<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
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[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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Commission file number 0-21982
Diametrics Medical, Inc.
Incorporated pursuant to the Laws of Minnesota
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Internal Revenue Service -- Employer Identification No. 41-1663185
2658 Patton Road, Roseville, Minnesota 55113
(651) 639-8035
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [_]
The total number of shares of the registrant's Common Stock, $.01 par value,
outstanding on July 31, 2000, was 26,669,431.
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<PAGE>
Diametrics Medical, Inc.
<TABLE>
<CAPTION>
Page
----
<S> <C>
Part I -- FINANCIAL INFORMATION
Item 1 Consolidated Financial Statements (unaudited)
Consolidated Statements of Operations:
Three Months Ended June 30, 2000 and 1999...................................3
Six Months Ended June 30, 2000 and 1999.....................................3
Consolidated Balance Sheets as of June 30, 2000
and December 31, 1999.........................................................4
Consolidated Statements of Cash Flows:
Six Months Ended June 30, 2000 and 1999.....................................5
Notes to Consolidated Financial Statements.....................................6
Item 2 Management's Discussion and Analysis of Results of Operations
and Financial Condition........................................................7
Item 3 Quantitative and Qualitative Disclosure About Market Risk.....................11
Part II -- OTHER INFORMATION
Item 1 Legal Proceedings.............................................................11
Item 2 Changes in Securities.........................................................11
Item 3 Defaults Upon Senior Securities...............................................11
Item 4 Submission of Matters to a Vote of Security Holders...........................11
Item 5 Other Information.............................................................11
Item 6 Exhibits and Reports on Form 8-K..............................................11
Signatures...............................................................................12
</TABLE>
2
<PAGE>
DIAMETRICS MEDICAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
June 30, June 30,
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales $ 6,090,343 $ 4,639,746 $ 11,761,237 $ 8,882,933
Cost of sales 4,441,509 3,916,373 8,711,466 7,433,279
------------ ------------ ------------ ------------
Gross profit 1,648,834 723,373 3,049,771 1,449,654
------------ ------------ ------------ ------------
Operating expenses:
Research and development 1,253,588 1,345,441 2,362,957 2,881,084
Selling, general and administrative 1,344,625 2,096,651 2,816,123 5,023,531
------------ ------------ ------------ ------------
Total operating expenses 2,598,213 3,442,092 5,179,080 7,904,615
------------ ------------ ------------ ------------
Operating loss (949,379) (2,718,719) (2,129,309) (6,454,961)
Other income (expense), net 56,759 (63,454) 93,280 (234,954)
------------ ------------ ------------ ------------
Net loss $ (892,620) $ (2,782,173) $ (2,036,029) $ (6,689,915)
============ ============ ============ =============
Basic and diluted net loss per common share $ (0.03) $ (0.11) $ (0.08) $ (0.28)
============ ============ ============ =============
Weighted average number of
common shares outstanding 26,598,515 24,205,935 26,303,370 23,822,374
============ ============ ============ =============
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
DIAMETRICS MEDICAL, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
------------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,603,737 $ 2,786,162
Marketable securities 10,854,450 11,339,009
Accounts receivable 5,534,122 6,790,673
Inventories 3,507,545 4,116,348
Prepaid expenses and other current assets 565,806 285,336
------------- -------------
Total current assets 23,065,660 25,317,528
------------- -------------
Property and equipment 20,589,540 19,455,298
Less accumulated depreciation and amortization (14,060,839) (13,680,801)
------------- -------------
6,528,701 5,774,497
------------- -------------
Other assets 642,188 880,171
------------- -------------
$ 30,236,549 $ 31,972,196
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,951,987 $ 2,438,550
Accrued expenses 1,761,672 2,414,785
Other current liabilities 3,812,157 5,454,725
------------- -------------
Total current liabilities 7,525,816 10,308,060
------------- -------------
Long-term liabilities:
Long-term liabilities, excluding current portion 7,686,339 7,813,796
