<PAGE>   1
 
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                                 UNITED STATES
 
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                            ------------------------
 
                                   FORM 10-K
                 ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
(MARK ONE)
 
     [X]   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
           EXCHANGE ACT OF 1934
 
                            FOR THE YEAR ENDED JULY 2, 1998
 
        OR
 
     [ ]   TRANSITION REPORT PURSUANT TO SECTION 13 OF 15(d) OF THE SECURITIES
           EXCHANGE ACT OF 1934
 
             FOR THE TRANSITION PERIOD FROM ____________ TO ____________ .
 
                         COMMISSION FILE NUMBER 0-21727
 
                               SEAMED CORPORATION
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
 
<TABLE>
<S>                                            <C>
                  WASHINGTON                                     91-1002092
   (STATE OF INCORPORATION OR ORGANIZATION)       (I.R.S. EMPLOYER IDENTIFICATION NUMBER)
 
         14500 NORTHEAST 87TH STREET                             98052-3431
             REDMOND, WASHINGTON                                 (ZIP CODE)
   (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
</TABLE>
 
                                 (425) 867-1818
                        (REGISTRANT'S TELEPHONE NUMBER)
 
             SECURITIES REGISTERED UNDER SECTION 12(b) OF THE ACT:
 
<TABLE>
<S>                                            <C>
             TITLE OF EACH CLASS                 NAME OF EACH EXCHANGE ON WHICH REGISTERED
                    NONE                                           NONE
</TABLE>
 
             SECURITIES REGISTERED UNDER SECTION 12(g) OF THE ACT:
 
<TABLE>
<S>                                            <C>
             TITLE OF EACH CLASS                 NAME OF EACH EXCHANGE ON WHICH REGISTERED
         COMMON STOCK, NO PAR VALUE                       THE NASDAQ STOCK MARKET
</TABLE>
 
     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 last ninety days.  Yes [X]  No [ ]
 
     Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein and will not be contained, to the
best of Registrant's knowledge, in any definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.  [X]
 
     The aggregate market value (based on the NASDAQ quoted closing price) of
the common stock held by non-affiliates (4,127,440 shares) of the Registrant at
September 25, 1998 was approximately $57,288,867. As of September 25, 1998,
there were 5,468,978 shares of the Registrant's common stock outstanding.
 
                      DOCUMENTS INCORPORATED BY REFERENCE
 
     The information required by Part III of Form 10-K, Directors and Executive
Officers of the Registrant, Executive Compensation, Security Ownership of
Certain Beneficial Owners and Management, and Certain Relationships and Related
Transactions, is included in the Company's proxy statement filed with the
Securities and Exchange Commission.
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<PAGE>   2
 
                               SEAMED CORPORATION
 
                                   FORM 10-K
 
     SeaMED Corporation's ("SeaMED" or the "Company") fiscal year consists of
the 52/53-week period that ends on the Thursday nearest to June 30, and SeaMED's
fiscal quarters end on the Thursdays nearest to September 30, December 31 and
March 31. For convenience of presentation, all fiscal periods in this Form 10-K
are shown as ending on a calendar month-end.
 
                                     PART I
 
ITEM 1. BUSINESS
 
  INTRODUCTION
 
     SeaMED manufactures advanced durable electronic medical instruments for
medical technology companies, often as part of systems that also include
single-use components. To assist its customers in developing and commercializing
their instruments for manufacture by SeaMED, the Company provides a wide range
of engineering services and regulatory expertise. During fiscal year 1998,
SeaMED manufactured or engineered medical instruments for both established and
emerging medical technology companies. SeaMED from time to time selectively
designs and manufactures nonmedical commercial products that benefit from
SeaMED's engineering and manufacturing capabilities. Currently, SeaMED
manufactures one such product, a coin-counting machine that exchanges loose
coins for currency, for Coinstar, Inc. ("Coinstar").
 
     Since 1988, SeaMED has focused its business primarily on manufacturing
medical instruments and believes it is the largest independent manufacturer of
advanced medical instruments for medical technology companies. As part of its
growth strategy, SeaMED continues to expand its engineering expertise,
regulatory knowledge and manufacturing capabilities, thereby allowing it to
design and manufacture a broader range of medical instruments. SeaMED also
utilizes its existing resources and expertise by accepting high value-added
engineering and manufacturing contracts for select nonmedical products.
 
INDUSTRY OVERVIEW
 
     Demand for health care has grown rapidly in recent years, and is expected
to continue to increase as the population ages. Advancements in science,
medicine, and computers have dramatically expanded the number and variety of
effective medical procedures. The most advanced medical procedures and
techniques, many of which use advanced medical instruments, now are common
treatments under many health insurance plans. As insurance companies and federal
and state governments have expanded the medical procedures for which health care
providers would be reimbursed, demand has grown for the medical instruments and
systems needed for these procedures. More recently, in response to increasing
pressure to control rising health care costs, medical technology companies have
developed advanced medical instruments and systems that improve patient outcomes
and lessen the overall cost of health care by reducing palliative care and acute
hospital stays.
 
     As medical products have incorporated the latest developments in computers,
electronics, materials and other technologies, the cost of product development
and the length of the development cycle have increased substantially. The risks
in developing and launching new medical products also have increased
significantly as competition in the highly fragmented medical technology
industry has increased. As a result, medical technology companies face increased
pressure to bring new products to market in the shortest possible time, reduce
costs, maintain or increase market share and accelerate realization of revenue.
 
     At the same time, the Food and Drug Administration (the "FDA") and the
European Community have adopted increasingly stringent and evolving regulatory
requirements for the design and manufacture of medical products. In the United
States, certain medical products are subject to the FDA's premarket approval
application ("PMA") requirements and many medical products require premarket
clearance. In addition, products are subject to regulation with respect to
manufacture, labeling, distribution, postmarket reporting and
 
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<PAGE>   3
 
promotion. Moreover, as of June 1997, the FDA requires the design of medical
devices to satisfy a specific engineering design control process. Under European
quality standards made effective in 1998, the design of medical products must
satisfy specific engineering design process standards. To market and sell their
products, medical technology companies must invest significant financial
resources to establish and maintain manufacturing facilities that comply with
the FDA's good manufacturing practices ("cGMP") requirements and the European
Community's quality system standards, particularly if the facilities produce
life-supporting, life-sustaining, or implantable products. After the often
lengthy and time-consuming process of obtaining FDA marketing authorization and
ISO certification, medical technology companies must devote substantial
managerial oversight to ensure continued compliance with FDA and European
Community requirements.
 
     SeaMED believes that the trend toward outsourcing medical product
engineering and manufacturing is in its early stages and outsourcing revenues
represent a very small percentage of the more than $30 billion medical
technology industry. SeaMED also believes that medical technology companies will
expand their outsourcing of engineering and manufacturing and that SeaMED is
well positioned for such expansion. With intensified competition, higher initial
product development costs, and longer product development and regulatory cycles,
many of SeaMED's customers have chosen to concentrate product development and
manufacturing resources on higher-volume single-use components and to outsource
the development and manufacturing of durable medical instruments.
 
THE SEAMED ADVANTAGES
 
     SeaMED provides integrated solutions to the engineering, regulatory and
manufacturing challenges of advanced medical instruments. SeaMED offers its
customers the following advantages:
 
     -  Broad Experience With Numerous Advanced Medical Instruments. In fiscal
        year 1998 SeaMED manufactured 19 different advanced medical instruments
        that incorporate diverse technologies. As of the end of fiscal year
        1998, SeaMED had in its engineering project pipeline an additional 22
        instruments or systems that it believes have a good chance of some day
        producing significant manufacturing revenues. As a result, SeaMED has
        considerable expertise in addressing its customers' product development,
        engineering, manufacturing and regulatory issues.
 
     -  Focus on Core Functions. By relying on SeaMED's engineering and
        manufacturing capabilities, customers can focus management efforts on
        product research, clinical development and sales and marketing, as well
        as manufacturing their higher-volume, single-use components. In
        addition, SeaMED's customers can shift to variable costs the high fixed
        costs associated with staffing and maintaining cGMP-compliant facilities
        for durable medical instruments.
 
     -  Production Flexibility. SeaMED's broad customer base permits it to offer
        its customers production flexibility, which enables customers to adjust
        production volumes in response to fluctuations in market demand or
        regulatory issues.
 
     -  Rapid Product Development. SeaMED believes that, with its engineering
        and manufacturing capabilities, it can more rapidly develop and
        manufacture new products at a lower overall cost than its customers,
        which otherwise expend significant time and financial resources to
        develop internal engineering expertise, establish cGMP-compliant
        manufacturing facilities and obtain ISO certification.
 
     -  Regulatory Compliant Manufacturing. SeaMED's medical manufacturing
        facilities are ISO 9001/EN 46001 certified and SeaMED believes that
        they comply with cGMP requirements. Due to the critical nature of
        regulatory compliance, SeaMED devotes significant management time and
        financial resources to cGMP compliance and ISO certification.
 
     -  Integrated Engineering and Manufacturing. SeaMED provides a wide range
        of engineering services, and has the capabilities to provide complete
        instrument or system design (including engineering, testing, component
        analysis and regulatory compliance), which enhances its manufacturing
        business. By integrating engineering design work with manufacturing
        processes, materials acquisitions and
 
                                        2
<PAGE>   4
 
        quality and regulatory considerations, SeaMED believes that it can
        increase the quality and lower the overall cost of the instruments that
        it manufactures for its customers.
 
CUSTOMERS AND PRODUCTS
 
     SeaMED's customers include some of the world's largest medical technology
companies as well as many emerging medical technology companies. During fiscal
year 1998 SeaMED derived significant manufacturing revenues from 19 medical
instruments. As of the end of fiscal year 1998, SeaMED had in its engineering
project pipeline 28 instruments or systems that it believes have a good chance
of some day producing significant manufacturing revenues. Of these 28 projects,
22 are for new instruments or systems and six are for enhancements of existing
instruments or systems that SeaMED and the customer believe will extend the
life-cycle of the instrument. The 28 projects are performed for 21 different
customers. Although management believes that the 28 projects in the pipeline
have a good chance of some day resulting in manufacturing contracts from which
SeaMED will derive substantial manufacturing revenues, the volume and timing of
future manufacturing revenues that relate to any specific engineering project
are highly variable, and certain engineering projects in the pipeline may not
lead to future manufacturing revenues. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Overview" and "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Outlook: Issues and Uncertainties."
 
     The only nonmedical commercial product that generated significant
manufacturing revenues during fiscal years 1998 and 1997 was the Coinstar
coin-counting machine. As of the end of fiscal year 1998, SeaMED did not have
any nonmedical commercial products in its engineering project pipeline.
 
     SeaMED negotiates separate contracts with its customers for engineering
design services and product manufacturing. Most projects begin with an
engineering design contract. As a business strategy, SeaMED generally prices
engineering contracts to cover direct project expenses (i.e., nonrecurring
engineering expenses) plus a share of operating expenses. SeaMED's objective is
to obtain the exclusive manufacturing rights to medical instruments for a
specific time period, generally three to five years.
 
     The only nonmedical commercial product currently manufactured by SeaMED is
the Coinstar coin-counting machine. SeaMED may from time to time selectively
design and manufacture other nonmedical commercial products that can benefit
from SeaMED's engineering and manufacturing capabilities. SeaMED currently
manufactures Coinstar's machines under a three-year nonexclusive manufacturing
agreement with Coinstar that allows Coinstar to cancel or modify orders with
SeaMED on 90 days' notice, except for product orders scheduled for delivery
within 90 days. Under the terms of the agreement, in the event that Coinstar
cancels product orders, Coinstar has agreed to reimburse SeaMED for certain raw
material and related costs. SeaMED believes its experience in manufacturing the
large and complex Coinstar machine has expanded its manufacturing expertise.
SeaMED intends to maintain as its primary focus the design and manufacturing of
advanced medical instruments for medical technology companies.
 
ENGINEERING
 
     SeaMED will provide its customers with engineering services at any stage of
an instrument's development. Customers in many cases rely on SeaMED for complete
instrument design (including engineering, testing, component analysis and
regulatory compliance). In other cases, customers deliver final drawings for
instruments they believe are ready for manufacturing. SeaMED then reviews and
tests the existing design prior to manufacturing the instrument and, in many
cases, SeaMED's engineers are able to identify and offer alternatives to the
customer's design that improve performance or produce manufacturing
efficiencies.
 
     SeaMED approaches each engineering project using a team structure, each
team being a multi-disciplinary collection of engineers and technicians who
understand the technical requirements of the particular project. Each team
includes representatives from other engineering disciplines, including one or
more manufacturing, test and quality engineers, who help design an instrument
that can be manufactured in a manner that meets or exceeds customer
specifications and applicable regulatory requirements.
 
                                        3
<PAGE>   5
 
     SeaMED integrates its engineering staff throughout its operations,
including sales and marketing, customer relations, materials management, quality
assurance, regulatory compliance and manufacturing. SeaMED's engineers play a
critical role in sales and marketing by assisting SeaMED's Vice President, Sales
and Marketing, in evaluating requests for proposals and developing
project-specific, solution-oriented responses, bids, cost estimates and project
plans. Similarly, SeaMED project engineers act as customer contacts throughout
the engineering design phase and have responsibility for all aspects of a
customer's project, including coordinating the component parts necessary for the
instrument, quality assurance procedures, regulatory compliance and the
manufacturing process. SeaMED provides its customers with design information and
other support during the 510(k) approval or PMA process, but does not assist in
the testing, studies and human clinical trials associated with these processes.
SeaMED provides testing services in the area of safety regulation, such as those
necessary to obtain a listing by Underwriters Laboratories, Inc. SeaMED has made
significant investments in state-of-the-art equipment to support its engineering
design effort, including engineering design and testing stations and
computer-aided design software.
 
