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

                                     FORM 10-Q/A

               /X/   Quarterly Report Pursuant to Section 13 or 15 (d)
                        of the Securities Exchange Act of 1934
                          For Quarter Ended June 30, 1998

                                        OR

                     Transition Report Pursuant to Section 13 or 15 (d)
                        of the Securities Exchange Act of 1934
                        For the transition period from       to     
                                                        ----     ----

                                Commission File No.  1-12714


                                   OSMONICS, INC.                  
               (Exact name of registrant as specified in its charter)

                    MINNESOTA                           41-0955759       
           (State or other jurisdiction of           (I.R.S. Employer
           Incorporation or organization)          Identification Number)

            5951 CLEARWATER DRIVE, MINNETONKA, MN          55343        
          (Address of principal executive offices)       (Zip Code)

         Registrant's telephone number, including area code (612) 933-2277

                                          N/A                            
                        Former name, former address and former
                      fiscal year, if changed since last report

          Indicate by check mark whether the registrant (1) has filed
          all reports required to be filed by Section 13 or 15 (d) of the
          Securities Exchange Act of 1934 during the preceding 12 months
          (or for such shorter period that the registrant was required to
          file such reports) and (2) has been subject to such filing
          requirements for at least the past 90 days.

                                   Yes  X    No    
                                       ---      ---
          Indicate the number of shares outstanding of each of the
          issuer's classes of common stock, as of the latest practicable
          date.  At February 28, 1999, 14,008,163 shares of the issuer's
          Common Stock, $0.01 par value, were outstanding. 


                                    OSMONICS, INC.

                                        INDEX


          PART I.  FINANCIAL INFORMATION                              PAGE

            ITEM I.  FINANCIAL STATEMENTS

                 Consolidated Statements of Operations -                 2
                 For the Three and Six Months Ended
                  June 30, 1998 (as restated) and 1997

                 Consolidated Balance Sheets -                           3
                 June 30, 1998 (as restated) and December 31, 1997

                 Consolidated Statements of Cash Flows -                 4
                 For the Six Months Ended
                 June 30, 1998 (as restated) and 1997

                 Notes to Consolidated Financial Statements -          5-8

            ITEM II. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                     FINANCIAL CONDITION AND RESULTS OF OPERATIONS    9-12
                        
          PART II. OTHER INFORMATION

            ITEM 4.  SUBMISSION OF MATTERS TO A VOTE                  
                     OF SECURITY HOLDERS                                12

            ITEM 5.  A.  ISO 9001 CERTIFICATION                         13

                     B.  ADVANCE NOTICE REQUIREMENT                     13

            ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K                   13


          SIGNATURES                                                    14


                             OSMONICS, INC.
                                 PART I 
                         FINANCIAL INFORMATION


          ITEM I - FINANCIAL STATEMENTS


                                      OSMONICS, INC.
                          CONSOLIDATED STATEMENTS OF OPERATIONS
                           (In Thousands Except Per Share Data)

                                 Three Months Ended       Six Months Ended
                                      June 30,                June 30,    
                                --------------------       ---------------
                                  (As Restated) *           (As Restated) *
                                    1998      1997         1998      1997
                                   ------    ------       ------    ------

          Sales                   $47,353   $41,789      $89,503   $84,102

          Cost of sales            31,908    24,931       57,951    50,895
                                   ------    ------       ------    ------
          Gross profit             15,445    16,858       31,552    33,207

          Less:
            Selling, general
            and administrative     10,507    10,205       20,381    19,922

            Research, development
            and engineering         2,519     2,773        4,847     5,559
           
            Special charges         7,988       -          7,988       - 
                                   ------    ------       ------    ------
          Income (loss) from
          operations               (5,569)    3,880       (1,664)    7,726

          Other income (expense)     (981)       23       (1,557)      (78)
                                   ------    ------       ------    ------
          Income (loss) from
            continuing operations
            before income taxes    (6,550)    3,903       (3,221)    7,648

          Income taxes             (1,267)    1,310         (102)    2,621
                                   ------    ------       ------    ------
          Income (loss) from
            continuing operation   (5,283)    2,593       (3,119)    5,027

