SECURITIES AND EXCHANGE COMMISSION
                     WASHINGTON, D.C. 20549

                            FORM 10-K

        Annual Report Pursuant to Section 13 or 15(d) of the
                 Securities Exchange Act of 1934

For the Fiscal Year Ended 09/30/98    Commission File Number 0-26504

                            Diasense, Inc.
     (Exact name of registrant as specified in its charter)

  Pennsylvania                                      25-1605848
(State or other jurisdiction of           (I.R.S. Employer Identification
 incorporation or organization)                       Number)

    2275 Swallow Hill Road, Building 2500; Pittsburgh, PA    15220
     (Address of principal executive offices)               (Zip Code)

Registrant's telephone number, including area code (412) 279-9740

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

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
and (2) has been subject to such filing requirements for the past
90 days.   Yes   X       No  ___

Indicate  by  check  mark  if  disclosure  of  delinquent  filers
pursuant  to Item 405 of Regulation S-K is not contained  herein,
and will not be contained, to the best of registrant's knowledge,
in  definitive  proxy or information statements  incorporated  by
reference in Part III of this Form 10-K, or any amendment to this
Form 10-K. [ ]

The   aggregate  market  value  of  the  voting  stock  held   by
nonaffiliates of the registrant as of November 30, 1998:

Common Stock, $.01 par value --  $__________*

*The  market  value  cannot be determined  because  there  is  no
  established trading market for the stock.

As of November 30, 1998, 22,980,051 shares of Common Stock,  par
value  $.01 per share were outstanding.  As of November 30, 1998,
no shares of Preferred Stock were outstanding.

Exhibit index is located on page 27.

                             PART I


Item 1. Business

General Development of Business

Diasense, Inc. ("Diasense" or the "Company") was incorporated  in
the  Commonwealth of Pennsylvania on July 5, 1989  as  a  wholly-
owned   subsidiary  of  Biocontrol  Technology,  Inc.   ("BICO").
Diasense's  headquarters are located in  its  office  condominium
located  at  2275  Swallow Hill Road, Building 2500,  2nd  Floor,
Pittsburgh, PA  15220.

The   Company's  business  is  the  development,  marketing   and
manufacture  of  a  noninvasive glucose sensor (the  "Noninvasive
Glucose  Sensor"  or the "Sensor") for use by diabetics.   During
Fiscal  1998, the Company continued to focus its efforts  on  the
Noninvasive Glucose Sensor.  Diasense owns the patent,  marketing
and  distribution rights to the Sensor.  BICO has  the  exclusive
rights  to  the research and development and manufacture  of  the
Sensor   (See,  "Intercompany  Agreements").   Where  applicable,
Diasense and BICO will be referred to herein as "the Companies".

Financial Information About Industry Segments

The  Company operates in a single industry segment consisting  of
the  research,  development,  marketing  and  intended  sale   of
biomedical products and devices.

Forward-Looking Statements

From  time  to  time,  the Companies may publish  forward-looking
statements  relating  to  such matters as  anticipated  financial
performance, business prospects, technological developments,  new
products,  research  and development activities,  the  regulatory
approval  process,  specifically  in  connection  with  the   FDA
marketing  approval  process, and similar matters.   The  Private
Securities  Litigation Reform Act of 1995 provides a safe  harbor
for  forward-looking statements.  In order  to  comply  with  the
terms  of  the safe harbor, the Companies note that a variety  of
factors  could  cause  the Companies' actual  results  to  differ
materially  from  the anticipated results or  other  expectations
expressed  in  the  Companies' forward-looking  statements.   The
risks   and   uncertainties  that  may  affect  the   operations,
performance,  research  and  development  and  results   of   the
Companies' business include the following:  additional delays  in
the  research,  development  and FDA marketing  approval  of  the
Noninvasive  Glucose Sensor; the Companies' future capital  needs
and the uncertainty of additional funding; Diasense's substantial
reliance upon BICO, and BICO's uncertainty of additional funding;
competition and the risk that the Noninvasive Glucose Sensor  may
become obsolete; the Company's dependence on a single technology;
the Companies' continued operating losses, negative net worth and
uncertainty  of  future  profitability;  potential  conflicts  of
interest;   the  status  and  risk  to  the  Company's   patents,
trademarks  and  licenses; the uncertainty of  third-party  payor
reimbursement for the Sensor and the general uncertainty  of  the
health care industry; the Companies' limited sales, marketing and
manufacturing  experience; the attraction and  retention  of  key
employees;  the risk of product liability; the uncertain  outcome
and  consequences of the lawsuits pending against the  Companies;
the  absence  of a public market for the Company's common  stock;
the  control  of  the Company by existing shareholders;  and  the
dilution of the Company's common stock.


Description of Business

Devel pment of the Noninvasive Glucose Sensor

Diasense and BICO are currently developing a Noninvasive  Glucose
Sensor,  which  management believes will be able to  measure  the
concentration  of glucose in human tissue without  requiring  the
drawing  of  blood.  Currently available glucose sensors  require
the drawing of blood by means of a finger prick.

BICO's initial research and development with insulin pumps led to
a  theory  by  which  blood  glucose  levels  could  be  detected
noninvasively   by  correlating  the  spectral   description   of
reflected electromagnetic energy from the skin with blood glucose
levels  in the 50 mg per deciliter to 500 mg per deciliter  range
in  the  infrared  region of the electromagnetic  spectrum.   The
method  was  studied in 1986 and 1987 by BICO and its consultants
at   Battelle   Memorial  Institute  in  Columbus,  Ohio,   using
laboratory  instruments.   The results of  the  studies  provided
information   regarding  the  use  of  infrared  light   in   the
noninvasive  measurement of glucose.  The  information  from  the
studies,  along  with later affirmative work,  led  to  a  patent
application  by BICO's research team in 1990.  A patent  covering
the  method was granted to the research team and assigned to BICO
in  December 1991.  The rights of this patent have been purchased
by  Diasense  from BICO, pursuant to a Purchase  Agreement  (See,
"Intercompany  Agreements").   A second  patent  application  was
filed  by BICO in December 1992, and was granted in January 1995.
This  filing contained new claims which extended the coverage  of
the  patent  based  on additional discoveries and  data  obtained
since  the  original  patent was filed.  BICO  has  assigned  the
rights  to  such  patent  to Diasense.   Additional  concepts  to
improve  the  capability  of the instrument  to  recognize  blood
glucose  were  developed, and, in May 1993, corresponding  patent
applications  were filed.  As of October 1996, a  total  of  five
patents  have  been  issued, with additional patent  applications
pending  (See, "Current Status of the Noninvasive Glucose Sensor"
and  "Patents, Trademarks and Licenses").  BICO has been  granted
the  right  to  develop  and  manufacture  sensors  pursuant   to
agreements with Diasense (See, "Intercompany Agreements").

In  1991,  BICO's research team began development of  a  research
prototype utilizing different technology than previously  studied
or  developed.   This device, the Beta 1 research prototype,  was
initially  tested  on  six human subjects, and  was  subsequently
tested  on  110  human  subjects  in  March  1992,  during  which
simultaneous  spectral, blood and chemical data was recorded  for
analysis  in  order to develop calibration data for  the  device.
The  Beta  1  utilized  a separate lap-top  computer  to  perform
computational  functions.  The results of the  March  1992  tests
were  used  to  develop  further refinements  which  led  to  the
development of the Beta 2A.

Although functionally equivalent in terms of performance with the
Beta  1,  the  next prototype, the Beta 2A, was smaller  and  had
fully  integrated  computational software and  a  liquid  crystal
display  which  interacted  with the operator.   This  model  was
tested  by BICO on 40 human subjects in July 1992.  The  spectral
and  blood chemistry data obtained indicated that the Beta 2A did
not  have a satisfactory signal-to-noise ratio to allow  for  the
calculation of algorithms of sufficient accuracy to be acceptable
to  Diasense.   The signal-to-noise ratio reflects  the  sensor's
ability  to  optimize  the measurement by  accepting  the  signal
desired   (the   glucose   level)  and  rejecting   the    random
interference.  A higher signal-to-noise ratio results in  a  more
accurate measurement.

Additional Beta prototypes evolved which addressed this  problem.
Testing  was  performed  with  each  prototype,  culminating   in
clinical  trials  at  two hospitals with ten diabetic  volunteers
each  in  Des  Plaines,  Illinois in May  1993  and  in  Indiana,
Pennsylvania  in  August 1993.  These advanced systems  embodying
improvements in the optics, electronics and detection  subsystems
led  to  the  design  of  the  Beta 2D,  Beta  2E,  and  Beta  2F
prototypes,  designed  and  constructed  to  simulate  production
models.

BICO  initially obtained the approval of six Institutional Review
Boards  ("IRBs")  to conduct testing at their  hospitals.   Those
hospitals  are  Children's Hospital in Pittsburgh,  Pennsylvania;
Rush  North  Shore in Skokie, Illinois; Westmoreland Hospital  in
Greensburg,  Pennsylvania;  Lutheran  General  Hospital  in  Park
Ridge,  Illinois; Holy Family Hospital in Des Plaines,  Illinois;
and  Indiana  Hospital  in  Indiana, Pennsylvania.   The  Company
conducted initial testing at the Holy Family Hospital and Indiana
Hospital,  and may conduct further studies on present and  future
models  at  some  or all of the other hospitals  from  which  IRB
approval has been obtained.

On   January   6,   1994,  BICO  submitted  its  initial   510(k)
Notification to the U.S. Food and Drug Administration (the "FDA")
for approval to market the production model, the Diasensorr 1000.
The  submission was based on data obtained from the advanced Beta
2  prototypes, since functionally, the production model  will  be
identical to these prototype models.  BICO's  510(k) Notification
claims  that  the  product has substantial  equivalence  to  home
market  glucose  monitoring devices presently in the  marketplace
since its function is similar, although the device operates on  a
different technological principle.  BICO provided information  in
this  510(k) submission which it believes substantiates that  the
device  does not raise different questions of safety and efficacy
and  is  as safe and effective as the legally marketed predicated
devices.   Such information is required by the FDA before  market
approval  can be granted.  In February 1996, the FDA  convened  a
panel  of  advisors  to  make a recommendation  regarding  BICO's
510(k)   Notification.   The  majority  of  the   panel   members
recommended  that  BICO conduct additional testing  and  clinical
trials prior to marketing the Diasensorr 1000.  BICO and Diasense
announced that they remained committed to bringing the Diasensorr
1000 to diabetics, and that additional research, development  and
testing  would continue (See, "Current Status of the  Noninvasive
Glucose Sensor").

The   Diasensorr   1000   is  a  spectrophotometer   capable   of
illuminating  a  small  area of skin  on  a  patient's  arm  with
infrared  light, and then making measurements from  the  infrared
light  diffusely reflected back into the device,  which  it  then
displays  on  a  liquid  crystal  display  on  the  face  of  the
instrument  for  the  user to read.  The  Diasensorr  1000   uses
internal algorithms to calculate a glucose measurement.

Since the Diasensorr 1000  will be calibrated individually,  each
instrument  will  be  sold  by  prescription  only  and  will  be
calibrated in a calibration center under a physician's direction.
This  feature may limit the marketability of the Diasensorr 1000,
and,   if  the  device  is  unable  to  qualify  for  third-party
reimbursement, the Company's ability to market the  device  could
be adversely effected.

Current Status of the Noninvasive Glucose Sensor

Due  to  continued delays of the FDA approval process, which  are
summarized below, and while continuing to work with the  FDA  and
conduct  its  mandated testing, the Companies have  also  focused
their efforts on obtaining approval to market the Diasensorr 1000
overseas.  The Companies have obtained a "CE" mark,  and  initial
orders  have  been  obtained   in  Europe.   In  connection  with
obtaining  a  CE mark, the Companies have undergone a  series  of
audits and have been certified as manufacturers and marketers  in
Europe.

In  1998,  BICO, as designer and manufacturer of the device,  was
awarded  for  ISO  certification  by  TUV  Rheinland,  a  company
authorized  to  conduct  such audits,  which  was  contracted  to
perform a "conformity assessment" of BICO's quality system.  BICO
was   awarded   International  Organization  for  Standardization
("ISO") Certification to the 9001 standard, evidencing that  BICO
has  in  place a total quality system for the design, development
and   manufacture   of  its  products.    Once   the   ISO   9001
certification was approved,  BICO  received approval to  apply  a
CE mark to the device.  Much like an Underwriters Laboratory "UL"
mark,  the  CE mark is provided by the regulatory bodies  of  the
European Community, or by authorized private bodies, such as  TUV
Rheinland,  to  indicate  that the  device  adheres  to  "quality
systems"   of   the   ISO   and  the   European   Committee   for
Standardization.  The CE mark  permits the Companies to sell  the
Diasensorr and other medical products in Europe.

With regard to marketing the device within the United States, the
Companies  continue to work with the FDA to obtain  approval.   A
revised  510(k) Notification was submitted in October, 1996,  and
was  followed by continued discussions with the FDA.  During 1997
and  1998,  the  Company  continued to meet  with  the  FDA,  and
established  a  protocol for in-home testing  of  the  Diasensorr
1000,  which  is  continuing.  Due to  the  Company's  cash  flow
problems  during  1998,  testing did  not  proceed  at  the  pace
originally  anticipated, and completion of the testing  has  been
delayed.  As with all other FDA-related activities, the Companies
cannot  provide  any  assurances as to the date  upon  which  the
studies  will be completed, the next 510(k) Notification will  be
submitted,  or  when  the FDA will complete its  review  of  such
Notification.

Although the Company's research and development team continues to
have  discussions  with  the FDA, due to the  complex,  technical
nature  of  the information being evaluated by the FDA,  and  the
slowed  pace of the Company's testing, it is impossible  for  the
Company to estimate how much longer the FDA approval process will
take.

FDA  approval is necessary to market the Diasensorr 1000  in  the
United  States.   The Companies are continuing their  efforts  to
develop software with a more "universal" algorithm, which can  be
used   by  a  larger  population.   After  introduction  of   the
Diasensorr  1000, BICO plans to finalize the development  of  the
Diasensorr  2000   which  may  contain  more  complex   software,
allowing  glucose  measurements  from  many  individuals  to   be
performed  with  one  instrument.  The Diasensorr  2000   may  be
subject  to  the same regulatory testing and approval process  as
was required for the Diasensorr 1000.

Diasense  is  responsible  for the marketing  and  sales  of  the
Noninvasive  Glucose  Sensor.   Diasense  plans  to  market   the
Noninvasive  Glucose Sensor directly to diabetics, through  their
doctors'  orders, and is currently negotiating with domestic  and
international distribution organizations to aid in the  marketing
and  distribution  of the Noninvasive Glucose  Sensor.   Although
many factors may cause a change in management's current estimate,
the  Company believes that the sales price of the Diasensorr 1000
at this time will range from approximately $7950 to approximately
$8500.   Such price may be set at a level which would  limit  its
sales,  absent  third-party reimbursement.  Due  to  the  current
vicissitudes of the health-care insurance industry, the Companies
are unable to make any projections as to the availability of,  or
procedures    required    in   connection    with,    third-party
reimbursement.  Although the Companies estimate,  based  on  1997
American  Diabetes  Association  data,  that  there  are   nearly
16,000,000 diabetics in the United States, not all diabetics will
be  suitable  users  of  the Noninvasive Glucose  Sensor.   Those
diabetics   who   require  and  benefit  from  frequent   glucose
monitoring  comprise  the potential market  for  the  Noninvasive
Glucose Sensor.  The Companies are unable to estimate the size of
that market at this time.

Invasive Glucose Sensors

Currently, blood glucose levels are generally measured by use  of
invasive  glucose sensors utilizing two different  methods.   The
simplest method for monitoring blood glucose levels requires  the
user to prick a finger, draw a drop of blood, and place the blood
on  a chemically-treated test strip.  After a specified amount of
time  has elapsed, the blood must be blotted or wiped off.  After
an  additional amount of time has elapsed, the color of the  test
strip  is  visually compared to that of a color  chart,  and  the
glucose  level  is  read  from the  chart.    The  second  method
requires  the  user  of an invasive glucose  sensor  to  prick  a
finger,  draw a drop of blood, and to place the blood on  a  test
strip  similar  to those described above.  Later, the  user  must
wait a prescribed period of time and place the test strip in  the
invasive glucose sensor which will display a readout of the blood
glucose  level.   Diasense believes that  many  of  the  existing
invasive  glucose sensors are complicated, time-consuming,  prone
to  user  error, inconvenient, unpleasant and entail  significant
ongoing expenditures by the user for supplies.

The  Company believes that these methods generally yield accuracy
levels  within plus or minus 25-30 mg/dl of actual glucose levels
(depending upon testing conditions).  Diasense believes  that  if
current  research  and development efforts  are  successful,  the
Noninvasive Glucose Sensor will have a range of accuracy at least
as accurate as currently available invasive glucose sensors.

With  either  method,  adequate control of blood  glucose  levels
requires  several finger pricks each day, which is an  unpleasant
experience for the user, especially for children.  Depending upon
the  relative facility of the user, it generally takes  at  least
two  to  four minutes for a readout to be provided from  existing
invasive  glucose  sensors.   Moreover,  the  ongoing  costs   of
repeated  testing are significant to the average user, given  the
cost of test strips, lancets, swabs, antiseptics, test solutions,
etc.,  and could represent a monthly cost of up to $100 or  more.
Diasense  believes  that  if the Noninvasive  Glucose  Sensor  is
successfully   developed,   manufactured   and   marketed,    the
unpleasantness  of existing testing methods will  be  effectively
eliminated, and the expense and inconvenience will, over the long
term, be significantly reduced.

