<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 September 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 October 31, 2000, was 26,686,943.
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Diametrics Medical, Inc.
Page
----
Part I -- FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements (unaudited)
Consolidated Statements of Operations:
Three and Nine Months Ended September 30, 2000 and 1999.....3
Consolidated Balance Sheets as of September 30, 2000
and December 31, 1999.........................................4
Consolidated Statements of Cash Flows:
Nine Months Ended September 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
2
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DIAMETRICS MEDICAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales $ 6,580,956 $ 4,694,294 $ 18,342,193 $ 13,577,227
Cost of sales 4,593,081 4,090,404 13,304,547 11,523,683
------------ ------------ ------------ ------------
Gross profit 1,987,875 603,890 5,037,646 2,053,544
------------ ------------ ------------ ------------
Operating expenses:
Research and development 1,249,809 968,693 3,612,766 3,849,777
Selling, general and administrative 1,272,306 1,619,021 4,088,429 6,642,552
------------ ------------ ------------ ------------
Total operating expenses 2,522,115 2,587,714 7,701,195 10,492,329
------------ ------------ ------------ ------------
Operating loss (534,240) (1,983,824) (2,663,549) (8,438,785)
Other income (expense), net 46,969 2,637 140,249 (232,317)
------------ ------------ ------------ ------------
Net loss $ (487,271) $ (1,981,187) $ (2,523,300) $ (8,671,102)
============ ============ ============ ============
Basic and diluted net loss per common share $ (0.02) $ (0.08) $ (0.10) $ (0.36)
============ ============ ============ ============
Weighted average number of
common shares outstanding 26,661,162 25,551,450 26,423,504 24,405,066
============ ============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
DIAMETRICS MEDICAL, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
------------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,406,099 $ 2,786,162
Marketable securities 9,106,493 11,339,009
Accounts receivable 6,387,414 6,790,673
Inventories 3,448,121 4,116,348
Prepaid expenses and other current assets 510,398 285,336
------------- -------------
Total current assets 20,858,525 25,317,528
------------- -------------
Property and equipment 21,698,550 19,455,298
Less accumulated depreciation and amortization (14,333,676) (13,680,801)
------------- -------------
7,364,874 5,774,497
------------- -------------
Other assets 523,496 880,171
------------- -------------
$ 28,746,895 $ 31,972,196
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,155,144 $ 2,438,550
Accrued expenses 1,642,061 2,414,785
Other current liabilities 2,717,498 5,454,725
------------- -------------
Total current liabilities 6,514,703 10,308,060
------------- -------------
Long-term liabilities:
Long-term liabilities, excluding current portion 7,576,255 7,813,796
Other liabilities 9,684 9,684
------------- -------------
Total liabilities 14,100,642 18,131,540
------------- -------------
Shareholders' equity:
Common stock, $.01 par value: 35,000,000 authorized
26,681,336 and 25,778,499 shares issued and outstanding 266,813 257,785
Additional paid-in capital 147,150,117 143,463,332
Accumulated other comprehensive loss (883,423) (516,507)
Accumulated deficit (131,887,254) (129,363,954)
------------- -------------
Total shareholders' equity 14,646,253 13,840,656
------------- -------------
$ 28,746,895 $ 31,972,196
============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
DIAMETRICS MEDICAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
2000 1999
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (2,523,300) $ (8,671,102)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 1,490,319 1,709,848
Other (102) 4,200
Changes in operating assets and liabilities:
Accounts receivable 403,259 (175,770)
Inventories 668,227 153,027
Prepaid expenses and other current assets (225,062) 61,572
Accounts payable (283,406) 540,909
Accrued expenses (772,724) 601,856
Deferred credits and revenue (2,802,987) 4,640,667
------------ ------------
Net cash used in operating activities (4,045,776) (1,134,793)
------------ ------------
Cash flows from investing activities:
Purchases of property and equipment (2,942,443) (1,084,375)
Sale of evaluation and demonstration instruments -- 1,031,430
Purchases of marketable securities (15,355,231) (14,074,620)
Proceeds from maturities of marketable securities 17,587,747 4,101,443
Other 702 600
------------ ------------
Net cash used in investing activities (709,225) (10,025,522)
------------ ------------
Cash flows from financing activities:
Principal payments on borrowings (276,379) (1,157,872)
Proceeds from borrowings 115,846 --
Net proceeds from the issuance of common stock 3,695,813 12,462,087
------------ ------------
Net cash provided by financing activities 3,535,280 11,304,215
------------ ------------
Effect of exchange rate changes on cash and cash equivalents (160,342) (240,521)