          Recovery on
            discontinued
            operations                -         -            -         325
                                   ------    ------       ------    ------
          Net income (loss)       $(5,283)   $2,593      $(3,119)   $5,352
                                   ======    ======       ======    ======

          Earnings per share
           - basic
            
          Income (loss) from
            continuing operations $ (0.38)   $ 0.18      $ (0.22)   $ 0.36
            Net income            $ (0.38)   $ 0.18      $ (0.22)   $ 0.38

          Earnings per share
           _ assuming dilution

             Income (loss) from
             continuing
             operations          $ (0.38)    $ 0.18      $ (0.22)   $ 0.35
            
             Net income          $ (0.38)    $ 0.18      $ (0.22)   $ 0.37

          Average shares
           outstanding
             Basic                13,962     14,071       13,956    14,137
             Assuming dilution    13,962     14,362       13,956    14,450

          * See Restatement of Quarterly Financial Statements in notes to
            the condensed consolidated financial statements.



                                 OSMONICS, INC.
                          CONSOLIDATED BALANCE SHEETS
                       (In Thousands Except Share Data)

                                                 June 30,      December 31,
                                                   1998           1997   
                                                 --------       --------
          ASSETS                                (As Restated) *
          Current assets
            Cash and cash equivalents              $ 3,899       $ 4,872
            Marketable securities                   15,632        17,004
            Trade accounts receivable, net of 
              allowance for doubtful accounts of
              $1,001 in 1998, and $888 in 1997      30,767        28,969
            Inventories                             34,391        35,228
            Deferred tax assets                      7,227         1,413
            Other current assets                     2,142         1,639
                                                   -------       -------
              Total current assets                  94,058        89,125
                                                   -------       -------
          Property and equipment, at cost
            Land and land improvements               5,606         5,535
            Building                                30,304        29,278
            Machinery and equipment                 68,802        62,770
                                                   -------       -------
                                                   104,712        97,583
          Less accumulated depreciation            (48,681)      (42,550)
                                                   -------       -------
                                                    56,031        55,033
          Other assets                              51,369        20,325
                                                   -------       -------
          Total assets                            $201,458      $164,483
                                                   =======       =======

          LIABILITIES AND SHAREHOLDERS' EQUITY
          Current liabilities
            Accounts payable                      $ 12,960      $  9,728
            Notes payable and current portion
              of long-term debt                     32,156        16,174
            Other accrued liabilities               18,888        17,950
                                                   -------       -------
              Total current liabilities             64,004        43,852
                                                   -------       -------
          Long-term debt                            33,819        13,792
          Other liabilities                             21            25
          Deferred income taxes                      4,296         4,439
          Shareholders' equity
            Common stock, $0.01 par value
              Authorized -- 50,000,000 shares
              Issued --  1998: 13,971,873 and
                         1997: 13,943,544 shares     140           140
            Capital in excess of par value          20,612        20,261

            Retained earnings                       77,009        80,128
            Unrealized gain on marketable
             securities                              1,924         2,180
            Foreign currency translation
              adjustments                            (367)          (334)
                                                   -------       -------
             Total liabilities and
             shareholders' equity                 $201,458      $164,483
                                                   =======       =======

          * See Restatement of Quarterly Financial Statements in notes to
            the condensed consolidated financial statements.


                                    OSMONICS, INC.
                         CONSOLIDATED STATEMENTS OF CASH FLOWS
                                    (In Thousands)

                                                     Six Months Ended
                                                         June 30,      
                                                    1998           1997  
                                                  --------       --------
                                              (As Restated) *
          Cash flows from operations:
            Net income (loss)                    $ (3,119)      $  5,352
            Non-cash items included in
             net income:
              Depreciation and amortization          3,769         2,632
              Deferred income taxes                 (2,602)          111
              Gain on sale of investments             (180)         (560)
            Special charges                          9,988           - 
            Changes in assets and liabilities
               (net of business acquisitions)
               Accounts receivable                     226        (1,057)
               Inventories and other
                current assets                         939         3,450
               Accounts payable and accrued
                liabilities                         (1,743)       (5,884)
                                                   -------       -------
            Net cash provided by operations          7,278         4,044
                                                   -------       -------

