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<PAGE>

               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, 2000
                                      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: (651) 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, 2001, 26,725,416 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 $142,000,000.

                      Documents Incorporated by Reference

Parts of the Registrant's Annual Report to Shareholders for the year ended
December 31, 2000 are incorporated by reference in Part II hereof.
Parts of the Registrant's definitive Proxy Statement for the 2001 Annual Meeting
of Shareholders to be held on May 23, 2001 are incorporated by reference in Part
III hereof.
<PAGE>

                                    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,
IDMS(R), Paratrend 7(R), Neotrend(TM), Neurotrend(TM) and Trendcare(R).
SureStep(R)Pro is a registered trademark of LifeScan, a Johnson & Johnson
company. Argyle(R) is a registered trademark of Tyco Ludlow.

Item 1.   Business

Overview

          The Company develops, manufactures and commercializes 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 marketing 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 systems could ultimately eliminate the
need for hospitals to maintain expensive and capital intensive stat
laboratories.

          The Company has two primary product platforms. The first platform
includes intermittent blood testing products based primarily on electrochemical
technology (the IRMA SL Blood Analysis System) and the second platform includes
continuous monitoring products based upon fiberoptic technology (the Trendcare
Continuous Blood Gas Monitoring Systems and the Neurotrend Cerebral Tissue
Monitoring System). Since its inception in 1990, the Company has developed,
manufactured and marketed 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 inorganic
compounds including 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 (i.e., the concentration of red blood cells in whole
blood) to its electrolyte cartridge. With these measurements and associated
calculated values, the IRMA SL System is able to perform the majority 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 cartridge. The
combination cartridge is based upon the Company's "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.
During 1998, the Company expanded the test menu of the IRMA System by
integrating the LifeScan (a Johnson & Johnson company) SureStepPro glucose strip
testing module into the analyzer. In 2000, the Company

                                       2
<PAGE>

introduced its H4 single-use cartridge, which adds both chloride and blood urea
nitrogen ("BUN") to a test panel of sodium, potassium and hematocrit. Also under
development are additional blood tests for glucose, lactate and creatinine, and
a reusable version of the single use disposable cartridge, called IRMA-M.

      In the fourth quarter of 1996, the Company expanded to its second product
platform 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 intermittent testing
platform.  This product line includes indwelling continuous monitoring systems,
consisting of a monitor, calibrator and intravascular disposable sensors.
Primary products include the Trendcare monitoring system, consisting of
Paratrend 7, which provides direct continuous monitoring of blood gases and
temperature in critically ill adult and pediatric patients, and Neotrend, which
provides direct continuous monitoring of blood gases and temperature in
critically ill newborn babies; and the Neurotrend cerebral tissue monitoring
system, which measures oxygen, carbon dioxide, acidity and temperature in brain
tissue and fluids as an indication of cerebral ischemia (i.e., deficient blood
supply to the brain) and hypoxia (i.e., inadequate oxygenation of the blood) in
patients with severe head injury and in patients undergoing surgical
intervention in the brain.

      The Company has obtained clearances under Section 510(k) of the Food Drug
and Cosmetic Act (the "FDC Act") to market the IRMA SL System to test blood
gases, electrolytes, glucose, BUN and hematocrit in whole blood in hospital
laboratories and at the point-of-patient care, the Paratrend 7 and Neotrend to
monitor blood gases and temperature, and the Neurotrend system to monitor
oxygen, carbon dioxide, acidity and temperature in the brain. Additionally, in
the first quarter of 1998, the Company received clearance from the United States
Food and Drug Administration (the "FDA") to market the new IRMA-M multi-use
cartridge for its IRMA SL System. This cartridge is undergoing additional
development before it is released to the market. The Company has also gained CE
Mark approval for the IRMA SL System and the Paratrend 7, Neotrend and
Neurotrend continuous monitoring products, allowing these products to be
marketed in Europe.

