To Our Shareholders

I'm pleased to report that Possis Medical had a record-breaking year in fiscal 2003. At the end of the year, we charted our tenth profitable quarter in a row, based on record sales and net income. We continue to be a high growth company with a strong balance sheet and no long-term debt.

We exceeded our sales goal in 2003, realizing revenues of $57.4 million, an increase of $15.0 million in fiscal 2002. Our business continues to expand, due to steady growth in the total number of drive units sold. This year we crossed the 1,000 unit mark and now have 1,062 drive units in the field. Higher volume sales of disposables and an increase in the XMI® and XVG catheters within our product mix contributed to our improving margins. Our gross margin rate for the year was 75%, an increase of 5% from last year. The average catheter utilization rate per installed drive unit, a measure of recurring usage, remained steady at 10.9.

We ended the year with pre-tax earnings of $12.0 million and diluted earnings per share of $0.88 compared to $6.3 million and to $0.96, respectively, in fiscal 2002. At the end of the year, cash and marketable securities amounted to $31.9 million. Over the past year, we repurchased 246,900 shares of common stock. Between now and the end of fiscal 2004, we have the authorization to repurchase up to an additional $4 million, offsetting dilution from current employee incentive programs.

In addition, our strong balance sheet allowed us to meet our goals of expanding our clinical sales force, increasing our investment in research and development and growing our presence in the clinical and investigational communities with significant investments in extensive clinical research.

Our Technology is Our Future Our continuing investment in our unique and pioneering technology is the key to our future success. As the marketplace leader in the field of mechanical thrombectomy for the treatment of coronary heart disease, we continue to invest resources in growing this business. We will continue to introduce new and better catheter designs and to improve the performance of our supporting pump and drive unit products.

And, we are expanding use of the AngioJet technology for new applications and expanded markets including those for peripheral vascular disease (PVD) involving deep vein thrombosis (DVT).

In 2003, we introduced the new AVX™ catheter, which is 25% more powerful than its predecessor and designed specially for use with arteriovenous dialysis access grafts. We are enjoying continued customer acceptance of our coronary and peripheral product lines which, in addition to the AVX, now include the XMI catheter for peripheral and coronary indications and the XVG and Xpeedior+ catheter for peripheral use. The introduction of the XMI Rapid Exchange catheter is expected to help drive market penetration even more significantly.

We have also been at work making improvements to the AngioJet System, enhancing ease of use through upgrades that include new set up tools, and an improved pump set with new connections. In fiscal 2004, we will continue our development of a brand new AngioJet drive unit.

In April 2003, we also filed a 510(k) with the FDA for our proprietary temporary occlusion guide wire, GuardDOG™. We hope to begin enrolling patients for a coronary distal protection clinical trial involving the combined use of GuardDOG and AngioJet in the later part of fiscal 2004.

New Markets and New Customers While the coronary market in the U.S. remains the largest segment of our business, we also see significant growth potential among the populations suffering from PVD, involving peripheral arterial occlusion (PAO) and DVT; and we believe the AngioJet system can be significantly effective when used in the treatment of these conditions. PAO develops most commonly as a result of atherosclerosis, a condition closely associated with coronary heart disease. At present, it affects approximately 1 in 20 people in the United States over the age of 50, many of whom suffer from debilitating leg pain and a high risk of limb loss. DVT is the formation of blood clots in the large veins, usually in the legs. This condition, diagnosed in more than 600,000 people in the U.S. each year, carries the deadly added risk of pulmonary embolism, the cause of death for one in every 100 patients with DVT.

Possis is committed to helping patients maintain mobility and active lifestyles by providing products to help treat these conditions, either through use of the AngioJet System alone or in conjunction with appropriate drug therapies such as thrombolytic drugs.

Internationally, our business in Europe is beginning to grow. We now have a multi-country distributorship in Italy and will soon be marketing the XMI Rapid Exchange catheter throughout Europe. While we believe Japan still has a potential $10 million market for AngioJet catheters, it will take longer than anticipated to meaningfully enter that market because of Japan’s different regulatory environment and reimbursement structure. We will continue to pursue regulatory approval followed by reimbursement approval in Japan.

Clinical Trials and Other R&D In fiscal 2003, we continued to pursue our goal of a heightened presence in the clinical and investigational community through investments in extensive clinical research. We believe this will further support the adoption of AngioJet technology in the treatment of both peripheral and coronary conditions.