          Cash flows from investing activities:
            Business acquisitions
              (net of cash acquired including
                purchased R&D)                     (40,713)      (10,203)  
            Purchase of investments                   (457)         (461)
            Sale of investments                      1,615         1,251
            Purchase of property and equipment      (3,821)       (3,498)
            Sales of property and equipment            110            57
            Other                                     (147)           86
                                                   -------       -------
            Cash used in investing activities      (43,413)      (12,768)
                                                   -------       -------

          Cash flows from financing activities:
            Proceeds from notes payable and debt    37,000        12,284
            Reduction of debt                       (2,156)         (103)
            Issuance of common stock                   351           545
            Purchase of company stock                  -          (5,249)
                                                   -------       -------
            Net cash provided by financing
             activities                             35,195         7,477
                                                   -------       -------
          Effect of exchange rate changes on cash      (33)          270
          Decrease in cash and cash equivalents       (973)         (977)
          Cash and cash equivalents -
            beginning of year                        4,872         5,392
                                                   -------       -------
          Cash and cash equivalents -
            end of quarter                         $ 3,899       $ 4,415
                                                   =======       =======

        * See Restatement of Quarterly Financial Statements in notes to
          the condensed consolidated financial statements.


                                     OSMONICS, INC.
                        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

          The accompanying unaudited condensed financial statements have been
          prepared in accordance with the instructions to Form 10-Q and do not
          include all the information and footnotes required by generally
          accepted accounting principles for complete financial statements.  In
          the opinion of management, all adjustments (consisting of normal
          recurring accruals) considered necessary for a fair presentation have
          been included.

          Operating results for the three months and six months ended June 30,
          1998, are not necessarily indicative of the results that may be
          expected for the full year 1998.

          These statements should be read in conjunction with the financial
          statements and related notes included in the Company's Annual Report
          to shareholders and Form 10-K for the year ended December 31, 1997.

          COMPREHENSIVE INCOME:
          Effective January 1, 1998, the Company adopted Statement of Financial
          Accounting Standards (SFAS) No. 130, Reporting Comprehensive
          Income which establishes standards for the reporting of
          comprehensive income and its components.  The Company has the
          following components of comprehensive income:

                                                   Six Months Ended June 30,
                                                     1998            1997
                                                    ------          ------
          Net income (loss)                        $(3,119)         $5,352

          Other comprehensive income (loss),
            before tax:
            Foreign currency translation
              adjustments                              (33)           (270)
            Unrealized gains/(losses) on
              securities                              (256)           (572)
                                                    ------          ------
          Other comprehensive income (loss),
            before tax                                (289)           (842)
          Income tax expense related to items of
            other comprehensive income (loss)          (98)           (286)
                                                    ------          ------
          Other comprehensive income (loss),
            net of tax                                (191)           (556)
                                                    ------          ------
          Comprehensive income (loss)              $(3,310)         $4,796
                                                    ======          ======

          SEGMENT INFORMATION
          In June 1997, The Financial Accounting Standards Board issued SFAS
          No. 131, Disclosures about Segments of an Enterprise and Related
          Information.  SFAS No. 131 redefines how operating segments are
          determined and requires disclosure of certain financial and
          descriptive information about a company's operating segments.  The
          Company believes the required segment information disclosure under
          SFAS No. 131 will be more comprehensive than previously provided,
          including expanded disclosure income statement and balance sheet
          items.  The Statement is effective for fiscal years beginning after
          December 15, 1997; however, application is not required for interim
          periods in the initial year of its application.  The Company adopted
          the Statement effective January 1, 1998.


          ACQUISITION OF COMPANIES:
          The Company announced during the first quarter of 1998 the acquisition
          for cash of all the equity interest in Micron Separations, Inc. (MSI)
          of Westborough, Massachusetts, for a total consideration of
          approximately $25,000.

          MSI develops, manufactures and markets microfilter membrane products
          for diagnostic laboratory and industrial use.  The Company believes
          that these products are complementary to the cartridge filters
          Osmonics manufactures for the pharmaceutical, beverage and ultrapure
          water filtration markets.  Also, the Company believes that MSI's line
          of diagnostic and laboratory membrane products will complement the
          Company's Poretics track-etch membrane and give Osmonics a broader
          portfolio of products to offer the laboratory and analytical testing
          market.


