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 October 31, 2003

|_| 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 (I.R.S. Employer Identification No.)
of incorporation organization)

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

763-780-4555
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)

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

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes _X_ No ___

The number of shares outstanding of the Registrant's Common Stock, $.40 par
value, as of November 30, 2003 was 17,773,087.

POSSIS MEDICAL, INC.

INDEX

PAGE
----
PART I. FINANCIAL INFORMATION

ITEM 1. Financial Statements

Consolidated Balance Sheets, October 31, 2003
and July 31, 2003.............................................................. 3

Consolidated Statements of Income and Comprehensive Income
for the three months ended October 31, 2003 and 2002....................... 4

Consolidated Statements of Cash Flows for the
three months ended October 31, 2003 and 2002 .................................. 5

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

ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations............................................ 10

ITEM 3. Market Risk .................................................................. 17

ITEM 4. Controls and Procedures........................................................ 17

PART II. OTHER INFORMATION

ITEM 6. Exhibits and Reports on Form 8-K............................................... 18

SIGNATURES..................................................................... 19

PART 1 FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

POSSIS MEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
October 31, 2003 July 31, 2003
ASSETS ---------------- -------------

CURRENT ASSETS:
Cash and cash equivalents........................................... $ 6,220,917 $ 4,782,942
Marketable securities............................................... 27,407,934 27,161,223
Trade receivables (less allowance for doubtful
accounts and returns of $472,000 and
$507,000, respectively)........................................ 7,965,373 7,966,394
Inventories......................................................... 4,242,222 4,165,253
Prepaid expenses and other assets................................... 432,939 729,936
Deferred tax asset.................................................. 806,000 806,000
------------- -------------
Total current assets...................................... 47,075,385 45,611,748
PROPERTY AND EQUIPMENT, net.............................................. 3,470,356 3,055,335

DEFERRED TAX ASSET....................................................... 17,924,970 19,098,000
------------- -------------

TOTAL ASSETS............................................................. $ 68,470,711 $ 67,765,083
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:
Trade accounts payable.............................................. $ 1,890,720 $ 1,585,776
Accrued salaries, wages, and commissions................................. 1,703,185 2,777,189
Other liabilities................................................... 2,632,336 2,367,645
------------- -------------

Total current liabilities....................................... 6,226,241 6,730,610

COMMITMENTS AND CONTINGENCIES

SHAREHOLDERS' EQUITY:
Common stock-authorized, 100,000,000 shares
of $0.40 par value each; issued and outstanding,
17,768,710 and 17,757,531 shares, respectively................. 7,107,484 7,103,013
Additional paid-in capital.......................................... 82,943,923 83,743,496
Unearned compensation............................................... (6,000) (15,000)
Accumulated other comprehensive loss................................ (31,000) (100,000)
Retained deficit.................................................... (27,769,937) (29,697,036)
------------- -------------
Total shareholders' equity..................................... 62,244,470 61,034,473
------------- -------------

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY............................. $ 68,470,711 $ 67,765,083
============= =============

See notes to consolidated financial statements.

POSSIS MEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
FOR THE THREE MONTHS ENDED OCTOBER 31, 2003 AND 2002
(UNAUDITED)

2003 2002
------------- -------------

Product sales............................................................... $15,602,288 $12,681,903
Cost of sales and other expenses:
Cost of medical products........................................... 3,819,231 3,388,698
Selling, general and administrative......................................... 6,714,550 5,767,702
Research and development.................................................... 2,127,243 1,152,196
------------- -------------
Total cost of sales and other expenses.............................. 12,661,024 10,308,596
------------- -------------

Operating income............................................................ 2,941,264 2,373,307
Interest income............................................................. 160,352 66,347
Loss on sale of securities.................................................. (18,517) --
------------- -------------
Income before income taxes.................................................. 3,083,099 2,439,654

Provision for income taxes.................................................. 1,156,000 915,000
------------- -------------
Net income.................................................................. 1,927,099 1,524,654

Other comprehensive income, net of tax
Unrealized gains on securities.... 69,000 --
------------- -------------

Comprehensive income $ 1,996,099 $ 1,524,654
============= =============

Net income per common share:
Basic.............................................................. $0.11 $0.09
============= =============
Diluted............................................................ $0.10 $0.08
============= =============
Weighted average number of common shares
assumed outstanding:
Basic.............................................................. 17,777,727 17,278,291
Diluted............................................................ 19,085,281 18,285,859

See notes to consolidated financial statements.

