<PAGE>

================================================================================
                                 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, 2000

[_]  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 C
          Technology Park V
       Minneapolis, Minnesota                                   55344-3733
(Address of principal executive offices)                        (Zip code)

      Registrant's telephone number, including area code:  (952) 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-KSB or any amendment to
this Form 10-K. [_]

     As of March 1, 2001, 8,982,461 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 OTC Bulletin Board System),
excluding outstanding shares beneficially owned by directors, executive officers
and affiliates, was $1,868,113.

                      DOCUMENTS INCORPORATED BY REFERENCE

                                     None.

================================================================================
<PAGE>

                                     PART I
                                     ------

     This Form 10-K contains certain forward-looking statements. For this
purpose, any statements contained in this Form 10-KSB 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

     Since October 1998, Optical Sensors Incorporated (the "Company") has been
focusing its resources on development and commercialization of the CapnoProbe,
which is a handheld device with a carbon dioxide ("CO/2/") probe that is slipped
under the tongue like a thermometer.  It non-invasively measures the tissue
CO/2/ of the mucous membrane in the mouth -- a sensitive measure that can
indicate reduced blood flow to non-vital organs. Reduced blood flow, or
"hypoperfusion," can be an early manifestation of clinical shock, even when
traditional vital signs may still appear relatively normal. Diagnosis of
inadequate tissue perfusion may be difficult in its early stages when the signs
and symptoms are masked by the body's natural compensatory mechanisms that
preserve blood supply to vital organs by reducing blood flow to other organs. If
treatment is delayed to the point that the body's compensatory systems can no
longer maintain adequate circulation and vital tissue perfusion, the
consequences can be disastrous for the patient. To date, there has been no
rapid, low-cost, noninvasive method to objectively determine when a patient has
inadequate tissue perfusion. In December 2000, the Company received 510(k)
clearance from the FDA to market the CapnoProbe. Since January 1999, the Company
has been exploring strategic alternatives, including joint ventures, corporate
strategic alliances, sale of the business or product lines, or other business
combinations. FDA marketing clearance allows OSI to continue with its plans to
pursue a major health care products distribution partner for the CapnoProbe
sensor and complete CapnoProbe's commercial configuration for sale into the
hospital medical marketplace.

     On March 10, 2000, the Company issued convertible promissory notes in the
aggregate principal amount of $1,400,000, pursuant to an Investment Agreement
with Circle F Ventures, LLC and Special Situations Fund III, L.P.  The $700,000
principal amount of notes held by Circle F Ventures and its affiliates were due
on March 10, 2001, although they have indicated that they do not intend to call
their notes.  The $700,000 note held by Special Situations Fund III is due on
September 10, 2001.  The $700,000 note held by Special Situations Fund III is
convertible, at the option of holder, into units at a conversion price equal to
$25,000 per unit, each unit consisting of 50,000 shares of Common Stock and a
five-year warrant to purchase 12,500 shares of Common Stock at an exercise price
of $.50 per share.  The $700,000 principal amount of notes held by Circle F
Ventures and certain of its affiliates are convertible, at the option of
holders, into units at a conversion price equal to $12,500 per unit, each unit
consisting of 50,000 shares of Common Stock and a five-year warrant to purchase
12,500 shares of Common Stock at an exercise price of $.25 per share.  The
conversion price of the notes and exercise price of the warrants held by Circle
F Ventures and its affiliates is subject to reduction if the Company sells
equity securities (subject to various exceptions) at a common stock equivalent
per share price of less than $.25.

     On August 10, 2000, the Company entered into the Securities Purchase
Agreement pursuant to which the Company agreed to issue, and Circle F Ventures
agreed to purchase upon request of the Company, up to 4,333,334 shares of the
Company's Series A Preferred Stock for an aggregate purchase price of
$1,500,000.  The Company sold 1,000,000 shares of the Series A Preferred Stock
to Circle F Ventures at $.50 per share for a total of $500,000 on August 11,
2000, 1,333,334 shares of the Series A

                                       1
<PAGE>

Preferred Stock to Circle F Ventures at $.375 per share for a total of $500,000
on October 3, 2000 and 2,333,333 shares of the Series A Preferred Stock to
Circle F Ventures at $.25 per share for a total of $500,000 on December 28,
2000. The sale of the shares of Series A Preferred Stock under the Securities
Purchase Agreement caused the conversion price of the convertible promissory
note held by Circle F Ventures to be reduced to $12,500 per unit and the
exercise price of the warrants issuable to Circle F Ventures to be reduced to
$.25 per share. The terms of the Securities Purchase Agreement also provide for
all options held by current employees and directors of the Company to be reduced
to the weighted average price at which Circle F Ventures purchases Series A
Preferred Stock.

     On March 8, 2001, the Company entered into a Bridge Loan Agreement with
Circle F Ventures under which Circle F Ventures agreed to loan the Company up to
$150,000, pursuant to a convertible promissory note.  This loan is convertible,
at the option of Circle F Ventures, into shares of Common Stock.  If the Company
completes a private placement of equity securities (the "Financing") by April
30, 2001, the conversion price of the note will be equal to the per share price
of the securities sold in the Financing.  If the Company does not complete the
Financing by April 30, 2001, the conversion price of the note will be $.25 per
share.

     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 C, Technology Park V, Minneapolis, Minnesota 55344,
and its telephone number is (952) 944-5857.

The CapnoProbe

     The CapnoProbe is a handheld device with a CO/2/ probe that is slipped
under the tongue like a thermometer that non-invasively measures the tissue
CO/2/ of the mucous membrane in the mouth -- a sensitive measure that can
indicate reduced blood flow to non-vital organs. Reduced blood flow, or
"hypoperfusion," can be an early manifestation of clinical shock, even when
traditional vital signs may still appear relatively normal, as in compensated
shock cases. According to the Wilkerson Group, a leading market research
organization, the U.S. market potential for the CapnoProbe is more than $300
million in the emergency department and intensive care markets alone. The
CapnoProbe's disposable CO/2/ probe is self-calibrating and is planned to
provide CO/2/ readings in approximately one minute. One CapnoProbe sensor will
be used on one patient for a single measurement. Multiple measurements would be
made depending on the severity of the patient's state and response to therapy.
The CapnoProbe instrument will be portable, rugged and battery operated. The
Company is using its proven designs from its existing OpticalCAM blood analyte
monitor and the CO/2/ component of its SensiCath blood gas sensor to reduce
technical risk in the program and to speed development to market. No new
research is required for the product and all milestones to commercialization are
engineering related. Prototype versions of the CapnoProbe system are currently
being evaluated at clinical sites in the United States. In December 2000, the
Company received 510(k) clearance from the FDA to market the CapnoProbe.

Sales and Marketing

     In January 1999, the Company suspended sales activity of the SensiCath
System and reduced expenses and personnel (including sales and marketing
personnel) in order to concentrate its resources on the CapnoProbe.  The Company
does not maintain any sales or marketing personnel and does not expect any sales
of the SensiCath System in the future.  The Company is exploring strategic
alternatives, including joint ventures, corporate strategic alliances, sale of
the business or product lines, or other business combinations.  One of the
strategic alternatives could include a distribution and/or development partner
for the CapnoProbe and/or other platform technologies based upon the Company's
proprietary technology.

                                       2
<PAGE>

Research and Development

     The Company's research and development staff is currently focusing on the
design and development of the CapnoProbe technology.  There can be no assurance
that the Company will be able to successfully develop the CapnoProbe product on
a timely basis or at all.  The Company's research and development expenses for
the fiscal years ended December 31, 2000, 1999, and 1998 were $2,815,354,
$3,115,075 and $4,248,029, 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 used to manufacture 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
inspection of the Company's manufacturing facility in November 1997, and the
Company passed the inspection.  The Company's manufacturing facility is ISO 9001
compliant.

     The Company has not yet established commercial manufacturing for the
CapnoProbe.

Competition

     Competition in the medical device industry in general is intense and
expected to increase.  To the Company's knowledge, however, there are no
commercially available products that would be directly competitive with the
CapnoProbe.  The CapnoProbe would indirectly compete with the Datex-Ohmeda
(Instrumentariun Corporation) TONOCAP system. This product measures CO/2/ in the
tissue of the stomach wall as an indicator of shock and has only recently been
introduced to critical care medicine. The TONOCAP system requires placement of a
balloon catheter into the stomach and measures air or saline from the balloon at
regular intervals. However, the administration of a histamine-2 receptor (e.g.,
Tagamet) and a stomach free of food are required for accurate measurements,
making the TONOCAP a difficult product to use in emergency situations where it
is most needed. Even with its limitations, there is a growing body of literature
that reinforces the importance of measuring gastrointestinal CO/2/ as a method
of diagnosing shock since there is evidence that if elevated CO/2/ cannot be
reversed within six to 24 hours, aggressive treatment will not be effective.

     The Company believes that the principal competitive factors for its
CapnoProbe will be accuracy, rapid results, cost-effectiveness and price.  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 the CapnoProbe.

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 currently holds or has a license to practice 27 U.S. patents covering
the Company's opto-electronic technology, seven of which are specifically
related to the CapnoProbe, 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

                                       3
<PAGE>

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 patents covered under any pending patent applications will
be issued. 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.

     In July 1998, the Company entered into a patent license agreement with
Institute of Critical Care Medicine ("ICCM"), which provides the Company with
the exclusive, worldwide right under ICCM's pending and issued patents to use
the Company's technology to assess tissue perfusion under the tongue
(sublingually) and in the esophagus to aid in the diagnosis and monitoring of
shock.  The CapnoProbe product being developed by the Company is expected to be
subject to royalties under the license agreement.  The Company is obligated to
pay ICCM a minimum annual royalty of $300,000 for five years in order to
maintain exclusivity.  The Company may elect, on one years' written notice, not
to make the annual minimum royalty payment of $300,000, but ICCM would have the
right to terminate the license agreement.  The Company is obligated to pay ICCM
a customary royalty equal to a percentage of sales, which varies depending on
the selling price to the customer of the CapnoProbe.  The Company is also
obligated to meet certain product development milestones under the license
agreement.

     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),OpticalCAM(TM), and CapnoProbe(TM) are trademarks of the
     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

                                       4
<PAGE>

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 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.  In December 2000, the Company received
510(k) clearance from the FDA to market CapnoProbe.

     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 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.

                                       5
<PAGE>

     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.

Employees

     As of March 15, 2001, the Company had 17 full-time and one part-time
employee.  No employees are covered by collective bargaining agreements, and the
Company considers its relationship with its employees to be good.

Item 2.   PROPERTIES.

     The Company's facilities are located at 7615 Golden Triangle Drive, Suite
C, Technology Park V, Minneapolis, Minnesota, and consist of approximately
18,300 square feet.  The Company leases these facilities pursuant to a lease
that expires on May 31, 2001.  The lease provides for rent of approximately
$18,600 per month, including base rent and a pro rata share of operating
expenses and real estate taxes.  The Company believes it will be able to renew
this lease if necessary.

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 15, 2001, are as follows:

     Name                Age                      Title
   --------             -----                   ---------

Paulita M. LaPlante       43     President and Chief Executive Officer

Wesley G. Peterson        53     Chief Financial Officer, Vice President of
                                 Finance and Administration and Secretary

Victor Kimball            37     Vice President, Strategic Planning and Product
                                 Development

                                       6
<PAGE>

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

     Paulita M. LaPlante has been the President and a Director of the Company
since September 1998 and Chief Executive Officer of the Company since December
1998.  From June 1994 to September 1998, Ms. LaPlante served as the Company's
Vice President of Worldwide Sales, Marketing and Business Development 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.

     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.

     Victor Kimball has been the Company's Vice President, Strategic Planning
and Product Development since December 1998.  From June 1997 to October 1998,
Mr. Kimball was Director of Engineering and Business Development and from
January 1995 to June 1997, he was Director of Engineering.  From June 1992 to
January 1995 he was Engineering Manager of the Company..

                                       7
<PAGE>
                                    PART II
                                    -------

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

     From February 14, 1996, the date of the Company's initial public offering,
through May 11, 2000, the Company's Common Stock was traded on The Nasdaq
National Market.  Since May 12, 2000, the Company's Common Stock has traded in
the over-the-counter market on the OTC Bulletin Board under the symbol OPSI.OB.
The following table sets forth the quarterly high and low bid prices for The
Company's Common Stock for the periods indicated as reported by Nasdaq prior to
May 11, 2000, and by the OTC Bulletin Board thereafter.

             Quarter Ended               High          Low
           -----------------------  -------------  -----------
           March 31, 2000               $4.50         $ .63
           June 30, 2000                 2.34           .50
           September 30, 2000            1.38           .50
           December 31, 2000              .91           .06

           March 31, 1999               $1.81         $1.03
           June 30, 1999                 1.50          0.75
           September 30, 1999            1.50          0.88
           December 31, 1999             1.34          0.50

     The foregoing prices reflect inter-dealer prices, without dealer markup,
mark-down or commissions, and may not represent actual transactions.

     As of March 21, 2001, the Company had 3,413 stockholders of record of its
common stock.

     The Company has never paid any cash dividends on its common stock, and does
not anticipate paying any cash dividends on its common stock in the foreseeable
future.

     See Item 12 "Certain Relationships and Related Transactions" for a
description of all sales of unregistered securities by the Company since January
1, 2000.  All such sales were made in reliance on an exemption from registration
under Section 4(2) of the Securities Act, based on investment representations
given by the purchasers of such securities.  The Company did not pay any
commissions with respect to the sale of such securities.

Item 6.  SELECTED FINANCIAL DATA.