          MSI's products will be sold through existing Osmonics distribution
          channels.  The revenues of MSI were less than $15,000 in each of the
          last three years.  The acquisition was recorded under the purchase
          method of accounting.

          The Company announced during the second quarter of 1998 the
          acquisition for cash of all the equity interest in Membrex Corp.
          (Membrex) of Fairfield, New Jersey.  The acquisition was approved
          by Membrex shareholders on April 15, 1998 and was recorded under the
          purchase method of accounting. Total consideration of the acquisition
          approximated $16,000 plus assumed net liabilities of approximately
          $3,000.  Membrex sales in 1997 were less than $10 million and would
          not have had a material impact on Osmonic's earnings.

          Membrex, a 13-year-old, privately held company, designs and
          manufactures membrane products and fluid treatment systems for
          industrial customers.  Applications include recycling machine tool
          coolant and cleaners, and minimizing oily waste water.

          Membrex has developed what the Company believes is the most
          hydrophilic ultrafiltration (UF) membrane on the market today.  The
          patented, solvent-resistant membrane separates oil from water and
          recyclable cleaners at least five times faster than competitive
          products, without fouling.  The technology allows service stations,
          repair facilities and manufacturing plants to cost-effectively clean
          oily parts, meet stricter environmental regulations and reuse valuable
          cleansing agents.  Other potential markets for the membrane include
          high fouling applications in biotechnology, laboratory operations and
          chemical processes.

          To finance the acquisition, the Company expanded its revolving line of
          credit with a commercial bank to $35,000.

          Pro forma 1997 combined financial results of Osmonics, Inc., MSI and
          Membrex would be as follows:

          1997:                     Osmonics      MSI      Membrex    Combined
          ----                      --------     ------    -------    --------
          Sales                     $164,905   $ 10,038    $ 6,333    $181,276
          Income from operations      13,359        244     (1,920)     11,683
          Net income                   9,793     (1,233)    (3,237)      5,323
          Net income per share -
              assuming dilution        $0.68                             $0.37

          1997 financial results of MSI include $3,200 of non-recurring charges
          associated with the settlement of a patent infringement lawsuit.

          The pro forma combined impact on financial results for first and
          second quarter of 1998 was not material.


          RESTATEMENT OF QUARTERLY FINANCIAL STATEMENTS:
          Subsequent to the issuance of the Company's June 30, 1998 condensed
          consolidated financial statements, the Securities and Exchange
          Commission (SEC) issued new guidance on its views regarding the
          valuation methodology used in determining purchased in-process
          technology expensed on the date of acquisition.  The Company has not
          been contacted by the SEC; however, the Company has modified its
          methods used to value the purchased in-process technology related to
          the acquisitions of Micron Separations, Inc. and Membrex Corporation.
          The revised valuation is based on methods prescribed in a letter
          dated September 9, 1999 from the SEC on purchased in-process
          technology sent to the American Institute of Certified Public
          Accountants.  The letter sets forth the SEC's views regarding the
          valuation methodology to be used in allocating a portion of the
          purchase price to acquired in-process research and development at the
          date of acquisition.  As a result of the revised valuations, the
          Company's financial statements for the period ended June 30, 1998 have
          been restated to reduce the amount of purchase price allocated to in-
          process technology by $17,718 and to increase intangible assets by
          $17,718.  The change had no impact on net cash flows from operations.

          The following table outlines the revisions to previously published
          condensed consolidated financial statements (in thousands, except per
          share amounts):

                               Three Months Ended     Six Months Ended
                                 June 30, 1998          June 30, 1998
                             As Previously           As Previously 
                             Reported   As Restated  Reported   As Restated
                             --------   -----------  --------   -----------

