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 January 31, 2004

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

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 (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 short 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 March 9, 2004 was 18,068.517.

POSSIS MEDICAL, INC.

INDEX

PAGE
----

PART I. FINANCIAL INFORMATION

ITEM 1. Financial Statements

Consolidated Balance Sheets, January 31, 2004
and July 31, 2003.............................................. 3

Consolidated Statements of Income and Comprehensive Income for
the three and six months ended January 31, 2004 and 2003....... 4

Consolidated Statements of Cash Flows for the
six months ended January 31, 2004 and 2003 .................... 5

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

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

ITEM 3. Quantitative and Qualitative Disclosures about
Market Risk ...................................................17

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

PART II. OTHER INFORMATION

ITEM 4. Submission of Matters to a Vote of Security Holders............18

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

SIGNATURES.....................................................20

PART 1 FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

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

January 31, 2004 July 31, 2003
---------------- -----------------
ASSETS

CURRENT ASSETS:

Cash and cash equivalents......................................... $ 7,075,316 $4,782,942
Marketable securities............................................. 29,676,523 27,161,223
Trade receivables (less allowance for doubtful
accounts and returns of $572,000 and
$507,000, respectively)......................................... 9,229,152 7,966,394
Inventories....................................................... 4,828,051 4,165,253
Prepaid expenses and other assets................................. 698,161 729,936
Deferred tax asset................................................ 806,000 806,000
-------------- -------------

Total current assets.................................... 52,313,203 45,611,748

PROPERTY AND EQUIPMENT, net............................................ 3,836,418 3,055,335

DEFERRED TAX ASSET..................................................... 16,083,970 19,098,000
-------------- --------------

TOTAL ASSETS........................................................... $72,233,591 $67,765,083
============== ==============

LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:
Trade accounts payable............................................ $ 1,550,306 $ 1,585,776
Accrued salaries, wages, and commissions.......................... 2,236,920 2,777,189
Other liabilities................................................. 2,825,158 2,367,645
-------------- --------------
Total current liabilities................................ 6,612,384 6,730,610

COMMITMENTS AND CONTINGENCIES

SHAREHOLDERS' EQUITY:
Common stock-authorized, 100,000,000 shares
of $0.40 par value each; issued and outstanding,
17,825,181 and 17,757,531 shares, respectively................. 7,130,072 7,103,013
Additional paid-in capital............................................. 83,124,771 83,743,496
Unearned compensation.................................................. (33,000) (15,000)
Accumulated other comprehensive income (loss).......................... 51,000 (100,000)
Retained deficit....................................................... (24,651,636) (29,697,036)
-------------- -----------
Total shareholders' equity................................... 65,621,207 61,034,473
-------------- -----------

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY............................. $72,233,591 $ 67,765,083
============== ==============

See notes to consolidated financial statements.

POSSIS MEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
FOR THE THREE AND SIX MONTHS ENDED JANUARY 31, 2004 AND 2003
(UNAUDITED)

Three Months Ended Six Months Ended
-------------------------------- --------------------------------
Jan. 31, 2004 Jan. 31, 2003 Jan. 31, 2004 Jan. 31, 2003
-------------- ------------- ------------- -------------

Product sales.............................................. $ 17,448,677 $14,321,660 $33,050,965 $ 27,003,563

Cost of sales and other expenses:
Cost of medical products.............................. 3,967,145 3,853,761 7,786,376 7,242,459
Selling, general and administrative................... 6,659,517 5,571,717 13,374,067 11,339,419
Research and development.............................. 1,978,868 1,539,385 4,106,111 2,691,581
-------------- ----------- ----------- ------------
Total cost of sales and other expenses.......... 12,605,530 10,964,863 25,266,554 21,273,459
-------------- ----------- ----------- ------------

Operating income ......................................... 4,843,147 3,356,797 7,784,411 5,730,104
Loss on sale of securities............................ (15,516) -- (34,033) --
Interest income....................................... 160,570 61,369 320,922 127,716
-------------- ----------- ----------- ------------

Income before income taxes................................. 4,988,201 3,418,166 8,071,300 5,857,820
Provision for income taxes................................. 1,869,900 1,282,000 3,025,900 2,197,000
-------------- ----------- ----------- ------------