<TABLE>
<CAPTION>
                                                         Years Ended December 31,
                                     ----------------------------------------------------------------
                                       2000          1999          1998          1997          1996
                                     --------      --------      --------      --------      --------
<S>                                  <C>           <C>           <C>           <C>           <C>
                                                  (in thousands, except per share data)
Statements of Operations Data

Net sales ......................     $      0      $    134      $  1,019      $    141      $    163
Operating expenses .............        3,707         5,968        10,533        10,472         9,734
Loss from operations ...........        3,707         7,879       (12,420)      (12,527)      (10,941)
Interest income (expense), net..       (1,438)          101           628         1,193         1,555
Net loss .......................       (5,302)       (7,785)      (11,817)      (11,333)       (9,385)
Net loss per common share,
  basic and diluted.............         (.59)         (.88)        (1.34)        (1.35)        (1.30)
</TABLE>


<TABLE>
<CAPTION>
                                                         December 31,
                                    -------------------------------------------------------
                                     2000        1999        1998        1997        1996
                                    -------     -------     -------     -------     -------
<S>                                 <C>         <C>         <C>         <C>         <C>
                                                        (in thousands)
Balance Sheet Data

Cash and cash equivalents .....      $  493      $1,451     $ 8,080     $17,101     $30,135
Working capital ...............          50       2,001       9,103      18,220      30,039
Total assets ..................       2,716       4,296      12,565      21,626      32,369
Long-term obligations .........           6       1,041         495         472          --
Total shareholders' equity.....         992       3,355      10,984      20,157      31,050
</TABLE>

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

Fiscal Years Ended December 31, 2000 and 1999

     Net sales were zero in 2000 as compared to $134,131 in 1999.  The decrease
in sales is the result of the Company's suspension of direct sales and support
activities of the SensiCath System in January 1999.  Net sales for 1999
consisted of development fees and sales of SensiCath sensors to existing
customers, less OpticalCAM product returns.  No new customer sales were made
during 1999.  The Company does not expect any sales of the SensiCath System in
the future.

                                       8
<PAGE>

     Cost of products sold was zero in 2000 as compared to $2,045,183 in 1999.
Personnel, equipment and facility costs formerly utilized in the production of
the SensiCath product have been applied fully towards development of the
CapnoProbe product.  Accordingly, beginning in 2000 these costs were
reclassified as research and development activities. The total amount
reclassified was $694,496.

     Research and development costs for 2000 decreased $299,721 to $2,815,354 or
10% from $3,115,075 in 1999. Research and development efforts during the year
were directed towards product development and regulatory activities for the
CapnoProbe. Research and development staffing was reduced by approximately 25%
in the second quarter of 1999. These savings were offset partially by the
reclassification to research and development of former manufacturing resources
and related costs totaling $694,496 in 2000.  Under the July 1998 license
agreement with ICCM, the Company paid $300,000 in minimum royalties in 2000 and
expects to pay $300,000 in minimum royalties in 2001.  The minimum royalty
payments paid in 2000 and in 1999 were recorded as research and development
expenses because no CapnoProbe sales took place in 2000 or in 1999.  Once
significant sales occur, CapnoProbe royalties will be recorded as an offset to
Net Sales.  The Company is unable to project when significant sales will occur
until such time as it has secured a distributor relationship for distribution of
the CapnoProbe product.  The Company is obligated to pay ICCM a customary
royalty equal to a percentage of sales, which varies depending on the selling
price to the customer of the CapnoProbe. Research and development costs are
expected to continue at this level for the foreseeable future.

     Selling, general and administrative expenses in 2000 decreased $1,961,783
or 69% to $891,192 from $2,852,975 for 1999.  Substantially all sales and
marketing activities were suspended during the first quarter of 1999, accounting
for the decrease from 1999.  The Company expects selling, general and
administrative expenses to continue at this level for the foreseeable future,
not including expenses that might result from its activities in securing a
corporate merger or sale of a portion or all of the Company.  Selling, general
and administrative expenses consist primarily of the cost of ongoing
administrative activities and costs of maintaining the Company's public status.
Selling, general and administrative expenses included non-cash compensation
expense of $68,884 recognized in the third quarter of 2000  relating to variable
accounting applicable to the Company's stock option plan. This expense was
reversed in the fourth quarter as the market price as of December 31, 2000 was
less than the exercise price of the re-priced options.  Additional compensation
charges could be recorded in future periods.

     Interest expense in 2000 increased $1,390,599 to $1,474,308 from $83,709 in
1999.

     Interest income in 2000 decreased $148,856 to $36,114 from $184,979 in
1999.  The decrease in interest income in 2000 is due to declining cash
balances.

     Since its inception, the Company has experienced significant operating
losses.  The Company incurred a net loss of $5,302,178 for 2000, compared to a
net loss of $7,785,276 for 1999.  As of December 31, 2000, the Company had an
accumulated deficit of $71,453,504.  The Company anticipates that its operating
losses will continue in the foreseeable future.  Except for historical
information contained herein, the disclosures in this report are forward looking
statements.  See "Certain Important Factors."

Fiscal Years Ended December 31, 1999 and 1998

     Net sales in 1999 decreased $884,733 or 87% to $134,131 from $1,018,864 in
1998.  The decrease in sales is the result of the Company's suspension of direct
sales and support activities of the SensiCath System in January 1999.  Net sales
for 1999 consisted of development fees and sales of SensiCath sensors to
existing customers, less OpticalCAM product returns.  No new customer sales were

                                       9
<PAGE>

made during 1999.  Costs of products sold in 1999 decreased $860,383 or 30% to
$2,045,183 from $2,905,566 in 1998.  The decreased cost of products sold for
1999 was directly related to the suspension of SensiCath production in January
1999.  Costs of products sold for 1999 included approximately $400,000 in fourth
quarter write-offs of SensiCath production tooling, equipment and inventories.

     Research and development costs for 1999 decreased $1,132,954 or 27% to
$3,115,075 from $4,248,029 in 1998.  The decrease for 1999 is due primarily to a
reduction in research and development staffing of approximately 25% in the first
quarter of 1999.  Research and development efforts during 1999 were directed
towards product development and regulatory activities for the CapnoProbe
product.  Under the July 1998 license agreement with ICCM, the Company paid
$300,000 in minimum royalties in 1999.  The minimum royalty payments paid in
1999 were recorded as research and development expenses because no CapnoProbe
sales took place in 1999.

     Selling, general and administrative expenses in 1999 decreased $3,431,929
or 55% to $2,852,975 from $6,284,904 in 1998.  Substantially all sales and
marketing activities were suspended during the first quarter of 1999, accounting
for the decrease from 1998.  Selling, general and administrative expenses
consist primarily of the cost of CapnoProbe marketing clinical activities,
ongoing administrative activities and costs of maintaining the Company's public
status.

     Net interest income in 1999 decreased $527,074 to $101,270 from $628,344 in
1998.  The decrease in net interest income in 1999 is due to declining cash
balances.

Liquidity and Capital Resources

     To date, the Company has financed its operations primarily through the sale
of equity and debt securities.  From inception through December 31, 1995, the
Company raised net proceeds of $30,400,000 from private equity financings and
stock option exercises.  In the first quarter of 1996, the Company completed an
initial public offering of 2,875,000 shares of Common Stock.  The net proceeds
to the Company from the public offering were approximately $33,916,000.  In
January 1998, the Company sold 441,203 shares of Common Stock to IL, which
represented 4.99% of the Company's outstanding Common Stock following completion
of the transaction, at a price of $5.00 per share (which is equal to the closing
market price on the date before signing of the agreement) for a total price of
$2,206,015.

     On March 10, 2000, the Company issued convertible promissory notes in the
aggregate principal amount of $1,400,000, pursuant to an Investment Agreement
with Circle F Ventures, LLC and Special Situations Fund III, L.P.  The $700,000
principal amount of notes held by Circle F Ventures and its affiliates were due
on March 10, 2001, although they have indicated that they do not intend to call
their notes.  The $700,000 note held by Special Situations Fund III is due on
September 10, 2001.  The $700,000 note held by Special Situations Fund III is
convertible, at the option of holder, into units at a conversion price equal to
$25,000 per unit, each unit consisting of 50,000 shares of Common Stock and a
five-year warrant to purchase 12,500 shares of Common Stock at an exercise price
of $.50 per share.  The $700,000 principal amount of notes held by Circle F
Ventures and certain of its affiliates are convertible, at the option of
holders, into units at a conversion price equal to $12,500 per unit, each unit
consisting of 50,000 shares of Common Stock and a five-year warrant to purchase
12,500 shares of Common Stock at an exercise price of $.25 per share.  The
conversion price of the notes and exercise price of the warrants held by Circle
F Ventures and its affiliates is subject to reduction if the Company sells
equity securities (subject to various exceptions) at a common stock equivalent
per share price of less than $.25.

     Under FASB reporting rules the Company is required to recognize as interest
expense the "Intrinsic value of a beneficial conversion feature embedded in a
convertible security", i.e. the difference

                                       10
<PAGE>

between the market price and the conversion price. The Company's share price as
listed on the Nasdaq Stock Market on March 10, 2000 was $3.53 and the conversion
price in the Investment Agreement was $1.00. The recognizable interest expense
was limited to the proceeds of the convertible security or $1,400,000.
Accordingly the Company recognized $1,400,000 as interest expense in the first
quarter of 2000 with a corresponding addition to additional paid in capital.

     On August 10, 2000, the Company entered into the Securities Purchase
Agreement pursuant to which the Company agreed to issue, and Circle F Ventures
agreed to purchase upon request of the Company, up to 4,333,334 shares of the
Company's Series A Preferred Stock for an aggregate purchase price of
$1,500,000.  The Company sold 1,000,000 shares of the Series A Preferred Stock
to Circle F Ventures at $.50 per share for a total of $500,000 on August 11,
2000, 1,333,334 shares of the Series A Preferred Stock to Circle F Ventures at
$.375 per share for a total of $500,000 on October 3, 2000 and 2,333,333 shares
of the Series A Preferred Stock to Circle F Ventures at $.25 per share for a
total of $500,000 on December 28, 2000.  The sale of the shares of Series A
Preferred Stock under the Securities Purchase Agreement caused the conversion
price of the convertible promissory note held by Circle F Ventures to be reduced
to $12,500 per unit and the exercise price of the warrants issuable to Circle F
Ventures to be reduced to $.25 per share.  The terms of the Securities Purchase
Agreement also provide for all options held by current employees and directors
of the Company to be reduced to the weighted average price at which Circle F
Ventures purchased Series A Preferred Stock.  Such reduction resulted in the
option plan being subject to variable accounting rules and $68,884 of
compensation expense was recorded in the third quarter. This expense was
reversed in the fourth quarter as the market price as of December 31, 2000 was
less than the exercise price of the re-priced options.  Additional compensation
charges could be recorded in future periods.

     On March 8, 2001, the Company entered into a Bridge Loan Agreement with
Circle F Ventures under which Circle F Ventures agreed to loan the Company up to
$150,000, pursuant to a convertible promissory note.  The note is convertible,
at the option of Circle F Ventures, into shares of Common Stock.  If the Company
completes a private placement of equity securities (the "Financing") by April
30, 2001, the conversion price of the note will be equal to the per share price
of the securities sold in the Financing.  If the Company does not complete the
Financing by April 30, 2001, the conversion price of the note will be $.25 per
share.

     The Company's cash and cash equivalents were $492,982 and $1,450,872 at
December31, 2000 and December 31, 1999, respectively.  The decrease in the
Company's cash balance is due to the operating losses described above offset
partially by $1,400,000 received upon issuance of convertible promissory notes
and $1,495,065 net proceeds received upon sale of Series A Preferred Stock.  The
Company incurred cash expenditures of $3,357,397 for operations and $23,766 for
capital expenditures in 2000.

     The Company believes that its current cash balances are sufficient to fund
its operations through the first quarter of 2001.  Accordingly, the report of
the independent auditors on the Company's 2000 financial statements contains an
explanatory paragraph regarding the Company's ability to continue as a going
concern.  The Company does not have sufficient cash to fund its operations after
March 31, 2001, and the Company will need to raise additional funds or obtain
technology development fees in order to continue operations.  There can be no
assurance, however, that the Company will be able to obtain additional funding
or technology development fees.  If the Company is unable to obtain additional
financing and revenues when needed, it will likely be forced to cease
operations.

                                       11
<PAGE>

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:

     .    Need for Additional Financing. The Company believes that its current
          cash balances are sufficient to fund its operations through the first
          quarter of 2001. Accordingly, the report of the independent auditors
          on the Company's 2000 financial statements contains an explanatory
          paragraph regarding the Company's ability to continue as a going
          concern. The Company does not have sufficient cash to fund its
          operations after March 31, 2001, and the Company will need to raise
          additional funds or obtain technology development fees in order to
          continue operations. There can be no assurance, however, that the
          Company will be able to obtain additional funding or technology
          development fees. If the Company is unable to obtain additional
          financing and revenues when needed, it will likely be forced to cease
          operations.

     .    Development and Commercialization of CapnoProbe. The Company's future
          success will depend, in large part, on successful development and
          commercialization of the CapnoProbe product. The Company is in the
          later stages of developing and testing prototypes. The Company has not
          yet established commercial manufacturing for the CapnoProbe, nor has
          the Company secured a distribution partner. Accordingly, there can be
          no assurance that the Company will successfully develop a commercial
          CapnoProbe product.

     .    Completion of Corporate Alliance or Business Combination. Since
          January 1999, the Company has been exploring strategic alternatives,
          including joint ventures, corporate strategic alliances, sale of the
          business or product lines, or other business combinations. The Company
          continues to discuss with other parties potential transactions
          involving the CapnoProbe as well as other applications of its
          technology base. There can be no assurance that the Company will be
          able to enter into a definitive distribution agreement for its
          CapnoProbe product with this party or otherwise complete a transaction
          with terms favorable to the Company.