     Each instrument, product design, patent and other proprietary right
developed by SeaMED becomes the property of the customer, with SeaMED typically
retaining the manufacturing rights to such instrument for a period generally
ranging from three to five years. Generally, SeaMED provides nonrecurring
engineering services under a project plan that identifies the engineering tasks,
deliverables and schedule. Typically, such services are billed on a time and
materials basis and are cancelable at any time. The project plan usually states
that SeaMED is intended to be the manufacturer of the instrument, but does not
specify the manufacturing terms. SeaMED typically provides a design defect
warranty for 15 months to replace or repair instruments relating to the specific
elements for which SeaMED had primary design responsibility.
 
     At June 30, 1998, SeaMED's engineering staff consisted of 122 engineers
employed by SeaMED and 24 consulting or contract engineers. The engineering
staff includes a variety of disciplines, as follows:
 
<TABLE>
<CAPTION>
                    ENGINEERING CATEGORY                      NUMBER
                    --------------------                      ------
<S>                                                           <C>
Component...................................................     1
Electrical Design...........................................    23
Electrical Test.............................................    13
Manufacturing...............................................    34
Mechanical Design...........................................    26
Reliability and Quality.....................................    31
Software Design.............................................    18
                                                               ---
     Total..................................................   146
                                                               ===
</TABLE>
 
MANUFACTURING OPERATIONS
 
     As the engineering project nears completion, the members of the project
team with direct responsibility for manufacturing, quality assurance,
manufacturing/test engineering and materials assume a greater role. The team
implements a materials management system and develops an assembly process and
product testing and quality assurance procedures to produce high-quality
instruments that satisfy customer specifications as well as cGMP and ISO 9001
quality standards. Often, the manufacture of a particular instrument begins with
production of a relatively small number of units of the instrument before it is
approved for commercial use (known as "preproduction" units), which are used by
the customer for clinical trials. SeaMED and the customer frequently make
engineering and manufacturing refinements during the preproduction phase.
 
     Each instrument is manufactured in a dedicated manufacturing cell in the
Company's manufacturing space. These cells are flexible and, within the same
manufacturing location, can be expanded or modified as needed, enabling SeaMED
to adjust production volumes quickly in response to customer orders. A
significant limitation on this flexibility is that regulatory approvals may be
required if a manufacturing cell must be moved from one facility to another.
 
     SeaMED's customers generally submit purchase orders for delivery of
instruments in future periods. As of June 30, 1998 and June 30, 1997, customers
had placed purchase orders with SeaMED for future deliveries
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<PAGE>   6
 
totaling $33 million and $33 million, respectively, with all such deliveries
scheduled to occur before the end of the next fiscal year. The Company does not
regard backlog data as a meaningful indicator of revenues for future periods
because of its policy of generally allowing its customers to cancel orders at
any time without notice.
 
     SeaMED uses a fully integrated materials requirements system. This system,
which includes sales order entry, purchasing, inventory control, production
control, and cost accounting, helps SeaMED manage material acquisitions and
inventory for the various projects in full production at any one time and
facilitates the planning and control essential to building products within
critical time schedules.
 
     Manufacturing contracts are generally executed near completion of the
engineering project, at which time SeaMED and the customer negotiate the term,
pricing, warranty, indemnity and other provisions. Pricing typically is based on
SeaMED's expected cost and an agreed-upon margin, both of which are subject to
customer audit. Although manufacturing contracts rarely include minimum
production requirements, they typically grant SeaMED exclusive manufacturing
rights for periods generally ranging from three to five years. Contracts
typically are terminable only for cause, which generally is defined as the
failure to deliver instruments on a timely basis or the failure to comply with
design specifications. In each case, SeaMED usually has an opportunity to cure
the breach. SeaMED generally warrants conformity to design specifications and
against defects in materials and workmanship and indemnifies its customers
against losses arising out of a breach of such warranty. In addition, SeaMED in
many cases enters into repair and service agreements with its customers that set
forth the pricing and terms under which SeaMED provides repair and replacement
parts, and needed services and upgrades not covered under warranty. Although
most of SeaMED's manufacturing is performed under long-term manufacturing
contracts, some instruments are manufactured only under purchase orders.
 
QUALITY ASSURANCE AND REGULATORY COMPLIANCE
 
     SeaMED emphasizes quality throughout its operations and integrates its
quality assurance and quality engineering programs throughout each instrument's
engineering and manufacturing phases, a process that involves SeaMED's senior
management and executive officers. Quality assurance procedures are integrated
into every aspect of an instrument's manufacturing cycle. SeaMED establishes a
quality assurance program for each instrument, which includes a "zero defects"
objective. Substantially all component parts and outside-contracted product
subassemblies receive a control number and are inspected and, if necessary,
tested. SeaMED requires all approved vendors that supply components to satisfy
certain quality standards. On the manufacturing floor, quality assurance
personnel implement quality procedures at interim points during the assembly
process and conduct a final-level inspection and/or test when the instrument is
fully assembled and ready for shipping. In addition, prior to shipping, a
quality inspector reviews each instrument for proper labeling and paperwork.
 
     SeaMED is registered with the FDA as a medical device manufacturer. As a
manufacturer of instruments reviewed under the PMA process, SeaMED is subject to
inspections by the FDA prior to PMA approval. SeaMED is also subject to other
regularly scheduled and unscheduled FDA audits.
 
     SeaMED has ISO 9001/EN 46001 certification. ISO 9000 is the first quality
system standard to gain worldwide recognition, including in the European
Community, Japan and the United States. As many medical technology companies
expand sales of products in international markets, compliance with international
quality standards has increased in importance. SeaMED's ISO 9001 designation is
the highest level of ISO 9000 certification and indicates that SeaMED has met
design, manufacture and test standards for its products. SeaMED's EN 46001
designation indicates that it has met additional standards specific to medical
instruments.
 
     SeaMED's ISO 9001/EN 46001 certification serves as a marketing tool that
enhances SeaMED's competitive position in the industry, especially with respect
to medical technology companies with internal manufacturing facilities that have
not gone through the costly and time-consuming ISO certification process. SeaMED
underwent a number of ISO quality and FDA regulatory audits during fiscal year
1998 with the result of no adverse findings.
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<PAGE>   7
 
SALES AND MARKETING
 
     SeaMED generates new business opportunities by promoting its engineering
design and manufacturing capabilities at industry trade shows, by advertising in
leading industry publications, and by obtaining referrals from customers, former
employees of customers and other parties familiar with SeaMED's services. While
SeaMED's sales and marketing department consists solely of the Vice President,
Sales and Marketing, other executive officers and project engineers participate
extensively in sales and marketing activities. SeaMED believes it can
effectively market and sell its engineering and manufacturing capabilities while
maintaining a small sales and marketing staff.
 
COMPETITION
 
     For established medical technology companies, SeaMED's primary competitor
is the internal design and manufacturing facilities of its prospective customer.
For emerging companies, SeaMED competes both with the customer's internal design
and manufacturing facilities (planned or operational), other manufacturers that
operate in the medical technology industry and, to a lesser extent, with
specialty design firms, most of which do not have manufacturing capabilities.
The primary competitive factors in medical instrument design and manufacturing
include quality, regulatory compliance, technical engineering competence, cost
of the nonrecurring engineering design component, price of the manufactured
product, experience, customer service, and ability to meet a design and
production schedule.
 
     Competition is primarily limited to those companies that meet the minimum
applicable regulatory requirements of the FDA and international manufacturing
and design standards. In the future, SeaMED is likely to compete against new
entrants into the industry as outsourcing expands in medical technology
products. For example, medical technology companies with design and
manufacturing capabilities (especially those with excess capacity) and large
electronic contract manufacturers and defense department contractors with
extensive nonmedical engineering expertise may undertake design and/or
manufacture of medical instruments. Although SeaMED is not aware of substantial
competition from these sources to date, there can be no assurance that these or
other formidable competitors will not aggressively expand into SeaMED's targeted
market segment in the future.
 
GOVERNMENTAL REGULATION
 
     SeaMED's business and operations are subject to substantial governmental
regulation, primarily from the FDA in the United States and the regulatory
bodies in other countries, as described below. While these regulations directly
affect SeaMED's design and manufacturing operations, to a greater extent they
affect SeaMED's customers and their products. To the extent that production of a
customer's instrument is delayed or cancelled due to regulatory noncompliance,
the timing and levels of revenues received by SeaMED may be affected adversely.
 
  United States
 
     Because SeaMED provides design and manufacturing services to producers of
medical devices, SeaMED's manufacturing facilities are subject to extensive
regulation by the FDA under the Federal Food, Drug, and Cosmetic Act, as amended
(the "FDC Act"). Manufacturers of medical devices must comply with applicable
provisions of the FDC Act and associated regulations governing the design,
development, testing, manufacturing, labeling, marketing and distribution of
medical devices and the reporting of certain information regarding their safety.
The FDC Act requires PMA approval before certain medical devices can be
marketed.
 
     The FDA classifies medical devices into three classes (Class I, II or III)
on the basis of the controls deemed necessary by the FDA to reasonably ensure
product safety and efficacy. Class I devices are subject to general controls
(e.g., labeling, premarket notification and adherence to cGMP) and Class II
devices are subject to general and special controls (e.g., performance standards
and guidelines). Generally, Class III devices are higher-risk devices and cannot
be marketed until after receiving FDA PMA approval.
 
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<PAGE>   8
 
     A premarket approval application must be supported by valid scientific
evidence, which typically includes extensive data, including preclinical and
clinical trial data to demonstrate safety and efficacy of the device. The
application also must contain the results of all relevant bench tests,
laboratory and animal studies, a complete description of the instrument and its
components, and a detailed description of the methods, facilities and controls
used to manufacture the device. In addition, the submission must include the
proposed labeling. Although SeaMED's services do not extend to assistance with
testing, studies and human clinical trials, SeaMED does provide its customers
with required design information and other support during the PMA process.
Typically, the FDA will inspect the manufacturer prior to granting PMA approval.
If the FDA identifies deficiencies in the manufacturing process, it could delay
PMA approval. Delays in the PMA process can affect the timing of manufacturing
services provided by SeaMED. Currently, an FDA review of a PMA application
generally takes one to two years from the date the application is submitted, but
often is significantly extended by an FDA request for more information or
clarification of information previously submitted. The PMA process can be
expensive, uncertain and lengthy, and a number of devices for which PMA approval
has been sought have never been approved for marketing. Until a device subject
to the PMA requirement receives PMA approval, it cannot be sold commercially in
the United States. After PMA approval is obtained, subsequent modifications to
the device, its labeling or manufacturing may require additional FDA approvals.
 
     For Class I and Class II devices, and certain Class III devices, FDA
clearance may be obtained through a 510(k) notification, pursuant to which the
FDA determines that a medical device is "substantially equivalent" to an
existing, legally marketed predicate device or a predicate device marketed
before May 28, 1976. Clinical testing of certain devices may be required as part
of the 510(k) process. There can be no assurance that the FDA will find a device
substantially equivalent and allow marketing of such device. Even if the device
is found substantially equivalent, the clearance process may be delayed.
 
     Any instrument manufactured by SeaMED or distributed by its customers
pursuant to FDA clearances or approvals is subject to pervasive and continuing
regulation by the FDA, including record-keeping requirements and reporting of
adverse experiences associated with the use of the instrument. Device
manufacturers are required to register their establishments and list their
devices with the FDA and certain state agencies, and are subject to periodic
inspections by the FDA and certain state agencies. The FDC Act requires devices
to be manufactured in accordance with cGMP regulations, which impose certain
procedural and documentation requirements upon SeaMED with respect to
manufacturing, quality assurance activities and maintenance of service records.
Noncompliance with FDA regulations can result in, among other things, SeaMED and
its customers being subject to fines, injunctions, civil penalties, criminal
prosecution, recall or seizure of devices, total or partial suspension of
production, failure of the government to grant premarket clearance or PMA
approval for products, withdrawal of marketing approvals, or a recommendation by
the FDA that a customer not be permitted to enter into government contracts. The
FDA also has the authority to require repair, replacement or refund of the cost
of any device manufactured or distributed by a customer of SeaMED. In addition,
the failure to be found in compliance with the FDA regulations could have an
adverse effect on the Company's reputation. The FDA periodically inspects device
manufacturers for compliance with FDA regulations. In addition, the FDA
generally inspects a manufacturer prior to approving a PMA. There can be no
assurance that the Company will be found in compliance with all applicable
regulations during such an inspection. The failure to be found in compliance
with the cGMP regulations would result in FDA enforcement action against the
Company, which could result in a diminution of the Company's reputation and an
adverse effect on the Company's business, results of operations and financial
condition.
 
  International
 
     Sales of medical devices outside the United States are subject to
regulatory requirements that vary from country to country. The time required to
obtain approval for sale in foreign countries may be longer or shorter than that
required for FDA approval, and the requirements may differ. The export of
devices is subject to FDA regulation. In some instances, prior FDA approval is
needed. Effective in 1998, in order to allow their instruments to move freely
within the European Community, medical device manufacturers are required to
obtain certifications necessary to enable the "CE mark" to be affixed to their
products. Because SeaMED is
 
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<PAGE>   9
 
ISO 9001/EN 46001 certified, if a SeaMED customer is also ISO 9001 certified,
the customer may be permitted to affix the CE mark to an instrument manufactured
by SeaMED without the customer being subject to additional requirements. In
addition, all medical device manufacturers must comply with other laws generally
applicable to foreign trade, including technology export restrictions, tariffs
and other regulatory barriers.
 
EMPLOYEES AND LABOR RELATIONS
 
     As of June 30, 1998, SeaMED employed a total of 419 people and retained 89
consulting or contract personnel in the following areas:
 
<TABLE>
<CAPTION>
                          CATEGORY                            NUMBER
                          --------                            ------
<S>                                                           <C>
Design and Engineering......................................   192
Preproduction and Manufacturing.............................   214
Quality Assurance...........................................    65
Sales and Marketing, Financing and Administration...........    37
                                                               ---
     Total..................................................   508
                                                               ===
</TABLE>
 
     SeaMED considers its labor relations to be good and none of its employees
are covered by a collective bargaining agreement.
 
