<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
------------------------
FORM 8-K/A
AMENDMENT NO. 2 TO CURRENT REPORT
Pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): November 6, 1996
DIAMETRICS MEDICAL, INC.
-----------------------
(Exact name of registrant as specified in its charter)
Minnesota 0-21982 41-1663185
- ---------------------------- ------------------------ -----------
(State or other jurisdiction (Commission file number) (IRS employer
of incorporation) identification No)
2658 Patton Road, Roseville, Minnesota 55113
--------------------------------------------
(address of principal executive offices)
Registrant's telephone number, including area code: (612) 639-8035
--------------
Not Applicable
--------------
(Former name or former address, if changes since last report)
<PAGE>
DIAMETRICS MEDICAL, INC.
The undersigned registrant hereby amends its Current Report on Form 8-K dated
November 6, 1996 ( the "Report"), to include the financial statements and pro
forma financial information required by Item 7(a) and (b), which were omitted
from the Report as initially filed in accordance with Item 7(a) (4) of Form 8-K.
Other than such financial statements and pro forma financial information, this
Form 8-K/A Amendment No. 1 to Current Report contains no financial statements,
financial statement schedules, exhibits or other papers or documents.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
------------------------------------------------------------------
(a)Financial Statements of Business Acquired
-----------------------------------------
Report of Independent Accountants dated January 15, 1997.
Audited Combined Profit and Loss Accounts for the years ended
November 30, 1995 and 1994.
Audited Combined Balance Sheets as of November 30, 1995 and 1994
Audited Combined Statements of Cash Flows for the years ended
November 30, 1995 and 1994 .
Notes to combined financial statements.
Unaudited Combined Balance Sheet as of August 31, 1996.
Unaudited Combined Profit and Loss Accounts for the nine months ended
August 31, 1996.
Notes to Unaudited Interim Financial Statements.
(b)Pro Forma Financial Information
-------------------------------
Unaudited Pro Forma Combined Balance Sheet as of September 30, 1996.
Unaudited Pro Forma Combined Statements of Operations for the nine
months ended September 30, 1996 and the year ended December 31, 1995.
Notes to Unaudited Pro Forma Combined Financial Statements.
<PAGE>
(c)Exhibits
--------
The following exhibits are incorporated by reference in this report:
Exhibit No. Description
---------- -----------
2.1 Agreement for the sale of the whole of the issued
share capital of Biomedical Sensors Limited between
the Company and Howmedica, Inc. dated November 6,
1996. (1)
2.2 Senior Secured Fixed Rate Loan Note due November 4,
2002, in the original principal amount of $7,300,000
from the Company to Howmedica, Inc. (1)
2.3 Transitional Services Agreement, dated as of November
6, 1996, by and among Howmedica Inc., Howmedica GmbH,
the Company and Biomedical Sensors Ltd. (1)
23 Consent of Independent Accountants
(1) Previously filed.
<PAGE>
BIOMEDICAL SENSORS COMBINED FINANCIAL STATEMENTS
November 30 1995 and 1994
REPORT OF INDEPENDENT ACCOUNTANTS
We have audited the accompanying combined financial statements of Biomedical
Sensors ("the Business") prepared on a stand alone basis, as set out in note 1
to the financial statements, which are expressed in US dollars. These combined
financial statements are the responsibility of the management of Biomedical
Sensors. Our responsibility is to express an opinion on these combined financial
statements based on our audits of the separate entities included in these
combined financial statements.
We conducted our audits in accordance with the UK Auditing Standards which are
substantially equivalent to US 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, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of the
Business at November 30, 1995 and 1994 and the combined results of its
operations and its cash flows for each of the years in the two-year period ended
November 30, 1995 in conformity with accounting principles generally accepted in
the UK.
Generally accepted accounting principles in the UK vary in certain significant
respects from generally accepted accounting principles in the United States.
Application of generally accepted accounting principles in the United States
would have affected results of operations for each of the years in the two-year
period ended November 30, 1995 and the determination of owner's net deficit as
of November 30, 1995 and 1994 to the extent summarised in Note 2 to the combined
financial statements.