POSSIS MEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED OCTOBER 31, 2003 AND 2002
(UNAUDITED)

2003 2002
------------- -------------

OPERATING ACTIVITIES:
Net income ................................................................. $ 1,927,099 $ 1,524,654
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation........................................................... 412,545 537,828
(Gain) Loss on disposal of assets...................................... (2,571) 34,000
Stock compensation expense............................................. 9,000 19,100
Loss on sale of marketable securities.................................. 18,517 --
Deferred taxes......................................................... 1,131,030 894,600
Increase (decrease) in receivables..................................... 1,021 (688,885)
Increase in inventories................................................ (226,969) (30,186)
Decrease in other current assets....................................... 296,997 411,814
Increase in trade accounts payable..................................... 304,944 140,961
Decrease in accrued expenses and other current liabilities............. (809,313) (10,530)
------------- -------------
Net cash provided by operating activities................................... 3,062,300 2,833,356
------------- -------------
INVESTING ACTIVITIES:
Additions to property and equipment.................................... (679,480) (394,398)
Proceeds from sale of fixed assets..................................... 4,485 --
Proceeds from sale of marketable securities............................ 7,750,915 --
Purchase of marketable securities...................................... (7,905,143) --
------------- -------------
Net cash used in investing activities.................................. (829,223) (394,398)
------------- -------------
FINANCING ACTIVITIES:
Proceeds from issuance of stock and exercise of options and warrants... 682,954 43,704
Repurchase of common stock............................................. (1,478,056) --
------------- -------------
Net cash (used in) provided by financing activities......................... (795,102) 43,704
------------- -------------

INCREASE IN CASH AND CASH EQUIVALENTS....................................... 1,437,975 2,482,662

CASH AND CASH EQUIVALENTS AT BEGINNING OF QUARTER........................... 4,782,942 18,556,663
------------- -------------
CASH AND CASH EQUIVALENTS AT END OF QUARTER................................. $ 6,220,917 $ 21,039,325
============= =============
SUPPLEMENTAL CASH FLOW DISCLOSURE:
Cash paid for income taxes.................................................. $ 24,970 $ 20,400
Inventory transferred to property and equipment............................. -- 47,951

See notes to consolidated financial statements.

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 2003 Annual Report.

2. STOCK OPTIONS

Pursuant to Statement of Financial Accounting Standards (SFAS) No. 123,
Accounting for Stock-Based Compensation, we apply the recognition and
measurement principles of Accounting Principles Board (APB) Opinion No. 25,
Accounting for Stock Issued to Employees, to our stock options and other
stock-based compensation plans.

In accordance with APB Opinion No. 25, compensation cost for stock options
is recognized in income based on the excess, if any, of the quoted market
price of the stock at the grant date of the award or other measurement date
over the amount an employee must pay to acquire the stock. The exercise
price for stock options granted to employees equals the fair market value
of our common stock at the date of grant, thereby resulting in no
recognition of compensation expense.

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.