ITEM 2. PROPERTIES
 
     As of July, 1998, SeaMED is leasing two buildings in Redmond, Washington
and three buildings in Bothell, Washington, aggregating approximately 193,000
square feet. Of the approximately 193,000 square feet currently occupied by
SeaMED, approximately 121,000 square feet are used for manufacturing,
approximately 65,000 square feet are used for engineering and approximately 7000
square feet are used for administrative purposes.
 
     The Company will take an additional 20,500 square feet in January of 1999
and another 20,500 square feet in June of 1999, bringing total square footage to
234,000 by the end of fiscal year 1999. The 82,000 total square feet acquired
from July of 1998 through June of 1999 are located in a single new building.
 
ITEM 3. LEGAL PROCEEDINGS
 
     The Company is not currently subject to any material legal proceedings. The
Company may from time to time become a party to various legal proceedings
arising in the normal course of its business. These actions could include
employee-related issues and disputes with customers.
 
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
 
     No matters were submitted to a vote of security holders during the fourth
quarter ended June 30, 1998.
 
                                        8
<PAGE>   10
 
                                    PART II
 
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
 
     The Company's common stock commenced trading on the Nasdaq National Market
on November 19, 1996. Prior to this point, the Company's common stock was not
traded publicly. The high and low bids for the seven quarters during which the
Company's stock has been publicly traded were as follows:
 
<TABLE>
<CAPTION>
                     QUARTER ENDED                        HIGH      LOW
                     -------------                        ----      ---
<S>                                                       <C>       <C>
June 30, 1998...........................................  18 1/4   15 3/8
March 31, 1998..........................................  20 1/2   16 1/2
December 31, 1997.......................................  18 3/4   15 1/2
September 30, 1997......................................  20 5/8   15 5/8
June 30, 1997...........................................  21       14 1/2
March 31, 1997..........................................  18 1/4   11
December 31, 1996.......................................  11 3/4    9 7/8
</TABLE>
 
     The Company had 115 shareholders of record as of June 30, 1998. No cash
dividends have been declared on the Company's common stock to date and the
Company does not intend a pay a cash dividend on common stock in the foreseeable
future. Future earnings will be used as a source to finance the growth and
development of the Company.
 
                                        9
<PAGE>   11
 
ITEM 6. SELECTED FINANCIAL DATA
 
     The following selected financial data as of June 30, 1998 and 1997, and for
each of the periods ended June 30, 1998, 1997 and 1996, are derived from audited
financial statements of the Company, which are included elsewhere in this Form
10-K. The selected financial data as of June 30, 1996, 1995 and 1994, and for
each of the periods ended June 30, 1995 and 1994, are derived from audited
financial statements not included herein.
 
                      SUMMARY FINANCIAL AND OPERATING DATA
                 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
 
<TABLE>
<CAPTION>
                                                             YEAR ENDED JUNE 30,
                                               -----------------------------------------------
                                                1998      1997      1996      1995      1994
                                               -------   -------   -------   -------   -------
<S>                                            <C>       <C>       <C>       <C>       <C>
STATEMENT OF INCOME DATA:
Revenues.....................................  $69,981   $52,134   $26,130   $17,661   $14,720
Cost of sales................................   58,285    43,132    21,093    14,590    11,965
                                               -------   -------   -------   -------   -------
                                                11,696     9,002     5,037     3,071     2,755
Marketing, general and administrative
  expense....................................    5,525     4,849     2,937     1,931     1,818
                                               -------   -------   -------   -------   -------
Operating income.............................    6,171     4,153     2,100     1,140       937
Other income (expense), net..................      100        41      (192)     (185)     (138)
                                               -------   -------   -------   -------   -------
Income before income taxes...................    6,271     4,194     1,908       955       799
Income tax benefit (provision)(1)............   (2,132)   (1,468)     (668)     (180)      208
                                               -------   -------   -------   -------   -------
Net income...................................  $ 4,139   $ 2,726   $ 1,240   $   775   $ 1,007
                                               =======   =======   =======   =======   =======
Net income per share data(2):
  Basic......................................  $  0.78   $  0.76   $  1.61   $  1.08   $  1.90
  Diluted....................................  $  0.73   $  0.55   $  0.33   $  0.21   $  0.30
</TABLE>
 
<TABLE>
<CAPTION>
                                                                  JUNE 30,
                                               -----------------------------------------------
                                                1998      1997      1996      1995      1994
                                               -------   -------   -------   -------   -------
<S>                                            <C>       <C>       <C>       <C>       <C>
BALANCE SHEET DATA:
Working capital..............................  $24,272   $18,258   $ 4,997   $ 4,497   $ 3,307
          Total assets.......................   42,857    32,132    16,064     9,900     7,571
Notes payable to bank........................       --     1,068     1,817       555       990
Long-term debt, including current portion....    2,993        --     1,748     1,517     1,653
Convertible redeemable preferred stock.......       --        --     5,280     5,280     3,815
          Total shareholders' equity
            (deficit)........................   27,933    22,793     1,231       (38)     (672)
</TABLE>
 
---------------
(1) For the fiscal year ended June 30, 1994, reflects the benefit of utilization
    of net operating loss carryforwards, tax credit carryforwards and related
    changes in the deferred tax asset valuation allowance.
 
(2) See Note 9 of Notes to Financial Statements for an explanation of the number
    of shares used in computing net income per share.
 
                                       10
<PAGE>   12
 
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
 
     The following discussion and analysis should be read in conjunction with
the Company's Financial Statements and Notes thereto included elsewhere in this
Form 10-K. This Form 10-K contains, in addition to historical information,
forward-looking statements that involve risks and uncertainties. The Company's
actual results could differ materially from the results discussed in the
forward-looking statements. Factors that could cause or contribute to such
differences include those discussed below. The data should be read in
conjunction with the Financial Statements and Notes thereto included elsewhere
in this Form 10-K. The Company's fiscal year consists of the 52/53-week period
that ends on the Thursday nearest to June 30. For convenience of presentation,
all fiscal periods in this Form 10-K are shown as ending on a calendar
month-end.
 
OVERVIEW
 
     SeaMED is a manufacturer of advanced medical instruments for medical
technology companies. SeaMED was incorporated in 1976, and since 1988 has
focused its business primarily on manufacturing medical instruments for medical
technology companies. To assist its customers in developing and commercializing
their products for manufacture by SeaMED, the Company provides a wide range of
engineering services and regulatory expertise.
 
     SeaMED's manufacturing contracts with its customers are usually exclusive
contracts for a fixed period of time, generally ranging from three to five
years. SeaMED negotiates each manufacturing contract independently, and each
varies as to profitability. SeaMED negotiates the price of each manufactured
instrument on a cost and margin formula. SeaMED's contracts with its customers
generally permit annual manufacturing cost audits and price renegotiations.
During the contract term, customers have broad discretion to control the volume
and timing of instrument deliveries. Consequently, SeaMED's revenues with
respect to each instrument may vary substantially from period to period, and an
instrument that generates revenues in one quarter may not necessarily generate
revenues in each quarter of a fiscal year. In addition, for a variety of reasons
such as a customer's inventory levels, sales mix and timing of product launches,
SeaMED's revenues for an instrument do not necessarily correspond to the
customer's sales.
 
     Manufacturing revenue growth depends primarily on two factors: increased
demand for instruments manufactured by SeaMED and SeaMED's ability to attract
additional manufacturing contracts from emerging and established medical
technology companies. SeaMED has no ability to increase demand for the
instruments it manufactures because SeaMED's customers control all product
marketing and sales. SeaMED markets its manufacturing capabilities and usually
procures additional manufacturing contracts as a result of its engineering
projects, but the volume and timing of future manufacturing revenues that relate
to any specific engineering project are highly variable, and certain engineering
projects may not lead to future manufacturing revenues. The manufacturing gross
margin percentage from year to year depends primarily on the product mix, as
gross margins vary by instrument and as a result of negotiated volume discounts.
Management may negotiate volume discounts if the larger volume results in
smaller per unit overhead allocation, thereby improving operating margin. For
manufacturing revenues from instruments not yet approved for commercial use
(known as "preproduction revenues"), the gross margin percentage is generally
lower because a smaller number of units limits opportunities to achieve
economies of scale, and the instrument and its manufacturing process are being
refined.
 
     SeaMED provides its customers with engineering services at any stage of an
instrument's development, as part of its strategy to obtain exclusive
manufacturing rights for an instrument. SeaMED generally provides engineering
services under a project plan that identifies the engineering tasks,
deliverables and schedule. SeaMED negotiates each engineering project plan
independently, and, as a business strategy, generally prices engineering
contracts to cover direct project expenses (i.e., nonrecurring engineering
expenses) plus a share of marketing, general and administrative expenses.
SeaMED's objective in providing engineering services is to obtain, for a
specific time period (usually three to five years), exclusive manufacturing
rights to the instrument resulting from the engineering project. The customer
can typically cancel the engineering project at any time upon short notice.
 
                                       11
<PAGE>   13
 
     Engineering revenues are derived primarily from professional services
provided by SeaMED's engineers. The balance of engineering revenues is sales of
materials to customers at cost. Engineering revenue growth depends primarily on
three factors: (i) the number and scope of existing engineering projects, (ii)
whether existing projects are in time-intensive phases, and (iii) whether new
engineering projects of sufficient scope replace engineering projects that are
completed or otherwise terminated. Engineering gross margins are low due to
SeaMED's strategy of pricing engineering services as part of an exclusive
manufacturing contract for the resulting instrument. Since demand for
engineering services is based on the number and scope of engineering projects,
if customers cancel one or more projects on short notice, SeaMED may experience
from time to time excess engineering capacity. Engineering margins may fluctuate
depending on the rates that customers pay under engineering project plans and
the utilization rates of engineers.
 
     From time-to-time SeaMED selectively designs and manufactures nonmedical
commercial products that benefit from SeaMED's engineering and manufacturing
capabilities. SeaMED intends to maintain as its primary focus the design and
manufacturing of advanced medical instruments for medical technology companies.
 
     Marketing, general and administrative expenses include the costs of
SeaMED's marketing, finance, and management information systems departments and
other administrative costs. In addition, marketing, general and administrative
expenses include the cost of a Company-wide bonus tied to operating performance
and return on operating assets based on an operating plan approved by the Board
of Directors. Future payments will vary based on the Company's performance
relative to plan objectives.
 
RESULTS OF OPERATIONS
 
     The following table sets forth statement of income data as a percentage of
revenues for the fiscal years indicated.
 
<TABLE>
<CAPTION>
                                                                YEAR ENDED JUNE 30,
                                                              -----------------------
                                                              1998     1997     1996
                                                              -----    -----    -----
<S>                                                           <C>      <C>      <C>
Revenues....................................................  100.0%   100.0%   100.0%
Cost of sales...............................................   83.3     82.7     80.7
                                                              -----    -----    -----
Gross margin................................................   16.7     17.3     19.3
Marketing, general and administrative expenses..............    7.9      9.3     11.3
                                                              -----    -----    -----
Operating income............................................    8.8      8.0      8.0
Other income (expenses), net................................    0.2       --     (0.7)
                                                              -----    -----    -----
Income before income taxes..................................    9.0      8.0      7.3
Income tax provision........................................    3.1      2.8      2.6
                                                              -----    -----    -----
Net income..................................................    5.9%     5.2%     4.7%
                                                              =====    =====    =====
</TABLE>
 
  Revenues
 
     The following table sets forth revenues with the corresponding percentage
of total revenues and the year-to-year percentage increase for the fiscal years
indicated.
 
<TABLE>
<CAPTION>
                                                             YEAR ENDED JUNE 30,
                            -------------------------------------------------------------------------------------
                                   1998                             1997                             1996
                            -------------------              -------------------              -------------------
                                         % OF                             % OF                             % OF
                                        TOTAL        %                   TOTAL        %                   TOTAL
                            REVENUES   REVENUES   INCREASE   REVENUES   REVENUES   INCREASE   REVENUES   REVENUES
                            --------   --------   --------   --------   --------   --------   --------   --------
                                                           (DOLLARS IN THOUSANDS)
<S>                         <C>        <C>        <C>        <C>        <C>        <C>        <C>        <C>
Manufacturing.............  $44,389      63.4%      34.6%    $32,983      63.3%      86.1%    $17,725      67.8%
Engineering...............   25,592      36.6       33.6%     19,150      36.7      127.8%      8,405      32.2
                            -------     -----       ----     -------     -----      -----     -------     -----
          Total
            revenues......  $69,981     100.0%      34.2%    $52,133     100.0%      99.5%    $26,130     100.0%
                            =======     =====       ====     =======     =====      =====     =======     =====
</TABLE>
 
     Manufacturing revenues increased by approximately $11.4 million in fiscal
year 1998 from fiscal year 1997, due primarily to three medical instruments
adding approximately $8.3 million and one nonmedical
 
                                       12
<PAGE>   14
 
product manufactured for Coinstar under a nonexclusive contract adding
approximately $2.8 million in revenues. Increases in manufacturing revenues were
offset by decreased volume of certain instruments and the phaseout of other
instruments. Manufacturing revenues increased by approximately $15.3 million in
fiscal year 1997 from fiscal year 1996, due primarily to a nonmedical product
manufactured for Coinstar under a nonexclusive contract adding approximately
$10.0 million in revenues and new and existing instruments adding approximately
$9.1 million in revenues. Increases in manufacturing revenues in fiscal year
1997 were offset by decreased volume of certain instruments and the phaseout of
other instruments.
 