Other liabilities 9,684 9,684
------------- -------------
Total liabilities 15,221,839 18,131,540
------------- -------------
Shareholders' equity:
Common stock, $.01 par value: 35,000,000 authorized
26,636,312 and 25,778,499 shares issued and outstanding 266,363 257,785
Additional paid-in capital 146,941,168 143,463,332
Accumulated other comprehensive loss (792,838) (516,507)
Accumulated deficit (131,399,983) (129,363,954)
------------- -------------
Total shareholders' equity 15,014,710 13,840,656
------------- -------------
$ 30,236,549 $ 31,972,196
============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
DIAMETRICS MEDICAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
2000 1999
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (2,036,029) $ (6,689,915)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 971,286 1,083,798
Other (102) 4,200
Changes in operating assets and liabilities:
Accounts receivable 1,256,551 (990,838)
Inventories 608,803 276,606
Prepaid expenses and other current assets (280,470) (22,519)
Accounts payable (486,563) 196,162
Accrued expenses (653,113) 352,479
Deferred credits and revenue (1,699,354) 5,027,031
------------ ------------
Net cash used in operating activities (2,318,991) (762,996)
------------ ------------
Cash flows from investing activities:
Purchases of property and equipment (1,646,559) (874,762)
Sale of evaluation and demonstration instruments -- 1,031,430
Purchases of marketable securities (11,773,188) (9,950,774)
Proceeds from maturities of marketable securities 12,257,747 2,976,443
Other 701 600
------------ ------------
Net cash used in investing activities (1,161,299) (6,817,063)
------------ ------------
Cash flows from financing activities:
Principal payments on borrowings (180,907) (1,076,723)
Proceeds from borrowings 115,846 --
Net proceeds from the issuance of common stock 3,486,414 12,463,564
------------ ------------
Net cash provided by financing activities 3,421,353 11,386,841
------------ ------------
Effect of exchange rate changes on cash and cash equivalents (123,488) (257,105)
------------ ------------
Net increase (decrease) in cash and cash equivalents (182,425) 3,549,677
Cash and cash equivalents at beginning of period 2,786,162 3,432,614
------------ ------------
Cash and cash equivalents at end of period $ 2,603,737 $ 6,982,291
============ ============
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 297,446 $ 321,727
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
DIAMETRICS MEDICAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000
(Unaudited)
(1) Unaudited Financial Statements
The interim consolidated financial statements of Diametrics Medical, Inc.
(the "Company") are unaudited and have been prepared by the Company in
accordance with accounting principles generally accepted in the United
States of America for interim financial information, pursuant to the rules
and regulations of the Securities and Exchange Commission. Pursuant to such
rules and regulations, certain financial information and footnote
disclosures 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 necessarily
indicative of results to be expected for the entire year, due to seasonal,
operating and other factors.
These statements should be read in conjunction with the financial
statements and related notes which are incorporated by reference in the
Company's Annual Report on Form 10-K for the year ended December 31, 1999.
Certain 1999 amounts have been reclassified from prior reported balances to
conform to the 2000 presentation. The reclassifications had no impact on
the net loss or loss per share as reported in 1999.
(2) COMPREHENSIVE LOSS
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net loss $ (892,620) $(2,782,173) $(2,036,029) $(6,689,915)
Change in cumulative translation adjustment (254,203) (172,654) (276,331) (437,521)
----------- ----------- ----------- -----------
Comprehensive loss $(1,146,823) $(2,954,827) $(2,312,360) $(7,127,436)
=========== =========== =========== ===========
</TABLE>
(3) Inventories
June 30, December 31,
2000 1999
----------- ------------
Raw materials $ 1,558,342 $ 2,260,586
Work-in-process 678,096 658,983
Finished goods 1,271,107 1,196,779
----------- -----------
$ 3,507,545 $ 4,116,348
=========== ===========
(4) OTHER CURRENT LIABILITIES
June 30, December 31,
2000 1999
----------- ------------
Deferred research and development funding $ 1,833,334 $ 2,833,334
Deferred royalty payments 1,310,000 2,260,000
Current portion of long-term debt 406,297 349,511
Other 262,526 11,880
----------- -----------
$3,812,157 $ 5,454,725
=========== ===========
The Company's distribution agreement with Agilent Technologies, Inc.
