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               09/30/97
                                                        --------
                Commission File Number                   0-26504
                                                        --------

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

       Pennsylvania                                           25-1605848
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       (State or other jurisdiction of                     (IRS Employer
       incorporation or organization)             Identification Number)

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

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

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, 1997:

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

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

As of October 31, 1997, 22,979,051 shares of Common Stock, par value $.01 per
share were outstanding. As of October 31, 1997, no shares of Preferred Stock
were outstanding.

Exhibit index is located on page 31.

                             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  1997, 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.   For  more  detailed information on these risks
and uncertainties, please refer to the Company's current Form S-1 Registration
Statement and Prospectus.

Description of Business

Development 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 Diasensor(R) 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 Diasensor(R)
1000.  BICO and Diasense announced that they remained committed to bringing the
Diasensor(R) 1000 to diabetics, and that additional research, development  and
testing  would continue (See, "Current Status of the  Noninvasive Glucose
Sensor").

The   Diasensor(R)   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 Diasensor(R) 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 Diasensor(R) 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 Diasensor(R) 1000 overseas.  The Companies are in the process of
obtaining  a  "CE" mark, which will facilitate sales in Europe.  In connection
with obtaining  a  CE mark, the Companies have undergone a  series  of audits
to be certified as manufacturers and marketers in Europe, and are working with
European consultants to expedite the process as much as possible.

BICO,  as  designer and manufacturer of the device, was  recently audited  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 has  been told by the auditors that BICO is being
recommended for 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.  The auditors have estimated  that the  certificate formalizing the
ISO 9001 certification  will  be received  by  BICO  in mid-January, 1998.
BICO  is  planning  to submit its technical file on the Diasensor(R) to TUV in
January  in order  to  satisfy  requirements of the European  Medical  Device
Directive.  Once satisfied, BICO will receive 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 will permit 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, the  Company  continued to meet with
the FDA, and  established  a protocol  for  in-home  testing of  the
Diasensorr  1000,  which commenced  in early 1997.  The Companies will resubmit
a  510(k) Notification when the in-home studies have been completed and the
data   has   been  analyzed.   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.

In  1996,  the Companies retained Mr. Jeff Nesbit, a  former  FDA Associate
Commissioner for Public Affairs, as  a  consultant  to guide  them  through the
FDA approval process and to assist  BICO with  its ongoing overall relationship
with the FDA.

Although the Company's research and development team continues to meet  with
and  work closely with the FDA, due to  the  complex, technical nature of the
information being evaluated by  the  FDA, 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 Diasensor(R)  1000, BICO plans to finalize the
development  of  the Diasensor(R) 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 Diasensor(R) 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 Diasensor(R) 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  1996 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 Diasensor(R)
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  Diasensor(R)  1000  is expected  to
continue.  Manufacturing of the Diasensor(R) 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.

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, 1997, 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 "Diasensor(R)
1000", which is intended for use in connection  with the Diasensor(R)  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  Diasensor(R) 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 until 1998.   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 Diasensor(R) 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
Diasensor(R) 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 Diasensor(R) 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.

Future  sales of Diasense's products may also be affected by  the Clinical
Laboratory  Improvement Amendments  of  1988  ("CLIA"), which  are intended to
assure the quality and reliability of  all medical  testing in the United
States, regardless  of  where  the testing  is  performed.   Regulations to
implement  CLIA  became effective in 1992, and, accordingly, the current or
future impact of  such  regulations  on  Diasense's products  cannot  fully  be
determined  at this time.    These regulations affect  previously unregulated
testing   markets,   including   physician   office laboratories and small
volume test sites.  These market  segments may  be  discouraged  from
initiating, continuing  or  expanding patient  testing as a result of CLIA.
There can be no  assurance that  the  regulations will not have an effect on
the  potential uses  for the Noninvasive Glucose Sensor, with a resulting
impact on its potential markets.


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 four full-time employees, most  of  which are  located  at  its
Pittsburgh, Pennsylvania office.   Diasense also  has one employee in its
Maryland office.  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").

As  of  November 1997, 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 1998.   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  violations  of  federal securities laws. The Companies have filed a
Motion to Dismiss the suit   and   are   aggressively   defending   against
it.    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.

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, 1997, 22,979,051 shares  of common stock were outstanding.  No
shares of Preferred Stock  are  outstanding.  As of November  30,  1997,  there
were currently  exercisable warrants outstanding to purchase 7,476,513 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, 2001.