In order to better treat PAO and DVT, we are developing catheters optimized for bigger vessels, longer lesions and older thrombus. We are also supporting scientific studies and regulatory strategies to widen the use of the AngioJet Power Pulse Spray technique in PAO and DVT. The Power Pulse Spray technique delivers thrombolytic drugs right to blood clots to quickly soften and weaken the clot and prepare it for removal by standard AngioJet thrombectomy. Dr. David Allie from the Cardiovascular Institute of the South has studied the Power Pulse Spray technique in peripheral arteries. His registry of 49 patients, presented at the 2003 TCT Conference, concluded that the Power Pulse Spray technique is a safe and effective technique that offers potential treatment benefits. In this way, the AngioJet System can be used effectively not only in breaking up recently occurring clots but also in treating older thrombus, common in both PAO and DVT.

We have accelerated enrollment for the AiMI (AngioJet in Myocardial Infarction) study. Currently at over 360 patients with a goal of approximately 468, this large study will test the AngioJet System against the current standard of care for treating heart attacks. Through measurement using nuclear scans, we will learn if we save more heart muscle by including AngioJet therapy as part of the primary intervention. Positive results will encourage adoption of the AngioJet System as a standard of care for heart attack patients.

With the advent of drug-eluting stents, there is growing interest among the medical community in other ways to combine drug and device therapies for greater effectiveness for patients. The AngioJet System is particularly well suited to collaborations of this type. For example, the new drug-eluting stents have not been shown to be effective in vessels containing unresolved thrombus. As a result, we are pointing out to the medical community that AngioJet is the most effective therapy for resolving thrombus.

During fiscal 2003, we also made the decision to close our TIME 1 Clinical Trial for Ischemic Stroke. TIME stands for Thrombectomy in Middle Cerebral Embolism. Ischemic stroke is caused by a clot or other material lodging in the middle cerebral artery. At the conclusion of Phase I of the trial, the investigators, including some of the world’s leading clinicians and researchers in treating ischemic stroke, concluded that the device in use, the NV 150 neurocatheter, while safe, had not met the clinical challenges of being effective enough to warrant a Phase II trial. This trial was aimed at one of the most debilitating medical conditions and, while we were disappointed in the short-term outcome, we will continue our research efforts to discover a therapy with the right balance of safety and effectiveness. Combination therapies, such as those referenced above, may provide the ultimate solution.

Important Business Recognition We received some important, unsolicited business recognition during fiscal 2003 that was very gratifying and that affirms our business model as one that will truly support our continued growth and profitability.

In April, Forbes magazine ranked Possis tenth overall on its list of the "25 Fastest-Growing Tech Companies" in 2003. Companies on the list, representing several industries and including computer hardware and software companies and biotech and medical equipment companies, were ranked by their five-year historical sales growth, on an annualized basis. Among the listed companies, Possis Medical was the top company marketing medical devices in the cardiovascular markets.

Possis Medical was also named to the 2003 StarTribune list of the Top 100 publicly held companies headquartered in Minnesota, ranked by revenue. Possis was the top medical device company, ranking 9th overall on return on assets and 6th overall on greatest percent change in profits over a twelve-month period.

We were excited to learn that Possis Medical was ranked number 418 in the 2003 Deloitte & Touche Technology Fast 500, a ranking of the 500 fastest growing technology companies in North America. Additionally, Possis Medical was ranked number 13 among the fastest growing technology companies in Minnesota in the 2003 Minnesota Technology Fast 50. Among the Fast 50, Possis is a four-time winner, sharing that distinction with eleven other companies in the Fast 50.

Each year, the Minnesota Manufacturers Alliance, our peers in the manufacturing community, honors other Minnesota companies. In 2003, we were honored to receive a "Manufacturer of the Year Award" for the outstanding progress we have made in better delivering high tech, high quality medical devices to our physician customers. I am very proud of our employees in our manufacturing and product development organizations for their contributions to our success in this effort.

I'm also pleased to report that, as Chairman of Possis Medical, I was named a finalist for the 2003 Ernst & Young Entrepreneur of the Year Award. The rigorous evaluation by this competition presented not only a learning opportunity but also confirmation that we are pursuing sound business strategies for Possis Medical.

Stepping Forward with Confidence We have consistently achieved sales growth and profitability and have proven that our business model is a pathway to success. We can step forward with confidence, knowing that we have a strong foothold on our future in a broad and growing market coupled with our ongoing commitment to saving lives and limbs and improving quality of life for patients worldwide. Thanks to our employees who live and breathe that commitment every day. It is through their efforts and hard work that we will achieve our goals. And thanks to our shareholders for believing both in our commitment and supporting our journey on the path to success.

Robert G. Dutcher
Chairman, President and Chief Executive Officer