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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
__________
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 0-21982
DIAMETRICS MEDICAL, INC.
(Exact name of registrant as specified in its charter)
MINNESOTA 41-1663185
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
2658 PATTON ROAD
ROSEVILLE, MINNESOTA 55113
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (612) 639-8035
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock,
$.01 par value
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 _____
-----
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K ((S)229.405 of this chapter) is not contained herein, and
will not be contained, to the best of Registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
From 10-K or any amendment to this Form 10-K. [_]
As of February 28, 1998, 20,896,570 shares of Common Stock were
outstanding, and the aggregate market value of the common shares (based upon the
closing price on said date on The Nasdaq National Market) of DIAMETRICS MEDICAL,
INC. held by non-affiliates was approximately $138,544,000.
DOCUMENTS INCORPORATED BY REFERENCE
Parts of the Registrant's Annual Report to Shareholders for the year ended
December 31, 1997 are incorporated by reference in Part II hereof
Parts of the Registrant's definitive Proxy Statement for the 1998 Annual Meeting
of Shareholders to be held on May 13, 1998 are incorporated by reference in Part
III hereof
PART I
Unless the context otherwise indicates, all references to the "Registrant,"
the "Company," or "Diametrics" in this Annual Report on Form 10-K are to
Diametrics Medical, Inc., a Minnesota corporation, incorporated in January 1990,
and where the context requires, its subsidiary, Diametrics Medical, Ltd. (DML).
The following federally registered trademarks of the Company are used in
this Annual Report on Form 10-K: Diametrics Medical, Inc.(R), IRMA(R)SL,
Neocath(R), Paratrend 7(R), Paratrend 7+/TM/, Neotrend/TM/ and Neurotrend/TM/.
SureStep(R) Pro is a registered trademark of LifeScan, a Johnson & Johnson
Company.
ITEM 1. BUSINESS
OVERVIEW
The Company develops, manufactures and markets blood and tissue analysis
systems that 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 sales organization. The Company's goal is to be the world
leader in critical care blood and tissue analysis systems.
Blood and tissue analysis is an integral part of patient diagnosis and
treatment, and access to timely and accurate results is critical to effective
patient care. The Company believes that its blood and tissue analysis systems
will result in more timely therapeutic interventions by providing accurate,
precise and immediate or continuous test results, thereby allowing faster
patient transfers out of expensive critical care settings and reducing patient
length of stay. In addition, point of care testing can save money for hospitals
by reducing the numerous steps, paperwork and personnel involved in collecting,
transporting, documenting and processing blood and tissue samples. Moreover,
point of care blood and tissue analysis could ultimately eliminate the need for
hospitals to maintain expensive and capital intensive stat laboratories.
The Company's primary product focus since its inception in 1990 has
been the development, manufacturing and marketing of the IRMA (Immediate
Response Mobile Analysis) System, an electrochemical-based blood analysis system
that provides rapid and accurate diagnostic results at the point of patient
care. The IRMA SL System consists of a portable, microprocessor-based analyzer
that employs single-use, disposable cartridges to perform simultaneously several
of the most frequently ordered blood tests in a simple 90-second procedure.
The Company's first disposable electrochemical cartridge, introduced in
May 1994, performs three of the most frequently ordered blood tests for critical
care patients--the measurement of oxygen, carbon dioxide and acidity (the "blood
gases"). In June 1995, the Company expanded the IRMA System test menu with the
introduction of its electrolyte cartridge which measures sodium, potassium and
ionized calcium. The Company further expanded its critical or "stat" test menu
during the third quarter of 1996 with the release of the second-generation
system, IRMA SL, and the addition of the measurement of hematocrit to its
electrolyte cartridge. With the addition of hematocrit, the IRMA SL System is
able to perform 95% of the critical or stat tests performed annually in the
United States, comprising an estimated $1.2 billion annual market. In 1997,
the Company introduced its third-generation system, IRMA SL Series 2000, and a
new combination testing cartridge. The combination cartridge is based upon the
Company's new "snapfit" cartridge design and gives clinicians the ability to
perform all critical blood gas, electrolyte and hematocrit tests using one small
blood sample and one single-use cartridge.
In the fourth quarter of 1996, the Company expanded its product line
with the introduction of a number of new products through the acquisition of
Biomedical Sensors, Ltd. (BSL), a Pfizer company. With the acquisition of BSL
(now known as Diametrics Medical, Ltd.), the Company acquired a world-class
continuous monitoring fiberoptic technology platform, which complements the
Company's existing electrochemical sensor platform. This product line includes
indwelling continuous blood monitoring systems, consisting of a monitor,
calibration system and intravascular disposable sensors. Primary
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products include Paratrend 7+ and Neotrend, further described below in the
description of the Company's principal products.