A  clinical  invasive glucose sensor marketed by  Yellow  Springs
Instruments,  Inc. (the "Yellow Springs Sensor") is  an  invasive
glucose  sensor  which  is  relatively  non-portable  and   costs
approximately $8,000 per unit.  It  is used nearly exclusively by
hospitals and other institutions.  The Yellow Springs Sensor  has
significantly    different   abilities,    characteristics    and
limitations  than  existing invasive glucose  sensors.   Although
Diasense  believes that the Yellow Springs Sensor  yields  higher
accuracy levels than other invasive glucose sensors (within  plus
or  minus  3% of actual glucose levels) within up to 30  minutes,
Diasense believes that its Noninvasive Glucose Sensor may be more
desirable to most users of existing invasive glucose sensors, who
typically  value  speed and convenience, who do not  require  the
higher accuracy levels achieved by the Yellow Springs Sensor, and
who do not want to utilize invasive methods.

Diabetes

The  American Diabetes Association (the "ADA") has estimated that
diabetes  is  the seventh leading cause of death  in  the  United
States.   The  ADA  also  estimates that  there  are  16  million
diabetics  in  the  United States, including 11%  of  all  people
between  the  ages  of  65  and 74, with corresponding  estimated
annual  health care and work loss costs of more than $90 billion.
It  is  also estimated that more than 385,000 diabetics die  each
year  from  complications associated with  diabetes.   More  than
625,000 new cases of diabetes are diagnosed each year.  Diabetics
who are stricken with juvenile diabetes, the most severe form  of
the  disease, can survive with insulin injections.  However,  the
quality  and  length  of  their lives are  generally  reduced  by
problems  associated with insulin therapy and  by  the  onset  of
serious  diabetic  complications,  including  blindness,   kidney
failure, impotence and increased susceptibility to infection.

Many  tissues  of the body normally rely on glucose,  a  form  of
sugar,  as  a  source  of  metabolic energy.   Most  cells  store
significant amounts of glucose as glycogen, but certain  tissues,
especially  the  brain,  depend  upon  the  blood  to  deliver  a
continuous  supply of glucose.  The concentration of  glucose  in
the  bloodstream  must be controlled within  a  relatively  tight
range to maintain normal health.  If blood glucose drops too low,
causing  hypoglycemia, the brain and nervous system stop  working
properly,  thereby  causing faintness,  weakness,  tremulousness,
headache,    confusion,   and   personality   changes.     Severe
hypoglycemia  can progress to convulsions, coma, and  death.   If
blood glucose rises too high, causing hyperglycemia, there may be
excess urine production, thirst, weight loss, fatigue, and in the
most  severe  cases,  dehydration, coma,  and  death.   Moreover,
hyperglycemia causes damage from chemical reactions  between  the
excess glucose and proteins in cells, tissues, and organs.   Over
long  periods of time, episodes of hyperglycemia are  thought  to
lead  to  diabetic  complications,  including  blindness,  kidney
failure, impotence and increased susceptibility to infection.

To  control  the  storage and metabolism of  blood  glucose,  the
pancreas makes hormones that signal either removal or addition of
glucose  to  the  blood, depending on the  need.   Insulin  is  a
pancreatic hormone that lowers blood glucose levels.  Glucagon is
a  pancreatic hormone that raises blood glucose levels.  Although
certain  other hormones affect blood glucose levels, insulin  and
glucagon have been considered the principal regulators of glucose
metabolism associated with eating.

When  the  concentration  of glucose in the  bloodstream  is  not
controlled  within a relatively tight range, severe complications
result.   The principal disease associated with abnormal  glucose
metabolism is diabetes mellitus, which is defined by the presence
of elevated blood glucose levels.  Over the last 20 years, it has
become   generally  accepted  that  there  are  several  distinct
subclasses of diabetes, the two most important of which are  Type
I  diabetes  ("Type I Diabetes") and Type II diabetes  ("Type  II
Diabetes").   Type  I  Diabetes,  or  insulin-dependent  diabetes
mellitus,  typically begins during childhood or  early  adulthood
(and is therefore termed "juvenile diabetes").  Type II Diabetes,
or  non-insulin-dependent  diabetes  mellitus,  typically  begins
during or after middle age (and is therefore termed "adult  onset
diabetes").

Type  I  Diabetes.  It is estimated that there are over 1 million
Type I diabetics in the United States, and about 45,000 new cases
are  diagnosed  each  year.  Type I Diabetes  is  caused  by  the
destruction of the pancreatic cells that make insulin,  resulting
in   deficient   hormonal  control  of  glucose  metabolism   and
abnormally  high  blood glucose.  High blood glucose  levels  can
lead to coma and death if not adequately controlled.

Before  the discovery of insulin, Type I Diabetes was  a  rapidly
fatal   disease.   Insulin  therapy  corrects  the  most  serious
metabolic disorders, and the discovery of insulin is regarded  as
a  major  triumph of medical science.  However, even with  modern
insulin therapy, Type I diabetics cannot lead normal lives.  Type
I  diabetics' life spans can be shortened by the onset of serious
complications, including blindness, kidney failure, impotence and
increased  susceptibility to infection.  Consequently,  intensive
insulin  therapy  to  control blood glucose is  an  objective  of
modern diabetes treatment.  For Type I diabetics, glucose control
requires   frequent  monitoring  of  glucose  levels  and   rigid
management  of  diet, exercise and therapy and  is  difficult  to
achieve for many patients.

Type  II Diabetes.  It is estimated that there are over 5 million
diagnosed  Type  II  diabetics in the  United  States  and  equal
numbers  of  both undiagnosed Type II diabetics and  people  with
impaired  glucose tolerance, a condition characterized by  normal
blood   glucose  levels  before  eating  but  a  tendency  toward
hyperglycemia afterward.  An estimated 600,000 new cases of  Type
II Diabetes are diagnosed each year in the United States.

The  cause of Type II Diabetes is not precisely known.   What  is
known  is  that Type II Diabetes usually occurs during  or  after
middle  age, heredity plays a role, and energy-rich diets coupled
with sedentary lifestyles are involved.  These factors appear  to
combine  to  cause  insulin resistance, which  is  a  failure  of
insulin  to  act normally to reduce blood glucose levels.   As  a
consequence, even though insulin continues to be secreted by  the
pancreas,  sometimes in above-normal amounts,  blood  glucose  is
poorly   controlled.   Over  time,  the  resulting  episodes   of
hyperglycemia  are  thought  to cause widespread  tissue  damage,
including possible damage to insulin secretion mechanisms in  the
pancreas.  Current therapies for Type II diabetics include  rigid
dietary  control, often in conjunction with the  prescription  of
sulfonylurea  compounds or, in the late stages  of  the  disease,
daily  insulin injections.  Again, frequent monitoring of glucose
levels is required.

Other Potential Products

In  addition to the Noninvasive Glucose Sensor, Diasense believes
that  noninvasive sensors for monitoring the level of other blood
constituents are capable of development, utilizing certain of the
technologies and processes expected to be used in the Noninvasive
Glucose  Sensor.  These other blood constituents include alcohol,
cholesterol,  globulin,  albumin, urea, bilirubin,  triglycerides
and total protein.

Once  the development of the Noninvasive Glucose Sensor has  been
successfully  completed, as to which the Company can  provide  no
assurances,  the Company intends to consider the  development  of
noninvasive sensors for these other blood constituents  and  will
evaluate  at  that  time  the respective  marketability  of  such
sensors.  Such development would require the filing of additional
patent  applications,  and there can be  no  assurance  that  the
Company will succeed in developing any other noninvasive sensors.
BICO has a right of first refusal with respect to the development
of such other sensors and the exclusive right to manufacture such
sensors   if   development  is  completed   (See,   "Intercompany
Agreements").

Foreign Subsidiaries

In  connection  with  its office in London, Diasense  has  formed
Diasense   U.K.  Limited.   Operations  of  this  subsidiary   is
currently  limited to the employment of part-time consultants  to
take orders for the Diasensorr 1000.

Net Sales

The  Company is still in the research and development mode of its
product development; no sales have occurred since its inception.

Research and Development

The  Company  is continuing the research and development  of  the
Noninvasive  Glucose  Sensor.  The research  and  development  is
being  conducted  by BICO pursuant to a Research and  Development
Agreement (See, "Intercompany Agreements").

Product Development

The   Company  is  currently  developing  other  models  of   the
Noninvasive Glucose Sensor for more universal use.

Manufacturing

Production  and  inventory buildup of  the  Diasensorr  1000   is
expected to continue.  Manufacturing of the Diasensorr 1000   for
sale  in the U.S. will not begin without FDA approval.  BICO will
act  as Diasense's exclusive manufacturer of production units  of
the   Noninvasive   Glucose  Sensor  for  fifteen   years   (See,
"Manufacturing   Agreement").   Pursuant  to  the   Manufacturing
Agreement, BICO will manufacture units of the Noninvasive Glucose
Sensor  for  sale  to Diasense at its manufacturing  facility  in
Indiana,  PA,  although  BICO may use various  subcontractors  to
provide  certain  components.  The Companies  plan  to  have  the
optics,  software,  electronics and other  mechanical  components
supplied to BICO for assembly on a coordinated basis with  BICO's
production schedule.  After manufacturing is underway, BICO  does
not  expect to maintain significant inventories and, as a result,
backlogs may occur from time to time.

In  September  1992, BICO entered into a 10-year lease  with  the
Indiana  County Board of Commissioners for a 22,500  square  foot
facility  located in Indiana, PA, which will be used by BICO  for
the  assembly  of  production units of  the  Noninvasive  Glucose
Sensor.   During 1994, 1995 and 1996, BICO renovated the facility
and   ordered  the  required  capital  equipment  and   machinery
necessary   for  assembly  operations.   BICO  plans   to   spend
approximately  $5  million  on  such  renovations  and  equipment
purchases.  In addition, during 1995, BICO obtained an additional
45,500  square  feet  of  manufacturing  space,  which  is  being
completed   for  manufacturing.   In  1998,  BICO  vacated   this
additional  space  to  its  lessor in  return  for  the  lessor's
agreement  not to pursue legal action against BICO for nonpayment
of rent.

BICO has undertaken, pursuant to the Manufacturing Agreement,  to
comply  with  good  manufacturing practices and other  regulatory
standards and intends to establish a quality control and  quality
assurance  program  once  manufacturing  begins.   Although   the
Companies  plan  to work closely to coordinate the implementation
of  these undertakings, there can be no assurance that BICO  will
meet   Diasense's   requirements  for   quality,   quantity,   or
timeliness.

Marketing and Distribution

Although   Diasense's  officers  and  marketing  employees   have
experience in sales, marketing, and/or distribution, Diasense has
no direct prior or existing experience.  Diasense's officers have
such  experience,  but not specifically in the biomedical  device
industry (See, "Directors and Executive Officers").  Although the
Company   believes  that  a  successfully  developed  Noninvasive
Glucose  Sensor  will  attract a market, the Company  anticipates
that  substantial  marketing  efforts  and  the  expenditure   of
significant funds may be necessary to inform potential  customers
and  distributors of the distinctive characteristics and benefits
of  the  Company's  Noninvasive Glucose  Sensor.   The  Company's
success  will also depend to a significant extent on its  ability
to establish an effective internal marketing organization.

In  addition, the Company's operating results will depend largely
on its ability to establish successful arrangements with domestic
and  international distributors and marketing partners.  Diasense
also  contemplates  that  it will employ  a  direct  sales  force
focusing  directly on diabetics.  Although the  Company  believes
that a successfully developed Noninvasive Glucose Sensor will  be
a  profitable product for the Company, there can be no assurances
that  Diasense will be able to establish sufficient direct  sales
capabilities and distribution relationships or that  it  will  be
successful in gaining market acceptance and profitability through
sales of its products.

Patents, Trademarks and Licenses

Diasense  owns  a patent entitled "Non-Invasive Determination  of
Glucose Concentration in Body of Patients" (the "Patent")   which
covers  certain aspects of a process for measuring blood  glucose
levels noninvasively.  Such Patent was awarded to BICO's research
team  in  December 1991 and was sold to Diasense  pursuant  to  a
Purchase  Agreement  dated November 18, 1991 (See,  "Intercompany
Agreements").   The Patent will expire, if all  maintenance  fees
are  paid,  no  earlier than the year 2008.  If  marketing  of  a
product  made under the Patent is delayed by clinical testing  or
regulatory review, an extension of the term of the Patent may  be
obtained.  Diasense's Patent relates only to noninvasive  sensing
of  glucose  but not to other blood constituents.   Diasense  has
filed  corresponding patent applications in a number  of  foreign
countries.

A  second patent application was filed by BICO in December  1992,
which was assigned to Diasense.  This second patent contained new
claims   which   extend  the  coverage  based   upon   additional
discoveries  and  data  obtained since the  original  patent  was
filed.  The patent application was amended in October  1993,  and
was granted in January 1995.
In  May  1993, four additional patent applications were filed  by
BICO's  research  teams related to the methods,  measurement  and
noninvasive determination of analyte concentrations in blood.

As  of  November, 1998, a total of five patents have been issued,
all  of  which  have  been assigned to Diasense,  and  additional
patents  are  pending.    Corresponding patent applications  have
been  filed  in  foreign countries where the Company  anticipates
marketing the Noninvasive Glucose Sensor.

BICO's  research  team  continues to  file  patent  applications,
provisional  patent  applications,  some  of  which   are   being
converted  into "PCTs" (Patent Cooperative Treaty) which  reflect
the continued research and development and additional refinements
to the Noninvasive Glucose Sensor.

Diasense  or BICO may file applications in the United States  and
other  countries, as appropriate, for additional patents directed
to  other features of the Noninvasive Glucose Sensor and  related
processes.

Those  competitors  known by Diasense to be currently  developing
non-invasive  glucose  sensors own patents  directed  to  various
devices and processes related to  the non-invasive monitoring  of
concentrations  of glucose and other blood constituents.   It  is
possible  that  such patents may require Diasense  to  alter  any
model  of  the  Noninvasive  Glucose  Sensor  or  the  underlying
processes  relating to the Noninvasive Glucose Sensor, to  obtain
licenses, or to cease certain activities.

The  Company  also  relies upon trade secret protection  for  its
confidential and proprietary information.  Although Diasense  and
BICO  take  all  reasonable  steps to protect  such  information,
including  the  use  of  Confidentiality Agreements  and  similar
provisions,  there  can  be no assurance  that  others  will  not
independently   develop   substantially  equivalent   proprietary
information or techniques, otherwise gain access to the Company's
trade secrets, disclose such technology, or that the Company  can
meaningfully protect its trade secrets.

The  Company  has  filed for trademark protection  for  the  term
"Diasensorr  1000", which is intended for use in connection  with
the Diasensorr  models; such filing will remain pending until the
first  production unit is shipped.  The Company intends to apply,
at the appropriate time, for registrations of other trademarks as
to any future products of the Company.


Warranties and Product Liability

Because the Company has not yet begun its manufacture or sale  of
any  products,  it  has not extended any warranties  or  incurred
product liability risk.  BICO and Diasense currently have product
liability insurance.  Upon the initiation of manufacture or  sale
of  products,  the  Company  will attempt  to  obtain  additional
insurance to cover product liability risk, if necessary.

Source of Supply

Once  production of the Noninvasive Glucose Sensor begins,  BICO,
as  the  manufacturer (See, "Intercompany Agreements"),  will  be
dependent  upon suppliers for some of the components required  to
manufacture the Noninvasive Glucose Sensor.  Some components  may
not  be  generally available, in which case BICO and the  Company
may  become dependent upon those suppliers which do provide  such
specialized products.

Competition

With  the  rapid progress of medical technology, and in spite  of
continuing  research  and  development  programs,  the  Company's
developmental  products  are  always  subject  to  the  risk   of
obsolescence  through the introduction by others of new  products
or  techniques.   Management is aware that other research  groups
are  developing  noninvasive glucose  sensors,  but  has  limited
knowledge  as  to the technology used or stage of development  of
these  devices.   There is a risk that those  other  groups  will
complete  the  development of their devices  before  the  Company
does.  There is no other company currently producing or marketing
noninvasive sensors for the measurement of blood glucose  similar
to  those being developed by the Company.  Competitive success in
the    medical   device   field   is   dependent   upon   product
characteristics  including performance, reliability,  and  design
innovations.

The   Noninvasive  Glucose  Sensor  will  compete  with  existing
invasive glucose sensors.  Although the Company believes that the
features  of  the  Noninvasive Glucose Sensor,  particularly  its
convenience and the fact that no blood samples are required, will
compete  favorably with existing invasive glucose sensors,  there
can  be  no  assurance that the Noninvasive Glucose  Sensor  will
compete  successfully.  Most currently available invasive glucose
sensors yield accuracy levels of plus or minus 25% to 30%,  range
in  price  from  $80  to $200, not including  monthly  costs  for
disposable  supplies  and  accessories,  and  are  produced   and
marketed  by  eight  to ten sizable companies.   Those  companies
include    Miles   Laboratories,   Inc.,   Boehringer    Mannheim
Diagnostics, and Lifescan (an affiliate of Johnson & Johnson).

Such  companies have established marketing and sales forces,  and
represent established entities in the industry.  Certain  of  the
Company's competitors (including their corporate or joint venture
partners  or  affiliates)  currently marketing  invasive  glucose
sensors   have   substantially  greater   financial,   technical,
marketing  and  other resources and expertise than Diasense,  and
may have other competitive advantages over Diasense (based on any
one  or  more  competitive factors such as accuracy, convenience,
features,  price  or  brand loyalty).  Additionally,  competitors
marketing existing invasive glucose sensors may from time to time
improve  or  refine their products (or otherwise make  them  more
price   competitive)   so   as   to   enhance   their   marketing
competitiveness  relative  to the Company's  Noninvasive  Glucose
Sensor.  Accordingly, there can be no assurance that the product,
or  Diasense as marketer for the Noninvasive Glucose Sensor, will
be able to compete favorably with such competition.