As  of  November  30,  1997, the Company  had  approximately  610 holders  of
record for its common stock and no holders of  record for its preferred stock.

On  July  19, 1993, Diasense's S-1 Registration Statement  became effective
with  the SEC.  The following shares  were  registered with  the  SEC pursuant
to such Registration Statement: 3,000,000 primary  shares,  which are
authorized shares of Diasense  common stock  to be sold by the Company;
6,931,525 warrant shares, which underlie  currently  exercisable warrants  to
purchase  Diasense common   stock;  and  4,760,012  secondary  shares,   which
are outstanding shares of Diasense common stock purchased by  certain
shareholders  in  private  placements.   In  December  1995,  the Company
registered an additional 3,000,000 primary shares.   The Diasense public
offering is self-underwritten.

During  Fiscal  1995,  Diasense issued 3,000,000  shares  of  its unregistered
common stock to BICO in exchange for a  $10,500,000 reduction in amounts owed
to BICO by Diasense pursuant to the R&D Agreement.  In  addition,  BICO
purchased  1,200,000  shares  of Diasense  unregistered  common stock at  $3.50
per  share  (See, "Management's Discussion and Analysis of Financial Condition
and Results of Operations").

Diasense is not currently listed on any stock exchange or market, although  it
has  applied to be listed on the  NASDAQ  Small-Cap 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, 1997 there were outstanding warrants, all  of which are
currently exercisable, to purchase 7,476,513 shares  of common  stock at
exercise prices ranging from $0.50 to $3.50  per share and having expiration
dates ranging from April 24, 1998  to November  1,  2001.   During Fiscal 1997,
warrants  to  purchase 59,000  shares  of  common stock were granted,  and
warrants  to purchase  2,236,550 shares of common stock, which were  scheduled
to  expire during Fiscal 1997, were extended.  In November  1997, an
additional  10,000 warrants were extended  until  2000.   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 1997, such
annual salaries had been  increased  to  $150,000  and  $100,000  respectively.
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, 1997, 1996, 1995,  1994,  and  1993,  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.

<TABLE>

                    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
                     1997          1996          1995          1994          1993
<S>             <C>           <C>           <C>           <C>           <C>
R&D Expenses    $    -0-      $    -0-      $ 3,487,882   $ 2,807,508   $ 1,850,838

General &
Administrative
Expenses        $ 1,023,961   $ 1,509,298   $ 2,323,279   $ 2,388,854   $ 1,968,378

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

Net Loss       ($ 6,564,837) ($ 9,021,823) ($10,361,514) ($ 5,145,081) ($ 3,763,101)

Total Assets    $ 3,108,243   $ 4,171,910   $ 5,407,401   $   694,712   $   510,341

Liabilities     $    22,419   $    20,624   $ 1,323,980   $ 7,172,585   $ 2,980,829

Working Capital
(Deficit)       $ 2,862,349   $ 3,914,198   $ 3,839,965  ($ 6,707,855) ($ 2,689,986)

Accumulated
Deficit        ($41,960,771) ($35,395,934) ($26,374,111) ($16,012,597) ($10,837,516)

Net Loss
Per Common
Share              ($.29)        ($.39)        ($.54)        ($.29)        ($.21)

Cash Dividends
Per Share:
Common          $    -0-      $    -0-      $    -0-      $    -0-      $    -0-
</TABLE>

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, 1996 through September  30,  1997  is referred to as Fiscal 1997.

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, 1997 was $1,181,070  as compared to a
balance at September 30, 1996 of $1,143,312  and  a balance  of   $4,149,163 at
September 30, 1995.  The 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.  Sales of common  stock  during
Fiscal 1995 included a sale of  1,200,000 shares of the Company's unregistered
common  stock  to  BICO,  with  net   proceeds   of $4,200,000. The decrease
during Fiscal 1996 and Fiscal  1997  was attributable to decreased funds raised
by the Company.   Diasense is  conducting  its initial public offering, which
was  effective with  the  SEC on July 19, 1993.  As of September 30,  1997,
net proceeds  of  $3,558,392  had  been  raised  pursuant   to   such
registration.   No  warrants  to  purchase  common   stock   were exercised
during Fiscal 1997.

Diasense had working capital of $2,862,349 at September 30, 1997, as compared
to $3,914,198 at September 30, 1996 and $3,839,965 at September  30,  1995.
This fluctuation in working  capital  was primarily  attributable to funds
raised from sales of  its  stock 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
Diasensor(R) 1000.