     Sales to Coinstar in fiscal year 1998 represented approximately 23% of
total revenue and approximately 32% of manufacturing revenue, compared to 25% of
total revenue and 35% of manufacturing revenue in fiscal year 1997. SeaMED
management expects that sales to Coinstar as a percentage of total sales will
continue to decline in future years.
 
     Significant manufacturing revenues were generated by 19 medical instruments
in fiscal year 1998 compared to 14 medical instruments in fiscal year 1997. The
only nonmedical commercial product that generated significant manufacturing
revenues during fiscal years 1998 and 1997 was the Coinstar coin-counting
machine.
 
     Engineering revenues increased by approximately $6.4 million in fiscal year
1998 from fiscal year 1997, due primarily to new projects and increased time
and, to a lesser extent, increased hourly rates being billed on existing
projects adding approximately $12.2 million in revenues. Engineering revenues
increased by approximately $10.7 million in fiscal year 1997 from fiscal year
1996, due primarily to new projects and increased time and hourly rates on
existing projects adding approximately $9.9 million in revenues. Increases in
engineering revenues were offset by the transition of certain projects from
engineering to manufacturing and other projects being delayed or canceled.
 
     Approximately $5.1 million of the revenue in fiscal year 1998 came from
United States Surgical Corporation, compared to $6.7 million in fiscal year
1997. Engineering revenue for United States Surgical in fiscal year 1998
represented approximately 20% of total engineering revenue and approximately 17%
of total revenue. Sales to United States Surgical in fiscal year 1997
represented approximately 35% of total engineering revenue and approximately 14%
of total revenue. SeaMED management expects sales to United States Surgical as a
percentage of total sales to decline in future years.
 
     As of the respective ends of fiscal years 1998 and 1997, SeaMED had in its
engineering project pipeline 22 and 18 new medical instruments or systems, and
six and eight projects that enhance or are intended to extend the life cycle of
existing medical instruments or systems. The 28 medical projects in the pipeline
as of fiscal year 1998 were being performed for 21 different customers (26
medical projects for 21 different customers as of the end of fiscal year 1997).
Although management believes that the 28 medical projects in the pipeline have a
good chance of some day resulting in manufacturing contracts from which SeaMED
will derive substantial manufacturing revenues, the volume and timing of future
manufacturing revenues that relate to any specific engineering project are
highly variable, and certain engineering projects in the pipeline may not lead
to future manufacturing revenues.
 
     All projects in SeaMED's engineering pipeline at June 30, 1998 were for
medical instruments.
 
     Price adjustments under existing manufacturing contracts have not been
significant. Increases in revenues have not been significantly influenced by
inflation.
 
                                       13
<PAGE>   15
 
  Gross margin
 
     The following table sets forth gross margin, both in dollar amounts and as
a percentage of the corresponding revenue figure for the fiscal years indicated.
 
<TABLE>
<CAPTION>
                                                     YEAR ENDED JUNE 30,
                          --------------------------------------------------------------------------
                                   1998                      1997                      1996
                          ----------------------    ----------------------    ----------------------
                            GROSS        GROSS        GROSS        GROSS        GROSS        GROSS
                          MARGIN($)    MARGIN(%)    MARGIN($)    MARGIN(%)    MARGIN($)    MARGIN(%)
                          ---------    ---------    ---------    ---------    ---------    ---------
                                                    (DOLLARS IN THOUSANDS)
<S>                       <C>          <C>          <C>          <C>          <C>          <C>
Manufacturing...........   $ 8,231       18.5%       $6,615        20.1%       $4,184        23.6%
Engineering.............     3,465       13.5%        2,387        12.5%          854        10.2%
                           -------                   ------                    ------
     Total gross
       margin...........   $11,696       16.7%       $9,002        17.3%       $5,038        19.3%
                           =======                   ======                    ======
</TABLE>
 
     Manufacturing gross margin decreased to 18.5% of manufacturing revenues in
fiscal year 1998 from 20.1% in fiscal year 1997, due primarily to changes in the
product mix to lower gross margin products, including margin derived from the
Company's nonmedical customer. Fiscal year 1997 was also the last year SeaMED
derived revenues and high margin from its proprietary instrument. SeaMED's
revenue from its proprietary instrument was $1.4 million in both fiscal year
1997 and fiscal year 1996. Engineering gross margin as a percentage of
engineering revenues increased to 13.5% in fiscal year 1998 from 12.5% in fiscal
year 1997. This trend was due primarily to (i) spreading certain fixed
engineering costs over a higher revenue base, (ii) better utilization of
engineers, and (iii) increased hourly rates for engineering services.
 
     Manufacturing gross margin decreased to 20.1% of manufacturing revenues in
fiscal year 1997 from 23.6% in fiscal year 1996, due primarily to changes in the
product mix to lower gross margin products, including margin derived from it's
nonmedical customer. Pre-production revenue in fiscal year 1997, which
historically produces lower gross margins, doubled as a percentage of sales from
fiscal year 1996. Engineering gross margin as a percentage of engineering
revenues increased to 12.5% in fiscal year 1997 from 10.2% in fiscal year 1996.
This trend was due primarily to (i) spreading certain fixed engineering costs
over a higher revenue base, (ii) better utilization of engineers, and (iii)
increased hourly rates for engineering services.
 
     SeaMED management expects manufacturing gross margins as a percentage of
revenue to fluctuate from quarter to quarter as new products are introduced, but
to average approximately 20% over time. Management expects that engineering
gross margins as a percentage of sales will also fluctuate from quarter to
quarter but should approximate 11%.
 
  Marketing, General and Administrative Expenses
 
     Marketing, general and administrative expenses increased to $5.5 million in
fiscal year 1998 from $4.8 million in fiscal year 1997 and $2.9 million in
fiscal year 1996, but as a percentage of revenue decreased from 11.3% in fiscal
year 1996 to 9.3% in fiscal year 1997 to 7.9% in fiscal 1998. The dollar
increases were due primarily to costs associated with disseminating information
to shareholders and the public, increased headcount and management information
systems costs associated with the Company's growth. The decrease in marketing,
general and administrative expenses as a percentage of revenue is primarily due
to the spreading of fixed costs over a higher revenue base. If anticipated
revenue growth occurs, SeaMED management expects marketing, general and
administrative expenses as a percentage of revenues to decline in the near term.
 
  Operating Income
 
     Operating income increased 48.6% to $6.2 million (8.8% of revenues) in
fiscal year 1998 from $4.2 million (8.0% of revenues) in fiscal year 1997. The
$4.2 million in operating income in fiscal year 1997 represented a 97.7%
increase from fiscal year 1996. Increases in operating income are due primarily
to an increase in sales volume, improved engineering margins and a decrease in
marketing, general and administrative expenses as a percent of sales. These
improvements were offset by the decrease in manufacturing margins in 1998 and
1997 and by the increase in Company-wide bonus in fiscal year 1997.
 
                                       14
<PAGE>   16
 
  Income Taxes
 
     During 1998, 1997 and 1996, the Company's effective tax rate has remained
stable at a rate that approximates the federal statutory rate of 34%, and the
Company expects that its effective tax rate will continue to approximate the
federal statutory rate in the future.
 
LIQUIDITY AND CAPITAL RESOURCES
 
     SeaMED has historically financed its operations through earnings, debt and
sales of securities. In fiscal year 1998 SeaMED's operating activities provided
$98,000 to the Company. This total amount of net cash in fiscal year 1998 was
relatively small despite increased earnings, due primarily to SeaMED's growth
requiring substantial working capital primarily to support increased accounts
receivable and inventories.
 
     As part of its strategy to finance its growth, on November 19, 1996, SeaMED
completed its initial public offering of securities, selling 1,529,720 shares of
common stock at $11 per share, resulting in net proceeds to the Company of
approximately $14.8 million. Of the net proceeds, the Company used approximately
$1.8 million to pay a cumulative preferred dividend on its convertible
redeemable preferred stock, approximately $1.8 million to pay down a line of
credit to zero and approximately $1.3 million to pay off three notes payable.
 
     SeaMED has used a portion of the remaining net proceeds to continue funding
working capital needs resulting from its growth and for general corporate
purposes, including leasehold improvements and purchases of equipment. If the
opportunity arises, the Company may use a portion of the net proceeds to acquire
other manufacturing or engineering businesses or assets that complement the
Company's existing business. The Company currently is not engaged in any
discussions regarding such acquisitions and has no plans, arrangements,
understandings or agreements regarding any specific acquisition.
 
     During fiscal year 1998, the Company borrowed $2.5 million against an
existing equipment credit facility. In addition, the Company has committed to
borrow the remaining $1.5 million by September 30, 1998. Borrowings under this
agreement bear interest at LIBOR plus 1.4% (7.02% at June 30, 1998).
 
     In July of 1998, the Company's Board of Directors approved an equipment
line of credit up to $5.0 million. Borrowings under this facility bear interest
at LIBOR plus 1.4%. This agreement expires October 1, 2001.
 
     In July of 1998, the Company's Board of Directors approved an increase to
its existing working capital line of credit. Under this agreement the Company
can borrow up to 85% of eligible accounts receivable and 50% of eligible
inventory up to a maximum of $20.0 million. Borrowings under this agreement and
the equipment line of credit agreement are payable on demand if certain
covenants are not met. These covenants include a maximum debt-to-equity ratio of
1.25-to-1, minimum ratio of earnings before income taxes and interest of
2.0-to-1 and dividend restrictions. Borrowings under this agreement bear
interest at the bank's prime rate minus .25% or LIBOR plus 1.2%. This agreement
expires October 1, 2001. There were no borrowings outstanding under this line of
credit at June 30, 1998.
 
     The Company is subject to interest rate risk resulting from amounts
outstanding under one of its borrowings. At June 30, 1998, the Company had an
interest rate contract with a notional principal amount of $2.5 million that
effectively converts the $2.5 million variable rate note to a fixed rate of
7.5%.
 
     SeaMED believes that the remaining net proceeds from its initial public
offering together with existing capital resources and amounts available under
its existing working capital facility, will satisfy the Company's anticipated
capital needs for the next 18 to 36 months (depending primarily on SeaMED's
growth rate and its results of operations). To accommodate anticipated future
growth, SeaMED will need additional sources of capital to fund working capital
needs for inventory and accounts receivable, to lease and acquire furniture and
equipment for additional plant facilities, fund leasehold improvements and make
other capital expenditures.
 
     In July of 1998, SeaMED took occupancy of 41,000 new square feet to support
its growth. SeaMED now has approximately 193,000 total square feet of space. The
Company will take an additional 20,500 square feet in January of 1999 and
another 20,500 square feet in June of 1999, bringing total square footage to
234,000 by
                                       15
<PAGE>   17
 
the end of fiscal 1999. The 82,000 total square feet acquired from July of 1998
through June of 1999 are located in a single new building. Due in large part to
preparing the new facilities for occupancy, SeaMED anticipates spending $4.4
million on capital expenditures in fiscal year 1999, compared to $2.6 million in
fiscal year 1998 and $2.8 million in fiscal year 1997. Capital expenditures were
$1.5 million in fiscal year 1996.
 
OUTLOOK: ISSUES AND UNCERTAINTIES
 
     The Company does not provide forecasts of future financial performance.
While SeaMED's management is optimistic about the Company's long-term prospects,
the following issues and uncertainties, among others, should be considered in
evaluating its growth outlook.
 
  Customer Risk Factors
 
     SeaMED's success depends on the success of its customers and their
instruments manufactured by SeaMED. Any unfavorable developments or adverse
effects on the sales of those products or its customers' businesses, results of
operations or financial condition could have a corresponding adverse effect on
SeaMED. SeaMED believes that its customers and their products (and, accordingly,
SeaMED) are generally subject to the following risks:
 
     Competitive Environment. The medical products industry is highly
competitive and subject to significant technological change, and requires
ongoing investment to keep pace with technological developments and quality and
regulatory requirements. Many of SeaMED's customers are emerging medical
technology companies that have competitors and potential competitors with
substantially greater capital resources, research and development staffs and
facilities and substantially greater experience in developing new products,
obtaining regulatory approvals and manufacturing and marketing medical products.
 
     Customer Regulatory Compliance. The Food and Drug Administration (the
"FDA") regulates instruments manufactured by SeaMED under the Federal Food,
Drug, and Cosmetic Act, as amended (the "FDC Act"), which requires certain
clearances or approvals from the FDA before new medical devices can be marketed.
Certain medical instruments manufactured by SeaMED may be subject to the need to
obtain FDA approval of a premarket approval application ("PMA"), which requires
substantial preclinical and clinical testing and may cause delays and prevent
introduction of such instruments. Other instruments can be marketed only by
establishing "substantial equivalence" to a predicate device in a 510(k)
premarket notification. Customer sales of SeaMED-manufactured medical
instruments outside the United States are subject to regulatory requirements
that vary widely from country to country. The time required to obtain approval
for sales in foreign countries may be longer or shorter than that required for
FDA approval, and the requirements may differ. There can be no assurance that
required clearances or approvals will be obtained on a timely basis, if at all.
 
     Medical instruments manufactured by SeaMED and marketed by its customers
pursuant to FDA clearances or approvals are subject to pervasive and continuing
regulation by the FDA and certain state and foreign regulatory agencies. If a
customer engages in prohibited marketing practices, the FDA or another
regulatory agency with applicable jurisdiction could intervene, possibly
resulting in marketing restrictions, including prohibitions on further product
sales, or civil or criminal penalties.
 
     Uncertain Market Acceptance of Products; Product Obsolescence. There can be
no assurance that SeaMED's customers' products will gain any significant market
acceptance and market share among physicians, patients and health care payors,
even if required regulatory approvals are obtained. Market acceptance may depend
on a variety of factors, including educating physicians regarding the use of a
new procedure, overcoming physician objections to certain effects of the product
or its related treatment regimen, and convincing health care payors that the
benefits of the product and its related treatment regimen outweigh its costs. In
addition, the marketplace for medical products is characterized by rapid change
and technological innovation. As a result, SeaMED and its customers are subject
to the risk of product obsolescence, whether from long development or government
approval cycles or the development of improved products or processes by
competitors.
 