/s/ KPMG
Chartered Accountants
Registered Auditors
London, England
January 15 1997
<PAGE>
Biomedical Sensors
Combined Profit and Loss Accounts
Years ended November 30, 1995 and 1994
<TABLE>
<CAPTION>
NOTE 1995 1994
$000 $000
<S> <C> <C> <C>
Net Sales 3 3,780 3,850
Cost of goods sold (4,518) (5,112)
-------- --------
(738) (1,262)
Distribution costs (4,453) (3,932)
Research and development and
administrative expenses (5,470) (4,472)
-------- --------
(10,661) (9,666)
Other losses (1,103) (388)
-------- --------
Net loss for the year (11,764) (10,054)
Owner's net deficit beginning of year (13,786) (6,001)
Foreign Exchange reserve movements 1,357 (715)
Contributions from owner 3,141 2,984
-------- --------
Owner's net deficit end of year (21,052) (13,786)
======== ========
</TABLE>
<PAGE>
Biomedical Sensors
Combined Balance Sheets
November 30, 1995 and 1994
<TABLE>
<CAPTION>
NOTE 1995 1994
$000 $000
<S> <C> <C> <C>
ASSETS
Current assets
Cash 115 0
Trade receivables 7 1,589 2,034
Inventories 6 3,726 2,785
Other current assets 16 13
------- -------
5,446 4,832
Property, plant and equipment 5 3,370 3,565
Other assets 0 121
------- -------
8,816 8,518
======= =======
LIABILITIES AND OWNER'S NET DEFICIT
Current liabilities
Short term loans 22,199 16,139
Accounts payable 2,234 985
Other current liabilities 1,328 1,086
------- -------
8 25,761 18,210
Long term liabilities 9,10 4,107 4,094
------- -------
29,868 22,304
Owner's net deficit 11 (21,052) (13,786)
------- -------
Total liabilities and owner's net deficit 8,816 8,518
======= =======
</TABLE>
<PAGE>
Biomedical Sensors
Combined Statements of Cash Flows
Years ended November 30, 1995 and 1994
<TABLE>
<CAPTION>
1995 1994
$000 $000
<S> <C> <C>
Cash flow from operating activities:
Net loss (11,764) (10,054)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 753 581
Change in operating assets and liabilities
Trade receivables (445) (881)
Inventories (941) 1,042
Other current assets (3) 3
Accounts payable 1,249 (143)
Other current liabilities 242 (857)
------- -------
Net cash used in operating activities (10,909) (10,309)
Cash flow from investing activities:
Purchase of property and equipment (645) (1,327)
Sale of property and equipment 54 20
Other assets 121 0
------- -------
Net cash used in investing activities (470) (1,307)
Cash flow from financing activities:
Contributions from owner 3,141 2,984
Short-term borrowings 6,726 7,836
Exchange rate 1,627 677
------- -------
Net cash provided from financing activities 11,494 11,497
Net change in cash 115 (119)
Cash balance beginning 0 119
------- -------
Cash balance ending 115 0
======= =======
Supplemental disclosure of cash flow information:
Cash paid during the year for interest 449 800
</TABLE>
<PAGE>
Biomedical Sensors
Notes to combined financial statements
(forming part of the financial statements)
1 Accounting policies
During October 1996 Pfizer Inc., announced the sale of its world-wide
Biomedical Sensors Business "the Business" to Diametrics Medical Inc.
("Diametrics"). The sale was completed on November 6, 1996. Diametrics
acquired the capital stock of Biomedical Sensors Limited and certain net
assets used in the Business of other Pfizer subsidiaries.
The combined financial statements of Biomedical Sensors Limited, Biomedical
Sensors Germany and Biomedical Sensors US are expressed in US dollars and
have been prepared in accordance with accounting principles generally
accepted in the UK. These accounting principles significantly differ in
certain respects from accounting principles generally accepted in the United
States. Refer to Note 2 for a description and the approximate related effect
on these combined financial statements of the significant differences.
Basis of presentation
Separate financial statements have not been previously prepared, except for
Biomedical Sensors Limited. The combined financial statements have been
prepared from the audited historical financial statements of Biomedical
Sensors Limited, a UK company and the majority of the combined Business, and
from Pfizer's historical accounting records as if the operations of the
Business in the US and Germany had been conducted exclusively within a
wholly-owned subsidiary of the Pfizer subsidiary in that country. In that
context, there would be no direct ownership relationship among the various
entities comprising the Business. Accordingly, Pfizer Inc and its
subsidiaries' net investment (deficit) in the Business (owner's net deficit)
is shown in lieu of shareholders' equity in the combined financial
statements. For purposes of presenting combined financial statements in US
dollars, the exchange rates used to remeasure the balance sheets and the
profit and loss accounts from the respective foreign currency to US dollars,
were the year-end rates and the yearly average rates, respectively.