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 1997, such annual salaries had been increased to $150,000 and
$100,000, respectively.   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").

Diasense  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 activities through  at least  September 30, 1998.  Such
estimate is based, in  part,  on monthly expenditures of approximately $85,000
during Fiscal 1997, as  compared  to $125,000 during Fiscal 1996 and $484,000
during Fiscal  1995;  although  that monthly  aggregate  amount  may  be
revised,  as  described below, depending  upon  the  progress  of development
of the Noninvasive Glucose Sensor.

In  addition to the proceeds that Diasense is attempting to raise in  its
self-underwritten public offering, Diasense is attempting to  secure additional
financing from various sources.   Based  on Diasense's  available cash, 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 through at  least  September  30,  1998.  If, subsequent  to  that
date, Diasense  is not able to obtain additional financing or  if  such
additional financing is insufficient, Diasense would be  required to  cease
operations  and  the development  of  the  Noninvasive Glucose Sensor
altogether.

Accordingly,  Diasense may be required, depending on  the  amount and  timing
of  the  receipt of proceeds of its  initial  public offering,  to  seek
substantial additional financing  from  third parties  to  complete the
development of the Noninvasive  Glucose Sensor,  to obtain FDA or European
Community 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 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 $1,023,961  during Fiscal  1997,
as compared to $1,509,298 during Fiscal  1996  and $2,323,279  during Fiscal
1995.  This decrease was due  primarily to the suspension of billings pursuant
to the R&D Agreement.

Other  income aggregated $52,999 in Fiscal 1997, as  compared  to $133,083  in
Fiscal  1996, and $103,106 in Fiscal  1995.   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  1997,  1996  and  1995,  the  Company   extended 2,236,550;
2,556,213 and 1,550,000 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), $5,593,875 was charged to operations  in Fiscal 1997, $7,644,033 was
charged to operations in Fiscal  1996 and  $4,650,000 was charged to operations
in Fiscal 1995.

Income Taxes

As   of   September  30,  1997,  the  Company  had  approximately $21,800,000
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  2005-2011.  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 2010.

Supplemental Financial Information (unaudited)

None.

Item 8.  Financial Statements and Supplementary Data.

The Company's consolidated financial statements appear on pages F- 1 through
F-20 of this report.

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

Effective January 25, 1995, upon a determination by the Board  of Directors,
the  Company  engaged Thompson  Dugan,  P.C.  as  its independent  auditors and
accountants to replace  Grant  Thornton LLP.  Thompson Dugan also serves as the
independent auditors  and accountants  for  BICO,  replacing Grant Thornton
LLP.   Neither company had any disagreements with Grant Thornton LLP or
Thompson Dugan,  P.C. on any matter of accounting principles or practices,
financial statement disclosure or auditing scope or procedure.


                            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     69      1989    Chairman of the Board,
                                           Chief Scientist

        Fred E. Cooper     52      1989    President, CEO, Director

        Anthony J. Feola   50      1991    Director

        C. Terry Adkins    46      1992    Vice President of
                                           International Sales,
                                           Director

DAVID  L.  PURDY,  69,  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, 52, 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, 50, 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.

C.  TERRY  ADKINS, 46, has been the Company's Vice  President  of International
Sales  since October 1992, and  a  director  since March  1992. From July 1990
until January 1992, Mr. Adkins was  a private  consultant to the banking
industry  with  an  office  in Annapolis, MD, and owned Brie Cor Funding, Inc.,
a company  which provided  financial advisory services.  He became an employee
of Diasense  on  January 1, 1992.  He was associated  with  Maryland Public
Banks, Inc. in 1989-90 and served as the President of the Annapolis  National
Bank in 1990.  From 1987  to  1989,  he  was President of the Madison Bank of
Maryland.

Gary  Keeling,  a former officer and director of Diasense,  Inc., resigned his
positions in August, 1997 and left the Company.

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, 1997, 1996  and 1995   of those persons who
were, at September 30, 1997: (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.          1997  $ 150,000    $ 0         $ 0        363,500(3)              $ 0
Cooper,          1996  $ 150,000    $ 0         $ 0        478,545(3)              $ 0
CEO (4)          1995  $ 167,045    $ 0         $ 0        350,000(3)              $ 0
-----------------------------------------------------------------------------------------------
David L.         1997  $  87,500    $ 0         $ 0        0                       $ 0
Purdy            1996  $ 100,000    $ 0         $ 0        600,000(3)              $ 0
Chief Scientist  1995  $ 102,273    $ 0         $ 0        350,000(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 1997, 1996 or 1995.  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.  The Company currently has key- man life insurance for
     David L. Purdy and Fred E. Cooper.