PRINCIPAL PRODUCTS
IRMA SL SERIES 2000 BLOOD ANALYSIS SYSTEM. The IRMA SL Series 2000
("IRMA SL System"), the third generation IRMA analysis system, was released in
the third quarter 1997, and provides the necessary foundation for all current
and future product enhancements. The IRMA SL System is comprised of the IRMA SL
analyzer and a variety of electrochemical-based disposable cartridges which
simultaneously perform select combinations of the most frequently ordered
critical care diagnostic tests of blood gases, electrolytes and hematocrit in a
simple 90-second procedure. The IRMA SL System also features electronic quality
control, as an alternative to aqueous quality control measures, which eliminates
the need for this costly and time-consuming process for many customers.
The IRMA SL analyzer is a battery or AC operated, portable
microprocessor-based instrument weighing approximately four pounds, and includes
an on-board printer. The analyzer can be easily linked for data downloading
purposes to a hospital's laboratory or information system.
In conjunction with a marketing alliance reached in 1997 with LifeScan,
a Johnson & Johnson company, the Company is incorporating blood glucose
monitoring into the IRMA platform by integrating LifeScan's SureStep(R) Pro
glucose module into the IRMA SL System. The Company expects to commercialize the
new integrated workstation during the first half of 1998.
IDMS - THE IRMA DATA MANAGEMENT SYSTEM. Released in the third quarter of
1996, IDMS, an advanced data management software program, provides a
comprehensive data management system for point of care testing technologies.
Developed initially for the IRMA SL System, IDMS is network compatible and
features an open architecture design that allows the program to accept
applications and information from other devices.
CAPILLARY COLLECTION DEVICE. The Capillary Collection Device was
introduced in the third quarter of 1996 as a new feature for use on the IRMA SL
System, which provides the capability to collect and test a capillary blood
sample. The Capillary Collection Device is used with the System's single use
cartridges to perform blood gas, electrolyte, and hematocrit testing. The
capillary collection capability of the IRMA SL System is useful in such patient
areas as neonatal and pediatric intensive care, and in other situations where a
capillary sample is preferred over an arterial or venous sample.
AVOXIMETER 4000. Under a distribution agreement initiated in the third
quarter of 1996 with A-VOX Systems, Inc., the Company exclusively distributes
the AVOXimeter 4000 in the United States. The AVOXimeter 4000 is a battery-
operated and easily portable system which provides an accurate and timely
assessment of the levels of hemoglobin and calculated oxygen content in a
patient's blood.
NEOCATH 1000. Introduced as part of the Company's acquisition of BSL,
Neocath 1000 is an umbilical artery oxygen monitoring system for neonatal
patients. The Neocath 1000 consists of a monitoring system and an umbilical
artery catheter, which allows direct, continuous and accurate measurement of
oxygen, with minimal physical disturbance to the neonate. The Company began
marketing the follow-on product to Neocath 1000, Neotrend, in the fourth quarter
of 1997.
PARATREND 7+. Paratrend 7+ is the Company's second generation sensor
platform for its continuous monitoring products, and is the only multi-parameter
sensor for direct continuous monitoring of blood gases and temperature in
critically ill adult and pediatric patients. Inserted via an arterial catheter,
the sensor provides constant, precise measurement of vital blood gas parameters.
The new technology uses a fluorescent optical sensor for monitoring oxygen,
replacing the electrochemical version of its predecessor, Paratrend 7. The
Paratrend 7+ technology forms the basis for other new continuous monitoring
products, including Neotrend.
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NEOTREND. Based upon the new fluorescent optical sensor technology
introduced with the Paratrend 7+, Neotrend is the only multi-parameter system
for direct continuous monitoring of blood gases (oxygen, carbon dioxide and
acidity) and temperature in critically ill premature babies. Neotrend is the
Company's follow-on product to Neocath 1000. Neotrend was introduced in the
United Kingdom in November 1997 and the Company received FDA clearance to market
Neotrend in the United States in January 1998.
REGULATORY STATUS
Human diagnostic products are subject, prior to clearance for marketing,
to rigorous pre-clinical and clinical testing mandated by the United States Food
and Drug Administration (the "FDA") and comparable agencies in other countries
and, to a lesser extent, by state regulatory authorities. The Company and its
products are regulated by the FDA under a number of statutes including the Food,
Drug and Cosmetic Act (the "FDC Act"). The FDC Act provides two basic review
procedures for medical devices. Certain products may qualify for a submission
authorized by Section 510(k) of the FDC Act, wherein the manufacturer gives the
FDA a pre-market notification of the manufacturer's intention to commence
marketing the product. The manufacturer must, among other things, establish that
the product to be marketed is substantially equivalent to another legally
marketed product. Marketing may commence when the FDA issues a letter finding
substantial equivalence. If a medical device does not qualify for the 510(k)
procedure, the manufacturer must file a pre-market approval ("PMA") application.