The combined financial statements may not necessarily present the financial
position, and results of operations of the combined businesses as if it were
a standalone entity because the terms of intercompany transactions and
allocations may not be the same as those that would result among unrelated
parties.
The combined financial statements have been prepared on a going concern basis
on the assumption that the Business will continue to trade. The Business was
dependant upon the support of its holding company. It was the opinion of the
directors, based on discussions with their holding company, that support
would continue into foreseeable future.
Fixed assets and depreciation
Depreciation is provided by the Business to write off the cost less the
estimated residual value of tangible assets by equal instalments over their
estimated useful economic lives as follows:
Leasehold land and buildings - life of lease
Office furniture and equipment - 3 to 12.5 years
Motor vehicles - 4 years
<PAGE>
Biomedical Sensors
Notes to combined financial statements
(forming part of the financial statements)
Impact of adjustment for expenses not previously allocated
Biomedical Sensors operated autonomously from its parent and the only material
expense incurred by the parent on its behalf was interest expense on
inter-company funding. No other material expense items were subject to a general
allocation methodology. Following is management's estimate, which management
believes to be reasonable, of the amount of interest expense that would have
been incurred on inter-company loans if Biomedical Sensors had operated on a
stand alone basis, and the adjusted net loss that would have resulted (on a pro
forma basis). The estimated interest expense is based upon average outstanding
inter-company loan balances at the Company's estimated borrowing rate of 10%.
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
$000's $000's
Net loss for the year as reported (11,764) (10,054)
Estimated interest expense on
inter-company loans (2,300) (1,600)
-------- --------
Adjusted net loss for the year -
pro forma basis (14,064) (11,654)
</TABLE>
<TABLE>
<CAPTION>
Following is an analysis of Biomedical Sensors' inter-company loan activity with
its parent company for 1994 and 1995:
Short term Long term Total Average
loans loans loans loan balance
---------- --------- ----- ------------
$000's $000's $000's $000's
<S> <C> <C> <C> <C>
Beginning of year
balance - 1994 12,000 - 12,000
1994 cash advances 4,139 4,094 8,233
End of year balance -
1994 16,139 4,094 20,233 16,000
------ ----- ------ ------
1995 cash advances 6,060 - 6,060
Impact of foreign
exchange rate changes - (72) (72) -
End of year balance -
1995 22,199 4,022 26,221 23,000
------ ----- ------ ------
</TABLE>
Foreign currencies
Transactions in foreign currencies are recorded using the rate of exchange
ruling at the date of the transaction. Monetary assets and liabilities
denominated in foreign currencies are translated using the rate of exchange
ruling at the balance sheet date and the gains or losses on translation are
included in the profit and loss account.
Leases
Where the Business enters into a lease which entails taking substantially all
the risks and rewards of ownership of an asset, the lease is treated as a
"finance lease". The asset is recorded in the balance sheet as a tangible fixed
asset and is depreciated over its estimated useful life or the term of the
lease, whichever is shorter. Future instalments under such lease, net of finance
charges, are included within creditors. Rentals payable are apportioned between
the finance element, which is charged to the profit and loss account under the
item `interest payable and similar charges', and the capital element which
reduces the outstanding obligation for future instalments included with
creditors.
All other leases are accounted for as `operating leases' and the rental charges
are charged to the profit and loss account on a straight line basis over the
life of the lease.
Pension costs
The Business operates a pension scheme providing benefits based on final
pensionable pay for the majority of employees. The assets of the scheme are held
separately from those of the business in an independently administered fund.
Contributions to the scheme are charged to the profit and loss account so as to
spread the cost of pensions over employees' working lives with the business.
Research and development expenditure
Expenditure on research and development is written off in the profit and loss
account in the year in which it is incurred.
Inventories
Inventories are stated at the lower of cost or net realisable value. In
determining the cost of raw materials, consumables and goods purchased for
resale, standard cost is used, which is based upon actual purchase price. For
work in progress and finished goods manufactured by the business, cost is taken
as standard production cost, which includes an appropriate proportion of
attributable overheads.
Deferred taxation
Deferred taxation, in respect of capital allowances and other timing
differences, is provided at the anticipated rate of tax payable except where
such timing differences are expected, with reasonable probability, to continue
in the foreseeable future.
Net Sales
Net Sales represent the amounts (excluding value added tax) derived from the
provision of goods and services to customers during the year.