In  addition  to  the invasive glucose sensors  discussed  above,
there  exist invasive sensors, such as the Yellow Springs  Sensor
(the  "Clinical  Sensors")  which the  Company  believes  achieve
accuracy levels within 30 minutes which are within plus or  minus
3%  of actual glucose levels.  The Company will also compete with
this  technology, which is relatively non-portable  and  bears  a
price   of  approximately  $8,000.   The  Clinical  Sensors   are
presently   used  almost  exclusively  by  hospitals  and   other
institutions,  and,  like  all invasive  sensors,  still  require
repeated blood samples.  It is anticipated that the Company  will
also face competition from the Clinical Sensors, at least in some
markets.   For example, certain institutions that might otherwise
purchase  Diasense's products may decide to continue to  use  the
Clinical Sensors, whether due to the superior accuracy levels  of
that  sensor  or institutional or historical bias,  despite  what
Diasense  believes  will  be the superior  convenience  and  cost
factors of the Noninvasive Glucose Sensor.

At  this time, the Company estimates that the anticipated selling
price  of  the  Diasensorr 1000 will range from $7950  to  $8500,
depending upon the country in which it is sold and other factors;
such  estimate is subject to change as the FDA process continues.
Such  price will be a factor in the Company's ability to  compete
with other available technology.

The  Company  faces more direct competition from other  companies
who  are currently researching and developing noninvasive glucose
sensors.  The Company has very limited knowledge as to the  stage
of  development of these sensors; however, should another company
successfully  develop a noninvasive glucose sensor,  achieve  FDA
approval,  and  reach the market prior to the Company,  it  would
have  an adverse effect upon the Company's ability to market  its
sensor.

The  companies which are currently engaged in the research and/or
development of noninvasive glucose sensors include the following:
Rio  Grande  Medical Technology ("Rio Grande"), which is  working
with  the University of New Mexico, CME Telemetrix, Inc. ("CME"),
Cygnus,  Inc. ("Cygnus"), Technical Chemicals and Products,  Inc.
("TCPI"); and SpectRX.  Although the Company is not aware,  there
may   be   other  companies  engaged  in  similar  research   and
development.   The named companies, and others,  may  be  further
along  in  their development than the Company is aware,  and  may
have  access to capital and other resources which would give them
a  competitive  advantage over the Company.  The following  is  a
summary   of  the  Company's  current  knowledge  regarding   the
companies listed.

Rio  Grande, formerly associated with Sandia, is affiliated  with
the   University  of  New  Mexico,  continues  to   develop   its
noninvasive  glucose  sensor based on infrared  spectroscopy  and
using  near-infrared light. To the best knowledge of the Company,
no  submission have been made to the FDA in connection with  this
device.    CME,  a Canadian company is developing a device  which
claims to measure glucose noninvasively  via a finger receptacle.
Testing  has  been conducted in Canada and the U.S.; however,  no
approval has been received to sell the device in Canada,  and  no
FDA  submission has been made to date. Cygnus has disclosed  that
it  is  developing  a "GlucoWatch", which it claims  periodically
directs  an  electrical current into the  diabetic  in  order  to
monitor  glucose  levels.  Cygnus,  has  not  yet  submitted  its
device  for  FDA  scrutiny and, to the  best  of  the  Companies'
knowledge,  must  complete additional clinical  trials  prior  to
applying for FDA approval to market the device.   Cygnus'  latest
reports  indicate  that  its  plans make  a  submission  for  FDA
approval have been further delayed.  TCPI recently announced that
it began clinical studies of its system to correlate interstitial
glucose  fluid  data  with various blood glucose;  although  TCPI
claims that its technology is noninvasive, it utilizes electronic
charges  to  penetrate  the skin and draw fluid  from  the  body.
SpectRX, which is funded by Abbott Laboratories, also uses lasers
to  penetrate the skin and measure interstitial fluids; like  the
TCPI  device, it claims to be noninvasive; however,  body  fluids
are drawn from the body via lasers.

Certain  organizations are also actively engaged  in  researching
and  developing  technologies  that  may  regulate  the  use   or
production  of insulin or otherwise affect or cure the underlying
causes  of  diabetes.   Diasense is  not  aware  of  any  new  or
anticipated   technology  that  would  effectively   render   the
Noninvasive  Glucose Sensor obsolete or otherwise not  marketable
as  currently  contemplated.  However, there can be no  assurance
that  future technological developments or products will not make
the Noninvasive Glucose Sensor significantly less competitive or,
in  the  case  of  the  discovery of a cure  for  diabetes,  even
effectively obsolete.

Government Regulations

Since  the  Company's  Noninvasive Glucose Sensor  product  is  a
"medical  device"  as  defined by  the  Federal  Food,  Drug  and
Cosmetic  Act,  as  amended (the "Act"), it  is  subject  to  the
regulatory authority of the FDA and will also be subject  to  the
authority  of  similar foreign regulatory agencies  in  countries
where  the Noninvasive Glucose Sensor may be marketed.   The  FDA
has promulgated regulations that apply to the testing, marketing,
registration  and  manufacture of medical devices  and  products.
The  FDA can subject the Company to inspections of its facilities
and  operations and may also audit its record keeping  procedures
at any time.
Moreover,  approvals  are subject to continual  review,  and  the
future  discovery of previously unknown problems  may  result  in
certain restrictions being applied to the use or marketing of the
Noninvasive  Glucose  Sensor or a complete  withdrawal  from  the
market.

Because  the Noninvasive Glucose Sensor is subject to  regulation
by  the FDA, the Company will be required to meet applicable  FDA
requirements prior to marketing the device in the United  States.
These  requirements  include  clinical  testing,  which  must  be
supervised  by  the IRBs of chosen hospitals.   Clinical  testing
began  on  the  Noninvasive  Glucose Sensor  in  May  1993  (See,
"Current  Status  of  the  Noninvasive  Glucose  Sensor").    The
clinical  trials have been conducted based on a determination  by
the  Company  and  the IRBs that the device is a "non-significant
risk"  device,  thus  obviating the need for  an  Investigational
Device Exemption ("IDE") filing with the FDA.  Should any of  the
IRBs  determine, and are successful in convincing the  FDA,  that
the  device is a "significant risk" device, the Company would  be
required  to submit an IDE filing to the FDA.  Such filing  would
result  in  material delays and expenses for the Company,  and  a
resulting significant delay in the completion, marketing and sale
of the Noninvasive Glucose Sensor.  To date, neither the IRBs nor
the  FDA  have informed the Company that they are of the  opinion
that the device is a "significant risk" device.

Diasense may conclude clinical testing on any device at any point
at  which  it  believes  additional data  is  not  necessary  for
inclusion  in  the  510(k) Notification.  Such notification  will
include a detailed description of the prototype and data produced
during  clinical trials.  The 510(k) Notification review  by  the
FDA  involves  a  substantial period of time,  and  requests  for
additional  information and clinical data will require additional
time.   Although  the  Company does not anticipate  extraordinary
problems,  there can be no assurance that the 510(k) Notification
will ultimately be approved, or when it will be approved.

The  510(k)  Notification filed by the Company for the Diasensorr
1000  indicated that the device is "substantially equivalent"  to
similar  existing devices, namely invasive glucose  sensors.   In
connection  with its review of the Company's 510(k) Notification,
the  FDA  will  determine  whether the device  is  "substantially
equivalent" to a similar existing device based upon the following
factors: (i) whether the device has the same "intended use" as an
the  existing  device; and (ii) whether the device has  the  same
technological characteristics as the existing device, unless  the
different  technological characteristics do not adversely  affect
its  safety and effectiveness.  Although the Company and the IRBs
believe  that  the  Noninvasive Glucose  Sensor  satisfies  those
requirements,  thus  qualifying for a 510(k) Notification,  there
can  be  no  assurance  that the FDA will  agree.   Although  its
correspondence with the Company appears to indicate that the  FDA
believes  that the 510(k) Notification is the appropriate  filing
for the Diasensorr 1000, should the FDA determine that the device
is  not  "substantially  equivalent" to an  existing  device,  or
refuse  to  approve the 510(k) Notification for any  reason,  the
Company  would be required to submit to the FDA's full pre-market
approval  process,  which would require additional  testing,  and
result  in significant delays and increased expenses.  The  FDA's
pre-market approval process is more extensive, time-consuming and
will result in increased research and development expenses, while
delaying  the time period in which BICO and Diasense could  begin
manufacturing and marketing the product.

The  time  elapsed between the completion of clinical testing  at
IRBs and the grant of marketing approval by the FDA is uncertain,
and  no  assurance  can  be given that  approval  to  market  the
Noninvasive  Glucose  Sensor  will ultimately  be  obtained.   In
addition,  delays  or  rejections may be encountered  based  upon
changes  in  the FDA's regulatory policies during the  period  of
research and development and the FDA's review.

The  Company  may  also  be  required to  comply  with  the  same
regulatory requirements prior to introducing the Diasensorr 2000,
or other models of the Noninvasive Glucose Sensor, to the market.
Any  changes  in  FDA  procedures or  requirements  will  require
corresponding changes in the Company's obligations  in  order  to
maintain compliance with FDA standards.  Such changes may  result
in additional delays or increased expenses.

The  FDA's  Good  Manufacturing  Practices  for  Medical  Devices
specifies various requirements for BICO's manufacturing processes
and maintenance of certain records.
Because  the  FDA  approval process has been subject  to  several
delays, the Companies have focused efforts on obtaining  approval
to  sell  its  device  in  Europe  (SEE,  "The  Company  and  its
Business").


Human Resources

Diasense   had   no  full-time  employees  until  January   1992.
Presently,  Diasense  has  two  full-time  employees.    Diasense
employs  consultants  in  its London office.   Diasense  believes
that,  if  and when FDA approval is obtained for the  Noninvasive
Glucose  Sensor, or manufacturing and marketing begins,  it  will
employ approximately 48 persons on a full-time or part-time basis
in  the United States, and approximately sixteen persons in  each
foreign  office.  Diasense's success will depend upon the efforts
of its key management personnel, the departure of any of whom may
adversely  affect  Diasense's business.  None  of  the  Company's
employees  are represented by a collective bargaining  unit,  and
Diasense  considers  its  relations  with  its  employees  to  be
excellent.


Financial  Information About Foreign and Domestic Operations  and
Export Sales

The  Company's  operations are located primarily  in  the  United
States of America.  In 1994, the Company incorporated a majority-
owned  foreign  subsidiary, Diasense U.K. Limited,  in  order  to
facilitate  the  opening  of  its  office  in  London,   England.
Although  the  Company is currently taking orders in  its  London
office, the Company has had no sales, foreign or domestic,  since
its inception.


Item 2. Properties

In  April  1992,  Diasense purchased an  office  condominium  for
$190,000.   The  office,  which consists  of  approximately  4600
square feet, is located at 2275 Swallow Hill Road, Building 2500,
2nd  Floor,  Pittsburgh,  PA  15220.   Diasense's  administrative
offices are located in such office, and BICO leases a portion  of
the office at a monthly rental amount of $3,544 plus one-half  of
the   utilities   (See,   "Certain  Relationships   and   Related
Transactions").  In December 1998, the Company entered into an
agreement to sell its office condiminium for $175,000 and lease it
back at a monthly rental of $5,750 per month for a five year term.

As  of  November 1998, Diasense has an office in London,  England
for the purpose of taking orders for the Diasensorr 1000.

The  Company  believes  that  its  existing  facilities  will  be
sufficient  to  meet its needs through Fiscal 1999.   Should  the
Company require additional space, the Company believes such space
will be available at reasonable commercial rates.

Item 3. Legal Proceedings

In April 1996, the Pennsylvania Securities Commission commenced a
private  investigation into Diasense's sales of its common  stock
pursuant to its public offering in an effort to determine whether
any  sales  were made improperly to Pennsylvania residents.   The
Company  has  been  cooperating fully  with  the  state  and  has
provided  all of the information requested.  As of  the  date  of
this  filing, no determinations had been made, and no orders have
been issued.

In  May  1996, the Company, along with BICO and BICO's individual
directors,  including David Purdy and Fred Cooper, who  are  also
officers  and  directors of Diasense, was served with  a  federal
class  action  lawsuit  based on alleged  misrepresentations  and
violations of federal securities laws.  The action is pending  in
federal  district court for the Western District of Pennsylvania,
and remains in the pre-trial pleadings stage with the consent  of
all  parties.   No  determinations as to  possible  liability  or
exposure are possible at this time, although the Company does not
believe that any violations of the securities laws have occurred.

In April, 1998, the Company was served with a subpoena requesting
documents  in  connection  with  an  investigation  by  the  U.S.
Attorneys' office for the Western District of Pennsylvania.   The
Company   has   submitted  various  scientific,   financial   and
contractual documents in response to such requests.

Item 4. Submission of Matters to a Vote of Security Holders

        Not applicable.


                             PART II

Item  5.  Market  for  Registrant's  Common  Equity  and  Related
Stockholder Matters

Diasense was incorporated in the Commonwealth of Pennsylvania  on
July  5,  1989.   Diasense has the authority to issue  40,000,000
shares  of  common  stock at a par value of $.01,  and  1,000,000
shares  of  preferred stock.  As of November 30, 1998, 22,980,051
shares  of common stock were outstanding.  No shares of Preferred
Stock  are  outstanding.  As of November  30,  1998,  there  were
currently  exercisable warrants outstanding to purchase 6,676,513
shares of the common stock of Diasense at exercise prices ranging
from  $.50  to  $3.50  per  share.   The  warrants  have  various
expiration dates through November 1, 2003.

As  of  November  30,  1998, the Company  had  approximately  610
holders  of record for its common stock and no holders of  record
for its preferred stock.

Diasense is not currently listed on any stock exchange or market.
The  Company  currently  acts as its own registrar  and  transfer
agent for its common stock and its warrants.  Currently, there is
no  established  public trading market for the  Company's  common
stock.

Common Stock

The holders of common stock are entitled to one vote per share on
all  matters  to be voted on by shareholders and are entitled  to
cumulative  voting  rights  in the  election  of  directors.   In
cumulative  voting, the holders of common stock are  entitled  to
cast,  for  each  share held, the number of votes  equal  to  the
number of directors to be elected.  A holder may cast all of  his
or  her votes for one nominee or distribute them among any number
of nominees for election.  Subject to any preferences that may be
granted to any holders of preferred stock, the holders of  common
stock are entitled to receive, on a pro rata basis, dividends out
of funds legally available for distribution, when and if declared
by  the Board of Directors, and to share ratably in the assets of
Diasense  legally available for distribution to its  shareholders
in  the  event  of  liquidation,  dissolution  or  winding-up  of
Diasense.   The  holders  of  common stock  have  no  preemptive,
redemption  or  conversion rights.  The shares  of  common  stock
currently outstanding are fully paid and nonassessable.

Preferred Stock

The Company's Articles of Incorporation permit the issuance of up
to  1,000,000 shares of preferred stock.  No shares of  preferred
stock  are  currently  issued or outstanding.   Diasense  has  no
present intention to issue any such shares, although there can be
no  assurance  that preferred stock will not  be  issued  in  the
future.

Dividends

The  Company has not paid cash dividends on its common  stock  or
preferred  stock since its inception and cash dividends  are  not
presently  contemplated  at any time in the  foreseeable  future.
The  Company  anticipates that any excess  funds  generated  from
operations  in  the foreseeable future will be used  for  working
capital  and to continue to fund the research and development  of
the Noninvasive Glucose Sensor.  In accordance with the Company's
Articles  of  Incorporation, cash dividends are  also  restricted
under certain circumstances.

Warrants

As  of November 30, 1998 there were outstanding warrants, all  of
which are currently exercisable, to purchase 6,676,513 shares  of
common  stock at exercise prices ranging from $0.50 to $3.50  per
share and having expiration dates ranging from April 24, 1999  to
November  1, 2003.  During Fiscal 1998, no warrants were granted.
The warrants were issued to directors, officers and employees  of
Diasense  and  to  certain other persons for  certain  goods  and
services transferred or rendered to Diasense and, in the case  of
certain  officers, in consideration of meritorious service.   The
number  of  shares of common stock issuable upon the exercise  of
the warrants and the exercise prices relating thereto are subject
to  adjustment  upon the occurrence of certain events,  including
stock  dividends,  stock  splits,  mergers,  consolidations   and
reorganizations.   The warrants may not be redeemed  by  Diasense
prior to the expiration thereof.

Employment Agreement Provisions Related to Changes in Control

Diasense has entered into agreements (the "Agreements") with Fred
E.  Cooper  and  David L. Purdy  pursuant to which  they  receive
annual   salaries  of  $100,000,  and  $50,000   from   Diasense,
respectively,  all of which are subject to review and  adjustment
annually.  As of the end of Fiscal 1998, such annual salaries had
been  increased to $247,000 and $100,000 respectively,  although,
due  to  the Company's cash flow problems, full payment  was  not
made.    The  initial  term  of  Messrs.  Cooper's  and   Purdy's
Agreements  expire  on  October  31,  1999,  but  the  Agreements
continue thereafter for additional three-year periods unless  any
party  gives  proper notice of non-renewal.  The Agreements  also
provide  that in the event of a "change of control" of  Diasense,
Diasense is required to issue to Mr. Cooper and Mr. Purdy  shares
of  common  stock  equal to five percent (5%) of the  outstanding
shares  of  common  stock of the Company  immediately  after  the
change  in control.  In general, a "change of control" is  deemed
to  occur for purposes of the Agreements: (i) when 20% or more of
Diasense's  outstanding voting stock is acquired by  any  person,
(ii) when one-third (1/3) or more of Diasense's directors are not
Continuing  Directors  (as defined in the Agreements),  or  (iii)
when  a controlling influence over the management or policies  of
Diasense  is  exercised by any person or by persons acting  as  a
group  within  the  meaning of Section 13(d)  of  the  Securities
Exchange  Act  of  1934,  as amended (the "Exchange  Act")  (See,
"Employment Agreements").

