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                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                         ------------------------------

                                    FORM 10-K

(Mark one) 

 [x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
     EXCHANGE ACT OF 1934

                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997

 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES 
     EXCHANGE ACT OF 1934

       For the transition period from ________________ to ______________.

                           COMMISSION FILE NO. 0-27600
                              --------------------

                          OPTICAL SENSORS INCORPORATED
             (Exact name of registrant as specified in its charter)

                DELAWARE                                       41-164359
    (State or other jurisdiction of                         (I.R.S. Employer
     incorporation or organization)                       Identification No.)

       7615 GOLDEN TRIANGLE DRIVE
                SUITE A
         MINNEAPOLIS, MINNESOTA                                55344-3733
(Address of principal executive offices)                       (Zip code)


       Registrant's telephone number, including area code: (612) 944-5857

        Securities registered pursuant to Section 12(b) of the Act: None

           Securities registered pursuant to Section 12(g) of the Act:

                          COMMON STOCK, $.01 PAR VALUE
                         PREFERRED SHARE PURCHASE RIGHTS

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

     Indicate by check mark 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 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]

     As of March 13, 1998, 8,848,764 shares of Common Stock of the Registrant
were outstanding, and the aggregate market value of the Common Stock of the
Registrant as of that date (based upon the last reported sale price of the
Common Stock at that date as reported by the Nasdaq National Market System),
excluding outstanding shares beneficially owned by directors and executive
officers, was $40,731,856.

                       DOCUMENTS INCORPORATED BY REFERENCE

     Parts II and IV of this Annual Report on Form 10-K incorporate by reference
information (to the extent specific pages are referred to herein) from the
Registrant's Annual Report to Stockholders for the year ended December 31, 1997
(the "1997 Annual Report"). Part III of this Annual Report on Form 10-K
incorporates by reference information (to the extent specific sections are
referred to herein) from the Registrant's Proxy Statement for its 1998 Annual
Meeting to be held May 7, 1998 (the "1998 Proxy Statement").


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                                     PART I

         This Form 10-K contains certain forward-looking statements. For this
purpose, any statements contained in this Form 10-K that are not statements of
historical fact may be deemed to be forward-looking statements. Without limiting
the foregoing, words such as "may," "will," "expect," "believe," "anticipate,"
"estimate" or "continue" or comparable terminology are intended to identify
forward-looking statements. These statements by their nature involve substantial
risks and uncertainties, and actual results may differ materially depending on a
variety of factors, including those set forth in the section below entitled
"Certain Important Factors."

ITEM 1.  BUSINESS.

GENERAL

         Optical Sensors Incorporated (the "Company") has developed the
SensiCath system, a patient-connected, on-demand arterial blood gas ("ABG")
monitoring system, which provides precise and accurate ABG results within 60
seconds without exposure to potentially infectious blood or depleting the
patient's blood supply (the "SensiCath System"). ABG tests measure oxygen
("O2"), carbon dioxide ("CO2") and acid-base ("pH") in a sample of blood taken
from a patient's artery. These tests, which are among the most frequently
ordered and most urgently needed tests for critically ill and unstable patients,
are the foremost indicators of the body's ability to absorb and use oxygen.
Results of ABG tests provide a basis for medical treatment and intervention and
are required to accurately regulate the patient's respiratory support system.
The Company believes that the SensiCath System is the first ABG analyzer to be
integrated into both an arterial pressure monitoring line and a critical care
patient monitoring system. The SensiCath System utilizes a disposable,
fiberoptic sensor device (the "SensiCath Sensor") connected to a small modular
instrument (the "ABG Module") that is part of the Company's OpticalCAM
instrumentation ("OpticalCAM"). The SensiCath System is able to either stand
alone or interface with various monitoring platforms, including monitoring
systems produced and installed by Marquette Medical Systems, Inc., SpaceLabs
Medical, Inc., and the Hewlett-Packard Company. These three producers account
for approximately 80% of the installed base of critical care monitoring
instrumentation in the United States. The Company's strategy is to become the
leader in the design, development and commercialization of sensors and
integrated monitoring systems for the measurement of ABG values and other
critical parameters at the point-of-care.

         In May of 1997, the Company voluntarily initiated an action to recover
all customer inventory of SensiCath Sensors due to a limited number of
performance variations in pH readings on certain patient applications. These
performance variations were caused by an interfering agent, called bilirubin,
which is elevated in patients that have underdeveloped or failing livers. At the
same time, the Company notified the FDA of its action to recover all customer
inventory of sensors. In July 1997, the FDA notified the Company that the
voluntary action was classified as a product recall. The Company complied with
all requirements of the FDA recall action and retrieved all Sensors from
customers. In December 1997, the Company completed a number of enhancements to
the SensiCath Sensors including enhancements to the pH sensors that reduced
potential interference from bilirubin to clinically acceptable levels.

         In the fourth quarter of 1997 and early 1998, the Company achieved a
number of important strategic milestones. These milestones include enhancements
to the system that improve sensor performance and ease of use and expand its
application in the patient-connected segment of the point-of-care blood gas
monitoring market; and implementing aggressive marketing programs for the
OpticalCAM instrumentation. The Company began commercial distribution of the
enhanced sensor in December 1997. In January 1998, the Company entered into a
seven-year strategic partnership with Instrumentation Laboratory Company ("IL")
for worldwide distribution of the Company's SensiCath Sensors and OpticalCAM
instrumentation. IL will market and distribute the Company's products throughout
the world under the names GEM SensiCath and GEM OpticalCAM, as part of the IL
GEM family of hospital point-of-care diagnostic products. In January 1998, IL
also made an equity investment in the Company of approximately $2.2 million.
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         In January 1998, the Company entered into a seven-year strategic
partnership with Instrumentation Laboratory Company ("IL") for worldwide
distribution of the Company's SensiCath Sensors and OpticalCAM instrumentation.
IL will market and distribute the Company's products throughout the world under
the names GEM SensiCath and GEM OpticalCAM, as part of the IL GEM family of
hospital point-of-care diagnostic products. In January 1998, IL also made an
equity investment in the Company of approximately $2.2 million.

         The Company was incorporated in Minnesota in May 1989 and
reincorporated in Delaware in January 1996. The Company's executive offices are
located at 7615 Golden Triangle Drive, Suite A, Minneapolis, Minnesota 55344,
and its telephone number is (612) 944-5857.