<PAGE>
Biomedical Sensors
Notes to combined financial statements
(forming part of the financial statements)
2 US Generally Accepted Accounting Principles
A description of the accounting policies that significantly differ in
certain respects from US generally accepted accounting principles follows:
Pension costs
The Business provides for the cost of retirement benefits based upon
consistent percentages of employees' pensionable pay as recommended by
actuaries. For the purpose of the reconciliation below, the provisions of
SFAS No.87, "Employers Accounting for Pensions" have been applied and
require that the projected benefit obligations be matched against the fair
value of the plan's assets and be adjusted to reflect any unrecognised
obligations or assets in determining the pension expense or benefit for the
year.
UK to US GAAP adjustments
Combined Profit and loss account
<TABLE>
<CAPTION>
Year ended 30 November
1995 1994
$000 $000
<S> <C> <C>
Net loss as reported in the combined
profit and loss accounts (11,764) (10,054)
Deferred charges 699 632
-------- --------
(11,065) (9,422)
======== ========
</TABLE>
Combined balance sheet
<TABLE>
<CAPTION>
Year ended 30 November
1995 1994
$000 $000
<S> <C> <C>
Owner's net deficit as reported in the combined (21,052) (13,786)
balance sheets
Deferred charges 699 632
-------- --------
(20,353) (13,154)
======== ========
</TABLE>
<PAGE>
Biomedical Sensors
Notes to combined financial statements
(forming part of the financial statements)
3 Analysis of net sales
Net sales arose from the development, manufacture and sale of medical sensing
equipment which is regarded by the directors as one activity.
<TABLE>
<CAPTION>
1995 1994
$000 $000
<S> <C> <C>
By geographical market
United Kingdom 612 654
USA 1,147 1,278
Others 2,021 1,918
------ ------
3,780 3,850
====== ======
</TABLE>
4 Staff numbers and costs
The average number of persons employed by the business (including
directors) during the year, analysed by category, was as follows:
<TABLE>
<CAPTION>
Number of employees
1995 1994
<S> <C> <C>
Research and development 23 21
Office and management 39 40
Manufacturing 44 56
------ ------
106 117
====== ======
</TABLE>
The aggregate payroll cost of these persons were as follows:
<TABLE>
<CAPTION>
1995 1994
$000 $000
<S> <C> <C>
Wages and salaries 3,941 4,534
Social security costs 235 244
Other pension costs (see note 14) 285 181
------ ------
4.461 4,959
====== ======
</TABLE>
<PAGE>
Biomedical Sensors
Notes to combined financial statements
(forming part of the financial statements)
5 Property, Plant and Equipment
<TABLE>
<CAPTION>
Short Plant and Fixtures and Motor Construction in Total
leasehold land machinery fittings vehicles progress
and buildings
$000 $000 $000 $000 $000 $000
<S> <C> <C> <C> <C> <C> <C>
Cost
At 1 December 1994 1,164 3,859 697 398 9 6,127
Additions 89 245 143 168 - 645
Disposals - (14) - (115) - (129)
Transfers - 9 - - (9) -
Foreign Exchange movements (21) (67) (3) (7) - (98)
------------- ------------ ----------- ----------- ------------ ----------
At 30 November 1995 1,232 4,032 837 444 - 6,545
============= ============ =========== =========== ============ ==========
Depreciation
At 1 December 1994 449 1,701 265 147 - 2,562
Charge for year 186 416 42 109 - 753
On disposals - (13) - (91) - (104)
Foreign Exchange movements (32) (43) 45 (6) - (36)
------------- ------------ ----------- ----------- ------------ ----------
At 30 November 1995 603 2,061 352 159 - 3,175
============= ============ =========== =========== ============ ==========
Net book value
At 30 November 1995 629 1,971 485 285 - 3,370
------------- ------------ ----------- ----------- ------------ ----------
At 30 November 1994 715 2,158 432 251 9 3,565
------------- ------------ ----------- ----------- ------------ ----------
</TABLE>
<PAGE>
Biomedical Sensors
Notes to combined financial statements
(forming part of the financial statements)
6 Inventories
1995 1994
$000 $000
Raw materials and consumables 1,248 1,090
Work in progress 375 330
Finished goods and goods for resale 2,103 1,365
------ ------
3,726 2,785
====== ======
7 Trade Receivables
1995 1994
$000 $000
Trade debtors 1,114 977
Amounts owed by fellow subsidiaries of
Pfizer, Inc. 107 278
Other debtors 121 352
Prepayments and accrued income 247 427
------ ------
1,589 2,034
====== ======
<PAGE>
Biomedical Sensors
Notes to combined financial statements
(forming part of the financial statements)
8 Current liabilities: amounts falling due within one year
<TABLE>
<CAPTION>
1995 1994
$000 $000
<S> <C> <C>
Short term loans 22,199 16,139
Trade creditors 1,068 758
Amounts owed to fellow subsidiaries of Pfizer, Inc. 1,166 227
Other creditors including tax and social security 156 87
Accruals and deferred income 1,172 999
------- ------
25,761 18,210
======= ======
<CAPTION>
9 Long term liabilities: amounts falling due after more than one year
1995 1994
$000 $000
<S> <C> <C>
Loan from holding company 4,022 4,094
The loan from the holding company is unsecured and interest free.