     .    OTC Bulletin Board. On May 12, 2000, the Company's common stock ceased
          to be quoted on The Nasdaq National Market and was transferred to the
          Over-The-Counter ("OTC") Bulletin Board because the Company no longer
          met, and currently does not meet, standards for continued listing on
          The Nasdaq National Market or The Nasdaq SmallCap Market. Because the
          Company's common stock is traded on the OTC Bulletin Board, trading is
          subject to "penny stock" rules under the Securities Exchange Act of
          1934 as amended. The public trading market for the Company's Common
          Stock has been, and may continue to be, adversely effected by this
          development. The Company does not expect to be able to meet the
          listing criteria for The Nasdaq National Market or The Nasdaq Small
          Cap Market in the foreseeable future.

                                       12
<PAGE>

     .    Competition. Competition among medical device companies 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.

     .    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 7.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

     The Company's Financial Statements and Independent Auditors' Report thereon
on pages 26 to 47 of this Report are incorporated herein by reference.

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

          Not applicable.

Item 8.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
          FINANCIAL DISCLOSURE.

     None.

                                       13
<PAGE>

                                    PART III
                                    --------

Item 9.   DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

      (a) Directors, Executive Officers, Promoters and Control Persons

<TABLE>
<CAPTION>
     Name of Director           Age                  Principal Occupation                   Director Since
 ------------------------   ----------   ----------------------------------------------    ----------------
<S>                         <C>          <C>                                               <C>
Paulita M. LaPlante             43       President and Chief Executive Officer of the            1998
                                         Company

Richard B. Egen (1)             62       President and Chief Executive Officer of                1997
                                         NephRx Corporation

Demetre M. Nicoloff, M.D.       67       Cardiac Surgeon and Senior Partner of                   1989
                                         Cardiac Surgical Associates

Charles D. Snead, Jr. (1)       68       Consultant and Attorney                                 2000
</TABLE>
__________________

(1)  Member of the Audit Committee

     Paulita M. LaPlante has been the President and a Director of the Company
since September 1998, and Chief Executive Officer of the Company since December
1998.  From June 1994 to September 1998, Ms. LaPlante served as the Company's
Vice President of Worldwide Sales, Marketing and Business Development 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. Ms. LaPlante serves as a member
of the Board of Directors of VidaMed, Inc., a urology company.

     Richard B. Egen has been a Director of the Company since June 1997.  Mr.
Egen is the President and Chief Executive Officer of NephRx Corporation, a
biotechnology company formed to commercialize kidney growth factor technology
developed at the University of Chicago.  From January 1996 to December 1996, Mr.
Egen served as a consultant to Baxter International, Inc. ("Baxter") and Nestle,
S.A. ("Nestle") for clinical nutrition and start up medical companies.  From
January 1989 to December 1995, he served as President and Chief Executive
Officer of Clintec International, Inc., a joint venture between Baxter and
Nestle that develops, manufactures, markets and distributes clinical nutrition
solutions and formulations.  Prior to joining Clintec International, Inc., Mr.
Egen served in several positions at Baxter, including Senior Vice President and
a member of Baxter's Senior Management Committee.  Mr. Egen is Chairman of the
Board of Directors of Aksys, Ltd.

     Demetre M. Nicoloff, M.D. has been a Director of the Company since July
1989. Dr. Nicoloff has been a cardiac surgeon for more than 15 years, and is
presently a Senior Partner of Cardiac Surgical Associates with practices at the
Minneapolis Heart Institute and the St. Paul Heart and Lung Institute. Dr.
Nicoloff is a member of the Board of Directors of Applied Biometrics, Inc. and
Jundt Associates Funds.

     Charles D. Snead, Jr. has been a Director of the Company since June 2000.
Mr. Snead is an attorney and has served in various legal, executive, and board
of director positions in several  New York and Nasdaq stock exchange listed
companies over a period of 30 years. Since early 1996, Mr. Snead has

                                       14
<PAGE>

served as a consultant and attorney for Circle F Ventures, LLC and Hayden R.
Fleming and their affiliates and related companies.

     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

     Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's directors and executive officers and all persons who beneficially
own more than 10% of the outstanding shares of the Company's Common Stock to
file with the Securities and Exchange Commission initial reports of ownership
and reports of changes in ownership of the Company's Common Stock.  Executive
officers, directors and greater than 10% beneficial owners are also required to
furnish the Company with copies of all Section 16(a) forms they file.  To the
Company's knowledge, based upon a review of the copies of such reports furnished
to the Company and written representations that no other reports were required,
during the year ended December 31, 2000, none of the Company's directors or
officers or beneficial owners of greater than 10% of the Company's Common Stock
failed to file on a timely basis the forms required by Section 16 of the
Exchange Act, except as follows.  All of the Company's directors and executive
officers failed to timely file a report on Form 4 or Form 5 disclosing the grant
and repricing of stock options in 2000.  Charles D. Snead, Jr. failed to timely
file a Form 3 following his election to the Company's Board of Directors in June
2000.  The Company's directors and officers are in the process of filing the
delinquent forms.

                                       15
<PAGE>

Item 10.  EXECUTIVE COMPENSATION.

     The following table provides summary information concerning cash and non-
cash compensation paid to or earned by the Company's Chief Executive Officer and
those executive officers of the Company who received or earned cash and non-cash
salary and bonus of more than $100,000 for the fiscal year ended December 31,
2000 (the "Named Executive Officers").

                           Summary Compensation Table

<TABLE>
<CAPTION>
                                                                  Annual                      Long-Term
                                                               Compensation                 Compensation
                                                       -----------------------------       ---------------
                                                                                              Securities
                                                                                              Underlying
Name and Principal Position                     Year      Salary($)        Bonus($)           Options(#)
---------------------------                    ------   ------------     -----------       ---------------
<S>                                            <C>      <C>              <C>               <C>
Paulita M. LaPlante                              2000      $180,000         $     0             381,993(1)
President and Chief Executive Officer            1999       186,923               0                   0
                                                 1998       136,885          75,000             553,889(2)

Victor Kimball                                   2000      $123,599               0             171,158(3)
Vice President, Strategic Planning and           1999       127,819               0                   0
Product Development                              1998        96,170               0              74,889(4)

Wesley G. Peterson                               2000      $110,000               0             168,158(5)
Chief Financial Officer, Vice President of       1999       104,980               0                   0
Finance and Administration and Secretary         1998        97,000               0              53,044(6)
</TABLE>

_______________
(1)  Of these options, an aggregate of 42,618 shares represented options
     originally granted on August 11, 2000 that were repriced on August 18,
     2000. The remaining 377,777 shares represented options originally granted
     prior to 2000 that were repriced on August 18, 2000.

(2)  Of these options, an aggregate of 265,000 shares represented options
     originally granted in March 1998 and September 1998, respectively, that
     were canceled and reissued in November 1998.  The remaining 23,889 shares
     represented options originally granted prior to 1998 that were canceled and
     reissued in November 1998.

(3)  Of these options, an aggregate of 98,936 shares represented options
     originally granted on August 11, 2000 that were repriced on August 18,
     2000. The remaining 72,222 shares represented options originally granted
     prior to 2000 that were repriced on August 18, 2000.

(4)  Of these options, 10,000 shares represented options originally granted in
     March 1998 that were canceled and reissued in November 1998, and 4,889
     shares represented options originally granted prior to 1998 that were
     canceled and reissued in November 1998.

(5)  Of these options, an aggregate of 76,225 shares represented options
     originally granted on August 11, 2000 that were repriced on August 18,
     2000. The remaining 91,933 shares represented options originally granted
     prior to 2000 that were repriced on August 18, 2000.

(6)  Of these options, 40,000 shares represented options originally granted in
     March 1998 that were canceled and reissued in November 1998, and 13,044
     shares represented options originally granted prior to 1998 that were
     canceled and reissued in November 1998.

                                       16
<PAGE>

Option Grants and Exercises

     The following tables summarize option grants and exercises during the year
ended December 31, 2000 to or by the Named Executive Officers and the potential
realizable value of the options held by such persons at December 31, 2000.

                        Option Grants in Last Fiscal Year
<TABLE>
<CAPTION>
                                Individual Grants (1)
                    ---------------------------------------------
                                 Percent of
                                    Total                              Potential Realizable Value
                    Number of     Options                               at Assumed Annual Rates
                    Securities   Granted to  Exercise                 of Stock Price Appreciation
                    Underlying    Employees   or Base                     for Option Term (2)
                     Options     in Fiscal     Price   Expiration   ---------------------------------
         Name       Granted (#)     Year      ($/Sh)       Date        0%          5%           10%
------------------- -----------  ----------  --------  ----------   --------     --------    --------
<S>                 <C>          <C>         <C>       <C>          <C>         <C>          <C>
Paulita M. LaPlante  42,618 (3)     2.2%       $.50      8/11/10     $ 3,998     $ 19,913    $ 44,330
                     42,618 (3)     2.2%      .3462      8/11/10      10,552       26,467      50,884
                     88,888 (4)     4.6%      .3462      8/02/05      22,009       36,591      54,232
                    211,870 (4)    10.9%      .3462      3/31/08      52,459      109,872     188,977
                     77,019 (4)     4.0%      .3462      3/31/08      19,070       39,941      68,697

Victor Kimball       98,936 (3)     5.1%       $.50      8/11/10     $ 9,280     $ 46,227    $102,910
                     98,936 (3)     5.1%      .3462      8/11/10      24,497       61,443     118,126
                      4,333 (4)     0.2%      .3462      8/02/05       1,073        1,784       2,644
                      4,889 (4)     0.3%      .3462      3/31/08       1,211        2,535       4,361
                     10,000 (4)     0.5%      .3462      3/31/08       2,476        5,186       8,919
                     50,000 (4)     2.6%      .3462     11/06/08      12,380       27,214      48,242

Wesley G. Peterson   76,225 (3)     3.9%       $.50      8/11/10     $ 7,150     $ 35,615    $ 79,287
                     76,225 (3)     3.9%      .3462      8/11/10      18,873       47,339      91,010
                     38,889 (4)     2.0%      .3462      8/02/05       9,629       16,009      23,727
                     40,000 (4)     2.1%      .3462      3/31/08       9,904       20,743      35,678
                     13,044 (4)     0.7%      .3462      3/31/08       3,230        6,764      11,635
</TABLE>

______________

(1)  All of the options granted to executives were granted under the Company's
     1993 Stock Option Plan. The foregoing options generally become exercisable
     at the rate of 25% of the number of shares covered by such option on each
     of the first four anniversary dates of the grant of such option, so long as
     the executive remains employed by the Company or one of its subsidiaries.
     However, options granted in November 1998 pursuant to the employee
     repricing program vest beginning on May 6, 1999 at the same dates as the
     corresponding option that was replaced. To the extent not already
     exercisable, options under the plan become immediately exercisable in full
     upon certain changes in control of the Company and remain exercisable for
     the remainder of their term. See "Executive Compensation and Other
     Benefits--Change in Control Arrangements."

(2)  These amounts represent certain assumed rates of appreciation only. Actual
     gains, if any, on stock option exercises are dependent upon the future
     performance of the Company's Common Stock, overall market conditions and
     the executive's continued employment with the Company. The amounts
     represented in this table might not necessarily be achieved.

(3)  This option was granted in August 2000 with an exercise price of $.50,
     which was subsequently reduced to $.3462. See "Board Report on Repricing of
     Options."

(4)  This option was originally granted prior to 2000 and was repriced in 2000.
     See "Board Report on Repricing of Options."

     The following table summarizes the options that were exercised by the Named
Executive Officers during the year ended December 31, 2000 and the potential
realizable value of the options held by such persons at December 31, 2000.

                         Aggregated Option Exercises In
               Last Fiscal Year and Fiscal Year-End Option Values
<TABLE>
<CAPTION>
                                        Number of Securities                   Value of Unexercised
                                       Underlying Unexercised                  In-the-Money Options
                                    Options at December 31, 2000             at December 31, 2000(1)
                                ------------------------------------   -----------------------------------
Name                               Exercisable       Unexercisable       Exercisable       Unexercisable
----------------------------    -----------------  -----------------   ---------------   -----------------
<S>                             <C>                <C>                 <C>               <C>
Paulita M. LaPlante                  241,527             178,868              $0                  $0
Victor Kimball                        38,722             129,436               0                   0
Wesley G. Peterson                    70,183              97,975               0                   0
</TABLE>

______________

(1)  Value based on the difference between the fair market value of the Common
     Stock on December 31, 2000 of $.344 and the exercise price of the options.
     Options are in-the-money if the market price of the shares exceeds the
     option exercise price.
                                       17
<PAGE>

Board of Directors Report on Repricing of Options

     On August 18, 2000, the Board of Directors of the Company approved an
amendment to the exercise price of all stock options held by all current
employees, including executive officers, and current directors.  Prior to the
amendment, these options had exercise prices ranging from $9.00 to $.90 per
share.  The exercise price of all amended stock options was reduced to the
weighted average per share price paid by Circle F Ventures for Series A
Preferred Stock pursuant to the Securities Purchase Agreement, dated August 10,
2000, between the Company and Circle F Ventures.  See "Certain Relationship and
Related Transactions" for a description of this financing transaction. The Board
of Directors believed that repricing the options was critical to retaining the
Company's employees and directors, particularly in light of the fact that the
Company was required to sell Series A Preferred Stock at prices ranging from
$.25 per share to $.50 per share under the Securities Purchase Agreement in
order to continue operations.  In addition, the Company is continuing to explore
strategic alternatives, including joint ventures, corporate strategic alliances,
sale of the business or product lines, or other business combinations.  The
Board believes that providing employees with the opportunity to benefit from an
increase in the equity value of the Company is a critical factor in executing
the Company's strategic objectives.

     The following table sets forth certain information regarding the repricing
of options held by the Company's executive officers during the last ten fiscal
years.