This procedure requires more extensive prefiling testing than the 510(k)
procedure and involves a significantly longer FDA review process.
The Company has obtained clearances under Section 510(k) of the FDC Act
to market the IRMA SL System to test blood gases, electrolytes and hematocrit in
whole blood in hospital laboratories and at the point of care, and the Paratrend
7 to monitor blood gases and temperature. During 1997 additional Section 510(k)
pre-market notification clearances were obtained for the addition of glucose
testing capability to the IRMA SL System, and the expansion of the Paratrend 7
product line to include blood gas monitoring of critically ill neonates. The
Neotrend product is the first and only multi-parameter system for direct
continuous monitoring of blood gases and temperature in critically ill premature
babies.
The Company submitted additional pre-market notifications for the IRMA-M
multi-use cartridge and the Neurotrend monitoring system in January 1998 that
are currently under review by the FDA. The addition of a multi-use cartridge,
IRMA-M, further enhances the IRMA SL System by allowing up to 50 separate test
panels to be performed on a single cartridge before disposal. The Neurotrend
monitoring system is designed for direct continuous monitoring for cerebral
ischemia and hypoxia in patients with severe head injury and also for use during
surgical intervention in the brain. Neurotrend continuously measures oxygen,
carbon dioxide, acidity and temperature.
A 510(k) clearance is subject to continual review, and later discovery
of previously unknown problems may result in restrictions on the product's
marketing or withdrawal of the product from the market. The Company's long-term
business strategy includes development of cartridges and sensors for performing
additional blood and tissue chemistry tests, and any such additional tests will
be subject to the same regulatory process. No assurance can be given that the
Company will be able to develop such additional products or uses on a timely
basis, if at all, or that the necessary clearances for such products and uses
will be obtained by the Company on a timely basis or at all, or that the Company
will not be subjected to a more extensive prefiling testing and FDA approval
process. The Company also plans to market its products in several foreign
markets. Requirements vary widely from country to country, ranging from simple
product registrations to detailed submissions such as those required by the FDA.
Manufacturing facilities are also subject to FDA inspection on a periodic basis
and the Company and its contract manufacturers must demonstrate compliance with
current Good Manufacturing Practices ("GMP") promulgated by the FDA.
The Company's product's are affected by the Clinical Laboratory
Improvement Act of 1988 ("CLIA") which has been implemented by the FDA. This law
is intended to assure the quality and
4
reliability of all medical testing in the United States regardless of where
tests are performed. The regulations require laboratories performing blood
chemistry tests to meet specified standards in the areas of personnel
qualification, administration, participation in proficiency testing, patient
test management, quality control, quality assurance and inspections. The
regulations have established three levels of regulatory control based on test
complexity - "waived", "moderate complexity" and "high complexity". The tests
performed by the Company's IRMA SL System have been categorized under CLIA as
"moderate complexity" tests by the FDA, which places this system in the same
category as most other commercially available blood gas and blood chemistry
testing instruments.
RESEARCH AND DEVELOPMENT
The Company owns two complementary technology platforms; an
electrochemical platform, on which IRMA intermittent testing products are based,
and a fiberoptic platform, on which the Paratrend 7 and Neotrend continuous
monitoring products are primarily based. The Company is pursuing product line
extensions from both of these core technology platforms.
The Company intends to expand its cartridge and test menus available on
the IRMA SL System. In conjunction with a marketing alliance with LifeScan,
development has been completed to incorporate blood glucose monitoring on the
IRMA SL platform by integrating LifeScan's SureStep(R) Pro glucose module into
the IRMA SL System. Point of care glucose testing is the single largest point of
care test segment in hospitals. Additionally, currently under development is a
cartridge which tests sodium, potassium, ionized calcium, hematocrit, chloride
and blood urea nitrogen (BUN) using one single-use cartridge. In addition to the
single-use cartridge, the Company is developing a multi-use application that
will incorporate the Company's current sensor and calibration technologies into
products that can be used to perform up to 50 blood tests over a period of
several days before disposal. A multi-use system will serve the needs of high
volume critical care centers where rapid patient throughput and a low cost per
test panel is required. The Company believes that the IRMA SL System and related
core technologies provide a flexible platform which, with a limited amount of
additional development, will be capable of performing a variety of blood
chemistry tests.
The Company plans to continually improve the IRMA SL System through
software upgrades, manufacturing process improvements and equipment redesign,
based on the results of ongoing marketing studies and field experience.
The Company has completed a new multi-parameter application of the
continuous monitoring technology for use with neonates, called Neotrend. This
application provides the only continuous blood gas and temperature monitoring of
neonatal patients and gives clinicians a more complete analysis of the
respiratory status and temperature of their patients. Clinical studies have been
initiated in the United Kingdom, and Section 510(k) clearance has been obtained
in the United States. Studies are also underway to apply the continuous
monitoring technology to other areas, including neurological applications.