("Agilent") provides for prepaid funding of research and development costs
and royalty payments over the initial term of the agreement. These
prepayments are being recognized over the periods benefited.
(5) SHAREHOLDERS' EQUITY
On March 13, 2000, the Company called the warrants issued in connection
with a private equity placement completed in June 1997, resulting in the
issuance during the six months ended June 30,
6
<PAGE>
2000, of 355,556 shares of Common Stock at $6.75 per share. The remaining
increase in shareholders' equity during this period is primarily due to the
issuance of 261,669 shares of Common Stock in connection with employee
stock plans, partially offset by a year-to-date net loss.
(6) RELATED PARTY TRANSACTIONS
One of the Company's directors is also a director of DVI, Inc., a
healthcare finance company with which the Company has a credit line and
notes payable. As of June 30, 2000, there were no outstanding advances
against the $1,000,000 receivable backed credit line and the outstanding
balance of the notes payable totaled $693,160.
The Company's exclusive distributors, Agilent and CODMAN, a Johnson &
Johnson company, are shareholders of the Company. Sales to these parties
were approximately $5.4 million and $10.2 million for the three and six
months ended June 30, 2000, respectively. As of June 30, 2000, outstanding
accounts receivable for these distributors represented 91% of total
outstanding accounts receivable. One of the Company's directors is also an
executive officer of Agilent.
Item 2. Management's Discussion and Analysis of Results of Operations and
-------------------------------------------------------------------------
Financial Condition
-------------------
The Company's discussion and analysis of results of operations and
financial condition, including statements regarding the Company's
expectations about new and existing products, future financial performance,
market risk exposure and other forward looking statements are subject to
various risks and uncertainties, including, without limitation, demand and
acceptance of new and existing products, technological advances and product
obsolescence, competitive factors, stability of domestic and international
financial markets and the availability of capital to finance growth. These
and other risks are discussed in greater detail in Exhibit 99 to the
Company's Form 10-K filed with the U.S. Securities and Exchange Commission,
with respect to the Company's fiscal year ended December 31, 1999. When
used in the Form 10-Q, and in future filings by the Company with the
Securities and Exchange Commission, in the Company's press releases,
presentations to securities analysts or investors, in oral statements made
by or with the approval of an executive officer of the Company, the words
or phrases "believes," "may," "will," "expects," "should," "continue,"
"anticipates," "intends," "will likely result," "estimates," "projects," or
similar expressions and variations thereof are intended to identify such
forward-looking statements.
Summary
-------
Diametrics Medical, Inc., which began operations in 1990, is engaged in the
development, manufacturing and commercialization of critical care blood and
tissue analysis systems, which provide immediate or continuous diagnostic
results at the point-of-patient care.
Since its commencement of operations in 1990, the Company has transitioned
from a development stage company to a full-scale development, manufacturing
and marketing organization. As of June 30, 2000, the primary funding for
the operations of the Company has been approximately $147 million raised
through public and private sales of its equity securities and issuance of
convertible promissory notes.