THE SENSICATH SOLUTION

         By integrating ABG monitoring equipment as part of an existing bedside
monitor and an ABG sensor as part of an existing arterial line, the Company
believes that the SensiCath System presents the first patient-connected ABG
system which addresses the needs of the critically ill, unstable patient
population. The SensiCath System has the following benefits:

-    FAST AND EASY TO USE. The SensiCath System provides ABG results within 60
     seconds. Once installed in the arterial line, the health care provider need
     only push a button on the monitor and draw the blood over the sensors to
     obtain ABG readings and automatically record and transmit all results.
     Testing with the SensiCath System can be conducted by one health care
     professional, while testing with traditional ABG analyzers requires several
     hospital personnel.

-    CLINICALLY SUPERIOR. The SensiCath System provides accurate and precise
     ABG results on demand that are comparable to results generated by
     traditional ABG analyzers. By integrating ABG data with other critical care
     parameters on a bedside monitor, the SensiCath System provides a valuable
     management tool for a patient experiencing rapid changes in cardiopulmonary
     status. By eliminating the requirement for any blood removal, the risk of
     human error in removing, handling and analyzing the blood sample is
     significantly reduced. The SensiCath System has also been designed with a
     quality assurance routine that is easily integrated into standard hospital
     practices. Furthermore, the SensiCath System only needs to be calibrated
     once during its approved 144-hour period of use, while traditional ABG
     analyzers require calibration prior to each test.

-    COST-EFFECTIVE. The SensiCath Sensor can be used to take up to 200 ABG
     tests. The SensiCath System provides cost-effective ABG testing for
     patients requiring a large number of ABG tests because, unlike other ABG
     technologies, the SensiCath System does not have a direct per test cost.
     All test results are immediately captured as part of the patient's
     paperless record, which is an increasingly important benefit in the current
     environment for managing health care costs. The Company has priced the
     SensiCath Sensor to allow hospitals to reduce the cost of ABG testing for
     critically ill, unstable patients requiring frequent testing during their
     hospital stay.

-    ELIMINATES BLOOD EXPOSURE AND LOSS. The SensiCath Sensor is placed in an
     arterial line creating a closed-loop system. As a result, no blood is
     removed from the patient during ABG testing, and the health care provider's
     exposure to blood is eliminated. Elimination of blood loss is significant
     for all patients, and is extremely important for neonatal patients who can
     require blood transfusions as a direct result of frequent ABG analysis
     using traditional technology. The closed-loop system also significantly
     reduces the risk of infection to both the health care provider and the
     patient by removing the need to open the arterial line, attach a syringe
     and remove blood. The health care 

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     provider is not exposed to potentially infectious blood samples or blood 
     contaminated materials during testing.

SENSICATH SYSTEM

         The SensiCath System is able to interface with various monitoring
platforms, including monitoring systems produced and installed by Marquette
Medical Systems, Inc., SpaceLabs Medical, Inc., and the Hewlett-Packard Company.
These three producers account for approximately 80% of the installed base of
critical care monitoring instrumentation in the United States. In addition, the
OpticalCam provides stand-alone instrumentation capability for the SensiCath
System, operating independently of any other monitoring equipment. The SensiCath
Sensor contains three optical fibers with fluorescent chemistries for sensing
O2, CO2 and pH. The disposable, single-patient sensor has been designed to
provide accurate ABG data for the 144-hour approved period of use. The ABG
Module is the source and receptor of optical signals, provides signal processing
and communicates with other components in the monitoring system.

         The fiberoptic sensors are located outside the patient's artery
(paracorporeal) as a part of an existing arterial pressure monitoring line which
is secured to the patient's forearm. The integration of the SensiCath Sensor
with an existing arterial line and a bedside monitoring system enables the
health care provider to provide integrated bedside management of rapid changes
in the patient's cardiopulmonary status. The closed-loop system of the SensiCath
Sensor and the arterial line eliminates blood loss and blood exposure resulting
from traditional ABG analysis.

         The SensiCath Sensor is attached to the standard arterial line already
in place on critically ill patients. A standard line includes an arterial
cannula, pressure monitoring tubing and pressure transducer. The arterial line
is constantly filled with saline or other physiologic solution as part of its
function as a pressure monitor. The SensiCath Sensor is added to the arterial
line in a flow-through configuration which does not disrupt the arterial
pressure waveform or interfere with fluid delivery. Unlike electrochemical ABG
analyzers, the SensiCath System needs to be calibrated only once at the outset
of its use. The calibration procedure takes approximately five minutes and
requires only two small pouches of initialization fluid which are included with
the SensiCath Sensor.

         The SensiCath System is then ready to provide ABG measurements. To take
an ABG measurement, the health care provider pushes a button on the bedside
monitor and draws blood past the sensor. A tone from the monitor signals the
health care provider to return the blood to the patient and flush the line. The
ABG results then appear on the monitor screen within 60 seconds. The
time-consuming and complicated process of removing, handling and analyzing a
blood sample, all of which can contribute to delayed and inaccurate results, is
unnecessary with the SensiCath System.

         The SensiCath Sensor contains three fiberoptic chemical sensors
enclosed in a sterile, disposable device. The O2 and pH sensors consist of
fluorescent dyes immobilized within unique polymer matrices, which are directly
bonded onto the distal region of a polymer clad glass fiber. The CO2 sensor
consists of a dissolved fluorescent dye within an ultra-miniaturized
mechanically encapsulated housing, also bonded onto the distal region of a glass
fiber. These captive dyes react with the analyte of interest (i.e., O2, CO2 and
pH) to influence optical signals within the fiberoptics. The SensiCath Sensor
also contains a temperature control device which enables the sensors to provide
accurate measurements at varying blood temperatures.

         The Company's optical platform, by means of a proprietary ratiometric
methodology, provides light source and light detection using solid-state,
miniature components. The optics in combination with 

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the sensor dyes provide fully ratioed capability which maintains calibration for
the entire 144-hour period.

         The initialization fluids are liquid stable solutions, administered
once to the SensiCath System to enable a two point calibration. This calibration
is stable for the 144-hour period of use of the SensiCath System. No external
gas tanks with O2 and CO2 are required because the fluids are calibrated at the
time of manufacture, unlike traditional ABG analyzers which require calibration
prior to each test.