Three Months Ended
October 31,
2003 2002
---------- -----------

Net income:
Net income - as reported......................... $ 1,927,099 $ 1,524,654
Less estimated stock-based employee
compensation determined under fair
value based method, net of tax.............. (563,000) (762,000)
----------- -----------
Net income - pro forma........................... $ 1,364,099 $ 762,654
=========== ===========
Earnings per common share:
Basic - as reported.............................. $ 0.11 $ 0.09
Less estimated stock-based employee
compensation determined under
fair value based method, net of tax........... (0.03) (0.04)
----------- -----------
Basic - pro forma................................... $ 0.08 $ 0.05
=========== ===========

Diluted - as reported.................................. $ 0.10 $ 0.08
Less estimated stock-based employee
compensation determined under fair
value based method, net of tax................ (0.03) (0.04)
----------- -----------
Diluted - pro forma.............................. $ 0.07 $ 0.04
=========== ===========
Weighted average common shares
outstanding
Basic............................................ 17,777,727 17,278,291
Diluted.......................................... 19,085,281 18,285,859

We estimated the fair values using the Black-Scholes option-pricing model,
modified for dividends and using the following assumptions for the three
months ended October 31, 2003 and 2002, respectively:

2003 2002
--------- ---------

Risk-free rate................................ 4.0-4.6% 3.6-4.3%
Expected dividend yield....................... 0% 0%
Expected stock price volatility............... 61-64% 79-80%
Expected option term.......................... 10 years 10 years
Fair value per option......................... $11.63-14.02 $7.52-10.49

For purposes of determining the pro forma amounts, the fair value of
options is amortized to expense over the option-vesting period in
determining the pro forma impact. The option-vesting period is six months
to four years.

3. INTERIM FINANCIAL STATEMENTS

Operating results for the three months ended October 31, 2003 are not
necessarily indicative of the results that may be expected for the year
ending July 31, 2004.

4. ACCOUNTING PRONOUNCEMENTS

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

In November 2002, the Emerging Issues Task Force (EITF) reached a consensus
on Issue No. 00-21, "Revenue Arrangements with Multiple Deliverables,"
which provides guidance on how to account for arrangements that involve the
delivery or performance of multiple products, services and/or right to use
assets. The provisions of EITF Issue No. 00-21 will apply to revenue
arrangements entered into in fiscal periods beginning after June 15, 2003.
The adoption of EITF Issue No. 00-21 did not have an impact on the
Company's financial statement disclosures and did not have a material
effect on the Company's consolidated balance sheet, results of operations,
or cash flows.

5. MARKETABLE SECURITIES

During the quarter ended April 30, 2003 the Company invested its excess
cash and cash equivalents in a professionally managed portfolio of
marketable securities. All Company securities in this portfolio as of
October 31, 2003 were classified as available-for-sale and consisted
primarily of U.S. government securities and corporate bonds. These
investments are reported at fair value with a net unrealized gain of
approximately $69,000, net of tax, included in other comprehensive income
as of October 31, 2003.

6. INVENTORIES

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

October 31, July 31,
2003 2003
----------- -----------

Finished goods............................. $ 1,631,091 $ 1,866,397
Work-in-process............................ 1,067,152 884,451
Raw materials.............................. 1,543,979 1,414,405
----------- -----------
$ 4,242,222 $ 4,165,253
=========== ===========

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:

October 31, July 31,
2003 2003 Life
----------- ----------- ------------

Leasehold improvements............................. $ 1,540,965 $ 1,540,965 10 years
Equipment.......................................... 7,360,601 7,148,702 3 to 10 years
Assets in construction............................. 962,601 503,722 N/A
9,863,627 9,193,389
Less accumulated depreciation...................... 6,393,271 6,138,054

Property and equipment - net....................... $ 3,470,356 $ 3,055,335

8. SEGMENT AND GEOGRAPHIC INFORMATION AND CONCENTRATION OF CREDIT RISK

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

Total revenues inside the United States and outside the United States are
as follows:

Three Months Ended
------------------------------
October 31, October 31,
2003 2002
------------ ------------

United States...................................... $ 15,310,071 $ 12,399,421
Outside United States.............................. 292,217 282,482
------------ ------------
Total revenues..................................... $ 15,602,288 $ 12,681,903
============ ============

9. 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, stock
warrants and shares issuable under the employee stock purchase plan.

10. COMMON STOCK

During the three months ended October 31, 2003, stock options and warrants
for the purchase of 101,682 shares of the Company's common stock were
exercised at prices between $2.22 and $17.45 per share.