------------ ------------
Net decrease in cash and cash equivalents (1,380,063) (96,621)
Cash and cash equivalents at beginning of period 2,786,162 3,432,614
------------ ------------
Cash and cash equivalents at end of period $ 1,406,099 $ 3,335,993
============ ============
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 443,914 $ 477,219
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
DIAMETRICS MEDICAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 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 Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net loss $ (487,271) $(1,981,187) $(2,523,300) $(8,671,102)
Change in cumulative translation adjustment (90,585) 106,111 (366,916) (331,410)
----------- ----------- ----------- -----------
Comprehensive loss $ (577,856) $(1,875,076) $(2,890,216) $(9,002,512)
----------- ----------- ----------- -----------
</TABLE>
(3) INVENTORIES
September 30, December 31,
2000 1999
---------- ----------
Raw materials $1,646,917 $2,260,586
Work-in-process 1,313,239 658,983
Finished goods 487,965 1,196,779
---------- ----------
$3,448,121 $4,116,348
---------- ----------
(4) OTHER CURRENT LIABILITIES
September 30, December 31,
2000 1999
---------- ----------
Deferred research and development funding $1,333,334 $2,833,334
Deferred royalty payments 710,000 2,260,000
Current portion of long-term debt 415,271 349,511
Other 258,893 11,880
---------- ----------
$2,717,498 $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 nine months ended
6
<PAGE>
September 30, 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 300,569 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 September 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 $604,661.
The Company's exclusive distributors, Agilent and CODMAN, a Johnson &
Johnson company, are shareholders of the Company. Sales to these parties
were approximately $6 million and $16.2 million for the three and nine
months ended September 30, 2000, respectively. As of September 30, 2000,
outstanding accounts receivable for these distributors represented 89% 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,"
"targets," 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 September 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
7
<PAGE>
and subsidiary of HP. HP completed the spin-off of its ownership in Agilent
to HP shareholders in June 2000.
RESULTS OF OPERATIONS
---------------------
Sales. Sales of the Company's products were $6,580,956 and $18,342,193 for
the three and nine months ended September 30, 2000, compared to $4,694,294
and $13,577,227 for the same periods in the prior year, increases of 40%
and 35%, respectively. The increase in sales for the three and nine months
ended September 30, 2000 over the prior year reflects a 29% and 34%
respective increase in instrument sales. This increase was partially offset
during the year-to-date period by a general decrease in product pricing
under the Agilent distribution agreement. 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 27%
between the first nine months of 1999 and 2000, related revenues remained
relatively flat due to the impact of the lower average sales prices
described above. The impact of reduced pricing was partially mitigated by
the recognition of royalty revenue from the Agilent distribution agreement
of $600,000 and $1,550,000 for the three and nine months ended September
30, 2000. The Company's direct sales to Agilent and CODMAN comprised
approximately 91% and 89% of total sales for the three and nine months
ended September 30, 2000, respectively, compared to 71% and 65% for the
same periods in the prior year.
Intermittent blood testing products represented 46% and 43% of total sales
for the three and nine months ended September 30, 2000, compared to 42% and
39% for the comparable periods in 1999. Continuous monitoring products
comprised the remaining sales in each period.
Intermittent blood testing products revenue was comprised of 71% and 67%
instrument related revenue and 29% and 33% disposable cartridge related
revenue for the three and nine months ended September 30, 2000,
respectively. Continuous monitoring products revenue was comprised of 78%
and 79% instrument related revenue and 22% and 21% disposable sensor
revenue for the three and nine months ended September 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 September 30, 2000, the Company has sold
approximately 6,900 instruments. Unit sales of instruments for the three
and nine months ended September 30, 2000, increased approximately 36% and
41%, respectively, over unit sales for the same periods in 1999, while
disposable sensor and cartridge unit sales increased 35% and 27%,
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 fourth quarter
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 $4,593,081 and $13,304,547, or 70% and
73% of revenue for the three and nine months ended September 30, 2000,
compared to $4,090,404 and $11,523,683 or 87% and 85% of revenue for 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 in the fourth quarter of 2000.