(2)  During  the years ended September 30, 1997, 1996  and  1995, the  Named
     Executives received medical benefits  under  the Company's group insurance
     policy.

(3)  During  Fiscal  1995,  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  (See,  "Option/Warrant/SAR  Grants
     in  Fiscal  1997" Table).

(4)  Mr.  Cooper  will  be paid salary and bonuses  aggregating approximately
     $442,000, $426,000 and  $330,000  by BICO  and its  other subsidiaries
     during calendar years 1997, 1996 and 1995, respectively.

(5)  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 $154,000,
     $300,000, and  $300,000 by   BICO  during  calendar  years  1997,  1996,
     and  1995, respectively.

<TABLE>
             Option/Warrant/SAR Grants in Last Fiscal Year

                                                                      Potential Realized
                                                                      Value at Assumed
                                                                      Annual Rates of Stock
                                                                      Price Appreication For
                         Individual Grants (1)                        Option Term (3)
--------------------------------------------------------------------------------------------------
<S>             <C>           <C>            <C>          <C>          <C>      <C>       <C>
                              Percent of
                Number of     Total
                Securities    Options/SARS
                Underlying    Granted to     Exercise
                Options       Employees in   or           Expiration
Name            SARS          Fiscal Year    Base Price   Date         5% ($)   10% ($)   0% (5)
                Granted (4)   (2)            ($/Sh)
--------------------------------------------------------------------------------------------------
Fred E. Cooper   150,000         6.5%         $ 1.00      10/25/99    $462,900  $554,700  $375,000
--------------------------------------------------------------------------------------------------
</TABLE>

(1)  The  warrants set forth in this table represent the warrants already held
     by the Named Executives which were extended  by the  Company during Fiscal
     1997.  These warrants to purchase the  Company's common stock were
     originally granted  to  the Named   Executives   in   1991  and  1992
     (See,   "CERTAIN RELATIONSHIPS  AND  RELATED  TRANSACTIONS").   Although
     the warrants  were  not  actually awarded during   Fiscal  1997, they  are
     included in this Executive Compensation disclosure section  because  the
     exercise price of the warrants,  which was  not changed at the time of the
     extension, was less than the  "market price" of the common stock at the
     time  of  the extension.

(2)  For  purposes  of calculating these percentages,  the  total number  of
     warrants granted or extended during  Fiscal  1997 was  2,295,550  which
     included 59,000 new grants  in  Fiscal 1997,  and  extensions  of
     2,236,550  warrants  originally granted in 1991 and 1992.

(3)  Potential  realizable values reflect the difference  between the  warrant
     exercise price at the end of  Fiscal 1997   and the  fair value of the
     Company's common stock price from the date  of the grant or extension
     until the expiration of  the warrant.   The  5%  and 10% appreciation
     rates,  compounded annually,  are assumed pursuant to the rules
     promulgated  by the  SEC  and do not reflect actual historical or
     projected rates  of  appreciation of the common stock.  Assuming  such
     appreciation, the following illustrates the per share  value on  the
     dates  set  forth  (the expiration  dates  for  the warrants),  assuming
     the values set forth ($3.50 per  share, 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):

         STOCK PRICE ON DATE                 EXPIRATION
         OF GRANT OR EXTENSION               DATE           5%      10%
         ---------------------               ----------  -------  ---------
          10/22/96: $3.50                    10/25/99     $4.086   $4.698

          01/03/97: $3.50                    01/27/00     $4.332   $4.995

     The  foregoing  values do not reflect appreciation  actually realized  by
     the Named Executives (See, "Option/Warrant/SAR Exercises   in   Last
     Fiscal  Year  and   Fiscal   Year-End Option/Warrant/SAR Value" Table,
     Below).