      In October 1998, the Company entered into an exclusive distribution
agreement with Codman & Shurtleff, Inc., a Johnson & Johnson company ("Codman"),
for worldwide market development and distribution of the Company's Neurotrend
monitoring system. The term of the agreement is for six years and is renewable
for two years. If minimum sales levels and marketing expenditure levels are not
achieved by Codman, certain payments will be due to the Company. Also, Codman
has the right of first refusal to market new continuous monitoring products
developed for the neuro market.

      On June 7, 1999, the Company and Hewlett Packard Company ("HP") announced
that HP had signed an exclusive worldwide distribution agreement to market, sell
and distribute the Company's Trendcare continuous blood-gas monitoring systems
and the IRMA SL point-of-care blood analysis system. Under the terms of the
distribution agreement, the Company transferred full responsibility for
marketing, sales and distribution of these products to HP. The initial term of
the distribution agreement is three and a half years, with the option for
extensions. The distribution agreement also provides for minimum purchase
commitments, market development commitments, research and development funding
and royalty payments over the initial term of the agreement, as well as funding
of sales and marketing costs during a sales transition period in 1999. In
November 1999, HP assigned the distribution agreement, with all its related
rights and obligations, to Agilent Technologies, Inc. ("Agilent"), a leading
provider of test and measurement solutions and communications components.
Agilent was formed as a new company and subsidiary of HP in November 1999. HP
spun-off its ownership in Agilent to HP shareholders during 2000. In November
2000, Agilent announced the proposed sale of its healthcare business to Philips
Medical Systems, a division of Royale Philips Electronics. The sale transaction
is currently undergoing anti-trust review. The agreement between Agilent and the
Company is assignable to Philips with the Company's consent.

      The Company's principal executive office is located at 2658 Patton Road,
Roseville, Minnesota 55113, and its telephone number is (651) 639-8035.

                                       3

<PAGE>

Principal Products

      Additional information regarding the Company's principal products is
provided below:

      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 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 perform
select combinations of the most frequently ordered critical care diagnostic
tests of blood gases, electrolytes, hematocrit, chloride and BUN 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,
the Company incorporated blood glucose monitoring into the IRMA platform by
integrating LifeScan's SureStepPro Glucose Module into the IRMA SL System. The
Company began marketing the new integrated workstation during the first half of
1998.

      IDMS - The IRMA Data Management System. IDMS is an advanced data
management software program that provides a comprehensive data management system
for point-of-care testing technologies. IDMS was initially released in 1996, and
an enhanced version was released in the third quarter of 2000. IDMS integrates
point-of-care diagnostic results from multiple IRMA devices and offers
convenient sorting, viewing and analysis capabilities for trending, reporting,
and archiving data. IDMS also seamlessly transfers point-of-care results to
other laboratory or clinical information systems.

      Capillary Collection Device. The Capillary Collection Device was initially
introduced in 1996 and was enhanced in the third quarter of 2000 with a new
design. The Capillary Collection Device is a disposable component of the IRMA SL
System and provides the capability to collect and inject a capillary blood
sample. It is used with the IRMA SL System's single use cartridges to perform
blood gas, electrolyte, hematocrit and BUN testing. The capillary collection
device has applications in neonatal and pediatric intensive care units, and in
other situations where a capillary sample is preferred over an arterial or
venous sample.

      Trendcare Continuous Blood Gas Monitoring System. The Trendcare Continuous
Blood Gas Monitoring System ("Trendcare"), consists of a monitor, patient data
module and calibration system which provides the platform for the Paratrend 7
and Neotrend intravascular disposable sensors (described below). The Trendcare
monitor displays trended patient data which allows constant surveillance of the
patient's condition, while the patient data module stores critical calibration
and patient information which moves with the patient during transfers. The real-
time patient information delivered by Trendcare can signal the onset of adverse
events and immediately identifies the impact of ventilator and resuscitation
therapy.

