DIASENSE INC /PA/, POS AM, 1996-12-20

DIASENSE INC /PA/
POS AM, 1996-12-20
ELECTROMEDICAL & ELECTROTHERAPEUTIC APPARATUS

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SWEENEY & ASSOCIATES P.C.
ATTORNEYS AT LAW

7300 PENN AVENUE TELEPHONE (412) 731-1000
PITTSBURGH, PA 15208 FACSIMILE (412) 731-9190

December 20, 1996

VIA EDGAR

Securities and Exchange Commission
450 Fifth Street
Washington, D.C. 20549
Attention: S-1 Registration Statement

RE: Diasense, Inc.
Registration No. 33-82796
Post-Effective Amendment No. 2 to the Form S-1 Registration Statement

Ladies and Gentlemen:

The purpose of this Post-Effective Amendment is to update the Registration
Statement with the financial information and audited financial statements for
the Fiscal Year ended September 30, 1996.

If you have any questions or need any additional information, please
contact us at 412-731-1000.

Sincerely,

M. Kathryn Sweeney, Esq.

jdk

enclosure

cc: David Staudenmaier, Diasense, Inc. (w/o enc.)
<PAGE>

As filed with the Securities and Exchange Commission on December 20, 1996
Registration No. 33-82796

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
____________

POST-EFFECTIVE AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
____________
DIASENSE, INC.
(Exact name of registrant as specified in its charter)

Pennsylvania 3845 25-1605848
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification #)

2275 Swallow Hill Road
Building 2500; 2nd Floor
Pittsburgh, Pennsylvania 15220
(412) 279-9740
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
____________
Fred E. Cooper, President
Diasense, Inc.
2275 Swallow Hill Road
Building 2500; 2nd Floor
Pittsburgh, Pennsylvania 15220
(412) 279-9740
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
____________
Copy to:
M. Kathryn Sweeney, Esq.
Sweeney & Associates P.C.
7300 Penn Avenue
Pittsburgh, Pennsylvania 15208

Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.

If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended, check the following box: /X/
____________

CALCULATION OF REGISTRATION FEE

Title of Each Proposed Maximum Proposed Maximum
Title of Each Amount Offering Aggregate Amount of
Class of Securities to be Price Per Offering Registration
Registered Registered Security(1) Price (1) Fee (1)
- -------------------- ---------- ---------------- ---------------- ------------
Common Stock Offered 3,000,000
by the Company. . . .. shares $ 3.50 $10,500,000 $3,281.25

Total . . . . . . . . . . . . . . . . . . . . . $10,500,000 $3,281.25
=========== =========

TOTAL OF SEPARATELY NUMBERED PAGES 80
EXHIBIT INDEX ON SEQUENTIALLY NUMBERED PAGE 73

(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457 of the Securities Act of 1933, as amended. Assumes
an offering price of $3.50 per share, which may or may not necessarily be
the maximum offering price (See, "USE OF PROCEEDS" and
"PLAN OF DISTRIBUTION").
____________

The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, as amended, or until the Registration Statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
<PAGE>ii

DIASENSE, INC.
CROSS REFERENCE SHEET
ITEM SEQUENTIAL PAGE

1. Forepart of the Registration Statement and Outside Front
Cover Page of Prospectus. . . . . . . . . . . . . . . . . . . . . . 1, 4

2. Inside Front and Outside Back Cover Pages of Prospectus . . . . . . 5, 71

3. Summary Information, Risk Factors and Ratio of Earnings
to Fixed Charges
Summary Information. . . . . . . . . . . . . . . . . . . . . . . . .5
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Ratio of Earnings to Fixed Charges . . . . . . . . . . . . . . . . .N/A

4. Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . 14

5. Determination of Offering Price . . . . . . . . . . . . . . . . . . 14,47

6. Dilution. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

7. Selling Security Holders. . . . . . . . . . . . . . . . . . . . . . 39

8. Plan of Distribution. . . . . . . . . . . . . . . . . . . . . . . . 47

9. Description of Securities to Be Registered. . . . . . . . . . . . . 44

10. Interests of Named Experts and Counsel. . . . . . . . . . . . . . . 49

11. Information with Respect to the Registrant
Description of Business . . . . . . . . . . . . . . . . . . . . . 20
Description of Property. . . . . . . . . . . . . . . . . . . . . .32
Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . . .33
Market Price . . . . . . . . . . . . . . . . . . . . . . . . . . .N/A
Dividends. . . . . . . . . . . . . . . . . . . . . . . . . . . . .15
Related Stockholder Matters. . . . . . . . . . . . . . . . . . . .44
Financial Statements . . . . . . . . . . . . . . . . . . . . . . .51
Selected Financial Data. . . . . . . . . . . . . . . . . . . . . .17
Supplementary Financial Information. . . . . . . . . . . . . . . .20
Management's Discussion and Analysis of Financial Condition
and Results of Operations . . . . . . . . . . . . . . . . . . . 18
Changes In and Disagreements with Accountants. . . . . . . . . . .49
Directors and Executive Officers . . . . . . . . . . . . . . . . .33
Executive Compensation . . . . . . . . . . . . . . . . . . . . . .34
Security Ownership of Certain Beneficial Owners and Management . .39
Certain Relationships and Related Transactions . . . . . . . . . .41

12. Disclosure of Commission Position on Indemnification for
Securities Act Liabilities . . . . . . . . . . . . . . . . . . . .72
<PAGE>iii
PROSPECTUS

11,602,553 Shares

DIASENSE, INC.
4,649,290 Primary Shares
6,953,263 Warrant Shares

This Prospectus relates to an offering consisting of: (i) the primary
offering (the "Primary Offering") by Diasense, Inc., a Pennsylvania
corporation ("Diasense" or the "Company") of 4,649,290 shares (the
"Primary Shares") of Diasense's common stock, par value $0.01 per share
(the "Common Stock") and (ii) the offering of 6,953,263 shares of Common
Stock (the "Warrant Shares") issuable upon the exercise by holders
("Warrantholders") of outstanding warrants to purchase shares of Common
Stock (the "Warrants") of Diasense. The shares previously listed and
registered on behalf of certain selling shareholders, and referred to in
the previous prospectus as secondary shares have not been included in this
Prospectus because all of such shares have been held in excess of the
restricted period set forth in Rule 144(k) of the Securities Act of 1933
(See, "SHARES ELIGIBLE FOR FUTURE SALE").

THE PRIMARY OFFERING IS A "BEST-EFFORTS" OFFERING AND NO UNDERWRITER
WILL BE UTILIZED FOR THE DISTRIBUTION OF THE PRIMARY SHARES. The Company
reasonably believes that the Offering will terminate no later than
December 20, 1998 in accordance with the rules and regulations of the
Securities and Exchange Commission. Prior to this Offering, there has
been no public market for the Common Stock. Diasense has applied to have
the Common Stock listed for trading on the NASDAQ Small-Cap Market. The
Common Stock may be a "penny stock" under the Penny Stock Reform Act,
unless certain conditions are satisfied, which may adversely affect the
liquidity and trading price of the Common Stock (See, "PROSPECTUS SUMMARY"
and "PLAN OF DISTRIBUTION").

AN INVESTMENT IN THE COMMON STOCK INVOLVES A HIGH DEGREE OF RISK, AND
SHOULD ONLY BE MADE BY INVESTORS WHO CAN AFFORD TO LOSE ALL OR
SUBSTANTIALLY ALL OF THEIR INVESTMENT (See, "RISK FACTORS").

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

The date of this Prospectus is December 20, 1996.
<PAGE>
PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the more detailed
information and financial statements, including the notes thereto, appearing
elsewhere in this Prospectus. Prospective investors should very carefully
consider the information set forth under the headings "RISK FACTORS" and "PLAN
OF DISTRIBUTION," which includes a discussion of certain risk factors relating
to the business of and an investment in the Company.

Forward-Looking Statements

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

The Company

Diasense, Inc., a Pennsylvania corporation ("Diasense" or the "Company"), is a
developmental stage company organized by Biocontrol Technology, Inc. ("BICO")
on July 5, 1989 as its wholly-owned subsidiary. As of October 31, 1996, BICO
owned 11,975,000 shares of the outstanding Common Stock of Diasense which
represents approximately 52% of Diasense's outstanding Common Stock.

Diasense currently has no ongoing operations, has developed, pursuant to
certain agreements with BICO, an individually calibrated model (the "Diasensor
1000 "), and plans to begin full-scale development of a more universally usable
model (the "Diasensor 2000 "), of a noninvasive glucose sensor (together, the
"Noninvasive Glucose Sensor"). Once successfully developed, each of these
models of the Noninvasive Glucose Sensor will enable users (including
practitioners and diabetics) to measure blood glucose levels without taking
blood samples. Currently, in order to measure blood glucose levels, diabetics
must draw blood samples and use time-consuming blood glucose meters or
chemically treated strips, usually at significant ongoing expense. The Company
believes that if current research and development efforts are successful
(although no such assurance can be made), the Noninvasive Glucose Sensor will
have a range of accuracy comparable to those existing invasive methods of
measuring glucose with portable or semi-portable devices. Diasense owns
patents that were issued covering certain aspects of a process for measuring
blood glucose levels noninvasively (See, "BUSINESS - Patents, Trademarks and
Licenses").
<PAGE>2
The Noninvasive Glucose Sensor operates by directing a beam of near infrared
light through the skin where the beam is scattered and partially absorbed by
the body. Different levels of glucose will result in different amounts of
absorption of the infrared light. A portion of the light will be reflected
back into the Noninvasive Glucose Sensor's spectrum analyzer. The spectrum
analyzer will disperse that light (as a prism would) into its spectral
wavelength components. The analyzer will measure the intensity of that
reflected light. After analysis of the relevant data by its software, the
Noninvasive Glucose Sensor will provide the user with a visual readout of the
blood glucose level on the Noninvasive Glucose Sensor's liquid crystal display.
The user would not be required to take a blood sample.

BICO began the development of the Noninvasive Glucose Sensor in 1986 and has
experimented with several research prototypes since then. In November 1991,
BICO sold all of its technology related to the Noninvasive Glucose Sensor to
Diasense, although BICO continues to conduct the research and development work
under contract with Diasense. BICO has prepared for, and plans to commence
manufacturing of the Diasensor 1000 as soon as FDA approval is obtained.
Assuming the research and development work continues to be successful (although
no such assurance can be made), Diasense, through agreements with BICO, intends
to design, develop and produce the Diasensor 2000 , a more universally-usable
model (See, "Current Status of the Development of the Noninvasive Glucose
Sensor").

On January 6, 1994, BICO submitted its first 510(k) Notification to the U.S.
Food and Drug Administration (the "FDA") for approval to market the Diasensor
1000 . The submission was based on data obtained from the advanced Beta 2
prototypes, since functionally, the production model will be identical to these
prototype models. Since that first filing, BICO has conducted additional
testing and has submitted the corresponding data to the FDA. Most recently, the
Companies met with the FDA in November 1996, and agreed to conduct in-home
testing of the Diasensor 1000 prior to seeking full market approval from the
FDA (See, "Current Status of the Noninvasive Glucose Sensor"). Although no
assurance can be made that approval will be received from the FDA to market the
Diasensor 1000 , if such approval is obtained, marketing of the Diasensor 1000
in the United States would begin.

There can be no assurance that the remaining steps that must be accomplished to
complete the development of the Noninvasive Glucose Sensor with acceptable
accuracy levels for the measurement of glucose can be completed, whether
sufficient funding will be available to continue the development to completion,
when such completion might take place or, if completed successfully, that the
Noninvasive Glucose Sensor can be successfully marketed. There can also be no
assurance that the testing and regulatory approval process described above will
be successful or, if successful, what the length of time will be required to
obtain such approval (See, "RISK FACTORS").

Diasense believes that the Noninvasive Glucose Sensor, if successfully
developed, would enhance the monitoring and treatment of those suffering with
diabetes, a chronic metabolic disorder that adversely affects the body's
ability to manufacture and utilize insulin, a hormone necessary for the
conversion of glucose into energy. The American Diabetes Association has
estimated that diabetes is the seventh leading cause of death in the United
States and that diabetes afflicts 16 million people in the United States,
including 11% of all people between the ages of 65 and 74, with estimated
annual health care and related costs of more than $92 billion. It is also
estimated that more than 385,000 diabetics die each year from complications
associated with diabetes and more than 625,000 new cases of diabetes are
diagnosed each year. Diabetics who are stricken with juvenile diabetes, the
most severe form of the disease, can only survive with insulin injections.
However, the quality and length of their lives are generally reduced by
problems associated with insulin therapy and by the onset of serious diabetic
complications, including blindness, kidney failure, impotence, heart disease,
and increased susceptibility to infection. Diabetics who suffer from adult
onset diabetes, a relatively less severe form of the disease, also face the
prospect of diabetic complications unless eating and exercise habits are
strictly controlled.

The Offering

Subject to applicable laws or regulations, the Offering will not be terminated
until all of the Primary Shares offered hereunder are sold, or until earlier
termination by the Company, in its sole discretion. This Offering was
initiated by The Company in July 1993 and originally offered a total of
3,000,000 Primary Shares; the Company registered an additional 3,000,000
Primary Shares in 1995 via Rule 429. As of September 30, 1996, approximately
1,084,460 Primary Shares have been sold. The Company can give no assurance
that any additional Primary Shares will be sold. There is no minimum number of
Primary Shares that must be sold before any Primary Shares can be sold
hereunder, and accordingly, there can be no assurance that proceeds received by
the Company from the sale of Primary Shares will not be used for any purpose
other than the expenses of this Offering.

Common Stock Offered 4,649,290 Primary Shares and
by the Company 6,953,263 Warrant Shares

Common Stock Outstanding after 34,608,604 shares of Common Stock (1)
this Offering

Risk Factors Investment in the Common Stock of
Diasense involves a high degree of
risk (See, "RISK FACTORS").

Estimated Proceeds of Primary $16,272,515 from the Primary Offering (2);
Offering and Warrant Shares and $6,231,388 from the Warrant Shares
Offering Offering (3).

Use of Proceeds of Primary Continued development of the Noninvasive
Offering and Warrant Shares Glucose Sensor and general working capital
Offering purposes (See, "USE OF PROCEEDS").

_______________________

(1) Assumes the issuance of all of the Primary Shares offered in the Primary
Offering and all of the Warrant Shares offered in the Warrant Shares
Offering, excluding expired Warrants, and is based on the number of shares
of Common Stock outstanding as of October 31, 1996.

(2) Does not include initial Offering expenses estimated at approximately
$151,000, which were paid by the Company (and which also include expenses
relating to the Warrant Shares Offering), or commissions, if any, and is
as of October 31, 1996. Assumes an offering price of $3.50 per Primary
Share (See, "USE OF PROCEEDS" and "PLAN OF DISTRIBUTION").

(3) Assumes that all of the Warrants are exercised. The Company will receive
net proceeds from the Warrant Shares Offering (if any) only as and when,
and to the extent, any Warrants are exercised (See, "USE OF PROCEEDS" and
"PLAN OF DISTRIBUTION").

THE COMPANY

Diasense, Inc., a Pennsylvania corporation ("Diasense" or the "Company"), is a
developmental stage company organized on July 5, 1989 by Biocontrol Technology,
Inc. ("BICO") as its wholly-owned subsidiary. As of October 31, 1996, BICO
owned 11,975,000 shares of the outstanding Common Stock of Diasense which
represents approximately 52% of Diasense's outstanding Common Stock.
Diasense's executive offices are located at: The Bourse Office Park, Building
2500, 2nd Floor, 2275 Swallow Hill Road, Pittsburgh, Pennsylvania 15220.
Diasense's telephone number is (412) 279-9740.

RISK FACTORS

In evaluating the Company and its business, prospective investors, including
purchasers and warrantholders, should carefully consider the following risk
factors, as well as the other information contained in this Prospectus, before
deciding whether to purchase shares of Common Stock. As set forth herein, the
Company and BICO have announced plans to combine both corporations. The effect
of such a combination on Diasense, the Common Stock offered herein, and the
shareholders of Diasense is uncertain, and poses additional risks. Because, as
of the date of this Prospectus, the terms of the transaction have not been
finalized, and because the Companies are still operating as different entities,
the Company has not attempted to set forth the attendant risks of the
combination. Nevertheless, prospective purchasers must consult with their
investment advisors regarding such additional risks, and to consider the impact
of the combination when making a decision whether to purchase the Common Stock
offered herein.

1. Product Development Not Yet Completed. Diasense is a developmental
stage company with no current operations, and does not expect to have any
operations unless and until the pending 510(k) Notification for the Diasensor
1000 is approved by the FDA, or manufacturing of the Diasensor 1000 is
successfully completed to consummate foreign sales. Development of a research
prototype of the Diasensor 1000 has been finalized and FDA-required in-home
testing is scheduled to commence in early 1997; however, no assurance can be
given that successful development of a commercially feasible version of the
Noninvasive Glucose Sensor will be completed. No revenues have been generated
from sales since the FDA's approval process is still pending, and full-scale
manufacturing for foreign sales has not begun (See, "BUSINESS - Development of
the Noninvasive Glucose Sensor" and "Government Regulation").

Development of the Diasensor 2000 , a universally usable model, is
continuing, and the Company believes that certain of the technologies and
processes used in the development of the Diasensor 1000 will be useful for the
Diasensor 2000 ; however if the Diasensor 1000 is not successfully
commercially developed, the Company would discontinue development of the
Diasensor 2000 .

2. Future Capital Needs; Uncertainty of Additional Funding. The
Company will require substantial additional funds to complete the research and
development of both models of the Noninvasive Glucose Sensor, and, if
successfully accomplished, to have the Noninvasive Glucose Sensor manufactured
and marketed. Diasense has financed its research and development activities to
date solely through private and public offerings of its securities. Diasense
believes that its available cash resources, including funds it reasonably
expects to be raised by the Company or its affiliates, will be sufficient to
fund its activities only through at least September 30, 1997. BICO has
advised Diasense that BICO's available cash resources, including funds it
reasonably expects to be raised by BICO or its affiliates, are sufficient to
fund BICO's operations through at least September 30, 1997. Accordingly, BICO
will not be able to continue development work on the Noninvasive Glucose Sensor
after that date unless BICO or Diasense is able to continue to obtain funding.
In July 1995, billings pursuant to the R&D Agreement were suspended pending the
FDA's review of the Diasensor 1000 . During the nine months prior to such
suspension of billings, the average monthly amount billed by BICO to Diasense
pursuant to the R&D Agreement was $487,500 (consisting of $100,000 in indirect
costs and approximately $387,500 in reimbursable costs). Diasense estimates
that its current monthly expenditures approximate $125,000. Depending upon the
amount and timing of the receipt of net proceeds from this Offering, which is
currently pending, or the arrangement of additional financing from third
parties, Diasense may not have sufficient funds available at any given time to
complete both the development of the Noninvasive Glucose Sensor and to satisfy
its general working capital requirements. The Company is unable to estimate
the amount of any net proceeds of this Offering, or when any such net proceeds
may be received (See, "USE OF PROCEEDS" and "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Liquidity and
Capital Resources").