In February 1998, the Company filed a 510(k) application with the FDA
for its Neurotrend monitoring system, designed for direct continuous monitoring
for cerebral ischemia and hypoxia in patients with severe head injury and also
for use during surgical intervention in the brain.
The Company has incurred research and development expenses of
approximately $7,232,000, $6,360,000 and $6,608,000 for the years ended December
31, 1997, 1996 and 1995, respectively.
SALES AND MARKETING
The Company is focusing its marketing efforts for its blood analysis
systems on acute care hospitals. Near term sales of the Company's products are
expected to continue to come from hospital critical care departments where blood
tests are frequently requested on a stat basis. The Company has also begun to
market the IRMA SL System for use in emergency transport vehicles. The
Company's longer-term marketing objective is to penetrate smaller hospitals and
alternate-site markets, such as emergency medical facilities, home healthcare
agencies, outpatient clinics, skilled nursing homes and
5
doctors' offices or clinics. The Company believes that the potential advantages
of its blood analysis systems will form the basis of the Company's marketing
efforts to overcome the possible reluctance of acute care hospitals to change
standard operating procedures for performing blood testing or incur additional
capital expenses.
The Company markets and distributes its products in the United States,
the United Kingdom and Germany through its direct sales and marketing
organization. Outside of these countries, the Company markets and distributes
its products through third party distribution channels, including corporate
partners strategically positioned to access targeted foreign markets, including
Japan and other Pacific Rim Countries, Europe, Mexico, Canada, Latin America and
South America. The Company may also consider additional distribution channels in
the United States, including joint ventures, licensing arrangements or OEM
relationships with strategically positioned corporate partners. Information
concerning the Company's export sales is contained in the financial section of
the Company's Annual Report to Shareholders for the year ended December 31,
1997, under Footnote 15, and is incorporated herein by reference.
Additionally, the Company has entered into several arrangements with
hospital systems, healthcare facilities and other influential healthcare buying
groups which establish the Company as a preferred or sole source supplier of its
blood analysis systems. The Company expects to continue to enter into
arrangements with other buying groups and customers with respect to purchases of
its blood analysis systems.
MANUFACTURING
The Company's manufacturing facilities support its intermittent testing
and continuous monitoring platforms and are located in Roseville, Minnesota and
High Wycombe, United Kingdom, respectively. The Company manufactures its IRMA
electrochemical thick-film sensor chips in its Roseville, Minnesota facility.
All other components of the IRMA cartridge are manufactured to the Company's
specifications by outside vendors. Components for the Company's continuous
monitoring sensors used in the Paratrend 7 and Neotrend products are sourced
from a variety of outside vendors, but the unique assembly of the sensing
elements is performed in the Company's High Wycombe facility. Sub-assembly of
external plastic assemblies are sub-contracted to outside vendors. The Company
uses external manufacturers to produce a range of hardware items, including the
IRMA SL analyzer and Paratrend 7 and Neotrend monitors. During 1998, portions of
the assembly of the IRMA SL analyzer and the continuous monitoring hardware will
be performed internally at the Roseville and High Wycombe facilities,
respectively. These devices could be manufactured by a number of
microelectronics assembly companies, using primarily off-the-shelf components.
Software for the IRMA SL analyzer is developed and maintained by the Company,
and software for the continuous monitoring products is jointly developed with an
external source, with acceptance and validation performed by the Company.
The majority of the raw materials and purchased components used to
manufacture the Company's products are readily available. Most of the Company's
raw materials are or may be obtained from more than one source. A small number
of these materials, however, are unique in their nature , and are therefore
single sourced. Plans are ongoing to add additional second sourcing where
appropriate.
The Company's manufacturing facilities include four clean rooms in
Roseville which range from Class 1,000 to Class 100,000, and two clean rooms in
High Wycombe, both rated as Class 10,000. The Company believes its current
facilities can support production of required cartridges and sensors for the
foreseeable future.
The Company maintains a comprehensive quality assurance and quality
control program, which includes complete documentation of all material
specifications, operating procedures, maintenance and equipment calibration
procedures, training programs and quality control test methods. To control the
quality of its finished product, the Company utilizes ongoing statistical
process control systems during the manufacturing process and comprehensive
performance testing of finished goods.
The Company continues to successfully undergo required inspections of
its manufacturing facilities by the FDA (most recently in February and March
1996 for Roseville and High Wycombe
6
facilities, respectively), and by the British Standards Institution for the High
Wycombe facility (most recently in February 1996). As a result of these
inspections, the Company's manufacturing facilities and documentation and
quality control systems are deemed satisfactory and in compliance with Good
Manufacturing Practices (GMP).
