experience, customer complaint rates,
information received from our customers and other assumptions that we believe
are reasonable under the circumstances. We review, on a quarterly basis, the
actual returns for the previous quarter and evaluate the adequacy of the
allowance for future returns. Although we believe the amount of the allowance
for returns is appropriate, actual returns incurred could differ from our
original estimate, requiring adjustments to the allowance.

Allowance for Doubtful Accounts

Substantially all of our trade receivables are due from health care facilities
located in the United States. The estimated allowance for doubtful accounts is
based upon the age of the outstanding receivables and the payment history and
creditworthiness of each customer. We evaluate the adequacy of the allowance for
doubtful accounts on a quarterly basis. Although we believe the amount of the
allowance for doubtful accounts is appropriate, nonpayment of accounts could
differ from our original estimate, requiring adjustments to the allowance.

                                       12
<PAGE>


Inventories

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

Warranty Reserve

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

Non-GAAP (General Accepted Accounting Principles) Disclosures

In our Management's Discussion and Analysis, and Notes to Consolidated Financial
Statements, the Company makes reference to non-GAAP financial measures - the
effect on net income, net income after tax and net income per share resulting
from compensation charges under SFAS 123 (R), and other non-GAAP line items from
the Consolidated Statements of Income and Comprehensive Income, including cost
of medical products, operating expenses (including selling, general and
administrative, and research and development), and provision for income taxes.
These measures are not in accordance with, or an alternative for, generally
accepted accounting principles and may be different from non-GAAP measures used
by other companies. Possis believes that the presentation of non-GAAP net
income, non-GAAP net income per share data, and other non-GAAP line items from
the Consolidated Statements of Income and Comprehensive Income, when shown in
conjunction with the corresponding GAAP measures, provides useful information to
management and investors regarding financial and business trends relating to its
financial condition and results of operations. Possis further believes that
where the adjustments used in calculating non-GAAP net income and non-GAAP net
income per share are based on specific identified charges that impact different
line items in the statements of income (including cost of medical products,
selling, general and administrative and research and development expense), that
it is useful to investors to know how these specific line items in the
statements of income are affected by these adjustments. In particular, as Possis
begins to apply SFAS 123(R), it believes that it is useful to investors to
understand how the expenses associated with the application of SFAS 123(R) are
reflected in its Consolidated Statements of Income and Comprehensive Income.

Financial Reporting Changes

Stock-Based Compensation

On December 16, 2004, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 123 (revised 2004),
Share-Based Payment (123(R)), effective for a company's first fiscal year
beginning after June 15, 2005, SFAS No. 123(R) supersedes Accounting Principles
Board Opinion No. 25, Accounting for Stock Issued to Employees. SFAS No. 123(R)
requires all share-based compensation, including grants of stock options, to be
recognized in the consolidated statements of earnings. During the first quarter
of fiscal 2006, we adopted SFAS No. 123(R), and elected the modified prospective
transition method. This method permits us to apply the new requirements on a
prospective basis. Our net income for the three and nine months ended April 30,
2006, reflected stock-based compensation expense of $976,000 ($820,000 after
tax, or $0.05 per diluted share) and $2,602,000 ($2,252,000 after tax, or $0.13
per diluted share). Our cost of medical products for the three and nine months
ended April 30, 2006 included stock-based compensation of $114,000 and $321,000,
respectively. Our selling, general and administrative expense for the three and
nine months ended April 30, 2006 included stock-based compensation of $665,000
and $1,699,000, respectively, and research and development expense for the three
and nine months ended April 30, 2006 included stock-based compensation of
$197,000 and $582,000, respectively. For additional information on our adoption
of SFAS No. 123(R), see Note 3, Stock-Based Compensation of the Notes to
Consolidate Financial Statements in this Quarterly Report on Form 10-Q.