There can be no assurance that: (i) the amount and timing of the receipt
of net proceeds of this Offering; (ii) proceeds from foreign sales of the
Diasensor 1000 ; or (iii) the arrangement of additional financing from third
parties, will be sufficient to fund Diasense's operations. There can be no
assurance that such additional funds or financing will be available when needed
or available on terms acceptable to Diasense. Diasense has received no firm
commitments from any third party as to such additional financing if and when it
is needed for the continued development of the Noninvasive Glucose Sensor. If
any such additional financing involves the issuance of equity or other
securities, further dilution of existing shareholders' voting power and equity
will result. If Diasense is not able to obtain any such additional financing
or if such additional financing is insufficient, Diasense may be required to
request BICO to reduce the pace of development work under the R&D Agreement or
would be required to cease operations and the development of the Noninvasive
Glucose Sensor (See, "USE OF PROCEEDS" and "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Liquidity and
Capital Resources").

3. Substantial Reliance on BICO. As a result of agreements with BICO
relating to the development and manufacture of the Noninvasive Glucose Sensor,
Diasense is dependent on BICO for substantially all of its activities in
connection with the development and manufacture of the Noninvasive Glucose
Sensor, other than its marketing efforts. Pursuant to the R&D Agreement, BICO
has undertaken the development of the Noninvasive Glucose Sensor and has
assumed certain other obligations. Pursuant to a manufacturing agreement
between BICO and Diasense, BICO will manufacture the Noninvasive Glucose Sensor
once development is completed. In the absence of such relationships with BICO,
the research, development and manufacture of the Noninvasive Glucose Sensor
could not continue as currently contemplated (See, "Intercompany Agreements").
BICO's ability to successfully complete the development of the Noninvasive
Glucose Sensor, to obtain FDA approval in a timely fashion and to manufacture
production units of the Noninvasive Glucose Sensor without significant delays
or defects will directly affect Diasense's business and profitability. BICO
has experienced, and continues to experience, substantial losses and financial
difficulties. BICO had a net loss for the nine-month period ended September
30, 1996 of $16,093,431 and for the fiscal year ended December 31, 1995 of
$29,420,345, compared to a net loss for the fiscal year ended December 31, 1994
of $11,672,123. As of December 31, 1995, and September 30, 1996, BICO's
accumulated deficit was $66,220,357 and $82,313,788, respectively. In the
past, BICO has financed its own operations from proceeds generated from private
and public sales of its securities and from funds paid by Diasense to BICO for
research and development of the Noninvasive Glucose Sensor. The failure of
BICO to continue to exist as a going concern would have a material adverse
effect on Diasense's business.

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

Before manufacture of production units of the Noninvasive Glucose Sensor
can commence, BICO will be required to complete renovations on a manufacturing
facility which it has leased for the production of the Noninvasive Glucose
Sensor. BICO has informed Diasense that BICO will be required to spend
approximately $5 million on renovations and equipment purchases for such
facility before production can commence (See, "BUSINESS - Manufacturing").
BICO currently has sufficient available resources to continue the renovations;
however, there can be no assurance that BICO will continue to have sufficient
funds to pay for the renovations and to continue operations indefinitely. The
Company believes that any delays by BICO in commencing manufacture of the
Noninvasive Glucose Sensor or any failure by BICO to manufacture the
Noninvasive Glucose Sensor in sufficient quantities to meet demand would have a
material adverse effect on Diasense's business (See, "USE OF PROCEEDS" and
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - Liquidity and Capital Resources").

4. Competition and Risk of Obsolescence. Although its features are
different, the Company's Noninvasive Glucose Sensor, if successfully developed,
will compete with existing invasive glucose sensors which have an established
market with diabetics. In addition, the Company is aware that other companies
are developing noninvasive glucose sensors, and although the Company has very
limited knowledge of the status of other development projects, it is not aware
of any other company which has made filings for its product(s) with the FDA.
Those other companies may be further along in their research and development,
may be better capitalized, may have more sophisticated equipment and expertise
and may have various other competitive advantages over the Company. Such other
companies may be able to bring their products to market before the Company,
which could have a substantial negative impact on the Company's plans with
respect to developing technologies and future business prospects (See,
"BUSINESS - Competition").

The medical devices industry is subject to rapid technological
innovation. There can be no assurance that future technological developments
or products will not make the Noninvasive Glucose Sensor significantly less
competitive, unmarketable, or even effectively obsolete (See, "BUSINESS -
Competition").

5. Dependence on Single Technology. The successful completion of the
Noninvasive Glucose Sensor is directly dependent upon the development of
technologies and processes related to the non-invasive detection of glucose
concentration in the blood of humans. Accordingly, the Company's business is,
in significant part, dependent on the development and commercialization of a
single technology, development of which is not yet completed. If the
development or commercialization of the Noninvasive Glucose Sensor is not
successful, or if any significant delays occur in such development or
commercialization, whether as a result of technological or other impediments,
Diasense's business and prospects will be materially adversely affected, or
Diasense may be required to cease operations (See, "RISK FACTORS - Substantial
Reliance on BICO").

6. Operating Losses, Negative Net Worth and Uncertainty of Future
Profitability. Diasense has experienced significant losses since its inception
on July 5, 1989, most of which are attributable to research and development and
other expenses relating to the Noninvasive Glucose Sensor. As of September 30,
1996, Diasense had an accumulated deficit of $35,395,934. In the fiscal years
ended September 30, 1996, 1995, and 1994, Diasense had net losses of
$9,021,823, $10,361,514, and $5,145,081, respectively. At September 30,
1996, and September 30, 1995 Diasense had a net worth (deficit) of $4,151,286
and $4,083,421 respectively. Diasense's financial statements for each of its
fiscal years since inception have included an explanatory paragraph by its
independent certified accountants which referred to the existence of
substantial doubt about the Company's ability to continue as a going concern.
Diasense expects to incur further losses for the foreseeable future, unless and
until the Noninvasive Glucose Sensor is successfully commercially developed.
Diasense's profitability and success will depend on its ability to:
successfully complete the development of the Noninvasive Glucose Sensor; to
obtain regulatory approval for marketing the Noninvasive Glucose Sensor, each
on a timely basis; and to sell sufficient quantities of the Noninvasive Glucose
Sensor at prices that will assure an adequate return on its investment. If
successfully developed and sold in foreign markets, or approved for marketing
by the FDA, the Diasensor 1000 will be Diasense's first product to be marketed
(See, "RISK FACTORS - Limited Sales and Marketing Experience"). No assurance
can be given as to the ultimate commercial success of the Noninvasive Glucose
Sensor or as to Diasense's ability to operate profitably if and when sales of
the Noninvasive Glucose Sensor begin (See, "SELECTED FINANCIAL DATA" and
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION - Liquidity and Capital Resources").

7. Potential Conflicts of Interest. Mr. Fred E. Cooper, the President
and a director of Diasense, Mr. David L. Purdy, Chairman of the Board and Chief
Scientist of Diasense, and Mr. Anthony J. Feola, a director of Diasense, are
also officers and directors of BICO and, as of September 30, 1996, were the
beneficial owners of 2.4%, 2.3%, and 2.0%, respectively, of the common stock of
BICO. In the aggregate, Messrs. Cooper, Purdy and Feola were the beneficial
owners of 6.6% of BICO's common stock as of September 30, 1996 (See, "SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT").

As of September 30, 1996, BICO owned 11,975,000 shares of Common Stock
which represented approximately 52% of Diasense's outstanding Common Stock.
Messrs. Cooper, Purdy and Feola were the beneficial owners of an aggregate of
11.6% of the Company's common stock as of September 30, 1996, including
individual ownership of 5.0%, 4.2%, and 3.4% respectively (assuming the
exercise of all of their warrants). Messrs. Cooper, Purdy, and Feola, together
with BICO owned an aggregate of 57.8% of the Company's outstanding common stock
as of September 30, 1996, and currently have a significant influence on the
election of Diasense's Board of Directors, and may be able to elect a majority
of Diasense's Board of Directors. Accordingly, Diasense's senior management
and Board of Directors may be subject to competing and possibly conflicting
demands, which may result in certain actual or potential conflicts of interest.
Certain of such conflicts of interest include such persons acting in dual
capacities as representatives of both BICO and Diasense with respect to the
negotiation and approval of the agreements between BICO and Diasense and with
respect to any other decisions involving transactions between BICO and
Diasense. Accordingly, holders of the Common Stock will have to rely on the
good faith and integrity of such persons while acting on behalf of Diasense
(See, "MANAGEMENT" and "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT").

8. Patents, Trademarks and Licenses. Diasense owns United States
patents covering certain aspects of a process for measuring blood glucose
levels noninvasively. The first patent and related technology were sold to
Diasense by BICO pursuant to a purchase agreement (See, "Intercompany
Agreements" and "BUSINESS - Agreements with BICO Relating to the Noninvasive
Glucose Sensor" and "BUSINESS - Patents, Trademarks and Licenses"). The
Company also has patent applications pending in connection with the Noninvasive
Glucose Sensor (See, "BUSINESS - Patents, Trademarks and Licenses"). Diasense
has filed corresponding patent applications in a number of foreign countries.
Diasense may file applications in the United States and other countries, as
appropriate, for additional patents directed to other features of the
Noninvasive Glucose Sensor and related processes. Diasense cannot provide
assurances that future patents will be granted, that any patent held or pending
will not be challenged or circumvented by a competitor or other entity, or that
any patent contest will result in a favorable outcome. If any of the Company's
patents are successfully challenged, or if future patents are not granted, or
if Diasense is found to have infringed upon another company's patent, it would
result in substantial costs and delays in the Company's product development,
and would otherwise result in materially adverse consequences.

9. Government Regulation and Approvals. Diasense's and BICO's
activities are subject to extensive regulation by federal regulatory agencies,
including the FDA. There exists the possibility that FDA and other regulatory
approval may not be obtained for a given product. FDA approval is required
prior to the marketing of the Noninvasive Glucose Sensor in the United States.
On January 6, 1994, the Company submitted its prototype and corresponding data
for the Diasensor 1000 to the FDA in its first a 510(k) Notification. Since
such filing, BICO has made improvements to its device, and has submitted
updated information to the FDA in a new 510(k) Notification filed in September
1996. In November 1996, the Companies met with the FDA and agreed to conduct
in-home testing of the Diasensor 1000 prior to seeking full marketing approval
from the FDA. The FDA deemed the 1996 510(k) Notification to be withdrawn, and
the Companies will resubmit a 510(k) Notification upon the completion of the
in-home testing, which should commence in January 1997, although no assurances
can be given as to the date of the commencement, term or completion of such
testing. The FDA's review of the next 510(k) Notification may result in
further delays, and no assurance can be given that approval will ultimately be
received. If the FDA does not approve the 510(k) Notification, the Company
will be required to comply with the FDA's pre- market approval process, which
is substantially more time-consuming and expensive. In that event, the Company
would require additional capital to meet such expenses, and to support its
operations until the Noninvasive Glucose Sensor can be marketed. If FDA
approval is received, it may include limitations upon the permitted use of the
Noninvasive Glucose Sensor, which may result in a less commercially successful
product (See, "Current Status of the Noninvasive Glucose Sensor").

The Noninvasive Glucose Sensor could also be affected by the Clinical
Laboratory Improvement Amendments of 1988 ("CLIA"), which generally are
intended to assure the quality and reliability of all medical testing in the
United States, regardless of where the testing is performed. The Health Care
Financing Administration ("HCFA") oversees the implementation of regulations
required under CLIA. The HCFA also is responsible for overseeing issues
relating to reimbursement (under the Medicare and Medicaid programs) for
diagnostic tests and medical procedures that may affect Diasense's products.
The Company will also be subject to certain environmental regulations and
regulations in foreign countries in which its products are sold (See "BUSINESS
- - Government Regulation").

10. Uncertainty of Third-Party Payor Reimbursement. The Company is
unable to make projections regarding the availability of, or procedures
required in order to obtain, such third-party reimbursement. Due to the
current uncertain status of proposals related to health care reform, the
Company is unable to determine the effect of such reform upon its ability to
market, or obtain third-party reimbursement for, the Noninvasive Glucose
Sensor. In addition, the first model of the Noninvasive Glucose Sensor, the
Diasensor 1000 , will be individually calibrated. This feature may limit both
the marketability and the purchaser's ability to obtain third-party
reimbursement. The risk exists that the domestic sales potential for the
Noninvasive Glucose Sensor would be severely limited in the absence of such
reimbursement, or in the event of health care reform (See, "BUSINESS - Current
Status of the Noninvasive Glucose Sensor").

11. Limited Manufacturing Experience. If the Noninvasive Glucose
Sensor is ultimately approved for marketing, it will be manufactured
exclusively by BICO subject and pursuant to the terms of a manufacturing
agreement with Diasense, the term of which is fifteen years (See, "Intercompany
Agreements"). There can be no assurance that BICO will be able to satisfy
Diasense's requirements for quality, quantity or timeliness, or that Diasense
would be able to locate and contract with a substitute manufacturer if
Diasense's relationship with BICO terminates for any reason. Although BICO has
previous manufacturing experience, it has no experience in manufacturing large
commercial quantities; however, BICO's manufacturing personnel do have
experience in manufacturing large commercial quantities (See, "BUSINESS -
Manufacturing").

12. Limited Sales and Marketing Experience. The Company has no prior
or existing experience in product sales, marketing or distribution. Although
certain Diasense employees have sales and marketing experience, such experience
is not in the medical devices market. Achieving market acceptance for the
Noninvasive Glucose Sensor may require substantial marketing efforts and the
expenditure of significant funds to inform potential customers and distributors
of the distinctive characteristics and benefits of the Noninvasive Glucose
Sensor. The Company's operating results will depend largely on its ability to
establish successful arrangements with domestic and international distributors
and marketing partners. Although the Company is negotiating with such
entities, there is no assurance that the Company will be able to establish
satisfactory arrangements or that any such distributors or marketing partners
will be successful in marketing the Noninvasive Glucose Sensor or any other
products. There also can be no assurance that the Noninvasive Glucose Sensor
or any other product will be commercially acceptable and marketable (See,
"BUSINESS - Marketing and Distribution"). The Company's success will also
depend to a significant extent on its ability to establish an effective
internal marketing organization (See, "MANAGEMENT").

13. Attraction and Retention of Key Employees. Diasense and BICO's
ability to develop commercially viable products and to maintain a competitive
position in a business environment characterized by intense competition and
technological development depends upon, among other factors, their ability to
attract and retain skilled scientific, engineering, management, sales and
marketing personnel. Competition for the services of such personnel is
intense, and there can be no assurance that the Company will be able to attract
or retain the personnel necessary for the Company's success. The loss by the
Company of the services of any of its key personnel could have a material
adverse impact on the business and prospects of the Company. The Company
currently does not have key-man life insurance for any of its employees, other
than Mr. Purdy and Mr. Cooper.

Diasense relies on BICO's consultants and advisors, including its
scientific advisors, to assist Diasense in formulating its research and
development strategy. Those consultants and advisors may have commitments to
or consulting or advisory contracts with other entities that may limit their
availability to Diasense.

14. Risk of Product Liability. The testing, marketing and selling of
medical devices by the Company includes an inherent risk that product liability
claims may be asserted against the Company. Diasense and BICO collectively
have product liability insurance in an aggregate amount of $1,000,000, although
there can be no assurance that they will be able to maintain such insurance on
commercially acceptable terms or that any such insurance would provide adequate
coverage of potential liabilities against either Diasense or BICO. A
successful product liability claim against either Diasense or BICO in excess of
such insurance coverage could have a material adverse effect on Diasense.

15. Absence of Prior Public Market; Potential Volatility of Stock
Price. Prior to and during the course of this Offering, there has been no
public market for the Common Stock, this Offering commenced in July 1993. As of
September 30, 1996, 1,084,460 Primary Shares have been sold pursuant to this
Offering. In July 1995, Diasense applied for approval to have the Common Stock
listed on the NASDAQ Small-Cap Market; such application is still pending.
There can be no assurance that an active trading market for the Common Stock
will develop or, if a market develops, that any such market will be sustained
after the completion of this Offering. Accordingly, holders of the Common Stock
may have difficulty disposing of all or part of their investment.

The market price of the Common Stock after the Offering, like that of
other developmental stage companies, is likely to be highly volatile. Factors
such as fluctuations in the Company's operating results, announcements of
technological innovations or of new products by the Company's competitors,
governmental regulation, developments in patent or other proprietary rights,
adverse developments in Diasense's relationships with BICO, public concerns or
perceptions as to the safety of the Noninvasive Glucose Sensor, the status of
the Noninvasive Glucose Sensor within the FDA's regulatory approval process and
general market conditions, may have a significant adverse effect on the market
price of the Common Stock.

The Common Stock may be a "penny stock" under the Penny Stock Reform Act
unless certain conditions are satisfied. Certain disclosure requirements under
such Act may make it more difficult for any market- makers to develop or
sustain an active trading market in the Common Stock, and accordingly, the
liquidity and trading price of the Common Stock may be adversely affected.

16. Control by Existing Shareholders. Immediately following the
completion of this Offering, BICO, together with Diasense's directors and
officers, will beneficially own approximately 43.3% of the Common Stock
(assuming that all of the officers and directors exercise all of their
warrants). Accordingly, they will have the ability or potential ability to
influence significantly the election of the Company's Board of Directors and
to influence significantly most other shareholder actions and the general
policies of Diasense (See, "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT" and "RISK FACTORS - Potential Conflicts Of Interest").

17. Dilution. The prices at which shares of Common Stock may be sold
in the Offering may be substantially higher than the book value per share of
common stock. Purchasers of Common Stock in the Offering would, as a result,
incur immediate and substantial dilution. In addition, purchasers of Common
Stock will incur additional dilution in the future to the extent that there are
exercises of any outstanding warrants, or to the extent Diasense sells
additional shares of common stock in addition to the Shares offered herein.
Certain of Diasense's directors, officers and existing shareholders acquired
their interests in Diasense at an average cost per share (whether through
purchases of common stock or through warrants) that may be substantially less
than the price at which shares of common stock may be sold in the Offering
(See, "DILUTION").

18. Shares Available for Future Sale. Sales of a significant number of
shares of common stock in the public market following the Offering, or the
perception that such sales could occur, could have an adverse effect on the
prevailing market price of the common stock. No prediction can be made,
however, as to the effect, if any, that future sales of shares of common stock,
or the availability of shares of common stock for future sale, will have on
such market prices. Assuming the completion of this Offering, in addition to
the Primary and Warrant Shares, approximately 10,918,884 shares of common stock
will be eligible for sale in the public market without restriction on the
effective date of the Registration Statement (the "Effective Date") in reliance
on Rule 144(k) under the Securities Act of 1933, as amended (the "Securities
Act"). Beginning 90 days following the Effective Date, no additional shares
will be available for sale in the public market subject to the limitations set
forth in Rule 144, excluding the shares owned by BICO (See, "SHARES AVAILABLE
FOR FUTURE SALE").