Net income ............................................... 3,118,301 2,136,166 5,045,400 3,660,820

Other comprehensive income, net of tax:
Unrealized gains on securities........................ 82,000 -- 151,000 --
-------------- ----------- ----------- ------------

Comprehensive income ...................................... $ 3,200,301 $ 2,136,166 $ 5,196,400 $ 3,660,820
============== =========== ============ ============

Weighted average number of common shares outstanding:
Basic............................................. 17,774,155 17,358,386 17,775,941 17,318,338
Diluted........................................... 19,163,894 18,960,549 19,109,416 18,612,384

Net income per common share:
Basic............................................. $0.18 $0.12 $0.28 $0.21
===== ===== ===== =====
Diluted........................................... $0.16 $0.11 $0.26 $0.20
===== ===== ===== =====
See notes to consolidated financial statements.

POSSIS MEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JANUARY 31, 2004 AND 2003
(UNAUDITED)

2004 2003
------------- --------------
OPERATING ACTIVITIES:

Net income...................................................................... $ 5,045,400 $ 3,660,820
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation.................................................................... 844,159 1,066,493
(Gain) loss on asset disposal................................................... (12,525) 9,388
Stock compensation expense...................................................... 123,646 142,050
Loss on sale of marketable securities........................................... 34,033 --
Deferred taxes.................................................................. 2,924,030 2,038,050
Increase in trade receivables................................................... (1,262,758) (944,729)
Increase in inventories......................................................... (953,798) (204,578)
Decrease in other assets........................................................ 31,775 514,225
Decrease in trade accounts payable.............................................. (35,470) (60,461)
Decrease in accrued and other liabilities....................................... (82,756) (260,388)
--------------- ----------------
Net cash provided by operating activities....................................... 6,655,736 5,960,870

INVESTING ACTIVITIES:
Additions to property and equipment............................................. (1,336,087) (615,239)
Proceeds from sale of fixed assets.............................................. 14,370 28,075
Proceeds from sale of marketable securities..................................... 11,914,534 --
Purchase of marketable securities............................................... (14,222,867) --
--------------- ----------------
Net cash used in investing activities........................................... (3,630,050) (587,164)

FINANCING ACTIVITIES:
Proceeds from issuance and exercise of options and warrants..................... 2,060,994 2,539,663
Repurchase of common stock (2,794,306) (140,978)
--------------- ----------------
Net cash (used in) provided by financing activities....................... (733,312) 2,398,685
--------------- ----------------

INCREASE IN CASH AND CASH EQUIVALENTS .......................................... 2,292,374 7,772,391
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD................................ 4,782,942 18,556,663
--------------- ----------------

CASH AND CASH EQUIVALENTS AT END OF PERIOD...................................... $ 7,075,316 $ 26,329,054
=============== ================

SUPPLEMENTAL CASH FLOW DISCLOSURE:
Cash paid for income taxes...................................................... $ 101,870 $ 161,450
Issuance of restricted stock.................................................... 36,000 36,000
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 Six Months Ended
January 31, January 31,
2004 2003 2004 2003
------------ ----------- ---------- ----------

Net income:
Net income - as reported......................... $3,118,301 $2,136,166 $5,045,400 $3,660,820
Less estimated stock-based employee
compensation determined under fair
value based method, net of tax.............. (738,000) (724,000) (1,301,000) (1,486,000)
------------ ----------- ---------- -----------
Net income - pro forma........................... $2,380,301 $1,412,166 $3,744,400 $2,174,820
========== ========== ========== ==========
Earnings per common share:
Basic - as reported.............................. $0.18 $0.12 $0.28 $0.21
Less estimated stock-based employee
compensation determined under
fair value based method, net of tax........... (0.05) (0.04) (0.07) (0.08)
----- ----- ----- -----
Basic - pro forma................................ $0.13 $0.08 $0.21 $0.13
===== ===== ===== =====

