Throughout Possis’ history, we have endured difficult operational periods and emerged stronger due to our focus, prudent financial management and superior technology. Fiscal 2006 was a challenging environment for our company, but I’m pleased to say that we were able to stay focused on the future by investing in our sales force and augmenting our already robust product line and its supporting science.

Possis Medical exited fiscal 2006 with a strong cash position and the continued commitment to research and development that’s needed for growth. We remain focused on expanding our existing mechanical thrombectomy markets, as well as investing in products and the supportive clinical science that will help us grow into new thrombectomy markets. A good example is using AngioJet thrombectomy to treat deep vein thrombosis (DVT), pulmonary embolism (PE), and ischemic stroke. In addition, we recently expanded our catalog of endovascular treatment products with the Fetch Manual Aspiration Catheter and GuardDOG Occlusion System to broaden our focus beyond mechanical thrombectomy to thrombus management. We also added the SafeSeal hemostasis patch, a complementary endovascular product, to leverage our vast customer relationships and strong U.S. direct sales force.

While our revenue for the fiscal year was slightly below our expectations, we achieved several major milestones that solidly position Possis to stay clearly ahead in the future, including:

• Stabilizing coronary sales in the second half of the year and preparing for growth with the launch of new catheter models;

• Increasing peripheral sales by 49 percent;

• Receiving U.S. Food and Drug Administration (FDA) clearance for the GuardDOG Occlusion System and most recently the Fetch Manual Aspiration Catheter;

• Launching several new products including the SafeSeal Patch, Spiroflex and Spiroflex VG catheters;

• Continuing efforts to share favorable results of real-world coronary patient registries of AngioJet thrombectomy with physicians;

• Sustaining high gross margin levels;

• Achieving our 22nd consecutive quarter of profitability on a pro forma basis;

• Continuing to demonstrate our support and confidence in our company through the repurchase of our common stock.

Annual revenue for fiscal 2006 was $61.9 million, compared to $65.1 million in fiscal 2005, which was in line with Wall Street’s estimate. Although pro forma pre-tax earnings decreased to $6.0 million in fiscal 2006, from $10.1 million in fiscal 2005, we generated very healthy operating cash flow of $8.5 million this past year. Pro forma net income per diluted share was $0.21 in fiscal 2006, compared to $0.34 in fiscal 2005.

Our proven business model and strong balance sheet – cash and marketable securities exceeding $48 million with no long-term debt – allowed Possis to remain profitable in a challenging environment while investing aggressively in research and development (R&D). While R&D spending levels should decline during fiscal 2007, we made the necessary investments in fiscal 2006, in order to provide a platform for sustained growth.

The average selling prices for all our products were stable, and our gross profit margins remained robust at 72 percent of sales. We expanded the footprint of drive units, which now number over 1,672 in the U.S. and 1,822 worldwide. We also continued to mitigate the financial impact from granting employee stock options, by repurchasing an additional $3.2 million of our common shares. To date we have repurchased over

$27 million of common shares as a tool to manage employee expense and demonstrate our continued confidence in our business model.

In fiscal 2006, Possis built on our leadership position and continued to make significant progress in our three core AngioJet thrombectomy markets: coronary, peripheral arterial and AV access.

In July, important new observational studies of the AngioJet Thrombectomy System for treating heart attack patients were published as a supplement to The Journal of Invasive Cardiology. The supplement detailed “real-world” results from five patient registries presented by a panel of leading interventional cardiologists during the March 2006 annual convention of the American College of Cardiology (ACC).

These registry results led the panel to conclude in part that “use of the AngioJet with primary percutaneous catheter-based intervention (PCI) is safe and suggest that the AngioJet may improve procedural and clinical outcomes in a broad spectrum of real-world ST-elevation myocardial infarction (STEMI) patients treated with primary PCI.” The results are much different than those of the AiMI study and clearly demonstrate that the rate of the control group in the AiMI study was an anomaly. We believe that the patient registries highlighted show the effectiveness and safety of using AngioJet to treat heart attack patients with large thrombus. This is an important step in helping physicians better understand the clinical value AngioJet thrombectomy brings to the treatment of coronary thrombus in a variety of settings.

Earlier this year, the Wall Street Journal reported that some U.S. hospitals are decreasing their use of drug-eluting stents because of rising concern over rates of late stent thrombosis among patients who receive them. Recent research shows that AngioJet thrombectomy before treatment with drug-eluting stents in heart attack patients presenting with large thrombus markedly reduces the observed incidence of stent rethrombosis in follow-up out to two years.

We believe that these results, coupled with The Journal of Invasive Cardiology supplement’s conclusion that AngioJet may be safely used in such patients, should further build the confidence of our cardiology customers, and will, in combination with additional new clinical science, further position AngioJet and Possis Medical for long-term success.