                                       16
<PAGE>   18
 
     Customers' Future Capital Requirements. Many of SeaMED's customers,
especially emerging medical technology companies, are not profitable and may
have little or no revenues, but they have significant working capital
requirements, for which the customer may be required to raise additional funds
through public or private financings, including equity financings. Adequate
funds for their operations may not be available when needed, if at all.
 
     Uncertainty of Third-party Reimbursement. Sales of many of the instruments
manufactured by SeaMED will be dependent in part on availability of adequate
reimbursement for those instruments from third-party health care payors, such as
government and private insurance plans, health maintenance organizations and
preferred provider organizations. There can be no assurance that adequate levels
of reimbursement will be available to enable SeaMED's customers to achieve
market acceptance of their products.
 
     Nonmedical Customer. SeaMED's nonmedical customer is subject to general
business risks, such as competition, market acceptance of its product, capital
requirements and credit risks. SeaMED's nonmedical customer operates in a highly
competitive industry in which its product competes on price, quality and product
enhancements and is subject to risks of technological obsolescence. As a result,
sales to its nonmedical customer may be volatile and subject to risks of
cancellation.
 
  Variability of Operating Results
 
     SeaMED's annual and quarterly operating results are affected by a number of
factors, including the volume and timing of customer orders, which vary due to
(i) variation in demand for the customer's products as a result of, among other
things, product life cycles, competitive conditions and general economic
conditions, (ii) the customer's attempt to balance its inventory, (iii) the
customer's need to adapt to changing regulatory conditions and requirements, and
(iv) changes in the customer's manufacturing strategy. Under the terms of
SeaMED's contracts with its customers, SeaMED's customers have broad discretion
to control the volume and timing of instrument deliveries. As a result,
production may be reduced or discontinued at any time, causing substantial sales
fluctuations from quarter to quarter or from year to year. Because SeaMED's
business organization and its related cost structure anticipate supporting a
certain minimum level of revenues, the Company's limited ability to adjust its
short-term cost structure would compound the adverse effect of any significant
revenue reduction.
 
  Dependence on Small Number of Customers
 
     Historically, a substantial percentage of SeaMED's net sales have been to
fewer than 10 customers. SeaMED's sales to Coinstar, a nonmedical customer for
which SeaMED manufactures a coin-counting machine that exchanges loose coins for
currency, represented approximately 23% of SeaMED's revenues for fiscal year
1998. SeaMED currently manufactures these machines under a nonexclusive
three-year manufacturing agreement with Coinstar that allows Coinstar to cancel
or modify orders with SeaMED on 90 days' notice. SeaMED's sales to United States
Surgical Corporation were approximately 17% of SeaMED's revenues for fiscal year
1998. If one or more of SeaMED's customers experiences exceptional growth
relative to other SeaMED customers, then SeaMED's success could become
substantially more dependent on the continued success of such customer, and any
unfavorable development regarding such customer or its product could result in a
material adverse effect on the Company's business, results of operations and
financial condition.
 
  Competition
 
     SeaMED faces competition from current and prospective customers who
evaluate SeaMED's capabilities against the merits of designing, engineering and
manufacturing instruments internally. SeaMED also faces competition from design
firms and other manufacturers that operate in the medical technology industry.
As a result of the consolidation in the health care industry of smaller
manufacturers into larger manufacturers, some existing or prospective customers
may be eliminated. In the future, SeaMED may also compete against new entrants
to the industry.
 
                                       17
<PAGE>   19
 
  Uncertainty of Market Acceptance of Outsourcing Manufacture of Medical
Instruments
 
     SeaMED believes that the market for outsourcing the manufacture of advanced
medical instruments for medical technology companies is in its early stages. As
a result, potential customers may decide that the risks of outsourcing
engineering or manufacturing are too great or exceed the anticipated benefits of
outsourcing.
 
  Compliance with Regulatory Agency Requirements
 
     SeaMED is subject to a variety of regulatory agency requirements in the
United States and foreign countries relating to the instruments that it
manufactures for its customers. The process of obtaining and maintaining
required regulatory approvals and otherwise remaining in regulatory compliance
in the United States and certain other countries is lengthy, expensive and
uncertain. SeaMED also is subject to numerous federal, state and local laws
relating to such matters as safe working conditions, manufacturing practices,
environmental protection, fire hazard control and disposal of hazardous or
potentially hazardous substances.
 
  Product Recalls, Product Liability and Insurance
 
     Many of the instruments SeaMED designs or manufactures are life-sustaining,
life-supporting or implantable medical products. The tolerance for error in the
design, manufacture or use of these products may be small or nonexistent. If an
instrument designed or manufactured by the Company is found to be defective,
whether due to design or manufacturing defects, to improper use of the product
or to other reasons, the instrument may need to be recalled, possibly at the
Company's expense. A product recall could cause a general investigation of the
Company by applicable regulatory authorities as well as cause other customers to
review and potentially terminate their relationships with the Company.
 
     The manufacture and sale of the medical instruments manufactured by SeaMED
involve the risk of product liability claims. Although SeaMED maintains product
liability insurance, there can be no assurance that the coverage of the
Company's insurance policies will be adequate. Product liability insurance is
expensive and in the future may not be available on acceptable terms, in
sufficient amounts, or at all.
 
  Dependence on Key Personnel
 
     SeaMED's future success depends to a significant extent on the continued
service of certain of its key managerial, technical and engineering personnel,
particularly its President and Chief Executive Officer, W. Robert Berg, and its
continuing ability to attract, train, assimilate and retain highly qualified
engineering, technical and managerial personnel experienced in commercializing
medical products.
 
  Potential Inability to Sustain and Manage Growth
 
     SeaMED's ability to manage its growth effectively will require it to
continue to implement and improve its operational, financial and management
information systems, to develop its managers' and project engineers' management
skills and to train, motivate and manage its employees. SeaMED depends on its
computer system to integrate its manufacturing processes with its quality
assurance procedures (including, for example, maintaining distribution records
and allowing for the tracing of certain product lots) to comply with regulatory
requirements. Any difficulties or delays in maintaining or upgrading the
computer system could adversely affect the manufacture and delivery of customer
instruments, and the Company's management, reporting and internal control
systems.
 
  Limited Suppliers and Shortages of Component Parts
 
     SeaMED relies on third-party suppliers for each of the component parts used
in manufacturing its customers' instruments. Although component parts are
generally available from multiple suppliers, certain component parts may require
long lead times, and SeaMED may have to delay the manufacture of customer
instruments from time to time due to the unavailability of certain component
parts. In addition, even if component parts are available from an alternative
supplier, SeaMED could experience additional delays in obtaining component parts
if the supplier has not met SeaMED's vendor qualifications.
 
                                       18
<PAGE>   20
 
  Year 2000 Technology Issues
 
     The Company has analyzed its Year 2000 technology issues in its information
technology systems and has begun to implement corrective measures, currently
scheduled for completion by December 31, 1998. The Company identified Year 2000
issues primarily in the Company's financial information software programs. The
Company has not analyzed Year 2000 issues in its noninformation technology
assets nor has it formulated contingency plans in the event its technology
systems are adversely affected by Year 2000 issues despite corrective measures.
 
     The Company recognizes that its operations and manufacturing revenues may
be adversely impacted if its customers do not address Year 2000 issues on a
timely basis. The Food and Drug Administration ("FDA") has issued regulations
requiring all medical device companies (which includes almost all SeaMED
customers) to be Year 2000 compliant. Accordingly, the Company has been
monitoring FDA Year 2000 compliance filings of its manufacturing customers and
has been in contact with several key customers in order to determine their state
of Year 2000 readiness.
 
     The Company has not to date analyzed its suppliers' Year 2000 readiness.
The Company currently plans to focus its attention primarily on its largest
suppliers and begin assessing their readiness in the coming quarters. In
addition, the Company recognizes that its service providers, such as freight
companies, mail and other delivery services, financial services companies and
others, may adversely effect SeaMED if they do not address Year 2000 issues. The
Company has no plans to evaluate the Year 2000 readiness of such providers. The
Company does not expect the costs associated with Year 2000 upgrades to exceed
$100,000.
 
                                       19
<PAGE>   21
 
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 
                         INDEX TO FINANCIAL STATEMENTS
 
<TABLE>
<CAPTION>
                                                              PAGE
                                                              ----
<S>                                                           <C>
Report of Ernst & Young LLP, Independent Auditors...........   21
Financial Statements:
  Balance Sheets as of June 30, 1998 and 1997...............   22
  Statements of Income for the Years Ended June 30, 1998,
     1997, and 1996.........................................   23
  Statements of Shareholders' Equity for the Years Ended
     June 30, 1998, 1997, and 1996..........................   24
  Statement of Cash Flows for the Years Ended June 30, 1998,
     1997, and 1996.........................................   25
  Notes to Financial Statements.............................   26
  Schedule II -- Valuation and Qualifying Accounts for the
     Years Ended June 30, 1998, 1997, and 1996..............   36
</TABLE>
 
                                       20
<PAGE>   22
 
               REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
 
Board of Directors
SeaMED Corporation
 
     We have audited the accompanying balance sheets of SeaMED Corporation as of
June 30, 1998 and 1997, and the related statements of income, shareholders'
equity, and cash flows for each of the three years in the period ended June 30,
1998. Our audits also included the financial statement schedule listed in the
Index at Item 14(a). These financial statements and schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and schedule based on our audits.
 
     We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
 
     In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of SeaMED Corporation as of
June 30, 1998 and 1997, and the results of its operations and its cash flows for
each of the three years in the period ended June 30, 1998, in conformity with
generally accepted accounting principles. Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
 
                                          ERNST & YOUNG LLP
 
Seattle, Washington
August 14, 1998
 
                                       21
<PAGE>   23
 
                                 BALANCE SHEETS
 
<TABLE>
<CAPTION>
                                                                       JUNE 30,
                                                              --------------------------
                                                                 1998           1997
                                                              -----------    -----------
<S>                                                           <C>            <C>
Assets
Current assets:
  Cash and cash equivalents.................................  $ 6,428,718    $     9,092
  Investments...............................................           --      6,231,369
  Accounts receivable, net of allowance of $505,865
     ($377,890 in 1997).....................................   13,189,092      8,794,968
  Inventories...............................................   15,185,517     11,198,563
  Deferred tax benefit......................................    1,733,348      1,193,311
  Prepaid expenses..........................................      223,370        169,553
                                                              -----------    -----------
Total current assets........................................   36,760,045     27,596,856
Property and equipment......................................    5,162,172      4,331,814
Deposits and other assets...................................      934,337        202,845
                                                              -----------    -----------
          Total assets......................................  $42,856,554    $32,131,515
                                                              ===========    ===========
Liabilities and Shareholders' Equity
Current liabilities:
  Accounts payable..........................................  $ 4,323,740    $ 2,482,551
  Accrued expenses and reserves.............................    5,029,410      5,041,086
  Customer deposits.........................................    2,576,916        746,629
  Borrowings under bank line of credit......................           --      1,068,240
  Current portion of long-term debt.........................      558,144             --
                                                              -----------    -----------
Total current liabilities...................................   12,488,210      9,338,506
Long-term debt, less current portion........................    2,435,021             --
Shareholders' equity:
  Preferred stock, $0.01 par value:
     Authorized shares -- 5,000,000 undesignated............           --             --
  Common stock, no par value:
     Authorized shares -- 10,000,000
     Issued and outstanding shares -- 5,463,298 (5,263,827
      in 1997)..............................................   20,723,960     19,722,865
Note receivable from officer................................      (75,000)       (75,000)
  Retained earnings.........................................    7,284,363      3,145,144
                                                              -----------    -----------
     Total shareholders' equity.............................   27,933,323     22,793,009
                                                              -----------    -----------
          Total liabilities and shareholders' equity........  $42,856,554    $32,131,515
                                                              ===========    ===========
</TABLE>
 
                            See accompanying notes.
                                       22
<PAGE>   24
 
                              STATEMENTS OF INCOME
 
<TABLE>
<CAPTION>
                                                                 YEAR ENDED JUNE 30,
                                                      -----------------------------------------
                                                         1998           1997           1996
                                                      -----------    -----------    -----------
<S>                                                   <C>            <C>            <C>
Revenues:
  Manufacturing.....................................  $44,388,608    $32,983,491    $17,724,883
  Engineering.......................................   25,592,644     19,150,019      8,405,352
                                                      -----------    -----------    -----------
                                                       69,981,252     52,133,510     26,130,235
Cost of revenues:
  Manufacturing.....................................   36,157,294     26,368,242     13,541,280
  Engineering.......................................   22,127,908     16,763,316      7,551,399
                                                      -----------    -----------    -----------
                                                       58,285,202     43,131,558     21,092,679
                                                      -----------    -----------    -----------
Total gross margin..................................   11,696,050      9,001,952      5,037,556
Marketing, general, and administrative expenses.....    5,524,535      4,849,413      2,937,556
                                                      -----------    -----------    -----------
Operating income....................................    6,171,515      4,152,539      2,100,000
Other income (expense):
  Interest expense..................................      (73,788)      (190,989)      (198,274)
  Interest and other income, net....................      173,817        232,522          6,665
                                                      -----------    -----------    -----------
                                                          100,029         41,533       (191,609)
                                                      -----------    -----------    -----------
Income before income taxes..........................    6,271,544      4,194,072      1,908,391
Income tax provision................................   (2,132,325)    (1,467,925)      (667,937)
                                                      -----------    -----------    -----------
Net income..........................................  $ 4,139,219    $ 2,726,147    $ 1,240,454
                                                      ===========    ===========    ===========
Net income per share data:
  Basic.............................................  $      0.78    $      0.76    $      1.61
                                                      ===========    ===========    ===========
  Diluted...........................................  $      0.73    $      0.55    $      0.33
                                                      ===========    ===========    ===========
</TABLE>
 