          Selling, general
            and
            administrative    $10,359      $10,507    $20,233       $20,381
          Special charges      25,706        7,988     25,706         7,988
          Income (loss) from
            Operations        (23,139)      (5,569)   (19,234)       (1,664)
          Income (loss) from
            continuing
            operations
            before income
            taxes             (24,120)      (6,550)   (20,791)       (3,221)
          Income taxes         (5,303)      (1,267)    (4,138)         (102)
          Income (loss)
            from continuing
            operations        (18,817)      (5,283)   (16,653)       (3,119)
          Net income (loss)   (18,817)      (5,283)   (16,653)       (3,119)
          EPS Basic           $ (1.35)     $ (0.38)   $ (1.19)      $ (0.22)
          EPS Diluted         $ (1.35)     $ (0.38)   $ (1.19)      $ (0.22)


                                                  At June 30, 1998
                                           As Previously
                                             Reported          As Restated
                                            -----------        -----------

            Other assets                      $ 37,835            $ 51,369
            Total assets                       187,924             201,458
            Shareholder's equity                85,784              99,318
            Total liabilities and
              shareholders' equity             187,924             201,458


          MANAGEMENTS DISCUSSION AND ANALYSIS OF IN-PROCESS R&D CHARGES:
          The In-Process R&D acquired with the acquisition of Micron
          Separations, Inc. was determined to have a fair value of $1.9 million
          based on the Percent Complete Method.  Out of nine on-going
          projects, there are three major programs involving development of
          specialized membranes for microporous filtration, diagnostics and
          genetic research.

          The first major project, judged to be 20% complete at acquisition,
          could result in a class of membranes that could replace a sole source
          product at approximately half the cost.  If successful, this will
          generate 5-10% margin improvement on products assembled with this
          membrane.  A patent has since been applied for and the savings are
          expected to accrue in third quarter 1999.

          The second major project, 40% complete at acquisition, has also
          resulted in a patent application.  This development allows the
          tailoring of membrane to provide unique surface characteristics for
          biotech, diagnostic and filtration applications.  A patent disclosure
          has also been filed on results of a companion project which
          successfully allows the treatment of certain membranes to insure their
          utility in applications that require membrane wettability. 
          Commercialization of this project is expected by mid-1999.

          The third major project, 50% complete at acquisition, resulted in a
          competitive membrane useful in genetic research and protein analysis.
          It is expected to be commercialized in late 1998.

          The other six projects are expected to result in new or improved
          products, and an improved production process that will reduce product
          costs.

          No material changes from historical pricing, margin and expense levels
          are anticipated.  A risk-adjusted discount rate of 18% was applied to
          the projected cash flows to determine the fair value of the In-Process
          R&D.  Less than $1 million of funding is projected to complete these
          projects, including capital expenditures.

          The fair value of the In-Process R&D acquired with Membrex was valued
          at $4.3 million by the Percent Complete Method.  Two products
          contributed to the total value: 1) WasteWizard fluid separation units
          valued at $3.2 million, and 2) Mini WasteWizard units valued at
          $1.1 million.

          The WasteWizard unit is an ultrafiltration system used for recycling
          of various aqueous based fluids including hard surface cleaners and
          metal cutting fluids.  The new product could provide significant
          process cost savings by minimizing chemical usage and wastewater
          generation.  The Mini WasteWizard unit is a smaller version of the
          of the WasteWizard unit with a process capacity of less than 50
          gallons per day.  Both are protected by 5 U.S. patents pending.

          At the time of the acquisition, the WasteWizard unit and Mini
          WasteWizard unit were 85% and 50% complete, respectively.  The
          WasteWizard unit is  scheduled to be completed and introduced in
          Q2 1999 with full sales impact anticipated in Q3 1999.  The Mini
          WasteWizard is scheduled for field trials through Q4 1999 and market
          introduction in Q1 2000.  Less than $1 million of funding is
          projected to complete these projects, including capital expenditures
          for molds and other tooling.

          No material changes from historical pricing, margin and expense levels
          are anticipated.  A risk-adjusted discount rate of 20% was applied to
          the projected cash flows to determine the fair value of the In-Process
          R&D.


          ITEM II.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                    CONDITION AND RESULTS OF OPERATIONS
                    (Dollars in thousands, except share data)

          The Company has restated its financial statements as disclosed in
          the notes to the financial statements.

          As an aid to understanding the Company's operating results, the
          following table shows the percentage of sales that each income
          statement item represents for the three months and six months
          ended June 30, 1998 and 1997.