                           Ten-Year Option Repricings
                           --------------------------

<TABLE>
<CAPTION>
                                     Securities                                                     Length of
                                     Underlying   Market Price of                                Original Option
                                      Number of       Stock At      Exercise Price               Term Remaining
                                       Options        Time of         At Time of       New         At Date of
                                     Repriced or    Repricing or     Repricing or    Exercise     Repricing or
         Name               Date     Amended (#)    Amendment ($)    Amendment ($)   Price ($)      Amendment
         ----              -------   -----------  ----------------  --------------   ---------   ---------------
<S>                        <C>       <C>          <C>               <C>              <C>         <C>
Paulita M. LaPlante        8/18/00      42,618     $ .5938               $ .50       $ .3462       120 months
                           8/18/00      88,888       .5938                 .90         .3462        60 months
                           8/18/00     211,870       .5938                1.6875       .3462        92 months
                           8/18/00      77,019       .5938                1.6875       .3462        92 months
                          11/06/98     200,000      1.6875                2.375       1.6875       118 months
                          11/06/98      65,000      1.6875                5.125       1.6875       112 months
                          11/06/98      15,000      1.6875                4.875       1.6875       103 months
                          11/06/98       8,889      1.6875                6.000       1.6875        94 months

Victor Kimball             8/18/00      98,936     $ .5938               $ .50       $ .3462       120 months
                           8/18/00       4,333       .5938                 .90         .3462        60 months
                           8/18/00       4,889       .5938                1.6875       .3462        92 months
                           8/18/00      10,000       .5938                1.6875       .3462        92 months
                           8/18/00      50,000       .5938                1.6875       .3462        99 months
                          11/06/98      10,000      1.6875                5.125       1.6875       112 months
                          11/06/98       2,000      1.6875                4.875       1.6875       103 months
                          11/06/98       2,889      1.6875                6.000       1.6875        94 months

Wesley G. Peterson         8/18/00      76,225     $ .5938                  $.50     $ .3462       120 months
                           8/18/00      38,889       .5938                   .90       .3462        60 months
                           8/18/00      40,000       .5938                1.6875       .3462        92 months
                           8/18/00      13,044       .5938                1.6875       .3462        92 months
                          11/06/98      40,000      1.6875                5.125       1.6875       112 months
                          11/06/98       7,000      1.6875                4.875       1.6875       103 months
                          11/06/98       6,044      1.6875                6.000       1.6875        94 months
</TABLE>

                                         Board of Directors

                                         Paulita M. LaPlante
                                         Richard B. Egen
                                         Demetre M. Nicoloff, M.D.
                                         Charles D. Snead, Jr.

Board Report on Executive Compensation

     The Board of Directors approves compensation for the Company's directors,
executive officers and key managers, and acts on such other matters relating to
their compensation as it deems appropriate. In addition, the Board administers
the Company's stock option plans, pursuant to which incentive stock options and
non-statutory stock options may be granted to eligible key employees, officers,
directors and consultants of the Company.

     Compensation Philosophy and Objectives. The philosophy underlying the
decisions and recommendations of the Board is to recognize and reward results
and achievement at the Company and individual level by linking compensation to
such achievement. Consistent with this philosophy, the Board has set the
following objectives for the Company's executive compensation program:

     o    Motivate officers to achieve desired Company performance goals by
          rewarding such achievements.

     o    Provide a program of compensation that is competitive with comparable
          companies to enable the Company to attract and retain key executive
          talent.

     o    Align the interests of the Company's executives with the interests of
          the Company's stockholders by linking compensation to the Company's
          performance and by providing the Company's executives with long-term
          opportunities for stock ownership.

     In determining its recommendations as to the compensation of the Company's
executives, the Board considers factors, such as Company performance, both in
isolation and in comparison to companies of comparable development, complexity
and size; the individual performance of each executive officer; historical
compensation levels at the Company; the overall competitive environment for
executives and the level of compensation necessary to attract and retain the
level of key executive talent desired by the Company.

     Executive Compensation Program Components. The Company's executive
compensation program consists of base salary, performance bonuses, long-term
incentive opportunities under the Company's stock option plans and severance
benefits. Each element of the compensation program is discussed in greater
detail below.

     o    Base Salary. The base salary of each executive officer of the Company,
          including the compensation of Ms. LaPlante as President and Chief
          Executive Officer, are based on a number of factors, including the
          executive officer's experience and qualifications, the potential
          impact of the individual on the Company's performance, the level of
          skill and responsibility required by the individual's position and the
          other factors described above. Base salaries are determined for each
          year prior to the beginning of the year. In general, the Board seeks
          to set executive officer base salaries at moderately to aggressively
          competitive levels in relation to the companies with which the Company
          competes for executives. The base salary for Company's executive
          officers did not increase in 2000 from 1999.

     o    Management Performance Bonuses. The Company did not establish an
          annual management performance bonus program for the Company's
          executive officers for 2000. Therefore, no bonus was paid to Ms.
          LaPlante or any of the other executive officers for services during
          2000. However, under the August 10, 2001 Investment Agreement between
          the Company and Circle F Ventures, the Board of Directors approved and
          Circle F Ventures agreed that upon a Change in Control, the Company's
          employees, in the aggregate, will be paid a bonus equal to (A) One
          Hundred Percent (100%) of the proceeds to the Company or its
          shareholders from the Change in Control transaction between Fifteen
          Million Dollars ($15,000,000) and Sixteen Million Dollars
          ($16,000,000) plus (B) Ten Percent (10%) of the proceeds to the
          Company or its shareholders from the Change in Control transaction
          between Sixteen Million Dollars ($16,000,000) and Twenty Million
          Dollars ($20,000,000). Ms. LaPlante is eligible to receive 15% of
          this bonus.

     o    Long-Term Incentive Compensation. The Board makes long-term incentive
          compensation available to the Company's executive officers, as well as
          all other employees of the Company, through the grant of stock
          options. The purpose of stock option grants is to advance the
          interests of the Company and its stockholders by enabling the Company
          to attract and retain persons of ability to perform services for the
          Company, including persons performing services to the Company as
          executive officers. By granting stock options to executive officers
          and other employees, the Board seeks to align the long-term interests
          of these individuals with those of the Company's stockholders by
          creating a strong and direct nexus between compensation and
          stockholder return and to enable executive officers and key managers
          to develop and maintain a significant ownership position in the
          Company. The Board determines the number of options and the terms and
          conditions of such options based on certain factors, including the
          past performance of the executive officer, the executive officer's
          potential impact on the achievement of the Company's objectives, past
          grants or awards of stock-based compensation and on comparative
          compensation data regarding option grants by Company's within the
          medical device industry as well as within a broader group of companies
          of comparable size and complexity. In August 2000, Ms. LaPlante was
          granted an option covering 42,618 shares of Common Stock. In addition,
          in August 2000, the Board repriced stock options held by all employees
          and directors. See "Board Report on Repricing of Options."

     o    Severance Benefits. In August 1999, the Company's Board of Directors
          approved three new severance pay plans for its employees, including a
          severance pay plan for the Company's executive officers. All of the
          Company's executive officers are covered by the severance pay plan
          that provides for the payment of certain benefits to the Company's
          executive officers who experience a "Qualifying Termination of
          Employment." See "Change in Control Arrangements" for a description of
          the material terms of this plan.

     Section 162(m). Section 162(m) of the Internal Revenue Code of 1986, as
amended (the "Code"), limits the deductibility of certain compensation paid to
the chief executive officer and each of the four other most highly compensated
executives of a publicly held corporation to $1,000,000. In 2000, the Company
did not pay "compensation" within the meaning of Section 162(m) to such
executive officers in excess of $1,000,000, and does not believe it will do so
in the near future. Therefore, the Company does not have a policy at this time
regarding qualifying compensation paid to its executive officers for
deductibility under Section 162(m), but will formulate such a policy if
compensation levels ever approach $1,000,000.

                                       Board of Directors

                                       Paulita M. LaPlante
                                       Richard B. Egen
                                       Demetre M. Nicoloff, M.D.
                                       Charles D. Snead, Jr.

Comparative Stock Performance

     The graph below compares, for the period from February 14, 1996, the date
of the Company's initial public offering, to December 31, 2001, the total
cumulative stockholder return on the Company's Common Stock to the total
cumulative return on the Standard & Poor's 500 Stock Index and a peer-group
selected in good faith by the Company consisting of the following companies:
Datascope Corporation; Diametrics Medical, Inc.; I-Stat Corporation; Protocol
Systems, Inc.; and Spacelabs Medical, Inc. The peer group consists of public
companies in the Company's industry that market arterial blood gas measurement
systems or critical care patient bedside monitoring systems, and the peer-group
companies were selected on that basis. Marquette Medical Systems, Inc. has been
excluded from the peer group because it has been acquired. The graph assumes a
$100 investment in the Company's Common Stock, the Standard & Poor's 500 Stock
Index and the peer-group on February 14, 1996 and the reinvestment of all
dividends.

                       Comparison Cumulative Total Return
                       Among Optical Sensors Incorporated,
             the Standard & Poor's 500 Stock Index and a Peer-Group


                              [Performance Graph]


<TABLE>
<CAPTION>

Company Name/Index              2/14/96     12/31/96    12/3197   12/31/98   12/31/99   12/31/00
------------------              -------     --------    -------   --------   --------   --------
<S>                             <C>         <C>         <C>       <C>        <C>        <C>
Opitical Sensors Inc.             100         61.54      41.35      10.58       4.81       2.69
S&P 500 INDEX                     100        115.97     154.66     198.86     240.70     218.79
PEER GROUP                        100         87.65      86.10      72.68     108.50     107.06
</TABLE>

Change in Control Arrangements

     In August 1999, the Company's Board of Directors approved three new
severance pay plans for its employees, including a severance pay plan (the
"Severance Pay Plan") for the Company's executive officers (the "Executives").
All of the Company's executive officers are covered by the Severance Pay Plan.
The Severance Pay Plan, as amended, provides for the payment of certain benefits
to Executives of the Company who experience a "Qualifying Termination of
Employment."

     A "Qualifying Termination of Employment" occurs if and only if:

     .  The Company terminates the Executive's employment, before or after a
        Change in Control, for any reason except "cause," death or disability,
        or

     .  The Executive terminates his or her employment either (1) prior to a
        Change in Control if his or her termination was a condition of the
        Change in Control or was requested or insisted upon by an unrelated
        person involved with the Change in Control or (2) during the 12 months
        after the Change in Control due to any of the following reasons:

        .  A change in the Executive's title, status, position, duties,
           authority or responsibilities as an employee of the Company in effect
           immediately prior to the Change in Control which in the Executive's
           reasonable judgment is material and adverse, other than a change
           caused by an insubstantial or inadvertent action that the Company
           promptly remedies after becoming aware of the change;

                                       18
<PAGE>

        .  A reduction in the Executive's base pay or an adverse change in the
           form or timing of the payment of the base pay, as in effect
           immediately prior to the Change in Control or as thereafter
           increased;

        .  Certain adverse changes to specified Company employee benefit plans;

        .  Relocation of the Executive's place of work more than 30 miles from
           his or her work location immediately prior to the Change in Control;

        .  The failure of the Company to obtain the assent of the Severance Pay
           Plan by an acquiror at least three days before a Change in Control
           occurs; or

        .  Termination of employment with the Company for any reason other than
           death during the twelfth month following the month during which the
           Change in Control occurs.

     If an Executive has a Qualifying Termination of Employment, he or she will
continue to receive his or her regular pay and continue to participate in all
employee benefit plans until the date of termination specified in the notice of
termination.  In addition, the Executive will receive the following:

     .  A lump sum cash payment equal to 12 times the Executive's monthly base
        pay payable within 10 days after the date of termination;

     .  A "gross up" payment for any excise tax liability; and

     .  Indemnification and expense advances for damages, costs and expenses
        incurred in connection with all matters relating to the Executive's
        service with or for the Company.

     The Executive has no duty or obligation to seek or accept other employment
in order to become or continue to be eligible for benefits under the Severance
Pay Plan.

     Before a Change in Control, the Company's Board of Directors may amend the
Severance Pay Plan at any time and in any manner but the effective date of any
amendment that adversely affects a participant must be at least one year after
the amendment is approved by the Board of Directors.  If a Change in Control
occurs before an amendment becomes effective, the amendment automatically
becomes null and void.  On and after a Change in Control, the Severance Pay Plan
may be amended only if the participant affected by the amendment consents to the
amendment in writing.

     The Board of Directors of the Company may terminate the Severance Pay Plan
at any time subject to the following limitations:

     .  Before a Change in Control, the effective date of the termination must
        be at least one year after the date on which the termination is approved
        by the board of directors; and

     .  The Severance Pay Plan cannot be terminated, and no termination will
        become effective, during the 12 month period after a Change in Control.

     Under the Company's 1993 Stock Option Plan, as amended (the "1993 Plan"),
upon the occurrence of a "change in control," all outstanding options granted
under the 1993 Plan will become and remain exercisable in full during their
remaining terms regardless of whether the plan participants remain employees of
the Company or a subsidiary.  The acceleration of the exercisability of options
under the

                                       19
<PAGE>

1993 Plan may be limited, however, if the acceleration would be subject to an
excise tax imposed upon "excess parachute payments." In addition, the
Compensation Committee, with the consent of any affected participant, may
determine that some or all of the participants holding outstanding options will
receive cash in an amount equal to the excess of the fair market value of such
shares immediately before the effective date of the change in control over the
exercise price per share of the options.

     Under the August 10, 2001 Investment Agreement between the Company and
Circle F Ventures,  the Board of Directors approved and Circle F Ventures agreed
that upon a Change in Control, the Company's employees, in the aggregate, will
be paid a bonus equal to (A) One Hundred Percent (100%) of the proceeds to the
Company or its shareholders from the Change in Control transaction between
Fifteen Million Dollars ($15,000,000) and Sixteen Million Dollars ($16,000,000)
plus (B) Ten Percent (10%) of the proceeds to the Company or its shareholders
from the Change in Control transaction between Sixteen Million Dollars
($16,000,000) and Twenty Million Dollars ($20,000,000).