                                       13
<PAGE>


Results of Operations

Three and Nine Month Periods Ended April 30, 2006 and 2005

Summary

Total product sales for the three months ended April 30, 2006 increased
$123,000, or 1%, to $15,225,000 compared to $15,102,000 for the comparable
period in fiscal 2005. Total product sales for the nine months ended April 30,
2006 decreased $2,943,000, or 6%, to $45,830,000 compared to $48,773,000 for the
comparable period in fiscal 2005.

We recorded a net loss for the three months ended April 30, 2006 of $278,000, or
$0.02 per diluted share and net income for the nine months ended April 30, 2006
of $330,000, or $0.02 per diluted share compared to net income of $1,016,000, or
$0.06 per diluted share, and $4,878,000, or $0.26 per diluted share in the
comparable three and nine month periods in fiscal 2005. Our net loss for the
three months ended April 30, 2006 and the net income for the nine months ended
April 30, 2006, reflects the impact of adopting SFAS No.123(R), which resulted
in stock-based compensation expense of $976,000, ($820,000 after tax, or $0.05
per diluted share) and $2,602,000, ($2,252,000 after tax, or $0.13 per diluted
share), respectively.

                                       14
<PAGE>


The  following  table  compares  the  Statement  of Income as reported  with the
pro-forma  non-GAAP  Statement  of Income for the three  months  ended April 30,
2006, eliminating the impact of SFAS 123(R) on the Statement of Income. The 2005
"As Reported"  amounts  include stock  compensation  as reported  under SFAS 123
prior to the  implentation of SFAS 123(R).  In addition,  the three months ended
April 30, 2005, is included for comparison purposes.
<TABLE>
<CAPTION>
<S>     <C>                              <C>            <C>           <C>            <C>
                                                            2006                         2005
                                         ------------------------------------------  -------------
                                                                        Pro-forma
                                                                         Non-GAAP
                                                        SFAS 123(R)     Excluding
                                          As Reported   Adjustments     SFAS 123(R)   As Reported
                                         -------------  ------------  -------------  -------------
Product sales                            $ 15,224,827   $         -   $ 15,224,827   $ 15,101,977
Cost of sales and other expenses:
   Cost of medical products                 4,399,791      (114,000)     4,285,791      4,155,261
   Selling, general and administrative      8,409,593      (665,000)     7,744,593      6,858,222
   Research and development                 2,869,967      (197,000)     2,672,967      2,589,657
                                         -------------  ------------  -------------  -------------
   Cost of sales and other expenses        15,679,351      (976,000)    14,703,351     13,603,140
Operating (loss) income                      (454,524)      976,000        521,476      1,498,837
   Interest income                            464,966             -        464,966        320,095
   Loss on sale of securities                (110,839)            -       (110,839)      (121,105)
                                         -------------  ------------  -------------  -------------
(Loss) income before income taxes            (100,397)      976,000        875,603      1,697,827
Provision for income taxes                    177,211       156,000        333,211        682,000
                                         -------------  ------------  -------------  -------------
Net (loss) income                            (277,608)      820,000        542,392      1,015,827
Other comprehensive (loss) income net
 of tax:
   Unrealized (loss) gain on securities       (18,000)            -        (18,000)         9,000
                                         -------------  ------------  -------------  -------------
Comprehensive (loss) income              $   (295,608)  $   820,000   $    524,392   $  1,024,827
                                         =============  ============  =============  =============
Net (loss) income per common share
   Basic                                 $      (0.02)  $      0.05   $       0.03   $       0.06
                                         =============  ============  =============  =============
   Diluted                               $      (0.02)  $      0.05   $       0.03   $       0.06
                                         =============  ============  =============  =============
</TABLE>
The  following  table  compares  the  Statement  of Income as reported  with the
pro-forma non-GAAP Statement of Income for the nine months ended April 30, 2006,
eliminating  the impact of SFAS 123(R) on the Statement of Income.  The 2005 "As
Reported" amounts include stock compensation as reported under SFAS 123 prior to
the  implentation of SFAS 123(R).  In addition,  the nine months ended April 30,
2005 is included for comparison purposes.
<TABLE>
<CAPTION>
<S>     <C>                              <C>            <C>           <C>            <C>
                                                            2006                         2005
                                         ------------------------------------------  -------------
                                                                        Pro-forma
                                                                         Non-GAAP
                                                        SFAS 123(R)     Excluding
                                          As Reported   Adjustments     SFAS 123(R)   As Reported
                                         -------------  ------------  -------------  -------------
Product sales                            $ 45,829,609   $         -   $ 45,829,609   $ 48,772,849
Cost of sales and other expenses:
   Cost of medical products                12,532,922      (321,000)    12,211,922     12,743,018
   Selling, general and administrative     24,314,577    (1,699,000)    22,615,577     21,126,743
   Research and development                 8,577,064      (582,000)     7,995,064      7,631,492
                                         -------------  ------------  -------------  -------------
   Cost of sales and other expenses        45,424,563    (2,602,000)    42,822,563     41,501,253
Operating income                              405,046     2,602,000      3,007,046      7,271,596
   Interest income                          1,296,048             -      1,296,048        913,228
   (Loss) gain on sale of securities         (136,326)            -       (136,326)      (101,074)
                                         -------------  ------------  -------------  -------------
Income before income taxes                  1,564,768     2,602,000      4,166,768      8,083,750
Provision for income taxes                  1,235,211       350,000      1,585,211      3,205,886
                                         -------------  ------------  -------------  -------------
Net income                                    329,557     2,252,000      2,581,557      4,877,864
Other comprehensive income net of tax:
   Unrealized (loss) gain on securities       (98,000)            -        (98,000)         4,000
                                         -------------  ------------  -------------  -------------
Comprehensive income                     $    231,557   $ 2,252,000   $  2,483,557   $  4,881,864
                                         =============  ============  =============  =============
Net income per common share
   Basic                                 $       0.02   $      0.13   $       0.15   $       0.28
                                         =============  ============  =============  =============
   Diluted                               $       0.02   $      0.13   $       0.15   $       0.26
                                         =============  ============  =============  =============
</TABLE>