19. No Common Stock Dividends. The Company has not paid any cash
dividends on its common stock since its inception on July 5, 1989, and the
payment of cash dividends is not currently anticipated for the foreseeable
future. The Company anticipates that earnings, if any, generated from
operations in the future will be retained for working capital purposes and for
the continued funding of research, development, manufacture and marketing of
the Noninvasive Glucose Sensor.

USE OF PROCEEDS

Diasense will receive proceeds (if any) only from the Primary Offering and the
Warrant Shares Offering. Any such proceeds will be used by Diasense both to
continue the development of the Noninvasive Glucose Sensor and to satisfy
general working capital requirements, if sufficient. If less than all of the
Primary Shares or Warrant Shares are sold, the Company will use the net
proceeds actually received, first for salaries of employees, general and
administrative expenses, and then for working capital, which will include
initial payments to BICO on purchase orders for the manufacture of the
Diasensor 1000 . The rate of progress of the development of the Noninvasive
Glucose Sensor, the timing of the regulatory approval process and the
availability of alternative methods of financing will influence the allocation
of the Company's use of the net proceeds actually received from the Offering
among the uses described herein. There can be no assurance that the Company
will receive any proceeds from the Offering. The maximum gross proceeds to be
received by Diasense from the sale of the 4,649,290 Primary Shares, assuming a
price per Primary Share of $3.50, would be $16,272,515, which does not reflect
the deduction of offering expenses paid by Diasense estimated at approximately
$151,000 (which also includes expenses relating to the Warrant Shares
Offering), or commissions. This price is based on the $3.50 price per share at
which Diasense sold shares of Common Stock in its most recent private offering,
and the price per share of Common Stock sold pursuant to this Offering.

The maximum gross proceeds to be received by Diasense in the Warrant Shares
Offering from the sale of all of the Warrant Shares (upon the exercise of the
Warrants) are estimated to be $6,231,388. Diasense is unable to estimate when
any proceeds from the Warrant Shares Offering may be received by Diasense upon
the exercise of Warrants, although based on the expiration dates of the
Warrants, Diasense believes that a substantial number of Warrants may not be
exercised prior to the end of 1998. Diasense will receive net proceeds from
the Warrant Shares Offering only when, and to the extent, any Warrants are
exercised.

Diasense believes that its available cash resources, including funds raised
pursuant to this Offering, and proceeds from foreign sales of its products,
will be sufficient to fund its activities through September 30, 1997. BICO
has advised Diasense that BICO's available cash resources, including funds it
reasonably expects to be raised by BICO or its affiliates, are sufficient to
fund BICO's operations and development work on the Noninvasive Glucose Sensor
under the R&D Agreement through at least September 30, 1997. Accordingly, BICO
will not be able to continue development work on the Noninvasive Glucose Sensor
after that date unless BICO or Diasense is able to continue to obtain
financing. (See, "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - Liquidity and Capital Resources").

Diasense estimates that its current monthly general, administrative and working
capital expenditures, are approximately $125,000. Depending upon (i) the
actual price per Primary Share at which Diasense sells the Primary Shares, the
number of Primary Shares sold and the timing of any such sales, (ii) the timing
of any exercises of the Warrants, and (iii) the timing and receipt of proceeds
from foreign sales of its products, Diasense may not have sufficient funds
available at any given time to fund both the development of the Noninvasive
Glucose Sensor and to satisfy its general working capital requirements. If the
net proceeds of the Primary Offering and the Warrant Shares Offering are
insufficient at any given time, Diasense will be required to seek additional
financing from third parties at such time until additional proceeds from the
Primary Offering or the Warrant Shares Offering are obtained, if at all. No
assurance can be given that such additional financing will be available when
needed or available on terms acceptable to Diasense. If such additional
financing is unavailable or continues to be insufficient, Diasense would be
required to cease operations and the development of the Noninvasive Glucose
Sensor altogether unless BICO agrees to further deferrals of payments of
amounts due under the R&D Agreement (See, "RISK FACTORS - Future Capital Needs;
Uncertainty of Additional Funding").

In connection with the sale of the Primary Shares or the Warrant Shares offered
hereby, the Company and the Selling Shareholders may utilize brokers, dealers,
or market-makers, who may receive compensation in the form of commissions from
the Company or Selling Shareholders (See, "PLAN OF DISTRIBUTION").

In December 1995, BICO and Diasense announced that their respective Boards of
Directors had determined that it would be in the best interest of both
companies to combine them. Although the Boards of Directors anticipate that
such a combination would be accomplished via an exchange of all Diasense's
outstanding common stock for BICO common stock, the transaction is subject to
the approval of the shareholders of the Companies, and the terms have not been
finalized. In the event that Diasense is combined with BICO, the proceeds from
this Offering may be used for purposes which, in the discretion of the
management of the combined company, is most beneficial to such corporation,
although at this time both Companies anticipate that the proceeds will be used
in connection with the Noninvasive Glucose Sensor project.

DIVIDEND POLICY

The Company has not paid any cash dividends on its Common Stock since its
inception on July 5, 1989, and the payment of cash dividends is not currently
anticipated for the foreseeable future. Diasense anticipates that earnings, if
any, generated from operations in the future will be retained for working
capital purposes and for the continued funding of research, development,
manufacture and marketing of the Noninvasive Glucose Sensor.

DILUTION

As of September 30, 1996, Diasense had a net tangible book value of
$4,151,286, or approximately $0.180 per share of Common Stock. Without taking
into account any changes in such net tangible book value subsequent to
September 30, 1996, other than giving effect to the sale of the Primary Shares
offered hereby at an assumed initial public offering price of $3.50 (exclusive
of commissions, if any) and the receipt of the proceeds therefrom, the pro
forma net tangible book value of Diasense at September 30, 1996, would have
been $20,423,801 or approximately $.738 per share. This represents an
immediate increase in net tangible book value of approximately $.558 to
existing shareholders and an immediate dilution of approximately $2.762 to new
investors (based upon an assumed initial public offering price of $3.50).
There can be no assurance that the Company will actually receive $3.50 per
Primary Share. The following table illustrates the dilution in net tangible
book value per share to new investors:

Assumed initial public offering price . . . . . . . . . . . . . .$3.50
Net tangible book value
before Primary Offering (1). . . . . . . . . . . . . . .$0.180
Increase per share attributable
to new investors (2) . . . . . . . . . . . . . . . . . .$0.558
Pro forma net tangible book value per share
after Primary Offering. . . . . . . . . . . . . . . . . . . . .0.738
Dilution per share of net tangible
book value to new investors (3) . . . . . . . . . . . . . . . $2.762
======
________________________

(1) Net tangible book value per share is determined by dividing the net
tangible book value of the Company (total tangible assets less total
liabilities) by the aggregate number of outstanding shares of Common Stock.

(2) Based on an assumed initial public offering price of $3.50 per Primary
Share (See, "PLAN OF DISTRIBUTION").

(3) "Dilution" is determined by subtracting net tangible book value per share
of Common Stock after the Primary Offering from the net tangible book
value per share of Common Stock before the Primary Offering.

The following table summarizes, on a pro forma basis as of September 30, 1996,
adjusted to give effect to the sale of the Primary Shares by Diasense, the
number of shares of Common Stock purchased from Diasense, the total
consideration paid and the average price per share paid by existing
shareholders and by the new investors purchasing shares of Common Stock in the
Primary Offering (based on an assumed initial offering price of $3.50 per
share, and rounding all numbers to two one-hundredths of one dollar):
<TABLE>
<CONTENT>
Shares Purchased Total Consideration Avg. Price
Number / Percentage Amount / Percentage Per Share
------------------------ ------------------------ ----------
<S> <C> <C> <C> <C> <C>
Existing Shareholders
(Affiliated) (a) 15,490,250 44.0% $17,105,750 33.1% $1.10

Existing Shareholders
(Nonaffiliated) 15,049,064 42.8% $18,313,534 35.4% $1.22

New Investors (b) 4,649,290 13.2% $16,272,515 31.5% $3.50

Total 35,188,604 100.0% $51,691,799 100.0%
=========== ====== =========== ======
</TABLE>
The foregoing table assumes the exercise of all outstanding warrants. As of
September 30, 1996, 7,533,263 warrants were outstanding and currently
exercisable at an average exercise price of $0.90.

(a) Includes shares owned by BICO (11,975,000 shares) and all of Diasense's
officers and directors, assuming that all of such officers and directors
exercised all of their warrants (See, "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT").

(b) Represents the Primary Shares unsold as of September 30, 1996.

CAPITALIZATION

The following table, which should be read in conjunction with the financial
statements of the Company and the related notes thereto included elsewhere in
this Prospectus, sets forth the capitalization of the Company at September 30,
1996 and 1995.

September 30, 1996 September 30, 1995

Stockholders' Equity:
Preferred Stock, 1,000,000 shares
authorized, none issued $0 $0

Common Stock, 40,000,000 shares
authorized, par value $0.01,
23,006,051 shares issued and
outstanding as of September 30,
1996 22,524,320 shares issued and
outstanding at September 30, 1995 230,061 225,243

Warrants 12,334,348 4,690,315

Additional Paid-In Capital 26,982,811 25,541,974

Accumulated Deficit (35,395,934) (26,374,111)

Total Stockholders' Equity
(Deficit) 4,151,286 4,083,421

Total Capitalization $4,151,286 $4,083,421

SELECTED FINANCIAL DATA

The selected financial data presented herein has been derived from the
Company's audited consolidated financial statements. These financial
statements have been audited by Thompson Dugan, P.C. for the twelve-month
periods ended September 30, 1996, 1995, 1994, and 1993; and for the nine-month
period ended September 30, 1992, the reports of each of which include
explanatory paragraphs as to "going concern" considerations. The selected
financial data should be read in conjunction with "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" and the financial
statements of the Company and related notes thereto included elsewhere in this
report.
<TABLE>
<CAPTION>
12 mos. 12 mos. 12 mos. 12 mos. 9 mos.
Ended Ended Ended Ended Ended
9/30 9/30 9/30 9/30 9/30
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>

R&D Expenses $ -0- $ 3,487,882 $ 2,807,508 $ 1,850,838 $ 1,469,109

General &
Administrative
Expenses $ 1,509,298 $ 2,323,279 $ 2,388,854 $ 1,968,378 $ 1,439,492

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

Net Loss ($ 9,021,823) ($10,361,514) ($ 5,145,081) ($ 3,763,101) ($ 2,846,584)

Total Assets $ 4,171,910 $ 5,407,401 $ 694,712 $ 510,341 $ 1,341,134

Total Liabilities $ 20,624 $ 1,323,980 $ 7,172,585 $ 2,980,829 $ 703,521

Working Capital
(Deficit) $ 3,914,198 $ 3,839,965 ($ 6,707,855) ($ 2,689,986) $ 415,545

Accumulated
Deficit ($35,395,934) ($26,374,111) ($16,012,597) ($10,837,516) ($ 7,074,415)

Net Loss Per
Common Share ($.39) ($.54) ($.29) ($.21) ($.16)

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

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

In October 1992, Diasense's Board of Directors authorized a change in
Diasense's fiscal year from December 31st of each year to September 30th of
each year. Consequently, the fiscal year which ended September 30, 1992 was
comprised only of the nine months ended September 30, 1992 ("Fiscal 1992"), and
is compared to the twelve month periods ended September 30, 1996 ("Fiscal
1996"), September 30, 1995 ("Fiscal 1995"), September 30, 1994 ("Fiscal 1994"),
and September 30, 1993 ("Fiscal 1993").

In December 1995, BICO and Diasense announced that their respective Boards of
Directors had determined that it would be in the best interest of both
companies to combine them. Although the Boards of Directors anticipated that
such combination would be accomplished via an exchange of all Diasense's
outstanding common stock for BICO common stock, the transaction is subject to
the approval of the shareholders of the Companies, and the terms have not been
finalized. As of the date of this document, the Companies were still
functioning as two different corporations; such status is reflected in the
discussions set forth herein.

Forward-Looking Statements

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

Liquidity and Capital Resources

Diasense's cash balance at September 30, 1996 was $1,143,312 as compared to
$4,149,163 at September 30, 1995 and $448,738 at September 30, 1994. The
fluctuations in Diasense's cash balances were primarily attributable to several
placements of common stock, which generated $1,092,496; $5,701,492; and
$1,365,155 in net proceeds for the Company in Fiscal 1994; Fiscal 1995; and
Fiscal 1996, respectively. Sales of common stock during Fiscal 1995 included a
sale of 1,200,000 shares of the Company's unregistered common stock to BICO,
with net proceeds of $4,200,000. The decrease during Fiscal 1996 was
attributable to decreased funds raised by the Company. Diasense is conducting
its initial public offering, which was effective with the SEC on July 19, 1993.
As of September 30, 1996, net proceeds of $3,652,892 had been raised pursuant
to such registration. Warrants to purchase 56,000 shares of common stock were
exercised during Fiscal 1996 resulting in proceeds of $28,000.

Diasense had working capital of $3,914,198 at September 30, 1996 (which
includes $1,777,197 due from BICO, $500,000 of which was repaid in December
1996) as compared to $3,839,965 at September 30, 1995, and negative working
capital of ($6,707,855) at September 30, 1994. This increase in working
capital was primarily attributable to funds raised from sales of its stock and
from a decrease in accrued amounts due to BICO under the Research and
Development Agreement, which resulted when BICO accepted 3,000,000 shares of
Diasense common stock at an assigned value of $3.50 per share in exchange for
$10,500,000 in amounts due during Fiscal 1995.

In July 1995, BICO and Diasense agreed to suspend billings, accruals and
payments due pursuant to the R&D Agreement pending the FDA's review of the
Diasensor 1000 . During the nine months prior to such suspension of billings,
the average monthly amount billed by BICO to Diasense pursuant to the R&D
Agreement was $487,500 (consisting of the $100,000 indirect costs and
approximately $387,500 in reimbursable costs).

Diasense believes that its available cash resources, including funds it
reasonably expects to be raised by the Company or its affiliates, will be
sufficient to fund its activities through at least September 30, 1997. Such
estimate is based, in part, on monthly expenditures of approximately $125,000,
although that monthly aggregate amount may be revised, as described below,
depending upon the progress of development of the Noninvasive Glucose Sensor.

In addition to the proceeds that Diasense is attempting to raise in its
self-underwritten public offering, Diasense is attempting to secure additional
financing from various sources. Based on Diasense's available cash, its rate
of monthly expenditures and the deferrals agreed upon by Diasense and BICO,
Diasense believes that it will be able to continue its current activities
through at least September 30, 1997. If, subsequent to that date, Diasense is
not able to obtain additional financing or if such additional financing is
insufficient, Diasense would be required to cease operations and the
development of the Noninvasive Glucose Sensor altogether.

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

Results of Operations

During Fiscal 1996, research and development expenses were $0 as compared to
$3,487,882 in Fiscal 1995 and $2,807,508 in Fiscal 1994. This decrease was due
to the agreed-upon suspension of billings by Diasense and BICO pursuant to the
R&D Agreement (See, "Liquidity and Capital Resources").

General and administrative expenses aggregated $ 1,509,298 during Fiscal 1996
as compared to $2,323,279 during Fiscal 1995, and $2,388,854 during Fiscal
1994. This decrease was due primarily to the suspension of billings pursuant
to the R&D Agreement.

Other income aggregated $133,083 in Fiscal 1996, as compared to $103,106 in
Fiscal 1995 and $52,026 in Fiscal 1994. Other income is comprised of interest
income and rental income; rental income averages approximately $41,000 per year
(all of which was paid by BICO to Diasense in Fiscal 1996 and Fiscal 1995), and
the balance of other income is from interest earned on deposits of liquid
assets.

During Fiscal 1996 and 1995, the Company extended 2,556,213 and 1,550,000
warrants, respectively, which were originally granted to certain officers,
directors, employees and consultants in 1990 and 1991, until 1998 and 1999,
respectively. Because the exercise price of such warrants ($1.00 or $.50 per
share) was lower than the market price of the common stock at the time of the
extensions (which is assumed to be $3.50 per share, although there is currently
no public trading market for the common stock), $7,644,033 was charged to
operations in Fiscal 1996 and $4,650,000 was charged to operations in Fiscal
1995.

Income Taxes

As of September 30, 1996, the Company had approximately $20,700,000 in net
operating losses available for federal tax purposes. Subject to certain
limitations, these losses will be available as carryforwards to offset future
taxable income through the years 2005-2010. The Company also has federal
research and development credit carryforwards available to offset federal
income taxes of approximately $700,000, subject to limitations and expiring in
the years 2005 through 2010.

Supplemental Financial Information (unaudited)

During October 1996, which is during the first quarter of Fiscal 1997, the
Company extended 610,000 warrants, which were originally granted to certain
officers, directors, employees and consultants in 1991 until 1999. Because the
exercise price of such warrants ($1.00 per share) was lower than the market
price of the common stock at the time of the extensions (which is assumed to be
$3.50 per share, although there is currently no public trading market for the
common stock), $1,525,000 was charged to operations in the first quarter of
Fiscal 1997.

BUSINESS

General Development of Business

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

The Company's business is the development, marketing and manufacture of a
noninvasive glucose sensor (the "Noninvasive Glucose Sensor" or the "Sensor")
for use by diabetics. During Fiscal 1996, the Company focused its efforts on
the Noninvasive Glucose Sensor. Diasense owns the patent, marketing and
distribution rights to the Sensor. BICO has the exclusive rights to the
research and development and manufacture of the Sensor (See, "Intercompany
Agreements"). Where applicable, Diasense and BICO will be referred to herein
as "the Companies".

Financial Information About Industry Segments

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

Forward-Looking Statements

In addition to other sections of this Prospectus, the Business section also
contains the type of forward-looking statements discussed on page 2 herein.
Please refer to such discussion in connection with the information presented
here.

Description of Business

Development of the Noninvasive Glucose Sensor

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

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

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

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

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

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

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

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

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

Current Status of the Noninvasive Glucose Sensor

After the FDA's panel review in February 1996, the Companies made additional
improvements to the prototypes, and produced 34 production models of the
Diasensor 1000 . The data obtained from the improved prototypes was submitted
in a revised 501(k) Notification filed with and accepted by the FDA in October
1996. In November 1996, the Companies' research and development team met with
the FDA, and agreed to conduct in-home studies of the Diasensor 1000 . The FDA
has deemed the 1996 510(k) to be withdrawn because of the additional studies;
the Companies will resubmit a 510(k) Notification when the in-home studies have
been completed and the data has been analyzed. As with all other FDA-related
activities, the Companies cannot provide any assurances as to the date upon
which the studies will be completed, the next 510(k) Notification will be
submitted, or when the FDA will complete its review of such Notification.