Item 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
          MANAGEMENT.

     The following table sets forth information regarding the beneficial
ownership of the Common Stock of the Company as of March 1, 2001, unless
otherwise noted, (a) by each stockholder who is known by the Company to own
beneficially more than 5% of the outstanding Common Stock; (b) by each director;
(c) by each executive officer named in the Summary Compensation Table; and (d)
by all directors and executive officers of the Company as a group.

<TABLE>
<CAPTION>
                                                                             Shares of Common Stock
                                                                             Beneficially Owned (1)
                                                                      -------------------------------------
Name                                                                     Amount       Percent of Class (2)
-------------------------------------------------------------------   ------------  -----------------------
<S>                                                                     <C>           <C>
Circle F Ventures, LLC and Hayden R. Fleming (3)..................      8,064,705              48.0%

Special Situations Funds (4)......................................        875,000               8.9%

Norwest Venture Capital (5).......................................        820,058               9.1%

Richard B. Egen (6)...............................................         22,000                 *

Paulita M. LaPlante (7)...........................................        243,614               2.6%

Demetre M. Nicoloff, M.D. (8).....................................         83,021                 *

Victor Kimball (9)................................................         45,478                 *

Wesley G. Peterson (10)...........................................         96,468               1.1%

Charles D. Snead, Jr..............................................          1,400                 *

All directors and executive officers
as a group (six persons) (11).....................................        631,880               6.7%
</TABLE>

__________________
*  Less than 1% of the outstanding shares.

                                       20
<PAGE>

(1) Except as otherwise indicated in the footnotes to this table, the persons
    named in the table have sole voting and investment power with respect to all
    shares of Common Stock. Shares of Common Stock subject to options or
    warrants currently exercisable or exercisable within 60 days are deemed
    outstanding for computing the percentage of the person or group holding such
    options but are not deemed outstanding for computing the percentage of any
    other person or group.

(2) Based on 8,982,461 shares of Common Stock outstanding as of March 1, 2001.

(3) Based on Schedule 13D/A filed February 7, 2001.  Includes 140,472 shares
    held by an individual retirement account for the benefit of Mr. Fleming's
    spouse and 20,000 shares held by an individual retirement account for the
    benefit of Mr. Fleming.  Also includes 2,426,668 shares and warrants to
    purchase 606,667 shares issuable upon conversion of a convertible promissory
    note issued to Circle F Venture LLC ("Circle F") on March 10, 2000 and
    amended on August 11, 2000 and 466,665 shares and warrants to purchase
    70,900 shares issuable upon conversion of a convertible promissory note
    issued to the Hayden R. Fleming and LaDonna M. Fleming Revocable Trust Dated
    7/19/95 (the "Fleming Trust") on March 10, 2000 and amended on August 11,
    2000.  Also includes 4,333,333 shares issuable upon the conversion of
    4,333,333 shares of Series A Convertible Preferred Stock held by Circle F.
    Mr. Fleming is the managing member of Circle F.  The address of Circle F and
    Mr. Fleming is 14988 N. 78th Way, Suite 200, Scottsdale, Arizona 85260.  See
    "Certain Relationship and Related Transactions."

(4) Based on a Schedule 13G/A filed November January 10, 2001.  Includes 700,000
    shares and warrants to purchase 175,000 shares issuable upon conversion of a
    convertible promissory note issued on March 10, 2000 to Special Situations
    Fund III, L.P., a limited partnership ("SSF III").  MGP Advisors Limited
    Partnership ("MGP") is the general partner and investment advisor of SSF
    III, and AWM Investment Company, Inc. ("AWM") is the general partner of MGP
    and the general partner and investment advisor of the Cayman Fund.  Austin
    W. Marxe and David Greenhouse are officers, directors and members of AWM and
    MGP, respectively, and may be deemed to be the beneficial owner of the
    shares held by SSF III and Cayman Fund.  SSF III, MGP, Cayman Fund and AWM
    have sole voting and investment power with respect to the shares
    beneficially owned by such fund and advisor.  Messrs. Marxe and Greenhouse
    have shared voting and investment power with respect to the shares
    beneficially owned by each of them.  The address of SSF III, MGP, AWM and
    Messrs. Marxe and Greenhouse is 153 East 53 Street, New York, New York
    10022.  The address of Cayman Fund is c/o CIBC Bank and Trust Company
    (Cayman) Limited, CIBC Bank Building, P.O. Box 694, Grand Cayman, Cayman
    Islands, British West Indies.  Does not reflect an amendment on March 10,
    2001 reducing the conversion price of the foregoing note and increasing the
    number of shares issuable upon exercise of the foregoing warrant.  Based on
    this amendment, the note is convertible into 1,400,000 shares and the
    warrant covers 375,000 shares.  See "Certain Relationship and Related
    Transactions."

(5) Based on Schedule 13G filed February 22, 2000.  Includes 366,833 shares held
    of record by Norwest Equity Partners IV and 453,225 shares held of record by
    Norwest Equity Partners V.  Itasca Partners is the general partner of
    Norwest Equity Partners IV and may be deemed to be the beneficial owner of
    shares held by Norwest Equity Partners IV.  Itasca Partners V is the general
    partner of Norwest Equity Partners V and may be deemed to be the beneficial
    owner of shares held by Norwest Equity Partners V.  Each of John E. Lindahl,
    George J. Still, Jr. and John P. Whaley, by virtue of his affiliation with
    Norwest Equity Partners IV and Norwest Equity Partners V, may be deemed to
    be the beneficial owner of shares held by Norwest Equity Partners IV and
    Norwest Equity Partners V; however he disclaims beneficial ownership of such
    shares, except to the extent of his pecuniary interest therein.  The address
    of Norwest Venture Capital and the other named individuals is 2800 Piper
    Tower, 222 South Ninth Street, Minneapolis, Minnesota 55402.

                                       21
<PAGE>

(6)  Includes 22,000 shares issuable upon exercise of outstanding stock options
     held by Mr. Egen.

(7)  Includes 241,527 shares issuable upon exercise of outstanding stock options
     held by Ms. LaPlante.

(8)  Includes 16,219 shares issuable upon exercise of outstanding stock options
     held by Dr. Nicoloff.  Also includes 3,889 shares held in Dr. Nicoloff's
     living trust and 5,000 shares held by Nicoloff Properties, as to which Dr.
     Nicoloff disclaims any beneficial interest except to the extent of his
     pecuniary interest therein.  Dr. Nicoloff's spouse is the managing agent of
     Nicoloff Properties.

(9)  Includes 38,722 shares issuable upon exercise of outstanding stock options
     held by Mr. Kimball.

(10) Includes 70,183 shares issuable upon exercise of outstanding stock options
     held by Mr. Peterson.  Also includes 15,873 shares held by Mr. Peterson's
     spouse as to which Mr. Peterson shares voting and investment power.

(11) Includes 484,096 shares issuable upon exercise of outstanding stock options
     held by officers and directors or their affiliates.  Also includes shares
     beneficially owned by affiliates of the Company's officers and directors,
     but does not include any shares beneficially owned by Circle F Ventures,
     LLC or Hayden R. Fleming.  See notes (8) and (10) above.

Item 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

     On March 10, 2000, the Company issued convertible promissory notes in the
aggregate principal amount of $1,400,000, pursuant to an Investment Agreement
with Circle F Ventures, LLC and Special Situations Fund III, L.P.  The $700,000
principal amount of notes held by Circle F Ventures and its affiliates were due
on March 10, 2001, although they have indicated that they do not intend to call
their notes.  The $700,000 note held by Special Situations Fund III is due on
September 10, 2001.  The $700,000 note held by Special Situations Fund III is
convertible, at the option of holder, into units at a conversion price equal to
$25,000 per unit, each unit consisting of 50,000 shares of Common Stock and a
five-year warrant to purchase 12,500 shares of Common Stock at an exercise price
of $.50 per share.  The $700,000 principal amount of notes held by Circle F
Ventures and certain of its affiliates are convertible, at the option of
holders, into units at a conversion price equal to $12,500 per unit, each unit
consisting of 50,000 shares of Common Stock and a five-year warrant to purchase
12,500 shares of Common Stock at an exercise price of $.25 per share.  The
conversion price of the notes and exercise price of the warrants held by Circle
F Ventures and its affiliates is subject to reduction if the Company sells
equity securities (subject to various exceptions) at a common stock equivalent
per share price of less than $.25.

     On August 10, 2000, the Company entered into the Securities Purchase
Agreement pursuant to which the Company agreed to issue, and Circle F Ventures
agreed to purchase upon request of the Company, up to 4,333,334 shares of the
Company's Series A Preferred Stock for an aggregate purchase price of
$1,500,000.  The Company sold 1,000,000 shares of the Series A Preferred Stock
to Circle F Ventures at $.50 per share for a total of $500,000 on August 11,
2000, 1,333,334 shares of the Series A Preferred Stock to Circle F Ventures at
$.375 per share for a total of $500,000 on October 3, 2000 and 2,333,333 shares
of the Series A Preferred Stock to Circle F Ventures at $.25 per share for a
total of $500,000 on December 28, 2000.  Accordingly, Circle F Ventures holds an
aggregate of 4,333,334 shares of Series A Preferred Stock which were purchased
from the Company at a weighted average price of $.346 per share.  Each share of
Series A Preferred Stock entitles the holder thereof to vote on all matters
submitted to holders of Common Stock, and each shares of Preferred Stock has the
number of votes equal to the number of shares of the Company's Common Stock into
which it may be converted.  Each share of Series A Preferred Stock is currently
convertible into one share of Common Stock.  The sale of the shares of Series A
Preferred Stock under the Securities Purchase Agreement caused the conversion
price of the convertible promissory note held by Circle F Ventures to be reduced
to $12,500 per unit and the exercise

                                       22
<PAGE>

price of the warrants issuable to Circle F Ventures to be reduced to $.25 per
share. The terms of the Securities Purchase Agreement also provide for all
options held by current employees and directors of the Company to be re-priced
at the same average price at which Circle F Ventures purchases Series A
Preferred Stock.

     On March 8, 2001, the Company entered into a Bridge Loan Agreement with
Circle F Ventures under which Circle F Ventures agreed to loan the Company up to
$150,000, pursuant to a convertible promissory note.  The note is convertible,
at the option of Circle F Ventures, into shares of Common Stock.  If the Company
completes a private placement of equity securities (the "Financing") by April
30, 2001, the conversion price of the note will be equal to the per share price
of the securities sold in the Financing.  If the Company does not complete the
Financing by April 30, 2001, the conversion price of the note will be $.25 per
share.

     Charles D. Snead, Jr., who is a director of the Company, is a consultant
and attorney for Circle F Ventures, LLC and Hayden R. Fleming and their
affiliates and related companies.

                                       23
<PAGE>

                                    PART IV
                                    -------

Item 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.

     (a) 1.    Financial Statements.

         The following Financial Statements of the Company are set forth herein:

<TABLE>
<CAPTION>
         Financial Statements                                                                       Page
         --------------------                                                                       ----
         <S>                                                                                    <C>
         Report of Independent Auditors......................................................        26

         Balance Sheets as of December 31, 2000 and 1999.....................................        27

         Statements of Operations for the years ended
         December 31, 2000, 1999 and 1998....................................................        28

         Statements of Shareholders' Equity for the years ended
         December 31, 2000, 1999 and 1998....................................................        29

         Statements of Cash Flows for the years ended
         December 31, 2000, 1999 and 1998....................................................        31

         Notes to Financial Statements.......................................................   32 - 47
</TABLE>

         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
          49 to 52 below.

          A copy of the exhibits referred to above will be furnished at a
          reasonable cost to any stockholder of the Company, 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 C, Technology Park VI, 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.   1989 Omnibus Stock Option Plan, as amended.

          B.   1993 Stock Option Plan, as amended.

                                       24
<PAGE>

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

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

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

          F.   Executive Severance Pay Plan.

          G.   Amendment No. 1 to Executive Severance Pay Plan

     (b)  Reports on Form 8-K

     The Company filed a Current Report on Form 8-K on December 28, 2000
reporting the purchase by Circle F Ventures of shares of Series A Preferred
Stock.

                                       25
<PAGE>

                         Report of Independent Auditors

Board of Directors
Optical Sensors Incorporated

We have audited the accompanying balance sheets of Optical Sensors Incorporated
as of December 31, 2000 and 1999, and the related statements of operations,
shareholders' equity and cash flows for each of the three years in the period
ended December 31, 2000. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States. 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 Optical Sensors Incorporated at
December 31, 2000 and 1999, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 2000, in conformity
with accounting principles generally accepted in the United States.

As discussed in Note 14 to the financial statements, the Company's recurring net
losses from operations and its accumulated deficit raise substantial doubt about
its ability to continue as a going concern. Management's plans as to these
matters are also described in Note 14. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.