Diluted - as reported............................ $0.16 $0.11 $0.26 $0.20
Less estimated stock-based employee
compensation determined under fair
value based method, net of tax................ (0.04) (0.04) (0.06) (0.08)
---- ---- ----- -----
Diluted - pro forma.............................. $0.12 $0.07 $0.20 $0.12
===== ===== ===== =====
Weighted average common shares
outstanding
Basic............................................ 17,774,155 17,358,386 17,775,941 17,318,338
Diluted.......................................... 19,163,894 18,960,549 19,109,416 18,612,384

We estimated the fair values using the Black-Scholes option-pricing model,
modified for dividends and using the following assumptions:

2004 2003
---------------- -----------------
Risk-free rate..................... 4.0-4.6% 3.6-4.3%
Expected dividend yield............ 0% 0%
Expected stock price volatility.... 59-64% 72-80%
Expected option term............... 10 years 10 years
Fair value per option.............. $11.85-14.02 $7.52-14.78

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 (see Note 4).

3. INTERIM FINANCIAL STATEMENTS

Operating results for the three and six month periods ended January 31,
2004 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
Interpretation No. 46, "Consolidation of Variable Interest Entities" ("FIN
No. 46"), an interpretation of Accounting Research Bulletin No. 51,
"Consolidated Financial Statements." FIN No. 46 prescribes how to identify
variable interest entities and how an enterprise assesses its interests in
a variable interest entity to decide whether to consolidate that entity.
This interpretation requires existing unconsolidated variable interest
entities to be consolidated by their primary beneficiaries if the entities
do not effectively disperse risks among parties involved. FIN 46 was
scheduled to be effective for variable interest entities created after
January 31, 2003. On December 24, 2003, the FASB published a revision to
FIN No. 46 ("FIN No. 46( R )"). FIN No. 46(R) clarifies certain provisions
of FIN No. 46 and exempts certain entities from its requirements. For
interests in variable interest entities acquired prior to January 31, 2003,
the provisions of FIN No. 46(R) will be applied on March 31, 2004. The
Company does not anticipate that the adoption of FIN No. 46 and FIN No.
46(R) will result in the Company consolidating variable interest entities
or providing disclosures on variable interest entities.

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 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 securities in this portfolio as of January 31,
2004 were classified as available-for-sale and consisted primarily of U.S.
government securities and corporate bonds. These investments are reported
at fair value, and with a net unrealized gain of approximately $82,000 and
$151,000 respectively, net of tax, for the three and six months ended
January 31, 2004 is included within other comprehensive income. The net
unrealized gain included in shareholders' equity as of January 31, 2004 was
$51,000, 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:

January 31, July 31,
2004 2003
-------------- --------------
Finished goods.............. $ 1,919,752 $ 1,866,397
Work-in-process............. 1,211,627 884,451
Raw materials............... 1,696,672 1,414,405
-------------- --------------
$ 4,828,051 $ 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:

January 31, July 31,
2004 2003 Life
------------ ------------- -------------

Leasehold improvements.............. $ 1,540,965 $ 1,540,965 10 years
Equipment........................... 7,831,269 7,148,702 3 to 10 years
Assets in construction.............. 1,147,931 503,722 N/A
------------ -------------
10,520,165 9,193,389
Less accumulated depreciation....... 6,683,747 6,138,054
------------ -------------

Property and equipment - net........ $ 3,836,418 $ 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 cardiovascular medical devices. The Company
evaluates revenue performance based on the worldwide revenues of each major
product line and profitability based on an enterprise-wide basis due to
shared infrastructures to make operating and strategic decisions.

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

Three Months Ended Six Months Ended
------------------------------------- ---------------------------------------
Jan. 31 Jan. 31 Jan. 31 Jan. 31
2004 2003 2004 2003
----------------- ----------------- --------------- -----------------

United States......... $ 17,008,188 $ 14,082,151 $ 32,318,259 $ 26,481,572
Non-United States..... 440,489 239,509 732,706 521,991
----------------- ----------------- --------------- -----------------
Total revenues $ 17,448,677 $ 14,321,660 $ 33,050,965 $ 27,003,563
================= =============== =================

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 six months ended January 31, 2004, stock options and warrants
for the purchase of 202,921 shares of the Company's common stock were
exercised at prices between $2.22 and $17.50 per share.

During the six months ended January 31, 2004, the Company issued 24,445
shares in connection with its employee stock purchase plan.