Item 6. Selected Financial Data

The  selected  financial data presented herein has  been  derived
from  the  Company's  audited consolidated financial  statements.
These  financial statements have been audited by Thompson  Dugan,
P.C. for the twelve-month periods ended September 30, 1998, 1997,
1996,  1995  and  1994,  the reports of  each  of  which  include
explanatory paragraphs as to "going concern" considerations.  The
selected  financial  data  should be  read  in  conjunction  with
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION  AND
RESULTS  OF  OPERATIONS"  and  the financial  statements  of  the
Company  and  related notes thereto included  elsewhere  in  this
report.



                       12 mos.    12 mos.     12 mos.      12 mos.     12 mos.
                       Ended      Ended       Ended        Ended       Ended
                       9/30       9/30        9/30         9/30        9/30
                       1998       1997        1996         1995        1994
 R&D            $     -0-    $    -0-     $    -0-     $ 3,487,882  $ 2,807,508
 Expenses

 General &
 Administrative
 Expenses       $   669,764  $ 1,023,961  $ 1,509,298  $ 2,323,279  $ 2,388,854

 Warrant
 Extensions     $    25,000  $ 5,593,875  $ 7,644,033  $ 4,650,000  $    -0-

 Net Loss      ($ 2,914,329) $(6,564,837)($ 9,021,823)($10,361,514)($ 5,145,081)

 Total Assets   $   292,322  $ 3,108,243  $ 4,171,910  $ 5,407,401  $   694,712

 Total
 Liabilities    $    92,327  $    22,419  $    20,624  $ 1,323,980  $ 7,172,585

 Working Capital
 (Deficit)     ($    44,724) $ 2,862,349  $ 3,914,198  $ 3,839,965 ($ 6,707,855)

 Accumulated   ($44,875,100)($41,960,771)($35,395,934)($26,374,111)($16,012,597)
 Deficit

 Net Loss
 Per Common       ($ .13)      ($ .29)      ($ .39)      ($ .54)      ($ .29)
 Share

 Cash Dividends
 Per Share:     $    -0-     $    -0-     $    -0-     $    -0-     $    -0-
 Common


Item   7.  Management's  Discussion  and  Analysis  of  Financial
           Condition and Results of Operations.

Diasense  operates  on  a  fiscal  year  ended  September   30th.
Therefore,  years are referred to as Fiscal years;  for  example,
the  year  from  October 1, 1997 through September  30,  1998  is
referred to as Fiscal 1998.

Forward-Looking Statements

In  addition  to  Part  I  of this Form  10-K,  the  Management's
Discussion and Analysis section also contains the type of forward-
looking  statements discussed on page 2 herein.  Please refer  to
such  discussion  in  connection with the  information  presented
here.

Liquidity and Capital Resources

Diasense's  cash  balance at September  30,1998  was  $41,811,  a
decrease from the balance at September 30, 1997 of $1,181,070 and
at  September  30,  1996  of $1,143,312.  The  decrease  occurred
because  the  Company  did  not raise additional  capital  during
Fiscal  1998,  and continues in a research and development  mode,
with  no  income  generated from operations.  Also $1,197,433
net advances to BICO in 1998.  As  a  result,  the Company
experienced significant cash flow problems during  Fiscal
1998.   The prior years' fluctuations in Diasense's cash balances
were  primarily  attributable  to several  placements  of  common
stock,  which  generated   $5,701,492;  and  $1,365,155  in   net
proceeds  for  the  Company in  Fiscal  1995,  and  Fiscal  1996;
respectively.   No  warrants  to  purchase  common   stock   were
exercised during Fiscal 1996, 1997 or 1998.

Diasense  had negative working capital of ($44,724) at  September
30,  1998,  as compared to positive working capital of $2,862,349
at  September  30,  1997, and $3,914,198 at September  30,  1996.
This fluctuation in working capital was primarily attributable to
funds  raised from sales of its stock, with no sales of stock  or
other  capital-raising activities during Fiscal 1998, and from  a
decrease  in  accrued amounts due to BICO under the Research  and
Development   Agreement,  which  resulted  when   BICO   accepted
3,000,000 shares of Diasense common stock at an assigned value of
$3.50 per share in exchange for $10,500,000 in amounts due during
Fiscal 1995.

In  July  1995,  BICO  and Diasense agreed to  suspend  billings,
accruals  and payments due pursuant to the R&D Agreement  pending
the  FDA's  review  of  the Diasensorr   1000.    The  suspension
continued during Fiscal 1998; no amounts are due or being accrued
pursuant to the R&D Agreement.

During  Fiscal  1998,  the Company made allowances  for  doubtful
accounts, including amounts owed to the Company from BICO.  These
allowances  were  recorded  based  upon  the  current   financial
position of BICO.

Diasense   has   entered   into   employment   agreements    (the
"Agreements")  with Fred E. Cooper and David L.  Purdy  effective
November  1,  1994,  pursuant to which they will  receive  annual
salaries of $100,000 and $50,000, respectively, which are subject
to review and adjustment annually.  As of the end of Fiscal 1998,
such annual salaries had been increased to $247,000 and $100,000,
respectively, although, due to the Company's cash flow  problems,
such  amounts  were not paid during Fiscal 1998 (See,  "Executive
Compensation").   The initial term of the Agreements  expires  on
October  31,  1999,  and the Agreements are  subject  to  review,
adjustment  and renewal.  In the event of a change in control  of
the  Company,  as defined in the Agreements, and  termination  of
employment, continuation of salaries at 100%, which decreases  to
25%  over time, are payable in addition to the issuance of  stock
as  set forth in the Agreements.  The Agreements also provide for
severance  and  disability benefits under  certain  circumstances
(See,"    DIRECTORS   AND   EXECUTIVE   OFFICERS   -   Employment
Agreements").  As of September 30, 1998, Mr. Cooper and Mr. Purdy
had voluntarily deferred payment of $24,625 and $20,833, respectively,
of their wages which had been earned.


Based  on Diasense's available cash, the ability of Diasense  and
its affiliates to raise capital, its rate of monthly expenditures
and  the  deferrals  agreed upon by Diasense and  BICO,  Diasense
believes  that it will be able to continue its current activities
for a limited time.  If Diasense is not able to obtain additional
financing  or  if  such  additional  financing  is  insufficient,
Diasense will be required to cease operations and the development
of the Noninvasive Glucose Sensor altogether.

Accordingly,   Diasense  may  be  required  to  seek  substantial
additional   financing  from  third  parties  to   complete   the
development  of  the Noninvasive Glucose Sensor,  to  obtain  FDA
approval to market the Noninvasive Glucose Sensor and to  provide
for  its  general working capital requirements during  that  time
period.  There can be no assurance that such additional financing
will  be  available or available on terms acceptable to Diasense.
Moreover,  certain  demands on liquidity, such as  technological,
regulatory or legal problems, could cause Diasense's liquidity to
be  further  burdened.   Diasense does  not  currently  have  any
additional  sources  of liquidity or working  capital,  including
bank  lines of credit, etc.  Long-term working capital needs  are
expected  to  be  met  through sales of the  Noninvasive  Glucose
Sensor,  although no assurance can be made that  the  Noninvasive
Glucose  Sensor  will  be  successfully developed,  manufactured,
marketed or commercially viable.

Results of Operations

During  Fiscal  1998,  1997 and 1996,  research  and  development
expenses were $0 as compared to  $3,487,882 in Fiscal 1995.  This
decrease  was  due to the agreed-upon suspension of  billings  by
Diasense  and BICO pursuant to the R&D Agreement (See, "Liquidity
and Capital Resources").

General  and  administrative expenses aggregated $669,764  during
Fiscal  1998, as compared to $1,023,961 during Fiscal  1997,  and
$1,509,298  during Fiscal 1996.  This decrease was due  primarily
to  the suspension of billings pursuant to the R&D Agreement, and
the  reduction  in  personnel  due to  the  Company's  cash  flow
problems.

Other  income aggregated $62,914 in Fiscal 1998, as  compared  to
$52,999  in  Fiscal  1997, and $133,083 in  Fiscal  1996.   Other
income  is comprised of interest income and rental income; rental
income averages approximately $42,000 per year (all of which  was
paid  by  BICO to Diasense), and the balance of other  income  is
from interest earned on deposits of liquid assets.

During  Fiscal 1998, 1997, and 1996, the Company extended 10,000;
2,236,550;  and   2,556,213  warrants, respectively,  which  were
originally granted to certain officers, directors, employees  and
consultants  in  1990  through 1992,  until  1998  through  2000,
respectively.  Because the exercise price of such warrants ($1.00
or  $.50 per share) was lower than the market price of the common
stock at the time of the extensions (which is assumed to be $3.50
per  share, although there is currently no public trading  market
for  the  common  stock), $25,000 was charged  to  operations  in
Fiscal 1998; $5,593,875 was charged to operations in Fiscal 1997,
and $7,644,033 was charged to operations in Fiscal 1996.

During Fiscal 1998, the Company charged $2,282,479 to a provision
for doubtful accounts, reflecting amounts due to the Company from
BICO, due to BICO's current financial position.

Income Taxes

As   of   September  30,  1998,  the  Company  had  approximately
$24,700,000  in  net operating losses available for  federal  tax
purposes.  Subject to certain limitations, these losses  will  be
available  as  carry  forwards to offset  future  taxable  income
through  the  years  2005-2012.  The  Company  also  has  federal
research  and  development  credit carry  forwards  available  to
offset federal income taxes of approximately $700,000, subject to
limitations and expiring in the years 2005 through 2012.

Supplemental Financial Information (unaudited)

In December 1998, the Company entered into an agreement to sell
its office condominium for $175,000 and lease it back at a
monthly rental of $5,750 per month for a five year term.

Item 8.  Financial Statements and Supplementary Data.

The Company's consolidated financial statements appear on pages F-1
through F-21 of this report.

Item  9.  Changes  in  and  Disagreements  with  Accountants   on
Accounting and Financial Disclosure

None.

                            PART III

Item 10. Directors and Executive Officers

The  directors  and  executive officers of  the  Company  are  as
follows:

             Name              Age    Director    Positions  Held
                                      Since

        David L. Purdy         70      1989      Chairman of the Board,
                                                 Chief Scientist
        Fred E. Cooper         53      1989      President,
                                                 CEO, Director
        Anthony J. Feola       51      1991      Director


DAVID  L.  PURDY,  70,  is the Chairman of the  Board  and  Chief
Scientist  of  the Company.  Mr. Purdy has been a director  since
the  Company's  inception and became Chairman  of  the  Board  in
October  1992.   Mr. Purdy acted as the Company's Treasurer  from
its  inception  until  October 1992, when  he  became  its  Chief
Scientist.   Mr.  Purdy  has  been  employed  primarily  as   the
President  of  BICO  from  1972 to the  present.   Mr.  Purdy  is
currently the President, Chairman of the Board and a director  of
BICO.  Mr. Purdy currently devotes approximately 40% of his  time
to Diasense, and 60% of his time to BICO and its subsidiaries.

FRED E. COOPER, 53, has been the President and a director of  the
Company  since its inception.  Prior to joining the Company,  Mr.
Cooper   co-founded  Equitable  Financial  Management,  Inc.   of
Pittsburgh,  PA, a company in which he served as  Executive  Vice
President  until his resignation and divestiture of ownership  in
August  1990.   Mr. Cooper is the Chief Executive Officer  and  a
director of BICO.  Mr. Cooper currently devotes approximately 40%
of his time to Diasense and 60% to BICO and its subsidiaries.

ANTHONY  J.  FEOLA, 51, has been a director of the Company  since
February  1991.  In addition, Mr. Feola served as  the  Company's
Chief  Operating Officer until April 1994, when he rejoined  BICO
as  its  Senior Vice President.  At that time, BICO  assumed  Mr.
Feola's employment contract with Diasense.  Mr. Feola also served
as  the  Company's  Vice President of Marketing  and  Sales  from
December 1991 until October 1992.  Until January 1, 1992, he  was
BICO's  Vice President of Marketing and Sales.  Prior to  joining
BICO  in  November, 1989, Mr. Feola was Vice President and  Chief
Operating Officer with Gateway Broadcasting in Pittsburgh, PA and
a  National Sales Manager for Westinghouse Corporation,  also  in
Pittsburgh, PA.  He also serves as a director of BICO.


Pursuant  to  the  requirements of Item  405  of  Regulation  S-K
regarding  timely  filings  required  by  Section  16(a)  of  the
Securities   and   Exchange  Act,  the  Company  represents   the
following.   Based  solely  on its  review  of  copies  of  forms
received  and  written  representations  from  certain  reporting
persons,   the  Company  believes  that  all  of  its   officers,
directors,  and  greater  than  ten  percent  beneficial   owners
complied with applicable filing requirements.




Item 11. Executive Compensation

The  following table sets forth information concerning the annual
and  long-term compensation for services in all capacities to the
Company  for the Fiscal Years ended September 30, 1998, 1997  and
1996   of those persons who were, at September 30, 1998: (i)  the
Chief   Executive  Officer,  and  (ii)  the  other  most   highly
compensated  executive officers of the Company whose remuneration
exceeded $100,000 (the "Named Executives").


<TABLE>
             SUMMARY COMPENSATION TABLE

                 Annual Compensation                          Long-Term              All Other
                                                              Compension (1)         Compensation
                                                                                     ($)     (2)
<S>              <C>   <C>          <C>         <C>           <C>                    <C>
-----------------------------------------------------------------------------------------------
Name and         Year  Salary ($)   Bonus ($)   (2)Other ($)   Awards
Principal                                                      Warrants
Position                                                       (number of
                                                               shares) (#)
-----------------------------------------------------------------------------------------------
Fred E.          1998  $ 173,875    $ 0         $ 0            0                       $ 0
Cooper,          1997  $ 150,000    $ 0         $ 0            363,500(3)              $ 0
CEO (4)          1996  $ 150,000    $ 0         $ 0            478,545(3)              $ 0
-----------------------------------------------------------------------------------------------
David L.         1998  $  91,667    $ 0         $ 0            0                       $ 0
Purdy            1997  $  87,500    $ 0         $ 0            0                       $ 0
Chief Scientist  1996  $ 100,000    $ 0         $ 0            600,000(3)              $ 0
(5)
-----------------------------------------------------------------------------------------------
</TABLE>


(1)  The  Company  does not currently have a Long-Term  Incentive
     Plan  ("LTIP"),  and no payouts were made  pursuant  to  any
     LTIP  during the years 1998, 1997 or 1996.  Except as  noted
     in  Note  (3)  below,  the  Named  Executives  were  awarded
     warrants  to purchase the number of shares of the  Company's
     common  stock set forth in the table above in  each  of  the
     years   noted  (See,  "Certain  Relationships  and   Related
     Transactions").  The Company has no retirement,  pension  or
     profit-sharing  programs for the benefit of  its  directors,
     officers or other employees.

(2)  During  the years ended September 30, 1998, 1997  and  1996,
     the  Named  Executives received medical benefits  under  the
     Company's group insurance policy.

(3)  During  Fiscal  1996 and Fiscal 1997, the  Company  extended
     warrants  previously  issued to the Named  Executives  which
     would have otherwise expired.  Although the extensions  were
     in  connection  with  warrants already  held  by  the  Named
     Executives, they are shown in the table set forth  above  as
     "awards"  for  executive  compensation  disclosure  purposes
     because at the time of the extension, the exercise price  of
     the  warrants (which remained unchanged) was less  than  the
     "market price" of the common stock, which is assumed  to  be
     $3.50  per  share,  although there is  currently  no  public
     trading market for the common stock.

(4)  Due  to the Company's cash flow problems, Mr. Cooper's  full
     salary  was not paid during Fiscal 1998. Mr. Cooper will  be
     paid  salary and bonuses aggregating approximately $371,052,
     $442,000,  and $426,000   by BICO and its other subsidiaries
     during calendar years 1998, 1997 and  1996, respectively.

(5)  Due  to  the Company's cash flow problems, Mr. Purdy's  full
     salary  was  not  paid  during Fiscal 1998.   During  Fiscal
     1997,  Mr.  Purdy  waived part of his $100,000  salary,  and
     voluntarily decreased his annual salary in BICO.  Mr.  Purdy
     will  be  paid  salary and bonuses aggregating approximately
     $83,470,  $154,000,  and $300,000 by  BICO  during  calendar
     years 1998, 1997, and 1996, respectively.

          Option/Warrant/SAR Grants in Last Fiscal Year

No  options,  warrants or SARs were granted or  extended  to  the
 Named Executives during Fiscal 1998.

    AGGREGATED OPTION/WARRANT/SAR EXERCISES IN LAST FISCAL YEAR
       AND FISCAL YEAR-END OPTION/WARRANT/SAR VALUE TABLE

                                            Number of
                                            Securities         Value of
                                            Underlying         Unexercised
                                            Unexercised        In-the-Money
               Shares                       Options/SARs       Options/SARs
               Acquired on                  at FY-End (#)      at FY-End ($)
               Exercise     Value           Exercisable/       Exercisable/
    Name       (#)(1)(2)    Realized($)(3)  Unexercisable(4)   Unexercisable(5)

 Fred E. Cooper   -0-           -0-           1,180,045(6)         $3,358,385

 David L.
 Purdy            -0-           -0-             950,000(7)         $2,850,000
 _________________

(1)  This  figure represents the number of shares of common stock
     acquired  by  each  Named Executive  upon  the  exercise  of
     warrants.