                                   Percent of Sales       Percent of Sales
                                   ----------------       ----------------
                                  Three Months Ended      Six Months Ended
                                        June 30,              June 30,
                                        --------              --------
                                    1998      1997         1998       1997
                                    ----      ----         ----       ----
          Sales                    100.0%    100.0%       100.0%     100.0%
          Cost of sales             67.4      59.7         64.7       60.5
                                   -----     -----        -----      -----
          Gross profit              32.6      40.3         35.3       39.5

          Selling, general and
            administrative          22.2      24.4         22.8       23.7
          Research, development
            and engineering          5.3       6.6          5.4        6.6
          Special charges           16.9        -           8.9         -  
                                   -----     -----         -----     -----
          Operating expenses        44.4      31.0         37.1       30.3

          Income (loss) from
            operations             (11.8)      9.3         (1.8)       9.2
          Other income (expense)    (2.0)       -          (1.7)      (0.1)
                                   -----     -----        -----      -----
          Income (loss) from
            Continuing operations
            before income taxes    (13.8)      9.3         (3.5)       9.1
          Income taxes              (2.7)      3.1          -          3.1
                                   -----     -----        -----      -----
          Income (loss) from
            continuing operations  (11.1)      6.2         (3.5)       6.0
          Recovery on discontinued
            operations                -         -            -         0.4
                                   -----     -----        -----      -----
          Net income               (11.1)%     6.2%        (3.5)%      6.4%
                                   =====     =====        =====      =====


          SALES
          Sales for the second quarter ended June 30, 1998 of $47,353
          increased 13.3% from sales for the second quarter of 1997.  Year-
          to-date 1998 sales through June increased 6.4% over the
          corresponding 1997 level.  Sales of replaceable products
          increased to 53% and equipment decreased to 47% of second quarter
          sales.  Comparing same business activity before acquisitions,
          sales were 6.3% higher in second quarter of 1998 than second
          quarter of 1997 and were 8.6% over sales for the first quarter of
          1998.  This increase in sales was primarily the result of several
          large capital equipment orders being shipped during the second
          quarter.  Domestic market pricing is very competitive. 
          International sales have been down in the Asia/Pacific and Latin
          America markets; however, Euro/Africa sales were strong enough to
          offset the Asia/Pacific weakness.


          GROSS MARGIN
          Gross margin for the second quarter of 1998 was 32.6% versus
          40.3% for the corresponding period in 1997.  The gross margin for
          the six months ended June 30 was 35.3% in 1998 compared to 39.5%
          in 1997.  In the second quarter of 1998, the Company recorded a
          special charge of $2.0 million for slow moving inventory.  This
          charge accounted for 4.2 and 2.2  percentage points of the second
          quarter 1998 and year-to-date 1998 gross margin declines,
          respectively.  Gross margins for the second quarter 1998 were
          also negatively affected by several large capital equipment
          sales, lower utilization rates at several production facilities
          and general pricing pressures in most markets.


          OPERATING EXPENSES
          Operating expenses were recorded at 44.4% of sales for the second
          quarter of 1998 compared to 31.0% in the second quarter of 1997.
          In the second quarter of 1998, the Company recorded a special
          charge of $7,988 as operating expense (see Special Charge
          discussion below).  Operating expenses, excluding special
          charges, decreased to 27.5% in the second quarter of 1998 from
          31.0% in the second quarter of 1997.

          On a year-to-date basis, excluding special charges, operating
          expenses were 28.2% for the six months ended June 30, 1998 versus
          30.3% for the same period last year.  The second quarter and
          year-to-date improvement in operating expenses is the result of
          continued expense control efforts.