                                       15
<PAGE>


The following table compares the Statement of Income as a percentage of product
sales for the three and nine months ended April 30, 2006 and 2005.
<TABLE>
<CAPTION>
<S>     <C>                           <C>       <C>       <C>       <C>       <C>       <C>
                                            Three Months Ended           Nine Months Ended
                                                 April 30,                    April 30,
                                      ----------------------------  ----------------------------
                                             2006           2005           2006           2005
                                      ------------------  --------  ------------------  --------
                                         As     Proforma     As        As     Proforma     As
                                      Reported  Non-GAAP  Reported  Reported  Non-GAAP  Reported
                                      --------  --------  --------  --------  --------  --------

Product sales                           100.0%    100.0%    100.0%    100.0%    100.0%    100.0%

Operating expenses
  Cost of medical products               28.9%     28.2%     27.5%     27.3%     26.6%     26.1%
  Selling, general and administrative    55.2%     50.9%     45.4%     53.1%     49.3%     43.3%
  Research and development               18.9%     17.6%     17.1%     18.7%     17.4%     15.6%
  Total                                 103.0%     96.6%     90.1%     99.1%     93.4%     85.1%

Operating (loss) income                  (3.0%)     3.4%      9.9%      0.9%      6.6%     14.9%
Other income                              2.4%      2.4%      1.3%      2.5%      2.5%      1.7%
(Loss) income before income taxes        (0.6%)     5.8%     11.2%      3.4%      9.1%     16.6%
Income taxes provision                   (1.2%)    (2.2%)    (4.5%)    (2.7%)    (3.5%)    (6.6%)
Net (loss) income                        (1.8%)     3.6%      6.7%      0.7%      5.6%     10.0%
</TABLE>

Note: The above table includes Proforma Non-GAAP percentages for fiscal 2006.
These percentages did not include stock-based compensation under SFAS 123(R).