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

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

During 1994, 1995 and 1996, in addition to conducting continued research and
development on the Noninvasive Glucose Sensor, BICO prepared its new
manufacturing facility for the manufacture of the Noninvasive Glucose Sensor.
The facility, comprised of 68,000 square feet, has been reconfigured to BICO's
specifications, and the machinery and equipment necessary to manufacture have
been ordered.

Pilot production of the devices is planned for early 1997, and parts will
continue to be purchased based on the most recent design, including its latest
improvements. Manufacturing will occur with full production release documents
which signify that production is underway, and that such production meets with
FDA Good Manufacturing Practices ("GMP"s). Subject to continued availability
of parts and properly-operating equipment, production will then build at a
steady pace throughout 1997.

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

Diasense is responsible for the marketing and sales of the Noninvasive Glucose
Sensor. Diasense plans to market the Noninvasive Glucose Sensor directly to
diabetics, through their doctors' orders, and is currently negotiating with
domestic and international distribution organizations to aid in the marketing
and distribution of the Noninvasive Glucose Sensor. Although many factors may
cause a change in management's current estimate, the Company believes that the
sales price of the Diasensor 1000 at this time will range from approximately
$7950 to approximately $8500. Such price may be set at a level which would
limit its sales, absent third-party reimbursement. Due to the current
vicissitudes of the health-care insurance industry, the Companies are unable to
make any projections as to the availability of, or procedures required in
connection with, third-party reimbursement. Although the Companies estimate,
based on 1995 American Diabetes Association data, that there are nearly
16,000,000 diabetics in the United States, not all diabetics will be suitable
users of the Noninvasive Glucose Sensor. Those diabetics who require and
benefit from frequent glucose monitoring comprise the potential market for the
Noninvasive Glucose Sensor. The Companies are unable to estimate the size of
that market at this time.

Invasive Glucose Sensors

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

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

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

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

Diabetes

The American Diabetes Association (the "ADA") has estimated that diabetes is
the seventh leading cause of death in the United States. The ADA also
estimates that there are 16 million diabetics in the United States, including
11% of all people between the ages of 65 and 74, with corresponding estimated
annual health care and work loss costs of more than $92 billion. It is also
estimated that more than 385,000 diabetics die each year from complications
associated with diabetes. More than 625,000 new cases of diabetes are
diagnosed each year. Diabetics who are stricken with juvenile diabetes, the
most severe form of the disease, can survive with insulin injections. However,
the quality and length of their lives are generally reduced by problems
associated with insulin therapy and by the onset of serious diabetic
complications, including blindness, kidney failure, impotence and increased
susceptibility to infection.

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

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

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

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

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

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

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

Other Potential Products

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

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

Foreign Subsidiaries

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

Net Sales

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

Research and Development

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

Product Development

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

Manufacturing

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

In September 1992, BICO entered into a 10-year lease with the Indiana County
Board of Commissioners for a 22,500 square foot facility located in Indiana,
PA, which will be used by BICO for the assembly of production units of the
Noninvasive Glucose Sensor. During 1994, 1995 and 1996, BICO renovated the
facility and ordered the required capital equipment and machinery necessary for
assembly operations. BICO plans to spend approximately $5 million on such
renovations and equipment purchases. In addition, during 1995, BICO obtained
an additional 45,500 square feet of manufacturing space, which is being
completed for manufacturing.

Pilot production of the Diasensor 1000 is planned for early 1997, and parts
will continue to be purchased based on the most recent design, including its
latest improvements. Manufacturing will occur with full production release
documents which signify that production is underway, and that such production
meets with FDA Good Manufacturing Practices ("GMP"s). Subject to continued
availability of parts and properly-operating equipment, production will then
build at a steady pace throughout 1997.

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

Marketing and Distribution

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

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

Patents, Trademarks and Licenses

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

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

As of October 1996, a total of five patents have been issued, all of which have
been assigned to Diasense. Corresponding patent applications have been filed in
foreign countries where the Company anticipates marketing the Noninvasive
Glucose Sensor.

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

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

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

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

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

Warranties and Product Liability

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

Source of Supply

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

Competition

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

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

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

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

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

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

The companies which are currently engaged in the research and/or development of
noninvasive glucose sensors include the following: Sandia National Laboratories
("Sandia"), which is working with the University of New Mexico, Futrex, Inc.
("Futrex"), Boston Advanced Technologies, Inc. ("B.A.T."), and Cygnus, Inc.
("Cygnus"). Although the Company is not aware, there may be other companies
engaged in similar research and development. The named companies, and others,
may be further along in their development than the Company is aware, and may
have access to capital and other resources which would give them a competitive
advantage over the Company. The following is a summary of the Company's
current knowledge regarding the companies listed.

Sandia, which is funded by the U.S. Department of Energy and administered by
AT&T, has publicly reported that it has developed a noninvasive glucose sensor
based on infrared spectroscopy and using near-infrared light. In May 1993,
Sandia disclosed that it entered into agreements with Rio Grande Medical
Technologies, Inc. ("Rio Grande"), transferring certain rights and patents
relating to a noninvasive glucose sensor, and that Rio Grande was seeking
financing to develop the technology. In November 1994, a representative of
Sandia publicly stated that their research and development still required no
less than two years to perfect the device. The Company is not aware of
Sandia's commencement of clinical trials through IRBs which would satisfy FDA
approval requirements. Futrex, which has been granted four patents relating to
the noninvasive detection of glucose, conducted unsuccessful clinical trials in
1991. Futrex conducted additional clinical trials, and has disclosed in August
1995 IPO filings with the SEC that it plans to file a 510(k) Notification with
the FDA for its device in the fourth quarter of 1995; however, media reports
indicate that Futrex and its founder are now the subject of a federal court
suit initiated by the SEC, which could have a significant negative impact on
Futrex's future. B.A.T. was, in the past, conducting research and development
of a noninvasive sensor for the analysis of blood constituents, including
glucose, pursuant to a contract with NASA, but the Company has no knowledge of
whether B.A.T. is presently pursuing the research. B.A.T. owns one patent,
but has not disclosed whether any prototype has been developed or tested.
Cygnus has disclosed that it is developing a "GlucoWatch", which it claims
periodically directs an electrical current into the diabetic in order to
monitor glucose levels. Cygnus, which is now being funded by Abbott
Laboratories, a major pharmaceutical company, has not yet submitted its device
for FDA scrutiny and, to the best of the Companies' knowledge, must complete
additional clinical trials prior to applying for FDA approval to market the
device.

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

Government Regulations

Since the Company's Noninvasive Glucose Sensor product is a "medical device" as
defined by the Federal Food, Drug and Cosmetic Act, as amended (the "Act"), it
is subject to the regulatory authority of the FDA and will also be subject to
the authority of similar foreign regulatory agencies in countries where the
Noninvasive Glucose Sensor may be marketed. The FDA has promulgated
regulations that apply to the testing, marketing, registration and manufacture
of medical devices and products. The FDA can subject the Company to
inspections of its facilities and operations and may also audit its record
keeping procedures at any time.

Moreover, approvals are subject to continual review, and the future discovery
of previously unknown problems may result in certain restrictions being applied
to the use or marketing of the Noninvasive Glucose Sensor or a complete
withdrawal from the market.

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

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

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

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

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

In March 1993, the FDA announced that it intends to take steps to enhance its
review and approval procedures and guidelines relating to the testing of
medical devices, including imposing a higher standard of proof on medical
devices that might pose potential health risks. Diasense is unable to
determine at this time whether such action may have a material adverse effect
on the approval of the Noninvasive Glucose Sensor by the FDA or on Diasense's
business generally. The extent of federal, state, local or foreign
governmental regulations that might result from any future legislation or
administrative action, and the impact of any such action on Diasense's products
or business, cannot be accurately determined.

Diasense's products may also be subject to foreign regulatory approval prior to
any sales.

The FDA's Good Manufacturing Practices for Medical Devices specifies various
requirements for BICO's manufacturing processes and maintenance of certain
records.

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

Human Resources

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

Financial Information About Foreign and Domestic Operations and Export Sales

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

Properties

In April 1992, Diasense purchased an office condominium for $190,000. The
office, which consists of approximately 4600 square feet, is located at 2275
Swallow Hill Road, Building 2500, 2nd Floor, Pittsburgh, PA 15220. Diasense's
administrative offices are located in such office, and BICO leases a portion of
the office at a monthly rental amount of $3,544 plus one-half of the utilities
(See, "Certain Relationships and Related Transactions").

Diasense leases office space in Beltsville, Maryland. Such space is leased on
a three-year term with monthly rental amounts of $1400 in 1994, $1700 in 1995
and $1613 in 1996.

As of September 1996, Diasense has an office in London, England for the purpose
of taking orders for the Diasensor 1000 .

The Company believes that its existing facilities will be sufficient to meet
its needs through Fiscal 1997. Should the Company require additional space,
the Company believes such space will be available at reasonable commercial
rates.

Legal Proceedings

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

In May 1996, the Company, along with BICO and BICO's individual directors,
including David Purdy and Fred Cooper, who are also officers and directors of
Diasense, was served with a federal class action lawsuit based on alleged
violations of federal securities laws. The Companies have filed a Motion to
Dismiss the suit and are aggressively defending against it. No determinations
as to possible liability or exposure are possible at this time, although the
Company does not believe that any violations of the securities laws have
occurred.

In November 1994, BICO's counsel was notified by the staff of the Philadelphia
office of the U.S. Securities and Exchange Commission (the "SEC") that the SEC
had decided to discontinue its investigation of BICO, its officers and
directors. The SEC concluded its informal investigation, which was originally
initiated in mid-1991, and determined that no enforcement action was
necessary.

Submission of Matters to a Vote of Security Holders

Not applicable.

MANAGEMENT

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

Name Age Director Since Positions Held
_________________ ___ ______________ _________________________
David L. Purdy 68 1989 Chairman of the Board,
Chief Scientist

Fred E. Cooper 51 1989 President, CEO, Director

Anthony J. Feola 49 1991 Director

C. Terry Adkins 45 1992 Vice President of
International Sales,
Director

Gary R. Keeling 36 1991 Vice President of
Marketing and Sales,
Director

DAVID L. PURDY, 68, is the Chairman of the Board and Chief Scientist of the
Company. Mr. Purdy has been a director since the Company's inception and
became Chairman of the Board in October 1992. Mr. Purdy acted as the Company's
Treasurer from its inception until October 1992, when he became its Chief
Scientist. Mr. Purdy has been employed primarily as the President of BICO from
1972 to the present. Mr. Purdy is currently the President, Chairman of the
Board and a director of BICO. Mr. Purdy currently devotes approximately 40% of
his time to Diasense, and 60% of his time to BICO and its subsidiaries.

FRED E. COOPER, 51, has been the President and a director of the Company since
its inception. Prior to joining the Company, Mr. Cooper co-founded Equitable
Financial Management, Inc. of Pittsburgh, PA, a company in which he served as
Executive Vice President until his resignation and divestiture of ownership in
August 1990. Mr. Cooper is the Chief Executive Officer and a director of
BICO. Mr. Cooper currently devotes approximately 40% of his time to Diasense
and 60% to BICO and its subsidiaries.

ANTHONY J. FEOLA, 49, has been a director of the Company since February 1991.
In addition, Mr. Feola served as the Company's Chief Operating Officer until
April 1994, when he rejoined BICO as its Senior Vice President. At that time,
BICO assumed Mr. Feola's employment contract with Diasense. Mr. Feola also
served as the Company's Vice President of Marketing and Sales from December
1991 until October 1992. Until January 1, 1992, he was BICO's Vice President
of Marketing and Sales. Prior to joining BICO in November, 1989, Mr. Feola was
Vice President and Chief Operating Officer with Gateway Broadcasting in
Pittsburgh, PA and a National Sales Manager for Westinghouse Corporation, also
in Pittsburgh, PA. He also serves as a director of BICO.

C. TERRY ADKINS, 45, has been the Company's Vice President of International
Sales since October 1992, and a director since March 1992. From July 1990 until
January 1992, Mr. Adkins was a private consultant to the banking industry with
an office in Annapolis, MD, and owned Brie Cor Funding, Inc., a company which
provided financial advisory services. He became an employee of Diasense on
January 1, 1992. He was associated with Maryland Publick Banks, Inc. in
1989-90 and served as the President of the Annapolis National Bank in 1990.
From 1987 to 1989, he was President of the Madison Bank of Maryland.

GARY KEELING, 36, has been the Company's Vice President of Marketing and Sales
since October 1992, and a director since October 1991. Prior to joining
Diasense in March 1992, Mr. Keeling was employed, from February 1991 until
February 1992, by Commercial Funding Corp., of Pittsburgh, PA. Mr. Keeling
continues to be the owner of that company. He was employed by Equitable
Financial Management, Inc. in Pittsburgh, PA from February, 1984 until January
1991.

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

Executive Compensation

The following table sets forth information concerning the annual and long-term
compensation for services in all capacities to the Company for the Fiscal Years
ended September 30, 1996, 1995 and 1994 of those persons who were, at
September 30, 1996: (i) the Chief Executive Officer, and (ii) the other most
highly compensated executive officers of the Company whose remuneration
exceeded $100,000 (the "Named Executives").

SUMMARY COMPENSATION TABLE
<TABLE>
Annual Compensation Long Term All Other
Compensation(1) Compensation ($)
<CAPTION> (2)
________________________________________________________________________________________________
Name and Year Salary ($) Bonus ($) (2)Other Awards
Principal $ Warrants
Position (number of
shares) (#)
- ---------- ---- ---------- --------- -------- --------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Fred E. 1996 $150,000 $ 0 $ 0 478,545(3) $ 0
Cooper,
CEO (4) 1995 $167,045 $ 0 $ 0 350,000(3) $ 0

1994 $ 95,454 $ 35,000 $ 0 - 0 - $ 0

David L. 1996 $100,000 $ 0 $ 0 600,000(3) $ 0
Purdy,
Chief Scientist 1995 $102,273 $ 0 $ 0 350,000(3) $ 0
(5)
1994 $ 72,727 $ 0 $ 0 - 0 - $ 0

Gary R. 1996 $125,000 $ 0 $ 0 100,000(7) $ 0
Keeling, Vice
President (6) 1995 $118,750 $ 18,750 $ 0 50,000(3) $ 0

1994 $ 75,000 $ 0 $ 0 - 0 - $ 0
</TABLE>

(1) The Company does not currently have a Long-Term Incentive Plan ("LTIP"),
and no payouts were made pursuant to any LTIP during the years 1996, 1995,
or 1994. Except as noted in Note (3) below, the Named Executives were
awarded warrants to purchase the number of shares of the Company's common
stock set forth in the table above in each of the years noted (See,
"Certain Relationships and Related Transactions"). The Company has no
retirement, pension or profit-sharing programs for the benefit of its
directors, officers or other employees. The Company currently has key-man
life insurance for David L. Purdy and Fred E. Cooper.

(2) During the years ended September 30, 1996, 1995 and 1994, the Named
Executives received medical benefits under the Company's group insurance
policy.

(3) During Fiscal 1995 and Fiscal 1996, the Company extended warrants
previously issued to the Named Executives which would have otherwise
expired. Although the extensions were in connection with warrants already
held by the Named Executives, they are shown in the table set forth above
as "awards" for executive compensation disclosure purposes because at the
time of the extension, the exercise price of the warrants (which remained
unchanged) was less than the "market price" of the common stock, which is
assumed to be $3.50 per share, although there is currently no public
trading market for the common stock (See, "Option/Warrant/SAR Grants in
Fiscal 1996" Table).

(4) In Fiscal 1994, Mr. Cooper was awarded bonuses aggregating $35,000. Mr.
Cooper will be paid salary and bonuses aggregating approximately $426,000,
$330,000 and $260,000 by BICO and its other subsidiaries during calendar
years 1996, 1995, and 1994, respectively.

(5) Mr. Purdy will be paid salary and bonuses aggregating approximately
$300,000, $300,000 and $250,000 by BICO during calendar years 1996, 1995,
and 1994, respectively.

(6) In Fiscal 1995, Mr. Keeling was awarded bonuses aggregating $18,750.

(7) On October 24, 1995, Mr. Keeling was granted warrants to purchase 100,000
shares of common stock at $3.50 until October 24, 2000.

Option/Warrant/SAR Grants in Last Fiscal Year
<TABLE>
POTENTIAL REALIZED
VALUE AT ASSUMED
ANNUAL RATES OF STOCK
PRICE APPRECIATION FOR
INDIVIDUAL GRANTS(1) OPTION TERM (3)
<CAPTION>

Percent of
Number of Total
Securities Options/SARs
Underlying Granted to Exercise or
Options/ SARs Employees in Base Price Expiration
Name Granted (#) Fiscal Year (2) ($/Sh) Date 5% ($) 10% ($) 0% ($)
- ---------------- ------------- --------------- ----------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Fred E. Cooper 300,000 9.1% $0.50 3/25/99 $1,068,900 $1,255,800 $ 900,000
178,545 5.4% $0.50 5/07/99 $ 633,835 $ 742,391 $ 535,635

David L. Purdy 300,000 9.1% $0.50 3/25/99 $1,068,900 $1,255,800 $ 900,000
300,000 9.1% $0.50 5/07/99 $1,065,000 $1,247,400 $ 900,000

Gary R. Keeling 100,000(4) 3.0% $3.50 10/24/00 $ 96,700 $ 213,700 $ 0
</TABLE>
__________________________________________

(1) Except as set forth in Note (4) below, the warrants set forth in this
table represent the warrants already held by the Named Executives which
were extended by the Company during Fiscal 1996. These warrants to
purchase the Company's common stock were originally granted to the Named
Executives in 1990 and 1991 (See, "CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS"). Although the warrants were not actually awarded during
Fiscal 1996, they are included in this Executive Compensation disclosure
section because the exercise price of the warrants, which was not changed
at the time of the extension, was less than the "market price" of the
common stock at the time of the extension.

(2) For purposes of calculating these percentages, the total number of
warrants granted or extended during Fiscal 1996 was 3,279,463 which
included 743,250 new grants in Fiscal 1996, and extensions of 2,536,213
warrants originally granted in 1991 and 1992.

(3) Potential realizable values reflect the difference between the warrant
exercise price at the end of Fiscal 1996 and the fair value of the
Company's common stock price from the date of the grant or extension until
the expiration of the warrant. The 5% and 10% appreciation rates,
compounded annually, are assumed pursuant to the rules promulgated by the
SEC and do not reflect actual historical or projected rates of
appreciation of the common stock. Assuming such appreciation, the
following illustrates the per share value on the dates set forth (the
expiration dates for the warrants), assuming the values set forth ($3.50
per share, which is the price at which the common stock has been sold in
the Company's public offering; there is currently no trading market for
the common stock):

STOCK PRICE ON DATE EXPIRATION
OF GRANT OR EXTENSION DATE 5% 10%
_____________________ __________ ______ ______
10/24/95: $3.50 10/24/00 $4.467 $5.637

03/05/96: $3.50 3/25/99 $4.063 $4.686

05/07/96: $3.50 5/07/99 $4.050 $4.658

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

(4) Represents warrants to purchase common stock at $3.50 per share until
October 24, 2000 granted to Mr. Keeling on October 24, 1995.