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

                                           Number of         Value of
                                           Securities        Unexercised
                                           Underlying        In-the-Money
                                           Unexercised       Options/SARs
                                           Options/SARs      at FY-End ($)
                                           at FY-End (#)

Name             Shares       Value        Exercisable/      Exercisable/
                 Acquired     Realized($)  Unexercisable(4)  Unexercisable(5)
                 on Exercise  (3)
                 (#)(1)(2)
-----------------------------------------------------------------------------
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, 1997, 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 current  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, 1998);
     100,000 shares of common  stock  at $.50 per share until June 29, 1995
     (extended until June  29, 1998);  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, 1998);
     100,000 shares of common  stock  at $.50 per share until June 29, 1995
     (extended until June  29, 1998);  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 1997, such  annual  salaries  had  been  increased  to  $150,000,
and $100,000,  respectively.   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

<TABLE>
                                                                     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)
---------------------------------------------------------------------------------
<S>                  <C>               <C>         <C>               <C>
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

C. Terry Adkins         16,000            *         116,000(9)          *
1623 Forest Drive
Annapolis, MD  21403

All directors and       90,000            *       3,120,045(10)        12.0%
executive officers
as a group (4 persons)

* Less than one percent
________________________
</TABLE>

(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, 1997, which was 22,979,051.

(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,  1997.   For  individual  computation purposes,
     the  total  number  of  shares  of  common  stock outstanding  as of
     September 30, 1997 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,  1998); 300,000  shares  of  common stock at
     $.50  per  share  until March 25, 1996;  100,000 shares of common stock at
     $.50  per share  until June 29, 1995 (extended until June  29,  1998); and
     300,000 shares of common stock at $.50 per share  until May 7, 1996
     (extended until May 7, 1996).

(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, 1998); 100,000 shares of common stock at
     $.50 per share until  June 29,  1995 (extended until June 29, 1998);
     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, 1998); 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  currently  exercisable warrants  to  purchase  the following:
     100,000 shares of common stock at $.50 per  share until June 29, 1995
     (extended until June 29, 1995).

(10) 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,  Barnacle
Ban,   and  Petrol Rem Boards.  He is also the CEO and  Executive Vice
President of BICO, and President of Barnacle Ban.   Anthony J.  Feola,  a
director, is also a director on the BICO, Coraflex, Barnacle  Ban 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,  1998),  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. 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 1995 through Fiscal 1997, Diasense issued warrants to  purchase
common stock to the following executive officers and directors:

To  Gary R. Keeling for meritorious service in 1995: warrants  to purchase
100,000  shares at $3.50 per share  until  October  24, 2000.   Mr.  Keeling is
no longer an officer or director  of  the Company.


                             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,  1997; September 30,
      1996  F-3

     Consolidated  Statements of Operations For  the  Fiscal Years Ended
     September 30, 1997, 1996, 1995; and July 5, 1989 (inception) through
     September 30, 1997  F-4

     Consolidated  Statements  of Changes  in  Stockholders' Equity  for the
     Fiscal Years Ended September 30,  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, 1997, 1996, 1995; and July 5, 1989 (inception) through
     September 30, 1997  F-6

      Notes  to Consolidated Financial Statements for the  Fiscal Year Ended
      September 30, 1997 F-7

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

     The  Company filed a Form 8-K report dated August 29,  1997. 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.

     5.1(3)    Legal Opinion of Sweeney & Associates P.C.

     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 Gary R. Keeling

     24.1(3)   Consents of Thompson Dugan, P.C., Independent Certified
               Public Accountants

     24.3(3)   Consent of Counsel (Included in 5.1 above)

     25.1(3)   Power of Attorney of Fred E. Cooper (included under
               "Signatures")


(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.

(3)  Incorporated by reference from Exhibit with this title filed with  the
     Company's Amendment No. 2 to Form S-1 at 33-82796 filed November 22, 1995.

<PAGE>

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
__th day of December 1997.

                                   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 31, 1997
         David L. Purdy      the Board;
                             Chief Scientist

   /s/   Fred E. Cooper      President and             December 31, 1997
         Fred E. Cooper      Director
                             (principal executive
                             officer, principal
                             financial officer, and
                             principal accounting
                             officer)

   /s/   C. Terry Adkins     Vice President            December 31, 1997
         C. Terry Adkins     International Sales;
                             Director

   /s/   Anthony J. Feola    Director                  December 31, 1997
         Anthony J. Feola

<PAGE>
                                 THOMPSON DUGAN
                                CERTIFIED PUBLIC
                                  ACCOUNTANTS
                            ________________________

                               Pinebridge Commons
                            1580 McLaughlin Run Rd.
                              Pittsburgh, PA 15241