The Company's strategy for distribution and commercialization of its
products includes partnerships with Agilent and CODMAN. In October 1998,
the Company entered into an exclusive distribution agreement with CODMAN
for worldwide market development and distribution of the Company's
Neurotrend(TM) Cerebral Tissue Monitoring System ("Neurotrend"). CE Mark
approval for Neurotrend was received in the second quarter 1998, allowing
the system to be marketed in Europe, and the Company received clearance
from the Food and Drug Administration in November 1999, allowing the system
to be marketed in the United States. Sales of Neurotrend to CODMAN began in
the fourth quarter 1998. In June 1999, the Company entered into an
exclusive distribution agreement with Hewlett Packard Company ("HP"). Under
the terms of the distribution agreement, the Company transferred full
responsibility for marketing, sales and distribution of the Company's
leading critical care products, the IRMA(R)SL blood analysis system and the
Trendcare(R) continuous blood gas monitoring systems, including
Paratrend(R) and Neotrend(TM), to HP. The agreement also provides for
minimum purchase commitments, market development commitments, research and
development funding and royalty payments over the initial three and a
half-year term. In November 1999, HP assigned the distribution agreement to
Agilent, a leading provider of test and measurement solutions and
communications components, which was formed as a new company and subsidiary
of HP. HP completed the spin-off of its ownership in Agilent to HP
shareholders in June 2000.
7
<PAGE>
Results of Operations
---------------------
Sales. Sales of the Company's products were $6,090,343 and $11,761,237 for
the three and six months ended June 30, 2000, compared to $4,639,746 and
$8,882,933 for the same periods in the prior year, increases of 31% and
32%, respectively. The increase in sales for the three and six months ended
June 30, 2000 over the prior year reflects a 29% and 37% respective
increase in instrument sales, partially offset by a general decrease in
product pricing under the Agilent and CODMAN distribution agreements. The
significant increase in instrument sales between periods was impacted
primarily by sales to Agilent and CODMAN. While unit sales of disposable
cartridges and sensors grew 22% between the first six months of 1999 and
2000, related revenues declined due to the impact of the lower average
sales prices described above. The impact of reduced pricing was partially
mitigated by the recognition in the first and second quarters of $450,000
and $500,000, respectively, of royalty revenue from the Agilent
distribution agreement. The Company's direct sales to Agilent and CODMAN
comprised approximately 90% and 87% of total sales for the three and six
months ended June 30, 2000, respectively, compared to 74% and 62% for the
same periods in the prior year.
Intermittent testing products represented 38% and 41% of total sales for
the three and six months ended June 30, 2000, compared to 41% and 38% for
the comparable periods in 1999. Continuous monitoring products comprised
the remaining sales in each period.
Intermittent blood testing products revenue was comprised of 60% and 65%
instrument related revenue and 40% and 35% disposable cartridge related
revenue for the three and six months ended June 30, 2000, respectively.
Continuous monitoring products revenue was comprised of 83% and 80%
instrument related revenue and 17% and 20% disposable sensor revenue for
the three and six months ended June 30, 2000, respectively. The high
concentration of instrument related revenue was impacted primarily by sales
to Agilent and CODMAN.
The Company's revenues are affected principally by the number of
instruments, both monitors and IRMA analyzers, placed with customers and
the rate at which disposable sensors and cartridges are used in connection
with these products. As of June 30, 2000, the Company has sold
approximately 6,200 instruments. Unit sales of instruments for the three
and six months ended June 30, 2000, increased approximately 7% and 43%,
respectively, over unit sales for the same periods in 1999, while
disposable sensor and cartridge unit sales increased 18% and 22%,
respectively, over the same periods in 1999. As the Company grows, it is
expected that the Company's growing end-user customer base will increase
the usage and rate of usage of disposable products, with the result that
overall disposable product sales will exceed that of instrument sales.
The Company has targeted continued revenue growth during the remainder of
2000, as a result of further planned expansion of its blood and tissue
analysis product lines and continued commercialization of these products by
market leading distribution partners.
Cost of Sales. Cost of sales totaled $4,441,509 and $8,711,466, or 73% and
74% of revenue for the three and six months ended June 30, 2000, compared
to $3,916,373 and $7,433,279 or 84% of revenue for both of the same periods
in the prior year. The period-to-period improvement in the Company's cost
of sales as a percentage of revenue reflects increased unit sales volumes,
a higher mix of instrument sales, improved cartridge yields, a reduction in
instrument material costs, and the impact of operational efficiencies and
process improvements, partially offset by lower average sales prices. The
impact of lower pricing was partially mitigated by royalty revenue from
Agilent. The Company is targeting continued improvements in gross profit
during the remainder of 2000 as a result of expected continued improvements
in manufacturing yields and higher unit volumes.