January 19, 2001


                                      26
<PAGE>

                          Optical Sensors Incorporated

                                 Balance Sheets

<TABLE>
<CAPTION>

                                                                                    December 31
                                                                                2000            1999
                                                                          ---------------------------------
<S>                                                                        <C>               <C>
Assets
Current assets:
   Cash and cash equivalents                                                $     492,982    $  1,450,872
   Accounts receivable                                                              8,371          52,516
   Inventories                                                                  1,259,290       1,305,065
   Prepaid expenses and other current assets                                        6,909          29,418
                                                                          ---------------------------------
Total current assets                                                            1,767,552       2,837,871

Property and equipment:
   Leased equipment                                                             1,157,989       1,157,989
   Research and development equipment                                             745,387         742,971
   Leasehold improvements                                                         340,802         340,802
   Furniture and equipment                                                        181,381         161,048
   Marketing equipment                                                          1,004,840       1,004,840
   Production equipment                                                           479,931         478,919
                                                                          ---------------------------------
                                                                                3,910,330       3,886,569
   Less accumulated depreciation                                               (3,512,459)     (2,975,140)
                                                                          ---------------------------------
                                                                                  397,871         911,429
Other assets:
   Patents, net                                                                   533,968         530,198
   Other assets                                                                    16,278          16,278
                                                                          ---------------------------------
                                                                                  550,246         546,476
                                                                          ---------------------------------
Total assets                                                                 $  2,715,669    $  4,295,776
                                                                          =================================

Liabilities and shareholders' equity Current liabilities:
   Convertible notes payable                                                 $  1,400,000    $          -
   Accounts payable                                                                14,393         110,595
   Employee compensation                                                          130,363         134,372
   Other liabilities and accrued expenses                                          74,508          75,499
   Obligations under capital lease, current portion                                98,442         516,487
                                                                          ---------------------------------
Total current liabilities                                                       1,717,706         836,953

Obligations under capital lease, less current portion                               5,667         104,108

Shareholders' equity:
   Preferred stock, par value $.01 per share
     Authorized shares--5,000,000
     Issued and outstanding shares 2000--4,333,334; 1999--None                     43,333               -
   Common stock, par value $.01 per share:
     Authorized shares--30,000,000
     Issued and outstanding shares 2000--8,982,461; 1999--8,935,304                89,825          89,353
   Additional paid-in capital                                                  72,312,642      69,416,688
   Accumulated deficit                                                        (71,453,504)    (66,151,326)
                                                                          ---------------------------------
Total shareholders' equity                                                        992,296       3,354,715
                                                                          ---------------------------------
Total liabilities and shareholders' equity                                   $  2,715,669    $  4,295,776
                                                                          =================================
</TABLE>

See accompanying notes.

                                      27
<PAGE>

                          Optical Sensors Incorporated

                            Statements of Operations

<TABLE>
<CAPTION>

                                                                            Year ended December 31
                                                                  2000               1999              1998
                                                           ---------------------------------------------------------
<S>                                                        <C>                     <C>               <C>
Net sales                                                  $               -       $    134,131      $  1,018,864
Cost of goods sold                                                         -         (2,045,183)       (2,905,566)
                                                           ---------------------------------------------------------
Gross margin                                                               -         (1,911,052)       (1,886,702)

Operating expenses:
   Research and development                                        2,815,354          3,115,075         4,248,029
   Selling, general and administrative                               891,192          2,852,975         6,284,904
                                                           ---------------------------------------------------------
Total operating expenses                                           3,706,546          5,968,050        10,532,933
                                                           ---------------------------------------------------------

Operating loss                                                    (3,706,546)        (7,879,102)      (12,419,635)

Interest expense                                                  (1,474,308)           (83,709)          (95,043)
Interest income                                                       36,114            184,979           723,387
Other expense                                                       (157,438)            (7,444)          (26,039)
                                                           ---------------------------------------------------------
                                                                  (1,595,632)            93,826           602,305
                                                           ---------------------------------------------------------
Net loss                                                         $(5,302,178)       $(7,785,276)     $(11,817,330)
                                                           =========================================================

Net loss per common share:
   Basic and diluted                                                $(.59)             $(.88)            $(1.34)

Shares used in calculation of net loss per share:
   Basic and diluted                                               8,974,981          8,868,742         8,819,000
</TABLE>


See accompanying notes.

                                      28
<PAGE>

                          Optical Sensors Incorporated

                       Statements of Shareholders' Equity

                          Year ended December 31, 2000


<TABLE>
<CAPTION>

                                                          Preferred Stock             Common Stock
                                                    -------------------------------------------------------
                                                       Shares        Amount       Shares        Amount
                                                    -------------------------------------------------------
<S>                                                   <C>            <C>          <C>            <C>
Balance at December 31, 1997                                   -     $     -       8,400,554     $84,006
Issuance of common stock in connection with
   private placement                                           -           -         441,203       4,412
Issuance of common stock upon exercise of options
   and warrants and employee stock purchase plan               -           -          28,477         284
Value assigned to warrants in connection with debt
   and lease financing                                         -           -               -           -
Forfeiture of common stock                                     -           -         (40,833)       (408)
Payment on note receivable                                     -           -               -           -
Amortization of deferred compensation                          -           -               -           -
Net loss                                                       -           -               -           -
                                                    -------------------------------------------------------
Balance at December 31, 1998                                   -           -       8,829,401      88,294
Issuance of common stock upon exercise of options
   and warrants and employee stock purchase plan               -           -         105,903       1,059
Value assigned to warrants in connection with debt
   and lease financing                                         -           -               -           -
Amortization of deferred compensation                          -           -               -           -
Net loss                                                       -           -               -           -
                                                    -------------------------------------------------------
Balance at December 31, 1999                                   -           -       8,935,304      89,353
Issuance of Series A preferred stock                   4,333,334      43,333               -           -
Issuance of common stock upon exercise of options              -           -          47,157         472
Beneficial conversion on convertible notes payable             -           -               -           -
Net loss                                                       -           -               -           -
                                                    -------------------------------------------------------
Balance at December 31, 2000                           4,333,334     $43,333       8,982,461     $89,825
                                                    =======================================================
</TABLE>


See accompanying notes.

                                      29
<PAGE>

<TABLE>
<CAPTION>

    Additional
     Paid-in         Accumulated        Deferred      Note Receivable
     Capital           Deficit        Compensation      from Officer         Total
-----------------------------------------------------------------------------------------
   <S>               <C>                <C>              <C>              <C>
     $67,088,370      $(46,548,720)      $(221,790)       $(245,000)      $ 20,156,866

       2,192,779                 -               -                -          2,197,191

          55,696                 -               -                -             55,980

          16,964                 -               -                -             16,964
         (36,342)                -               -           36,750                  -
               -                 -               -          208,250            208,250
               -                 -         166,186                -            166,186
               -       (11,817,330)              -                -        (11,817,330)
-----------------------------------------------------------------------------------------
      69,317,467       (58,366,050)        (55,604)               -         10,984,107

          95,983                 -               -                -             97,042

           3,238                 -               -                -              3,238
               -                 -          55,604                -             55,604
               -        (7,785,276)              -                -         (7,785,276)
-----------------------------------------------------------------------------------------
      69,416,688       (66,151,326)              -                -          3,354,715
       1,451,732                 -               -                -          1,495,065
          44,222                 -               -                -             44,694
       1,400,000                 -               -                -          1,400,000
               -        (5,302,178)              -                -         (5,302,178)
-----------------------------------------------------------------------------------------
     $72,312,642      $(71,453,504)      $       -        $       -       $    992,296
=========================================================================================
</TABLE>


                                      30
<PAGE>

                          Optical Sensors Incorporated

                            Statements of Cash Flows

<TABLE>
<CAPTION>

                                                                             Year ended December 31
                                                                    2000             1999              1998
                                                             -------------------------------------------------------
<S>                                                               <S>               <C>              <C>
Operating activities
Net loss                                                          $(5,302,178)      $(7,785,276)     $(11,817,330)
Adjustments to reconcile net loss to net cash used in
   operating activities:
     Noncash interest expense                                       1,400,000                 -                 -
     Depreciation and amortization                                    595,156         1,276,108         1,059,306
     Deferred compensation amortization                                     -            55,604           166,186
     Amortization of warrants in connection with debt and
       lease financing                                                      -             3,238            16,964
     Changes in operating assets and liabilities:
       Receivables                                                     44,145           110,342          (135,758)
       Inventories                                                     34,996           437,529            62,253
       Prepaid expenses and other assets                              (28,314)           (5,824)         (116,065)
       Accounts payable and accrued expenses                         (101,202)         (504,728)          (18,512)
                                                             -------------------------------------------------------
Net cash used in operating activities                              (3,357,397)       (6,413,007)      (10,782,956)

Investing activities
Purchases of property and equipment                                   (23,766)          (38,365)         (491,929)
                                                             -------------------------------------------------------
Net cash used in investing activities                                 (23,766)          (38,365)         (491,929)

Financing activities
Proceeds from convertible notes payable                             1,400,000                 -                 -
Net proceeds from issuance of preferred stock                       1,495,065                 -                 -
Net proceeds from issuance of common stock                             44,694            97,042         2,253,171
Proceeds from note receivable                                               -                 -           208,250
Payments on obligations under capital leases                         (516,486)         (274,669)         (207,795)
                                                             -------------------------------------------------------
Net cash provided by (used in) financing activities                 2,423,273          (177,627)        2,253,626
                                                             -------------------------------------------------------

Decrease in cash and cash equivalents                                (957,890)       (6,628,999)       (9,021,259)
Cash and cash equivalents at beginning of year                      1,450,872         8,079,871        17,101,130
                                                             -------------------------------------------------------
Cash and cash equivalents at end of year                          $   492,982       $ 1,450,872      $  8,079,871
                                                             =======================================================
</TABLE>


Supplementary Disclosure of Non-Cash Transactions: In 1998, the Company received
40,833 forfeited shares of common stock and forgave $36,750 on the note
receivable from officer. The Company also acquired property and equipment of
$140,036 and $338,061 under capital lease obligations during the years ended
December 31, 1999 and 1998, respectively.

See accompanying notes.


                                      31
<PAGE>

                          Optical Sensors Incorporated

                          Notes to Financial Statements

                                December 31, 2000


1. Business Activity

Optical Sensors Incorporated (the "Company") is engaged in developing,
manufacturing and marketing fiberoptic chemical sensors used in the monitoring
of key physiologic parameters for medically unstable patients. The Company was
incorporated on May 23, 1989 and reincorporated in Delaware on January 4, 1996.

Commencing in January 1999 and continuing into 2001, the Company has been
exploring strategic alternatives, including joint ventures, corporate strategic
alliances, sale of the business or product lines or other business
combinations. In January 1999, the Company suspended direct sales activity of
the SensiCath System and reduced associated expenses and personnel to focus its
resources on the CapnoProbe SL(TM). This reduction resulted in severance costs
of $304,000 that were recognized in 1999.


2. Summary of Significant Accounting Policies

Cash Equivalents

The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents. Investments classified as
cash equivalents consist primarily of commercial paper and municipal bonds. The
market value of investments is based on quoted market prices and approximates
cost.

Inventories

Inventories, consisting principally of finished goods, are recorded at the lower
of cost (first-in, first-out basis) or market.

Property and Equipment

Property and equipment are stated at cost. Depreciation is provided on a
straight-line basis over three to five years. Leasehold improvements are
amortized over the shorter of the term of the lease or the estimated life of the
asset. Equipment under capital leases is depreciated over the lease term.


                                      32
<PAGE>

                          Optical Sensors Incorporated

                    Notes to Financial Statements (continued)


2. Summary of Significant Accounting Policies (continued)

Patents

Patents are stated at cost and are amortized upon issuance of a patent on a
straight-line basis over 60 months. Accumulated amortization was $196,369 and
$149,316 at December 31, 2000 and 1999, respectively.

Impairment of Long-Lived Assets

Management reviews the Company's long-lived assets for impairment when events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. If impairment indicators are present and the estimated future
undiscounted cash flows are less than the carrying value of the assets, the
asset's value will be adjusted appropriately.

Income Taxes

The Company accounts for income taxes using the liability method. Deferred
income taxes are provided for temporary differences between the financial
reporting and tax bases of assets and liabilities.

Stock-Based Compensation

The Company follows Accounting Principles Board Opinion No. 25, Accounting for
Stock Issued to Employees ("APB 25"), and related interpretations in accounting
for its stock options. Under APB 25, when the exercise price of stock options
equals the market price of the underlying stock on the date of grant, no
compensation expense is recognized.

The Company has adopted the disclosure only provisions of the Statement of
Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation
("Statement 123"). Accordingly, the Company has made pro forma disclosures of
what net loss and net loss per share would have been had the provisions of
Statement 123 been applied to the Company's stock options.


                                      33
<PAGE>

                          Optical Sensors Incorporated

                    Notes to Financial Statements (continued)


2. Summary of Significant Accounting Policies (continued)

Use of Estimates

The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from the estimates.

Revenue Recognition

Sales are recorded when product is shipped.

Net Loss Per Share

The net loss per share has been computed in accordance with the provisions of
the Financial Accounting Standards Board Statement No. 128, "Earnings Per
Share." All potential common shares from stock options and convertible
promissory notes have been excluded from the computation of diluted net loss per
share for the applicable periods presented because the effect would have been
anti-dilutive.


3. Investment Agreement

On March 10, 2000, the Company entered into an Investment Agreement with Circle
F Ventures, LLC and Special Situations Fund III, L.P. whereby the investors
would provide up to $3,000,000 of funding to the Company. The funding was in the
form of Convertible Promissory Notes (the "Notes") and had three elements as
follows:

     o    $1,400,000 immediately upon execution of the Agreement.

     o    $600,000 upon request of the Company within the 60-day period
          beginning after the Company had executed a definitive distribution
          agreement for the Company's CapnoProbe product and the Company had
          obtained shareholder approval of the conversion of the additional
          funding into "units" (as defined below).

     o    $1,000,000 upon request of the Company and under similar circumstances
          as noted above for the $600,000.


                                      34
<PAGE>

                          Optical Sensors Incorporated

                    Notes to Financial Statements (continued)


3. Investment Agreement (continued)

The Company received the $1,400,000 upon execution of the Agreement, but was not
able to satisfy the requirements to obtain the $600,000 and $1,000,000 payments.