SALES AND MARKETING

         The Company's principal distribution channel for its products is
through IL, the Company's worldwide distribution partner. In January 1998, the
Company entered into a seven-year strategic partnership with IL for worldwide
distribution of the Company's SensiCath Sensors and OpticalCAM instrumentation.
IL will market and distribute the Company's products throughout the world under
the names GEM SensiCath and GEM OpticalCAM, as part of IL's established GEM line
of critical care products. The Company will supply IL with SensiCath Sensors, on
an exclusive basis, through 2004 and on a non-exclusive basis through 2007. The
Company will also supply IL with OpticalCAM Instruments, on a semi-exclusive
basis, through 2004. The Company retains the right to sell OpticalCAM
Instruments to manufacturers of physiological monitoring, ventilator and
anesthesia delivery systems. IL is required to purchase sufficient quantities of
products from the Company that will result in preestablished annual minimum
revenues to the Company. These quotas increase each year during the first five
years of the relationship. If IL fails to meet the quota requirements, the
Company has the right to convert IL's exclusive right to a non-exclusive right.
In addition, the Company has the right to convert IL's exclusive right to a
non-exclusive right if there is a change in control of the Company. If the
Company exercises this right, IL will have the right to terminate the
relationship. In January 1998, IL also purchased 441,203 shares of Common Stock
from the Company, which represented 4.99% of the Company's outstanding Common
Stock following completion of the transaction, for approximately $2.2 million.

         The Company also maintains a sales and marketing staff whose primary
role is to develop joint marketing programs with IL, provide support for
customer evaluation of the SensiCath System, provide training, support and
technical assistance for IL's sales force and provide technical assistance and
support for customers. The Company's sales and marketing staff will continue to
identify and establish key customer sites, call on customers and develop
relationships with manufacturers of critical care patient bedside monitoring
systems. The Company plans to continue to directly market the OpticalCAM to
manufacturers of critical care patient bedside monitoring systems, although
their customers will purchase sensors directly from IL.

         The Company regularly exhibits its products at major U.S. and European
medical conferences. In addition, a number of papers have been published in
medical peer review journals and several abstracts have been presented at
medical conferences regarding the SensiCath System. The Company plans to
continue to support publications and abstract presentations. The Company has
established reference sites for the SensiCath System at key hospitals and
medical centers in the U.S. and Europe.

RESEARCH AND DEVELOPMENT

         The Company's research and development staff is dedicated to the
research, design and development of the technology used in the SensiCath System.
During 1997, the Company's research and development staff completed a number of
significant improvements to the SensiCath System, including modifications to the
pH sensor to reduce potential interference from bilirubin in the blood to
clinically acceptable levels, software upgrades to streamline the process of
generating, storing and retrieving 

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measurement data, and hardware and software upgrades that reduce set-up and
calibration time for the system. The Company's principal research and
development activities currently consist of design and development of new
sensors to measure additional blood analytes and further product enhancements,
including planned cost reduction programs. There can be no assurance that the
Company will be able to successfully develop new products or achieve planned
cost reductions on a timely basis or at all. The Company's research and
development expenses for the fiscal years ended December 31, 1997, 1996 and 1995
were $4,975,037, $5,632,458 and $5,955,344, respectively. The Company
anticipates that it will continue to spend significant amounts on research and
development activities for the foreseeable future.

MANUFACTURING AND SUPPLY

         The Company manufactures the SensiCath Sensor at its facility in
Minneapolis, Minnesota, which includes approximately 4,000 square feet of
manufacturing space. The FDA conducted a scheduled good manufacturing practices
("GMP") inspection of the Company's manufacturing facility in November 1997, and
the Company has passed the inspection. The Company has also received ISO 9001
certification for its manufacturing facility. The SensiCath Sensors are
manufactured in a unique, reproducible process. The finished device is packaged
and sterilized prior to being shipped. The Company has entered into an agreement
with a third party in Europe which packages sterilized sensors manufactured by
the Company and non-proprietary components for sale of the SensiCath System in
Europe.

         The Company purchases components from various suppliers and relies on
single sources for the OpticalCAM monitor, as well as a few key components. To
date, the Company has qualified only single sources for certain purchased
components of the Company's unique optical platform. While the Company believes
that alternate suppliers are available and can be approved in accordance with
the Company's vendor qualification procedures, identifying and qualifying such
vendors could cause a delay in production of the Company's products. Any such
delay could have a material adverse effect on the Company. In addition, the ABG
Module is currently manufactured solely by Marquette Medical Systems, Inc. While
the Company has entered into an OEM agreement with Marquette for the ABG Module,
any delay or disruption in the supply of ABG Modules could have a material
adverse effect on the Company.

COMPETITION

         Competition in the medical device industry in general and the ABG
analyzer market in particular is intense and expected to increase. The Company
believes that the principal competitive factors for ABG analyzers and monitors
are accuracy, rapid results, cost-effectiveness, integration with bedside
monitors, reduction of blood loss and exposure, and price. The Company believes
that it competes favorably with respect to all of these factors. Several other
point-of-care or near-patient blood gas testing manufacturers have commercially
available products including AVL Scientific Corp., i-STAT Corporation,
Diametrics Medical, Inc., SenDx Medical Inc. and VIA Medical, Inc. In addition,
some manufacturers of laboratory equipment are marketing "mobile" versions of
traditional blood gas testing equipment. The Company also expects that
manufacturers of central and satellite laboratory testing equipment will compete
to maintain their revenues and market share. Most of the Company's competitors
have significantly greater financial, technical, research, marketing, sales,
distribution and other resources than the Company. There can be no assurance
that the Company's competitors will not succeed in developing or marketing
technologies and products that are more effective or less expensive than those
developed or marketed by the Company or that would render the Company's
technology and products obsolete or noncompetitive. Furthermore, there can be no
assurance that the emergence of new products, technologies or procedures will
not reduce the need for ABG analysis.

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PATENTS AND PROPRIETARY RIGHTS

         The Company seeks to protect technology, inventions and improvements
that it considers important through the use of patents and trade secrets. The
Company owns or has rights to several U.S. patents and has filed a number of
patent applications in the United States, Japan and key European countries.
There can be no assurance, however, that the Company's patents will provide
competitive advantages for the Company's products, or that such rights will not
be challenged or circumvented by competitors. In addition, there can be no
assurance that any pending patent applications will issue. Claims made under
patent applications may be denied or significantly narrowed and the issued
patents, if any, may not provide significant commercial protection to the
Company. The Company could incur substantial costs in proceedings before the
U.S. Patent and Trademark Office, including interference proceedings. These
proceedings could result in adverse decisions as to the priority of the
Company's inventions.