(2)  During the fiscal year ended September 30, 1998, neither  of
     the  Named  Executives  exercised any warrants  to  purchase
     common stock.

(3)  The  value  realized  of the  warrants  exercised  would  be
     computed by determining the spread between the market  value
     of  the underlying securities at the time of exercise  minus
     the  exercise price of the option or warrant.  For  purposes
     of  this  calculation, the "market price" was determined  to
     be  $3.50  per  share, the price per share in the  Company's
     previous  public  offering, although there is  currently  no
     market for the Company's common stock.

(4)  All  warrants  held  by the Named Executives  are  currently
     exercisable.

(5)  The   value   of  unexercised  warrants  was   computed   by
     subtracting  the exercise price of the outstanding  warrants
     from  $3.50 per share, the price per share in the  Company's
     current  public  offering, although there  is  currently  no
     market for the Company's common stock.

(6)  Includes  warrants  to purchase: 238,000  shares  of  common
     stock  at  $.50  per  share until April 24,  1995  (extended
     until  April  24, 1999); 100,000 shares of common  stock  at
     $.50 per share until June 29, 1995 (extended until June  29,
     1999);  300,000  shares of common stock at  $.50  per  share
     until  March  25,  1996  (extended until  March  25,  1999);
     178,545  shares of common stock at $.50 until  May  7,  1996
     (extended  until  May  7, 1999); 150,000  shares  of  common
     stock  at  $1.00 per share until October 25, 1996  (extended
     until  October 25, 1999); and 213,500 shares of common stock
     at  $1.00  per share until January 27, 1997 (extended  until
     January 27, 2000).

(7)  Includes  warrants  to purchase: 250,000  shares  of  common
     stock  at  $.50  per  share until April 24,  1995  (extended
     until  April  24, 1999); 100,000 shares of common  stock  at
     $.50 per share until June 29, 1995 (extended until June  29,
     1999);  300,000  shares of common stock at  $.50  per  share
     until  March 25, 1996 (extended until March 25,  1999);  and
     300,000  shares of common stock at $.50 per share until  May
     7, 1996 (extended until May 7, 1999).

Employment Agreements

Diasense   has   entered   into   employment   agreements    (the
"Agreements")  with Fred E. Cooper and David L.  Purdy  effective
November  1,  1994,  pursuant to which they will  receive  annual
salaries of $100,000 and $50,000 respectively, which are  subject
to review and adjustment annually.  As of the end of Fiscal 1998,
such  annual  salaries  had  been  increased  to  $247,000,   and
$100,000, respectively, although, due to the Company's cash  flow
problems,  full  payment was not made during  Fiscal  1998.   The
initial  term of the Agreements expires on October 31, 1999,  but
continue thereafter for additional three-year terms unless any of
the  parties  give proper notice of non-renewal.  The  Agreements
also  provide  that  in  the event of a "change  of  control"  of
Diasense,  Diasense  is required to issue to Messrs.  Cooper  and
Purdy  shares of common stock equal to five percent (5%)  of  the
outstanding shares of the common stock of the Company immediately
after  the change in control.  In general, a "change of  control"
is deemed to occur for purposes of the Agreements (i) when 20% or
more  of Diasense's outstanding voting stock is acquired  by  any
person, (ii) when one-third (1/3) or more of Diasense's directors
are  not  Continuing Directors (as defined in the Agreement),  or
(iii)  when  a  controlling  influence  over  the  management  or
policies  of  Diasense is exercised by any person or  by  persons
acting  as  a  group within the meaning of Section 13(d)  of  the
Securities Exchange Act of 1934, as amended (the "Exchange Act").

In  addition, in the event of a change in control within the term
of  the Agreements or within one year thereafter, Messrs. Cooper,
and  Purdy  are entitled to receive severance payments in amounts
equal  to: 100% of their most recent annual salary for the  first
three  years  following termination; 50%  of  their  most  recent
annual  salary  for  the next two years; and 25%  of  their  most
recent salary for the next five years.  Diasense is also required
to  continue  medical insurance coverage for Messrs.  Cooper  and
Purdy   and  their families during such periods.  Such  severance
payments will terminate in the event of the employee's death.

In  the  event  that  either  Mr. Cooper  or  Mr.  Purdy  becomes
disabled, as defined in the Agreements, they will be entitled  to
the  following payments, in lieu of salary, such payments  to  be
reduced  by  any  amount  paid directly to  them  pursuant  to  a
disability  insurance  policy provided  by  the  Company  or  its
affiliates: 100% of their most recent annual salary for the first
three years; and 70% of their most recent salary for the next two
years.

The  Agreements also generally restrict the disclosure of certain
confidential  information obtained by Messrs. Cooper  and   Purdy
during  the  term  of  the  Agreements and  restricts  them  from
competing  with  Diasense for a period of one year  in  specified
states following the expiration or termination of the Agreements.
Item  12.  Security  Ownership of Certain Beneficial  Owners  and
Management

                                                                  Percent of
                     Amount & Nature               Ownership with Class with
Name and Address     of Beneficial     Percent of  Warrants and   Warrants and
of Beneficial Owner  Ownership(1)      Class (2)     Options(3)   Options (4)

Biocontrol             11,975,000         52.1%      11,975,000       52.1%
Technology, Inc.
300 Indian Springs Rd.
Indiana, PA  15701

David  L.  Purdy (5)       32,000            *          982,000(6)     4.1%
300 Indian Springs Road
Indiana, PA 15701

Fred  E.  Cooper           22,000            *        1,202,045(7)     5.0%
Building 2500, 2nd Floor
2275 Swallow Hill Rd.
Pittsburgh, PA 15220

Anthony J. Feola           20,000            *          820,000(8)     3.4%
Building 2500, 2nd Floor
2275 Swallow Hill Rd.
Pittsburgh, PA 15220

All directors and          74,000            *        3,004,045(9)    11.5%
executive officers
as a group (4 persons)

* Less than one percent
________________________


(1)  Excludes  currently  exercisable warrants  and  options  set
     forth  in  the  third column and detailed in  the  footnotes
     below.

(2)  Represents  current common stock owned by  each  person,  as
     set   forth   in  the  first  column,  excluding   currently
     exercisable  warrants and options, as a  percentage  of  the
     total  number  of shares of common stock outstanding  as  of
     September 30, 1998, which was 22,980,051.

(3)  Includes ownership of all shares of common stock which  each
     named person or group has the right to acquire, through  the
     exercise  of  warrants or options, within sixty  (60)  days,
     together with the common stock currently owned.

(4)  Represents total number of shares of common stock  owned  by
     each  person, as set forth in the third column,  which  each
     named person or group has the right to acquire, through  the
     exercise  of  warrants or options within  sixty  (60)  days,
     together  with common stock currently owned, as a percentage
     of  the  total number of shares of common stock  outstanding
     as  of  September  30,  1998.   For  individual  computation
     purposes,  the  total  number  of  shares  of  common  stock
     outstanding  as of September 30, 1998 has been increased  by
     the  number  of additional shares which would be outstanding
     if  the person or group owned the number of shares set forth
     in the third column.

(5)  Does  not  include shares held solely by Mr. Purdy's  spouse
     or   adult   child.   Mr.  Purdy  disclaims  any  beneficial
     interest to shares held by members of his family.

(6)  Includes  currently  exercisable warrants  to  purchase  the
     following: 250,000 shares of common stock at $.50 per  share
     until  April  24,  1995  (extended until  April  24,  1999);
     300,000  shares  of  common stock at $.50  per  share  until
     March  25,  1996(extended until March  25,  1999);   100,000
     shares  of  common stock at $.50 per share  until  June  29,
     1995  (extended until June 29, 1999); and 300,000 shares  of
     common  stock at $.50 per share until May 7, 1996  (extended
     until May 7, 1999).

(7)  Includes  currently  exercisable warrants  to  purchase  the
     following:   238,000  shares of common  stock  at  $.50  per
     share  until April 24, 1995 (extended until April 24, 1999);
     100,000 shares of common stock at $.50 per share until  June
     29,  1995 (extended until June 29, 1999); 300,000 shares  of
     common  stock  at  $.50  per  share  until  March  25,  1996
     (extended  until March 25, 1999); 178,545 shares  of  common
     stock  at  $.50  until May 7, 1996 (extended  until  May  7,
     1999);  150,000  shares of common stock at $1.00  per  share
     until  October 25, 1996 (extended until October  25,  1999);
     and  213,500 shares of common stock at $1.00 per share until
     January 27, 1997 (extended until January 27, 2000).

(8)  Includes  currently  exercisable warrants  to  purchase  the
     following:   100,000  shares of common  stock  at  $.50  per
     share  until April 24, 1995 (extended until April 24, 1999);
     100,000  shares  of  common stock at $.50  per  share  until
     October  23, 1995 (extended until October 23, 2000); 300,000
     shares  of  common stock at $.50 per share until  March  25,
     1996 (extended until March 25, 1999); and 300,000 shares  of
     common  stock at $.50 per share until May 7, 1996  (extended
     until May 7, 1999).

(9)  Includes  shares of common stock, including stock  currently
     owned,  available  under currently exercisable  warrants  as
     set forth above.

Item 13. Certain Relationships and Related Transactions

Diasense  and  BICO (the "Companies") share common  officers  and
directors.  In addition, the Companies have entered into  several
intercompany  agreements which are summarized below.   Management
believes  that it was in the best interest of Diasense  to  enter
into  such  agreements and that the transactions  were  based  on
terms  as  fair  as  those  which  may  have  been  available  in
comparable   transactions  with  third  parties.    However,   no
unaffiliated third party was retained to independently  determine
the   fairness  of  such  transactions.   The  Company's   policy
concerning related party transactions requires the approval of  a
majority of the disinterested directors.

Employment Relationships

The  Board  of  Directors  of  the  Company  approved  employment
agreements  effective  November 1,  1994  for  its  officers  and
directors  Fred  E. Cooper and David L. Purdy. (See,  "Employment
Agreements").

David  L.  Purdy,  Chairman of the Board, Chief Scientist  and  a
director  of the Company, is a director of the BICO and  Coraflex
Boards.   He  is  also the Chairman of the Board,  President  and
Treasurer  of  BICO,  and  the Chairman  and  the  President  and
Treasurer of Coraflex.   Fred E. Cooper, President and a director
of  the Company, is a director of the BICO, Coraflex,  and Petrol
Rem  Boards.  He is also the CEO and Executive Vice President  of
BICO.    Anthony J. Feola, a director, is also a director on  the
BICO,  Coraflex,  and Petrol Rem Boards.  He is also  the  Senior
Vice President of BICO.

Leases and Property

In  April  1992,  Diasense  acquired  an  office  condominium  in
Pittsburgh,  PA  (See, "Properties").  BICO moved its  Pittsburgh
offices to the Diasense office condominium and pays Diasense rent
in the amount of $3,544 per month plus one-half of the utilities.

Three   of  the  Company's  current  executive  officers   and/or
directors  and three former directors of the Company are  members
of   the   eight-member  300  Indian  Springs  Road  Real  Estate
Partnership  (the  "Partnership") which in July  1990,  purchased
BICO's  real  estate  in  Indiana, PA, and  each  has  personally
guaranteed the payment of lease obligations to the bank providing
the  funding.   The cost of the property to BICO was  $1,084,852.
The property was sold to the Partnership subject to the leaseback
provision and outstanding liens for approximately $800,000;  BICO
received approximately $403,000 in cash as a result of the  sale-
leaseback.  The sale price was determined by First West  Virginia
Bank.   Each  member  of  the Partnership  received  warrants  in
consideration of their personal guarantees.  The six  members  of
the  Partnership  who are also current or former officers  and/or
directors of the Company, David L. Purdy, Fred E. Cooper, Gary R.
Keeling,  Jack  H.  Onorato, Richard M.  Erenberg  and  C.  Terry
Adkins,  each  received warrants to purchase  100,000  shares  of
BICO's common stock at an exercise price of $.33 per share  until
June  29,  1995  (which were extended until June 29,  1999),  and
warrants to purchase 100,000 shares of Diasense's common stock at
an exercise price of $.50 per share until June 29, 1995 (extended
until June 29, 1999).  The warrant exercise prices were equal  to
the  market  prices of the common stock at the time of  issuance.
Mr.  Keeling,  who  was  not  a  director  at  the  time  of  the
transaction,  joined  the board in October 1991,  became  a  Vice
President  in  October 1992, and resigned from both positions  in
August, 1997.  Mr. Adkins, who was not a director at the time  of
the  transaction joined the board in March 1992 and became a Vice
President  in October 1992; Mr.Adkins resigned as an officer  and
director during Fiscal 1998.  Mr. Onorato, who was not a director
at  the  time of the transaction, was a director until  September
1992  when  he became a director of BICO until April  1994.   Mr.
Erenberg,  who was not a director at the time of the transaction,
was a director until April 1993.

Intercompany Agreements

License and Marketing Agreement.  Diasense acquired the exclusive
marketing  rights for the Noninvasive Glucose Sensor and  related
products  and  services from BICO in August 1989 in exchange  for
8,000,000  shares  of  its  common  stock.   That  agreement  was
canceled pursuant to a Cancellation Agreement dated November  18,
1991,  and superseded by a Purchase Agreement dated November  18,
1991.  The Cancellation Agreement provides that BICO  retain  the
8,000,000  shares  of Diasense common stock which  BICO  received
pursuant to the License and Marketing Agreement.

Purchase  Agreement.  BICO and Diasense entered into  a  Purchase
Agreement  dated  November  18, 1991  whereby  BICO  conveyed  to
Diasense  its entire right, title and interest in the Noninvasive
Glucose  Sensor  and  its  development, including  its  extensive
knowledge,   technology   and  proprietary   information.    Such
conveyance  includes  BICO's patent  received  in  December  1991
(See, "Business").

In  consideration of the conveyance of its entire  right  in  the
Noninvasive  Glucose  Sensor and its development,  BICO  received
$2,000,000.   In  addition, Diasense may  endeavor,  at  its  own
expense,  to obtain patents on other inventions relating  to  the
Noninvasive  Glucose Sensor.  Diasense also guaranteed  BICO  the
right  to  use  such  patented technology in the  development  of
BICO's  proposed implantable closed-loop system, a related system
in the early stages of development.

In  December 1992, BICO and Diasense executed an amendment to the
Purchase   Agreement  which  clarified  terms  of  the   Purchase
Agreement.   The  amendment  defines  "Sensors"  to  include  all
devices  for the noninvasive detection of analytes in mammals  or
in  other  biological  materials.   In  addition,  the  amendment
provides for a royalty to be paid to Diasense in connection  with
any sales by BICO of its proposed closed-loop system.

Research  and Development ("R&D") Agreement.  Diasense  and  BICO
entered  into  an agreement dated January 20, 1992 in  connection
with  the  research  and development of the  Noninvasive  Glucose
Sensor.   Pursuant  to  the agreement,  BICO  will  continue  the
development  of  the  Noninvasive Glucose Sensor,  including  the
fabrication  of  prototypes, the performance of clinical  trials,
and  the  submission to the FDA of all necessary applications  in
order  to  obtain  market  approval for the  Noninvasive  Glucose
Sensor.  BICO will also manufacture the models of the Noninvasive
Glucose  Sensor  to  be  delivered to  Diasense  for  sale  (See,
"Manufacturing Agreement").  Upon the delivery of  the  completed
models,  the  research and development phase of  the  Noninvasive
Glucose Sensor will be deemed complete.

Diasense  has agreed to pay BICO $100,000 per month for  indirect
costs  beginning April 1, 1992, during the 15 year  term  of  the
agreement,  plus  all direct costs, including labor.   BICO  also
received  a first right of refusal for any program undertaken  to
develop,  refine or improve the Noninvasive Glucose  Sensor,  and
for  the  development of other related products.  In  July  1995,
BICO and Diasense agreed to suspend billings, accruals of amounts
due  and payments pursuant to the R&D Agreement pending the FDA's
review of the Sensor.

Manufacturing  Agreement.   BICO and  Diasense  entered  into  an
agreement  dated January 20, 1992, whereby BICO will act  as  the
exclusive  manufacturer  of the Noninvasive  Glucose  Sensor  and
other related products.  Diasense will provide BICO with purchase
orders  for the products and will endeavor to provide projections
of   future   quantities  needed.   The  original   Manufacturing
Agreement called for the products to be manufactured and sold  at
a  price  to  be  determined  in accordance  with  the  following
formula:  Cost  of Goods (including actual or 275%  of  overhead,
whichever is lower) plus a fee of 30% of Cost of Goods.  In  July
1994,  the formula was amended to be as follows: Costs  of  Goods
Sold  (defined as BICO's aggregate cost of materials,  labor  and
associated  manufacturing overhead) + a fee equal  to  one  third
(1/3)  of  the  difference between the Cost  of  Goods  Sold  and
Diasense's sales price of each Sensor.  Diasense's sales price of
each  Sensor  is  defined  as the price paid  by  any  purchaser,
whether  retail  or  wholesale, directly  to  Diasense  for  each
Sensor.   Subject to certain restrictions, BICO  may  assign  its
manufacturing  rights to a subcontractor with Diasense's  written
approval.  The term of the agreement is fifteen years.

Warrants

During  Fiscal 1996 through Fiscal 1998,  Diasense did not  issue
any warrants to purchase common stock to officers or directors.