</TABLE>
10 Long term liabilities: provision for liabilities and charges
Deferred taxation
No deferred tax liability arises as the Business has previously disclaimed
capital allowances and, in addition, has unutilised tax losses carried
forward. At 30 November 1995, these losses at 33% amounted to approximately
$12,228,000 (1994: $9,761,000).
<TABLE>
<CAPTION>
Provisions for dilapidations
$000
<S> <C>
At 1 December 1994 137
Foreign exchange movements (4)
------
At 30 November 1995 133
======
</TABLE>
The Business rents its primary facility at George Street, High Wycombe under
a lease which expires in 2005. Under the terms of the lease, the Business is
responsible at all times for keeping the premises in good order and well
maintained. Provision has been made to cover potential additional costs.
<PAGE>
Biomedical Sensors
Notes to combined financial statements
(forming part of the financial statements)
11 Owner's Net Deficit
Owner's net investment consists of the accumulated deficit of the Business,
called up share capital, revaluation reserves, non cumulative redeemable
preference shares and contributions from the owner. Contributions from the
owner are primarily financing arrangements between the owner and various
entities of the Business which are non-interest bearing and normally not
settled in cash.
10,745,000 of 9% non-cumulative redeemable preference shares are
redeemable at par at the Business' request at any time before 31 December
2050.
The rights to a preference dividend is dependant on the Director's
resolving that such a dividend be distributed in respect of any financial
year.
The preference shares shall on a winding up entitle the holders to
have the assets of the Business available for distribution among the members
applied, in priority to any other class of shares in the capital of the
Business.
12 Contingent liabilities
There was a contingent liability to the Business's bankers at 30 November
1995 in respect of a guarantee to HM Customs and Excise for deferment of VAT,
a rent performance bond of $506,550 (1994:$515,460) and a trade performance
guarantee of $8,166 (1994: $8,309).
13 Commitments
i) Capital commitments at 30 November 1995, for which no provision has
been made in these accounts, were as follows:
1995 1994
$000 $000
Contracted for but not provided 64 92
------ ------
64 92
====== ======
<PAGE>
Biomedical Sensors
Notes to combined financial statements
(forming part of the financial statements)
ii) At 30 November 1995 the Business had annual commitments under non-
cancellable operating leases as follows:
<TABLE>
<CAPTION>
1995 1994
Land and Other Land and Other
buildings Buildings
$000 $000 $000 $000
<S> <C> <C> <C> <C>
Operating leases which expire:
Less than a year 23 - - 2
2-5 years 165 34 244 -
More than 5 years 161 - 164 -
----- ----- ----- -----
349 34 408 2
===== ===== ===== =====
</TABLE>
The business's lease of land and buildings expiring after five years relates
to property at George Street, High Wycombe.
14 Pension scheme
The business operates a Pension Plan (the Biomedical Sensors Limited Staff
Benefits Plan) providing benefits based on final pensionable salary. The
assets of the Plan are held separately from those of the Business in an
arrangement with the London & Manchester Insurance Company. Contributions to
the Plan are charged to the profit and loss account so as to spread the cost
of pensions over the employees' working lives with the Business. The
contributions are determined by a qualified actuary on the basis of a
valuation using the "Attained Age" valuation method. The pension charge for
the period was $284,861(1994: $180,643).
The most recent valuation of the Plan was at 1 January 1995. The valuation
showed that the market value of the Plan's assets was $1,700,973 and that the
value of these assets represented 112 % of the benefits which had accrued to
members, after allowing for expected future increases in salaries.
The assumptions which have the most significant effect on the results of the
valuation are those relating to the rate of return on investment, rates of
increase in salaries and rates of mortality. They are as follows:
i) Investment returns of 8.5% per annum;
ii) Increase in salaries of 7.5% per annum;
iii) Rates of mortality using standard mortality tables.