Revenue

Product sales for the three months ended April 30, 2006 increased 1% to
$15,225,000 from $15,102,000 for the same period in 2005. The increase was due
to change in product mix. Product sales for the nine months ended April 30, 2006
decreased 6% to $45,830,000 from $48,773,000 for the same period in 2005. The
main factors in the revenue decrease during fiscal 2006 were higher than
expected sales force turnover, increased competition, and continuing controversy
concerning the role of thrombectomy and embolic protection in treating coronary
STEMI (ST segment elevation myocardial infarction) patients.

As of April 30, 2006, we had a total of 1,645 domestic drive units in the field,
compared to 1,461 drive units at April 30, 2005, and 1,600 units as of January
31, 2006. During the three month period ended April 30, 2006, our catheter sales
decreased approximately 5% to approximately 11,100 catheters versus
approximately 11,600 catheters in the same period last year. During the nine
month period ended April 30, 2006, our catheter sales decreased approximately 5%
to approximately 34,600 catheters versus approximately 36,600 catheters in the
same period last year. The average catheter utilization rate per installed
domestic drive unit was 6.6 in the third quarter of fiscal 2006 compared to 7.8
in the same prior year period, and compared to a rate of 7.0 in the second
quarter of fiscal 2006. We sold 46 and 116 domestic drive units during the three
and nine months ended April 30, 2006, respectively, compared to 44 and 142
domestic drive units in the same periods in the prior year.

Foreign product sales were $461,000 for the three months ended April 30, 2006
and $412,000 for the three months ended April 30, 2005. Foreign product sales
were $1,392,000 for the nine months ended April 30, 2006 and $1,267,000 for the
nine months ended April 30, 2005.

In May 2006 the Company introduced the SafeSeal(TM) Hemostasis Patch, a topical
wound dressing that decreases the time it takes to control bleeding from the
puncture made into a blood vessel to perform an endovascular procedure. The
SafeSeal Patch specifically targets the more than 7 million diagnostic and
therapeutic procedures performed annually in the U.S. for coronary and
peripheral applications. SafeSeal, developed and manufactured by
Minneapolis-based Medafor, Inc., will be marketed in the U.S. to interventional
catheterization labs, physicians and staff by the Possis Medical sales team.

                                       16
<PAGE>


Cost of Medical Products

Cost of medical products increased $245,000 to $4,400,000 in the three month
period ended April 30, 2006 over the same period in the previous year and
decreased $210,000 to $12,533,000 for the nine month period ending April 30,
2006 over the same period in the previous year. The changes were primarily due
to the reduction in AngioJet System product unit sales offset by higher
production overhead on lower units produced, combined with an increase in
overhead costs. The adoption of SFAS No. 123(R) increased the cost of medical
products by $114,000 during the three months ended April 30, 2006, and $321,000
during the nine months ended April 30, 2006. Gross profit decreased by $122,000
to $10,825,000, or 71.1% of product sales, for the three months ended April 30,
2006, from $10,947,000 or 72.5% of product sales in the same period last year.
Gross profit decreased by $2,733,000 to $33,297,000, or 72.7% of product sales,
for the nine months ended April 30, 2006, from $36,030,000 or 73.9% of product
sales in the same period last year. The decrease in the gross profit during the
nine months was primarily due to lower revenue.

Selling, General and Administrative Expense

Selling, general and administrative expense increased $1,551,000 to $8,410,000
for the three months ended April 30, 2006, compared to the same period in the
previous year. Of this increase, $665,000 was stock-based compensation expense
resulting primarily from the implementation of SFAS No. 123(R). Marketing
clinical studies, sales related expenses, and incentives also contributed to the
increase. Selling, general and administrative expense increased $3,188,000 to
$24,315,000 for the nine months ended April 30, 2006, compared to the same
period in the previous year; $1,699,000 of which was attributable to the
implementation of SFAS 123(R). Other factors contributing to the expense
increase were marketing clinical studies, sales meetings and conventions and
incentives.