Operating Expenses. Research and development expenditures totaled
$1,253,588 and $2,362,957 for the three and six months ended June 30, 2000,
compared to $1,345,441 and $2,881,084 for the same periods in 1999. The
decline in 2000 expenses is primarily due to the recognition of $500,000
and $1,000,000 during the second quarter and year-to-date periods,
respectively, of research and development funding received from Agilent as
part of the distribution agreement, partially offset by additional
investments to support new research and development projects. Approximately
$167,000 of Agilent research and development funding was recognized during
both the second quarter and year-to-date periods of 1999.
Selling, general and administrative expenses totaled $1,344,625 and
$2,816,123 for the three and six months ended June 30, 2000, compared to
$2,096,651 and $5,023,531 for the same periods in 1999. The
period-to-period decreases in expenses were primarily impacted by funding
of sales
8
<PAGE>
activities by Agilent from June 1999 through October 1999 and the transfer
in November 1999 of most of the Company's sales and marketing functions to
Agilent.
Operating expense run rates for the remaining half of 2000 are targeted to
approximate levels experienced in the first half of 2000.
Other Income (Expense). Net other income totaled $56,759 and $93,280 for
the three and six months ended June 30, 2000, compared to net other expense
of $63,454 and $234,954 for the same periods in 1999. The Company realized
interest income of $217,576 and $418,594 for the three and six months ended
June 30, 2000, compared to $51,338 and $93,652 for the same periods in
1999. The period-to-period increase reflects the impact of higher average
cash and investment balances, primarily due to the timing of the Company's
financing activities, funding received from Agilent and improved cash flow
from operations.
Interest expense totaled $147,372 and $297,446 for the three and six months
ended June 30, 2000, compared to $156,313 and $321,727 for the same periods
in 1999. The period-to-period decrease reflects the impact of lower average
debt balances.
Net Loss. The net loss for the three and six months ended June 30, 2000 was
$892,620 and $2,036,029, compared to $2,782,173 and $6,689,915 for the same
periods in 1999. Compared to the three and six months ended June 30, 1999,
the net loss decreased by 68% and 70%, respectively, for the same periods
in 2000. These decreases reflect revenue growth; improved margins,
influenced by higher unit volumes, changes in product mix and improved
manufacturing yields; and reduced operating expenses due primarily to
research and development funding received from Agilent and the transfer of
the Company's sales and marketing functions to Agilent. The Company is
targeting continued improvement in net loss during the remainder of 2000.
Liquidity and Capital Resources
-------------------------------
At June 30, 2000, the Company had working capital of $15,539,844, an
increase of $530,376 from the working capital reported at December 31,
1999. The increase is impacted primarily by proceeds from exercises under
employee stock plans and outstanding warrants of approximately $3.5
million, partially offset by purchases of property and equipment of
approximately $1.6 million.
Net cash used in operating activities totaled $2,318,991 for the six months
ended June 30, 2000, compared to $762,996 for the same period in 1999. This
was the result of net losses of $2,036,029 and $6,689,915 for these same
periods in 2000 and 1999, respectively, adjusted by changes in key
operating assets and liabilities, primarily accounts receivable,
inventories, accounts payable, accrued expenses and deferred credits and
revenue.
Net accounts receivable decreased $1,256,551 for the six months ended June
30, 2000, compared to a $990,838 increase for the same period in 1999. The
reduction in accounts receivable in the first six months of 2000 relative
to the increase for the same period in 1999 occurred in spite of a
significantly larger increase in sales between periods primarily due to an
improvement in days sales outstanding and to the timing of sales.