There were no outstanding or prepaid contributions at either the end or the
beginning of the financial year in either scheme.
<PAGE>
Biomedical Sensors
Notes to combined financial statements
(forming part of the financial statements)
15 Ultimate holding company
The ultimate holding company of the business prior to its sale to Diametrics
was Pfizer Inc., which is incorporated in the United States of America. The
statutory accounts of Pfizer Inc can be obtained from Pfizer Inc, 235 East
42nd Street, New York, NY 10017-5755. Pfizer Hospital Products Group Inc, a
fellow subsidiary, had undertaken prior to the sale to Diametrics, to make
sufficient funds available to the Business to enable it to continue trading
for a period of at least one year.
<PAGE>
Biomedical Sensors
Combined Balance Sheet
August 31, 1996
(Unaudited)
$000
ASSETS
Current assets
Cash 2,929
Trade receivables 650
Inventories 2,730
Other current assets 1,729
-----------------
8,038
Property, plant and equipment 2,881
Other assets 175
-----------------
11,094
=================
LIABILITIES AND OWNER'S NET DEFICIT
Current liabilities
Short term loans 30,784
Accounts payable 775
Other current liabilities 2,921
-----------------
34,480
Long term liabilities 4,023
-----------------
38,503
Owner's net deficit (27,409)
-----------------
Total liabilities and owner's net deficit 11,094
=================
<PAGE>
Biomedical Sensors
Combined Profit and Loss Accounts
Nine months ended August 31, 1996
(Unaudited)
$000
Net Sales 2,726
Cost of goods sold 4,233
------------
(1,507)
Distribution costs 2,284
Research and development and administrative
expenses 3,274
------------
(7,065)
Other losses (1,465)
------------
Net loss for the period (8,530)
Owner's net deficit beginning of year (21,052)
Foreign exchange reserve movements (227)
Contributions from owner 2,400
------------
Owner's net deficit end of period (27,409)
============
<PAGE>
Biomedical Sensors
Notes to Unaudited Interim Financial Statements
Accounting policies
During October 1996 Pfizer Inc., announced the sale of its world-wide Biomedical
Sensors Business "the Business" to Diametrics Medical, Inc. ("Diametrics"). The
sale was completed on November 6, 1996. Diametrics acquired the capital stock of
Biomedical Sensors Limited and certain net assets used in the Business of other
Pfizer subsidiaries.
The combined financial statements of Biomedical Limited, Biomedical Sensors
Germany and Biomedical Sensors US are expressed in US dollars and have been
prepared in accordance with accounting principles generally accepted in the UK.
These accounting principles significantly differ in certain respects from
accounting principles generally accepted in the United States.
Basis of presentation
Separate financial statements have not been previously prepared, except for
Biomedical Sensors Limited. The combined financial statements have been prepared
from the audited historical financial statements of Biomedical Sensors Limited,
a UK company and the majority of the combined Business, and from Pfizer's
historical accounting records as if the operations of the Business in the US and
Germany had been conducted exclusively within a wholly-owned subsidiary of the
Pfizer subsidiary in that country. In that context, there would be no direct
ownership relationship among the various entities comprising the Business.
Accordingly, Pfizer Inc. and its subsidiaries' net investment (deficit) in the
Business (owner's net deficit) is shown in lieu of shareholders' equity in the
combined financial statements. For purposes of presenting combined financial
statements in US dollars, the exchange rates used to remeasure the balance
sheets and the profit and loss accounts from the respective foreign currency to
US dollars, were the year-end rates and the yearly average rates, respectively.
The Combined financial statements may not necessarily present the financial
position, and results of operations of the combined businesses as if it were a
standalone entity because the terms of inter company transactions and
allocations may not be the same as those that would result among unrelated
parties.
The interim combined financial statements of the Biomedical Sensors Business
(the Company) are unaudited. Pursuant to the rules and regulations of the
Securities and Exchange Commission, certain financial information and footnote
disclosure normally included in the financial statements have been condensed or
omitted. However, in the opinion of management, the financial statements include
all adjustments, consisting of normal recurring accruals, necessary for a fair
presentation of the interim periods presented. Operating results for these
interim periods are not necessary indicative of results to be expected for the
entire year.
These statements should be read in conjunction with the annual financial
statements and related notes which are included within this 8-K/A for the years
ended November 30, 1995 and 1994.