During the six months ended January 31, 2004, the Company issued 1,884
shares of restricted stock to the outside members of the Board of
Directors.

During the six months ended January 31, 2004, the Company repurchased
161,600 shares in the public market at stock prices between $15.65 and
$19.29 per share.

11. ACCRUED WARRANTY COSTS

The Company estimates the amount of warranty claims on sold product that
may be incurred based on current and historical data. The actual warranty
expense could differ from the estimates made by the Company based on
product performance. 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................... (167,200)
Accrual for product costs.......................... 167,200
--------
Accrued warranty costs at January 31, 2004......... $146,500
========

12. SUBSEQUENT EVENTS

Effective February 1, 2004 the Company entered into a Supplemental
Executive Retirement Deferred Compensation Agreement (SERP) with the
Company's Chief Executive Officer (CEO). The Agreement requires the Company
to establish an Account on behalf of the CEO and to fund it yearly until
the CEO reaches 65 years of age or early retirement, whichever comes first.
The estimated yearly funding amount is $202,805 for seven years. The target
benefit is an annual benefit , for a ten year period, equal to one-half of
the CEO's Base Compensation at the time benefits become payable under the
SERP (see Exhibit 10.1).

The Company signed an operating lease for additional office and warehouse
space in February 2004. The lease is effective May 2004 and expires April
2009. Future yearly minimum lease payments are approximately $116,000 to
$130,000 a year for five years (see Exhibit 10.2).

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 the large and growing cardiovascular and vascular treatment markets.
The AngioJet(R) Rheolytic(TM) Thrombectomy System (AngioJet System) is marketed
worldwide for blood clot removal from native coronary arteries, leg arteries,
coronary bypass grafts and AV dialysis access grafts. 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.

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
introduction of 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 catheter 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 catheter, the new catheter's increased length will allow the
physician to treat more distal vessels. The Xpeedior Plus 120 catheter also has
the added features of dual marker bands, a braided shaft and a sleek tapered tip
for greater ease of use. In December 2003, the Company released its XMI(R) Rapid
Exchange catheter (XMI RX) in a limited market release for peripheral arterial
use in the U.S. The Company released the XMI RX catheter to the full market in
February 2004. 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 catheter and XVG(R) (XVG)
catheter continue to gain increased acceptance by physicians. The XVG, XMI and
Xpeedior catheters feature the Company's patented 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.

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.

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 on assumptions that are believed to be reasonable under
the circumstances. Management, on a quarterly basis, evaluates the adequacy of
the allowance for returns. Management believes the amount of the allowance for
returns is appropriate; however, actual returns incurred could differ from the
original estimate, requiring adjustments to the allowance.

Allowance for Doubtful Accounts

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 and Six Month Periods Ended January 31, 2004 and 2003

Total product sales for the three months ended January 31, 2004 increased
$3,127,000, or 22%, to $17,449,000 compared to $14,322,000 for the comparable
period in fiscal 2003. Total product sales for the six months ended January 31,
2004 increased $6,047,000, or 22%, to $33,051,000 compared to $27,004,000 for
the comparable period in fiscal 2003. The Company recorded net income for the
quarter ended January 31, 2004 of $3,118,000, or $0.16 per diluted share,
compared to net income of $2,136,000, or $0.11 per diluted share, in the
comparable quarter in 2003. For the six months ended January 31, 2004, the
Company recorded net income of $5,045,000 or $0.26 per diluted share, compared
to net income of $3,661,000, or $0.20 per diluted share, in the same period in
2003.

Revenue - AngioJet System

U.S. AngioJet System revenue for the three months ended January 31, 2004
increased 21% to $17,001,000 from $14,082,000 for the same period in 2003. U.S.
AngioJet System revenue for the six months ended January 31, 2004 increased 22%
to $32,311,000 from $26,482,000 for the same period in 2003. The main factors in
the revenue increase were increased sales resulting from continuing customer
acceptance of our expanded and improved coronary and peripheral catheter product
lines and the expansion of our direct sales force.