AGGREGATED OPTION/WARRANT/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/WARRANT/SAR VALUE TABLE
<TABLE>
Number of Securities Value of
Underlying Unexercised In-the-
Unexercised Money
Options/SARs at FY- Options/SARs at
End (#) FY-End ($)
<CAPTION>
___________________________________________________________________________________________
Name Shares Value Exercisable/ Exercisable/
Acquired on Realized ($) Unexercisable (4) Unexercisable(5)
Exercise (3)
(#)(1)(2)
- --------------- ----------- ------------ ----------------- -------------------
<S> <C> <C> <C> <C>
Fred E. Cooper 2,000 $6,000 1,180,045(6) $3,358,385

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

Gary R. Keeling -0- -0- 150,000(8) $ 150,000
</TABLE>
__________________

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

(2) During the fiscal year ended September 30, 1996, Mr. Cooper exercised
warrants to purchase 2,000 shares of common stock at $.50 per share; such
warrants were granted on April 24, 1990.

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

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

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

(6) Includes warrants to purchase: 238,000 shares of common stock at $.50 per
share until April 24, 1995 (extended until April 24, 1998); 100,000 shares
of common stock at $.50 per share until June 29, 1995 (extended until June
29, 1998); 300,000 shares of common stock at $.50 per share until March
25, 1996 (extended until March 25, 1999); 178,545 shares of common stock
at $.50 until May 7, 1996 (extended until May 7, 1999); 150,000 shares of
common stock at $1.00 per share until October 25, 1996 (extended until
October 25, 1999); 3,500 shares of common stock at $1.00 per share until
January 27, 1997; and 210,000 shares of common stock at $1.00 per share
until January 27, 1997.

(7) Includes warrants to purchase: 250,000 shares of common stock at $.50 per
share until April 24, 1995 (extended until April 24, 1998); 100,000 shares
of common stock at $.50 per share until June 29, 1995 (extended until June
29, 1998); 300,000 shares of common stock at $.50 per share until March
25, 1996 (extended until March 25, 1999); and 300,000 shares of common
stock at $.50 per share until May 7, 1996 (extended until May 7, 1999).

(8) Includes warrants to purchase: 50,000 shares of common stock at $.50 per
share until June 29, 1995 (extended until June 29, 1998); and 100,000
shares of common stock at $3.50 per share until October 24, 2000.

Employment Agreements

Diasense has entered into employment agreements (the "Agreements") with Fred E.
Cooper and David L. Purdy effective November 1, 1994, and Gary R. Keeling
effective December 30, 1994, pursuant to which they will receive annual
salaries of $100,000 and $50,000 and $100,000 respectively, which are subject
to review and adjustment annually. As of the end of Fiscal 1995, such annual
salaries had been increased to $150,000, $100,000 and $125,000, respectively.
The initial term of the Agreements expires on October 31, 1999 and December 29,
1999, but continue thereafter for additional three-year terms unless any of the
parties give proper notice of non-renewal. The Agreements also provide that in
the event of a "change of control" of Diasense, Diasense is required to issue
to Messrs. Cooper and Purdy shares of common stock equal to five percent (5%),
and Mr. Keeling two percent (2%) of the outstanding shares of the common stock
of the Company immediately after the change in control. In general, a "change
of control" is deemed to occur for purposes of the Agreements (i) when 20% or
more of Diasense's outstanding voting stock is acquired by any person, (ii)
when one-third (1/3) or more of Diasense's directors are not Continuing
Directors (as defined in the Agreement), or (iii) when a controlling influence
over the management or policies of Diasense is exercised by any person or by
persons acting as a group within the meaning of Section 13(d) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act").

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

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

The Agreements also generally restrict the disclosure of certain confidential
information obtained by Messrs. Cooper, Purdy and Keeling during the term of
the Agreements and restricts them from competing with Diasense for a period of
one year in specified states following the expiration or termination of the
Agreements.

In the event that Diasense is combined with BICO, as discussed herein, it is
uncertain as to how Diasense's existing Employment Agreements will be treated,
or whether they will be amended as part of the terms of the transaction. The
Companies anticipate that, unless unforeseen additional entities become
involved in the transaction, all parties to the Companies' Employment
Agreements will stipulate that such combination does not constitute a "change
in control" pursuant to the Employment Agreements.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS,
MANAGEMENT AND SELLING SHAREHOLDERS

The following table sets forth as of September 30, 1996, and as adjusted
to reflect the issuance by Diasense of the Warrant Shares and the Primary
Shares, certain information regarding the beneficial ownership of Diasense's
Common Stock and the common stock of BICO by (i) each person known by Diasense
to own beneficially more than 5% of the outstanding Common Stock of Diasense
(ii) each director and named executive officer of Diasense, and (iii) all
directors and executive officers of Diasense as a group.

<TABLE>
Beneficial Ownership Beneficial Ownership Beneficial Ownership of
Prior to Offering (1) After Offering (1) BICO Common Stock (1)
<CAPTION>
______________________ ______________________ _______________________
Name and Address of
Beneficial Owner Number (2) Percentage Number Percentage Number(3) Percentage
- ---------------------- ---------- ---------- ---------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Biocontrol 11,975,000 52.0% 11,975,000 34.6% N/A N/A
Technology, Inc.
300 Indian Springs Rd.
Indiana, PA 15701

Fred E. Cooper 1,200,045 5.0% 1,200,045 3.5% 1,076,200 2.4%
Building 2500, 2nd Fl. (4) (5)
2275 Swallow Hill Rd.
Pittsburgh, PA 15220

David L. Purdy 998,000 4.1% 998,000 2.8% 1,007,340 2.3%
300 Indian Springs Rd.
Indiana, PA 15701

Anthony J. Feola 820,000 3.4% 820,000 2.4% 904,000 2.0%
Building 2500, 2nd Fl. (8) (9)
2275 Swallow Hill Road
Pittsburgh, PA 15220

C. Terry Adkins 116,000 * 116,000 * 35,000 *
1623 Forest Drive (10)
Annapolis, MD 21403

Gary R. Keeling 178,500 * 178,500 * 15,000 *
Building 2500, 2nd Fl. (11)
2275 Swallow Hill Road
Pittsburgh, PA 15220

All directors and 3,312,545 12.6% 3,312,545 9.5% 3,038,040 6.7%
executive officers
as a group (5 persons)

All other Warrantholders, 3,773,218 14.1% 3,773,218 10.9% N/A N/A
none of whom own more
than 1% of Diasense
Common Stock
</TABLE>
_____________________________________________
* Less than 1%

(1) Under rules adopted by the Securities and Exchange Commission, a person is
deemed to be a beneficial owner of securities with respect to which such
person has or shares: (i) voting power, which includes the power to vote
or direct the vote of the security, or (ii) investment power, which
includes the power to dispose of or to direct the disposition of the
security. For purposes of the column headed "Beneficial Ownership After
Offering," the percentages have been calculated based on the assumption
that all of the Primary Shares have been sold (which will likely occur
over a period of time) and all of the Warrant Shares have been issued
(which will likely occur over a period of time) and without giving effect
to any other transactions in securities of the Company.

(2) As of September 30, 1996, there were 23,006,051 shares of Common Stock
outstanding and Warrants to purchase 7,533,263 Warrant Shares
outstanding.

(3) As of September 30, 1995, there were 36,944,118 shares of BICO common
stock outstanding.

(4) Consists of (i) 20,000 shares of Common Stock currently beneficially owned
by Mr. Cooper, (ii) 816,545 Warrant Shares issuable upon the exercise of
currently exercisable Warrants, at an exercise price of $0.50 per share,
and having expiration dates ranging from March 25, 1996 to June 29, 1998,
and (iii) 363,500 Warrant Shares issuable upon the exercise of currently
exercisable Warrants, at an exercise price of $1.00 per share, and having
expiration dates ranging from October 25, 1996 to January 27, 1997. Mr.
Cooper shares, with his wife, voting and investment power with respect to
the Warrant Shares issuable upon exercise of the Warrants beneficially
owned by Mr. Cooper. Mr. Cooper is the President and a director of
Diasense and the Chief Executive Officer and a director of BICO. Mr.
Cooper is entitled to certain shares of Common Stock upon a change of
control of Diasense as defined in his employment agreement (See,
"MANAGEMENT - Employment Agreements").

(5) Consists of (i) 676,200 shares of common stock of BICO currently held by
Mr. Cooper and (ii) 400,000 shares of common stock of BICO issuable upon
the exercise of warrants issued by BICO.

(6) Consists of (i) 48,000 shares of Common Stock currently held by Mr. Purdy,
and (ii) 950,000 Warrant Shares issuable upon the exercise of currently
exercisable Warrants, at an exercise price of $0.50 per share, and having
expiration dates ranging from March 25, 1996 to June 29, 1998. Mr. Purdy
shares, with his wife, voting and investment power with respect to 400,000
Warrant Shares issuable upon exercise of Warrants beneficially owned by
Mr. Purdy. Mr. Purdy is Chairman of the Board of Directors and Chief
Scientist of Diasense and the President, Treasurer and a director of BICO.
Mr. Purdy is entitled to certain shares of Common Stock upon a change of
control of Diasense as defined in his employment agreement (See,
"MANAGEMENT - Employment Agreements").

(7) Consists of (i) 187,340 shares of common stock of BICO currently held by
Mr. Purdy and (ii) 820,000 shares of common stock of BICO issuable upon
the exercise of warrants issued by BICO.

(8) Consists of (i) 20,000 shares of Common Stock currently held by Mr. Feola
and (ii) 800,000 Warrant Shares issuable upon the exercise of currently
exercisable Warrants, at an exercise price of $0.50 per share, and having
expiration dates ranging from March 25, 1996 to October 23, 2000. Mr.
Feola shares, with his wife, voting and investment power with respect to
the Warrant Shares issuable upon exercise of the Warrants beneficially
owned by Mr. Feola. Mr. Feola is a director of Diasense and the Senior
Vice President and a director of BICO.

(9) Consists of (i) 354,000 shares of common stock of BICO currently held by
Mr. Feola and (ii) 550,000 shares of common stock of BICO issuable upon
the exercise of warrants granted by BICO.

(10) Consists of (i) 16,000 shares of Common Stock currently held by Mr. Adkins
and (ii) 100,000 Warrant Shares issuable upon the exercise of currently
exercisable Warrants at an exercise price of $.50 per share and expiring
June 29, 1998. Mr. Adkins shares, with his wife, voting and investment
power with respect to the Warrant Shares issuable upon the exercise of
Warrants beneficially owned by Mr. Adkins. Mr. Adkins is Vice President
of International Sales and a director of Diasense.

(11) Consists of (i) 28,500 shares of Common Stock currently held by Gary R.
Keeling; (ii) 50,000 Warrant Shares issuable upon the exercise of
currently exercisable Warrants, at an exercise price of $.50 per share and
expiring June 29, 1998; and (iii) 100,000 Warrant Shares issuable upon the
exercise of currently exercisable Warrants, at an exercise price of $3.50
per share and expiring October 24, 2000. Mr. Keeling is Vice President
of Marketing and Sales and a director of Diasense.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

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

In the event that Diasense is combined with BICO, as discussed herein, the
related transactions set forth herein would be materially effected. For
example, separate employment agreements would be unnecessary, as would the
"Intercompany Agreements" described herein. Because the transaction is in a
preliminary stage, and the terms of the transaction have yet to be negotiated
or approved by the shareholders of either corporation, this discussion is set
forth to reflect the relationships which exist as of the date of this document,
when Diasense and BICO remained two different corporations.

Employment Relationships

The Board of Directors of the Company approved employment agreements effective
November 1, 1994 for its officers and directors Fred E. Cooper and David L.
Purdy, and effective December 30, 1994 for its officer and director Gary R.
Keeling. (See, "Employment Agreements").

David L. Purdy, Chairman of the Board, Chief Scientist and a director of the
Company, is a director of the BICO, Coraflex, IDT and Petrol Rem Boards. He is
also the Chairman of the Board, President and Treasurer of BICO, the Chairman
and the President and Treasurer of Coraflex. In addition to his salary paid by
BICO, he is paid $100,000 per year by Diasense pursuant to his employment
contract, and was paid $100,000 in salary by Diasense in Fiscal 1995. Fred E.
Cooper, President and a director of the Company, is a director of the BICO,
Coraflex, Barnacle Ban, IDT and Petrol Rem Boards. He is also the CEO and
Executive Vice President of BICO, and President of Barnacle Ban. In addition
to his salary paid by BICO, he is paid $150,000 per year by Diasense pursuant
to his employment contract, and he was paid $150,000 by Diasense in Fiscal
1995. Anthony J. Feola, a director, is also a director on the BICO, Coraflex,
IDT, Barnacle Ban and Petrol Rem Boards. He is also the Senior Vice President
of BICO, President of Barnacle Ban, and the Secretary/Treasurer of IDT. Mr.
Feola, an employee of Diasense until April 1994, was paid $160,000 by Diasense
in Fiscal 1994.

Leases and Property

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

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

Intercompany Agreements

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

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

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

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

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

Diasense has agreed to pay BICO $100,000 per month for indirect costs beginning
April 1, 1992, during the 15 year term of the agreement, plus all direct costs,
including labor. BICO also received a first right of refusal for any program
undertaken to develop, refine or improve the Noninvasive Glucose Sensor, and
for the development of other related products. In July 1995, BICO and Diasense
agreed to suspend billings, accruals of amounts due and payments pursuant to
the R&D Agreement pending the FDA's review of the 510(k) Notification.

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

Warrants

From 1990 through October 31, 1996, Diasense issued warrants to purchase common
stock to the following executive officers and directors:

To C. Terry Adkins in connection with his loan guarantee: warrants to purchase
100,000 shares at $.50 per share until June 29, 1995, which were extended until
June 29, 1998 during 1995.

To Fred E. Cooper in connection with his loan guarantee: warrants to purchase
100,000 shares at $.50 per share until June 29, 1995 (extended until June 29,
1998 during 1995); for meritorious service in 1990: warrants to purchase
250,000 shares at $.50 per share until April 24, 1995 (extended until April 24,
1998 during 1995); in lieu of salary in 1991: warrants to purchase 150,000
shares of common stock at $1.00 per share until October 25, 1996 (extended
until October 25, 1999 during 1996); as incentive warrants in 1991: warrants to
purchase 300,000 shares at $.50 per share until March 25, 1996 (extended until
March 25, 1999 during 1996), and warrants to purchase 200,000 shares at $.50
until May 7, 1996 (extended until May 7, 1999 during 1996); and for meritorious
service in 1992: warrants to purchase 300,000 shares at $1.00 per share until
January 27, 1997.

To Anthony J. Feola for meritorious service in 1990: warrants to purchase
100,000 shares at $.50 per share until April 24, 1995 (extended until April 24,
1998 during 1995) and 100,000 shares at $.50 per share until October 23, 1995
(extended until October 23, 2000 during 1995); as incentive warrants in 1991:
warrants to purchase 300,000 shares at $.50 per share until March 25, 1996
(extended until March 25, 1999 during 1996); and warrants to purchase 300,000
shares at $.50 per share until May 7, 1996 (extended until May 7, 1999 during
1996).

To David L. Purdy for meritorious service in 1990: warrants to purchase 250,000
shares at $.50 per share until April 24, 1995 (extended until April 24, 1998
during 1995); in connection with his loan guarantee: warrants to purchase
100,000 shares at $.50 per share until June 29, 1995 (extended until June 29,
1998 during 1995); as incentive warrants in 1991 and 1992: warrants to purchase
300,000 shares at $.50 per share until March 25, 1996 (extended until March 25,
1999 during 1996); and warrants to purchase 300,000 shares at $.50 per share
until May 7, 1996 (extended until May 7, 1999 during 1996).

To Gary R. Keeling in connection with his loan guarantee: warrants to purchase
50,000 shares at $.50 per share until June 29, 1995 (extended until June 29,
1998 during 1995); and for meritorious service in 1995: warrants to purchase
100,000 shares at $3.50 per share until October 24, 2000.

DESCRIPTION OF SECURITIES

Diasense was incorporated in the Commonwealth of Pennsylvania on July 5, 1989.
Diasense has the authority to issue 40,000,000 shares of common stock at a par
value of $.01, and 1,000,000 shares of preferred stock. As of November 30,
1996, approximately 22,979,051 shares of common stock were outstanding. No
shares of Preferred Stock are outstanding. As of October 31, 1996, there were
currently exercisable warrants outstanding to purchase 7,581,763 shares of the
common stock of Diasense at exercise prices ranging from $.50 to $3.50 per
share. The warrants have various expiration dates through October 14, 2001.

As of October 31, 1996, the Company had approximately 620 holders of record for
its common stock and no holders of record for its preferred stock.

On July 19, 1993, Diasense's S-1 Registration Statement became effective with
the Securities and Exchange Commission (the "SEC"). The following shares were
originally registered with the SEC pursuant to such Registration Statement:
3,000,000 Primary Shares, which are authorized shares of Diasense common stock
to be sold by the Company; 6,931,525 Warrant Shares, which underlie currently
exercisable warrants to purchase Diasense common stock; and 4,760,012 Secondary
Shares, which are outstanding shares of Diasense common stock purchased by
certain shareholders in private placements. The Diasense public offering is
self-underwritten.

As of September 30, 1996, 1,084,460 of the Primary Shares had been sold by
Diasense at a price of $3.50 per share. In addition, as of September 30, 1996
220,512 registered Warrant Shares had been issued to warrantholders, and
Warrants to purchase 280,000 Warrant Shares expired.

During fiscal 1994, Diasense also sold 91,667 shares of its common stock to
foreign investors pursuant to Regulation S.

Diasense is not currently listed on any stock exchange or market. The Company
acts as its own registrar and transfer agent for its common stock and its
warrants. Diasense has applied for approval to be listed on the NASDAQ Small-
Cap Market; such application was still pending as of the date of this
Prospectus.

In December 1995, Diasense and BICO announced that their respective Boards of
Directors had determined that it would be in the best interest of both
companies to combine them. Although the Boards of Directors anticipate that
such a combination would be accomplished via an exchange of all Diasense's
outstanding common stock for BICO common stock, the transaction is subject to
the approval of the shareholders of the Companies, and the terms have not been
finalized. In the event that Diasense is combined with BICO, the existing
characteristics of Diasense's common stock might be changed, subject to the
terms of the transaction.

