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 September 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    

                                NOT APPLICABLE
                   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 Nine Months Ended 
         September 30, 1998 (as restated) and 1997

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

        Consolidated Statements of Cash Flows                             4
        For the Nine Months Ended 
         September 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              9-14


PART II. OTHER INFORMATION

   ITEM 1.   LEGAL PROCEDINGS                                            15

   ITEM 2.   CHANGES IN SECURITIES                                       15

   ITEM 3.   DEFAULTS UPON SENIOR SECURITES                              15

   ITEM 4.   SUBMISSION OF MATTERS TO A VOTE
             OF SECURITY HOLDERS                                         15

   ITEM 5.   OTHER INFORMATION                                           16

   ITEM 6.   EXHIBITS AND REPORTS ON FORM 8-K                            16


SIGNATURES                                                               17


                              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    Nine Months Ended
                                       September 30,        September 30,
                                       (As Restated)*       (As Restated)*
                                       1998     1997        1998      1997

Sales                                $44,606  $42,420    $134,109  $126,522

Cost of sales                         28,100   25,466	     86,051    76,361
                                      ------   ------      ------    ------
Gross profit                          16,506   16,954      48,058    50,161

Less:
  Selling, general 
  and administrative                  11,406  	10,461      31,787    30,383

  Research, development
  and engineering                      2,636    2,676       7,483     8,235
  
  Special charges                        -        -         7,988       -  
                                      ------   ------      ------    ------
Income (loss) from operations          2,464    3,817         800    11,543

Other income (expense)                (1,054) 	  (616)     (2,611)     (694)
                                      ------   ------      ------    ------
Income (loss) from continuing
  operations before income taxes       1,410    3,201      (1,811)   10,849

Income taxes                             433      905         331     3,526
                                      ------   ------      ------    ------
Income (loss) from continuing            977    2,296      (2,142)    7,323
  operations

Recovery on discontinued operations	     - 	      -    	      -         325
                                      ------   ------      ------    ------
Net income (loss)                    $   977  $ 2,296 	   $(2,142)  $ 7,648
                                      ======   ======      ======    ======

Earnings per share - basic
  Income (loss) from
     continuing operations           $  0.07  $  0.16     $ (0.15)  $  0.52
  Net income                         $  0.07  $  0.16     $ (0.15)  $  0.51

Earnings per share - assuming dilution
  Income (loss) from 
    continuing operations            $  0.07  $  0.16     $ (0.15)  $  0.54
  Net income                         $  0.07  $  0.16     $ (0.15)  $  0.53

Average shares outstanding
  Basic                               13,982   13,920      13,964    14,064
  Assuming dilution                   14,192   14,285      13,964    14,360

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


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

                                               September 30,    December 31,
                                                   1998             1997   
                                                 --------         -------- 
ASSETS                                        (As Restated)*  
Current assets
  Cash and cash equivalents                      $  2,666         $  4,872
  Marketable securities                            14,415           17,004
  Trade accounts receivable, net of  
    allowance for doubtful accounts of 
    $1,127 in 1998, and $888 in 1997               32,129           28,969
  Inventories                                      32,031           35,228
  Deferred tax assets                               7,127            1,413
  Other current assets                              2,023            1,639
                                                 --------         --------
    Total current assets                           90,391           89,125
Property and equipment, at cost 
  Land and land improvements                        5,581            5,535
  Building                                         30,455           29,278
  Machinery and equipment                          68,474           62,770
                                                 --------         --------
                                                  104,510           97,583
  Less accumulated depreciation                   (49,055)         (42,550)
                                                   55,455           55,033
Other assets                                       50,544           20,325
                                                 --------         --------
Total assets                                     $196,390         $164,483

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
  Accounts payable                               $  9,296         $  9,728
  Notes payable and current portion 
    of long-term debt                              31,734           16,174
  Other accrued liabilities                        17,105           17,950
                                                 --------         --------
    Total current liabilities                      58,135           43,852
                                                 --------         --------
Long-term debt                                     33,316           13,792
Other liabilities                                      47               25
Deferred income taxes                               4,148            4,439
Shareholders' equity
  Common stock, $0.01 par value
    Authorized -- 50,000,000 shares
    Issued --  1998: 13,999,240 and
               1997: 13,943,544 shares                140              140
Capital in excess of par value                     20,888           20,261
  Retained earnings                                77,986           80,128
  Unrealized gain on marketable securities	         1,786            2,180
  Foreign currency translation adjustments	           (56)            (334)
                                                 --------         --------
   Total liabilities and shareholders' equity    $196,390         $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)