As of January 31, 2004, the Company had a total of 1,168 domestic drive units in
the field, compared to 953 drive units at January 31, 2003, and 1,108 units as
of October 31, 2003. During the three month period ended January 31, 2004, the
Company's catheter sales increased approximately 23% to approximately 12,800
catheters versus approximately 10,400 catheters in the same prior year period.
During the six month period ended January 31, 2004, the Company's catheter sales
increased approximately 22% to approximately 24,200 catheters versus
approximately 19,900 catheters in the same prior year period. The average
catheter utilization rate per installed domestic drive unit was 10.8 in the
second quarter of fiscal 2004, compared to a rate of 10.9 in the same prior year
period, and compared to a rate of 10.2 in the first quarter of fiscal 2004. The
Company sold 51 and 106 drive units during the three and six months ended
January 31, 2004, respectively, compared to 63 and 117 drive units in the same
periods in the prior year, respectively.

Foreign sales of the AngioJet System for the three and six month periods ended
January 31, 2004 were $440,000 and $733,000, respectively. This compared to
foreign sales of the AngioJet System of $240,000 and $522,000, respectively, for
the same periods the previous year. The Company has recently expanded the sales
territory of one of its existing European distributors to expand product
penetration in Europe. Limited foreign sales are primarily due to cost
constraints in overseas markets. In European 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. 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 the
Company's submissions.

Cost of Medical Products

Cost of medical products increased $113,000 to $3,967,000 in the three month
period ended January 31, 2004 over the same period in the previous year, and
increased $544,000 to $7,786,000 for the six month period ended January 31, 2004
over the same period in the previous year. These increases are primarily due to
the significant growth in the U.S. AngioJet System product sales.

For the three months ended January 31, 2004, gross profit improved by $3,014,000
to $13,482,000 over the same period in the previous year. This resulted in a
gross profit margin of 77% as a percentage of product sales. Gross margins
improved $5,504,000 to $25,265,000, or 76% as a percentage of product sales, for
the six month period ended January 31, 2004 over the same period in the previous
year. This compares to gross margins as a percentage of product sales of 73% for
each of the three and six month periods ended January 31, 2003. The improvement
in gross margins was driven by higher volumes of the XMI, XVG and Xpeedior
catheters and an improvement in the long and middle catheter product mix in the
three and six months ended January 31, 2004 as compared to the same period in
the previous fiscal year. This was offset by the impact of higher international
sales versus the prior year period. The Company believes that gross margins as a
percent of sales will be in the mid seventies for the remainder of fiscal 2004.

Selling, General and Administrative Expense

Selling, general and administrative expense increased $1,088,000 to $6,660,000
for the three months ended January 31, 2004 and increased $2,035,000 to
$13,374,000 for the six months ended January 31, 2004, compared to the same
periods in the previous year. The primary factors in the expense increase for
the three months ended January 31, 2004 were the $340,000 additional expenses
associated with the growth in the sales force, increased sales incentives of
$112,000, increased overall compensation and fringe benefits of $262,000,
increased patient enrollment and outside service expenses of $232,000 associated
with marketing clinical studies and increased marketing fees of $149,000 paid to
our purchasing groups. This expense increase was partially offset by reduction
of computer and software depreciation of $119,000. The primary factors for the
expense increase for the six months ended January 31, 2004 were the $675,000
additional expenses associated with the growth in the sales force, increased
sales incentives of $181,000, increased overall compensation and fringe benefits
of $440,000, increased patient enrollment and outside service expenses of
$398,000 associated with marketing clinical studies, increased marketing fees of
$151,000 paid to our purchasing groups and increased outside services of
$240,000 due to the overall increase in sales volume. This increase was
partially offset by a reduction of computer and software depreciation of
$235,000 and a reduction in health insurance of $138,000.

Research and Development Expense

Research and development expense increased $439,000 to $1,979,000, in the three
months ended January 31, 2004, when compared to the same period in the prior
year. Research and development expense increased $1,415,000 to $4,106,000 in the
six months ended January 31, 2004. The increases were largely due to the timing
of expenses incurred for various research and development projects including the
new drive unit, rapid exchange catheter, the distal occlusion guidewire and the
power pulse spray projects.