PATENTS AND PROPRIETARY RIGHTS
The Company has implemented a strategy of pursuing patent applications
to provide both design freedom and protection from competitors. This strategy
includes evaluating and seeking patent protection both for inventions most
likely to be used in its blood analysis systems and for those inventions most
likely to be used by others as competing alternatives.
For its intermittent testing platform, the Company currently holds three
patents to its calibration technology, two patents related to its sensor
technology and one for companion technology. In addition, two patents have been
issued covering the IRMA SL analyzer and disposable cartridge designs. The
Company has received notice of allowance pertaining to patent applications
pending in the United States relating to electronic quality control and its
Capillary Collection Device. Additionally, the Company has submitted patent
applications and provisional patent applications pertaining to a multi-use
sensor module, an enzymatic sensor and coagulation measurement technology.
Overseas, the Company has foreign patent applications pending, filed under the
Patent Cooperation Treaty, designating various jurisdictions, including Canada,
the major European countries, Brazil, Australia and Japan, corresponding to one
or more U.S. applications. The Company has been issued nine foreign patents; two
in the United Kingdom, two in Germany, two in Canada and three in Japan.
As it relates to its continuous monitoring platform, the Company has
been issued 21 U.S. patents associated with the design and manufacture of its
sensor technology platforms. These patents are at various patent process stages
in the major European countries and Japan.
The Company is not currently a party to any patent litigation.
The Company has federally registered the trademarks "IRMA SL",
"Diametrics Medical, Inc.", "Neocath", "Paratrend", "Tissuetrak", "Paratrend
7+", "Neotrend", "Neurotrend", "CAL-POD", "TOM 2000" and claims trademark rights
in "When Stat Isn't Fast Enough."
COMPETITION
The Company believes that potential purchasers of point of care blood
analysis systems will base their purchase decision upon a combination of
factors, including the product's test menu, ease of use, accuracy, price and
ability to manage the data collected. The Company is aware of one company, i-
STAT, that has introduced and is marketing a portable point of care blood
analysis system. The Company believes that the IRMA SL System possesses distinct
competitive advantages over i-STAT's products including ease of use, closed
instead of open handling of blood samples and the ability to interface to the
hospital's laboratory or information system.
The Company also competes with companies that market portable multi-use
blood gas systems. These companies include AVL Scientific Corporation, SenDx
Medical, Inc. and Instrumentation Laboratories with their acquisition of the GEM
Premier. However, the Company believes that to be successful in the point of
care market, a company's device must be able to perform a variety of commonly
ordered blood chemistry tests, as well as blood gas tests.
The Company's blood analysis systems also compete with manufacturers
providing traditional blood analysis systems to central and stat laboratories of
hospitals. Although these laboratory-based instruments provide the same tests
available with the Company's products, they are complex, expensive and require
the use of skilled technicians. The Company believes that its blood analysis
systems offer several advantages over these laboratory-based instruments
including immediate or continuous results, ease-of-use, reduced opportunity for
error and cost effectiveness.
7
Many of the companies in the medical technology industry have
substantially greater capital resources, research and development staffs and
facilities than the Company. Such entities may be developing or could in the
future attempt to develop additional products competitive with the Company's
blood analysis systems. Many of these companies also have substantially greater
experience than the Company in research and development, obtaining regulatory
approvals, manufacturing and marketing, and may therefore represent significant
competition for the Company. There can be no assurance that the Company's
competitors will not succeed in developing or marketing technologies and
products that will be more effective or less expensive than those being marketed
by the Company or that would render the Company's technology and products
obsolete or noncompetitive.
EXECUTIVE OFFICERS
Name Age Position
David T. Giddings 54 President, Chief Executive Officer and
Chairman
Roy S. Johnson 45 Executive Vice President
President and Managing Director of
Diametrics Medical, Ltd.
Laurence L. Betterley 44 Senior Vice President and
Chief Financial Officer
James R. Miller 44 Senior Vice President of Sales and
Marketing and Commercial Development
Mr. Giddings was appointed Chairman of the Board of Directors, President
and Chief Executive Officer of the Company in April 1996. Mr. Giddings was
formerly President and Chief Operating Officer of the United States operations
of Boehringer Mannheim Corporation ("BMC"), a global leader in diagnostics
products. He joined BMC in 1992 after a 26 year career with Eastman Kodak
Company, where he held a number of senior management positions, including
General Manager and Vice President of Marketing and Sales, clinical products
division. He also served as Vice President and General Manager of Kodak's
imaging information system group and of its printing and publishing division.