                            See accompanying notes.
                                       23
<PAGE>   25
 
                              SHAREHOLDERS' EQUITY
 
<TABLE>
<CAPTION>
                                       COMMON STOCK             NOTE        RETAINED        TOTAL
                                  -----------------------    RECEIVABLE     EARNINGS    SHAREHOLDERS'
                                   SHARES       AMOUNT      FROM OFFICER   (DEFICIT)       EQUITY
                                  ---------   -----------   ------------   ----------   -------------
<S>                               <C>         <C>           <C>            <C>          <C>
Balance, July 1, 1995...........    548,964   $   783,560     $     --     $ (821,457)   $   (37,897)
  Stock options exercised.......     89,735        28,268           --             --         28,268
  Common stock issued in
     exchange for note
     receivable.................     30,000        75,000      (75,000)            --             --
  Fractional shares issued due
     to reverse stock split.....          8            --           --             --             --
  Net income....................         --            --           --      1,240,454      1,240,454
                                  ---------   -----------     --------     ----------    -----------
Balance, June 30, 1996..........    668,707       886,828      (75,000)       418,997      1,230,825
  Common stock sold in initial
     public offering (net of
     offering cost).............  1,529,720    14,822,755           --             --     14,822,755
  Issuance of common stock for
     conversion of redeemable
     preferred stock............  2,934,029     5,279,514           --             --      5,279,514
  Preferred stock dividends.....         --    (1,765,100)          --             --     (1,765,100)
  Common stock sold under
     employee stock purchase
     plan.......................     41,515       389,141           --             --        389,141
  Stock options exercised.......     89,856        50,672           --             --         50,672
  Tax benefit from stock options
     and stock purchase plan....         --        59,055           --             --         59,055
  Net income....................         --            --           --      2,726,147      2,726,147
                                  ---------   -----------     --------     ----------    -----------
Balance, June 30, 1997..........  5,263,827    19,722,865      (75,000)     3,145,144     22,793,009
  Common stock sold under
     employee stock purchase
     plan.......................     44,602       671,372           --             --        671,372
  Stock options exercised.......    126,974       114,522           --             --        114,522
  Tax benefit from stock options
     and stock purchase plan....         --       215,201           --             --        215,201
  Common stock warrants
     exercised..................     27,895            --           --             --             --
  Net income....................         --            --           --      4,139,219      4,139,219
                                  ---------   -----------     --------     ----------    -----------
Balance, June 30, 1998..........  5,463,298   $20,723,960     $(75,000)    $7,284,363    $27,933,323
                                  =========   ===========     ========     ==========    ===========
</TABLE>
 
                            See accompanying notes.
                                       24
<PAGE>   26
 
                            STATEMENTS OF CASH FLOWS
 
<TABLE>
<CAPTION>
                                                                 YEAR ENDED JUNE 30,
                                                      -----------------------------------------
                                                         1998           1997           1996
                                                      -----------    -----------    -----------
<S>                                                   <C>            <C>            <C>
                                     OPERATING ACTIVITIES
NET INCOME..........................................  $ 4,139,219    $ 2,726,147    $ 1,240,454
Adjustments to reconcile net income to net cash
  provided by (used in) operating activities:
  Depreciation......................................    1,790,378      1,073,885        693,752
  Provision for bad debt............................      127,975        125,664         47,743
  Deferred tax benefit..............................     (540,037)      (568,090)       (95,539)
  Changes in operating assets and liabilities:
     Increase in accounts receivable................   (4,522,098)    (3,044,699)    (2,569,134)
     Increase in inventories........................   (3,986,954)    (4,501,315)    (2,977,592)
     Increase in other assets and prepaid
       expenses.....................................     (785,309)      (164,642)       (38,644)
     Increase in accounts payable, accrued expenses,
       and deferred revenue.........................    3,875,000      2,340,097      3,402,643
                                                      -----------    -----------    -----------
Net cash provided by (used in) operating
  activities........................................       98,174     (2,012,953)      (296,317)
INVESTING ACTIVITIES
Purchases of equipment..............................   (2,620,736)    (2,750,434)    (1,492,021)
Maturity of short-term investments..................    6,231,369      1,756,074        200,000
Purchase of investments.............................           --     (7,987,443)            --
                                                      -----------    -----------    -----------
Net cash provided by (used in) investing
  activities........................................    3,610,633     (8,981,803)    (1,292,021)
FINANCING ACTIVITIES
Net proceeds from sale of common stock..............           --     14,822,755             --
Proceeds from sale of common stock under employee
  stock option plan.................................      671,372        389,141             --
Preferred stock dividend............................           --     (1,765,100)            --
Proceeds from stock options exercised...............      114,522         50,672         28,268
Net (payments of) borrowings under credit line......   (1,068,240)      (748,760)     1,261,999
Proceeds from notes payable.........................    3,125,000             --        600,000
Principal payments on notes payable.................     (131,835)    (1,747,772)      (369,400)
                                                      -----------    -----------    -----------
Net cash provided by financing activities...........    2,710,819     11,000,936      1,520,867
                                                      -----------    -----------    -----------
Net increase (decrease) in cash.....................    6,419,626          6,180        (67,471)
Cash and cash equivalents at beginning of year......        9,092          2,912         70,383
                                                      -----------    -----------    -----------
Cash and cash equivalents at end of year............  $ 6,428,718    $     9,092    $     2,912
                                                      ===========    ===========    ===========
SUPPLEMENTAL CASH FLOW INFORMATION
Taxes paid..........................................  $ 2,403,000    $ 2,390,000    $   330,000
Interest paid.......................................  $    73,788    $   190,989    $   198,274
</TABLE>
 
                            See accompanying notes.
                                       25
<PAGE>   27
 
                         NOTES TO FINANCIAL STATEMENTS
 
NOTE 1. ACCOUNTING POLICIES
 
DESCRIPTION OF BUSINESS
 
     SeaMED Corporation (the "Company") manufactures advanced durable electronic
medical instruments for medical technology companies, often as part of systems
that also include single-use components. To assist its customers in developing
and commercializing their instruments for manufacture by the Company, the
Company provides a wide range of engineering services and regulatory expertise.
 
ACCOUNTING PERIOD
 
     The Company's fiscal year consists of a 52/53-week fiscal year that ends on
the Thursday nearest to June 30. For convenience of presentation, all fiscal
periods in these financial statements are shown as ending on a calendar
month-end.
 
USE OF ESTIMATES
 
     The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
 
CASH EQUIVALENTS
 
     The Company considers all highly-liquid investments purchased with an
initial maturity of three months or less to be cash equivalents.
 
CREDIT POLICIES
 
     The Company extends credit to various customers, which are primarily in the
medical device industry and generally does not require collateral. The Company
maintains reserves for potential credit losses.
 
INVESTMENTS
 
     Investments are classified as held-to-maturity. Investments consist of U.S.
treasury bills, which mature within one year, and are reported at cost net of
unamortized premium or discount, which approximates market.
 
INVENTORIES
 
     Inventories are stated at the lower of cost (first-in, first-out method) or
market.
 
DEPRECIATION
 
     The Company provides for depreciation of furniture, fixtures, equipment,
and manufacturing molds over their estimated useful lives of three to eight
years using the straight-line method.
 
REVENUE RECOGNITION
 
     The Company recognizes revenues from contracts to perform engineering
design and product development as the related engineering service is performed.
When estimates indicate a probable loss on a contract, the full amount of such
loss is accrued at that time. The Company generally recognizes revenue from
manufacturing services when the related products are shipped.
 
                                       26
<PAGE>   28
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
 
WARRANTY COSTS
 
     Warranty reserves are recorded based on historical experience and estimates
of current warranty activity.
 
INCOME TAXES
 
     The Company provides for income taxes based on the liability method, which
requires the recognition of deferred tax assets and liabilities based on
differences between financial reporting and tax bases of assets and liabilities
measured using enacted tax rates and laws that are expected to be in effect when
the differences are expected to reverse.
 
STOCK COMPENSATION
 
     The Company has elected to apply the disclosure-only provisions of
Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for
Stock-Based Compensation." Accordingly, the Company accounts for stock-based
compensation using the intrinsic value method prescribed in Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and
related interpretations. Compensation cost for stock options is measured as the
excess, if any, of the fair value of the Company's common stock at the date of
grant over the stock option exercise price.
 
CONCENTRATIONS OF CREDIT RISK
 
     The Company is subject to concentrations of credit risk from its holdings
of cash, cash equivalents, and securities. The Company's credit risk is managed
by investing its cash in high-quality money market instruments, securities of
the U.S. Government and its agencies, and high-quality corporate issues.
 
NET INCOME PER SHARE
 
     In 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 128, "Earnings per Share." SFAS No.
128 replaced the previously reported primary and fully diluted earnings per
share with basic and diluted earnings per share. Unlike primary earnings per
share, basic earnings per share excludes any dilutive effects of options,
warrants, and convertible securities. Diluted earnings per share is very similar
to the previously reported fully diluted earnings per share. Basic earnings per
share is computed using the weighted average number of common shares outstanding
during the period. Diluted earnings per share is computed using the weighted
average number of common and common stock equivalent shares outstanding during
the period. Common equivalent shares are excluded from the computation if their
effect is antidilutive. Net income is adjusted for the accretion of cumulative
preferred stock dividends for Class A and D convertible redeemable preferred
stock in the calculation of basic earnings per share amounts in 1997 and 1996.
Net income per share amounts for all periods, where necessary, have been
restated to conform to SFAS No. 128 requirements.
 
     In 1998, the SEC issued Staff Accounting Bulletin (SAB) No. 98 which
superceded SAB No. 83 requirements to reflect common and common stock equivalent
shares issued during the 12-month period prior to the filing of an initial
public offering to be included in earnings per share if they were outstanding
for all periods presented using the treasury stock method assuming the initial
public offering price. Net income per share amounts for all periods, where
necessary, have been restated to conform to these SEC requirements.
 
     The Company's previously reported primary and fully diluted net income per
share were $0.60 and $0.55 and $0.42 and $0.32 for the years ended June 30, 1997
and 1996, respectively.
 
INTEREST RATE CONTRACT
 
     Net amounts paid or received under its interest rate contract are reflected
as adjustments to interest expense. The Company accounts for its contract at
cost. The fair market value of the contract was not material at June 30, 1998.
It is the Company's intent to hold the contract to maturity.
                                       27
<PAGE>   29
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
 
RECLASSIFICATION
 
     Certain prior year items have been reclassed to conform to the current year
presentation.
 
NEW ACCOUNTING PRONOUNCEMENTS
 
     In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income."
The Company will adopt SFAS No. 130 in the first quarter of 1999. Comprehensive
and net income have been the same in the past and the Company does not expect
the impact of SFAS No. 130 to be material.
 
     In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 131, "Disclosure about Segments of an
Enterprise and Related Information." The Company will adopt SFAS No. 131 for
fiscal year end June 30, 1999. The Company has not yet determined the impact of
SFAS No. 131.
 
     In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities." Due to its minimal use of derivatives, the
Company does not expect the impact of SFAS No. 133 to be material.
 
NOTE 2. INITIAL PUBLIC OFFERING
 
     In November 1996, the Company completed an initial public offering of
securities, selling 1,529,720 shares of common stock at $11 per share, resulting
in proceeds to the Company of $14,822,755, net of offering costs and
underwriters discount of $2,004,165. Of the net proceeds, the Company used
$1,765,100 to pay a cumulative preferred dividend on its convertible redeemable
preferred stock, $1,831,000 to pay down its line of credit with a bank to zero,
and $1,296,000 to pay off in full three notes payable to the bank. In
conjunction with the offering, all of the Company's convertible redeemable
preferred stock outstanding immediately prior to the offering was converted into
2,934,029 shares of common stock.
 
NOTE 3. INVENTORIES
 
     Inventories consist of the following:
 
<TABLE>
<CAPTION>
                                                                       JUNE 30,
                                                              --------------------------
                                                                 1998           1997
                                                              -----------    -----------
<S>                                                           <C>            <C>
Work in process.............................................  $ 3,685,594    $ 3,294,857
Purchased and manufactured parts............................   12,366,257      8,608,455
                                                              -----------    -----------
                                                               16,051,851     11,903,312
Less inventory reserve......................................      866,334        704,749
                                                              -----------    -----------
                                                              $15,185,517    $11,198,563
                                                              ===========    ===========
</TABLE>
 
                                       28
<PAGE>   30
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
 
NOTE 4. PROPERTY AND EQUIPMENT
 
     Property and equipment consists of the following:
 
<TABLE>
<CAPTION>
                                                                       JUNE 30,
                                                              --------------------------
                                                                 1998            1997
                                                              -----------     ----------
<S>                                                           <C>             <C>
Furniture and fixtures......................................  $ 1,122,538     $  959,033
Equipment...................................................    7,744,716      5,815,854
Manufacturing molds.........................................      527,172        524,110
Leasehold improvements......................................    1,227,856        702,549
                                                              -----------     ----------
                                                               10,622,282      8,001,546
Less accumulated depreciation and amortization..............    5,460,110      3,669,732
                                                              -----------     ----------
                                                              $ 5,162,172     $4,331,814
                                                              ===========     ==========
</TABLE>
 
NOTE 5. ACCRUED EXPENSES AND RESERVES
 
     Accrued expenses and reserves consist of the following:
 
<TABLE>
<CAPTION>
                                                                       JUNE 30
                                                              --------------------------
                                                                 1998            1997
                                                              -----------     ----------
<S>                                                           <C>             <C>
Taxes payable...............................................  $   246,157     $  216,996
Accrued compensation........................................    2,622,059      2,501,732
Deferred revenue............................................      789,414        423,128
Other accrued expenses......................................      787,670      1,522,794
Warranty reserve............................................      584,110        376,436
                                                              -----------     ----------
                                                              $ 5,029,410     $5,041,086
                                                              ===========     ==========
</TABLE>
 
NOTE 6. NOTES PAYABLE
 
VARIABLE RATE NOTE PAYABLE
 
     During fiscal year 1998, the Company borrowed $2.5 million against an
existing equipment credit facility. In addition, the Company has committed to
borrow the remaining $1.5 million by September 30, 1998. Borrowings under this
agreement bear interest at LIBOR plus 1.4% (7.02% at June 30, 1998).
 