         While the Company does not believe that any of its products infringe
any valid claims of patents or other proprietary rights held by third parties,
there can be no assurance that the Company does not infringe any patents or
other proprietary rights held by third parties. If an infringement claim were
made, the costs incurred to defend the claim could be substantial and adversely
affect the Company, even if the Company were ultimately successful in defending
the claim. If the Company's products were found to infringe any proprietary
right of a third party, the Company could be required to pay significant damages
or license fees to the third party or cease production. Litigation may also be
necessary to enforce patent rights held by the Company, or to protect trade
secrets or techniques owned by the Company. Any such claims or litigation could
result in substantial costs and diversion of effort by management of the
Company.

         The Company also relies on trade secrets and other unpatented
proprietary technology. There can be no assurance that the Company can
meaningfully protect its rights in such unpatented proprietary technology or
that others will not independently develop substantially equivalent proprietary
products or processes or otherwise gain access to the Company's proprietary
technology. The Company seeks to protect its trade secrets and proprietary
know-how, in part, with confidentiality agreements with employees and
consultants. There can be no assurance that the agreements will not be breached,
that the Company will have adequate remedies for any breach or that the
Company's trade secrets will not otherwise become known to or independently
developed by competitors.

SensiCath(R) and OpticalCAM(TM) are trademarks of the Company. GEM(R) is a
trademark of Instrumentation Laboratory Company.

GOVERNMENT REGULATION

         The Company's products, development activities and manufacturing
processes are subject to regulation by numerous governmental authorities,
principally the United States Food and Drug Administration ("FDA") and
corresponding foreign agencies. In the United States, the FDA administers the
Federal Food, Drug and Cosmetics Act and amendments thereto, including the Safe
Medical Devices Act of 1990. The Company is subject to the standards and
procedures respecting manufacture and marketing of medical devices contained in
the Federal Food, Drug and Cosmetics Act and the regulations promulgated
thereunder and is subject to inspection by the FDA for compliance with such
standards and procedures. Noncompliance with applicable requirements can result
in, among other things, fines, injunctions, civil penalties, recall or seizure
of products, total or partial suspension of production, failure of the
government to 

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grant premarket clearance or premarket approval for devices, withdrawal of
marketing approvals and criminal prosecution.

         In the United States, medical devices are classified into one of three
classes (class I, II or III), on the basis of the controls deemed necessary by
the FDA to reasonably assure their safety and effectiveness. Under FDA
regulations, class I devices are subject to general controls (e.g., labeling,
premarket notification and adherence to good manufacturing practices) and class
II devices are subject to general and special controls (e.g., performance
standards, postmarket surveillance, patient registries and FDA guidelines ). In
general, class III devices (e.g., life-sustaining, life-supporting and
implantable devices, or new devices which have not been found substantially
equivalent to a legally marketed device), in addition to being subject to
general and special controls, must receive premarket approval ("PMA") by the FDA
to ensure their safety and effectiveness.

         Before a new or significantly modified device can be introduced into
the market, the manufacturer must generally obtain marketing clearance through a
510(k) notification or approval of a PMA application. A 510(k) clearance will be
granted if the proposed device is "substantially equivalent" to a predicate
device (i.e., a legally marketed class I or class II medical device, or a class
III medical device for which the FDA has not called for the submission of a PMA
application). Commercial distribution of a device for which a 510(k)
notification is required can begin only after the FDA issues a written
determination that the device is "substantially equivalent" to a predicate
device. The process of obtaining a 510(k) clearance typically can take several
months to a year or longer. A PMA application must be filed if a proposed device
is not substantially equivalent to a legally marketed class I or class II
device, or if it is a class III device for which the FDA has called for a PMA
application. Certain class III devices that were on the market before May 28,
1976 ("preamendments class III devices"), and devices that are substantially
equivalent to them, can be brought to market through the 510(k) process until
the FDA calls for the submission of PMA applications for preamendments class III
devices. The process of obtaining a PMA can be expensive, uncertain and lengthy,
frequently requiring anywhere from one to several years from the date the PMA is
submitted to the FDA, if approval is obtained at all.

         The Company has received 510(k) clearance to market the SensiCath
System and the OpticalCAM monitor from the FDA. The Company anticipates
submitting 510(k) notifications for other configurations of the SensiCath System
and other products that the Company may develop in the future. There can be no
assurance that these future 510(k) submissions will be cleared by the FDA on a
timely basis, if at all.

         The Company's 510(k) notice claimed that the SensiCath System is
substantially equivalent to certain preamendments class III devices for which
the FDA has published a final regulation placing the devices in class III.
Pursuant to the FDA's August 14, 1995 order requiring manufacturers of
preamendments class III devices to submit safety and effectiveness information
to the FDA, the Company submitted safety and effectiveness information to the
FDA for the SensiCath System by August 1997. In addition, if the FDA publishes a
final regulation calling for PMA applications for the SensiCath predicate
devices based on information submitted by the Company and other manufacturers,
the Company may be required to submit a PMA application within 90 days after the
FDA calls for PMA applications. Although the FDA order requiring submission of
safety and effectiveness information characterized the predicate devices as
having a high potential for down-classification, there can be no assurance that
the devices will be down-classified or that the Company will not be required to
submit a PMA application for the SensiCath System.

         The Company is also subject to regulation in each of the foreign
countries in which it sells its products with regard to product standards,
packaging requirements, labeling requirements, import 

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restrictions, tariff regulations, duties and tax requirements. Many of the
regulations applicable to the Company's products in such countries are similar
to those of the FDA. The national health or social security organizations of
certain of such countries require the Company's products to be qualified before
they can be marketed in those countries. Delays in receipt of, or a failure to
receive such approvals or clearances, or the loss of any previously received
approvals or clearances, could have a material adverse effect on the Company. To
date, the Company has not experienced significant difficulty in complying with
these regulations. In February 1997, the Company received the European Medical
Devices Directorate ("MDD") approval to place the "CE" mark on its products. The
CE mark enables the Company's products to be marketed, sold and used throughout
the European Union, subject to limited "safeguard" powers of member states.