                                                      Nine Months Ended
                                                        September 30,      
                                                    1998             1997  
                                                  --------         --------
                                                (As Restated)*
Cash flows from operations:
  Net income (loss)                              $ (2,142)        $  7,648
  Non-cash items included in net income:
    Depreciation and amortization                   5,923            4,118
    Deferred income taxes                          (2,609)             434
    Gain on sale of investments                      (171)            (628)
  Special charges                                   9,988              -  
  Changes in assets and liabilities
    (net of business acquisitions)
    Accounts receivable                            (1,136)          (3,005)
    Inventories and other current assets            3,418            2,785
    Accounts payable and accrued liabilities	      (7,165)          (2,634)
                                                  -------          -------
Net cash provided by operations                     6,106            8,718
                                                  -------          -------
Cash flows from investing activities:
  Business acquisitions 
   (net of cash acquired including purchased R&D) (40,713)         (11,970)
  Purchase of investments                            (576)          (1,658)
  Sale of investments                               2,729            2,271
  Purchase of property and equipment               (4,879)          (5,167)
  Sales of property and equipment                     110              374
  Other                                               193              120
                                                  -------          -------
  Cash used in investing activities               (43,136)         (16,030)
                                                  -------          -------
Cash flows from financing activities: 
  Proceeds from notes payable and debt             38,000           12,204
  Reduction of debt                                (4,081)          (2,169)
  Issuance of common stock                            627              800
  Purchase of company stock                           -             (5,249)
                                                  -------          -------
  Net cash provided by financing activities        34,546            5,586
                                                  -------          -------
Effect of exchange rate changes on cash               278              311
Decrease in cash and cash equivalents              (2,206)          (1,415)
Cash and cash equivalents - beginning of year       4,872            5,392
                                                  -------          -------
Cash and cash equivalents - end of quarter       $  2,666         $  3,977
                                                  =======          =======

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


                                OSMONICS, INC.
                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                            (Dollars in Thousands)

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.

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.

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

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:
                                                    Nine Months Ended
                                                       September 30,
                                                   1998             1997
                                                  ------           ------
Net income (loss)                                $(2,142)         $ 7,648
Other comprehensive income (loss), before tax:
   Foreign currency translation adjustments	         278             (260)
   Unrealized gains/(losses) on securities          (394)              32
                                                  ------           ------
Other comprehensive income (loss), before tax       (116)            (228)
Income tax expense related to items of 
   other comprehensive income (loss)                 (35)             (74)
                                                  ------           ------
Other comprehensive income (loss), net of tax        (81)            (154)
                                                  ------           ------
Comprehensive income (loss)                      $(2,223)         $ 7,494
                                                  ======           ======


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 of 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 years 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, second and third
quarter of 1998 was not material.


RESTATEMENT OF QUARTERLY FINANCIAL STATEMENTS:
Subsequent to the issuance of the Company's September 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, 1998 
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 September 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      Nine Months Ended
                                 September 30, 1998      September 30, 1998
                                 ------------------      ------------------
                                As Previously   As      As Previously   As
                                  Reported   Restated   Reported     Restated

Selling, general and               $11,258    $11,406    $31,491     $31,787
  and administrative
Special charges                        -          -       25,706       7,988
Income (loss) from operations        2,612      2,464    (16,622)        800
Income (loss) from continuing
   operations before income taxes    1,558      1,410     (19,233)    (1,811)
Income taxes                           467        433     (3,671)        331
Income (loss) from continuing
   operations                        1,091        977    (15,562)     (2,142)
Net income (loss)                    1,091        977    (15,562)     (2,142)
EPS Basic                           $ 0.08     $ 0.07     $(1.11)     $(0.15)
EPS Diluted                         $ 0.08     $ 0.07     $(1.11)     $(0.15)


                                                    At September 30, 1998
                                                  As Previously
                                                    Reported     As Restated
                                                    ---------     ---------
  Other assets                                      $ 37,124      $ 50,544
  Total assets                                       182,970       196,390
  Shareholder's equity                                87,324       100,744
  Total liabilities and shareholders' equity         182,970       196,390


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 membrane 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 WasteWizard 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 Waste Wizard is scheduled to be
completed and introduced in Q2 1999.  The Mini WasteWizard unit 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. MANAGEMENTS 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 nine months ended September 30, 1998 and 
1997.