The Notes are convertible into units, each unit consisting of 50,000 shares of
the Company's common stock, and a warrant to purchase 12,500 shares of common
stock, at an initial conversion price of $50,000 per unit subject to adjustment
of the conversion price as set forth in the Notes agreement. The Notes do not
bear interest and are due and payable on March 10, 2001. However, if the Notes
are not paid in full or converted into units within the one-year period, any
remaining unpaid balance shall bear interest at the rate of 10% per year until
paid in full. The conversion price has been lowered to $12,500 per unit for the
Notes issued to Circle F Ventures, LLC, according to the terms of the Securities
Purchase Agreement (See Note 4).

The warrants are exercisable for five years from the date of issuance. Each
warrant will allow the holder to purchase a share of the Company's common stock
at an initial price of $1.00 subject to adjustment according to the terms of the
warrant. The exercise price has been reduced to $.25 per share for warrants
given to Circle F Ventures, LLC according to the terms of the Securities
Purchase Agreement (see Note 4).

The Company recognized $1,400,000 of interest expense upon receipt of the
$1,400,000 for the Notes with the offset going to additional paid-in capital.
The interest expense, which represents the intrinsic value of the beneficial
conversion feature embedded in the convertible securities, was recognized at the
date of issuance as a result of the ability of the holder of the notes to
convert immediately.


                                      35
<PAGE>

                          Optical Sensors Incorporated

                    Notes to Financial Statements (continued)


4. Securities Purchase Agreement

On August 10, 2000, the Company entered into a Securities Purchase Agreement
whereby the Company agreed to issue and Circle F Ventures, LLC agreed to
purchase, upon request of the Company, up to 4,333,334 shares of Series A
Preferred Stock for an aggregate purchase price of $1,500,000. The Agreement
provided for a per share price of $.50 for the first 1,000,000 shares, $.375 for
the next 1,333,334 shares and $.25 for the last 2,000,000 shares. The Company
sold the entire 4,333,334 shares to Circle F Ventures, LLC during 2000. Each
share of the Series A preferred stock has a par value of $.01, can be converted
into a share of common stock, has voting rights as a share of common stock, and
has no dividend rights.

The Securities Purchase Agreement also provided for an amendment to the
Investment Agreement (see Note 3) whereby the conversion price per unit of the
convertible notes issued to Circle F Ventures, LLC, at any time became equal to
50,000 multiplied by the lowest price at which the Company sells any shares of
its capital stock. Therefore, the conversion price of the related convertible
notes has been reduced to $12,500 (50,000 x $.25) per unit. The exercise price
of the warrants issuable to Circle F Ventures, LLC under the terms of the
Investment Agreement has also been reduced to $.25 per share.

The terms of the Securities Purchase Agreement also provided for changing the
exercise price of all options held by current employees and current directors
based on the average price per share paid by Circle F Ventures, LLC for the
Series A Preferred Stock. Accordingly, the exercise price has been reduced to
$.35 per share. This repricing provision has resulted in the options being
subject to variable accounting (see Note 9).

                                      36
<PAGE>

                          Optical Sensors Incorporated

                    Notes to Financial Statements (continued)


5. Private Label Reseller Agreement

In January 1998, the Company entered into an agreement with Instrumentation
Laboratory Company "(IL)" for worldwide distribution of the Company's SensiCath
Sensors and OpticalCAM Instruments. IL would market and distribute the Company's
products throughout the world under the names GEM SensiCath and GEM OpticalCAM.
The Company agreed to supply IL with SensiCath Sensors, on an exclusive basis,
through 2004 and on a non-exclusive basis through 2007. The Company also agreed
to supply IL with OpticalCAM Instruments, on a semi-exclusive basis, through
2004. The Company retained the right to sell OpticalCAM Instruments to
manufacturers of physiological monitoring, ventilator and anesthesia delivery
systems. IL was required to purchase sufficient quantities of products from the
Company under the agreement that would result in preestablished annual minimum
revenues to the Company. During 1998, IL did not achieve the quota requirements
and the Company exercised its right to convert IL's exclusive right to a non-
exclusive right.

In April 1999, the Company initiated an arbitration proceeding against IL by
filing a demand for arbitration with the American Arbitration Association. The
Company was seeking a declaration that it has no further limitations or
obligations with respect to IL under the January 1998 agreement. In addition,
the Company was seeking monetary damages based on various legal theories,
including breach of the agreement by IL for failing to adequately promote and
sell the Company's SensiCath System as required under the agreement. IL filed a
counterclaim also seeking damages from the Company. During 2000, the arbitration
was settled and the Company paid $200,000 to IL.

6. Common Stock

In January 1998, the Company sold 441,203 shares of common stock to
Instrumentation Laboratory Company "(IL)" at a price of $5.00 per share that
resulted in proceeds of $2,197,191, net of expenses related to the sale. The
Company granted IL and its affiliates certain preemptive rights to participate
in future sales of equity securities by the Company, and certain demand and
incidental registration rights under a registration rights agreement previously
entered into by the Company and shareholders that purchased shares of stock in
private transactions prior to the Company's initial public offering in February
1996. IL was prohibited from selling or otherwise transferring its shares of
common stock for a period of one year, except to an affiliate or pursuant to the
exercise of its registration rights. IL and its affiliates are also subject to
certain stand-still


                                      37
<PAGE>

                          Optical Sensors Incorporated

                    Notes to Financial Statements (continued)


6. Common Stock (continued)

provisions for a period of five years that prohibit them from (a) acquiring more
than 5.0% of the Company's outstanding common stock, (b) entering into a voting
agreement with respect to the shares IL purchased from the Company, (c)
participating in any proxy solicitation or becoming a participant in an election
contest or (d) joining a group for the purpose of acquiring, holding, voting or
disposing of shares of common stock.

At December 31, 2000, the Company has 10,625,984 shares of common stock reserved
for future issuance, including 4,333,334 shares for conversion of preferred
stock, 3,500,000 shares for conversion of notes payable, 1,893,524 for
outstanding options and shares available for grant and 899,126 for outstanding
warrants.

Shareholder Rights Plan

In December 1996, the Company's Board of Directors adopted a Shareholder Rights
Plan by declaring a dividend of one preferred share purchase right (the "Right")
for each outstanding share of common stock. Under certain circumstances, a Right
may be exercised to purchase one one-thousandth of a share of series A junior
preferred stock for $90. The rights become exercisable if a person or group
acquires 15 % or more of the Company's outstanding common stock, subject to
certain exceptions. If a person or group acquires 15 % or more of the Company's
outstanding common stock, subject to certain exceptions, each right will entitle
its holder to buy common stock of the Company having a market value of twice the
exercise price of the Right. The Rights expire in December 2006 and may be
redeemed by the Company for $.001 per Right at any time before, or, in certain
circumstances, within ten days (subject to extension) following the announcement
that a person has acquired 15 % or more of the Company's outstanding common
stock, subject to certain exceptions. The foregoing triggering percentages are
49.9% for Circle F Ventures, LLC and its affiliates and 24% for Special
Situations Fund III, L.P. and its affiliates. Until a Right is exercised, the
holder of a Right, as such, has no rights as a shareholder of the Company.


                                      38
<PAGE>

                          Optical Sensors Incorporated

                    Notes to Financial Statements (continued)


6. Common Stock (continued)

In connection with the adoption of the Shareholder Rights Plan, the Company
authorized 250,000 shares of series A junior preferred stock (the "preferred
stock"). Subject to the rights of holders of any Senior Securities, if any,
holders of the preferred stock are entitled to quarterly dividends, when, as and
if declared by the Board of Directors, in the amount of one thousand times the
aggregate per share amount of dividends paid to common stock shareholders. Each
preferred stock share is entitled to one thousand votes on all matters submitted
to a vote of the shareholders of the Company. The preferred stock has
liquidation preference over the Company's common stock. The liquidation rate on
the preferred stock is the greater of (a) $1,000 per share plus accrued
dividends, whether or not earned or declared, or (b) an amount equal to one
thousand times the amount distributed to the common stock shareholders.

7. Leases

Operating Leases

The Company leases its office and research and development facility under an
operating lease that expires on May 31, 2001. Operating expenses, including
maintenance, utilities, real estate taxes and insurance, are paid by the
Company. The Company also leases certain office equipment under operating
leases.

Total rent expense under operating leases was $280,000, $516,000 and $677,000
for the years ended December 31, 2000, 1999 and 1998, respectively.

Future minimum lease payments under noncancelable operating leases with initial
or remaining terms of one year or more as of December 31, 2000 are as follows:

   Year ending December 31:
     2001                                                     $88,000
     2002                                                       8,000
                                                       -------------------
                                                              $96,000
                                                       ===================


                                      39
<PAGE>

                          Optical Sensors Incorporated

                    Notes to Financial Statements (continued)


7. Leases (continued)

In connection with the operating lease agreements, the Company has issued
warrants to the leasing company to purchase 12,222 shares of common stock at
$9.00 per share and 11,904 shares of common stock at $3.15 per share. These
warrants expire in 2002 and 2005, respectively.

Capital Leases

In June 1997, the Company entered into an equipment lease agreement. Under the
lease agreement, the Company was allowed to lease up to $2,000,000 of equipment
between June 15, 1997 and June 30, 1999. Assets leased under the agreement at
December 31, 2000 and 1999 were $1,157,989, with a related obligation of
$104,109 and $620,595 at December 31, 2000 and 1999, respectively. The term of
each lease schedule under the agreement is 42 months with payments due the first
of each month.

Future payments under capital leases are as follows:

   2001                                                     $104,298
   2002                                                        5,783
                                                        ----------------
                                                             110,081
   Less amount representing payment of interest               (5,972)
                                                        ----------------
                                                             104,109
   Less current portion                                      (98,442)
                                                        ----------------
   Long-term capital lease obligations                      $  5,667
                                                        ================

The equipment lease agreement contains an "advance pay" provision that requires
the Company to prepay an amount equal to soft costs (tooling, software, etc.)
that exceed 25% of the total drawdown. The Company entered into an additional
agreement whereby they signed a note agreement that rescheduled an end of lease
obligation totaling $238,000 into 12 monthly installments beginning January
2000. The total payments under the note were made during 2000.


                                      40
<PAGE>

                          Optical Sensors Incorporated

                    Notes to Financial Statements (continued)



8. Income Taxes

At December 31, 2000, the Company has cumulative net operating loss
carryforwards for tax purposes of approximately $65,434,000 plus research and
development tax credit carryforwards of approximately $1,688,000. These
carryforwards are available to offset future taxable income through 2020.

As a result of the sales of preferred stock and additional shares of common
stock, the Company has experienced a change in ownership under the net operating
loss limitation rules. The use of losses, incurred through the change in
ownership date, to offset future taxable income, will be limited during the
carryforward period. The credits will also be subject to limitations under these
same rules.

Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amount of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets and liabilities are as follows:

                                                       December 31
                                                 2000              1999
                                              ----------------------------------
   Deferred tax assets:
     Net operating loss carryforwards          $ 24,210,000      $ 22,315,000
     Tax credit carryforwards                     1,688,000         1,628,000
     Vacation accrual                                38,000            43,000
     Inventory valuation                            130,000           141,000
     Book over tax depreciation                     488,000           402,000
                                              ----------------------------------
   Total deferred tax assets                     26,554,000        24,529,000

   Deferred tax liabilities                           7,000             4,000
                                              ----------------------------------
   Net deferred tax assets                       26,547,000        24,525,000
   Valuation allowance                          (26,547,000)      (24,525,000)
                                              ----------------------------------
                                               $          -      $          -
                                              ==================================


                                      41
<PAGE>

                          Optical Sensors Incorporated

                    Notes to Financial Statements (continued)


9. Stock Options

The Company has two stock option plans that include both incentive and
non-statutory stock options to be granted to directors, officers, employees and
consultants of the Company. Option activity is summarized as follows:

<TABLE>
<CAPTION>
                                                                          Options
                                                                        Outstanding      Weighted Average
                                                   Shares Available  -------------------  Exercise Price
                                                       for Grant        Total Shares        Per Share
                                                   --------------------------------------------------------
   <S>                                                   <C>                <C>               <C>
   Balance at December 31, 1997                              69,945           817,195         $3.50
     Additional shares reserved                             699,464                 -             -
     Granted                                             (1,383,870)        1,383,870          2.75
     Options canceled                                       695,573          (695,573)         5.57
     Options exercised                                            -           (16,423)         1.39
                                                   -------------------------------------
   Balance at December 31, 1998                              81,112         1,489,069          1.84
     Granted                                               (100,000)          100,000          1.25
     Options canceled                                       306,874          (306,874)         2.29
     Options exercised                                            -          (102,260)          .90
                                                   -------------------------------------
   Balance at December 31, 1999                             287,986         1,179,935          1.76
     Additional shares reserved                             472,760                 -             -
     Granted                                             (3,061,416)        3,061,416           .42
     Options canceled                                     2,394,236        (2,394,236)          .89
     Options exercised                                            -           (47,157)          .95
                                                   -------------------------------------
   Balance at December 31, 2000                              93,566         1,799,958         $ .67
                                                   =====================================
</TABLE>

The weighted average fair value of options granted is $.40, $1.07 and $2.20 for
the years ended December 31, 2000, 1999 and 1998, respectively.


                                      42
<PAGE>

                          Optical Sensors Incorporated

                    Notes to Financial Statements (continued)


9. Stock Options (continued)

In accordance with the terms of the Securities Purchase Agreement (see Note 4),
all options held by current employees and current directors were amended so that
the exercise price was equal to the average price per share paid by Circle F
Ventures, LLC for the Series A Preferred Stock. Accordingly, the exercise price
has been reduced to $.35 per share. This repricing has resulted in the plan
being subject to variable accounting. The Company recognized $68,884 of
compensation expense in the third quarter of 2000 which was reversed in the
fourth quarter because the market price at December 31, 2000 was below the
exercise price.