         The Company is subject to periodic inspections by the FDA, which is
charged with auditing the Company's compliance with good manufacturing practices
("GMP") established by the FDA and other applicable government standards. The
Company is also subject to inspections by the MDD and other European regulatory
agencies. Strict regulatory action may be initiated in response to audit
deficiencies or to product performance problems. The Company believes that its
manufacturing and quality control procedures are in compliance with the
requirements of the FDA and MDD regulations. The Company's manufacturing
facilities and processes are also subject to periodic inspection and review by
its Notified Body in conjunction with the Company's ISO 9001 certification.
Failure to maintain GMP and ISO 9001 certifications could have a material
adverse effect on the Company.

         Some of the currently available methods for performing ABG analysis are
subject to the Clinical Laboratory Improvements Act of 1988 ("CLIA"), which is
intended to ensure the quality and reliability of all medical testing in the
United States, regardless of testing site. In June 1996, the Company was
notified by the Centers for Disease Control and Prevention ("CDC") that the
SensiCath System was not subject to regulation under CLIA. Under CLIA, testing
sites are required to comply with certain requirements regarding personnel
qualification, administration, participation in proficiency testing, patient
test management, quality control, quality assurance and inspections based on the
level of "complexity" associated with the test, and each manufacturer of a test
analyzer must obtain a classification of the tests its product performs from the
FDA and CDC. There can be no assurance that future CDC regulations will not
apply to the SensiCath System.

THIRD PARTY REIMBURSEMENT

         Hospitals that purchase and physicians who use medical devices such as
the Company's products generally rely upon third party payors such as Medicare,
Medicaid, private health insurers and others to pay for some or all of the costs
associated with the product. Medicare is the largest single third-party payor
for services involving the use of the Company's products which are used
primarily for hospital inpatients who are receiving critical care services.

         The patient population that the Company has initially targeted for the
SensiCath System requires numerous ABG tests as part of their critical care
stay. Using the average cost of traditional ABG tests and comparing it to the
costs associated with the SensiCath System, the Company believes that it is able
to demonstrate the cost-effectiveness of the SensiCath System. However, there
can be no assurance that the use of the SensiCath System will be considered
cost-effective by certain hospitals and physicians in relation to the level of
reimbursement typically received for ABG tests or for any reimbursement that
might be received for each SensiCath Sensor. Furthermore, the level of
reimbursement for ABG testing could decrease in the future. Failure by hospitals
and other users of the Company's products to obtain sufficient reimbursement
from third party payors and/or changes in governmental and private third party
payors' policies toward coverage for ABG tests could have a materially adverse
effect on the Company.

                                       8
<PAGE>
 
EMPLOYEES

         As of December 31, 1997, the Company employed 75 persons full-time and
8 persons on a contract or part-time basis. No employees are covered by
collective bargaining agreements, and the Company considers its relationship
with its employees to be good.

CERTAIN IMPORTANT FACTORS

         In addition to the factors identified above, there are several
important factors that could cause the Company's actual results to differ
materially from those anticipated by the Company or which are reflected in any
forward-looking statements of the Company. These factors, and their impact on
the success of the Company's operations and its ability to achieve its goals,
include the following:

-    MARKET ACCEPTANCE OF THE SENSICATH SYSTEM. The Company's future revenues
     will depend on market acceptance of the SensiCath System. The Company will
     need to demonstrate to health care professionals, hospital administrators
     and third-party payors the accuracy, reliability, ease of use, safety and
     cost effectiveness of the SensiCath System. In order to use the SensiCath
     System, hospitals need to acquire the OpticalCAM instrumentation, which may
     require capital expenditure approvals by the hospital.

-    SALES BY INSTRUMENTATION LABORATORY. The Company's future revenues will
     depend almost exclusively on sales of the Company's products by IL. In
     January 1998, the Company entered into a seven-year strategic partnership
     with IL for worldwide distribution of the Company's SensiCath Sensors and
     OpticalCAM instrumentation. IL will market and distribute the Company's
     products throughout the world under the names GEM SensiCath and GEM
     OpticalCAM. The Company will supply IL with SensiCath Sensors, on an
     exclusive basis, through 2004 and on a non-exclusive basis through 2007.
     The Company will also supply IL with OpticalCAM Instruments, on a
     semi-exclusive basis, through 2004. The Company retains the right to sell
     OpticalCAM Instruments to manufacturers of physiological monitoring,
     ventilator and anesthesia delivery systems. Although IL is required to
     purchase sufficient quantities of products from the Company that will
     result in pre-established annual minimum revenues to the Company in order
     to maintain exclusivity, there can be no assurance that IL will achieve
     sufficient sales for the Company to substantially increase revenues or
     achieve profitability.

-    MANUFACTURING AND SUPPLY. The Company's future plans include planned
     enhancements to the SensiCath Sensor that will reduce the Company's
     manufacturing costs. In addition, the Company does not yet have experience
     in manufacturing sensors in volumes that will be necessary to achieve
     significant revenues. A failure to implement the planned cost reduction
     programs in a timely manner or to successfully scale-up manufacturing of
     sensors could have a material adverse effect on the Company. Currently, the
     Company has only one supplier for the ABG Module, the OpticalCAM Monitor
     and certain other key components. Any disruption or delay in the supply of
     key components or instrumentation could have a material adverse effect on
     the Company.

-    COMPETITION. Competition among companies attempting to provide ABG and
     other critical blood analyte analysis at the point-of-care is intense and
     increasing. There can be no assurance that the Company's competitors will
     not succeed in developing or marketing technologies and products that are
     more effective or less expensive than the Company's products or that would
     render the Company's products obsolete or non-competitive.

                                       9
<PAGE>
 
-    REGULATORY APPROVALS. The Company's ability to market its current products
     and any products that it may develop in the future requires clearances or
     approvals from the FDA and other governmental agencies, including, in some
     instances, foreign and state agencies. The process for maintaining and
     obtaining necessary regulatory clearances and approvals can be expensive
     and time consuming. There can be no assurance that the Company will be able
     to maintain or obtain necessary regulatory approvals and clearances in the
     future.

ITEM 2.  PROPERTIES.

         The Company's facilities are located at 7615 Golden Triangle Drive,
Minneapolis, Minnesota, and consist of approximately 23,364 square feet. The
Company leases these facilities pursuant to a lease that expires on November 30,
1999. The lease provides for rent of approximately $20,800 per month, including
base rent and a pro rata share of operating expenses and real estate taxes. The
Company expects that these facilities will be sufficient for its operations for
the foreseeable future.

ITEM 3.  LEGAL PROCEEDINGS.

         There are no material pending or threatened legal, governmental,
administrative or other proceedings to which the Company is a party or of which
any of its property is subject.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

         No matter was submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this Report.