EQUIPMENT LINE OF CREDIT AGREEMENT
 
     In July of 1998, the Company's Board of Directors approved an equipment
line of credit up to $5.0 million. Borrowings under this facility bear interest
at LIBOR plus 1.4%. This agreement expires October 1, 2001.
 
WORKING CAPITAL LINE OF CREDIT AGREEMENT
 
     In July of 1998, the Company's Board of Directors approved an increase to
its existing working capital line of credit. Under this agreement the Company
can borrow up to 85% of eligible accounts receivable and 50% of eligible
inventory up to a maximum of $20.0 million. Borrowings under this agreement and
the equipment line of credit agreement are payable on demand if certain
covenants are not met. These covenants include a maximum debt-to-equity ratio of
1.25-to-1, minimum ratio of earnings before income taxes and interest of
2.0-to-1 and dividend restrictions. Borrowings under this agreement bear
interest at the bank's prime rate minus .25% or LIBOR plus 1.2%. This agreement
expires October 1, 2001. There were no borrowings outstanding under this line of
credit at June 30, 1998.
 
                                       29
<PAGE>   31
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
 
LONG-TERM DEBT
 
     Long-term debt at June 30, 1998 consists of the following:
 
<TABLE>
<S>                                                           <C>
Unsecured subordinated note payable, with monthly payments
  of $18,055, including interest, through December 2000.....  $  493,165
Variable rate note payable, secured by equipment, with
  monthly payments beginning November 1, 1998, including
  interest, through September 30, 2003......................   2,500,000
                                                               2,993,165
Less current portion........................................     558,144
                                                              ----------
                                                              $2,435,021
                                                              ==========
</TABLE>
 
INTEREST RATE CONTRACT
 
     At June 30, 1998, the Company had an interest rate contract with a notional
principal amount of $2.5 million that effectively converts the $2.5 million
variable rate note to a fixed rate of 7.5%.
 
NOTE 7. CONVERTIBLE REDEEMABLE PREFERRED STOCK
 
     On January 3, 1995, the Company sold 1,465,000 shares of Class D
convertible redeemable preferred stock at $1.00 per share. These shares were
converted into common stock at the ratio of 3.75 shares of preferred stock for
each share of common stock upon completion of the Company's initial public
offering. In connection with the Class D preferred stock offering, the Company
also issued a warrant to purchase 39,066 shares of common stock, with an
exercise price of $4.70 per share. The warrant was exercised in March 1998 in a
cashless transaction based upon 27,895 shares.
 
NOTE 8. SHAREHOLDERS' EQUITY
 
REVERSE STOCK SPLIT
 
     In July 1996, the Company's shareholders approved a 1-for-5 stock split of
the common stock, which resulted in an adjustment to the preferred stock
conversion ratio. All share and per share data in the accompanying financial
statements have been restated to retroactively reflect the reverse stock split.
 
STOCK OPTION AND INCENTIVE PLANS
 
     The Company has two stock option and incentive plans (collectively, the
"Plans"), the SeaMED Corporation 1988 Stock Option Plan and the SeaMED
Corporation 1995 Employee Stock Option and Incentive Plan. Under the terms of
the Plans, with respect to incentive stock options and options awarded to
nonemployee directors, the option price may not be less than fair market value
of the common stock at the date of grant. Generally, options granted under the
Plans become exercisable at the rate of 50% after two years, 75% after three
years, and 100% after four years from the date of grant. Certain options granted
under the 1988 plan, however, become exercisable ratably over seven years from
the date of grant. Unexercised options expire on the date set forth in the
optionee's option agreement (generally 10 years), subject to earlier
 
                                       30
<PAGE>   32
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
 
termination upon certain events. Stock options exercised, granted, and canceled
during fiscal years 1998, 1997, and 1996 are as follows:
 
                              OUTSTANDING OPTIONS
 
<TABLE>
<CAPTION>
                                     NUMBER OF    AGGREGATE        PRICE PER       WEIGHTED AVERAGE
                                      SHARES        PRICE            SHARE          EXERCISE PRICE
                                     ---------    ----------    ---------------    ----------------
<S>                                  <C>          <C>           <C>                <C>
Balance, July 1, 1995..............   450,381     $  713,931     $0.16 - $10.00         $   --
  Options granted..................   132,824        454,060      2.50 -   5.00           3.42
  Options canceled.................    (8,031)       (12,300)     0.50 -   2.50           1.54
  Options exercised................   (89,735)       (28,268)     0.16 -   1.25           0.31
                                     --------     ----------    ---------------         ------
Balance June 30, 1996..............   485,439      1,127,423      0.16 -  10.00           2.32
  Options granted..................   105,241      1,622,428      5.00 -  17.25          15.42
  Options canceled.................    (4,205)       (11,392)     0.80 -  16.25           2.71
  Options exercised................   (89,856)       (50,672)     0.16 -   2.50           0.56
                                     --------     ----------    ---------------         ------
Balance June 30, 1997..............   496,619      2,687,787      0.16 -  17.25           5.41
  Options granted..................   105,734      1,850,686     16.13 -  18.75          17.50
  Options canceled.................   (11,635)      (135,928)     1.80 -  18.00          11.68
  Options exercised................  (126,974)      (114,521)     0.16 -   3.75           0.90
                                     --------     ----------    ---------------         ------
Balance June 30, 1998..............   463,744     $4,288,024     $0.16 - $18.75         $ 9.25
                                     ========     ==========    ===============         ======
</TABLE>
 
     The following table summarizes information about options outstanding and
exercisable at June 30, 1998:
 
<TABLE>
<CAPTION>
                                          OPTIONS OUTSTANDING OPTIONS EXERCISABLE
                               -----------------------------------------
                                                             ----------------------
                                                  WEIGHTED                 WEIGHTED
                               WEIGHTED AVERAGE   AVERAGE                  AVERAGE
   RANGE OF        OPTIONS        REMAINING       EXERCISE     OPTIONS     EXERCISE
EXERCISE PRICES  OUTSTANDING   CONTRACTUAL LIFE    PRICE     EXERCISABLE    PRICE
---------------  -----------   ----------------   --------   -----------   --------
<S>              <C>           <C>                <C>        <C>           <C>
$ 0.16 - $ 0.80     26,688        3.61 years       $ 0.61       26,688      $ 0.61
  1.00 -   2.20     38,654        5.38 years         1.44       38,654        1.44
  2.50 -   2.50     92,580        7.13 years         2.50       41,464        2.50
  3.75 -   7.50     94,650        7.41 years         5.33       38,730        5.36
 10.00 -  10.00     17,500        6.57 years        10.00        7,500       10.00
 16.13 -  18.75    193,672        9.07 years        17.06           --          --
                   -------        ----------       ------      -------      ------
  0.16 -  18.75    463,744        7.63 years       $ 9.25      153,036      $ 2.99
                   =======        ==========       ======      =======      ======
</TABLE>
 
     The Company follows the intrinsic value method in accounting for its stock
options. Had compensation cost been recognized based on the fair value at the
date of grant for options granted in 1998, 1997, and 1996 the pro forma amounts
of the Company's net income and net income per share for the years ended June
30, 1998, 1997 and 1996 would have been as follows:
 
<TABLE>
<CAPTION>
                                                                  YEAR ENDED JUNE 30,
                                                         --------------------------------------
                                                            1998          1997          1996
                                                         ----------    ----------    ----------
<S>                                                      <C>           <C>           <C>
Net income per share -- as reported....................  $4,139,219    $2,726,147    $1,240,454
Net income per share -- pro forma......................  $3,742,622    $2,581,412    $1,219,006
Diluted net income per share -- as reported............  $     0.73    $     0.55    $     0.33
Diluted net income per share -- pro forma..............  $     0.66    $     0.52    $     0.32
</TABLE>
 
     The fair value of each option grant was estimated using the Black-Scholes
option-pricing model with the following weighted average assumptions: risk-free
interest rates of 5.51% to 5.92%; expected option life of four to six years;
volatility of 0.3865; and no expected dividends. The weighted average fair value
of options granted during the years 1998 and 1997 was $7.96 and $15.42,
respectively, for options granted at fair market value.
 
                                       31
<PAGE>   33
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
 
SHARES RESERVED FOR FUTURE ISSUANCE
 
     The following shares of common stock have been reserved for future issuance
as of June 30, 1998, including the stock purchase plan referred to below, and
pursuant to the various other agreements and plans discussed above:
 
<TABLE>
<CAPTION>
                                                                         SHARES
                                                                         -------
<S>                                                           <C>        <C>
Stock purchase plan.........................................              83,881
Incentive Stock Option Plan:
  Options outstanding.......................................  463,744         --
  Options available for grant...............................  234,283    698,027
                                                              -------    -------
          Total common shares reserved for future issuance
           at June 30, 1998.................................             781,908
                                                              =======    =======
</TABLE>
 
EMPLOYEE STOCK PURCHASE PLAN
 
     In July of 1996, the Company's shareholders approved a stock purchase plan
which became effective on November 11, 1997 with the Company's completion of its
initial public offering of its common stock. The shareholders authorized the
sale of up to 170,000 shares of common stock over five years pursuant to the
plan.
 
NOTE 9. NET INCOME PER SHARE
 
     The following table sets forth the computation of basic and diluted net
income per share.
 
<TABLE>
<CAPTION>
                                                                  YEAR ENDED JUNE 30,
                                                         --------------------------------------
                                                            1998          1997          1996
                                                         ----------    ----------    ----------
<S>                                                      <C>           <C>           <C>
Numerator:
  Numerator for diluted net income per share
     Net income as reported............................  $4,139,219    $2,726,147    $1,240,454
  Accretion of cumulative preferred stock dividend.....          --      (101,077)     (263,050)
                                                         ----------    ----------    ----------
  Numerator for computing basic net income per share...  $4,139,219    $2,625,070    $  977,404
                                                         ==========    ==========    ==========
Denominator:
  Denominator for basic net income per
     share -- weighted average common shares...........   5,330,188     3,445,748       606,353
                                                         ----------    ----------    ----------
  Effect of dilutive securities:
  Weighted average of all convertible redeemable
     preferred stock outstanding.......................          --     1,130,200     2,934,029
  Net effect of dilutive stock options based on the
     treasury stock method using average market
     price.............................................     288,289       347,119       253,996
  Net effect of dilutive stock warrants based on the
     treasury stock method using average market
     price.............................................      23,713        21,088           586
                                                         ----------    ----------    ----------
  Dilutive potential common shares.....................     312,002     1,498,407     3,188,611
                                                         ----------    ----------    ----------
  Denominator for diluted net income per share.........   5,642,190     4,944,155     3,794,964
                                                         ==========    ==========    ==========
Basic net income per share.............................  $     0.78    $     0.76    $     1.61
                                                         ==========    ==========    ==========
Diluted net income per share...........................  $     0.73    $     0.55    $     0.33
                                                         ==========    ==========    ==========
</TABLE>
 
                                       32
<PAGE>   34
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
 
NOTE 10. INCOME TAXES
 
     The income tax provision consists of the following:
 
<TABLE>
<CAPTION>
                                                                  YEAR ENDED JUNE 30,
                                                          ------------------------------------
                                                             1998          1997         1996
                                                             ----       ----------    --------
<S>                                                       <C>           <C>           <C>
Current income tax provision............................  $2,672,362    $2,036,015    $763,476
Deferred income tax benefit.............................    (540,037)     (568,090)    (95,539)
                                                          ----------    ----------    --------
Income tax provision....................................  $2,132,325    $1,467,925    $667,937
                                                          ==========    ==========    ========
</TABLE>
 
     Significant components of the Company's deferred tax benefits are as
follows:
 
<TABLE>
<CAPTION>
                                                                      JUNE 30,
                                                              ------------------------
                                                                 1998          1997
                                                              ----------    ----------
<S>                                                           <C>           <C>
Deferred tax assets (liabilities):
  Fixed assets..............................................  $   56,701    $  (43,886)
  Inventories...............................................     825,643       703,213
  Accrued expenses..........................................     578,680       266,952
  Bad debt reserves.........................................     171,994       128,483
  Other.....................................................     100,330       138,549
                                                              ----------    ----------
Net deferred tax benefit....................................  $1,733,348    $1,193,311
                                                              ==========    ==========
</TABLE>
 
     A reconciliation from the U.S. statutory rate to the effective tax rate is
as follows:
 
<TABLE>
<CAPTION>
                                                              YEAR ENDED JUNE 30,
                                                              --------------------
                                                              1998    1997    1996
                                                              ----    ----    ----
<S>                                                           <C>     <C>     <C>
Tax at U.S. statutory rate..................................  34.0%   34.0%   34.0%
Other.......................................................    --     1.0     1.0
                                                              ----    ----    ----
                                                              34.0%   35.0%   35.0%
                                                              ====    ====    ====
</TABLE>
 
NOTE 11. REVENUE AND OPERATIONS
 
     During fiscal 1998, 1997, and 1996, 58%, 54%, and 41%, respectively, of
total net sales were to five customers. Receivables from these five customers
represent 60% and 36% of total accounts receivable at June 30, 1998 and 1997,
respectively.
 