Research and Development Expense

Research and development expense increased $280,000 to $2,870,000, in the three
months ended April 30, 2006, when compared to the same period in the prior year.
Research and development expense increased $946,000 to $8,577,000, in the nine
months ended April 30, 2006, when compared to the same period in the prior year.
The increase in both periods was partially due to the impact of adopting SFAS
No. 123(R) which resulted in increased stock-based compensation of $197,000 and
$582,000 in the three and nine month periods respectively. Various research and
development projects contributed to the increase, including the Guard Dog
temporary occlusion guidewires, the Ultra drive unit, an associated project to
combine the pump and catheter and other catheter development projects.

Interest Income

Interest income increased $145,000 in the three months ended April 30, 2006 to
$465,000 and increased $383,000 in the nine months ended April 30, 2006 to
$1,296,000. The increased interest income is attributable to a combination of
higher interest rates and a larger available investment base. Excess cash is
invested in a professionally managed portfolio of marketable securities. We
expect interest income to increase in the fourth quarter of fiscal 2006 as
compared to fiscal 2005 due to positive operating cash flows and current
interest rates.

Loss On Sale of Securities

Loss on sales of securities was $111,000 for the three months and $136,000 for
the nine months ended April 30, 2006. Loss on sales of securities was $121,000
for the three months and $101,000 for the nine months ended April 30, 2005. The
losses were due to interest rate increases that reduced the fair market value of
the investments in marketable securities. Future gain (loss) on sale of
securities is dependent on interest rate fluctuations.

                                       17
<PAGE>


Provision For Income Taxes

Our effective tax rate in the three and nine month periods ending April 30,
2006, was 177 percent and 79 percent, respectively. On a non-GAAP basis
(excluding the impact of SFAS 123 (R)) the effective tax rate was 38 percent in
the three and nine month periods ending April 30, 2006. The increase in the GAAP
effective tax rate in the current year is attributable to how Incentive Stock
Options (or ISO's) are treated under SFAS 123 (R). There is no tax benefit
recognized for ISO expense under SFAS 123(R) until there is an exercise and
associated disqualifying disposition resulting in an actual tax benefit for the
Company. Non-Qualified stock options are fully tax effected under SFAS 123 (R)
as the value is expensed over the vesting period. Approximately 70 percent of
our outstanding options at this time are ISO's so the impact is significant.
This new ISO tax treatment under 123 (R) reduced earnings by $0.01 per share in
the current quarter.

We became profitable in the third quarter of fiscal 2001. We increased our
deferred tax asset by an additional $466,000 in fiscal 2005 and $2,578,000 in
fiscal 2004. These increases were related to tax benefits from disqualified
stock options that are recorded directly in the Consolidated Statement of
Changes in Shareholders' Equity. Management believes the remaining valuation
allowance of $690,000 is necessary as it is more likely than not that $690,000
of the deferred tax asset will not be realizable due to the expiration of
research and development tax credits.

Liquidity and Capital Resources

Our cash, cash equivalents and marketable securities totaled approximately
$45,751,000 at April 30, 2006 versus $44,427,000 at July 31, 2005.