ITEM 4A. EXECUTIVE OFFICERS OF THE COMPANY.

         The executive officers of the Company, their ages and the offices held,
as of March 13, 1998, are as follows:

    NAME                AGE                      TITLE
-------------------     ---     --------------------------------------------    
Sam B. Humphries        55      President and Chief Executive Officer

Paulita M. LaPlante     40      Vice  President  of  Worldwide  Sales,   
                                Marketing  and  Business Development

Byron (Buzz) Moran      55      Vice President of Research and Development and 
                                Operations

Wesley G. Peterson      50      Chief   Financial   Officer,   Vice   President
                                of  Finance  and Administration and Secretary

         Information regarding the business experience of the executive officers
of the Company is set forth below.

         SAM B. HUMPHRIES has been the President, Chief Executive Officer and a
Director of the Company since October 1991. From January 1988 to October 1991,
he served as President and Chief Executive Officer of American Medical Systems
("AMS"), a medical device manufacturer which is a 

                                       10
<PAGE>
 
subsidiary of Pfizer, Inc. Mr. Humphries also served as a member of the Board of
Directors of the Hospital Products Group at Pfizer, Inc. Mr. Humphries is a
Director of Universal Hospital Services, Inc.

         PAULITA M. LAPLANTE has been the Company's Vice President of Worldwide
Sales, Marketing and Business Development since June 1994 and was Director of
Marketing and Business Development from April 1992 to June 1994. She also served
as the Company's interim Vice President of Research and Development from January
1994 to September 1994. From 1986 to April 1992, Ms. LaPlante held a variety of
positions with AMS, including Manager for Prostate Products, Manager of New
Business Development and Manager of Worldwide Technical Training.

         BYRON (BUZZ) MORAN has been the Company's Vice President of Research
and Development and Operations since September 1994. From January 1985 to August
1994, Mr. Moran held several management positions, including Vice President and
General Manager and Vice President of Research and Development, for Spectramed
Incorporated, a medical device manufacturer which is a subsidiary of British
Oxygen Corporation.

         WESLEY G. PETERSON has been the Company's Chief Financial Officer since
January 1992, Vice President of Finance and Administration since June 1994 and
Secretary since July 1992. He was also Director of Finance and Administration
from January 1992 to June 1994. From December 1986 to December 1991, Mr.
Peterson was the Vice President of Finance and Administration for CIMA Labs,
Inc., a manufacturer and distributor of pharmaceuticals based in Minneapolis,
Minnesota.


                                     PART II

ITEM 5.  MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
         MATTERS.

         The information under the caption "Common Stock Information" on page 
25 of the Company's 1997 Annual Report is incorporated herein by reference.

ITEM 6.  SELECTED FINANCIAL DATA.

         The financial information under the caption "Selected Financial Data"
on page 23 of the Company's 1997 Annual Report is incorporated herein by
reference.

ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND 
         RESULTS OF OPERATIONS.

         The information under the caption "Management's Discussion and 
Analysis" on pages 6 to 9 of the Company's 1997 Annual Report is incorporated
herein by reference.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.

         Not Applicable.

                                       11
<PAGE>
 
ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

         The Company's Financial Statements and Independent Auditors' Report
thereon on pages 10 to 23 of the Company's 1997 Annual Report are incorporated
herein by reference.

ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND 
         FINANCIAL DISCLOSURE.

         None.


                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

     (A) DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS

         The information under the captions "Election of Directors --
Information About Nominees" and "Election of Directors -- Other Information
About Nominees" in the Company's 1998 Proxy Statement is incorporated herein by
reference. The information concerning executive officers of the Company is
included in this Report under Item 4a, "Executive Officers of the Company."

     (B) SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

         The information under the caption "Section 16(a) Beneficial Ownership
Reporting Compliance" in the Company's 1998 Proxy Statement is incorporated
herein by reference.

ITEM 11. EXECUTIVE COMPENSATION.

         The information under the captions "Election of Directors -- Director
Compensation" and "Executive Compensation and Other Benefits" in the Company's
1998 Proxy Statement is incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
         MANAGEMENT.

         The information under the caption "Principal Shareholders and
Beneficial Ownership of Management" in the Company's 1998 Proxy Statement is
incorporated herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

         The information under the caption "Certain Transactions" in the
Company's 1998 Proxy Statement is incorporated herein by reference.

                                       12
<PAGE>
 
                                     PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.

     (A) 1. FINANCIAL STATEMENTS.

         The following Financial Statements of the Company are incorporated 
     herein by reference from the pages indicated in the Company's 1997 Annual 
     Report:

         FINANCIAL STATEMENTS:                                        PAGE:

         Report of Independent Auditors...........................     23

         Statements of Operations for the years ended
         December 31, 1997, 1996 and 1995 and for the period from
         May 23, 1989 (inception) to December 31, 1997............     10

         Balance Sheets as of December 31, 1997 and 1996..........     11
         
         Statement of Shareholders' Equity for the period
         May 23, 1989 (inception) to December 31, 1997............     12-13

         Statements of Cash Flows for the years ended
         December 31, 1997, 1996 and 1995  and for the period
         from May 23, 1989 (inception) to December 31, 1997.......     14

         Notes to Financial Statements............................     15-22

         2. FINANCIAL STATEMENT SCHEDULES.

            All schedules are omitted as the required information is 
     inapplicable or the information is presented in the financial statements or
     related notes thereto.

         3. EXHIBITS

            The exhibits to this Report are listed in the Exhibit Index on pages
     16 to 20 below.

            A copy of the exhibits referred to above will be furnished at a
     reasonable cost to any person who was a stockholder of the Company as of
     March 13, 1998, upon receipt from any such person of a written request for
     any such exhibit. Such request should be sent to: Optical Sensors
     Incorporated, 7615 Golden Triangle Drive, Suite A, Minneapolis, Minnesota
     55344; Attn: Stockholder Information.