During the three months ended October 31, 2003, the Company issued 497 of
common stock shares in connection with its employee stock purchase plan.

During the three months ended October 31, 2003, the Company repurchased
91,000 shares in the public market at prices between $15.65 and $16.81 per
share.

11. ACCRUED WARRANTY COSTS

The Company estimates the amount of warranty claims on product sold 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 the
Company's product warranty liability:

Accrued warranty costs at July 31, 2003......... $146,500
Payments made for warranty costs................ (75,600)
Accrual for product costs....................... 75,600
--------
Accrued warranty costs at October 31, 2003...... $146,500
========

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

Forward-Looking Statements

Certain statements made in Management's Discussion and Analysis of Financial
Condition and Results of Operations and elsewhere in this Form 10-Q are
"forward-looking statements" as defined in the Private Securities Litigation
Reform Act of 1995. Such statements can be identified by the use of terminology
such as "anticipate," "believe," "could," "estimate," "expect," "forecast,"
"intend," "may," "plan," "possible," "project," "should," "will," and similar
words or expressions. Our forward-looking statements relate to the Company's
ability to increase sales of disposable product and capital equipment in the
face of new product introductions from competitors; its ability to obtain
additional regulatory approvals on a timely basis; the ability to obtain
regulatory clearance in new foreign markets; customer responses to the Company's
marketing strategies; its ability to retain and motivate skilled employees,
especially for sales positions; its ability to expand the sales force; deferred
tax asset valuation allowance; its outlook including future revenue, earnings,
earnings per share and expense levels; future equity financing needs; and the
Company's ability to develop new products and enhance existing ones. These
forward-looking statements are based on current expectations and assumptions and
entail various risks and uncertainties that could cause actual results to differ
materially from those expressed in such forward-looking statements. Certain
factors that may affect whether these anticipated results occur include clinical
and market acceptance of our products; factors affecting the health care
industry such as restricting sales time at interventional labs; consolidation,
cost containment due to rising expenditures on drug-eluting stents and trends
toward managed care; changes in supplier requirements by group purchasing
organizations; unanticipated costs or other difficulties and uncertainties
associated with lengthy and costly new product development and regulatory
clearance processes; changes in governmental laws and regulations; changes in
reimbursement; the development of new competitive products such as filterwires
and compounds that may make our products obsolete; sudden restrictions in supply
of key materials; and deterioration of general market and economic conditions.

We also caution you not to place undue reliance on forward-looking statements,
which speak only as of the date made. Any or all forward-looking statements in
this report and in any other public statements we make may turn out to be
inaccurate or false. They can be affected by inaccurate assumptions we might
make or by known or unknown risks and uncertainties. Except as required by
federal securities laws, we undertake no obligation to update any
forward-looking statement. A discussion of these and other factors that could
impact the Company's future results are set forth in the risk factors included
in Exhibit 99.1 to the Company's Form 10-K for the year ended July 31, 2003 as
filed with the Securities and Exchange Commission.

Critical Accounting Policies

The consolidated financial statements include accounts of the Company and all
wholly-owned subsidiaries. The preparation of financial statements in conformity
with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions in certain circumstances
that affect amounts reported in the accompanying consolidated financial
statements and related footnotes. In preparing these financial statements,
management has made its best estimates and judgments of certain amounts included
in the financial statements, giving due consideration to materiality. The
Company's most critical accounting policies are those described below.
Application of these accounting policies involves the exercise of judgment and
use of assumptions as to future uncertainties and, as a result, actual results
could differ from these estimates.

Revenue Recognition

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

Allowance for Returns

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

Allowance for Doubtful Accounts

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

Inventories

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

Warranty Reserve

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

Results of Operations

Three Month Periods Ended October 31, 2003 and 2002

Total product sales for the three months ended October 31, 2003 increased
$2,920,000, or 23%, to $15,602,000 compared to $12,682,000 in the first quarter
of 2002. The Company recorded net income for the quarter ended October 31, 2003
of $1,927,000, or $0.10 per diluted share. This compared to a net income of
$1,525,000, or $0.08 per diluted share, for the quarter ended October 31, 2002.