Mr. Johnson joined the Company in November 1996 as an Executive Vice
President, and the President and Managing Director of Diametrics Medical, Ltd.,
("DML"), a new subsidiary of the Company acquired in November 1996 with the
purchase of Biomedical Sensors, Ltd. ("BSL"). DML markets a line of indwelling
monitoring systems for continuous blood and tissue assessment of critically ill
patients. Beginning in 1977, Mr. Johnson served in a number of management
positions for the predecessors of the BSL business, most recently as President
and Chief Executive Officer while it was a subsidiary of Orange Medical
Instruments, Inc. and later when it was an operating unit of Pfizer Inc. Mr.
Johnson started his career in 1974 with Burroughs Welcome in pharmaceutical
production management and was the head of manufacturing in Burroughs' Sidney,
Australia subsidiary.
Mr. Betterley has been Senior Vice President of the Company since
October 1996 and Chief Financial Officer since August 1996. Prior to this, he
was with Cray Research, Inc. in various management and financial positions
including Chief Financial Officer from 1994 to 1996, Vice President of Finance
from 1993 to 1994 and Corporate Controller from 1989 to 1993. Cray Research
develops, manufactures and sells high performance computing systems used for
computational research.
Mr. Miller joined the Company in March 1995 as Vice President of Sales
and Marketing, was Senior Vice President of Commercial and Business Development
since July 1996, and Senior Vice President
8
of Sales and Marketing and Commercial Development since January 1998. From 1991
to early 1995, Mr. Miller was Vice President of Sales and Marketing at IMED
Corporation, where he had global sales and marketing responsibility for infusion
and monitoring products for hospital and alternate site markets.
EMPLOYEES
As of December 31, 1997, the Company had a total of 181 full-time
employees, including 48 persons engaged in research and development activities.
None of the Company's employees are covered by a collective bargaining
agreement, and Diametrics believes it maintains good relations with its
employees.
FORWARD-LOOKING STATEMENTS
The above Business section and other parts of this Report contain
forward-looking statements that involve risk and uncertainties. The Company's
actual results may differ significantly from the results discussed in the
forward-looking statements. Factors that might cause such a difference include,
but are not limited to, those contained above in this Item 1, the "Management's
Discussion and Analysis of Financial Condition and Results of Operations" in
Item 7 and Exhibit 99 to this Report.
ITEM 2. PROPERTIES
The Company's principal properties are as follows:
Location of Use of Approximate Lease
Property Facility Square Footage Expiration Date
- --------------- --------------------- ------------------ -----------------
Roseville, Minnesota Manufacturing, research 46,500 September 1999
and development, sales, to September 2001
marketing and administration
Malvern, Pennsylvania Research and development 2,000 March 1999
High Wycombe, Manufacturing, process 14,500 September 2005
United Kingdom engineering, purchasing
and distribution
High Wycombe, Sales, marketing and 5,500 January 2015
United Kingdom administration
High Wycombe, Research and development 6,000 April 1999
United Kingdom
The Company believes that its facilities are sufficient for its projected needs
through 1999.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any material pending legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
9
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock, $.01 par value, trades on The Nasdaq National
Market under the symbol "DMED." The information contained under the heading
"Stock Information" in the Company's Annual Report to Shareholders for the year
ended December 31, 1997 (the "Annual Report to Shareholders"), is incorporated
herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
The information contained under the heading "Selected Five-Year Financial
Data" on page 12 in the Annual Report to Shareholders is incorporated herein by
reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
The information contained under the heading "Management's Discussion and
Analysis of Results of Operations and Financial Condition" on pages 13 through
16 in the Annual Report to Shareholders is incorporated herein by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information contained under the headings "Consolidated Statements of
Operations", "Consolidated Balance Sheets," "Consolidated Statements of
Shareholders' Equity," "Consolidated Statements of Cash Flows," "Notes to
Consolidated Financial Statements" on pages 17 through 30 and "Report of
Independent Auditors" on page 31 in the Annual Report to Shareholders is
incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS OF THE REGISTRANT
The information contained under the heading "Election of Directors" in the
Company's definitive Proxy Statement for its 1998 Annual Meeting of Shareholders
to be held on May 13, 1998, which definitive Proxy Statement will be filed
within 120 days after the close of the fiscal year ended December 31, 1997 (the
"Proxy Statement"), is incorporated herein by reference.
EXECUTIVE OFFICERS OF THE REGISTRANT
See Part I of this report for information on Executive Officers of the
Company.
To the Company's knowledge, based solely on review of the copies of such
reports furnished to the Company and written representation that no other
reports were required, during the fiscal year ended December 31, 1997, all
Section 16(a) filing requirements applicable to the officers, directors and
greater than 10% beneficial owners were complied with, except that a statement
of change in beneficial
10
ownership on Form 4 was not timely filed by Mr. Miller to reflect a grant of
stock options in July of 1996, but such change was subsequently reported on Form
4.