<PAGE>
PRO FORMA FINANCIAL INFORMATION
(UNAUDITED)
The following unaudited pro forma financial information presents the estimated
effects of the Purchase of Pfizer's world-wide Biomedical Sensors Business (the
"Business"), accounted for as a purchase business combination. The pro forma
information in the Pro Forma Combined Statements of Operations assumes that the
purchase occurred on January 1, 1995. In the case of the September 30, 1996
Pro Forma Balance Sheet, the purchase is reflected on a pro forma basis as if it
occurred on September 30, 1996. The information presented in the following pro
forma financial statements reflects the financial statements of Diametrics
Medical, Inc. as of and for the nine months ended September 30, 1996 and for the
year ended December 31, 1995, and the Business as of and for the nine months
ended August 31, 1996 and for the year ended November 30, 1995.
The following pro forma financial data is not necessarily indicative of the
results of the future operations of the combined entity or the actual results
that would have been achieved had the purchase been consummated on the dates
indicated.
<PAGE>
DIAMETRICS MEDICAL, INC.
PRO FORMA COMBINED BALANCE SHEET (UNAUDITED)
SEPTEMBER 30, 1996
(000's)
<TABLE>
<CAPTION>
DIAMETRICS PRO FORMA PRO FORMA
MEDICAL,INC. BSL ADJUSTMENTS COMBINED
---------------- ------------- ----------------- -------------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,303 $ 2,929 (1) $ (1,500) $ 419
(2) (2,313)
Marketable securities 9,616 - 9,616
Accounts receivable 997 650 (2) 111 2,043
(1) 285
Inventories 2,348 2,730 (2) 295 5,373
Prepaid expenses and other current assets 251 1,729 (2) (886) 1,094
---------------- ------------- ----------------- -------------
Total current assets 14,515 8,038 (4,008) 18,545
Property, plant and equipment, less accumulated
depreciation 4,917 2,881 (2) 243 8,041
In process R&D - (3) 450 -
(4) (450)
Goodwill, less accumulated amortization - - (3) 1,335 1,335
Other assets 60 175 (5) 701 1,346
(2) 410
---------------- ------------- ----------------- -------------
Total assets $ 19,492 $ 11,094 $ (1,319) $ 29,267
================ ============== ================== =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 603 $ 775 (2) (620) $ 758
Accruals and other current liabilities 1,591 2,921 (1) 479 4,361
(2) (630)
Short-term note payable 64 30,784 (2) (30,784) 64
Capital lease obligations, current portion 1,330 - 1,330
Deferred gain on sale/leaseback, current portion 65 - 65
---------------- -------------- ------------------ -------------
Total current liabilities 3,653 34,480 (31,555) 6,578
Long term liabilities:
Note payable - (1) 7,300 7,300
Intercompany payable 4,023 (2) (4,023) -
Capital lease obligations, excluding current portion 855 - 855
---------------- -------------- ------------------ -------------
Total liabilities 4,508 38,503 (28,278) 14,733
Shareholders' equity:
Common stock 152 152
Additional paid-in capital 88,373 88,373
Cumulative translation adjustment -
Accumulated deficit (73,541) (27,409) (2) 27,409 (73,991)
(4) (450)
---------------- -------------- ----------------- -------------
Total stockholders' equity 14,984 (27,409) 26,958 14,534
---------------- -------------- ----------------- -------------
Total liabilities & stockholders' equity $ 19,492 $ 11,094 $ (1,319) $ 29,267
================ ============== ================= =============
</TABLE>
<PAGE>
DIAMETRICS MEDICAL, INC.
PRO FORMA COMBINED STATEMENT OF OPERATIONS (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, 1996
(000's except per share data)
<TABLE>
<CAPTION>
DIAMETRICS PRO FORMA PRO FORMA
MEDICAL,INC. BSL ADJUSTMENTS COMBINED
---------------- ---------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Net Sales $ 1,863 $ 2,726 $ 4,589
Cost of sales 6,156 4,233 10,389
---------------- ---------------- -----------------
Gross profit (loss) (4,293) (1,507) (5,800)
Operating expenses
Research and development 5,244 2,032 (4) 198 7,474
General and administrative 2,985 1,242 4,227
Sales and marketing 4,857 2,284 7,141
---------------- ---------------- ----------------- -----------------
Total operating expenses 13,086 5,558 198 18,842
---------------- ---------------- ----------------- -----------------
Operating loss (17,379) (7,065) (198) (24,642)
Other income (expense) 282 (1,465) (4) (479) (1,662)
---------------- ---------------- ----------------- -----------------
Net loss $ (17,097) $ (8,530) $ (677) $ (26,304)
================ ================ ================= =================
Net loss per common share $ (1.14) $ (1.75)
================ =================
Weighted average common shares outstanding 15,054,734 15,054,734
================ =================
</TABLE>
<PAGE>
DIAMETRICS MEDICAL, INC.