Inventories decreased $608,803 and $276,606 for the six months ended June
30, 2000 and 1999, respectively, reflecting significant sales of
instruments in both periods. The larger decrease in inventories during 2000
relative to 1999 also reflects an improvement in inventory turnover, due to
improved inventory management.
Accounts payable and accrued expenses decreased $1,139,676 for the six
months ended June 30, 2000, compared to an increase of $548,641 for the
same period in 1999. The decrease in 2000 was primarily due to higher
accrued employee bonuses at December 31, 1999 relative to December 31,
1998, paid in the first quarter of each year. The increase in 1999 was
primarily due to accrued financing and other costs associated with the
Agilent distribution agreement.
Deferred credits and revenue decreased $1,699,354 during the six months
ended June 30, 2000, compared to an increase of $5,027,031 for the same
period in 1999. The decrease in 2000 represents the recognition of funding
from Agilent for research and development and royalties of $1,950,000,
partially offset by customer advance payments. The increase during 1999
primarily reflects the receipt of $6,000,000 of prepaid funding from HP
under the terms of the distribution agreement, partially offset by the
recognition of approximately $1 million of the funding as a reduction of
second quarter 1999 expenses.
9
<PAGE>
Net cash used in investing activities totaled $1,161,299 for the six months
ended June 30, 2000, compared to $6,817,063 for the same period in 1999.
This change was affected primarily by the amounts and timing of equity
funding, which affected the amount of cash available for the purchase of
marketable securities. Purchases of property and equipment, totaling
$1,646,559 in 2000 and $874,762 in 1999, also affected net cash used in
investing activities in each period. In 2000, the Company expects capital
expenditures and new lease commitments to approximate $3 million, primarily
reflecting investments to support new product development and production.
Net cash provided by financing activities totaled $3,421,353 for the six
months ended June 30, 2000, compared to $11,386,841 for the same period in
1999. In 2000, net cash provided by financing activities consisted
primarily of proceeds from employee stock plans and warrant exercises. Net
cash provided by financing activities in 1999 was primarily due to proceeds
of approximately $4 million from the issuance of common stock as a result
of the exercise of a Put Option under a Put Option and Stock Purchase
Agreement with Johnson & Johnson Development Corporation and a $9.5 million
private equity placement with HP, partially offset by principal payments on
borrowings and capital lease obligations.
At June 30, 2000, the Company had U.S. net operating loss and research and
development tax credit carryforwards for income tax purposes of
approximately $114.9 million and $1.2 million, respectively. Pursuant to
the Tax Reform Act of 1986, use of a portion of the Company's net operating
loss carryforwards are limited due to a "change in ownership." The Company
estimates that U.S. net operating loss carryforwards of $2.9 million are
not currently available due to these annual limitations. Net operating
losses incurred since August 4, 1995 are not currently subject to the
"change in ownership" limitations. If not used, these net operating loss
carryforwards begin to expire in 2005.
The Company's foreign subsidiary also has net operating loss carryforwards
of approximately $47.1 million, which can be carried forward indefinitely.
As part of an exclusive distribution agreement with HP completed in June
1999, HP agreed to acquire $9.5 million of the Company's Common Stock at
$7.00 per share, with a warrant to purchase 452,381 shares of Common Stock
at $8.40 per share, providing additional funding potential of $3.8 million.
In addition, HP agreed to minimum purchase commitments, market development
commitments, research and development funding and royalty payments over the
initial term of the agreement. In November 1999, HP assigned the
distribution agreement and its equity investment with the Company to
Agilent, which was formed as a new company and was spun off to HP
shareholders during the first six months of 2000. The Company believes
currently available funds and cash generated from projected operating
revenues, supplemented by proceeds from employee stock plans, warrant
exercises and asset based credit, along with proceeds from the funding
agreements with Agilent, will meet the Company's working capital needs. If
the amount or timing of funding from these sources or cash requirements
vary materially from those currently planned, the Company could require
additional capital. The Company's long-term capital requirements will
depend upon numerous factors, including the rate of market acceptance of
the Company's products and the level of resources devoted to expanding the
Company's business, manufacturing capabilities and research and development
activities. While there can be no assurance that adequate funds will be
available when needed or on acceptable terms, management believes that the
Company will be able to raise adequate funding if needed.