Common Stock

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

Preferred Stock

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

Dividends

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

Warrants

As of October 31, 1996, there were outstanding warrants, all of which are
currently exercisable, to purchase 7,581,763 warrant shares at exercise prices
ranging from $0.50 to $3.50 per share and having expiration dates ranging from
November 20, 1996 to October 14, 2001. As of October 31, 1996, there were
approximately 150 holders of warrants. The warrants were issued to directors
and officers of Diasense and to certain other persons for certain goods and
services transferred or rendered to Diasense and, in the case of certain
officers, in consideration of meritorious service. The number of shares of
Common Stock issuable upon the exercise of the warrants and the exercise prices
relating thereto are subject to adjustment upon the occurrence of certain
events, including stock dividends, stock splits, mergers, consolidations and
reorganizations. The warrants may not be redeemed by Diasense prior to the
expiration thereof.

Employment Agreement Provisions Related to Changes in Control

Diasense has entered into agreements (the "Agreements") with Fred E. Cooper,
David L. Purdy and Gary R. Keeling pursuant to which they receive annual
salaries of $100,000, $50,000 and $100,000 from Diasense, respectively, all of
which are subject to review and adjustment annually. As of the end of Fiscal
1996, such annual salaries had been increased to $150,000, $100,000 and
$125,000, respectively. The initial term of Messrs. Cooper's and Purdy's
Agreements expire on October 31, 1999, and Mr. Keeling's expires on December
29, 1999, but the Agreements continue thereafter for additional three-year
periods unless any party gives proper notice of non-renewal. The Agreements
also provide that in the event of a "change of control" of Diasense, Diasense
is required to issue to Mr. Cooper and Mr. Purdy shares of common stock equal
to five percent (5%), and Mr. Keeling two percent (2%) of the outstanding
shares of common stock of the Company immediately after the change in control.
In general, a "change of control" is deemed to occur for purposes of the
Agreements: (i) when 20% or more of Diasense's outstanding voting stock is
acquired by any person, (ii) when one-third (1/3) or more of Diasense's
directors are not Continuing Directors (as defined in the Agreements), or (iii)
when a controlling influence over the management or policies of Diasense is
exercised by any person or by persons acting as a group within the meaning of
Section 13(d) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act") (See, "Employment Agreements").

In the event that Diasense is combined with BICO, as discussed herein, it is
uncertain as to how Diasense's existing employment contracts will be treated,
or whether they will be amended as part of the terms of the transaction. The
Companies anticipate that, unless unforeseen additional entities become
involved in the transaction, all parties to the Companies' Employment
Agreements will stipulate that such combination does not constitute a "change
in control" pursuant to the Employment Agreements.

SHARES ELIGIBLE FOR FUTURE SALE

In the event that Diasense and BICO are combined, as discussed herein, it is
uncertain as to how Diasense's outstanding common stock will be treated,
including whether the numbers of shares outstanding and transferable which are
set forth in this section, will change.

Upon completion of the Offering, Diasense will have outstanding 34,608,604
shares of Common Stock, assuming the issuance of all remaining Warrant Shares
and the sale of all remaining Primary Shares. Of these shares, all of the
shares of Common Stock offered hereby can be resold immediately without
restriction under the Securities Act, except for any shares of Common Stock
held by "affiliates" of Diasense (as defined below) and except as described
below. Shares of Common Stock held by affiliates may not be sold unless the
sale is registered under the Securities Act or unless they are sold pursuant to
Rule 144 adopted under the Securities Act or another exemption from
registration.

Certain shares of common stock held by existing stockholders were sold by
Diasense in reliance upon exemptions from the registration requirements of the
Securities Act and are "restricted securities" within the meaning of Rule 144.
All such shares of Common Stock, except for the shares owned by BICO, plus an
additional 20,500 shares, will be immediately eligible for resale in the public
market without restriction on the effective date of this Prospectus pursuant to
Rule 144(k). The number of such shares is approximately 10,918,884. Beginning
90 days after the effective date, no additional shares of Common Stock
(excluding the shares owned by BICO) will be eligible for resale pursuant to
Rule 144, subject to the limitations set forth below.

In general, under Rule 144 as in effect on the date of this Prospectus, a
person (including an affiliate of Diasense) who owns shares of Common Stock for
which at least two years have elapsed since the later of the date of
acquisition of restricted securities from the Company or any affiliate of the
Company is entitled to sell, in any three- month period commencing 90 days
after the effective date, a number of shares that does not exceed the greater
of (i) 1% of the then outstanding shares of Diasense's Common Stock or (ii) the
average weekly trading volume during the four calendar weeks immediately
preceding such sale, subject to the filing of a Form 144 with respect to such
sale and certain other limitations and restrictions. A person who is not
deemed to have been an affiliate of Diasense at any time during the 90 days
immediately preceding the sale and who owns shares of Common Stock for which at
least three years have elapsed since the later of the date of acquisition of
restricted securities from the Company or any affiliate of the Company is
entitled to sell such shares pursuant to Rule 144(k) without regard to the
limitations described above. As defined in Rule 144, an "affiliate" of an
issuer is a person that directly, or indirectly through the use of one or more
intermediaries, controls, or is controlled by, or is under common control with,
such issuer.

Prior to and as of the date of this Prospectus, there has been no established
public trading market for the Common Stock and there is no assurance that a
market for the Common Stock will develop or be sustained after the Offering.
The Company has applied to have the common stock listed on the NASDAQ Small-Cap
Market, and such application is still pending as of the date of this
Prospectus. No determination can be made as to the effect, if any, that market
sales of shares or the availability for sale of these shares will have on the
market price of the Common Stock prevailing from time to time. Nevertheless,
sales of substantial numbers of shares in the public market could adversely
affect the market price of the Common Stock and could impair the Company's
ability to raise capital through a sale of its equity securities.

PLAN OF DISTRIBUTION

The Primary Offering is a "best-efforts" offering, and will not be underwritten
nor will any underwriter be engaged for the marketing, distribution or sale of
any shares registered hereby. The Company reasonably believes that the
Offering will terminate no later than December 20, 1998 in accordance with the
rules and regulations of the SEC. The Selling Shareholders may from time to
time offer the Shares directly or through brokers, dealers or market- makers,
who may receive compensation in the form of commissions or "spreads" (usually
the difference between "bids" and "asked" prices) from the purchasers of the
Shares for whom they may act as agent. Any dealers, brokers or agents that
participate in the distribution of shares may be deemed to be underwriters, and
any profits on the sale of the shares by them and any discounts or commissions
received by any such dealers, brokers or agents may be deemed to be
underwriting discounts and commissions under the Securities Act of 1933. If
the Company offers any Shares directly by certain of its officers, the public
offering price of the Shares offered by the Company at any given time will be
the fixed offering price of $3.50 per share, the price per share at which
Diasense sold shares of common stock in this Offering to date, and its last
private offering. As of September 30, 1996, 1,084,460 of the Primary Shares had
been sold by Diasense at a price of $3.50 per share. In addition, as of
September 30, 1996, 220,512 registered Warrant Shares had been issued to
warrantholders, and Warrants to purchase 280,000 Warrant Shares had expired

To the extent required at the time a particular offer of the shares by the
Company is made, a supplement to this Prospectus will be distributed which will
set forth the number of shares being offered and the terms of the offering,
including the name or names of any underwriters, dealers, brokers or agents,
the purchase price paid by any underwriter for the shares purchased from the
Company, and any discounts, commissions, or concessions allowed or reallowed to
dealers, including the proposed selling price to the public.

To comply with the securities laws of certain jurisdictions, as applicable, the
Common Stock may be offered and sold only through registered or licensed
brokers or dealers. In addition, the Common Stock may not be offered or sold
in certain jurisdictions unless they are registered or otherwise comply with
the applicable securities laws of such jurisdictions by exemption,
qualification or otherwise.

The Company may issue additional warrants in the future and may choose to
register the shares underlying such warrants pursuant to this Prospectus. To
the extent that the Company chooses, in its sole discretion, to register
warrant shares, it will amend this Prospectus to list the names of the
warrantholders as selling shareholders. The Company will decrease the number
of Primary Shares available for sale to allow for such warrant share
registration in order to maintain the aggregate number of Primary Shares
registered at 4,649,290 shares.

Subject to applicable laws or regulations, the Offering will not be terminated
until all of the shares offered hereunder are sold, or until earlier terminated
by the Company, in its sole discretion. The Company can give no assurance that
any shares will be sold. There is no minimum number of shares that must be
sold before any shares can be sold hereunder, and accordingly, there can be no
assurance that proceeds received by the Company from the sale of shares will
not be used for any purpose other than the expenses of this Offering.

Prior to and as of the date of this Prospectus, there has been no public market
for the common stock. Diasense has applied to have the common stock listed on
the NASDAQ Small-Cap Market; such application was still pending as of the date
of this Prospectus. There can be no assurance that a market for the common
stock will develop or, if developed, that a market will be sustained after the
completion of the Offering. If a market for the common stock should develop,
the common stock could trade at widely fluctuating market prices. The common
stock may be a "penny stock" under the Penny Stock Reform Act unless certain
conditions are satisfied. Certain disclosure requirements under such Act may
make it more difficult for any market-makers to develop or sustain an active
trading market in the common stock, and accordingly the liquidity and trading
price of the common stock may be adversely affected.

Under the applicable rules and regulations of the Securities and Exchange Act
of 1934 (the "Exchange Act"), any person engaged in the "distribution" (as
defined in the Exchange Act) of Common Stock may not simultaneously bid for or
purchase (or induce others to do so) common stock or to engage in market-making
activities with respect to such common stock during such distribution, or for a
period of nine business days prior to the commencement of any such
distribution. In addition, and without limiting the foregoing, the Company
will be subject to the anti- manipulation rules promulgated under the Exchange
Act, including Rules 10b-2, 10b-6 and 10b-7, in connection with transactions in
the common stock during the effectiveness of the Registration Statement of
which this Prospectus is a part.

CERTAIN POSSIBLE TAX CONSEQUENCES TO WARRANTHOLDERS

The following is a summary of the principal federal income tax consequences to
Warrantholders that will result from the exercise or lapse of the Warrants.
This summary is not intended to be exhaustive, is for general information
purposes only and does not describe state, local or foreign tax consequences
resulting from the exercise or lapse of the Warrants. This summary does not
consider the tax consequences of the particular circumstances under which any
Warrantholder acquired Warrants. Each Warrantholder is advised to consult his
or her tax advisor as to the tax consequences relating to the exercise or lapse
of such Warrantholder's Warrants and such Warrantholder's particular
circumstances.

Warrants Not Issued in Connection with the Performance of Services

Except as described below, the exercise of the Warrants will not be a taxable
event for federal income tax purposes. A Warrantholder will have an adjusted
tax basis in the Warrant Shares received equal to the sum of such
Warrantholder's adjusted tax basis in the Warrants at the time of exercise and
the amount paid for the Warrant Shares upon exercise of the Warrants. The
holding period for the Warrant Shares so acquired will begin on the day after
the date on which the Warrants are exercised.

Warrants Issued in Connection with the Performance of Services

In the case of Warrants that were issued in connection with the performance of
services (within the meaning of Section 83(a) of the Code), the exercise of
such Warrants will be a taxable event for federal income tax purposes. Warrants
issued to an employee or independent contractor of Diasense that are issued on
the same terms and conditions as to persons who are not employees or
independent contractors may not be considered issued in connection with the
performance of services.

The amount of taxable income recognized upon the exercise of the Warrants
generally will be the fair market value of the Warrant Shares on the date of
exercise less the sum of the amount paid for the Warrant Shares and the
Warrantholder's adjusted tax basis in the Warrants at the time of exercise.
However, if the date of exercise is fewer than six months after a Warrant was
issued and the Warrantholder is subject to the "short-swing" profit rules
promulgated under Section 16 of the Exchange Act, the date of taxability will
be delayed until the earlier of (i) the expiration of such six-month period or
(ii) the first day on which the sale at a profit of the Warrant Shares received
will not subject the Warrantholder to suit under Section 16 of the Exchange
Act, unless the Warrantholder makes an election to be taxed at the date of
exercise in accordance with Section 83(b) of the Code. In the event an
election under Section 83(b) of the Code is not made, the fair market value to
be used for purposes of calculating the amount of taxable income recognized as
a consequence of the exercise of the Warrant will be the fair market value of
the Warrant Shares on the date of taxability.

A Warrantholder will have an adjusted tax basis in the Warrant Shares received
upon exercise of Warrants equal to the sum of (i) the amount paid for the
Warrant Shares upon exercise of the Warrants, (ii) the amount included by the
Warrantholder in income as a consequence of the exercise, and (iii) the
Warrantholder's adjusted tax basis in the Warrants at the time of exercise.
The sum of (i), (ii) and (iii) should, in most cases, equal the fair market
value of the Warrant Shares on the date of taxability. The holding period for
the Warrant Shares so acquired will begin on the later of the day after the
date on which the Warrants are exercised or the date of taxability.

Expiration of Warrants

A Warrantholder who allows the Warrants to expire unexercised will be treated
as having sold the Warrants for no consideration on the date they expire, and
will recognize a loss in an amount equal to such Warrantholder's adjusted tax
basis, if any, in the Warrants. Any loss so recognized will have the same
character (capital or ordinary) as the Warrant Shares would have had in the
hands of the Warrantholders.

LEGAL MATTERS AND INTERESTS OF NAMED EXPERTS AND COUNSEL

The validity of the shares of Common Stock offered hereby will be passed upon
for Diasense by Sweeney & Associates P.C., Pittsburgh, Pennsylvania, counsel to
Diasense. Thomas E. Sweeney, Jr., President of Sweeney & Associates P.C. owns
warrants to purchase 40,000 shares of Diasense common stock at $0.50 per share
until October 23, 2000, and warrants to purchase 60,000 shares of Diasense
common stock at $1.00 per share until January 6, 1998.

EXPERTS

The consolidated financial statements of Diasense as of September 30, 1996 and
for prior Fiscal Years appearing in this Prospectus and Registration Statement
have been audited by Thompson Dugan, P.C., independent accountants, as stated
in their report thereon (which contain explanatory paragraphs with respect to
going concern uncertainties) appearing elsewhere herein and in the Registration
Statement, and have been included in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

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

ADDITIONAL INFORMATION

Diasense has filed a Registration Statement with the SEC under the Securities
Act with respect to the Primary Shares and Warrant Shares offered hereby. This
Prospectus does not contain all the information set forth in the Registration
Statement and in the exhibits thereto. For further information, reference is
made to the Registration Statement and to the exhibits filed as a part thereof.
Statements contained in this Prospectus as to the contents of any contract or
other document referred to are not necessarily complete, and in each instance
reference is made to the copies of such contract or other document filed as an
exhibit to the Registration Statement. The full text of each such statement is
qualified in its entirety by reference to such contract or document. The
Registration Statement, and the exhibits thereto, may be inspected and copied
at the public reference facilities maintained by the SEC at Room 1024, 450
Fifth Street, N.W., Washington, D.C. 20549, and at the SEC's Regional Offices
located at 75 Park Place, 14th Floor, New York, New York 10007, and
Northwestern Atrium Center, 500 West Madison Street, Chicago, Illinois 60604.
Copies of such materials can also be obtained at prescribed rates from the
Public Reference Section of the SEC, Washington, D.C. 20549.

Until 90 days after the effective date of this Prospectus, all dealers
effecting transactions in the registered securities, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This is in addition to the obligation of dealers to deliver a Prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.

INDEX TO FINANCIAL STATEMENTS

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

Consolidated Financial Statements Page

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

Consolidated Balance Sheets as of September 30, 1996;
September 30, 1995 . . . . . . . . . . . . . . . . . . . . . . . F-3

Consolidated Statements of Operations For the Fiscal
Years Ended September 30, 1996, 1995, 1994;
and July 5, 1989 (inception) through September 30, 1996 . . . . .F-4

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

Consolidated Statements of Cash Flows for the Fiscal Years
Ended September 30, 1996, 1995, 1994; and July 5, 1989
(inception) through September 30, 1996 . . . . . . . . . . . . . F-6

Notes to Consolidated Financial Statements for the Fiscal
Year Ended September 30, 1996. . . . . . . . . . . . . . . . . . F-7

No dealer, salesman or other person has been authorized to give any
information or to make any representation other than those contained
in this Prospectus and, if given or made, such information or
representation must not be relied upon as having been authorized by
the Company, the selling shareholders or any underwriter. Neither
the delivery of this Prospectus nor any sale made hereunder shall,
under any circumstances, create any implication that there has been
no change in the affairs of the Company since the date of this
Prospectus. This Prospectus does not constitute an offer to sell or
solicitation of an offer to buy any securities offered hereby in any
jurisdiction in which such offer or solicitation is not qualified to do
so or to anyone to whom it is unlawful to make such offer or
solicitation.

TABLE OF CONTENTS. . . . . . . Page 11,602,553 Shares

Prospectus Summary . . . . . . . .2
The Offering . . . . . . . . . . .4
The Company. . . . . . . . . . . .4
Risk Factors . . . . . . . . . . .5 Diasense, Inc.
Use of Proceeds. . . . . . . . .11
Dividend Policy. . . . . . . . .12
Dilution . . . . . . . . . . . .12
Capitalization . . . . . . . . .14 Common Stock
Selected Financial Data. . . . .14
Management's Discussion and
Analysis of Financial Condition
and Results of Operations . . . 15
Business . . . . . . . . . . . . 17
Management . . . . . . . . . . . 30
Summary Compensation Table . . . 32
Aggregated Option/SAR
Exercises in Last Fiscal Year
and Fiscal Year-End
Option/SAR Values . . . . . . . 34
Security Ownership of Certain
Beneficial Owners, Management
and Selling Shareholders. . . . 36 -------------------
Certain Relationships and P R O S P E C T U S
Related Transactions. . . . . . 38 -------------------
Description of Securities. . . . 41
Shares Eligible for Future Sale. 43
Plan of Distribution . . . . . . 44 December 20, 1996
Certain Possible Tax Consequences
to Warrantholders . . . . . . . 45
Legal Matters and Interests of
Named Experts and Counsel . . . 46
Experts. . . . . . . . . . . . . 46
Additional Information . . . . . 46
Prospectus Delivery Requirements.47

<PAGE>

THOMPSON DUGAN
CERTIFIED PUBLIC ACCOUNTANTS
________________________

Pinebridge Commons
1580 McLaughlin Run Rd.
Pittsburgh, PA 15241

Report of Independent Certified Public Accountants

Independent Auditors' Report

Board of Directors
Diasense, Inc.

We have audited the accompanying consolidated balance sheets
of Diasense, Inc. (a development stage company) as of September
30, 1996 and 1995, and the related statements of operations,
changes in stockholders' equity and cash flows for each of the
three years in the period ended September 30, 1996, and for the
period from July 5, 1989 (inception) through September 30, 1996.
These financial statements are the responsibility of the
Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that we
plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, such financial statements present fairly, in
all material respects, the consolidated financial position of
Diasense, Inc. as of September 30, 1996 and 1995, and the results
of its operations and its cash flows for each of the three years
in the period ended September 30, 1996, and for the period from
July 5, 1989 (inception) through September 30, 1996, in
conformity with generally accepted accounting principles.