We also are pleased to report strong sales levels for our non-coronary franchises. We achieved 49 percent growth in our peripheral business in fiscal 2006, outstripping the 30 percent growth rate achieved in the prior year. In the 2006 fourth quarter, we also saw a return to sequential growth in our AV dialysis access business. We believe that these results support our belief that the non-coronary markets for AngioJet products represent strong future growth opportunities for our company.

During the year, Possis secured exclusive distribution rights to the SafeSeal Hemostasis Patch, a topical wound dressing that decreases the time needed to control bleeding from the puncture made into a blood vessel to perform an endovascular procedure. The SafeSeal patch specifically targets the more than 7 million diagnostic and therapeutic procedures performed annually in the U.S. for coronary and peripheral applications. We estimate the potential market for this product exceeds $45 million and will grow to more than $100 million by 2010.

The SafeSeal patch is an example of our increased efforts to leverage our customer base and sales force by expanding Possis’ catalog of endovascular products beyond the AngioJet system. The same customers we currently serve with our AngioJet system can benefit from a broader suite of unique products such as the new SafeSeal patch. We may add other endovascular products going forward.

Earlier in the year, the Spiroflex rapid exchange catheter was fully launched into the market. The most flexible and maneuverable AngioJet catheter, the Spiroflex is designed for thrombectomy in coronary arteries and other small vessels.

We launched a sister model in July, a 4.5 French rapid exchange version of our current XVG over-the-wire catheter called Spiroflex VG, designed for larger coronary and peripheral vessels and saphenous vein grafts.

As of this writing, our submission for the next generation AngioJet Ultra Console continues in active review at the FDA. We’re receiving very favorable feedback from key physician opinion leaders on our new drive unit. We are working hard

to conclude our review with the FDA and are planning a market evaluation, followed by a full product launch, in fiscal 2007. We believe that the increased capabilities and ease-of-use of the Ultra Console will provide the platform for increasing catheter use per drive unit – and generate long-term growth opportunities for the AngioJet business.

Late in the year we also received clearance from the FDA for our GuardDOG Occlusion System, for use in treating peripheral vascular disease. We are excited by the potential we see for

this system, as it enables physicians to quickly and effectively manage local blood flow while employing interventional techniques and devices to treat vascular disease. We are currently completing necessary production requirements in preparation for market evaluations at select medical sites to support full U.S. market release early in calendar 2007.

Most recently we received clearance from the FDA for our Fetch Manual Aspiration Catheter to provide an additional option to remove small, fresh thrombus.

Finally, we finished our market evaluation of the Tru-Seal hub, completing our transition to this patented design on all ofour over-the-wire models. We believe that Tru-Seal provides

a quick and easy method for loading and unloading catheters over the guidewire. This will be a great value to our customers.

During the year, Possis Medical made significant progress on important clinical science. While our initiatives centered on strengthening support for the AngioJet system in its core markets, we also made very important progress in developing its use in new markets, including DVT and PE. In addition to the analysis that was presented at the Euro PCR conference, and ongoing efforts to share with physicians the favorable results of real-world coronary patient registries, we also submitted an IDE (Investigational Device Exemption) to the FDA for permission to sponsor a clinical trial using the AngioJet system to treat DVT.

The study is called APEX-D, which stands for AngioJet Power Pulse Delivery of Thrombolytic Agent Followed by Rheolytic Thrombectomy to Expedite Thrombus Removal in Symptomatic Deep Venous Thrombus. The proposal is now in active discussions with the FDA. In addition, and partly in response to the APEX-D process, we have also filed a 510(k) application to the FDA seeking market clearance for general venous use of the AngioJet Xpeedior® catheter, initially marketed for peripheral arterial thrombus. A favorable reply from the FDA would be an important first step, giving us initial, general market clearance for venous use, from which future clinical study results could establish a more compelling therapeutic benefit for AngioJet treatment of venous thrombus.

Looking forward, we are excited by the momentum that we bring into fiscal 2007. We will have a fully staffed and trained sales force, a portfolio of core products and new products, such as the GuardDOG Occlusion System and Fetch Manual Aspiration Catheter, that meet the needs of the broader thrombus management market and the SafeSeal patch that expands our product offerings into the large endovascular treatment market. With our solid financial platform, strengthened U.S. sales force, strong product pipeline, a focus on R&D and a commitment to new clinical science, we’re well positioned for fiscal 2007.

We enter fiscal 2007 poised for a return to growth. Thank you for your patience and for staying with us during a challenging period. We believe that the best is yet to come and that we will continue to stay ahead, clearly.

Robert G. Dutcher
Chairman, President and Chief Executive Officer