Operating Expenses. Research and development expenditures totaled
$1,249,809 and $3,612,766 for the three and nine months ended September 30,
2000, compared to $968,693 and $3,849,777 for the same periods in 1999.
Additional investments were made during 2000 to support new research and
development projects, the impact of which was reduced by the recognition of
$500,000 and $1,500,000 during the third quarter and year-to-date periods,
respectively, of research and development funding received from Agilent as
part of the distribution agreement. The comparable research and development
funding amounts recognized in 1999 were $500,000 and $666,667 for the third
quarter and year-to-date periods, respectively.
8
<PAGE>
Selling, general and administrative expenses totaled $1,272,306 and
$4,088,429 for the three and nine months ended September 30, 2000, compared
to $1,619,021 and $6,642,552 for the same periods in 1999. The
period-to-period decreases in expenses were primarily impacted by funding
of sales 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 fourth quarter of 2000 are expected to
approximate levels experienced in the third quarter of 2000.
Other Income (Expense). Net other income totaled $46,969 and $140,249 for
the three and nine months ended September 30, 2000, compared to net other
income of $2,637 and net other expense of $232,317 for the same periods in
1999. The Company realized interest income of $211,248 and $629,842 for the
three and nine months ended September 30, 2000, compared to $218,643 and
$312,295 for the same periods in 1999. The year-to-date 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 flows from operations.
Interest expense totaled $146,468 and $443,914 for the three and nine
months ended September 30, 2000, compared to $155,492 and $477,219 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 nine months ended September 30,
2000 was $487,271 and $2,523,300, compared to $1,981,187 and $8,671,102 for
the same periods in 1999. Compared to the three and nine months ended
September 30, 1999, the net loss decreased by 75% and 71%, 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 fourth
quarter of 2000.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
At September 30, 2000, the Company had working capital of $14,343,822, a
decrease of $665,646 from the working capital reported at December 31,
1999. The decrease is impacted primarily by purchases of property and
equipment of approximately $2.9 million and net cash used in operating
activities, partially offset by proceeds from exercises under employee
stock plans and warrants of approximately $3.7 million.
Net cash used in operating activities totaled $4,045,776 for the nine
months ended September 30, 2000, compared to $1,134,793 for the same period
in 1999. This was the result of net losses of $2,523,300 and $8,671,102 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 $403,259 for the nine months ended
September 30, 2000, compared to a $175,770 increase for the same period in
1999. The reduction in accounts receivable in the first nine 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 $668,227 and $153,027 for the nine months ended
September 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 $1,056,130 for the nine
months ended September 30, 2000, compared to an increase of $1,142,765 for
the same period in 1999. The increase in 1999 was primarily due to accrued
financing and other costs associated with the Agilent distribution
agreement. The decrease in 2000 was primarily due to the payment of most of
these accrued costs during 2000.
Deferred credits and revenue decreased $2,802,987 during the nine months
ended September 30, 2000, compared to an increase of $4,640,667 for the
same period in 1999. The decrease in 2000 represents the recognition of
funding from Agilent for research and development and royalties of
$3,050,000, partially offset by customer advance payments. The increase
during 1999 primarily
9
<PAGE>
reflects the receipt of $7,500,000 of prepaid funding from HP under the
terms of the distribution agreement, partially offset by the recognition of
approximately $2,900,000 of the funding as a reduction of 1999 expenses.
Net cash used in investing activities totaled $709,225 for the nine months
ended September 30, 2000, compared to $10,025,522 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 $2,942,443 in 2000 and $1,084,375 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 $3,535,280 for the nine
months ended September 30, 2000, compared to $11,304,215 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 September 30, 2000, the Company had U.S. net operating loss and research
and development tax credit carryforwards for income tax purposes of
approximately $115.4 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 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.
10
<PAGE>
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 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. In October 2000, the Office of
the Chief Accountant issued guidance on frequently asked questions and
answers regarding SAB 101. The Company is taking this guidance into
consideration during its evaluation of SAB 101. 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
None
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: November 14, 2000
12
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DIAMETRICS MEDICAL, INC.
EXHIBIT INDEX
Exhibit
No. Description
------- -----------
27 Financial Data Schedule