              Report of Independent Certified Public Accountants

Independent Auditor's 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, 1997 and 1996, and the
related statements of operations, changes in stockholder's equity and cash
flows for each of the three years in the period ended September 30, 1997, and
for the period from July 5, 1989 (inception) through September 30, 1997. 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, 1997 and 1996, and the results of its operations and its cash flows for
each of the three years in the period ended September 30, 1997, and for the
period from July 5, 1989 (inception) through September 30, 1997, 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, 1997
and from July 5, 1989 (inception) through September 30, 1997, 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 note B, 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, 1997

/s/ Thompson Dugan PC
---------------------

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

                          CONSOLIDATED BALANCE SHEETS

                                       September 30,  September 30,
                ASSETS                      1997          1996
                                        -----------    -----------
Current assets
  Cash and cash equivalents (note A)    $ 1,871,070    $ 1,143,312
  Due from BICO (notes A and E)              -           1,777,197
  Inventory deposit - BICO (note F)       1,000,000      1,000,000
  Prepaid expenses                           13,698         14,313
                                        -----------    -----------
               Total current assets       2,884,768      3,934,822

Property and equipment - at cost (notes A and C)
  Building and improvements                 236,663        236,663
  Furniture and fixtures                     42,750         42,750
                                        -----------    -----------
                                            279,413        279,413
  Less accumulated depreciation              55,938         42,325
                                        ------------   -----------
                                            223,475        237,088
                                        -----------    -----------
               TOTAL ASSETS             $ 3,108,243    $ 4,171,910
                                        ===========    ===========

                      LIABILITIES and STOCKHOLDERS' EQUITY

Current liabilities
  Accounts payable                      $     9,433    $    20,095
  Other accrued liabilities                  12,986            529
                                        -----------    -----------
              Total current liabilities      22,419         20,624

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
  22,979,051 at Sep. 30, 1997 and
  23,006,051 at Sep. 30, 1996               229,791        230,061
  Additional paid-in capital             26,888,581     26,982,811
  Warrants                               17,928,223     12,334,348
  Deficit accumulated during the
  development stage                     (41,960,771)   (35,395,934)
                                        -----------    -----------
                                          3,085,824      4,151,286
            TOTAL LIABILITIES AND       -----------    -----------
                  STOCKHOLDERS' EQUITY  $ 3,108,243    $ 4,171,910
                                        ===========    ===========
[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, 1997    September 30, 1996  September 30, 1995  September 30, 1997
                                         ------------------    ------------------  ------------------   ------------------
<S>                                        <C>                  <C>                  <C>                  <C>
Research and development expenses
notes A, E, and F)                      $        -              $    -              $    3,487,882        $   10,556,405
General and administrative expenses
                                              1,023,961            1,509,298             2,323,279            11,248,301

Warrant extensions (note G)                   5,593,875            7,644,033             4,650,000            17,887,908

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

Interest expense                                   -                   1,575                 3,459                10,529

Other income - (note C)                         (52,999)            (133,083)             (103,106)             (459,777)

Other expense                                       -                 -                     -                     37,405
                                           --------------       --------------       --------------       ---------------
Net loss                                   $  (6,564,837)       $  (9,021,823)      $  (10,361,514)       $  (41,930,771)
                                           ==============       ==============       ==============       ===============
Net loss per common share (note A)         $       (0.29)       $       (0.39)      $        (0.54)       $        (2.33)
                                           ==============       ==============       ==============       ===============

<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, 1997

                                                                                                          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
                                                ==================== ========== ==========  ==========  ============ ===========

</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, 1997    September 30, 1996  September 30, 1995  September 30, 1997
                                         ------------------    ------------------  ------------------   ------------------
<S>                                        <C>                   <C>                 <C>                 <C>

Cash flows from operating activities:
 Net loss                                   $ (6,564,837)        $  (9,021,823)      $(10,361,514)       $ (41,930,771)
 Adjustments to reconcile net loss to net
 cash used by operating activities:
  Depreciation                                    13,613                13,373             10,022               55,938
  Stock issued in exchange for services           -                     52,500             61,250              138,950
  Stk issued for License & Marketing Agreement    -                     -                  -                    80,000
  Warrant extensions                           5,593,875             7,644,033          4,650,000           17,887,908
  Inventory deposit - BICO                        -                     -              (1,000,000)          (1,000,000)
  (Increase) decrease in prepaid expenses            615                   469              1,210              (13,698)
  Increase (decrease) in payable due to BICO      -                 (1,287,012)         4,688,494           10,500,000
  Increase (decrease) in accounts payable        (10,662)               (9,730)           (32,432)               9,433
  Increase (decrease) in accrued liabilities      12,457                (6,614)            (4,667)              12,986