                             PART IV

Item 14. Exhibits, Financial Statements and Reports on Form 8-K


1.   Consolidated Financial Statements

The  consolidated financial statements, together with the  report
thereon of the Company's independent accountants, are included in
this report on the pages listed below.


(a)  Consolidated Financial Statements                                     Page

     Report of Independent Accountants Thompson Dugan, P.C.                 F-1

     Consolidated  Balance  Sheets as  of  September  30,  1998;
     September 30, 1997                                                     F-3

     Consolidated  Statements of Operations For  the  Fiscal
     Years Ended September 30, 1998, 1997, 1996; and July 5,
     1989 (inception) through September 30, 1998                            F-4

     Consolidated  Statements  of Changes  in  Stockholders'
     Equity  for the Fiscal Years Ended September 30,  1998,
     1997, 1996, 1995, 1994; 1993; 1992; the 12 months ended
     December  31,  1991,  1990,  and  from  July  5,   1989
     (inception) through December 31, 1989                                  F-5

     Consolidated  Statements of Cash Flows for  the  Fiscal
     Years Ended September 30, 1998, 1997, 1996; and July 5,
     1989 (inception) through September 30, 1998                            F-6

     Notes  to Consolidated Financial Statements for the  Fiscal
     Year Ended September 30, 1998                                          F-7

2.   Exhibits
(a)  Reports on Form 8-K

     The  Company filed a Form 8-K report dated August 28,  1998.
     The  items  listed were Item 6, Resignation of  Registrant's
     Directors; and Item 7(c), Exhibits.


(c)  Exhibits required by Item 601 of Regulation S-K

     The following Exhibits required by Item 601 of Regulation S-
     K  are  filed  as part of this report.  Except as  otherwise
     noted,  all  exhibits  are incorporated  by  reference  from
     Exhibits to Form S-1 (Registration #33-56574) filed December
     31, 1992 or from exhibits to Form 10-K filings subsequent to
     that date.

      3.1      Articles of Incorporation of Diasense,  Inc.,  as
               amended

      3.2      Amended and Restated Bylaws of Diasense, Inc.

      4.1      Form of Specimen Common Stock Certificate of
               Diasense, Inc.

     10.1      Purchase Agreement dated as of November 18,  1991
               between Diasense, Inc. and Biocontrol Technology, Inc.

     10.2      Manufacturing Agreement dated as of January 20, 1992,
               between Diasense,Inc. and Biocontrol Technology, Inc.

     10.3      Research and Development Agreement dated as of January
               20, 1992 between Diasense, Inc. and Biocontrol Technology, Inc.

     10.4      Lease  dated  as  of  May  1,  1992  between Diasense, Inc.
               and Biocontrol Technology, Inc.

     10.5      First Amendment to Purchase Agreement dated as of December 8,
               1992 between Diasense, Inc. and Biocontrol Technology, Inc.

     10.6(1)   Amendment to Manufacturing Agreement dated as of June 7, 1994
               between Diasense, Inc. and Biocontrol Technology, Inc.

     10.7(1)   Deferral Agreement, dated as of July 1, 1994, between Diasense,
               Inc. and Biocontrol Technology, Inc.

     10.8      Deferral Agreement dated as of September 30, 1994 between
               Diasense, Inc. and Biocontrol Technology, Inc.

     10.9      Employment Agreement dated as of November 1, 1994 between
               Diasense, Inc. and Fred E. Cooper

    10.10      Employment Agreement dated as of November 1, 1994 between
               Diasense, Inc. and David L. Purdy

    10.11(2)   Letter of Resignation of director  C.  Terry Adkins

(1)  Incorporated by reference from Exhibit with this title filed
     with  the  Company's Form S-1 filed August 17, 1994  at  33-
     82796.
(2)  Incorporated by reference from Exhibit with this title filed
     with   the  Company's  Form  8-K  dated  August  29,   1997.



Conformed Copy
                           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, on the 30th day of December 1998

                                   DIASENSE, INC.

                                   By:    /s/ Fred E. Cooper
                                          Fred E. Cooper, President

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

     Signature               Title                     Date

/s/ David L. Purdy         Chairman of          December 30,1998
David L. Purdy             the Board;
                           Chief Scientist

/s/ Fred E. Cooper         President and        December 30, 1998
Fred E. Cooper             Director
                          (principal executive
                           officer, principal
                           financial officer, and
                           principal accounting
                           officer)

/s/ Anthony J. Feola       Director             December 30, 1998
Anthony J. Feola
                         THOMPSON DUGAN
                  CERTIFIED PUBLIC ACCOUNTANTS
                    ________________________

                       Pinebridge Commons
                     1580 McLaughlin Run Rd.
                      Pittsburgh, PA 15241



       Report of Independent Certified Public Accountants



Independent Auditors' Report

Board of Directors
Diasense, Inc.

     We have audited the accompanying consolidated balance sheets
of Diasense, Inc. (a development stage company) as of September
30, 1998 and 1997, and the related statements of operations,
changes in stockholders' equity and cash flows for each of the
three years in the period ended September 30, 1998, and for the
period from July 5, 1989 (inception) through September 30, 1998.
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 generally
accepted auditing standards.  Those standards require that we
plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements.  An audit also includes assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our
opinion.

     In our opinion, such financial statements present fairly, in
all material respects, the consolidated financial position of
Diasense, Inc. as of September 30, 1998 and 1997, and the results
of its operations and its cash flows for each of the three years
in the period ended September 30, 1998, and for the period from
July 5, 1989 (inception) through September 30, 1998, in
conformity with generally accepted accounting principles.

     The accompanying consolidated financial statements have been
prepared assuming that the Company will continue as a going
concern.  As discussed in notes B and E to the financial
statements, the Company is in the development stage and has
incurred losses from operations and negative cash flows from
operations for each of the three years in the period ended
September 30, 1998 and from July 5, 1989 (inception) through
September 30, 1998, raising substantial doubt about its ability
to continue as a going concern.  Management's plans in regard to
these matters are also described in note B.  The financial
statements do not include any adjustments that might result from
the outcome of this uncertainty, including adjustments relating
to the recoverability and classification of recorded assets that
might be necessary in the event the Company cannot continue to
meet its financing requirements and achieve productive
operations.

     In addition, as discussed in notes B and E, the Company is
dependent upon its parent, Biocontrol Technology, Inc. (BICO) to
continue to perform and fund contractual arrangements related to
research, development and manufacturing activities of products
for the Company.  There has been and continues to be substantial
doubt about BICO's ability to continue as a going concern due to
their recurring losses from operations and negative cash flow.
These financial statements do not include any adjustments that
might result from the outcome of this uncertainty.



December 30, 1998


<PAGE>1
                                 Diasense, Inc.
                         (A Development Stage Company)

                          CONSOLIDATED BALANCE SHEETS

                                          September 30,  September 30,
                ASSETS                        1998          1997
                                           -----------    -----------
Current assets
  Cash and cash equivalents (note A)       $    41,811    $ 1,871,070
  Prepaid expenses                               5,792         13,698
  Due from BICO (note A and E)                   -          1,000,000
                                           -----------    -----------
               Total current assets             47,603      2,884,768

Property and equipment-at cost(notes A,C and J)
  Building and improvements                    222,296        236,663
  Furniture and fixtures                        42,750         42,750
                                           -----------    -----------
                                               265,046        279,413
  Less accumulated depreciation                 69,553         55,938
                                           -----------    -----------
                                               195,493        223,475
                                           -----------    -----------
Other assets
  Due from BICO(notes A and E)               2,197,433          -
  Notes receivable-related parties(note E)     125,000          -
  Interest receivable-related parties(note E)    9,272          -
  Allowance for doubtful account(note E)    (2,282,479)         -
                                           -----------    -----------
                                             49,226          -
                                           -----------    -----------
                                           $   292,322    $ 3,108,243
                                           ===========    ===========

                      LIABILITIES and STOCKHOLDERS' EQUITY

Current liabilities
  Accounts payable                         $    23,606    $     9,433
  Accrued payroll and withholdings              68,721         12,986
                                           -----------    -----------
              Total current liabilities         92,327         22,419

Commitments and Contingencies (notes B and F)

Stockholders' equity
  Preferred stock, 1,000,000 shares authorized, none issued
  Common stock, 40,000,000 shares of $.01 par value
  authorized; issued and outstanding
  22,980,051 at Sep. 30, 1998 and
  22,979,051 at Sep. 30, 1997                  229,801        229,791
  Additional paid-in capital                26,892,071     26,888,581
  Warrants                                  17,953,223     17,928,223
  Deficit accumulated during the
  development stage                        (44,875,100)   (41,960,771)
                                           -----------    -----------
                                               199,995      3,085,824
            TOTAL LIABILITIES AND          -----------    -----------
                  STOCKHOLDERS' EQUITY     $   292,322    $ 3,108,243
                                           ===========    ===========
[FN]
The accompanying notes are an integral part of this statement.
<PAGE>3
                                 Diasense, Inc.
                         (A Development Stage Company)

                      CONSOLIDATED STATEMENT OF OPERATIONS

<TABLE>
<CAPTION>
                                                                                                       From July 5, 1989
                                         For the year ended    For the year ended  For the year ended  (inception) thru
                                         September 30, 1998    September 30,1997  September 30, 1996  September 30, 1998
                                         ------------------    ------------------  ------------------   ------------------
<S>                                        <C>                  <C>                  <C>                  <C>
Research and development expenses
notes A, E, and F)                      $        -              $    -                $    -              $   10,556,405

General and administrative expenses             669,764            1,023,961             1,509,298            11,918,065

Provision for doubtful account(note E)        2,282,479              -                     -                   2,282,479

Warrant extensions (note G)                      25,000            5,593,875             7,644,033            17,912,908

Technology and patent rights acquired (note E)     -                   -                    -                  2,650,000

Interest expense                                   -                   -                     1,575                10,529

Other income - (note C)                         (62,914)             (52,999)             (133,083)             (522,691)

Other expense                                       -                 -                     -                     37,405
                                           --------------       --------------       --------------       ---------------
Net loss                                   $  (2,914,329)       $  (6,564,837)        $ (9,021,823)       $  (44,845,100)
                                           ==============       ==============       ==============       ===============
Net loss per common share (note A)         $       (0.13)       $       (0.29)        $      (0.39)       $        (2.40)
                                           ==============       ==============       ==============       ===============

<FN>
The accompanying notes are an integral part of this statement.

</TABLE>
<PAGE>4
<TABLE>

                                 Diasense, Inc.
                         (A Development Stage Company)

  CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT) (Note G)

       For the period July 5, 1989 (inception) through September 30, 1998

                                                                                                          Deficit     Total
                                                                                                        Accumulated   Stock-
                                                                      Common                 Additional  During the   Holders'
                                                    Common Stock       Stock                 Paid-in    Development   equity
                                                   Shares   Amount   Subscribed   Warrants   Capital       Stage     (Deficit)
                                                -------------------- ---------- ---------- -----------  ------------ -----------
<S>                                             <C>         <C>          <C>    <C>         <C>         <C>          <C>
July 10,1989 Issuance of stock to BICO in connection with
    obtaining License and Marketing Agreement    8,000,000  $ 80,000         $-          - $         - $          -   $   80,000
  Aug. 21 through Dec. 31, 1989 (various dates)
     First Private Placement                       656,000     6,560          -          -     321,440            -      328,000
  Sep. 29, 1989 - Issuance of stk in connection
    with patent rights acquired by BICO          1,040,000    10,400          -          -     509,600            -      520,000
  Net loss                                               -         -          -          -           -      (80,000)     (80,000)
                                                -------------------- ---------- ---------- -----------  ------------ -----------
Balances at December 31, 1989                    9,696,000    96,960          -          -     831,040      (80,000)     848,000
  Jan. 1 to Dec. 31, 1990 (various dates)
    First private Placement                      1,240,000    12,400          -          -     607,600            -      620,000
  May 1, 1990 through Aug. 31, 1990 (various dates)
    First Private Placement
      Exchange of debt for shares of stock         136,000     1,360          -          -      66,640            -       68,000
  Warrants issued - to BICO                              -         -          -     27,500           -            -       27,500
    Net loss                                             -         -          -          -           -     (497,628)    (497,628)
                                                -------------------- ---------- ---------- -----------  ------------ -----------
Balances at December 31, 1990                   11,072,000   110,720          -     27,500   1,505,280     (577,628)   1,065,872
  Jan. 1 to Dec. 31, 1991 (various dates)
    First Private Placement                        768,000     7,680          -          -     376,320            -      384,000
    Second Private Placement                     3,948,250    39,482          -          -   3,896,468            -    3,935,950
  December 31, 1991 - common stock subscribed
    62,500 shares at $ 1                                 -         -        625          -      61,875            -       62,500
  Warrants issued - to BICO                              -         -          -     19,085           -            -       19,085
  Net loss                                               -         -          -          -           -   (3,650,203)  (3,650,203)
                                                -------------------- ---------- ----------  ----------  ------------ -----------
Balances at December 31, 1991                   15,788,250   157,882        625     46,585   5,839,943   (4,227,831)   1,817,204
  Jan. 1 to Sep. 30, 1992 (various dates)
    Second Private Placement                       986,750     9,868          -          -     976,883            -      986,751
    Third Private Placement                          7,212        72          -          -      25,170            -       25,242
    Fourth Private Placement                       120,000     1,200          -          -     418,800            -      420,000
  Jan. 1992 - Exchange of debt for share of stk    235,000     2,350          -          -     232,650            -      235,000
  Jan. 1992 - Common stk subscriptions recieved     62,500       625       (625)         -           -            -            0
  Net loss                                               -         -          -          -           -   (2,846,584)  (2,846,584)
                                                -------------------- ---------- ----------  ----------  ------------ -----------
Balances at September 30, 1992                  17,199,712   171,997          -     46,585   7,493,446   (7,074,415)     637,613
  Sep. 30, 1992 to Oct. 31,1992(various dates)
    Fourth Private Placement                       180,000     1,800          -          -     628,200            -      630,000
  June 1993 thru July 1993 warrants exercised       25,000       250          -     (3,770)     28,520            -       25,000
  Net loss                                               -         -          -          -           -   (3,763,101)  (3,763,101)
                                                -------------------- ---------- ----------  ----------  ------------ -----------
Balances at September 30, 1993                  17,404,712   174,047          -     42,815   8,150,166  (10,837,516)  (2,470,488)
  Oct. 1, 1993 to Sep. 30, 1994(various dates)
    Registered Stock                               230,961     2,309          -          -     783,936            -      786,245
  Consulting service in exchange for stock           7,200        72          -          -      25,128            -       25,200
  Treasury Stock purchase                          (10,000)     (100)         -          -      (4,900)     (30,000)     (35,000)
  Treasury Stock sale                               10,000       100          -          -      34,900            -       35,000
  Nov. 1993 thru Aug. 1994 warrants exercised      105,000     1,050          -     (2,500)     38,950            -       37,500
  June 1994 Private Placement subject to Reg. S     91,667       917          -          -     287,834            -      288,751
  Net Loss                                               -         -          -          -           -   (5,145,081)  (5,145,081)
                                                -------------------- ---------- ----------  ----------  ------------ -----------
Balances at September 30, 1994                  17,839,540   178,395          -     40,315   9,316,014  (16,012,597)  (6,477,873)
  Consulting service in exchange for stock          17,500       175          -          -      61,075            -       61,250
  May 1995 Exchange of debt for shrs of stk      3,000,000    30,000          -          -  10,470,000            -   10,500,000
  Oct. 1994 thru Sep. 1995 warrants exercised       29,512       295          -          -       9,771            -       10,066
  Warrant extensions                                     -         -          -  4,650,000           -            -    4,650,000
  Oct. 1, 1994 to Sep. 30, 1995(various dates)
    Registered Stock                               437,768     4,378          -          -   1,497,114            -    1,501,492
 July 12, 1995, unregistered stock to BICO       1,200,000    12,000          -          -   4,188,000            -    4,200,000
 Net Loss                                                -         -          -          -           -  (10,361,514) (10,361,514)
                                                -------------------- ---------- ----------  ----------  ------------ -----------
Balances at September 30, 1995                  22,524,320   225,243          -  4,690,315  25,541,974  (26,374,111)   4,083,421
 Consulting service in exchange for stock:Reg.      10,000       100          -          -      34,900            -       35,000
 Consulting service in exchange for stock:Unreg.     5,000        50          -          -      17,450            -       17,500
 Oct. 1995 thru Sep. 1996 warrants exercised        56,000       560          -          -      27,440            -       28,000
 Warrant extensions                                      -         -          -  7,644,033           -            -    7,644,033
 Oct. 1, 1995 to Sep. 30, 1996(various dates)
   Registered Stock                                410,731     4,108          -          -   1,361,047            -    1,365,155
 Net Loss                                                -         -          -          -           -   (9,021,823)  (9,021,823)
                                                -------------------- ---------- ----------  ----------  ------------ -----------
Balances at September 30, 1996                  23,006,051   230,061          - 12,334,348  26,982,811  (35,395,934)   4,151,286
 Warrant extensions                                      -         -             5,593,875           -            -    5,593,875
 Oct. 1, 1996 to Sep. 30, 1997(various dates)
   Registered Stock                                (27,000)     (270)         -          -     (94,230)           -      (94,500)
 Net Loss                                                -         -          -          -           -   (6,564,837)  (6,564,837)
                                                -------------------- ---------- ----------  ----------  ------------ -----------
Balances at September 30, 1997                  22,979,051  $229,791 $        -$17,928,223 $26,888,581 $(41,960,771)  $3,085,824
                                                -------------------- ---------- ----------  ----------  -----------  -----------
 Warrant extensions                                      -         -          -     25,000           -            -       25,000
 Oct. 1, 1997 to Sep. 30, 1998(various dates)
    Registered Stock                                 1,000        10          -          -       3,490            -        3,500
 Net Loss                                                -         -          -          -           -   (2,914,329)  (2,914,329)
                                                -------------------- ---------- ----------  ----------   ----------  -----------
 Balances at September 30, 1998                 22,980,051  $229,801  $       -$17,953,223 $26,892,071 $(44,875,100)    $199,995
                                                ==================== ========== ==========  ==========   ==========  ===========
</TABLE>
The accompanying notes are an integral part of this statement.
<PAGE>5
<TABLE>