            The following is a list of each management contract or compensatory
     plan or arrangement required to be filed as an exhibit to this Annual
     Report on Form 10-K pursuant to Item 13(a):

            A. Employment Agreement dated October 1, 1991 between the Company 
               and Sam B.  Humphries.

                                       13
<PAGE>
 
            B. 1989 Omnibus Stock Option Plan, as amended.

            C. 1991 Stock Option Plan, as amended.

            D. Non-Statutory Stock Option Agreement dated August 2, 1995
               between the Company and Sam B. Humphries.

            E. Non-Recourse Promissory Note dated September 1, 1995
               between the Company and Sam B. Humphries.

            F. 1993 Stock Option Plan, as amended.

            G. Form of Non-Statutory Stock Option Agreement for
               Nonemployees pursuant to 1993 Stock Option Plan.

            H. Form of  Non-Statutory  Stock Option  Agreement for Nonemployee  
               Directors  pursuant to 1993 Stock Option Plan

            I. Form of Incentive Stock Option Agreement for Employees pursuant 
               to 1993 Stock Option Plan.

            J. Employee Stock Purchase Plan.

     (B) REPORTS ON FORM 8-K

         The Company did not file any Current Reports on Form 8-K during the
quarter ended December 31, 1997.

                                       14
<PAGE>
 
                                   SIGNATURES

         Pursuant to the requirements of Section 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.

                                        OPTICAL SENSORS INCORPORATED


Dated:  March 25, 1998                  By:  /S/  SAM B. HUMPHRIES
                                           -----------------------
                                           Sam B. Humphries
                                           President and Chief Executive Officer

         Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below on March 25, 1998 by the following persons on
behalf of the Registrant and in the capacities and on the dates indicated.

NAME                                              TITLE


/S/ SAM B. HUMPHRIES                    President,  Chief Executive  Officer and
-------------------------------         Director  (principal executive officer)
Sam B. Humphries                        

/S/ WESLEY G. PETERSON                  Chief Financial Officer, Vice President 
-------------------------------         of Finance and Administration and 
Wesley G. Peterson                      Secretary (principal financial and 
                                        accounting officer)

                                        

/S/ RICHARD B. EGEN                     Director
-------------------------------
Richard B. Egen


/S/ PROMOD HAQUE, PH.D.                 Director
-------------------------------
Promod Haque, Ph.D.


/S/ RICHARD J. MEELIA                   Director
-------------------------------
Richard J. Meelia


/S/ DEMETRE M. NICOLOFF, M.D.           Director
-------------------------------
Demetre M. Nicoloff, M.D.


/S/ GARY A. PETERSON                    Director
-------------------------------
Gary A. Peterson

                                       15
<PAGE>
 
                          OPTICAL SENSORS INCORPORATED
                   EXHIBIT INDEX TO ANNUAL REPORT ON FORM 10-K
                      FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>


ITEM NO.   ITEM                                           METHOD OF FILING

<S>      <C>                                              <C>
3.1      Restated Certificate of Incorporation of the     Incorporated   by   reference   to  Exhibit   3.3
         Company.                                         contained   in   the    Company's    Registration
                                                          Statement on Form S-1 (File No.  33-99904).

3.2      Certificate of Designation, Preferences and      Incorporated   by   reference   to  Exhibit   3.2
         Rights of Series A Junior Preferred Stock.       contained in the Company's  Annual Report on Form
                                                          10-K for the year ended  December  31, 1996 (File
                                                          No. 0-27600).

3.3      Bylaws of the Company.                           Incorporated   by   reference   to  Exhibit   3.5
                                                          contained   in   the    Company's    Registration
                                                          Statement on Form S-1 (File No.  33-99904).

4.1      Specimen Common Stock Certificate                Incorporated   by   reference   to  Exhibit   4.1
                                                          contained   in   the    Company's    Registration
                                                          Statement on Form S-1 (File No.  33-99904).

4.2      Form of Warrant issued in connection with the    Incorporated   by   reference   to  Exhibit   4.4
         Convertible Bridge Loan Agreement dated November contained   in   the    Company's    Registration
         22, 1991                                         Statement on Form S-1 (File No.  33-99904).

4.3      Form of Warrant issued in connection with the    Incorporated   by   reference   to  Exhibit   4.5
         On-Call Bridge Loan Agreement dated December 6,  contained   in   the    Company's    Registration
         1991                                             Statement on Form S-1 (File No.  33-99904).

4.4      Form of Warrant issued in connection with the    Incorporated   by   reference   to  Exhibit   4.6
         Convertible Bridge Loan Agreement dated May 4,   contained   in   the    Company's    Registration
         1993                                             Statement on Form S-1 (File No.  33-99904).

4.5      Form of Warrant issued in connection with the    Incorporated   by   reference   to  Exhibit   4.7
         Bridge Loan Agreement dated June 1, 1995         contained   in   the    Company's    Registration
                                                          Statement on Form S-1 (File No.  33-99904).

4.6      Warrant dated November 6, 1992 issued to         Incorporated   by   reference   to  Exhibit   4.8
         Comdisco, Inc.                                   contained   in   the    Company's    Registration
                                                          Statement on Form S-1 (File No.  33-99904).
</TABLE>
<PAGE>
 
<TABLE>
<S>      <C>                                              <C>
4.7      Warrant Dated August 31, 1995 issued to          Incorporated   by   reference   to  Exhibit   4.9
         Comdisco, Inc.                                   contained   in   the    Company's    Registration
                                                          Statement on Form S-1 (File No.  33-99904).

4.8      Rights Agreement dated as of December 3, 1996    Incorporated   by   reference   to  Exhibit   4.1
         between the Company and Norwest Bank Minnesota,  contained  in the  Company's  Current  Report  on
         N.A.                                             Form  8-K  dated   December  3,  1996  (File  No.
                                                          0-27600).

10.1     Lease dated October 7, 1991 between Registrant   Incorporated   by   reference   to  Exhibit  10.1
         and First Industrial L.P.  (successor to MIG     contained   in   the    Company's    Registration
         Kappa III Companies)                             Statement on Form S-1 (File No.  33-99904).

10.2     Equipment Lease dated November 6, 1992, as       Incorporated   by   reference   to  Exhibit  10.2
         amended, between the Company and Comdisco, Inc.  contained   in   the    Company's    Registration
                                                          Statement on Form S-1 (File No.  33-99904).

10.3     Letter Agreement dated October 1, 1995 between   Incorporated   by   reference   to  Exhibit  10.3
         the Company and Marquette Electronics, Inc.      contained   in   the    Company's    Registration
                                                          Statement on Form S-1 (File No.  33-99904).

10.4     Employment Agreement dated October 1, 1991       Incorporated   by   reference   to  Exhibit  10.4
         between the Company and Sam B. Humphries         contained   in   the    Company's    Registration
                                                          Statement on Form S-1 (File No.  33-99904).