PRO FORMA COMBINED STATEMENT OF OPERATIONS (UNAUDITED)
YEAR ENDED DECEMBER 31, 1995
(000's except per share data)
<TABLE>
<CAPTION>
DIAMETRICS PRO FORMA PRO FORMA
MEDICAL,INC. BSL ADJUSTMENTS COMBINED
--------------- --------------- ----------------- ----------------
<S> <C> <C> <C> <C>
Net Sales $ 1,607 $ 3,780 $ 5,387
Cost of sales 10,616 4,518 15,134
--------------- --------------- ----------------
Gross profit (loss) (9,009) (738) (9,747)
Operating expenses
Research and development 5,588 4,454 (4) 267 10,309
General and administrative 3,163 1,017 4,180
Sales and marketing 5,710 4,453 10,163
--------------- --------------- ----------------- ----------------
Total operating expenses 14,461 9,924 267 24,652
--------------- --------------- ----------------- ----------------
Operating loss (23,470) (10,662) (267) (34,399)
Other income (expense) 424 (1,103) (4) (639) (1,318)
--------------- --------------- ----------------- ----------------
Net loss $ (23,046) $ (11,765) $ (906) $ (35,717)
=============== =============== ================= ================
Net loss per common share $ (1.82) $ (2.83)
=============== ================
Weighted average common shares outstanding 12,640,212 12,640,212
=============== ================
</TABLE>
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
1. To reflect the purchase consideration of $8,994,763, consisting of
$1,500,000 cash, $7,300,000 long term debt, accrued acquisition
costs of $479,410, less amount due Diametrics of $284,647.
2. To reflect assets and liabilities acquired at the date of purchase,
including a fair value adjustment for property, plant and equipment, and
to eliminate Pfizer's debt and equity investment in BSL.
3. To reflect the excess purchase price over fair value of net assets
acquired (i.e. goodwill and purchased in process research and
development).
4. To reflect the write off of purchased in process research and development,
amortization of goodwill over five years beginning January 1, 1995 and
interest accrual on the $7,300,000 note at an annual interest rate of
8.75% beginning January 1, 1995. A portion of the excess purchase price
over fair value of net assets acquired was attributed to in process
research and development ($450,000), and was written off to operating
expense on the acquisition date and included in Diametrics' statement of
operations for the year ended December 31, 1996. As the charge for in
process research and development is non recurring and was included in the
financial statements of Diametrics within the 12 months following the
transaction, it is not reflected in the Pro Forma Combined Statements of
Operations for the nine months ended September 30, 1996 and the year ended
December 31, 1995.
5. To reflect UK to US GAAP adjustment relating to the accounting for pension
costs.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: June 24, 1997 DIAMETRICS MEDICAL, INC.
/s/ Laurence L. Betterley
-------------------------------
Laurence L. Betterley
Chief Financial Officer
<PAGE>
DIAMETRICS MEDICAL, INC.
EXHIBIT INDEX TO FORM 8-K
Exhibit No. Description
----------- -----------
2.1 Agreement for the sale of the whole of the issued share
capital of Biomedical Sensors Limited between the Company and
Howmedica, Inc. dated November 6, 1996. (1)
2.2 Senior Secured Fixed Rate Loan Note due November 4, 2002, in
the original principal amount of $7,300,000 from the Company
to Howmedica, Inc. (1)
2.3 Transitional Services Agreement, dated as of November 6,
1996, by and among Howmedica Inc., Howmedica GmbH, the
Company and Biomedical Sensors Ltd. (1)
23 Consent of Independent Accountants
(1) Previously filed.
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors, Diametrics Medical, Inc.
We consent to the incorporation by reference in the Registration Statements Nos.
33-83572 and 33-97540 on Form S-8 of Diametrics Medical, Inc.of our report dated
January 15, 1997, relating to the Combined financial statements as of and for
the years ended November 30, 1995 and 1994 of the Biomedical Sensors Business of
Pfizer, Inc., which report appears in Form 8-K/A of Diametrics Medical, Inc.,
dated January 20, 1997 filed with the United States Securities and Exchange
Commission.
/s/ KPMG
------------------
London, England
June 24, 1997