NEW ACCOUNTING PRONOUNCEMENTS
-----------------------------
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities," (as amended by SFAS No. 137 with respect to the effective date
and SFAS No. 138 with respect to certain hedging activities) will be
effective for the Company in January 2001. SFAS No. 133 requires all
derivatives to be recognized as assets or liabilities on the balance sheet
and measured at fair value on a mark-to-market basis. This applies whether
the derivatives are stand-alone instruments, such as forward currency
exchange contracts and interest rate swaps or collars, or embedded
derivatives, such as call options contained in convertible debt
investments. Along with the derivatives, the underlying hedged items are
also to be marked-to-market on an ongoing basis. These market value
adjustments are to be included either in net earnings or loss in the
statement of operations or in other comprehensive income (and accumulated
in shareholders' equity), depending on the nature of the transaction. The
Company is currently evaluating SFAS No. 133, but does not expect that it
will have a material effect on its financial statements.
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin ("SAB") No. 101 which provides the staff's views
in applying generally accepted accounting principles to selected revenue
recognition issues. As amended, SAB 101 is now effective no later
10
<PAGE>
than the fourth fiscal quarter of all fiscal years beginning after December
15, 1999. The Company will be required to adopt the guidance of this
bulletin no later than the fourth quarter of 2000. The Company believes
that its revenue recognition policies are in compliance with SAB 101, and
does not expect it to have a material impact on its financial condition or
results of operations.
Item 3. Quantitative and Qualitative Disclosure About Market Risk
-----------------------------------------------------------------
The Company's primary market risk exposure is foreign exchange rate
fluctuations of the British pound sterling to the U.S. dollar as the
financial position and operating results of the Company's U.K. subsidiary,
Diametrics Medical, Ltd., are translated into U.S. dollars for
consolidation. The Company's exposure to foreign exchange rate fluctuations
also arises from transferring funds to its U.K. subsidiary in British
pounds sterling. Effective November 1, 1999 most of the Company's sales are
made to distributors and denominated in U.S. dollars, thereby significantly
mitigating the risk of exchange rate fluctuations on trade receivables. The
Company does not currently use derivative financial instruments to hedge
against exchange rate risk. The Company's exposure to interest rate risk is
limited to short-term borrowings under its $1,000,000 receivable backed
credit line. Based upon currently available information, management does
not believe that the effect of foreign exchange rate fluctuations and
interest rate risk will have a material impact on the Company's financial
condition or overall trends in results of operations. There have been no
material changes in market risk faced by the Company from what has been
previously reported in the Company's Annual Report on Form 10-K for the
year ended December 31, 1999.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of the Company's shareholders was held on May 17,
2000. At the meeting, shareholders voted on the reelection of three
directors for terms expiring at the Annual Meeting of the Company in
2003. Each of the directors was reelected by a vote as follows: Roy S.
Johnson and David V. Milligan, Ph.D. each received 20,090,191 votes
"For" and 264,988 votes were "Withheld" and Hans-Guenter Hohmann
received 20,090,166 votes "For" and 265,013 votes were "Withheld".
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
Exhibit Method
No. Description of Filing
--- ----------- ---------
27 Financial Data Schedule Filed herewith
b. Reports on Form 8-K.
None
11
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DIAMETRICS MEDICAL, INC.
SIGNATURE
---------
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.
DIAMETRICS MEDICAL, INC.
By: /s/ Laurence L. Betterley
-------------------------------------
Laurence L. Betterley
Senior Vice President
and Chief Financial Officer
(and Duly Authorized Officer)
Dated: August 14, 2000
12
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DIAMETRICS MEDICAL, INC.
EXHIBIT INDEX
Exhibit
No. Description
--- -----------
27 Financial Data Schedule