                                 Diasense, Inc.
                         (A Development Stage Company)

                      CONSOLIDATED STATEMENT OF CASH FLOWS

<CAPTION>
                                                                                                       From July 5, 1989
                                         For the year ended    For the year ended  For the year ended  (inception) thru
                                         September 30, 1998    September 30, 1997  September 30, 1996  September 30, 1998
                                         ------------------    ------------------  ------------------   ------------------
<S>                                        <C>                   <C>                 <C>                 <C>

Cash flows from operating activities:
 Net loss                                   $ (2,914,329)        $  (6,564,837)       $(9,021,823)       $ (44,845,100)
 Adjustments to reconcile net loss to net
 cash used by operating activities:
  Depreciation                                    13,615                13,613             13,373               69,553
  Provision for doubtful accounts              2,282,479                 -                  -                2,282,479
  Impairment loss                                 14,367                 -                  -                   14,367
  Stock issued in exchange for services           -                      -                 52,500              138,950
  Stk issued for License & Marketing Agreement    -                      -                  -                   80,000
  Warrant extensions                              25,000             5,593,875          7,644,033           17,912,908
  Inventory deposit - BICO                        -                     -                   -               (1,000,000)
  (Increase) decrease in prepaid expenses          7,906                   615                469               (5,792)
  Increase (decrease) in payable due to BICO      -                     -              (1,287,012)          10,500,000
  Increase (decrease) in accounts payable         14,173               (10,662)            (9,730)              23,606
  Increase (decrease) in accrued payroll
   and withholdings                               55,735                12,457             (6,614)              68,721

                                            -------------        -------------      -------------        -------------
Net cash used in operating activities           (501,054)             (954,939)        (2,614,804)         (14,760,308)

Cash flows from investing activities:
  Purchase of property and equipment              -                     -                  (7,005)            (279,413)
  (Increase)in notes rec.-related parties       (125,000)               -                   -                 (125,000)
  (Increase)in interest rec-related parties       (9,272)               -                   -                   (9,272)
                                            -------------        -------------      -------------        -------------
Net cash used in investing activities           (134,272)               -                  (7,005)            (413,685)

Cash flows from financing activities:
  Advances to BICO                            (2,853,665)           (1,814,292)        (3,143,864)          (6,963,526)
  Repayment of advances to BICO                1,656,232             3,591,489          1,366,667            6,332,679
  Proceeds from issuance of common stock           3,500               (94,500)         1,365,155           10,971,834
  Proceeds from issuance of common stk to BICO    -                     -                  -                 4,200,000
  Proceeds from warrants exercised                -                     -                  28,000              118,066
  Proceeds from treasury stock                    -                     -                  -                   (35,000)
  Proceeds from Regulation S                      -                     -                  -                   288,751
  Proceeds from issuance of notes payable         -                     -                  -                   303,000
                                            -------------       --------------       ------------        --------------
Net cash provided by fin. activities          (1,193,933)            1,682,697           (384,042)          15,215,804
                                            -------------       --------------       ------------        --------------
Net increase(decrease)in cash and cash equiv. (1,829,259)              727,758         (3,005,851)              41,811
Cash and cash equivalents at beg of period     1,871,070             1,143,312          4,149,163               -
                                            -------------        --------------       ------------       --------------
Cash and cash equivalents at end of period  $     41,811        $    1,871,070       $  1,143,312       $       41,811
                                            ============        ==============       ============       ==============

The accompanying notes are an integral part of this statement.

</TABLE>


                         DIASENSE, INC.
                  (A Development Stage Company)

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                       September  30, 1998



NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
           POLICIES

1.   ORGANIZATION

Diasense, Inc. (the Company) was incorporated in the Commonwealth
of  Pennsylvania on July 5, 1989 as a wholly owned subsidiary  of
Biocontrol Technology, Inc. (BICO).  BICO owned approximately 52%
of  the  stock of the Company at September 30, 1998.  The Company
and  BICO  are currently developing a Noninvasive Glucose  Sensor
(Sensor),  which management believes will be able to measure  the
concentration  of glucose in human tissue without  requiring  the
drawing  of  blood.   The  Company plans  to  market  the  Sensor
directly  to  diabetics, through their doctors'  orders,  and  is
currently    negotiating   with   domestic   and    international
distribution organizations.

The  consolidated financial statements include  the  accounts  of
Diasense  UK  LTD.  a 100% owned subsidiary  of  Diasense  as  of
September  30, 1998.  All significant intercompany  accounts  and
transactions have been eliminated.

2.   CASH AND CASH EQUIVALENTS

For  purposes  of  the  consolidated statement  of  cash  flows,
the  Company considers  all highly liquid investments with original
maturities of  three  months  or less to be cash equivalents.
The  Company places temporary cash deposits in financial institutions
and such deposits may be in excess of the FDIC insurance limit.

3.   PROPERTY AND EQUIPMENT

Property  and  equipment  are  accounted  for  at  cost  and  are
depreciated  over their estimated useful lives (37 years for property
and 10 years for equipment) on a straight-line basis. The carrying
value of property and equipment are reduced for impairment losses
determined by management.

4.   INCOME TAXES

The  Company  previously adopted Financial  Accounting  Standards
Board  Statement No. 109 (FAS 109), Accounting for Income  Taxes,
which  requires the asset and liability method of accounting  for
income  taxes.   Enacted  statutory  tax  rates  are  applied  to
temporary  differences arising from the differences in  financial
statement  carrying amounts and the tax basis of existing  assets
and  liabilities.  Due to the uncertainty of the  realization  of
income  tax  benefits (note D), the adoption of FAS  109  had  no
effect on the financial statements of the Company.

5.   ESTIMATES AND ASSUMPTIONS

     The preparation of financial statements in conformity with
generally  accepted accounting principles requires  management
to  make  estimates and assumptions that affect  the  reported
amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements
and  the reported amounts of revenues and expenses during  the
reporting  period.   Actual results could  differ  from  those
estimates.

6.   NET LOSS PER COMMON SHARE

     Net loss per common share is based on the weighted average
number   of  common  shares  outstanding  which  amounted   to
22,980,111,  22,979,125 and 22,983,654  for  the  years  ended
September 30, 1998, September 30, 1997 and September 30,  1996
respectively. The loss per share does not include common stock
equivalents since the effect would be anti-dilutive

     For the period from July 5, 1989 (inception) to September 30,
1998,  net  loss  per common share is based  on  the  weighted
average number of common shares outstanding and the number  of
common  shares issuable on the exercise of 1,708,000  warrants
issued  in  1992; reduced by 488,000 common shares  that  were
assumed  to  have  been purchased with the proceeds  from  the
exercise  of  the warrants at an assumed price  of  $3.50  per
share.   The inclusion of the warrants in the loss  per  share
calculation  is  required by the rules of the  Securities  and
Exchange  Commission  relative  to  the  initial  registration
statement  which  included the Company's financial  statements
through  the  period ended March 31, 1993.   The  registration
statement  became  effective  July  19,  1993.   The  weighted
average  number of common shares including the effect  of  the
conversion  of the warrants for the period from July  5,  1989
(inception) to September 30, 1998 amounted to 18,664,225.

7.   RESEARCH AND DEVELOPMENT

All research and development costs incurred by the Company, or
by  BICO on its behalf, are charged to operations as incurred.
Patent and technology rights acquired from BICO (Note E)  have
also been written off as a charge to operations.

8.   TREASURY STOCK

The Company records treasury stock transactions using the par
value method.


9.   INTERCOMPANY ACTIVITY

Certain expenses are allocated by management between the Company,
BICO  and BICO's subsidiaries.  These expenses are reimbursed  to
the paying entity through the use of intercompany accounts, which
accounts  are also used to account for non-interest bearing  cash
advances between the companies.

10.  COMMON STOCK WARRANTS

The  Company  recognizes cost, if any, on warrants granted  based
upon the excess of the market price  of the  underlying shares of
common stock as of the warrant grant date over the warrant
exercise  price.   Had the Company adopted the fair  value  based
accounting  method for recognizing stock-based  compensation  (as
permitted by Financial Accounting Standard No. 123) its  reported
net  losses  (utilizing the Black-Scholes  method  of  valuation)
would  have  been  approximately $3,036,981 for  the  year  ended
September  30, 1998, approximately $7,279,510 for the year  ended
September  30, 1997, and approximately $15,371,524 for  the  year
ended  September  30, 1996.  Net loss per share  under  the  fair
value based accounting method would have been approximately $.13,
$.32  and $.69 for the years ended September 30, 1998, 1997,  and
1996 respectively.

11.  COMPREHENSIVE INCOME

The Company's consolidated net income (loss) is substantially the
same as comprehensive income required to be disclosed by Financial
Accounting Standards Board Statement No. 130.

12.  CONCENTRATION OF CREDIT RISK

Financial instruments which potentially subject the Company to
significant concentrations of credit risk consist principally  of
receivables  from  BICO and from officers and  directors  of  the
Company and BICO.  The receivables from officers and directors of
the Company are unsecured and represent a concentration of credit
risk  due  to  the common employment and financial dependency  of
these individuals on the Company.

NOTE B - OPERATIONS

The  Company  is  developing the Sensor  and  has  not,  as  yet,
achieved a commercially marketable product.  The ability  of  the
Company  to  continue  in existence is dependent  on  its  having
sufficient   financial  resources  to  maintain  operations,   to
complete  the  research and development necessary to successfully
bring  the Sensor to market, and for marketplace acceptance.  The
Company has no other commercial products and is dependent on  the
successful  development of the Sensor technology. The Company  is
selling  shares of its common stock pursuant to an offering  with
the  SEC  which  became  effective  July  19,  1993  and  has  an
intercompany  receivable from BICO of  $  2,197,433.   Any  funds
generated by the Company through the sale of its common stock and
any repayment of funds due from Bico would be used to finance its
operations.    The  Company has had only  minimal  sales  of  its
common stock over the last two fiscal years.

The  Company is in the development stage, and accordingly, it has
presented  cumulative information on results of operations,  cash
flows, and changes in stockholders' equity since inception.

The  Company  has incurred significant losses and  negative  cash
flows  from operations from inception through September 30,  1998
and  has  a  significant accumulated deficit as of September  30,
1998, raising substantial doubt about its ability to continue  as
a  going  concern.  The Company has financed its losses  and  its
research and development program, which is temporarily suspended,
primarily  from  the sale of the Company's common  stock  through
private placements.  Management believes that its available  cash
resources, including funds it reasonably expects to be raised  by
the  Company  or its affiliates will be sufficient  to  fund  its
operations   through   the  year  ending  September   30,   1999.
Management believes that the recoverability and classification of
recorded  assets  and liabilities are comparable  to  approximate
liquidation values as of September 30, 1998.

As  a  result  of  agreements with BICO relating to development  and
manufacture of the Noninvasive Glucose Sensor, Diasense is dependent
on  BICO for substantially all of its activities in connection  with
the  development  and  manufacture of the  Sensor,  other  than  its
marketing efforts.  Pursuant to the Research  and  Development
Agreement,  BICO  has  undertaken the development of the Sensor and
has assumed certain other obligations. In  July  1995,  the  Company
and BICO agreed to  suspend  billings, accruals  of amounts due and
payments pursuant to the R&D  Agreement pending  FDA  review of the
Sensor.  No amounts are due pursuant  to the  R&D  Agreement which
have not been recorded, and no adjustments will be made retroactively
or cumulatively if and  when  billings resume.  Management  believes
that billings may resume, based on negotiations between both companies,
after the  Diasensor  1000  is approved  for  marketing. Pursuant to
a  manufacturing  agreement between  BICO  and Diasense, BICO will
manufacture the Sensor once development is completed. In the absence
of such agreements  with BICO,  the research, development and
manufacture of the Sensor could not  continue  as  currently contemplated.
BICO's ability to successfully complete the  development of the Sensor,
to obtain FDA approval in  a  timely fashion  and  to manufacture
production units of the Sensor without significant delays or  defects
will  directly affect  Diasense's business and profitability. BICO
has experienced, and continues  to experience,  substantial  losses
and  financial difficulties. The consolidated financial statements
for BICO  for the  year  ended December 31, 1997 included disclosures
which referred to the existence of substantial doubt about BICO's ability
to continue as a going  concern. BICO has a net loss for the nine
month period  ended September  30, 1998 of  $17,996,197 (unaudited)
and for  the  fiscal year  ended December 31, 1997 of $30,433,177,
compared to a net loss for  the fiscal year ended December 31, 1996
of $24,045,702.  As  of December 31, 1997, and  September 30, 1998,
BICO's  accumulated deficit was $120,699,236 and $138,695,433
(unaudited) respectively.

In  the  past, BICO has financed its own operations from proceeds
generated  from  private and public sales of its securities,  the
issuance  of  debt  in the form of convertible  debentures,  from
funds  paid  by Diasense to BICO for research and development  of
the  Noninvasive  Glucose Sensor and from  intercompany  advances
from  Diasense and other BICO subsidiaries.  The failure of  BICO
to  continue  to exist as a going concern would have  a  material
adverse  effect  on Diasense's business and ability  to  continue
operations.

If BICO does not continue as a going concern, Diasense would need
to  rely  on  other arrangements to develop and  manufacture  the
Sensor or to perform that work itself.  There can be no assurance
that  Diasense  would  be  able to find acceptable  alternatives,
negotiate    acceptable  collaborative  arrangements   with   any
alternative organizations, or to perform the work itself.

NOTE C - OTHER INCOME

Other  income for the years ending September 30, 1998,  1997  and
1996  consists of $20,368, $10,471 and $90,555 of interest income
and  $42,528,  $42,528  and $42,528 of rental  income  for  their
respective periods.  The total rental income for the years  ended
September  30,  1998,  1997 and 1996, was from  BICO  for  office
space.

NOTE D - INCOME TAXES

As of September 30, 1998, the Company has available approximately
$24,700,000  of  net  operating loss  carryforwards  for  federal
income  tax purposes.  These carryforwards are available, subject
to  limitations, to offset future taxable income, and  expire  in
the  tax  years 2005 through 2012.  The Company also has research
and  development credit carryforwards available to offset federal
income  taxes  of approximately $700,000 subject to  limitations,
expiring in the years 2005 through 2012.

The  Company  has  temporary differences arising  from  different
methods  of  accounting  for the costs of patent  and  technology
rights  for  financial statement and tax purposes. For  financial
statement  purposes, these costs have been charged to operations.
For tax purposes, the costs of approximately $2,650,000 have been
capitalized and are being amortized over seventeen years.   Also,
the  fair  market value of Warrant Extensions have been  recorded
and  expensed for financial statement purposes in the  amount  of
$17,907,908 as of September 30, 1998.  For tax purposes, warrants
are not recorded until the warrants are exercised.

The  Company has not reflected any future income tax benefits for
these  temporary differences or for net operating loss and credit
carryforwards because of the uncertainty as to their realization.
Accordingly,  the  adoption of FAS  109  had  no  effect  on  the
financial statements of the Company.

The  following  is a summary of the composition of the  Company's
deferred   tax  asset  and  associated  valuation  allowance   at
September 30, 1998 and 1997:

                                    1998         1997

       Net Operating Loss       $ 8,398,000   $7,412,000
       Warrant Expense            6,088,689    6,080,189
       Patent Amortization          749,563      697,285
       Tax Credit Carry Forward     700,000      700,000
                                -----------   ----------
                                 15,936,252   14,889,474
       Valuation Allowance      (15,936,252) (14,889,474)
                                -----------   ----------
       Net Deferred Tax Asset   $         0   $        0
                                ===========   ==========

The  deferred  tax  benefit and the associated  increase  in  the
valuation allowance are summarized in the following schedule:

                                                     Increase
                                                        in
                                      Deferred       Valuation
                                        Tax          Allowance      Net
                                      Benefit

   Year Ended September 30,1998   $ (1,046,778)    $ 1,046,778      $0

   Year Ended September 30,1997   $ (2,326,496)    $ 2,326,496      $0

   Year Ended September 30,1996   $ (3,000,971)    $ 3,000,971      $0

   Year Ended September 30,1995   $ (3,877,527)    $ 3,877,527      $0

   Year Ended September 30,1994   $ (1,872,557)    $ 1,872,557      $0

   From July 5,1989 (inception)
    through September 30,1998     $(15,936,252)    $15,936,252      $0


NOTE E - RELATED PARTY TRANSACTIONS

1.   SENSOR RELATED AGREEMENTS

The Company has a development agreement with BICO for the sensor.
If  successfully  developed,  the Sensor  will  enable  users  to
measure  blood glucose levels without taking blood samples.   The
Company acquired the right from BICO to one United States  patent
for $2,000,000 on November 18, 1991 which covers the process of
measuring blood glucose levels non-invasively. Approval to market
the Sensor  is subject  to  federal  regulations including  the
Food  and  Drug Administration  (FDA).  Each model of the Sensor
is  subject  to clinical testing and regulatory approvals by the FDA.