During the nine month period ended April 30, 2006, we generated $4,866,000 of
cash from operating activities, which resulted primarily from $330,000 of net
income and adjustments to net income. Adjustments in net income included
depreciation of $1,893,000, stock-based compensation expense of $2,685,000 and a
decrease in deferred tax assets of $986,000. Net cash from operations were
partially offset by cash used to fund an increase in accounts receivable of
$163,000, an increase in inventories of $216,000, an increase in prepaid
expenses and other assets of $277,000 combined with a decrease in accounts
payable and accrued liabilities of $549,000. We depreciate company-owned drive
units at customer locations, as well as property and equipment. The stock-based
compensation expense is primarily attributable to the implementation of SFAS
123(R), the expensing of stock-based compensation. The decrease in the deferred
tax asset was due to the utilization of the net operating loss carry-forwards to
offset current taxes payable. Inventory increases were due to new catheter model
market releases during the first quarter of fiscal 2006. The increases in
prepaid expenses and other assets were attributable to the timing of insurance
premium payments. The decreases in accounts payable and accrued liabilities were
due to the timing of payments. This decrease included the payment of fiscal 2005
corporate incentives in September 2005 (fiscal 2006 first quarter).

Cash used in investing activities was $3,485,000 including the net purchase of
marketable securities of $2,203,000 and the purchase of $1,282,000 of property
and equipment.

Net cash used in financing activities was $1,924,000, which resulted from the
repurchase of 249,600 shares of our stock in open market transactions for
$2,613,000; partially offset by the cash received in connection with the
exercise of stock options of $702,000.

We expect our cash on hand and funds from operations to be sufficient to cover
both short-term and long-term operating requirements of its current AngioJet
business and the repurchase of its common stock as authorized by the Board of
Directors.

Off-Balance Sheet Obligations

The Company does not have any material off-balance-sheet arrangements.


                                       18
<PAGE>


Outlook

We expect overall revenue, primarily in the United States, will be in the range
of $62 million to $63 million in fiscal 2006. Including the impact of
stock-based compensation expense, we anticipate net income per diluted share of
$0.02 to $0.05 for fiscal 2006. The impact of expensing stock-based compensation
per SFAS 123(R) is anticipated to be approximately $0.18 per diluted share for
fiscal year 2006.

We anticipate fourth quarter revenue of $16 to $17 million and GAAP net income,
which includes SFAS 123(R) stock-based compensation, of between breakeven and
$0.03 per diluted share.

For the 2007 fiscal year, the Company has preliminarily indicated that it
anticipates sales in the range of $70-$76 million, with gross margins in the low
to mid-seventies, as a percent of sales. Preliminary estimates for diluted
earnings per share in fiscal 2007 are in the range of $0.17 and $0.31 per share.
The earnings per share guidance for fiscal 2007 includes the impact of
implementing SFAS No. 123(R). The impact of expensing stock-based compensation
per SFAS 123(R) is anticipated to be approximately $0.17 per diluted share for
fiscal year 2007.

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-Q, and
particularly the statements made in the section captioned "Outlook," are
"forward-looking statements" as defined in the Private Securities Litigation
Reform Act of 1995. These forward-looking statements relate to, among other
things, financial projections such as anticipated gross margins, overall
revenue, expected expense levels, anticipated revenue increases and investment
levels.

Forward-looking statements in this 10-Q are based on the Company's 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. Factors that could affect the realization of
forward-looking statements include:
     o    changes in clinical and market acceptance of our products;
     o    changes in the health care industry generally, such as restrictions
          imposed on sales time at interventional labs; consolidation of
          industry participants, cost containment and trends toward managed
          care;
     o    changes in supplier requirements by group purchasing organizations;
     o    unanticipated costs or other difficulties and uncertainties associated
          with lengthy and costly new product development and regulatory
          clearance processes;
     o    changes in governmental laws and regulations;
     o    changes in reimbursement;
     o    the development of new competitive products such as inexpensive
          aspiration devices, combined aspiration/occlusion products and
          compounds that may make our products obsolete;
     o    sudden restrictions in supply of key materials;
     o    the effectiveness of our sales and marketing efforts in
          re-establishing coronary product usage,
     o    our ability to effectively manage new product development timelines,
     o    our ability to effectively manage marketing and investigational device
          exempt clinical trials
     o    our ability to generate suitable clinical registry data to support
          growing use of the AngioJet in coronary applications,
     o    our ability to obtain additional regulatory approvals on a timely
          basis;
     o    our ability to obtain regulatory clearance in new foreign markets; and
     o    our ability to retain and motivate skilled employees, especially for
          sales positions.