                                            -------------        -------------      -------------        -------------
Net cash used in operating activities           (954,939)           (2,614,804)        (1,987,637)         (14,259,254)

Cash flows from investing activities:
  Purchase of property and equipment              -                     (7,005)           (23,496)            (279,413)
                                            -------------        -------------      -------------        -------------
Net cash used in investing activities             -                     (7,005)           (23,496)            (279,413)

Cash flows from financing activities:
  Advances to BICO                            (1,814,292)           (3,143,864)            -                (4,109,861)
  Repayment of advances to BICO                3,591,489             1,366,667             -                 4,676,447
  Proceeds from issuance of common stock         (94,500)            1,365,155          1,501,492           10,968,334
  Proceeds from issuance of common stk to BICO    -                     -               4,200,000            4,200,000
  Proceeds from warrants exercised                -                     28,000             10,066              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           1,682,697              (384,042)         5,711,558           16,409,737
                                            -------------       --------------       ------------        --------------
Net increase (decrease) in cash and cash equiv.  727,758            (3,005,851)         3,700,425            1,871,070
Cash and cash equivalents at beg of period     1,143,312             4,149,163            448,738               -
                                            ------------        --------------       ------------       --------------
Cash and cash equivalents at end of period  $  1,871,070        $    1,143,312       $  4,149,163       $    1,871,070
                                            ============        ==============       ============       ==============

The accompanying notes are an integral part of this statement.

</TABLE>
<PAGE>6
                         DIASENSE, INC.
                  (A Development Stage Company)

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                       September  30, 1997




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, 1997.  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, 1997.  All significant intercompany accounts and
     transactions have been elimated.

2.   CASH AND CASH EQUIVALENTS

     For  purposes  of  the  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 on a straight-line
     basis.

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.

<PAGE>7

NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
            POLICIES (Continued)

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
     22,979,125,  22,983,654 and 19,304,266  for  the  years  ended
     September 30, 1997, September 30, 1996 and September 30,  1995
     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,
     1997,  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, 1997 amounted to 17,986,154.

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

<PAGE>8

NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
            POLICIES (Continued)

10.  COMMON STOCK WARRANTS (Continued)

     permitted by Financial Accounting Standard No. 123) its  reported
     net  losses  (utilizing the Black-Scholes  method  of  valuation)
     would  have been approximately $7,279,510 for the twelve  months
     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  $.32
     for  the twelve months ended September 30, 1997, and approximately
     $.69 for the year ended September 30, 1996.

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.   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 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,  1997
     and  has  a  significant accumulated deficit as of September  30,
     1997, 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 ended 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.  Pursuant to a manufacturing agreement
     between BICO and Diasense, BICO will manufacture the Sensor  once
     development is completed.

<PAGE>9

NOTE B - OPERATIONS (Continued)

     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,  1996  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, 1997 of  $17,017,137 (unaudited) and for  the  fiscal
     year  ended December 31, 1996 of $22,395,703, compared to a net loss
     for  the fiscal year ended December 31, 1995 of $29,420,345.  As  of
     December  31,  1996,  and  September 30,  1997,  BICO's  accumulated
     deficit was $88,616,059 and $105,633,196 (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 and  from
     funds  paid  by Diasense to BICO for research and development  of
     the  Noninvasive Glucose Sensor.  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, 1997,  1996  and
     1995  consists of $10,471, $90,555 and $62,811 of interest income
     and  $42,528,  $42,528  and $40,295 of rental  income  for  their
     respective  periods.  The total rental income for the year  ended
     September 30, 1997, 1996 and 1995 was from BICO for office  space
     under a lease which expires April 30, 1998.

NOTE D - INCOME TAXES

     As of September 30, 1997, the Company has available approximately
     $21,800,000  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 2011.  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 2010.