     Revenues from customers that represent more than 10% of total revenues are
as follows:
 
<TABLE>
<CAPTION>
                                                                 YEAR ENDED JUNE 30,
                                                       ----------------------------------------
                                                          1998           1997           1996
                                                       -----------    -----------    ----------
<S>                                                    <C>            <C>            <C>
customer
  A..................................................  $        --    $        --    $2,665,000
  B..................................................           --             --     3,129,000
  C..................................................   15,897,400     12,836,000            --
  D..................................................   11,546,258      5,686,000            --
</TABLE>
 
NOTE 12. LEASE COMMITMENTS
 
     The Company currently leases office and production space, and equipment
under noncancelable operating leases. Rental expense under operating lease
agreements for the fiscal years ended June 30, 1998, 1997, and 1996 amounted to
$1,940,798, $1,322,204, and $655,079, respectively.
 
                                       33
<PAGE>   35
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
 
     Future minimum lease commitments under noncancelable leases and service
agreements as of June 30, 1998 are as follows:
 
<TABLE>
<S>                                                           <C>
1999........................................................  $ 2,349,842
2000........................................................    2,779,483
2001........................................................    2,841,393
2002........................................................    2,717,589
2003........................................................    2,720,869
Thereafter..................................................   12,077,707
                                                              -----------
                                                              $25,486,883
                                                              ===========
</TABLE>
 
NOTE 13. EMPLOYEE BENEFIT PLAN
 
     The Company has a 401(k) savings plan covering substantially all of its
employees. Eligible employees may contribute amounts through payroll deductions.
The Company matches annually 50% of the employees' contributions up to 4% of the
employees' salary. The 401(k) savings plan expense was $304,000, $159,000, and
$72,000 in fiscal 1998, 1997, and 1996, respectively. The Company does not
provide other post-retirement benefits.
 
NOTE 14. RELATED-PARTY TRANSACTIONS
 
     In October 1995, the Company's Chief Executive Officer and President
received a $75,000 loan from the Company, the proceeds of which he used to
purchase 30,000 shares of common stock. The loan is evidenced by an unsecured
promissory note that bears interest at the floating minimum statutory rate set
by the Internal Revenue Service from time to time. This officer may prepay
principal and interest at any time without penalty; unpaid principal and
interest are due on October 11, 2000.
 
     A director of the Company serves as President and Chief Executive Officer
and a director of one of the Company's customers. The Company has provided
engineering and manufacturing services for this customer. The Company recognized
revenues with respect to such services of approximately $489,000, $92,000, and
$335,000 in fiscal years 1998, 1997, and 1996, respectively.
 
     A director of the Company was also a partner in the Company's law firm.
 
NOTE 15. QUARTERLY FINANCIAL DATA (UNAUDITED)
 
<TABLE>
<CAPTION>
                                                                      FISCAL YEAR 1998
                                                      ------------------------------------------------
                                                        FIRST       SECOND        THIRD       FOURTH
                                                       QUARTER      QUARTER      QUARTER      QUARTER
                                                      ---------    ---------    ---------    ---------
                                                       (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                                   <C>          <C>          <C>          <C>
Revenue.............................................   $16,030      $16,259      $18,265      $19,427
Gross Margin........................................     2,732        2,771        3,057        3,136
Operating Income....................................     1,355        1,397        1,602        1,818
Net Income..........................................       907          947        1,076        1,209
Basic EPS...........................................   $  0.17      $  0.18      $  0.20      $  0.22
Diluted EPS.........................................   $  0.16      $  0.17      $  0.19      $  0.21
</TABLE>
 
                                       34
<PAGE>   36
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
 
<TABLE>
<CAPTION>
                                                                      FISCAL YEAR 1997
                                                      ------------------------------------------------
                                                        FIRST       SECOND        THIRD       FOURTH
                                                       QUARTER      QUARTER      QUARTER      QUARTER
                                                      ---------    ---------    ---------    ---------
                                                       (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                                   <C>          <C>          <C>          <C>
Revenue.............................................   $10,076      $12,010      $14,295      $15,753
Gross Margin........................................     1,685        2,027        2,449        2,841
Operating Income....................................       838          952        1,110        1,253
Net Income..........................................       487          600          778          861
Basic EPS...........................................   $  0.63      $  0.21      $  0.15      $  0.17
Diluted EPS.........................................   $  0.12      $  0.13      $  0.14      $  0.15
</TABLE>
 
---------------
(1) All outstanding preferred stock was converted to common stock in connection
    with the Company's initial public offering. In accordance with FAS 128,
    Basic EPS for periods prior to the IPO exclude effects of preferred stock
    dividends.
 
                                       35
<PAGE>   37
 
                SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
 
                               SEAMED CORPORATION
 
<TABLE>
<CAPTION>
                                                           ADDITIONS
                                                 -----------------------------
                                   BALANCE AT    CHARGED TO   CHARGED TO OTHER
                                  BEGINNING OF    COST AND      ACCOUNTS --      DEDUCTIONS --     BALANCE AT
          DESCRIPTION                PERIOD       EXPENSES        DESCRIBE         DESCRIBE       END OF PERIOD
          -----------             ------------   ----------   ----------------   -------------    -------------
<S>                               <C>            <C>          <C>                <C>              <C>
Year Ended June 30, 1996:
  Deducted from asset accounts:
     Allowance for uncollectible
       accounts.................    $204,483      $ 50,709                         $  2,966(1)     $  252,226
Warranty reserve................    $186,411      $275,893                         $247,016(2)     $  215,288
                                    --------      --------                         --------        ----------
                                    $390,894      $326,602                         $249,982        $  467,514
                                    ========      ========                         ========        ==========
Year Ended June 30, 1997:
  Deducted from asset accounts:
     Allowance for uncollectible
       accounts.................    $252,226      $130,075                         $  4,411(1)     $  377,890
Warranty reserve................    $215,288      $428,773                         $267,625(2)     $  376,436
                                    --------      --------                         --------        ----------
                                    $467,514      $558,848                         $272,036        $  754,326
                                    ========      ========                         ========        ==========
Year Ended June 30, 1998:
  Deducted from asset accounts:
     Allowance for uncollectible
       accounts.................    $377,890      $215,354                         $ 87,379(1)     $  505,865
Warranty reserve................    $376,436      $549,227                         $341,553(2)     $  584,110
                                    --------      --------                         --------        ----------
                                    $754,326      $764,581                         $428,932        $1,089,975
                                    ========      ========                         ========        ==========
</TABLE>
 
---------------
 
(1) Write-off of uncollectible accounts, net of recoveries
 
(2) Actual warranty costs incurred
 
                                       36
<PAGE>   38
 
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
 
     Not applicable.
 
                                    PART III
 
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
 
     The information required by this item is incorporated by reference from the
section labeled "Election of Directors" in the Company's definitive Proxy
Statement for the Annual Meeting of Shareholders to be held on November 5, 1998.
 
ITEM 11. EXECUTIVE COMPENSATION
 
     The information required by this item is incorporated by reference from the
section labeled "Election of Directors" in the Company's definitive Proxy
Statement for the Annual Meeting of Shareholders to be held on November 5, 1998.
 
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
 
     The information required by this item is incorporated by reference from the
section labeled "Election of Directors" in the Company's definitive Proxy
Statement for the Annual Meeting of Shareholders to be held on November 5, 1998.
 
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
 
     The information required by this item is incorporated by reference from the
section labeled "Election of Directors" in the Company's definitive Proxy
Statement for the Annual Meeting of Shareholders to be held on November 5, 1998.
 
                                    PART IV
 
ITEM 14. EXHIBITS, FINANCIAL SCHEDULES, AND REPORTS ON FORM 8-K
 
(a) 1. FINANCIAL STATEMENTS
 
     The financial statements included in Item 8, Financial Statements and
Supplementary Data, are set forth in the Index to Financial Statements and
Financial Statement Schedules listed on page 20 of this Form 10-K.
 
    2. FINANCIAL STATEMENT SCHEDULES
 
     The financial statement schedules are set forth in the Index to Financial
Statements and Financial Statement Schedules listed on page 20 of this Form
10-K.
 
    3. EXHIBITS
 
     The exhibits filed in response to Item 601 of Regulation S-K are listed in
the Exhibit Index contained herein.
 
(b) REPORTS ON FORM 8-K
 
     No reports on Form 8-K were filed during the quarter ended June 30, 1998.
 
                                       37
<PAGE>   39
 
                                   SIGNATURES
 
     Pursuant to the requirements of Sections 13 or 15(d) 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 in the City of Redmond,
State of Washington on this 29th day of September, 1998.
 
                                          SeaMED CORPORATION
 
                                          By:      /s/ W. ROBERT BERG
                                            ------------------------------------
                                                       W. Robert Berg
                                                  Chief Executive Officer
 
     Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the registrant and
in the capacities indicated on this 29th day of September, 1998.
 
<TABLE>
<CAPTION>
                     SIGNATURES                                            TITLE
                     ----------                                            -----
<C>                                                    <S>
 
                 /s/ W. ROBERT BERG                    President, Chief Executive Officer and
-----------------------------------------------------  Director (Principal Executive Officer)
                   W. Robert Berg
 
                 /s/ EDGAR F. RAMPY                    Vice President, Treasurer and Chief Financial
-----------------------------------------------------  Officer, and Director (Principal Financial
                   Edgar F. Rampy                      Officer)
 
                /s/ RICHARD P. MUNOZ                   Controller (Principal Accounting Officer)
-----------------------------------------------------
                  Richard P. Munoz
 
                  /s/ R. SCOTT ASEN                    Chairman of the Board, Director
-----------------------------------------------------
                    R. Scott Asen
 
               /s/ STEPHEN J. CLEARMAN                 Director
-----------------------------------------------------
                 Stephen J. Clearman
 
              /s/ RICHARD E. ENGEBRECHT                Director
-----------------------------------------------------
                Richard E. Engebrecht
 
              /s/ WILLIAM H. GATES, SR.                Director
-----------------------------------------------------
                William H. Gates, Sr.
 
                /s/ RICHARD O. MARTIN                  Director
-----------------------------------------------------
                  Richard O. Martin
</TABLE>
 
                                       38
<PAGE>   40
 
                                 EXHIBIT INDEX
 
<TABLE>
<CAPTION>
EXHIBIT
NUMBER                            DESCRIPTION                           PAGE
-------                           -----------                           ----
<S>       <C>                                                           <C>
3.1#      Amended and Restated Articles of Incorporation of the
          Registrant..................................................
3.2+      Bylaws of the Registrant....................................
4.1**     Rights Agreement dated as of January 27, 1998, between the
          Company and ChaseMellon Shareholder Services, L.L.C., which
          includes the form of Articles of Amendment As Exhibit A
          thereto, the form of Right Certificate as Exhibit B thereto
          and the form of Summary of Rights to Purchase Preferred
          Shares as Exhibit C thereto.................................
10.1+     Industrial Real Estate Lease (Building 1) dated September
          10, 1996, between Washington Capital Management, Inc. and
          SeaMED Corporation..........................................
10.2+     Industrial Real Estate Lease (Building 2) dated September
          10, 1996, between Washington Capital Management, Inc. and
          SeaMED Corporation..........................................
10.3      First Amendment dated September 15, 1997 to Industrial Real
          Estate Lease (Building 2) dated September 10, 1996, between
          Washington Capital Management, Inc. and SeaMED
          Corporation.................................................
10.4+     Option Agreement dated September 10, 1996, by and between
          Washington Capital Management, Inc. and SeaMED
          Corporation.................................................
10.5++    1997 SeaMED Corporation Employee Nonqualified Stock Option
          Plan........................................................
10.6*     Design, Manufacturing and Supply Agreement dated April 7,
          1997, made by United States Surgical Corporation and SeaMED
          Corporation.................................................
10.7***   1995 SeaMED Corporation Stock Option and Incentive Plan, as
          amended and approved by the Company's shareholders on
          October 30, 1997............................................
10.8#     Business Loan Agreement dated July 31, 1997 between SeaMED
          Corporation and Keybank N.A. ...............................
10.9#     Revolving Note, Principal Amount $20,000,000, dated July 31,
          1997 made by SeaMED Corporation in favor of Keybank N.A. ...
10.10#    Term Note, Principal Amount $625,000, dated July 31, 1997
          made by SeaMED Corporation in favor of Keybank N.A. ........
10.11     Extension Agreement dated June 30, 1998 between SeaMED
          Corporation and Keybank N.A. extending term of Loan
          Agreement and Note..........................................
10.12     Manufacturing Agreement dated as of May 14, 1998, made and
          entered into by SeaMED Corporation and Coinstar, Inc. ......
10.13     Promissory Note dated June 30, 1998 made by SeaMED
          Corporation payable to Keybank N.A. in the amount of
          $4,000,000..................................................
10.14     Real Estate Lease Agreement dated May 1, 1998 between SeaMED
          Corporation and Children's Health Care System...............
10.15     Description of Non-Employee Director Stock Option Policy....
23.1      Consent of Ernst & Young LLP, independent auditors..........
27.1      Financial Data Schedule.....................................
</TABLE>
 
---------------
+    Filed previously with the Company's Registration Statement on Form S-1 (No.
     333-13455) filed with the Securities and Exchange Commission.
 
++   Filed previously with the Company's Registration Statement on Form S-8 for
     its 1997 SeaMED Corporation Employee Nonqualified stock Option Plan filed
     with the Securities and Exchange Commission.
 
*    Filed previously with the Company's report of Form 10-K for the fiscal year
     ended July 3, 1997 filed with the Securities and Exchange Commission.
 
**   Filed previously with the Company's current report on Form 8-K filed
     February 5, 1998 with the Securities and Exchange Commission.
<PAGE>   41
 
***  Filed previously with the Company's quarterly report on Form 10-Q for the
     quarter ended January 1, 1998, filed with the Securities and Exchange
     Commission.
 
#    Filed previously with the Company's quarterly report on Form 10-Q for the
     quarter ended October 2, 1997, filed with the Securities and Exchange
     Commission.