The accompanying consolidated financial statements have been
prepared assuming that the Company will continue as a going
concern. As discussed in notes B and E to the financial
statements, the Company is in the development stage and has
incurred losses from operations and negative cash flows from
operations for each of the three years in the period ended
September 30, 1996 and from July 5, 1989 (inception) through
September 30, 1996, raising substantial doubt about its ability
to continue as a going concern. Management's plans in regard to
these matters are also described in note B. The financial
statements do not include any adjustments that might result from
the outcome of this uncertainty, including adjustments relating
to the recoverability and classification of recorded assets that
might be necessary in the event the Company cannot continue to
meet its financing requirements and achieve productive
operations.
<PAGE>F-1
In addition, as discussed in notes B and E, the Company is
dependent upon its parent, Biocontrol Technology, Inc. (BICO) to
continue to perform and fund contractual arrangements related to
research, development and manufacturing activities of products
for the Company. There has been and continues to be substantial
doubt about BICO's ability to continue as a going concern due to
their recurring losses from operations and negative cash flow.
These financial statements do not include any adjustments that
might result from the outcome of this uncertainty.

November 21, 1996
/s/ Thompson Dugan

<PAGE>F-2

Diasense, Inc.
(A Development Stage Company)
Consolidated Balance Sheets

September 30, September 30,
ASSETS 1996 1995
----------- -----------
Current assets
Cash and cash equivalents (note A) $ 1,143,312 $ 4,149,163
Due from BICO (notes A and E) 1,777,197 -
Inventory deposit - BICO (note F) 1,000,000 1,000,000
Prepaid expenses 14,313 14,782
----------- -----------
Total current assets 3,934,822 5,163,945

Property and equipment - at cost (notes A and C)
Building and improvements 236,663 234,863
Furniture and fixtures 42,750 37,545
----------- -----------
279,413 272,408
Less accumulated depreciation 42,325 28,952
------------ -----------
237,088 243,456
----------- -----------
TOTAL ASSETS $ 4,171,910 $ 5,407,401
=========== ===========

LIABILITIES and STOCKHOLDERS' EQUITY

Current liabilities
Accounts payable $ 20,095 $ 29,825
Other accrued liabilities 529 7,143
Due to BICO (notes A and E) - 1,287,012
----------- -----------
Total current liabilities 20,624 1,323,980

Commitments and Contingencies (notes B and F)

Stockholders' equity
Preferred stock, 1,000,000 shares authorized, none issued
Common stock, 40,000,000 shares of $.01 par value
authorized; issued and outstanding
23,006,051 at Sep. 30, 1996 and
22,524,320 at Sep. 31, 1995 230,061 225,243
Additional paid-in capital 26,982,811 25,541,974
Warrants 12,334,348 4,690,315
Deficit accumulated during the
development stage (35,395,934) (26,374,111)
----------- -----------
4,151,286 4,083,421
TOTAL LIABILITIES AND ----------- -----------
STOCKHOLDERS' EQUITY $ 4,171,910 $ 5,407,401
=========== ===========

The accompanying notes are an integral part of this statement.

<PAGE>F-3
<TABLE>
<CAPTION>
From July 5, 1989
For the year ended For the year ended For the year ended ended(inception) thru
September 30, 1996 September 30, 1995 September 30, 1994 September 30, 1996
------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
Research and development expenses
(notes A, E, F and I) $ - $ 3,487,882 $ 2,807,508 $ 10,556,405
General and administrative expenses
(notes E and I) 1,509,298 2,323,279 2,388,854 10,224,340

Warrant extensions (note G) 7,644,033 4,650,000 - 12,294,033

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

Interest expense 1,575 3,459 745 10,529

Other income - (note C) (133,083) (103,106) (52,026) (406,778)

Other expense - - - 37,405
-------------- -------------- -------------- ---------------
Net loss $ (9,021,823) $ (10,361,514) $ (5,145,081) $ (35,365,934)
============== ============== ============== ===============
Net loss per common share (note A) $ (0.39) $ (0.54) $ (0.29) $ (2.07)
============== ============== ============== ===============

The accompanying notes are an integral part of this statement.

</TABLE>
<PAGE>F-4
<TABLE>

Diasense, Inc.
(A Development Stage Company)

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

For the period July 5, 1989 (inception) through September 30, 1996

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

</TABLE>
<PAGE>F-5
<TABLE>

Diasense, Inc.
(A Development Stage Company)

CONSOLIDATED STATEMENT OF CASH FLOWS

<CAPTION>
From July 5, 1989
For the year ended For the year ended For the year ended ended(inception) thru
September 30, 1996 September 30, 1995 September 30, 1994 September 30, 1996
------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>

Cash flows from operating activities:
Net loss $ (9,021,823) $ (10,361,514) $ (5,145,081) $ (35,365,934)
Adjustments to reconcile net loss to net
cash used by operating activities:
Depreciation 13,373 10,022 8,137 42,325
Stock in exchange for services 52,500 61,250 25,200 138,950
Increase receivable - - 3 496,811
Warrant extensions 7,644,033 4,650,000 - 12,294,033
Inventory deposit - BICO 0 (1,000,000) - (1,000,000)
(Increase) decrease in prepaid expenses 469 1,210 (799) (13,306)
Increase (decrease) in payable due to BICO (1,287,012) 4,688,494 4,225,899 10,500,000
Increase (decrease) in accounts payable (9,730) (32,432) (45,160) 20,095
Increase (decrease) in accrued liabilities (6,614) (4,667) 11,017 529
Stk issued for License & Marketing Agreement - - - 80,000
------------- ------------- ------------- -------------
Net cash used in operating activities (2,614,804) (1,987,637) (920,784) (12,806,497)

Cash flows from investing activities:
Purchase of property and equipment (7,005) (23,496) (18,621) (279,413)
Net cash used in investing activities (7,005) (23,496) (18,621) (279,413)

Cash flows from financing activities:
Advances to BICO (1,777,197) - - (2,295,569)
Repayment of advances to BICO - - - 587,140
Proceeds from issuance of common stock 1,365,155 1,501,492 803,745 11,062,834
Proceeds from issuance of common stk to BICO - 4,200,000 - 4,200,000
Proceeds from warrants exercised 28,000 10,066 55,000 118,066
Treasury stock - - (35,000) (35,000)
Proceeds from Regulation S - - 288,751 288,751
Proceeds from issuance of notes payable - - - 303,000
------------- -------------- ------------ --------------
Net cash provided (used) by fin. activities (384,042) 5,711,558 1,112,496 14,229,222
------------- -------------- ------------ --------------
Net increase (decrease) in cash and cash (3,005,851) 3,700,425 173,091 1,143,312
Cash and cash equivalents at beg of period 4,149,163 448,738 275,647 -
------------ -------------- ------------ --------------
Cash and cash equivalents at end of period $ 1,143,312 $ 4,149,163 $ 448,738 $ 1,143,312
============ ============== ============ ==============

The accompanying notes are an integral part of this statement.
</TABLE>
<PAGE>F-6
DIASENSE, INC.
(A Development Stage Company)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996

NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES

1. ORGANIZATION

Diasense, Inc. (the Company) was incorporated in the Commonwealth
of Pennsylvania on July 5, 1989 as a wholly owned subsidiary of
Biocontrol Technology, Inc. (BICO). BICO owned approximately 52%
of the stock of the Company at September 30, 1996. The Company
and BICO are currently developing a Noninvasive Glucose Sensor
(Sensor), which management believes will be able to measure the
concentration of glucose in human tissue without requiring the
drawing of blood. The Company plans to market the Sensor
directly to diabetics, through their doctors' orders, and is
currently negotiating with domestic and international
distribution organizations.

The consolidated financial statements include the accounts of
Diasense UK LTD. a 100% owned subsidiary of Diasense as of
September 30, 1996.

2. CASH AND CASH EQUIVALENTS

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

3. PROPERTY AND EQUIPMENT

Property and equipment are accounted for at cost and are
depreciated over their estimated useful lives on a straight-line
basis.

4. INCOME TAXES

The Company previously adopted Financial Accounting Standards
Board Statement No. 109 (FAS 109), Accounting for Income Taxes,
which requires the asset and liability method of accounting for
income taxes. Enacted statutory tax rates are applied to
temporary differences arising from the differences in financial
statement carrying amounts and the tax basis of existing assets
and liabilities. Due to the uncertainty of the realization of
income tax benefits (note D), the adoption of FAS 109 had no
effect on the financial statements of the Company.
<PAGE>F-7
DIASENSE, INC.
(A Development Stage Company)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996

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

5. ESTIMATES AND ASSUMPTIONS

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

6. NET LOSS PER COMMON SHARE

Net loss per common share is based on the weighted average
number of common shares outstanding which amounted to
22,983,654, 19,304,266 and 17,574,580 for the years ended
September 30, 1996, September 30, 1995 and September 30, 1994,
respectively. The loss per share does not include common stock
equivalents since the effect would be anti-dilutive

For the period from July 5, 1989 (inception) to September 30, 1996,
net loss per common share is based on the weighted average
number of common shares outstanding and the number of common
shares issuable on the exercise of 1,708,000 warrants issued
in 1992; reduced by 488,000 common shares that were assumed to
have been purchased with the proceeds from the exercise of the
warrants at an assumed price of $3.50 per share. The
inclusion of the warrants in the loss per share calculation is
required by the rules of the Securities and Exchange
Commission relative to the initial registration statement
which included the company's financial statements through the
period ended March 31, 1993. The registration statement
became effective July 19, 1993. The weighted average number
of common shares including the effect of the conversion of the
warrants for the period from July 5, 1989 (inception) to
September 30, 1996 amounted to 17,118,972.

7. RESEARCH AND DEVELOPMENT

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

8. TREASURY STOCK

The Company records treasury stock transactions using the par
value method.
<PAGE>F-8
DIASENSE, INC.
(A Development Stage Company)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996

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

9. INTERCOMPANY ACTIVITY

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

NOTE B - OPERATIONS

The Company is developing the Sensor and has not, as yet,
achieved a commercially marketable product. The ability of the
Company to continue in existence is dependent on its having
sufficient financial resources to maintain operations, to
complete the research and development necessary to successfully
bring the Sensor to market, and for marketplace acceptance. The
Company has no other commercial products and is dependent on the
successful development of the Sensor technology. The Company is
selling shares of its common stock pursuant to an offering with
the SEC which became effective July 19, 1993. Any funds
generated by the Company through the sale of its common stock and
any repayment of the $1,777,197 due from Bico would be used to
finance its operations.

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

The Company has incurred significant losses and negative cash
flows from operations from inception through September 30, 1996
and has a significant accumulated deficit as of September 30,
1996, raising substantial doubt about its ability to continue as
a going concern. The Company has financed its losses and its
research and development program primarily from the sale of the
Company's common stock through private placements.

As a result of agreements with BICO relating to development and
manufacture of the Noninvasive Glucose Sensor, Diasense is
dependent on BICO for substantially all of its activities in
connection with the development and manufacture of the Sensor,
other than its marketing efforts. Pursuant to the Research and
Development Agreement, BICO has undertaken the development of
the Sensor and has assumed certain other obligations. In July
1995, the Company and BICO agreed to suspend billings, accruals
of amounts due and payments pursuant to the R&D Agreement pending
FDA review of the Sensor. Pursuant to a manufacturing agreement
between BICO and Diasense, BICO will manufacture the Sensor once
development is completed.
<PAGE>F-9
DIASENSE, INC.
(A Development Stage Company)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996

NOTE B - OPERATIONS (Continued)

In the absence of such agreements with BICO, the research,
development and manufacture of the Sensor could not continue as
currently contemplated. BICO's ability to successfully complete the
development of the Sensor, to obtain FDA approval in a timely
fashion and to manufacture production units of the Sensor without
significant delays or defects will directly affect Diasense's
business and profitability. BICO has experienced, and continues to
experience, substantial losses and financial difficulties. The
consolidated financial statements for BICO for the year ended
December 31, 1995 included disclosures which referred to the
existence of substantial doubt about BICO's ability continue as a
going concern. BICO has a net loss for the nine month period ended
September 30, 1996 of $16,093,431 (unaudited) and for the fiscal
year ended December 31, 1995 of $29,420,345, compared to a net loss
for the fiscal year ended December 31, 1994 of $11,672,123. As of
December 31, 1995, and September 30, 1996, BICO's accumulated
deficit was $66,220,356 and $82,026,664 (unaudited) respectively.

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

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

NOTE C - OTHER INCOME

Other income for the years ending September 30, 1996, 1995 and
1994 consists of $90,555, $62,811 and $12,826 of interest income
and $42,528, $40,295 and $39,200 of rental income for their
respective periods. Of the total rental income for the year
ended September 30, 1996, 1995 and 1994, $42,528, $40,295 and
$38,700, respectively, was from BICO for office space under a
lease which expires April 30, 1997.
<PAGE>F-10

NOTE D - INCOME TAXES

As of September 30, 1996, the Company has available approximately
$20,700,000 of net operating loss carryforwards for federal
income tax purposes. These carryforwards are available, subject
to limitations, to offset future taxable income, and expire in
the tax years 2005 through 2010. The Company also has research
and development credit carryforwards available to offset federal
income taxes of approximately $700,000 subject to limitations,
expiring in the years 2005 through 2010.

The Company has temporary differences arising from different methods
of accounting for the costs of patent and technology rights for
financial statement and tax purposes. For financial statement
purposes, these costs have been charged to operations. For tax
purposes, the costs of approximately $2,650,000 have been
capitalized and are being amortized over seventeen years. Also,
the fair market value of Warrant Extensions have been recorded
and expensed for financial statement purposes in the amount of
$12,294,033 as of September 30, 1996. For tax purposes, warrant
expenses are not recognized until the warrants are exercised.

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

The following is a summary of the composition of the Company's
deferred tax asset and associated valuation allowance at
September 30, 1996 and 1995:

1996 1995
---------- ----------
Net Operating Loss $7,038,000 $6,613,000
Warrant Expense 4,179,971 1,581,000
Patent Amortization 645,007 698,007
Tax Credit Carry Forward 700,000 670,000
12,562,978 9,562,007
Valuation Allowance (12,562,978) (9,562,007)
---------- ---------
Net Deferred Tax Asset $0 $0
========== =========
<PAGE>F-11

NOTE D - INCOME TAXES (Continued)

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

Increase in
Deferred Valuation
Tax Benefit Allowance Net
----------- ---------- --
Year Ended September 30, 1996 $(3,000,971) $3,000,971 $0
Year Ended September 30, 1995 $(3,877,527) $3,877,527 $0
Year Ended September 30, 1994 $(1,872,557) $1,872,557 $0
From July 5, 1989 (inception)
through September 30, 1996 $(12,562,978) $12,562,978 $0

NOTE E - RELATED PARTY TRANSACTIONS

1. SENSOR RELATED AGREEMENTS

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

The Company is dependent upon BICO for substantially all of its
activities in connection with the completion of the development,
clinical testing, FDA approval and manufacturing of the Sensor.
BICO finances its operations from the sale of stock through
private placements of its securities.

If BICO is unable to perform under the Research and Development
or Manufacturing Agreements, the Company would need to rely on
other arrangements to develop and manufacture the Sensor or
perform these efforts itself.
<PAGE>F-12
DIASENSE, INC.
(A Development Stage Company)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996

NOTE E - RELATED PARTY TRANSACTIONS (Continued)

1. SENSOR RELATED AGREEMENTS (Continued)

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

Manufacturing Agreement

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

Research and Development Agreement

Under a January 1992 agreement effective April 1992, the Company
is to pay BICO $100,000 for indirect costs per month, plus all
direct costs for the research and development of the Sensor. This
agreement replaced a previous agreement dated May 14, 1991 under
which Diasense had been paying BICO $50,000 for indirect costs
per month, plus all direct costs for the design and development
activities. The term of the agreement expires in 2007. Under
the terms of this agreement, BICO billed the Company for the
years ended September 30, 1996, 1995 and 1994 and, for the period
from July 5, 1989 (Inception) through September 30, 1996 in
amounts of $0, $4,387,882, $4,007,508, and $14,860,667,
respectively. In July 1995, the Company and BICO agreed to
suspend billings, accruals of amounts due and payments pursuant
to the R&D Agreement, pending FDA review of the Sensor.

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

Purchase Agreement

In November 1991, the Company entered into a Purchase Agreement
with BICO under which the Company acquired all of BICO's rights
to the Sensor for a cash payment of $2,000,000 which was charged
to operations.
<PAGE>F-13
DIASENSE, INC.
(A Development Stage Company)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996

NOTE E - RELATED PARTY TRANSACTIONS (Continued)

1. SENSOR RELATED AGREEMENTS (Continued)

Sublicensing Agreement

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

License and Marketing Agreement

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

2. INTERCOMPANY ACTIVITY

For the fiscal year ended September 30, 1996, 1995 and 1994, net
intercompany charges by the Company to BICO and its subsidiaries
were $5,558, $301,413 and $138,570. During the year ended
September 30, 1996 the Company had net intercompany charges and
cash advances (non-interest bearing) to BICO amounting to
$1,777,194. As of November 21, 1996 $500,000 of these advances
had been repaid.

NOTE F - COMMITMENTS AND CONTINGENCIES

1. RESEARCH AND DEVELOPMENT

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

In July 1995, the Company and BICO agreed to suspend billings,
accruals of amounts due and payments pursuant to the R&D
Agreement, pending FDA review of the Sensor.
<PAGE>F-14
DIASENSE, INC.
(A Development Stage Company)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996

NOTE F - COMMITMENTS AND CONTINGENCIES (Continued)

2. EMPLOYMENT AGREEMENTS

Diasense has entered into agreements with Fred E. Cooper, Gary R.
Keeling and David L. Purdy pursuant to which they receive annual
salaries of $150,000, $125,000 and $100,000 from Diasense,
respectively, all of which are subject to review and adjustment
annually. The initial term of the Agreements with Mr. Cooper and
Mr. Purdy expires on October 31, 1999, but continue thereafter
for an additional three-year period unless either party gives
proper notice of non-renewal. The initial term of the Agreement
with Mr. Keeling expires on December 29, 1999, but continues
thereafter for an additional three year period unless either
party gives proper notice of non-renewal. The Agreements also
provide that in the event of a "change of control" of Diasense,
Diasense is required to issue to Mr. Cooper and Mr. Purdy shares
of common stock equal to five percent (5%) and to Mr. Keeling
shares of common stock equal to two percent (2%) of the
outstanding shares of common stock of the Company immediately
after the change in control.

3. PURCHASE ORDER

In September 1995 the Company issued a purchase order to BICO for
units of the Diasensor 1000 for $10,000,000. An initial deposit
of $1,000,000 was paid to BICO at the time of the order and is
recorded as "Inventory deposit - BICO" in the September 30, 1996
and 1995 financial
statements. The classification and realization of this asset is
dependent upon achieving sufficient production and sales of the
Sensor and BICO's ability to continue as a going concern. Due to
delays in achieving regulatory approval, payments under the
purchase order have been postponed.