ITEM 11. EXECUTIVE COMPENSATION
The information contained under the heading "Executive Compensation" in the
Proxy Statement is incorporated herein by reference, except that, pursuant to
Item 402(a)(8) of Regulation S-K, the subsections under "Executive Compensation"
entitled "Report of Compensation Committee on Executive Compensation" and
"Comparative Stock Performance" provided in response to paragraphs (k) and (l)
of Item 402 are not incorporated by reference herein.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information contained under the heading "Security Ownership of Certain
Beneficial Owners and Management" in the Proxy Statement is incorporated herein
by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information contained under the heading "Certain Transactions" in the
Proxy Statement is incorporated by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(A) 1. FINANCIAL STATEMENTS
The following consolidated financial statements of Diametrics Medical,
Inc., which are included in the Annual Report to Shareholders, are incorporated
by reference in Item 8 hereof:
Report of Independent Auditors
Consolidated Statements of Operations for each of the years in the three
year period ended December 31, 1997
Consolidated Balance Sheets at December 31, 1997 and 1996
Consolidated Statements of Shareholders' Equity for each of the years in
the three year period ended December 31, 1997
Consolidated Statements of Cash Flows for each of the years in the three
year period ended December 31, 1997
Notes to Consolidated Financial Statements
Except for the financial statements listed above and the items specifically
incorporated by reference in Items 5, 6, 7 and 8 hereof, the Annual Report to
Shareholders is not deemed to be filed as part of this Annual Report on Form 10-
K.
2. FINANCIAL STATEMENT SCHEDULES
All schedules have been omitted because they are not applicable or not
required, or because the required information is included in the financial
statements or the notes thereto.
11
3. EXHIBITS
Exhibit
No. Description Method of Filing
- --- ----------- ----------------
3.1 Articles of Incorporation of the Company (as amended) (8)
3.2 Bylaws of the Company (as amended) (7)
4.1 Form of Certificate for Common Stock (1)
4.2 Form of Registration Rights Agreement between the
Company and certain of its shareholders and
warrant holders (1)
4.3 Form of Registration Rights Agreement dated as of February 3, 1995
between the Company and certain of its shareholders (3)
4.4 Registration Rights Agreement, dated as of January 30, 1997,
by and between the Company and purchasers of Series I Junior
Participating Preferred Stock (6)
4.5 Registration Rights Agreement, dated as of June 10, 1997,
by and between the Company and the Purchasers (9)
4.6 Form of Certificate for Series I Junior Participating Preferred Stock (6)
4.7 Form of Stock Purchase Warrant, dated as of January 30, 1997 (6)
4.8 Form of Stock Purchase Warrant, dated as of June 10, 1997 (9)
10.1 Real Property Lease dated May 3, 1990, between Commers-
Klodt, a Minnesota General Partnership and the Company (1)
10.2 Real Property Lease dated May 28, 1991, between Commers-
Klodt, a Minnesota General Partnership and the Company (1)
10.3 Real Property Lease dated July 2, 1991, between Commers-
Klodt, a Minnesota General Partnership and the Company (1)
10.4 Real Property Lease dated December 20, 1992, between Commers-
Klodt, a Minnesota General Partnership and the Company (1)
10.5 Real Property Lease dated May 10, 1993, between Commers-
Klodt, a Minnesota General Partnership and the Company (1)
10.6 Master Lease Agreement dated November 11, 1992, between
Bankers Leasing Association, Inc. and the Company (1)
10.7 Master Equipment Lease Agreement dated as of June 15, 1993,
between the Company and The Northern Leasing Fund, as amended
by Amendment No. 1 dated June 8, 1994 (including form of warrant
issued in connection therewith) (1)
12
10.8 Master Equipment Lease Agreement dated as of June 15, 1993,
between the Company and Phoenix Growth Capitol Corp., as
amended by Amendment No. 1 dated June 8, 1994 (including
form of warrant issued in connection therewith) (1)
10.9 Senior Secured Fixed Rate Loan Note, due November 4, 2002
between Pfizer Inc. and the Company (5)
10.10* 1990 Stock Option Plan (as amended and restated), including
form of option agreement Filed herewith
10.11* 1993 Directors' Stock Option Plan, as amended and restated Filed herewith
10.12* 1995 Equalizing Director Stock Option Plan (4)
10.13 1995 Employee Stock Purchase Plan (as revised and restated) (7)
10.14 Agreement dated January 1, 1995 between the Company and
Vencor, Inc. (3)
10.15 Settlement Agreement and Mutual General Releases
dated March 25, 1994 among PPG Industries, Inc., the
Company, Walter L. Sembrowich, David W. Deetz and
Kee Van Sin (1)
10.16 Letter agreement dated as of February 1, 1995 among
the Company, Allstate Venture Capital and Frazier
and Company L.P. (2)
10.17 Agreement dated June 29, 1990 between the
Company and David W. Deetz, as supplemented by
the letter agreement dated March 28, 1995 (2)
10.18 Agreement dated June 29, 1990 between the
Company and Walter L. Sembrowich, Ph.D. (2)
10.19 Agreement dated December 21, 1995 between the
Company and Walter L. Sembrowich, Ph.D. (4)
10.20 Agreement dated March 1, 1996 between the
Company and Barbara E. Roth (4)
10.21 Agreement dated April 12, 1996 between the Company and
David T. Giddings (7)
10.22 Stock Purchase Agreement, dated as of January 30, 1997,
between the Company and the Purchasers named therein (6)
10.23 Stock Purchase Agreement dated as of June 10, 1997,
between the Company and the Purchasers named therein (9)
13
13 Portions of the Company's Annual Report to Shareholders
for the year ended December 31, 1997 incorporated by reference
in this Form 10-K Filed herewith
21 List of Subsidiaries Filed herewith
23 Consent of KPMG Peat Marwick LLP Filed herewith
24 Powers of Attorney (included in signature page of Report) Filed herewith
27 Financial Data Schedule (electronic filing only) Filed herewith
99 Cautionary Factors Under the Private Securities Litigation
Reform Act Filed herewith
___________________
* Management compensatory plan filed pursuant to Item 601(b)(10)(iii)(A) of
Regulation S-K.