Revenue - AngioJet System

U.S. AngioJet System revenue for the three months ended October 31, 2003
increased $2,911,000, or 23%, to $15,310,000 compared to $12,399,000 in the
first quarter of 2002. The Company markets the AngioJet(R) Rheolytic(TM)
Thrombectomy System (AngioJet System) worldwide. The AngioJet System consists of
a drive unit (capital equipment), which powers a disposable pump and a family of
disposable catheters, each aimed at a specific indication for use. The main
factors in the revenue increase were increased sales resulting from continuing
customer acceptance of our expanded and improved coronary and peripheral product
lines and the expansion of our direct sales force.

The Company has expanded its product line with the introduction of the AVX(TM)
catheter in July 2003 for the removal of blood clots in av-access grafts and the
Xpeedior(R) Plus 120 catheter in August 2002 to remove blood clots in peripheral
arteries greater than or equal to 3mm in diameter.

The AVX catheter is an improved version of our Xpeedior 60 and designed
specifically for the av-access market. The new AVX catheter is a slightly
shorter length catheter with a new hub design and hemostasis valve that is
easier to use. In addition it is 25% more powerful than the Xpeedior 60, putting
more thrombectomy action in the hands of the physician. The Xpeedior Plus 120
catheter is an improved version of our Xpeedior 100. Compared to the Xpeedior
100, the new catheter's longer length will allow the physician to treat more
distal vessels. The Xpeedior Plus 120 also has the added features of dual marker
bands, a braided shaft and a sleek tapered tip for greater ease of use. In
October 2003, the Company released its XMI Rapid Exchange catheter (XMI RX) in a
limited beta site test for peripheral arterial use in the U.S. This new product
launch will put our proven XMI technology into a configuration preferred by many
physicians, increasing our utility and acceptance in the interventional lab.

In addition, the Company's Xpeedior catheters, the XMI(R) (XMI) catheter and
XVG(R) catheter continue to have increased acceptance by physicians. The XVG,
XMI and Xpeedior catheters feature the Company's proprietary Cross-Stream(R)
Technology. This exclusive technology platform intensifies the action at the tip
of the catheter, which doubles the clot removal rate and triples the treatable
vessel size compared to other available mechanical thrombectomy devices on the
market today. In addition, Cross-Stream Technology has been able to deal more
effectively than previous catheters with "mural thrombus," the older, more
organized material that adheres to vessel walls and can complicate patient
results.

As of October 31, 2003, the Company had a total of 1,108 domestic drive units in
the field, compared to 909 drive units at October 31, 2002, and 1,062 units as
of July 31, 2003. During the three-month periods ended October 31, 2003 and
2002, the Company sold approximately 11,500 and 9,500 catheters, respectively.
This was a 21% increase in unit catheter sales in the current year from the same
prior year period. The average catheter utilization rate per installed domestic
drive unit was 10.2 in the first quarter, compared to a rate of 10.6 in the same
prior year period, and compared to a rate of 10.9 in the fourth quarter of
fiscal 2003. The reduction in average catheter utilization rate is due to the
continued strong demand in the expansion of drive units in the field. The
Company sold 50 and 46 U.S. domestic drive units during the three months ended
October 31, 2003 and 2002, respectively.