               Paratrend 7. Paratrend 7 is the Company's second generation
      sensor for its continuous monitoring products, and is the only multi-
      parameter sensor for in-vivo direct continuous monitoring of blood gases
      (oxygen, carbon dioxide and acidity) 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. During 2000, the Company released a modified version of this
      sensor, Paratrend 7+, which provides a dial-in introducer system as an
      alternative to the telescopic introducer of

                                       4
<PAGE>

      Paratrend 7. The dial-in introducer allows faster placement of the sensor
      into an arterial line, facilitating ease of use. The Company received FDA
      clearance in October 1977 to market the Paratrend 7 in the United States
      and received CE Mark approval in May 1998, allowing the system to be
      marketed in Europe.

            Neotrend. Based upon the 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 newborn babies,
      delivering real-time respiratory and metabolic information at the
      point-of-care. The Company received FDA clearance in December 1997 to
      market Neotrend in the United States, and received CE Mark approval in May
      1998, allowing the product to be marketed in Europe. Effective early 2001,
      Neotrend is compatible with Argyle 3.7-Fr. and 5.0-Fr. umbilical artery
      catheters, offering the convenience of use with this widely accepted and
      utilized catheter brand.

      Neurotrend Cerebral Tissue Monitoring System. The Neurotrend Cerebral
Tissue Monitoring System ("Neurotrend") is designed for direct continuous
monitoring of oxygen, carbon dioxide, acidity and temperature in brain tissue
and fluids as an indication of cerebral ischemia and hypoxia in patients with
severe head injury, and also for use during surgical intervention in the brain.
Neurotrend continuously measures these parameters through a small fiberoptic
sensor placed directly into the brain tissue or fluids. CE Mark approval was
received in the second quarter 1998, allowing the system to be marketed in
Europe, and the Company received clearance from the FDA in November 1999,
allowing the system to be marketed in the United States.

Regulatory Status

      Human diagnostic products are subject, prior to clearance for marketing,
to rigorous pre-clinical and clinical testing mandated by 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 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. 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. 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, hematocrit, glucose
and BUN in whole blood in hospital laboratories and at the point-of-patient
care. The IRMA-M cartridge, which allows multiple test panels to be performed on
a single cartridge, received clearance during 1998. Continuous monitoring
products which have been cleared under Section 510(k) include the monitoring
systems used with the Paratrend 7 sensor for direct continuous monitoring of
blood gases and temperature in adults and pediatric patients, the Neotrend
sensor for monitoring of blood gases and temperature in critically ill newborn
babies, and the Neurotrend sensor designed for direct continuous monitoring of
oxygen, carbon dioxide, acidity and temperature in brain tissue or fluids as an
indication of cerebral ischemia and hypoxia in patients with severe head injury
and also for use during surgical intervention in the brain.

      Prior to clearance for marketing in Europe, the Company's products must
also meet regulatory standards outlined in several directives administered by
the European Union. Compliance with applicable directives and achievement of CE
Mark approval is based upon conformity assessment to the essential requirements
stated in the directive. In order for manufacturers to affix CE Mark to their
products, allowing the products to be marketed in Europe, they must follow the
conformity assessment procedures applicable to the classification of the
product, and prepare a declaration of conformity. Once gained, the CE Mark
requires updating when significant changes are made to the product, and the
Company's full quality system is subject to annual audit by its notified body in
the United Kingdom and in the United States.

      The Company has gained CE Mark approval for all of its marketed products
that currently require it, including the Paratrend 7, Neotrend and Neurotrend
continuous monitoring products, and the IRMA SL System.


      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 markets
its products in several foreign markets. Requirements vary widely from country
to country, ranging from

                                       5
<PAGE>

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 Quality System Regulations promulgated by the FDA.

      The Company's intermittent testing products are affected by the Clinical
Laboratory Improvement Act of 1988 ("CLIA") which has been implemented by the
Health Care Financing Administration ("HCFA"). This law is intended to assure
the quality and 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
"moderately complex," which places this system in the same category as most
other commercially available blood gas and blood chemistry testing instruments.
The glucose test is categorized as a "waived" test, which places this test in
the same category as most other commercially available point-of-care glucose
testing systems. The Company's continuous monitoring products are not affected
by CLIA.

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, Neotrend and Neurotrend
continuous monitoring products are primarily based. The Company is pursuing
product line extensions from both of these core technology platforms.