                                       Percent of Sales    Percent of Sales
                                      Three Months Ended   Nine Months Ended
                                         September 30,       September 30,
                                         -------------       -------------
                                         1998    1997        1998    1997
                                         ----    ----        ----    ----
Sales                                   100.0%  100.0%      100.0%  100.0%
Cost of sales                            63.0    60.0        64.2    60.4
                                         ----    ----        ----    ----
Gross profit                             37.0    40.0        35.8    39.6

Selling, general and administrative      25.6    24.7        23.7    24.0
Research, development and engineering     5.9     6.3         5.6     6.5
Special charges                            -       -          6.0      - 
                                         ----    ----        ----    ----
Operating expenses                       31.5    31.0        35.3    30.5

Income (loss) from operations             5.5     9.0         0.5     9.1
Other income (expense)                   (2.4)   (1.5)	      (1.9)   (0.6)
                                         ----    ----        ----    ----
Income (loss) from continuing
   operations before income taxes         3.1     7.5        (1.4)    8.5
Income taxes                              0.9     2.1         0.2     2.8
                                         ----    ----        ----    ----
Income (loss) from continuing operations  2.2     5.4        (1.6)    5.7
Recovery on discontinued operations	       -       -           -      0.3
                                         ----    ----        ----    ----
Net income (loss)                         2.2%    5.4%       (1.6)%   6.0%
                                         ====    ====        ====    ====

SALES
Sales for the third quarter ended September 30, 1998 were $44,606, which is
a 5.2% increase from the third quarter of 1997.  Year-to-date sales through 
September 1998 were $134,109, which is a 6.0% increase over the 
corresponding 1997 level.  Acquisitions accounted for all of the third 
quarter and year-to-date sales increases.  Internal sales were affected by a 
slowdown in capital equipment sales, and in components sold to our OEM 
customers.  Sales also slowed to customers primarily in the Asian and 
Eastern European markets and partially in the United States.


GROSS MARGIN
Gross margin for the third quarter of 1998 was 37.0% of sales versus 40.0% 
for the corresponding period in 1997.  The gross margin for the nine months 
ended September 30, 1998 was 35.8%, compared to 39.6% in 1997.  Current 
year-to-date gross margins include a 1.5 percentage point unfavorable impact 
related to a second quarter special charge for slow moving inventory.  The 
decrease in gross margins is also due to lower utilization of certain 
production facilities, and to selective price reductions on some products to 
maintain market share.  The Company has taken action to reduce its 
manufacturing capacity and improve gross margins.  On August 21, 1998, the 
Company announced a plan to reduce employment by 10% and close four 
manufacturing facilities by the end of the calendar year.


OPERATING EXPENSES
Operating expenses in the third quarter were 31.5% of sales compared to 
31.0% in the third quarter of 1997.  For the nine months ended September 30, 
1998 operating expenses, excluding a special charge in the second quarter, 
were 29.3% of sales, compared to 30.5% for the same period of 1997.  The 
increase in third quarter operating expenses relates primarily to the 
implementation of the SAP information system and consulting fees that are 
being expensed as incurred, as required by recent accounting rule changes, 
instead of being capitalized as they had been in previous quarters.


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 included 
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 included 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 in the third quarter was $1,054, versus $616 for the third 
quarter of 1997.  The increase is primarily the result of interest expense 
of $375 and $325 on 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.


INCOME TAXES
The effective tax rate for third quarter 1998 was 30.7%.  The effective tax 
rate for the nine months ended September 30, 1998 was 18.3%.  In the same 
period of 1997 the effective tax rate was 32.5%.  This rate decrease is 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
Net income for the quarter ended September 30, 1998 was $977 or $0.07 per 
basic and diluted share.  For the comparable 1997 quarter, net income was 
$2,296 or $0.16 per basic and diluted share.  The September 30, 1998 year-
to-date net loss was $(2,142) or $(0.15) per basic and diluted shares, 
compared to net income of $7,648 or $0.54 per basic share and $.053 per 
diluted share for the same period of 1997.  The current year net loss is due 
to a second quarter special charge.  Without the charge, year-to-date net 
income would have been $5,427 or $0.39 per basic and $0.38 per diluted 
shares.


LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1998, the Company had cash, cash equivalents and 
marketable securities of $17,081 versus $21,876 at December 31, 1997.  The 
current ratio was 1.6 at September 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 
$33,316 at September 30, 1998.  This increase was the result of entering 
into a new $20,000 long-term loan from an insurance company in March 1998.
The Company's current debt increased from $16,174 at December 31, 1997 to 
$31,734 at September 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.


YEAR 2000 READINESS DISCLOSURE

STATE OF READINESS:
Osmonics is currently working to fully determine and resolve the potential 
impact of the Year 2000 on the processing of date-sensitive information by 
its computerized information systems.  The Year 2000 problem is the result 
of computer programs being written using two digits (rather than four) to 
define the applicable year.  Any of Osmonics' programs that have time-
sensitive software may recognize a date using "00" as the year 1900 rather 
than the Year 2000, which could result in miscalculations or system 
failures.

Osmonics' Year 2000 Project (the Project) began in 1994 with reviews of the 
Company's business information systems.  The objective was to improve access 
to business information through an integrated, company-wide system which is 
also Year 2000 compliant.  

The Company is using a multi-step approach in conducting the Project.  These 
steps include: needs analysis, resource requirements, remediation and 
testing, and implementation.  The Project plan identified the major issues 
and alignment of priorities, resources, and contingency plans.  The 
remediation and testing phases will continue through third quarter 1999.

The Project scope includes all computing systems hardware, software, IT 
infrastructure (such as networks and telecommunications), and all third-
party suppliers and vendors.  The Company has completed the needs analysis 
phase of the Project.  The Company has not yet completed, corrected and/or 
tested for all possible Year 2000 compliance issues.  The Company is 
utilizing the services of consulting firms to assist in dealing with Year 
2000 issues.

An integral part of the Project is the implementation of SAP, a company-wide 
integrated business information and accounting system.  The Company began 
implementing SAP as its primary information system in 1996.   SAP is being 
implemented in a two-phase approach.  Phase I, the conversion of the 
previous primary computing system at the Company's headquarters and primary 
manufacturing facility, in Minnetonka, MN was completed in 1997.  Phase II 
is the business process re-engineering within SAP, and the rollout to other 
plants.  The existing software at three other plants has also been upgraded 
with Year 2000 compliant versions on an interim basis.  As of September 30, 
1998, the Company is approximately 75% complete on converting or upgrading 
its systems to be Year 2000 compliant.  The remaining three plants are 
scheduled to be completed by September 30, 1999. 

Very few of the Company's products contain software or embedded 
microprocessors.  The Company has reviewed all of these products and 
identified only a very few that will be impacted by the year 2000.  In all 
cases, the effect will be in the retrieval and display of logged data and 
not in the correct operation of the product.  A solution for each of the 
products identified has either been made available, or will made available 
to our customers prior to the year 2000.

Customers and vendors could be disrupted with their own Year 2000 issues, 
which could affect their ability to buy Osmonics products or supply Osmonics 
with raw materials.  However, the Company believes this is unlikely, since 
no single customer or vendor represents more than 5% percent of the 
Company's present business.  Alternative sources of supply are also 
currently available and the Company believes will be available if needed.
However, the demand upon such alternative suppliers could result in the 
unavailability of some products.  The Company is in the process of seeking 
assurances from its material suppliers that their ability to sell to the 
Company will not be materially impacted by any Year 2000 issue.   The 
Company does not at this time see the need to develop additional contingency 
plans to deal with this aspect of the Year 2000 problem.

COST
As of September 30, 1998, the Company has invested over $5,000 during the 
years 1995-1998 to upgrade its information systems.  The remaining cost 
associated with required modifications just to become Year 2000 compliant is 
not expected to be material to the Company's financial position.  The 
estimated total external cost to accelerate the replacement of certain 
hardware, software, and infrastructure is not expected to exceed $500.  The 
remaining SAP implementation costs and the related business process 
improvements, which would be incurred in any case, are excluded from the 
figure above.