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

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

Foreign sales of the AngioJet System for the three months ended October 31,
2003 and 2002 were $292,000 and $282,000, respectively. The Company has recently
expanded the sales territory of one of its existing European distributors to
expand product penetration in Europe. The limited foreign sales are primarily
due to cost constraints in overseas markets. In foreign markets, where public
sector funds are more crucial for hospital operation, Euro devaluations
generated higher public sector deficits, which, in turn, forced reductions in
hospital procedure and equipment budgets. In Japan, the Company Is pursuing a
regulatory strategy that utilizes the Company's U.S. coronary clinical trial
results and extensive body of published clinical studies, which is expected to
result in regulatory approval for the AngioJet System with the XMI catheter in
treating coronary thrombus. Currently, the Japanese Ministry of Health and
Welfare (MHW) is reviewing the Company's regulatory approval submission. The
Company has responded to two rounds of questions and is waiting for a response
to the Company's most recent answers. Once the Company receives regulatory
approval, the Company will apply for an appropriate national medical insurance
reimbursement. The timing of the regulatory approval and reimbursement decision
is dependent upon the Japanese MHW response to Company submissions.

Cost of Medical Products

Cost of medical products increased $431,000 to $3,819,000 in the three month
period ended October 31, 2003 over the same period in the previous year. This
increase is primarily due to the significant growth in the U.S. AngioJet System
product sales. Medical product gross margins improved by $2,490,000 for the
three months ended October 31, 2003 over the same period in the previous year.
This resulted in gross margins of 76% and 73%, respectively, for the three
months ended October 31, 2003 and 2002. The improvement in gross margins was
driven by higher volumes of the XMI, XVG and Xpeedior catheters in the three
months ended October 31, 2003 as compared to same period in the previous fiscal
year. The Company believes that gross margins will be in the mid seventies, as a
percent of sales, for the remainder of fiscal 2004.

Selling, General and Administrative Expense

Selling, general and administrative expense increased $947,000 for the three
months ended October 31, 2003, compared to the same period in the previous year.
The primary factors in the expense increase for the three months ended October
31, 2003 were the $450,000 additional expenses associated with the growth in the
sales force versus a year ago, outside services of $218,000, $108,000 of patient
enrollment expenses associated with marketing clinical studies, sales materials
of $85,000 and convention expense of $78,000. This was partially offset by
reduction of computer and software depreciation of $116,000.

Research and Development Expense

Research and development expense increased $975,000, or 85%, to $2,127,000, in
the three months ended October 31, 2003, when compared to the same period in the
prior year. The increase was largely due to the timing of expenses incurred for
various R&D projects including the new drive unit, rapid exchange catheter and
the distal occlusion guidewire.

Interest Income

Interest income increased $94,000 in the three months ended October 31, 2003 to
$160,000, when compared to the same period in the prior year. The increase is
due to the investing of excess cash in an enhanced cash management portfolio of
marketable securities. The Company expects interest income to increase in fiscal
2004 as compared to fiscal 2003 as cash is generated from operations.

Provision For Income Taxes

The Company recorded a provision for income taxes of $1,156,000 and $915,000 or
37.5% of income before income taxes for the three months ended October 31, 2003
and 2002, respectively.

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

Liquidity and Capital Resources

The Company's cash, cash equivalents and marketable securities totaled
approximately $33,629,000 at October 31, 2003 versus $31,944,000 at July 31,
2003.

The $1,685,000 net increase in cash, cash equivalents and marketable securities
in the most recent three-month period was primarily due to the net cash provided
by operating activities of $3,062,000. Net cash provided by operating activities
was primarily due to the net income of $1,927,000, depreciation of $413,000, a
decrease in deferred tax asset of $1,131,000, a decrease in other assets of
$297,000 and an increase in accounts payables of $304,000. This net cash
provided by operating activities was partially offset by an increase in
inventory of $227,000 and a decrease in accrued liabilities of $809,000.
Depreciation includes company-owned drive units at customer locations, as well
as property and equipment. The decrease in the deferred tax asset was due to the
utilization of the net operating loss carryovers to offset current taxes
payable. The decrease in other assets was due to the reduction of prepaid
insurance. The increase in accounts payable was due to the timing of the payment
of accounts payables. Inventory was increased to meet the increase in demand of
the AngioJet System. The increase in accrued liabilities was due to the timing
of the payments for payroll and other accrued liabilities. This increase was
partially offset by the payment of fiscal 2003 corporate incentives in September
2003. Cash used in investing activities was $829,000. This includes the net
purchase of marketable securities of $154,000 and the purchase of $679,000 of
property and equipment. Net cash used by financing activities was $795,000,
which resulted from the repurchase of 91,000 shares of the Company's stock in
the open market transactions for $1,478,000, offset by the cash received in
connection with the exercise of stock options and warrants for $683,000.