Undue reliance should not be placed 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 more
complete discussion of these and other factors that could impact our future
results are set forth under the caption "Forward Looking Statements" immediately
following the cover page of our Annual Report form on Form 10-K for the year
ended July 31, 2005 as filed with the Securities and Exchange Commission on
October 14, 2005.

                                       19
<PAGE>


ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We invest our 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.

Our foreign product sales are in U.S. Dollars ("USD") except for product sales
in Germany, which are in euro's. The German product sales were minimal during
the first nine months of fiscal 2006. We have a foreign bank account in which
the German product sales receipts are deposited and immediately transferred to
the operating bank account in the United States. The balance in the German bank
account was zero as of April 30, 2006.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of disclosure controls and procedures
------------------------------------------------

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

Changes in internal control over financial reporting
----------------------------------------------------

During the fiscal quarter ended April 30, 2006, there has been no change in our
internal control over financial reporting (as defined in Rule 13a-15(f) under
the Exchange Act) that has materially affected, or is likely to materially
affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1 LEGAL PROCEEDINGS

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

ITEM 1A Risk Factors

We disclose risks that effect our operations, and that should be read to
understand the likelihood of achievement of any forward looking statements we
make in this Form 10-Q, under the caption "Forward Looking Statements"
immediately following the cover page of our Annual Report on Form 10-K filed
October 14, 2005. Although we provide a short summary of those risk factors
under the caption "Forward Looking Statements" in Part I, Item 2 of this Form
10-Q, there have been no material changes in the risks effecting our business
since the date of filing our Form 10-K.

                                       20
<PAGE>


ITEM 2 UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

During the three months ended April 30, 2006, no shares of the Company's common
stock were repurchased pursuant to the repurchase program that we publicly
announced on February 23, 2005. This program allows us to repurchase shares
having a value of up to $15,000,000 in open-market transactions through December
2006. As of April 30, 2006 the Company is still authorized to repurchase
$10,547,000 of its common stock.

                                       21
<PAGE>


ITEM 6. EXHIBITS

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 below.

  Exhibit                                Description
--------------------------------------------------------------------------------

    31.1       Certification of the Chief Executive Officer pursuant to Section
               302 of the Sarbanes-Oxley Act of 2002.
    31.2       Certification of the Chief Financial Officer pursuant to Section
               302 of the Sarbanes-Oxley Act of 2002.
    32.1       Certification of the Chief Executive Officer pursuant to Section
               906 of the Sarbanes-Oxley Act of 2002.
    32.2       Certification of the Chief Financial Officer pursuant to Section
               906 of the Sarbanes-Oxley Act of 2002.

                                       22
<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: June 9, 2006                   By: /s/ Robert G. Dutcher
                                         ---------------------------------------
                                         ROBERT G. DUTCHER
                                         Chairman, President and Chief Executive
                                         Officer



DATE: June 9, 2006                   By: /s/ Jules L. Fisher
                                         ---------------------------------------
                                         JULES L. FISHER
                                         Vice President of Finance and Chief
                                         Financial Officer

                                       23
<PAGE>


                                  EXHIBIT INDEX

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 below.

  Exhibit                                Description
--------------------------------------------------------------------------------

    31.1       Certification of the Chief Executive Officer pursuant to Section
               302 of the Sarbanes-Oxley Act of 2002.
    31.2       Certification of the Chief Financial Officer pursuant to Section
               302 of the Sarbanes-Oxley Act of 2002.
    32.1       Certification of the Chief Executive Officer pursuant to Section
               906 of the Sarbanes-Oxley Act of 2002.
    32.2       Certification of the Chief Financial Officer pursuant to Section
               906 of the Sarbanes-Oxley Act of 2002.

                                       24