4. LITIGATION

In May 1996, the Company, along with BICO and BICO's individual
directors, was served with a federal class action lawsuit based
on alleged violations of federal securities laws. The Companies
have filed a Motion to Dismiss the suit and are aggressively
defending against it. No determinations as to possible liability
or exposure are possible at this time, although the Company does
not believe that any violations of the securities laws have
occurred.

5. PENNSYLVANIA SECURITIES COMMISSION

In April, 1996, the Pennsylvania Securities Commission commenced
an informal investigation into Diasense's sales of its common
stock pursuant to its public offering in an effort to determine
whether any sales were made improperly to Pennsylvania
residents. The Company has been
<PAGE>F-15
DIASENSE, INC.
(A Development Stage Company)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996

NOTE F - COMMITMENTS AND CONTINGENCIES (Continued)

5. PENNSYLVANIA SECURITIES COMMISSION (Continued)

cooperating fully with the state and has provided all of the
information requested. To date, no determinations have been
made.

NOTE G - STOCKHOLDERS' EQUITY

Common Stock

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

The Company sold 4,997,500 shares of common stock, at $1.00
per share, in a private offering from May 1991 to January
1992. The aggregate amount raised was $4,985,201, on which
no commissions were paid to any third party.

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

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

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

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

During 1995, the Company issued the following shares of its
common stock to BICO: 3,000,000 shares at an assigned price of
$3.50 per share in return for a corresponding reduction in the
amount due from Diasense to BICO pursuant to the R&D Agreement of
$10,500,000; and 1,200,000 shares of its common stock at a price
of $3.50 per share.
<PAGE>F-16
DIASENSE, INC.
(A Development Stage Company)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996

NOTE G - STOCKHOLDERS' EQUITY (Continued)

Common Stock (Continued)

In July, 1993, the Company commenced a public offering, which is
continuing. As of September 30, 1996, an aggregate of 1,084,460
shares had been issued with proceeds to the Company of
$1,365,153. Of that total, 230,961 shares with net proceeds of
$786,245 were issued in fiscal 1994; 437,768 shares with net
proceeds of $1,501,492 were issued in fiscal 1995; 410,731
shares with net proceeds of $1,365,155 were sold in fiscal 1996;
and 10,000 shares were issued for consulting services at a charge
to operations of $35,000 in fiscal 1996.

The Company issued unregistered common stock in exchange for
consulting services of 7,200 shares in fiscal 1994, 17,500 shares
in fiscal 1995, and 5,000 shares in fiscal 1996. The associated
consulting service expense was recognized at a rate of $3.50 per
share, which is the price at which the common stock was being
sold in the Company's public offering.

Common Stock Warrants

At September 30, 1996, the Company has reserved 7,533,263 shares
of the Company's unissued common stock for warrants which were
outstanding and exercisable. Of these, warrants on 4,968,000
shares were issued to directors, officers, and employees for
meritorious service, employment contracts, and personal
guarantees on Company indebtedness. Also, warrants on 2,165,263
shares were issued to consultants and medical advisers and on
400,000 shares to individuals for personal guarantees on Company
loans The per share exercise price for 4,055,000 shares is $.50,
for 2,376,013 shares is $1.00 and for 1,102,250 shares is $3.50.
The fiscal years in which warrants expire are as follows:

Warrant Expiration Year Number of Shares
1997 2,346,800
1998 1,548,000
1999 2,446,213
2000 785,000
2001 407,250
---------
7,533,263
=========
<PAGE>F-17
DIASENSE, INC.
(A Development Stage Company)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996

NOTE G - STOCKHOLDERS' EQUITY (Continued)

Common Stock Warrants (Continued)

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

1996 1995 1994 1993
--------- -------- -------- ---------
Outstanding beginning of year 7,077,213 6,891,525 6,871,525 6,946,525

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

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

Exercised during the years at prices
ranging from $.1875 to $1.00 per share (56,000) (29,512) (105,000) (25,000)
--------- --------- --------- ---------
Outstanding, and eligible for exercise 7,533,263 7,077,213 6,891,525 6,871,525
========= ========= ========= =========

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

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

In 1990, the Company granted warrants to purchase 800,000 shares
of common stock at an exercise price of $.50 per share to eight
current or former directors or officers of the Company or BICO
who personally guaranteed the payment of a lease obligation to
the bank for the premises occupied by BICO at the 300 Indian
Springs Road location. The Company also granted warrants to
purchase 100,000 shares of common stock each to an individual and
his company at an exercise price of $.50 per share for personally
guaranteeing the payment of an obligation related to the purchase
of equipment by BICO. In addition, the Company granted
warrants to purchase
<PAGE>F-18
DIASENSE, INC.
(A Development Stage Company)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996

NOTE G - STOCKHOLDERS' EQUITY (Continued)

Common Stock Warrants (Continued

100,000 shares of common stock for services performed by
consultants at an exercise price of $.50. The Company recorded
an estimated value of these warrants at $27,500 which was charged
to operations.

NOTE H- SUPPLEMENT CASH FLOW INFORMATION

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

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

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

Cash paid for interest and income taxes were as follows:
From July 5, 1989
Sept. 30, Sept. 30, Sept. 30, (inception) thru
1996 1995 1994 Sept. 30, 1996
-------- -------- -------- -----------------
Interest Paid $1,575 $3,459 $745 $10,529
======== ======== ======== =================
Income Taxes Paid $0 $0 $0 $0
======== ======== ======== =================
NOTE I - RECENTLY ISSUED ACCOUNTING PRINCIPLES

The Company has not yet adopted the implications of Statement of
Financial Accounting Standard No. 123 - Accounting for stock-
based compensation (FAS 123). The requirements of FAS 123 which
will be effective for the year ended September 30, 1997 are not
expected to be material to the Company's financial statements.

NOTE J - SUBSEQUENT EVENTS

In October 1996, the Company extended the exercise date of
warrants to purchase 610,000 shares of common stock to
certain officers and consultants. The warrants were
originally granted at an exercise price of $1.00 per share
and were extended at the same price. The assumed value of
the stock when the extensions were granted was $3.50. The
Company recorded $1,525,000 against operations, which is the
difference between the assumed value and warrant share price
times the number of warrant shares extended.
<PAGE>F-19

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

Other Expenses of Issuance and Distribution.

SEC registration fee . . . . . . . . . . . . . . . . . . . .$ 16,068.87
Duplicating and other expenses . . . . . . . . . . . . . . . . 5,000.00
Fees and expenses of counsel . . . . . . . . . . . . . . . . .60,000.00
Fees and expenses of accountants . . . . . . . . . . . . . . .60,000.00
Blue sky fees and expenses . . . . . . . . . . . . . . . . . .10,000.00

Total . . . . . . . . . . . . . . . . . . . . . . . . . . .$151,068.87
===========
All of the foregoing expenses have been paid by Diasense.

Indemnification of Directors and Officers.

Section 1713 of the Pennsylvania Business Corporation Law ("PBCL") and the
Company's Bylaws limit directors' personal liability for monetary damages for
any action taken or any failure to take any action under certain conditions and
subject to certain limitations.

Sections 1741-1743 of the PBCL and the Company's Bylaws provide generally that
the Company will indemnify its officers and directors for liabilities incurred
by reason of the fact that such person is or was an officer or director of the
Company or is or was serving as an officer or director of another entity at the
request of the Company if such person acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Company and, with respect to any criminal proceeding, had no reasonable cause
to believe his conduct was unlawful. Pursuant to Section 1746 of the
Pennsylvania Business Corporation Law, an officer or director may also be
indemnified by the Company in other circumstances except where the act or
failure to act giving rise to the claim for indemnification is determined to
have constituted willful misconduct or recklessness.

Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission,
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the securities
being registered, the registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.

Recent Sales of Unregistered Securities.

Diasense sold 2,800,000 shares of Common Stock at $0.50 per share, from August
1989 to May 1991 to accredited investors and fewer than 35 non-accredited
investors. The aggregate amount raised by Diasense was $1,400,000, on which no
commissions were paid to any third party. This transaction was exempt from
registration under the Securities Act pursuant to Section 4(2) of the
Securities Act as a transaction not involving a public offering.
<PAGE>II-1
Diasense sold 4,997,500 shares of Common Stock, at $1.00 per share, from May
1991 to January 1992, to accredited investors only. The aggregate amount
raised was $4,997,500, on which no commissions were paid to any third party.
This transaction was exempt from registration under the Securities Act pursuant
to Section 4(2) of the Securities Act as a transaction not involving a public
offering.

Diasense sold, in July 1992, 7,212 shares of Common Stock, at $3.50 per share,
to one accredited investor. The aggregate amount raised was $25,242, on which
no commissions were paid to any third party. This transaction was exempt from
registration under the Securities Act pursuant to Section 4(2) of the
Securities Act as a transaction not involving a public offering.

Diasense sold 300,000 shares of Common Stock, at $3.50 per share, to accredited
investors only from July 1992 through November 1992. The aggregate amount
raised was $1,050,000, on which no commissions were paid to any third party.
This transaction was exempt from registration under the Securities Act pursuant
to Section 4(2) of the Securities Act as a transaction not involving a public
offering.

In October 1991, Diasense issued to Brandt Distributors of Pittsburgh, Inc.
("Brandt") Warrants to purchase 100,000 Warrant Shares at an exercise price of
$1.00 per share and having an expiration date of October 25, 1996, in exchange
for Brandt making a $100,000 loan to Diasense. In December 1991, Diasense
issued Brandt 235,000 shares of Common Stock in exchange for the cancellation
of an outstanding promissory note for $235,000 executed by Diasense payable to
Brandt. These transactions were exempt from registration under the Securities
Act pursuant to Section 4(2) of the Securities Act as a transaction not
involving a public offering. In October 1991, Diasense issued to an affiliate
of Brandt, 181, Inc. ("181, Inc.") Warrants to purchase 135,000 Warrant Shares
at an exercise price of $1.00 and having an expiration date of October 25, 1996
in exchange for 181, Inc. making a $135,000 loan to Diasense. This transaction
was exempt from registration under the Securities Act pursuant to Section 4(2)
of the Securities Act as a transaction not involving a public offering.

In addition to the Warrants issued to Brandt and 181, Inc. (as described
above), and as of November 30, 1996, Diasense has issued Warrants to purchase
7,347,763 shares of Common Stock, at varying exercise prices and expiration
dates, to certain directors and officers of Diasense, employees of BICO and
other third parties in connection with the rendering of goods, services or
other consideration to Diasense. In the case of certain directors of Diasense,
Warrants were issued in consideration of meritorious service or as incentives.
These transactions were exempt from registration under the Securities Act
pursuant to Section 4(2) of the Securities Act.

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

During 1995, Diasense issued the following shares of its common stock to BICO:
3,000,000 shares at an assigned price of $3.50 per share in return for a
corresponding reduction in the amount due from Diasense to BICO pursuant to the
R&D Agreement of $10,500,000; and 1,200,000 shares of its common stock at a
price of $3.50 per share, for a total of $4,200,000.

EXHIBIT TABLE

Reports on Form 8-K

The Company filed a Form 8-K report dated December 15, 1995. The items
listed were Item 6, Resignation of Registrant's Directors; and Item 7(c),
Exhibits.
<PAGE>II-2
The Company filed a Form 8-K report dated February 20, 1996. The items
listed were Item 5, Other Events; and Item 7(c), Exhibits.

The Company filed a Form 8-K report dated February 26, 1996. The items
listed were Item 5, Other Events; and Item 7(c), Exhibits.

The Company filed a Form 8-K report dated February 27 1996. The items
listed were Item 5, Other Events; and Item 7(c), Exhibits.

The Company filed a Form 8-K report dated April 10, 1996. The items listed
were Item 5, Other Events; and Item 7(c), Exhibits.

The Company filed a Form 8-K report dated May 8, 1996. The item listed was
Item 5, Other Events.

Exhibits required by Item 601 of Regulation S-K

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

Exhibit Sequential Page No.

3.1 Articles of Incorporation of Diasense, Inc., as amended . . . .N/A

3.2 Amended and Restated Bylaws of Diasense, Inc. . . . . . . . . .N/A

4.1 Form of Specimen Common Stock Certificate of Diasense, Inc. . .N/A

5.1 Legal Opinion of Sweeney & Associates P.C.. . . . . . . . . . . 78

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

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

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

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

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

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

10.7(1) Deferral Agreement, dated as of July 1, 1994,
between Diasense, Inc. and Biocontrol Technology, Inc.. . . . .N/A
<PAGE>II-3
10.8 Deferral Agreement dated as of September 30, 1994
between Diasense, Inc. and Biocontrol Technology, Inc.. . . . .N/A

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

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

10.11(2) Employment Agreement dated as of December 30, 1994
between Diasense, Inc. and Gary R. Keeling . . . . . . . . . .N/A

10.12(3) Distribution Agreement dated as of October 20, 1995
between Diasense, Inc. and IMACO Gesellschaft fur
Non Invasive Systeme GmbH. . . . . . . . . . . . . . . . . . . N/A

10.13(4) Letter of Resignation of Director, Peter J. Gialames
dated 12/6/95 . . . . . . . . . . . . . . . . . . . . . . . . .N/A

10.14(5) Press Release dated February 20, 1996 Re: Cancellation
of IMACO Distribution Contract.. . . . . . . . . . . . . . . . N/A

10.15(6) Press Release dated February 26, 1996 Re: FDA Panel Review. . N/A

10.16(7) Press Release dated February 27, 1996 Re: Continuation
of Diasensor development. . . . . . . . . . . . . . . . . . . N/A

10.17(8) Press Release dated April 10, 1996 Re: Alliance
agreement with Samsung America, Inc. . . . . . . . . . . . . . N/A

24.1 Consents of Thompson Dugan, P.C. Independent
Certified Public Accountants . . . . . . . . . . . . . . . . . .80

24.2 Consent of Counsel (Included in 5.1 above) . . . . . . . . . .78

25.1 Power of Attorney of Fred E. Cooper (included under
"Signatures"). . . . . . . . . . . . . . . . . . . . . . . . . .77

(1) Incorporated by reference from Exhibit with this title filed with the
Company's Form S-1 filed August 17, 1994 at 33-82796

(2) Incorporated by reference from Exhibit with this title filed with the
Company's Post-Effective Amendment No. 3 to Form S-1 at 33-56574 filed
October 16, 1995

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

(4) Incorporated by reference from Exhibit with this title filed with the
Company's Form 8-K dated December 15, 1995

(5) Incorporated by reference from Exhibit with this title filed with the
Company's Form 8-K dated February 20, 1996.

(6) Incorporated by reference from Exhibit with this title filed with the
Company's Form 8-K dated February 26, 1996.

(7) Incorporated by reference from Exhibit with this title filed with the
Company's Form 8-K dated February 27, 1996.
<PAGE>II-4
(8) Incorporated by reference from Exhibit with this title filed with the
Company's Form 8-K dated April 10, 1996.

Undertakings.

The undersigned registrant hereby undertakes:

1. To file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement:

(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;

(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually
or in the aggregate, represent a fundamental change in the
information set forth in the registration statement;

(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement.

2. That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of such new securities at that time shall be deemed to be the
initial bona fide offering thereof.

3. To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination
of the offering.

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended,
the registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in Pittsburgh,
Pennsylvania, on this 19th day of December, 1996.

DIASENSE, INC.

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

Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed below by the following persons on behalf
of the Registrant and in the capacities and on the dates indicated.

Signature Title Date
- ------------------- ---------------------------- -----------------
/s/ David L. Purdy Chairman of December 19, 1996
David L. Purdy the Board; Chief Scientist;
Director

/s/ Fred E. Cooper President and December 19, 1996
Fred E. Cooper Director
(principal executive
officer, principal
financial officer and
principal accounting officer)

/s/ Anthony J. Feola Director December 19, 1996
Anthony J. Feola

/s/ C. Terry Adkins Vice President December 19, 1996
C. Terry Adkins International Sales;
Director

/s/ Gary Keeling Vice President December 19, 1996
Gary Keeling Marketing and Sales;
Director
<PAGE>II-6
SWEENEY & ASSOCIATES P.C.
ATTORNEYS AT LAW

7300 PENN AVENUE TELEPHONE (412) 731-1000
PITTSBURGH, PA 15208 FACSIMILE (412) 731-9190

December 19, 1996

To the Board of Directors
Diasense, Inc.
2275 Swallow Hill Road
Building 2500; 2nd Floor
Pittsburgh, PA 15220

Gentlemen:

We have examined the corporate records and proceedings of Diasense, Inc.,
a Pennsylvania corporation (the "Company"), with respect to:

1. The organization of the Company;

2. The legal sufficiency of all corporate proceedings of the Company
taken in connection with the creation, issuance, the form and
validity, and full payment and non-assessability, of all the present
outstanding and issued common stock of the Company; and

3. The legal sufficiency of all corporate proceedings of the Company,
taken in connection with the creation, issuance, the form and
validity, and full payment and non-assessability, when issued, of
shares of the Company's common stock (the "Shares"), to be issued by
the Company covered by the registration statement (hereinafter
referred to as the "Registration Statement") filed with the
Securities and Exchange Commission December 20, 1996 at 33-82796, (in
connection with which Registration Statement this opinion is
rendered.)

We have also examined such other documents and such questions of law as we
have deemed to be necessary and appropriate, and on the basis of such
examinations, we are of the opinion:

(a) That the Company is duly organized and validly existing under the
laws of the Commonwealth of Pennsylvania;

(b) That the Company is authorized to have outstanding 40,000,000 shares
of common stock of which 23,006,051 shares of common stock are
outstanding as of September 30, 1996.

(c) That the Company has taken all necessary and required corporate
proceedings in connection with the creation and issuance of the said
presently issued and outstanding shares of common stock and that all
of said stock so issued and outstanding has been validly issued, is
fully paid and non-assessable, and is in proper form and valid; and

(d) That when the Registration Statement shall have been declared
effective by order of the Securities and Exchange Commission, and the
Shares shall have been issued and sold upon the terms and conditions
set forth in the Registration Statement, then the Shares will be
validly authorized and legally issued, fully paid and non-
assessable.

We hereby consent (1) to be named in the Registration Statement, and in
the Prospectus which constitutes a part thereof, as the attorneys who will pass
upon legal matters in connection with the sale of the Shares, and (2) to the
filing of this opinion as Exhibit 5.1 of the Registration Statement.

Sincerely,

SWEENEY & ASSOCIATES P.C.

jdd
<PAGE>

CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

We have issued our report dated November 21, 1996 accompanying
the financial statements of Diasense, Inc. We consent to the use
of the aforementioned report appearing in this Post Effective
Amendment No. 2 to Form S-1 Registration Statement No. 33-82796
of Diasense, Inc. and to the use of our name as it appears under
the captions "Selected Financial Data" and "Experts" in such
Post Effective Amendment. Our report on the financial statements
referred to above includes explanatory paragraphs which discuss
going concern considerations as to Diasense, Inc.

THOMPSON DUGAN, PC
Pittsburgh, Pennsylvania
December 20, 1996