The  Company  and BICO have entered into a series  of  agreements
related  to  the  development, manufacture and marketing  of  the
Sensor.  Under such agreements, BICO is required to carry out all
steps  necessary  to  bring the Sensor  to  market  including  1)
developing and fabricating the prototypes necessary for  clinical
testing; 2) performing the clinical investigations leading to FDA
approval for marketing; 3) submitting all applications to the FDA
for  marketing  approval; and 4) developing a manufacturable  and
marketable product.  Diasense is to conduct the marketing of  the
Sensor.  Following is a brief description of the agreements:

Manufacturing Agreement

The  manufacturing  agreement between the Company  and  BICO  was
entered into on January 20, 1992.  Under such agreement, BICO  is
to  act as the exclusive manufacturer of production units of  the
Sensor and to sell the units to the Company at a price determined
by the agreement.  The term of the agreement is fifteen years.

Research and Development Agreement

Under  a January 1992 agreement effective April 1992, the Company
is  to  pay BICO $100,000 for indirect costs per month, plus  all
direct costs for the research and development of the Sensor. This
agreement replaced a previous agreement dated May 14, 1991  under
which  Diasense  had been paying BICO $50,000 for indirect  costs
per  month,  plus all direct costs for the design and development
activities.  The term of the agreement expires in 2007.  In  July
1995,  the Company and BICO agreed to suspend billings,  accruals
of  amounts  due  and  payments pursuant to  the  R&D  Agreement,
pending FDA review of the Sensor.

The monthly charges from BICO for indirect costs are reflected as
general  and  administrative expenses and direct  costs  for  the
research  and  development of the Sensor  incurred  by  BICO  are
reflected as R&D expenses in the statement of operations.

Purchase Agreement

In  November 1991, the Company entered into a Purchase  Agreement
with  BICO under which the Company acquired all of BICO's  rights
to  the Sensor for a cash payment of $2,000,000 which was charged
to operations.

Sublicensing Agreement

In  1989,  BICO acquired rights to certain concepts  and  patents
related  to the Sensor from outside parties.  The purchase  price
was $650,000, and was paid by the conveyance of stock in BICO and
1,040,000 shares of Diasense common stock. The $520,000 value  of
the  Diasense stock issued was charged to the receivable due from
BICO.   On  May  14,  1991,  Diasense and  BICO  entered  into  a
sublicense  agreement under which Diasense acquired these  rights
from  BICO  for a cash payment of $650,000 which was  charged  to
operations.

License and Marketing Agreement

In  August  1989,  BICO granted Diasense the exclusive  right  to
represent  BICO  and  to market the Sensor and  related  products
worldwide.   In  exchange  for these  rights,  Diasense  conveyed
8,000,000 shares of its common stock to BICO.  The assigned value
of  these shares was $80,000 which was charged to operations.  In
November  1991,  this agreement was superseded when  the  Company
purchased all rights to the Sensor technology.

2.   INTERCOMPANY ACTIVITY

For the fiscal years ended September 30, 1998, 1997 and 1996, net
intercompany  charges by the Company to BICO and its subsidiaries
were  $160,433,  $129,960  and $5,558.   During  the  year  ended
September  30, 1996 the Company had net intercompany charges  and
cash  advances  (non-interest  bearing)  to  BICO  amounting   to
$1,777,197.   During the year ended September  30,  1997  all  of
these advances were repaid.  During the year ended September  30,
1998,  the  Company had net intercompany charges and non-interest
bearing cash advances to BICO amounting to $1,197,433.

3.  RECEIVABLES FROM OFFICERS AND DIRECTORS

During the fiscal year ended September 30, 1998 the Company made
loans  to  certain  officers  and   directors totalling $125,000,
all  of which were still outstanding at year end.  The loans  are
due   upon  demand and bear interest at a rate of  8.25%.   Total
amounts  due, including accrued interest,     on these  loans  at
September 30, 1998, were $80,599 from Fred E. Cooper and  $53,673
from Anthony J. Feola. In addition, Mr. Cooper had expense advances
of $2900 outstanding at September 30, 1998.

4.  ALLOWANCE FOR DOUBTFUL ACCOUNTS

Due to the financial condition of BICO, as discussed in Note B,
management   has  established  an       allowance  for   doubtful
accounts  covering  amounts due from BICO and  its  officers  and
directors. The allowance for $ 2,282,479  was recognized on the
books of the Company in the quarter   ended September 30, 1998.

5.  ACCRUED PAYROLL

Included in accrued payroll and withholdings at September 30, 1998,
is $24,625 and $20,833 for unpaid wages of Fred E. Cooper and David
L. Purdy, respectively, which were earned but voluntarily deferred
by these two directors.


NOTE F - COMMITMENTS AND CONTINGENCIES

1.  RESEARCH AND DEVELOPMENT

Under  terms of a Research and Development Agreement  with  BICO,
the Company is to pay BICO $100,000 for indirect costs per month,
plus  direct  costs associated with the research and  development
through January, 2007.

In  July  1995, the Company and BICO agreed to suspend  billings,
accruals  of  amounts  due  and  payments  pursuant  to  the  R&D
Agreement, pending FDA review of the Sensor.

2.  EMPLOYMENT AGREEMENTS

Diasense  has  entered into agreements with Fred  E.  Cooper  and
David L. Purdy pursuant to which they receive annual salaries  of
$150,000 and $100,000 from Diasense, respectively, both of  which
are  subject to review and adjustment annually.  The initial term
of  the  Agreements  with Mr. Cooper and  Mr.  Purdy  expires  on
October  31,  1999,  but continue  thereafter for  an  additional
three-year period unless either party gives proper notice of non-
renewal.   The  Agreements also provide that in the  event  of  a
"change of control" of Diasense, Diasense is required to issue to
Mr.  Cooper  and Mr. Purdy shares of common stock equal  to  five
percent  (5%)  of the outstanding shares of common stock  of  the
Company immediately after the change in control.

3.  LITIGATION

Several class action lawsuits have been filed against the Company
along with BICO and certain of their directors, all of which have
been consolidated into a single action.  The suit alleges various
violations of federal securities laws on behalf of a class of
plaintiffs who purchased common stock of the Company between April
25, 1995 and February 26, 1996, at which time the value of the
Company's stock dropped as a result of an unfavorable recommendation
of a Panel Review convened by the United States Food and Drug
Administration with respect to a certain medical device owned by
Diasense and manufactured by BICO.  The Company has engaged in
voluntary mediation in order to explore whether settlement is an
option.  As a result of the mediation, the plaintiffs agreed to
a "standstill" period, which has now expired; however, no further
activity has been conducted by the plaintiffs to move the case
forward.  Management believes that no federal securities violation
has occurred, and they intend to strongly defend the action.  At
this time it is not possible to predict the outcome of the litigation
or to estimate the potential damages arising from the claims, since
the number of class members, and the volume and pricing of shares
traded, are unknown.

During April 1998, the Company and its affiliates were served
with subpoenas by the U.S. Attorneys' office for the U.S. District
Court  for  the  Western District  of  Pennsylvania. The subpoenas
requested certain corporate, financial and scientific documents and
the Company has provided documents in response to such requests.


4.  PENNSYLVANIA SECURITIES COMMISSION

The  Pennsylvania Securities Commission is conducting  a  private
investigation of the Company and BICO in connection with the sale of
securities.  The Companies have cooperated with and provided
information to the Pennsylvania Securities Commission in connection
with the private investigation.  As the Commission's investigation
is not yet complete, there can be no estimate or evaluation of
the likelihood of an unfavorable outcome in this matter or the
range of possible loss, if any.


NOTE G - STOCKHOLDERS' EQUITY

    Common Stock

The  Company sold 2,800,000 shares of common stock at  $0.50  per
share,  from August 1989 to May 1991 in connection with  a  joint
private  offering  with BICO.  The aggregate  amount  raised  was
$1,400,000, on which no commissions were paid to any third party.
The  Company sold 4,997,500  shares of  common  stock,  at  $1.00
per  share,  in  a  private offering  from  May 1991  to  January
1992.   The aggregate amount  raised was  $4,985,201,  on   which
no commissions were paid to any third party.

The Company sold, in July 1992, 7,212 shares of common stock,
at  $3.50  per  share, in a private offering to one  accredited
investor.  The aggregate amount raised was $25,242, on which no
commissions were paid to any third party.

The Company sold 300,000 shares of common stock, at $3.50 per
share,  in  a private offering from July 1992 through  November
1992.  The aggregate amount raised was $1,050,000, on which  no
commissions were paid to any third party.

In December 1991, the Company issued 235,000 shares of common
stock   in   exchange  for  the  cancellation  of   outstanding
promissory notes for $235,000.

In June 1994, the Company sold 91,667 shares of its common
stock pursuant to the requirements set forth in Regulation S of
the Securities Act of 1933 ("Regulation S"). In connection with
such sale, the purchasers and any entity which facilitated such
sale undertook to ensure compliance with Regulation  S,  which
among other  things,  limits  a  foreign investor's  ability to
trade the Company's stock in the  United States. The  Company
received net proceeds in the  amount  of $288,751 pursuant to
such sales.

During 1995, the Company issued the following shares of its
common stock to BICO:  3,000,000 shares at an assigned price of
$3.50 per share in return for a corresponding reduction in  the
amount  due from Diasense to BICO pursuant to the R&D Agreement
of $10,500,000;  and 1,200,000 shares of its common stock at  a
price of $3.50 per share.

In July, 1993, the Company commenced a public offering, which
is  continuing.   As  of September 30, 1998,  an  aggregate  of
1,063,460  shares had been issued with proceeds to the  Company
of $3,561,892.  Of that total, 230,961 shares with net proceeds
of $786,245 were issued in fiscal 1994; 437,768 shares with net
proceeds  of  $1,501,492 were issued in  fiscal  1995;  410,731
shares  with  net proceeds of $1,365,155 were  sold  in  fiscal
1996;   1000  shares were issued in fiscal 1998  at  $3.50  per
share. 10,000 shares were issued for consulting services  at  a
charge  to  operations of $35,000 in fiscal  1996;  and  27,000
shares  were reimbursed with net repayment of $94,500 in fiscal
1997.

The  Company  issued unregistered common stock  in  exchange  for
consulting services of 7,200 shares in fiscal 1994, 17,500 shares
in  fiscal  1995, 5,000 shares in fiscal 1996 and none in  fiscal
1997  or  1998.   The associated consulting service  expense  was
recognized  at a rate of $3.50 per share, which is the  price  at
which  the  common  stock was being sold in the Company's  public
offering.

At  September 30, 1998, the Company has reserved 6,676,513 shares
of  the  Company's unissued common stock for warrants which  were
outstanding  and  exercisable. Of these,  warrants  on  4,053,250
shares   were  issued to directors, officers, and  employees  for
meritorious   service,   employment   contracts,   and   personal
guarantees on Company indebtedness.  Also, warrants on  2,223,263
shares  were  issued to consultants and medical advisers  and  on
400,000  shares to individuals for personal guarantees on Company
loans.   The  per  share exercise price for 3,255,000  shares  is
$.50,  for 2,286,763 shares is $1.00 and for 1,134,750 shares  is
$3.50.  The fiscal years in which warrants expire are as follows:

          Warrant Expiration Year       Number of Shares
               1999                         3,085,013
               2000                         2,188,750
               2001                         1,187,750
               2002                                 0
               2003                           215,000
                                            ---------
                                            6,676,513
                                            =========

The  following is a summary of warrant transactions during fiscal
years ended September 30,

                            1998        1997       1996      1995       1994

Outstanding beginning    7,476,513   7,533,263  7,077,213  6,891,525  6,871,525
 of year

Granted during the year          0      59,000    743,250    265,200    125,000

Canceled during the year  (800,000)   (115,750)  (231,200)   (50,000)         0

Exercised during the
years at prices ranging
from $.1875 to $1.00 per
share                            0           0    (56,000)   (29,512)  (105,000)
                         ---------   ---------  ---------  ---------  ---------
Outstanding, and         6,676,513   7,476,513  7,533,263  7,077,213  6,891,525
eligible for exercise.   =========   =========  =========  =========  =========


During the period October 1, 1997 through September 30, 1998, the
Company  extended  the  exercise date  of  warrants  to  purchase
2,236,550  shares of common stock to certain officers, directors,
employees  and consultants.  Warrants for 748,000 were originally
granted  at an exercise price of $.50 per share and warrants  for
10,000  shares were origainally granted at an exercise  price  of
$1.00 and were extended at the same price.  The assumed value  of
the  stock when extensions for the 10,000 shares were granted was
$3.50,  which is the price at which the common stock was sold  in
the  Company's  public  offering; there is currently  no  trading
market for  the  common  stock.   The Company recorded  $25,000
against operations, which is the difference between the assumed
value and warrant  share price times the number of warrant shares
extended. In  1998,  management reduced its assumed value of the
Company's common  stock  to  $.50 based upon an absence of any
significant activity in the stock for an extended period of time.

During the period October 1, 1996 through September 30, 1997, the
Company  extended  the  exercise date  of  warrants  to  purchase
2,236,550  shares of common stock to certain officers, directors,
employees   and   consultants.   Warrants  for   2,236,550   were
originally  granted at an exercise price of $1.00 per  share  and
were  extended at the same price.  The assumed value of the stock
when the extensions were granted was $3.50, which is the price at
which  the  common  stock has been sold in the  Company's  public
offering;  there is currently no trading market  for  the  common
stock.  The Company recorded $5,593,875 against operations, which
is  the  difference between the assumed value and  warrant  share
price times the number of warrant shares extended.

During the period October 1, 1995 through September 30, 1996, the
Company  extended  the  exercise date  of  warrants  to  purchase
2,556,213  shares of common stock to certain officers, directors,
employees  and  consultants.  Warrants for 49,213  and  2,507,000
shares were originally granted at an exercise price of $1.00  and
$.50 per share, resepectively, and were extended at the same  price.
The assumed value of the stock when the  extensions were  granted
was $3.50, which is the price at which  the common stock has been
sold in the Company's public offering;  there  is currently  no
trading market for the common stock.   The  Company recorded
$7,644,033 against operations, which is the difference between the
assumed  value and warrant share  price  times  the number of
warrant shares extended.

During the period October 1, 1994 through September 30, 1995, the
Company  extended  the  exercise date  of  warrants  to  purchase
1,550,000  shares of common stock to certain officers, directors,
employees and consultants.  The warrants were originally  granted
at  an exercise price of $.50 per share and were extended at  the
same  price.  The assumed value of the stock when the  extensions
were  granted was $3.50.  The Company recorded $4,650,000 against
operations, which is the difference between the assumed value and
warrant share price times the number of warrant shares extended.

In  1990, the Company granted warrants to purchase 800,000 shares
of  common stock at an exercise price of $.50 per share to  eight
current  or former directors or officers of the Company  or  BICO
who  personally guaranteed the payment of a lease  obligation  to
the  bank  for  the premises occupied by BICO at the  300  Indian
Springs  Road  location.  The Company also  granted  warrants  to
purchase 100,000 shares of common stock each to an individual and
his company at an exercise price of $.50 per share for personally
guaranteeing the payment of an obligation related to the purchase
of  equipment  by  BICO.   In  addition,  the   Company   granted
warrants  to purchase 100,000  shares  of  common  stock  for
services  performed by consultants  at an exercise price of $.50.
The Company recorded an estimated value of these warrants at
$27,500 which was charged to operations.

NOTE H- SUPPLEMENT CASH FLOW INFORMATION

The Company's financing activities included the following noncash
transactions.

During  1992  and 1990, notes payable aggregating  $303,000
were canceled and exchanged for 371,000 shares of the Company's
common stock.

On  March 31, 1995, the Company issued 3,000,000 shares of  its
unregistered  stock  to BICO in payment of $10,500,000  due  to
BICO.

Cash paid for interest and income taxes were as follows:
                                                            From July 5, 1989
                                                              (inception)
                    September       September   September    through September
                     30,1998         30,1997     30,1996         30,1998

Interest Paid        $    0          $    0      $ 1,575         $10,529
                     ======          ======      =======         =======
Income Taxes Paid    $    0          $    0      $     0         $     0
                     ======          ======      =======         =======

NOTE I -  YEAR 2000 ISSUE

The  Company is currently working to resolve the potential impact
of the Year 2000 on the processing of date-sensitive information.
The  Year  2000  Issue is the result of computer  programs  being
written  using  two  digits  (rather than  four)  to  define  the
applicable  year.   Programs which are  susceptible  to  problems
after  December 31, 1999 are those which recognize a  date  using
"00"  as  the  year 1900 rather than the year 2000,  which  could
result  in  miscalculations or system  failures.   Based  upon  a
review  of  its own internal programs and software,  the  Company
currently  believes that the Year 2000 will not pose  significant
operational  problems  to its information systems,  because  such
systems  are  already  compliant or will be made  compliant  with
minor   adjustments.    The  Company  is   also   conducting   an
investigation  of its major suppliers, vendors and other  parties
to determine their respective plans for the Year 2000 compliance.
The  Company's  current  estimates indicate  that  the  costs  of
addressing potential problems are not expected to have a material
impact   upon  the  Company's  financial  position,  results   of
operations  or  cash flows in future periods.  There  can  be  no
assurance,  however,  that modifications to  information  systems
which impact the Company and which are required to remediate year
2000 issues will be made on a timely basis and that they will not
adversely affect the Company's systems or operations.


NOTE J - SUBSEQUENT EVENT

In  December 1998 the Company entered into an agreement  to  sell
its   building  and  lease  it  back.   An  impairment  loss  was
recognized as a charge to general and administrative expenses in
the  financial statements  for  the  year  ended September  30,
1998 for $14,367 which represents the  difference between  the
previous book value of the building and the $175,000 sales  price
in the December 1998 agreement.  Under the terms  of the  agreement,
the Company will lease the building  back  at  a monthly rental of
$5,750 per month under a commercial lease  with a five year term.