          SPECIAL CHARGES *
          In second quarter 1998, the Company recorded special charges of
          $9,988 ($7,569 net-of-tax or $0.54 per share assuming dilution).
          Charges include a $6,222 charge to operating expense for
          purchased research and development related to the acquisitions of
          Micron Separations, Inc. ($1,902) and Membrex Corp. ($4,320) and
          a $2,000 charge to cost of sales for slow moving inventory.  The
          special charges also include operating expense charges of $875
          for corporate restructuring and consolidation of operations, and
          $891 for re-engineering costs and write-downs of assets in
          connection with the Company's implementation of a global
          information system.  The special charges are summarized below:

               In-process R&D *                       $ 6,222
               Corporate restructuring                    875
               SAP / Re-engineering costs                 891
               Slow moving inventory                    2,000
                                                      -------
                 Gross special charges                $ 9,988
                 Less slow moving inventory in COS     (2,000)
                                                      -------
                 Special charge in Operating Expense  $ 7,988
                                                      =======

          * See Restatement of Quarterly Financial Statements in notes
            to the condensed consolidated financial statements.


          OTHER EXPENSE
          Other expense increased by approximately $1,000 in the second
          quarter of 1998 versus the same period for 1997.  The increase is
          primarily the result of an increase in interest expense of $375
          and $225 for the additional borrowing of $20,000 and $18,000 for
          the acquisitions of Micron Separations, Inc. during the first
          quarter of 1998 and Membrex Corp. during the second quarter of
          1998.  Also, gains recorded on the sale of investments during the
          second quarter of 1998 decreased $485 in comparison to the same
          period in 1997.


          INCOME TAXES
          The effective tax rate for the six months ended June 30, 1998 was
          3.2%.  This rate represents a decrease from the 31.7% rate
          incurred for calendar year 1997, due primarily to the non-
          deductibility of the Micron Separations, Inc. in-process R&D that
          was written off in second quarter 1998 and to lower R&D tax
          credits.  Under purchase accounting for a nontaxable business
          combination, the Micron Separations, Inc. purchased research and
          development special charge of $1,902 was expensed on a gross
          basis (not tax-effected).


          RECOVERY ON DISCONTINUED OPERATIONS
          The Company recognized $325 ($0.02 per share assuming dilution)
          in after tax income in the first quarter of 1997 from a reduction
          in the reserve for discontinued operations from the Autotrol
          merger.  There was no similar recovery in 1998.


          NET INCOME (LOSS)
          Net income (loss) for the quarter ended June 30, 1998 was
          $(5,283).  Excluding special charges, net income was $2,400
          versus $2,593 for the quarter ended June 30, 1997.  Net income
          per common share assuming dilution for the quarter was $(0.38) or
          $0.17 excluding special charges, versus $0.18 for the same period
          last year.  Year-to-date net income (loss) was $(3,119) or $4,564
          excluding special charges, versus $5,352 for the same period last
          year.  Net income per common share assuming dilution year-to-date
          was $(0.22) or $0.32 excluding special charges, versus $0.37 in
          1997.


          LIQUIDITY AND CAPITAL RESOURCES
          As of June 30, 1998, the Company had cash, cash equivalents and
          marketable securities of $19,531 versus $21,876 at December 31, 1997.
          The current ratio was 1.5 at June 30, 1998 as compared to 2.0 at year
          end 1997.

          The Company's long-term debt increased from $13,792 at December 31,
          1997 to $33,819 at June 30, 1998.  This increase was the result of
          entering into a new $20,000 long-term loan from an insurance company
          in March.  The company's current debt increased from $16,174 at
          December 31, 1997 to $32,156 at June 30, 1998.  The increase was the
          result of the Company using its revolving line of credit to fund the
          Membrex Corp. acquisition during the second quarter.

          The Company believes that its current cash and investments position,
          its cash flow from operations, and amounts available from bank credit
          will be adequate to meet its anticipated cash needs for working
          capital, capital expenditures, and potential acquisitions during the
          foreseeable future.


          PRIVATE SECURITIES LITIGATION REFORM ACT
          The Private Securities Litigation Reform Act provides a safe
          harbor for forward-looking statements.  Certain information included
          in this Form 10-Q and other materials filed or to be filed with the
          Securities and Exchange Commission (as well as information included in
          statements made or to be made by the Company) contains statements that
          are forward looking.  Such statements may relate to plans for future
          expansion, business acquisition and development activities, capital
          spending, financing, or the effects of regulation and competition. 
          Such information involves important risks and uncertainties that could
          significantly affect results in the future.  Such results may differ
          from those expressed in any forward-looking statements made by the
          Company.  These risks and uncertainties include, but are not limited
          to, those relating to product development, computer systems
          development, dependence on existing management, global economic and
          market conditions, changes in federal or state laws, and revisions
          in accounting industry methodology.