RISKS
Although the Company believes that it will be able to correct all material 
Y2K problems prior to January 1, 2000, the failure to correct a material 
Year 2000 problem could result in an interruption in, or a failure of, 
certain normal business activities or operations.  Such failures could 
materially and adversely affect the company's results of operations, 
liquidity and financial condition.  For example, the failure to update its 
business information system could result in delayed performance on 
contracts, loss of contracts, or lawsuits for failure to perform.

The Project is expected to significantly reduce the Company's level of 
uncertainty regarding the Year 2000 problem.  The Company believes that, 
with the implementation of new business systems and completion of the 
Project as scheduled, the possibility of significant interruptions of normal 
operations should be minimal.

The failure of the Company's customers to be Year 2000 Compliant could 
materially reduce or delay the Company sale of water systems because of 
budget constraints and the diversion of customer resources to fixing the 
customers' Year 2000 problems.  At this time, the Company does not believe 
that its customers' Year 2000 problems will materially impact the Company's 
business.

Readers are cautioned that forward-looking statements contained in the Year 
2000 update should be read in conjunction with the company's disclosures 
under the heading - "Private Securities Litigation Reform Act" - that 
follows.

CONTINGENCY PLANS
The Company has developed and put in place contingency plans to address 
internal and external issues specific to the Year 2000 problem, to the 
extent practicable.  The Company believes that due to the widespread nature 
of potential Year 2000 issues, the contingency planning process may require 
further modifications as the Company obtains additional information 
regarding: (1) the Company's internal systems and equipment during the 
remediation and testing phases of its Year 2000 program; and (2) the status 
of third party Year 2000 readiness.
  

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, the Company's cost and 
expectations as to when it will complete the remediation and testing phases 
of the Year 2000 readiness project, 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 1.  LEGAL PROCEDINGS
         Not Applicable

Item 2.  CHANGE IN SECURITIES
         Not Applicable

Item 3.  DEFAULTS UPON SENIOR SECURITIES
         Not Applicable

Item 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
         Not Applicable

Item 5.  OTHER INFORMATION

         A)  Research Grant to Develop Membrane Systems

         In the third quarter, the National Institute of Standards and 
         Technology (NIST) awarded Osmonics and Cargill, Inc. jointly a five-
         year, $3.75 million research grant from its Advanced Technology 
         Program (ATP).  The grant will fund the development of solvent-
         resistant membrane systems for separation applications that 
         currently rely on energy-intensive distillation.

         The grant will allow Osmonics to develop new polymeric membranes and 
         system designs with widespread applications in food, pharmaceutical,  
         and petrochemical processing. Because membranes typically require 
         90% less energy than distillation, these new membrane applications, 
         if commercialized, could help U.S companies save tens of millions in 
         energy costs annually.  They may also reduce costs associated with
         controlling airborne and wastewater emissions.

         Osmonics will focus on technology development, and collaborate with 
         Cargill on commercial applications.  Cargill is an international 
         marketer, processor, and distributor of agricultural, food, 
         financial and industrial products with 80,600 people at offices and 
         facilities in 1,000 locations in 65 countries.


         B)  Subsequent Event

         In October, Osmonics announced that it signed an agreement with 
         Johns Manville to purchase its HYPURE liquid cartridge filter 
         business.  The sale includes a cash purchase of the assets to 
         manufacture the products, as well as a long-term supply agreement 
         for the basic glass fiber.  Johns Manville's 1997 sales of 
         cartridges were less than $5 million.  

         The HYPURE fiberglass disposable filters are high performance, 
         replaceable cartridges with excellent dirt holding capacity.  They 
         are used for general industrial liquid filtration, coatings, high-
         temperature and high-viscosity applications, and organic solvent 
         purification. 

         With the addition of HYPURE disposable filters to the existing 
         Hytrex, Purtrex, and Selex lines, Osmonics will offer one of the 
         broadest selections of replaceable depth filter cartridges in the 
         industry.  HYPURE filters will be manufactured at Osmonics' 
         Minnetonka, MN facility.
 

Item 6.  EXHIBITS AND REPORTS ON FORM 8-K

         (A)  (27) Financial Data Schedule

         (B)  During the quarter ended September 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