<PAGE>10

NOTE D - INCOME TAXES (Continued)

     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
     $17,882,908 as of September 30, 1997.  For tax purposes,  warrant
     expenses are not recognized 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, 1997 and 1996:

                                         1997         1996
                                      -----------  -----------
           Net Operating Loss          $7,412,000   $7,038,000
           Warrant Expense              6,080,189    4,179,971
           Patent Amortization            697,285      645,007
           Tax Credit Carry Forward       700,000      700,000
                                      -----------  -----------
                                       14,889,474   12,562,978
           Valuation Allowance        (14,889,474) (12,562,978)
                                      -----------  -----------
           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
                                        Deferred        in
                                          Tax        Valuation
                                        Benefit      Allowance   Net
                                       -----------  -----------  ---
     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, 1997     $(14,889,474) $14,889,474   $0

<PAGE>11

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.   Under
     the  terms  of  this agreement, BICO billed the Company  for  the
     years ended September 30, 1997, 1996 and 1995 and, for the period
     from  July  5,  1989 (Inception) through September  30,  1997  in
     amounts of $0, $0, $4,387,882 and $14,860,667, respectively.   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.


<PAGE>12

NOTE E - RELATED PARTY TRANSACTIONS (Continued)

1.   SENSOR RELATED AGREEMENTS  (Continued)

     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 year ended September 30, 1997, 1996 and 1995, net
     intercompany  charges by the Company to BICO and its subsidiaries
     were  $129,960,  $5,558  and $301,413.  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.

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.

<PAGE>13

NOTE F - COMMITMENTS AND CONTINGENCIES  (Continued)

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.   INVENTORY DEPOSIT

     The Company has advanced $1,000,000 to BICO for purchases  of the
     Diasensor 1000.  The classification and realization of this asset
     is dependent upon achieving sufficient production and sales of
     the Diasensor 1000 and BICO's ability to continue as a going concern.

4.   LITIGATION

     A  class action lawsuit has been filed against the Company, along
     with  BICO  and  BICO's individual directors.  The  suit  alleges
     various  violations  of  Federal securities  laws  on  behalf  of
     certain BICO shareholders.   The companies have filed a Motion to
     Dismiss  the  suit to which the plantiffs have responded  with  a
     motion  in opposition, neither of which have been ruled  upon  by
     the  court.   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.

5.   PENNSYLVANIA SECURITIES COMMISSION

     The  Pennsylvania Securities Commission is conducting  a  private
     investigation of Diasense and BICO in connection with the sale of
     securities.  To date, no findings have been communicated  to  the
     Company; no order has been issued; and no administrative  action
     has commenced.

<PAGE>14

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, 1997, an aggregate of  1,062,460
     shares   had  been  issued  with  proceeds  to  the  Company   of
     $3,558,392.   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;
     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.

<PAGE>15

NOTE G - STOCKHOLDERS' EQUITY  (Continued)

     Common Stock  (Continued)

     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.   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.

     Common Stock Warrants

     At  September 30, 1997, the Company has reserved 7,476,513 shares
     of  the  Company's unissued common stock for warrants which  were
     outstanding  and  exercisable. Of these,  warrants  on  4,853,250
     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 4,055,000 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
          -----------------------       ----------------
                    1997                          10,000
                    1998                       1,763,000
                    1999                       3,085,013
                    2000                       2,178,750
                    2001                         439,750
                                          --------------
                                               7,476,513
                                          ==============


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

<TABLE>
                                     1997       1996       1995       1994       1993
                                  ---------  ---------  ---------  ---------  ---------
<S>                               <C>        <C>        <C>        <C>        <C>
Outstanding beginning of year     7,533,263  7,077,213  6,891,525  6,871,525  6,946,525

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

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

Exercised during the years at
prices ranging from $.1875 to
$1.00 per share                           0    (56,000)   (29,512)  (105,000)   (25,000)

Outstanding, and eligible for     ---------  ---------  ---------  ---------   ---------
exercise.                         7,476,513  7,533,263  7,077,213  6,891,525   6,871,525
                                  =========  =========  =========  =========   =========
</TABLE>

<PAGE>16

NOTE G - STOCKHOLDERS' EQUITY  (Continued)

     Common Stock Warrants  (Continued)

     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.

<PAGE>17

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:

<TABLE>
                                                                  From July 5, 1989
                 September 30,  September 30,   September 30,     (inception) through
                     1997           1996            1995          September 30,1997
                 ------------   ------------    ------------      -------------------
    <S>            <C>            <C>             <C>               <C>

    Interest Paid          $0         $1,575          $3,459                  $10,529
                 ============   ============    ============      ===================
Income Taxes Paid          $0             $0              $0                       $0
                 ============   ============    ============      ===================
</TABLE>