(1) Incorporated by reference to the Company's Registration Statement on Form
S-1 (Registration Number 33-78518) (the "Registration Statement").
(2) Incorporated by reference to the Company's 1994 Annual Report on Form 10-K.
(3) Incorporated by reference to the Company's Registration Statement on Form
S-1 (Registration
Number 33-94442).
(4) Incorporated by reference to the Company's 1995 Annual Report on Form 10-K.
(5) Incorporated by reference to the Company's Current Report on Form 8-K filed
November 21, 1996.
(6) Incorporated by reference to the Company's Current Report on Form 8-K filed
March 25, 1997.
(7) Incorporated by reference to the Company's 1996 Annual Report on Form 10-K.
(8) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the Quarter
ended March 31, 1997.
(9) Incorporated by reference to the Company's Current Report on Form 8-K filed
June 26, 1997.
(B) REPORTS ON FORM 8-K
No Current Reports on Form 8-K were filed by the Company during the fourth
quarter of the year ended December 31, 1997.
(c) See Item 14(a)(3) above.
(d) None.
14
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, on March 30, 1998.
DIAMETRICS MEDICAL, INC.
By ____________________________
David T. Giddings
President, Chief Executive
Officer and Chairman
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on March 30, 1998.
KNOW ALL MEN BY THESE PRESENTS, that the undersigned do hereby constitute
and appoint David T. Giddings and Laurence L. Betterley, and each of them, each
with full power to act without the other, his true and lawful attorneys-in-fact
and agents, each with full power of substitution and resubstitution, for him and
in his name, place and stead, in any and all capacities, to sign any and all
amendments to the Annual Report on Form 10-K for the year ended December 31,
1997 of Diametrics Medical, Inc. , and to file the same, with any and all
exhibits thereto, and all other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, full power and authority to do and perform each and every act and thing
requisite and necessary to be done as fully to all intents and purposes as the
undersigned might or could do in person, hereby ratifying and confirming all of
each of said attorneys-in-fact and agents or any of them may lawfully do or
cause to be done by virtue thereof.
Name Title
---- -----
/s/ David T. Giddings President , Chief Executive Officer and
- ------------------------------
David T. Giddings Chairman (Principal Executive Officer)
/s/ Laurence L. Betterley Senior Vice President and Chief Financial
- ------------------------------
Laurence L. Betterley Officer (Principal Financial Officer)
/s/ Jill M. Nussbaum Corporate Controller
- ------------------------------
Jill M. Nussbaum (Principal Accounting Officer)
/s/ Gerald L. Cohn
- ------------------------------
Gerald L. Cohn Director
/s/ Andre' de Bruin
- ------------------------------
Andre' de Bruin Director
/s/ Roy S. Johnson
- ------------------------------
Roy S. Johnson Director
/s/ Mark B. Knudson
- ------------------------------
Mark B. Kundson, Ph.D. Director
/s/ Richard A. Norling
- ------------------------------
Richard A. Norling Director
EXHIBIT INDEX
Exhibit
No. Description
- --- -----------
10.10 1990 Stock Option Plan (as amended and restated), including form of
option agreement
10.11 1993 Directors' Stock Option Plan, as amended and restated
13 Portions of the Company's Annual Report to Shareholders
for the year ended December 31, 1997 incorporated by reference
in this Form 10-K
21 List of Subsidiaries
23 Consent of KPMG Peat Marwick LLP
24 Power of Attorney (included in signature page of Report)
27 Financial Data Schedule (electronic filing only)
99 Cautionary Statements Under the Private Securities Litigation Reform Act