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

The Company announced that its Board of Directors has authorized a common share
repurchase program for up to an additional $4 million of its common shares to
offset potential dilution from employee stock options. Under the repurchase
plan, Possis may buy back shares of its outstanding stock from time to time in
the open market, commencing immediately and extending until July 31, 2004. The
timing of any purchases and the number of shares to be purchased will depend on
a number of factors, including management's assessment of market conditions and
the Company's cash position. The stock repurchase program does not include any
specific price targets and may be suspended or terminated at any time.

Off-Balance Sheet Obligations

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

Outlook

The Company expects that overall revenue from the AngioJet System, primarily in
the United States, will be in the range of $70 million to $73 million in fiscal
2004. Gross margin for fiscal 2004 is expected to be in the mid-seventies, as a
percent of total sales. The Company expects selling, general and administrative
expenses to increase in fiscal 2004 due to anticipated growth in revenue and an
increase in marketing scientific studies. Research and development expenditures
are expected to increase from the fiscal 2003 level as the Company completes
development of projects and invests in development of new AngioJet System
thrombectomy applications and related products including clinical trials. The
Company expects net income per diluted share for the full year in the range of
$0.54 to $0.62. The quarterly revenue progression should build steadily through
the year from a low in the first quarter, with the profile being affected by the
timing of the rapid exchange catheter introduction and the timing of various R&D
expenses including clinical trials.

The Company expects that increasing working capital investments in trade
receivables and inventory will be required to support growing product sales. The
Company's primary source of cash is from its product sales. Collections of trade
receivables resulting from the product sales are reviewed monthly to ensure that
the customers are paying in a timely manner. The Company's use of cash is for
payment of normal trade accounts payable, capital equipment purchases, employee
compensation, stock repurchases and other normal business expenses, all on terms
that are customary in the industry. The Company is current with its vendors.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company invests its excess cash in a professionally managed, institutional
fixed income portfolio of short duration. The market risk on a diversified
portfolio of relatively short duration is minimal, while enhancing returns above
money market levels.

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

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

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

During the fiscal quarter ended October 31, 2003, there have not been any
significant changes in our internal control over financial reporting (as defined
in Rule 13a-15(f) or 15d-15(f) under the Exchange Act) that have materially
affected, or are reasonably likely to materially affect, our internal control
over financial reporting.

PART II. OTHER INFORMATION

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 below.

Exhibit Description
____________________________________________________________________________________________________________________________

3.1 Articles of incorporation as amended and restated to date (incorporated by reference to
Exhibit 3.1 of the Company's Annual Report on Form 10-K for the fiscal year ended
July 31, 1994).

3.2 Bylaws as amended and restated to date (incorporated by reference to Exhibit 3.2 of
the Company's Annual Report on Form 10-K for the fiscal year ended July 31, 1999).

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.

(b) Reports on Form 8-K

The Company filed a Report on Form 8-K on August 8, 2003 under Item 5 reporting
that the Company's Board of Directors approved a Share Repurchase Program that
authorizes the purchase of $4 million shares of Company stock from time to time
in open market transactions.

The Company filed a Report on Form 8-K on August 15, 2003 under Item 5 reporting
the closing of the TIME 1 Clinical Trial for Ischemic Stroke.

The Company filed a Report on Form 8-K on September 17, 2003 under Item 12
reporting operating results for its fourth quarter and fiscal year ended July
31, 2003 earnings.

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: December 12, 2003 BY: /s/
---------------------------
ROBERT G. DUTCHER
Chairman, President and
Chief Executive Officer

DATE: December 12, 2003 BY: /s/
---------------------------
EAPEN CHACKO
Vice President of Finance
and Chief Financial Officer