                                      OSMONICS, INC.
                                          PART II
                                     OTHER INFORMATION


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

                  The Company's Annual Meeting of Stockholders was held on May
                  13, 1998.  The following members were elected to the
                  Company's Board of Directors to hold office for the ensuing
                  three years:

                        Nominee             In Favor    Withheld
                        -------             --------    --------
                       William Eykamp      11,771,260    250,754

                       Michael L. Snow     11,770,165    251,849

                       R. Carol Spatz      11,776,547    245,467


               Also, the matter of amending the Osmonics 1993 Stock Option and 
               Compensation Plan to increase the shares reserved from 300,000 to
               800,000 was approved by the shareholders.  Vote results were as 
               follows:
                                             In Favor   Withheld   Abstain
                                             --------   --------   -------

               Amend 1993 Stock Option and
                 Compensation Plan          9,595,493   2,347,24   179,280


          Item 5.   OTHER INFORMATION

          A.  ISO 9001 Certification

          The Company announced that its Minnetonka Operation has received ISO
          9001 Certification.  The operation is Osmonics' worldwide headquarters
          and primary design and manufacturing facility for filters, membrane
          elements, pumps, and machines used in fluid purification and
          separation.

          The Certificate of Registration issued by SGS International
          Certification Services, Inc., Rutherford, New Jersey, certifies that
          the Osmonics Quality Management System followed by the facility's
          employees conforms to ANSI-ASCQ-9001/ISO 9001.

          ISO 9001 is an internationally recognized quality certification
          program which originated with the International Organization for
          Standardization in Geneva, Switzerland.  It is administered and
          audited by accredited registrars throughout the world.  ISO 9001 is a
          standard that covers over 20 elements in a quality system that
          includes design, development, manufacturing, installation, and
          servicing activities.

          The registrars establish that management is involved in the quality
          system and that detailed procedures and instructions are documented
          for all operations within the company that affect quality and that
          employees are trained to carry out every operation.  An on-site audit
          of the complete Quality System is then conducted to verify ISO 9001
          compliance.

          B.  Advance Notice Requirement

          Discretionary Proxy Voting Authority / Shareholder Proposals

          On May 21, 1998 the Securities and Exchange Commission adopted an
          amendment to Rule 14a-4, as promulgated under the Securities and
          Exchange Act of 1934.  The amendment to Rule 14a-4(c-1) governs the
          Company's use of its discretionary proxy voting authority with respect
          to a shareholder proposal which the shareholder has not sought to
          include in the Company's proxy statement.  The new amendment provides
          that if a proponent of a proposal fails to notify the company at least
          45 days prior to the month and day of mailing of the prior year's
          proxy statement, then the management proxies will be allowed to use
          their discretionary voting authority when the proposal is raised at
          the meeting, without any discussion of the matter in the proxy
          statement.

          With respect to the Company's 1999 Annual Meeting of Shareholders, if
          the Company is not provided notice of a shareholder proposal, which
          the shareholder has not previously sought to include in the Company's
          proxy statement, by February 20, 1999, the management proxies will be
          allowed to use their discretionary authority as outlined above.


          Item 6. EXHIBITS AND REPORTS ON FORM 8-K
                  (a)   (27) Financial Data Schedule
                  (b)   During the quarter ended June 30, 1998 the Registrant  
                        did not file a Form 8-K report.


                                     SIGNATURES

          Pursuant to the requirements 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.




          Dated:  March 29, 1999
                  --------------




                                               OSMONICS, INC.          
                                     ----------------------------------
                                                (Registrant)




                                    /s/   L. Lee Runzheimer             
                                    -------------------------------------
                                          L. Lee Runzheimer
                                          Chief Financial Officer




                                    /s/   Howard W. Dicke               
                                    -------------------------------------
                                          Howard W. Dicke
                                          Treasurer and Vice President
                                          Corporate Development




                                    /s/   D. Dean Spatz                 
                                    -------------------------------------
                                          D. Dean Spatz
                                          Chief Executive Officer