10.5     Non-Competition Agreement, dated April 28, 1992  Incorporated   by   reference   to  Exhibit  10.6
         between the Company and Sam B. Humphries         contained   in   the    Company's    Registration
                                                          Statement on Form S-1 (File No.  33-99904).

10.6     Registration Rights Agreement, dated April 28,   Incorporated   by   reference   to  Exhibit  10.9
         1992, as amended                                 contained   in   the    Company's    Registration
                                                          Statement on Form S-1 (File No.  33-99904).

10.7     1989 Omnibus Stock Option Plan, as amended       Incorporated   by  reference  to  Exhibit   10.11
                                                          contained   in   the    Company's    Registration
                                                          Statement on Form S-1 (File No.  33-99904).

10.8     1991 Stock Option Plan, as amended               Incorporated   by  reference  to  Exhibit   10.12
                                                          contained   in   the    Company's    Registration
                                                          Statement on Form S-1 (File No.  33-99904).
</TABLE>
<PAGE>
 
<TABLE>
<S>      <C>                                              <C>
10.9     Non-Statutory Stock Option Agreement dated       Incorporated   by  reference  to  Exhibit   10.13
         August 2, 1995 between the Company and Sam B.    contained   in   the    Company's    Registration
         Humphries                                        Statement on Form S-1 (File No.  33-99904).

10.10    Non-Recourse Promissory Note dated September 1,  Incorporated   by  reference  to  Exhibit   10.14
         1995 between the Company and Sam B. Humphries    contained   in   the    Company's    Registration
                                                          Statement on Form S-1 (File No.  33-99904).

10.11    Pledge Agreement dated September 1, 1995 between Incorporated   by  reference  to  Exhibit   10.15
         the Company and Sam B. Humphries                 contained   in   the    Company's    Registration
                                                          Statement on Form S-1 (File No.  33-99904).

10.12    1993 Stock Option Plan, as amended               Incorporated   by  reference  to  Exhibit   10.21
                                                          contained   in   the    Company's    Registration
                                                          Statement on Form S-1 (File No.  33-99904).

10.13    Form of Non-Statutory Stock Option Agreement for Incorporated   by  reference  to  Exhibit   10.21
         Nonemployees pursuant to 1993 Stock Option Plan  contained   in   the    Company's    Registration
                                                          Statement on Form S-1 (File No.  33-99904).

10.14    Form of Non-Statutory Stock Option Agreement for Incorporated   by  reference  to  Exhibit   10.18
         Nonemployee Directors pursuant to 1993 Stock     contained   in   the    Company's    Registration
         Option Plan                                      Statement on Form S-1 (File No.  33-99904).

10.15    Form of Incentive Stock Option Agreement for     Incorporated by reference to Exhibit 10.19
         Employees pursuant to                            contained in the Company's Registration 
         1993 Stock Option Plan                           Statement on Form S-1 (File No.  33-99904).


10.16    Employee Stock Purchase Plan                     Incorporated   by   reference   to  Exhibit  99.1
                                                          contained   in   the    Company's    Registration
                                                          Statement on Form S-8 (File No.  333-17493).

10.17    First Amendment to Lease Agreement dated April   Incorporated   by  reference  to  Exhibit   10.21
         26, 1996 between First Industrial Financing      contained in the Company's  Annual Report on Form
         Partnership, L.P. and the Company.               10-K for the year ended  December  31, 1996 (File
                                                          No. 0-27600).
</TABLE>
<PAGE>
 
<TABLE>
<S>      <C>                                              <C>
10.18    Supply Agreement dated August 22, 1996 between   Incorporated   by  reference  to  Exhibit   10.22
         the Company and Marquette Electronics, Inc. (1)  ontained in the Company's  Annual Report on Form
                                                          10-K for the year ended  December  31, 1996 (File
                                                          No. 0-27600).

10.19    Manufacturing Supply Agreement dated September   Incorporated   by  reference  to  Exhibit   10.23
         10, 1996 between the Company and SpecTran        contained in the Company's  Annual Report on Form
         Specialty Optics Company.  (1)                   10-K for the year ended  December  31, 1996 (File
                                                          No. 0-27600).

10.20    Purchase Order dated February 21, 1997 between   Incorporated   by  reference  to  Exhibit   10.24
         the Company and SeaMED Corporation.  (1)         contained in the Company's  Annual Report on Form
                                                          10-K for the year ended  December  31, 1996 (File
                                                          No. 0-27600).

10.21    Second Amendment to Lease Agreement, dated       Filed herewith electronically.
         April 14, 1997, between First Industrial 
         Financing Partnership, L.P. and the Company.

10.22    Master Equipment Lease dated June 15, 1997       Filed herewith electronically.
         between Phoenix Leasing Incorporated and the
         Company

10.23    Amendment No. 1 to Master Equipment Lease dated  Filed herewith electronically.
         August 15, 1997 between Phoenix Leasing
         Incorporated and the Company

10.24    Private Label Reseller Agreement dated as of     Incorporated   by   reference   to  Exhibit  10.1
         January 7, 1998 between the Company and          contained  in the  Company's  Current  Report  on
         Instrumentation Laboratory Company.  (1)         Form  8-K,   dated  January  7,  1998  (File  No.
                                                          0-27600).

10.25    Stock Purchase Agreement dated as of January 7,  Incorporated   by   reference   to  Exhibit  10.2
         1998 between the Company and Grupo CH Werfen,    contained  in the  Company's  Current  Report  on
         S.A.                                             Form  8-K,   dated  January  7,  1998  (File  No.
                                                          0-27600).

10.26    OEM Agreement dated February 5, 1998 between the Filed herewith electronically.
         Company and Marquette Medical Systems, Inc. (2)

13.1     Excerpts from the Company's 1997 Annual Report   Filed herewith electronically.
         to Shareholders incorporated by reference herein.
</TABLE>
<PAGE>
 
<TABLE>
<S>      <C>                                              <C>
23.1     Independent Auditors' Consent                    Filed herewith electronically.

27.1     Financial Data Schedule                          Filed herewith electronically.
</TABLE>
---------------------
(1) Confidential treatment has been granted by the Commission with respect to
designated portions contained within document. Such portions have been omitted
and filed separately with the Commission pursuant to Rule 24b-2 of the
Securities and Exchange Act of 1934, as amended.

(2) Confidential treatment has been requested with respect to designated
portions contained within document. Such portions have been omitted and filed
separately with the Commission pursuant to Rule 24b-2 of the Securities and
Exchange Act of 1934, as amended.