Interest Income

Interest income increased $99,000 in the three months ended January 31, 2004 to
$161,000, when compared to the same period in the prior year. Interest income
increased $193,000 in the six months ended January 31, 2004, 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 $1,870,000 and $1,282,000
or 37.5% of income before income taxes for the three months ended January 31,
2004 and 2003, respectively. The Company recorded a provision for income taxes
of $3,026,000 and $2,197,000 or 37.5% of income before income taxes for the six
months ended January 31, 2004 and 2003, respectively.

The Company became profitable in the third quarter of fiscal 2001 and has
maintained profitability for twelve 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 quarters 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 $36,752,000 at January 31, 2004 versus $31,944,000 at July 31,
2003.

The $4,808,000 net increase in cash, cash equivalents and marketable securities
in the most recent six-month period was primarily due to the net cash provided
by operating activities of $6,656,000. Net cash provided by operating activities
was primarily due to the net income of $5,045,000, depreciation of $844,000,
stock compensation expense of $124,000 and a decrease in deferred tax asset of
$2,924,000. This net cash provided by operating activities was partially offset
by an increase in accounts receivable of $1,263,000, an increase in inventory of
$954,000 and a decrease in accounts payable and accrued liabilities of $118,000.
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. Accounts receivable and inventory increased to meet the increase in
demand of the AngioJet System. The increases in accounts payable and accrued
liabilities were due to the timing of payments. This increase was partially
offset by the payment of fiscal 2003 corporate incentives in September 2003.
Cash used in investing activities was $3,630,000 including the net purchase of
marketable securities of $2,308,000 and the purchase of $1,336,000 of property
and equipment. Net cash used by financing activities was $733,000, which
resulted from the repurchase of 161,600 shares of the Company's stock in open
market transactions for $2,794,000, offset by the cash received in connection
with the exercise of stock options and warrants of $2,061,000.

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

Off-Balance Sheet Obligations

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

Outlook

The Company expects overall revenue from the AngioJet System, primarily in the
United States, will be in the range of $71 million to $73 million in fiscal
2004. Gross margin as a percent of sales for fiscal 2004 is expected to be in
the mid seventies. 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
$0.58 to $0.62. The quarterly revenue progression should build steadily through
the year from a low in the first quarter, with the earnings per share being
affected by 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 product sales are reviewed monthly to ensure that
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.

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. The 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; the 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.

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 January 31, 2004, all of 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 January 31, 2004, there has been no change in
our internal control over financial reporting (as defined in Rule 13a-15(f) or
15d-15(f) under the Exchange Act) that has materially affected, or are is likely
to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

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

a. The 2003 annual meeting of shareholders of Possis Medical,
Inc. was held on December 10, 2003.

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

FOR WITHHELD
---------- ---------
Robert G. Dutcher ............. 14,883,033 1,991,507
Mary K. Brainerd............... 16,639,251 235,289
Seymour J. Mansfield........... 16,730,306 144,234
William C. Mattison, Jr........ 16,695,907 178,633
Whitney A. McFarlin............ 16,600,033 274,507
Donald C. Wegmiller............ 16,680,112 194,428
Rodney A. Young................ 16,575,395 299,145

The names of each Director whose term of office as a Director
continued after the meeting are as follows: Robert G. Dutcher,
Mary K. Brainerd, Seymour J. Mansfield, William C. Mattison, Jr.,
Whitney A. McFarlin, Donald C. Wegmiller, and Rodney A. Young.

c. By a vote of 16,593,564 in the affirmative, 222,486 in the
negative and 58,490 abstaining, the appointment of Deloitte &
Touche LLP as the Corporation's certified public accountants
was ratified.

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).

10.1 Supplemental Executive Retirement Deferred Compensation
Agreement dated February 1, 2004.

10.2 Lease agreement for additional corporate office and
manufacturing space dated March 1, 2004.

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 November 19, 2003 under Item 12
reporting operating results for its first quarter ended October 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: March 15, 2004 BY: /s/ ROBERT G. DUTCHER
-------------------------------
ROBERT G. DUTCHER
Chairman, President and
Chief Executive Officer

DATE: March 15, 2004 BY: /s/ EAPEN CHACKO
--------------------------------------
EAPEN CHACKO
Vice President of Finance and
Chief Financial Officer