The exercise price of options outstanding at December 31, 2000 ranged from $.35
to $9.00 per share, as summarized in the following table:

<TABLE>
<CAPTION>
                           Options Outstanding                                 Options Exercisable
                    ----------------------------------                      -------------------------------
                                     Weighted Average    Weighted Average                Weighted Average
      Range of                        Exercise Price        Remaining                     Exercise Price
   Exercise Price    Number             Per Share        Contractual Life      Number        Per Share
-----------------------------------------------------------------------------------------------------------
<S>               <C>                       <C>              <C>               <C>            <C>
$ .35             1,511,188                 $  .35            8.1 years         504,775       $ .35
  .90                 6,110                    .90            4.6 years           6,087         .90
 1.25                15,000                   1.25            8.3 years          15,000        1.25
 1.69               200,270                   1.69            7.9 years           2,196        1.69
 2.70                38,886                   2.70            4.8 years          38,886        2.70
 4.50                 8,000                   4.50            6.5 years           8,000        4.50
 9.00                20,504                   9.00            3.0 years          20,504        9.00
            -----------------                                               -----------
                  1,799,958                 $  .67            7.9 years         595,448       $ .89
            =================                                               ===========
</TABLE>

The number of options exercisable at December 31, 2000, 1999 and 1998 was
595,448, 484,496 and 410,341, respectively, at a weighted average exercise price
per share of $.89, $1.86 and $2.14, respectively.


                                      43
<PAGE>

                          Optical Sensors Incorporated

                    Notes to Financial Statements (continued)


9. Stock Options (continued)

Pro forma information regarding net loss and net loss per share is required by
Statement 123, and has been determined as if the Company had accounted for its
employee stock options under the fair value method of Statement 123. The fair
value for these options was estimated at the date of grant using a Black-Scholes
option pricing model with the following weighted average assumptions:

                                             2000         1999          1998
                                        ----------------------------------------

   Expected stock price volatility           97%           97%          86%
   Risk-free interest rate                   6.0%         6.5%          5.5%
   Expected life of options               6.0 years    7.25 years    7.25 years

The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions. Because the Company's employee stock options have
characteristics significantly different from those of traded options, and
because changes in the subjective input assumptions can materially affect the
fair value estimate, in management's opinion, the existing models do not
necessarily provide a reliable single measure of the fair value of its employee
stock options.

For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. The Company's pro
forma information is as follows:

                                             2000         1999           1998
                                         ---------------------------------------

   Pro forma net loss                     $5,757,909   $8,164,800    $12,597,330
   Pro forma, basic and diluted net
    loss per common share                    $.64         $.92          $1.43


These pro forma amounts may not be indicative of future years' amounts since
Statement 123 provides for a phase-in of option values beginning with those
granted in 1995.


                                      44
<PAGE>

                          Optical Sensors Incorporated

                    Notes to Financial Statements (continued)


9. Stock Options (continued)

Deferred Compensation

In August 1995, the Company recognized deferred compensation of $2,179,693. The
amount represented the excess of the deemed value for accounting purposes of the
common stock issuable upon exercise of certain options over the aggregate
exercise price of such options. The related options were those granted during
the period June 17, 1995 through October 3, 1995 to purchase a total of 971,640
shares of common stock at exercises prices ranging from $.90 to $2.70 per share.
The deferred compensation was recognized as expense over the vesting periods
through 1999.


10. Technology Agreements

In July 1998, the Company entered into a patent license agreement with the
Institute of Critical Care Medicine ("ICCM") which provides the Company with the
exclusive, worldwide right under ICCM's pending and issued patents. In
consideration for the technology, the Company is obligated to pay ICCM minimum
annual royalties of $300,000 (quarterly payments of $75,000 beginning with the
quarter ended September 1998) for five years in order to maintain exclusivity.
The Company may elect, on one year's written notice, not to make the annual
minimum payment of $300,000 but ICCM would then have the right to terminate the
license agreement. The Company is obligated to pay ICCM a customary royalty
equal to a percentage of sales, which varies depending on the selling price to
the customer. The Company is also obligated to meet certain product development
milestones under the license agreement.


11. Note Receivable from Officer

In September 1995, the former President and Chief Executive Officer of the
Company had exercised an option to purchase 272,222 shares of common stock at a
price of $.90 per share. The right to retain certain of the shares was subject
to the former President's continued employment through August 2, 1999. As
payment for the shares, the former President executed a $245,000 promissory
note, payable in full on August 1, 1998, at an interest rate of 5.91%. The note
was secured by the shares of common stock


                                      45
<PAGE>

                          Optical Sensors Incorporated

                    Notes to Financial Statements (continued)


11. Note Receivable from Officer (continued)

and proceeds of any dividend or other distribution attributable to the shares.
During 1998, the President made a $208,250 principal payment on the note plus
accrued interest, and the Company forgave the remaining principal balance of
$36,750. The Company also entered into a board advisory agreement with the
former President and Chief Executive Officer that provided for a payment of
$50,000 in April 1999.


12. Employee Benefit Plans

The Company has a 401(k) savings plan under which employees are eligible to
participate after six months of service and attaining the age of 21. Employees
may contribute up to the maximum amount which will not violate provisions of the
Plan or cause the Plan to exceed the maximum amount allowable as a deduction to
the employer. The Company, at its discretion, may make matching contributions
equal to a percentage of the employee's contribution. The Company did not
contribute to the Plan in 2000, 1999 or 1998.


13. Employee Stock Purchase Plan

In December 1996, the Company adopted an Employee Stock Purchase Plan. Eligible
employees could authorize payroll withholdings in each pay period to be
designated for stock purchase. Payroll deductions could not exceed 10% of total
compensation and no more than 1,500 shares could be purchased by any one
employee in one offering period. There were four three-month offering periods in
each year. Employees could purchase shares of common stock at the end of each
three-month offering period at a price equal to 85% of the market price on the
first or last day of the offering period, whichever is lower. The Company issued
3,643 shares under the plan during the year ended December 31, 1999. The plan
was terminated in 2000.


                                      46
<PAGE>

                          Optical Sensors Incorporated

                    Notes to Financial Statements (continued)


14. Going Concern

Recurring losses from operations, including $5,302,178 for 2000, have resulted
in an accumulated deficit of $71,453,504. The Company's ability to continue as a
going concern and the realization of its assets and the orderly satisfaction of
its liabilities are dependent on obtaining additional funds from outside
sources. Since January 1999, the Company has been exploring strategic
alternatives, including joint ventures, corporate strategic alliances, sale of
the business or product liens or other business combinations. Although the
Company is currently in negotiations with various outside parties that may raise
funds that will satisfy its cash requirements for at least the next 12 months,
there can be no assurance that the Company will be successful in closing any
kind of agreement.

15. Quarterly Financial Data (Unaudited)

Quarterly financial data for 2000 and 1999 is as follows:

<TABLE>
<CAPTION>
                                                                   Quarter
                                          First            Second            Third            Fourth
                                    -----------------------------------------------------------------------
   <S>                                 <C>             <C>                <C>              <C>
   Year ended December 31, 2000
   Net sales                           $          -    $           -      $          -     $          -
   Gross profit                                   -                -                 -                -
   Net loss(1)                           (2,673,807)        (980,171)         (868,758)        (779,442)
   Loss per share                        $(.30)             $(.11)            $(.10)            $(.09)

   Year ended December 31, 1999
   Net sales                           $     59,960    $       1,607      $     28,889     $     43,675
   Gross profit                            (685,128)        (306,970)         (269,153)        (649,801)
   Net loss                              (2,964,610)      (1,659,908)       (1,533,343)      (1,627,415)
   Loss per share                        $(.34)             $(.19)            $(.17)            $(.18)
</TABLE>


(1)  The net loss for the first, second and third quarters does not agree with
     amounts shown in the respective Form 10-Q because of an adjustment to
     depreciation expense due to an error discovered in the fourth quarter.


                                      47
<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 28, 2001            By: /s/ Paulita M. LaPlante
                                     ------------------------
                                     Paulita M. LaPlante
                                     President and Chief Executive Officer

     Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below on March ___, 2001 by the following persons on
behalf of the Registrant and in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
Name                                Title
----                                -----
<S>                                 <C>
/s/ Paulita M. LaPlante             President, Chief Executive Officer and
--------------------------------    Director (principal executive officer)
Paulita M. LaPlante


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


/s/ Richard B. Egen                 Director
--------------------------------
Richard B. Egen


/s/ Demetre M. Nicoloff, M.D.       Director
--------------------------------
Demetre M. Nicoloff, M.D.


/s/ Charles D. Snead, Jr.           Director
--------------------------------
Charles D. Snead, Jr.
</TABLE>

                                       48

<PAGE>

                          OPTICAL SENSORS INCORPORATED
                  EXHIBIT INDEX TO ANNUAL REPORT ON FORM 10-K
                      FOR THE YEAR ENDED DECEMBER 31, 2000

<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, 1998
                                                            (File No. 0-27600).

3.3        Certificate of Designation of Rights and         Incorporated by reference to Exhibit 4.1
           Preferences of Series A Preferred Stock.         contained in the Company's Quarterly Report on
                                                            Form 10-Q for the quarter ended June 30, 2000
                                                            (File No. 0-27600).

3.4        Bylaws of the Company, as amended.               Incorporated by reference to Exhibit 3.3
                                                            contained in the Company's Annual Report on
                                                            Form 10-K for the year ended December 31, 1998
                                                            (File No. 0-27600).

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        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).

4.3        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).

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

4.5        Amendment No. 1 to Rights Agreement dated as     Incorporated by reference to Exhibit 10.1
           of March 10, 2000 between the Company and        contained in the Company's Current Report on
           Norwest Bank Minnesota, N.A.                     Form 8-K dated March 10, 2000 (File No.
                                                            0-27600).
</TABLE>

                                      49

<PAGE>

<TABLE>
<S>        <C>                                              <C>
4.6        Amendment No. 2 to Rights Agreement dated as     Incorporated by reference to Exhibit 10.1
           of August 8, 2000 between the Company and        contained in the Company's Quarterly Report on
           Norwest Bank Minnesota, N.A.                     Form 10-Q for the quarter ended June 30, 2000
                                                            (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       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).

10.3       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).

10.4       1993 Stock Option Plan, as amended               Incorporated by reference to Exhibit 10.5
                                                            contained in the Company's Annual Report on
                                                            Form 10-K for the year ended December 31, 1999
                                                            (File No. 0-27600).

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

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

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

10.8       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
           Partnership, L.P. and the Company.               Form 10-K for the year ended December 31, 1996
                                                            (File No. 0-27600).
</TABLE>

                                      50
<PAGE>

<TABLE>
<S>        <C>                                              <C>
10.9       Second Amendment to Lease Agreement, dated       Incorporated by reference to Exhibit 10.21
           April 14, 1997, between First Industrial         contained in the Company's Annual Report on
           Financing Partnership, L.P. and the Company.     Form 10-K for the year ended December 31, 1997
                                                            (File No. 0-27600).

10.10      Master Equipment Lease dated June 15, 1997       Incorporated by reference to Exhibit 10.22
           between Phoenix Leasing Incorporated and the     contained in the Company's Annual Report on
           Company                                          Form 10-K for the year ended December 31, 1997
                                                            (File No. 0-27600).

10.11      Amendment No. 1 to Master Equipment Lease        Incorporated by reference to Exhibit 10.23
           dated August 15, 1997 between Phoenix Leasing    contained in the Company's Annual Report on
           Incorporated and the Company                     Form 10-K for the year ended December 31, 1997
                                                            (File No. 0-27600).

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

10.13      Patent License Agreement dated July 20, 1998     Incorporated by reference to Exhibit 10.1
           between the Company and the Institute of         contained in the Company's Quarterly Report on
           Critical Care Medicine (1)                       Form 10-Q for the quarter ended September 30,
                                                            1998 (File No. 0-27600).

10.14      Executive Severance Pay Plan                     Incorporated by reference to Exhibit 10.1 to
                                                            the Company's Quarterly Report on Form 10-Q
                                                            for the quarter ended September 30, 1999 (File
                                                            No. 0-27600).

10.15      Third Amendment to Lease Agreement dated         Incorporated by reference to Exhibit 10.25
           September 3, 1999 between First Industrial       contained in the Company's Annual Report on
           Financing Partnership, L.P. and the Company      Form 10-K for the year ended December 31, 1999
                                                            (File No. 0-27600).

10.16      Investment Agreement, dated, March 10, 2000,     Filed herewith electronically.
           among the Company, Circle F Ventures, LLC and
           Special Situations Fund III, L.P.

10.17      Form of Convertible Promissory Note issued       Filed herewith electronically.
           under Investment Agreement, dated March 10,
           2000
</TABLE>

                                      51
<PAGE>

<TABLE>
<S>        <C>                                              <C>
10.18      Fourth Amendment to Lease Agreement dated June   Filed herewith electronically.
           1, 2000 between First Industrial L.P. and the
           Company

10.19      Securities Purchase Agreement, dated August      Incorporated by reference to Exhibit 10.2 to
           11, 2000, between the Company and Circle F       the Company's Quarterly Report on Form 10-Q
           Ventures, LLC (1)                                for the quarter ended June 30, 2000 (File No.
                                                            0-27600).

10.20      Amendment No. 1, dated August 15, 2000 to        Filed herewith electronically.
           Executive Severance Pay Plan

10.21      Bridge Loan Agreement, dated March 8, 2001,      Filed herewith electronically.
           between the Company and Circle F Ventures,
           LLC

10.22      Convertible Promissory Note issued under         Filed herewith electronically.
           Bridge Loan Agreement, dated March 8, 2001

10.23      Letter Agreement, dated March 10, 2001,          Filed herewith electronically.
           between the Company and Special Situations
           Fund III, L.P.

23.1       Independent Auditors' Consent                    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.

                                      52