      The Company intends to continue to expand its cartridge and test menus
available on the IRMA SL System. The H4 single-use cartridge, which adds both
chloride and BUN to a panel of sodium, potassium and hematocrit, was released to
the market in 2000 and is intended for use by critical care centers to screen
patients for renal complications. In addition to the single-use cartridge, the
Company is developing a multi-use cartridge that will incorporate the Company's
current sensor and calibration technologies into products that can perform
multiple blood test panels on different patients over a period of 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 are
required. The multi-use module was initially scheduled for commercial release in
1999. However, feedback from customers has lead to further design enhancements
including automated operation, with global commercialization scheduled for 2002.
Also under development are new additions to the IRMA SL's cartridge blood test
menu, including glucose, lactate and creatinine. A single-use cartridge which
tests glucose and a panel of electrolytes is scheduled for commercial release in
late 2001. 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 an even wider variety of
blood chemistry tests.

      Development efforts also include further enhancements to the Company's
IRMA Data Management System ("IDMS"). IDMS is an advanced data management
software program that provides a comprehensive data management system for point-
of-care technologies. The new enhanced version of IDMS, scheduled for market
release in late March, permits the point-of-care coordinator to manage and
control the point-of-care program from one central location, improving the
overall efficiency of the clinical, laboratory and information technology
staffs, lowering the cost of operating the program, ensuring regulatory
compliance and reducing transcription errors.

      The Company plans to continually improve the IRMA SL System through
software upgrades, manufacturing process improvements and equipment design
enhancements, based on the results of ongoing marketing studies and field
experience.

      Development activities for the continuous monitoring platform during 2000
included a joint development effort with Cook Incorporated ("Cook") focused on
improving the access and ease of use of the Paratrend 7 with a non-kinking
catheter. Cook's new non-kinking catheter for use with Paratrend 7

                                       6
<PAGE>

received FDA clearance in March 2001, with commercial release in the United
States expected in the second quarter. Cook is now pursuing CE Mark approval,
which will allow the product to be marketed in Europe. Development efforts are
also focused on improving the bolt access and insertion devices for Neurotrend.
Additionally, studies are underway to apply continuous monitoring technology to
new neurological and tissue applications. The Company's future development plans
also include further expansion of the blood and tissue analysis test menu
available on the continuous monitoring platform.

      Another major application initiative under development is the integration
of the Company's point-of-care intermittent testing and continuous monitoring
product lines into Agilent's patient monitoring platforms. These projects,
jointly under development by Agilent and the Company, include hardware, software
and disposable elements. The hardware component consists of a blood analysis
system in support of Trendcare continuous monitoring applications, and a blood
analysis system that supports IRMA intermittent testing applications. Both
systems are designed to plug directly into Agilent's patient monitoring
platform, providing an integration of technologies which will create a
communications interface that facilitates monitor display of both biochemical
and physiological information at the patient's bedside. The integrated blood
analysis systems which support intermittent testing and continuous monitoring
product line applications are scheduled for availability in the second half of
2001 and the first half of 2003, respectively.

      The Company has incurred research and development expenses of
approximately $4,962,000, $4,847,000 and $6,466,000 for the years ended December
31, 2000, 1999 and 1998, respectively.

Sales and Marketing

      The Company markets and distributes its products primarily through two
global partnerships with Codman and Agilent. The Company also continues to sell
direct to end-users in the veterinary market which is not subject to an
exclusive distribution agreement. Additionally, the Company's marketing strategy
is to pursue partnerships with market leaders who will help identify and promote
future applications in continuous tissue monitoring.

      Effective October 1, 1998, the Company entered into an exclusive
distribution agreement with Codman for worldwide market development and
distribution of the Company's Neurotrend monitoring system. The Company's
exclusive distribution agreement with Agilent, initially entered into with
Hewlett Packard Company on June 7, 1999, provides for worldwide market
development and distribution of the Company's Trendcare continuous blood gas
monitoring systems and the IRMA SL blood analysis system. 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, 2000,
under note 14 of Notes to Consolidated Financial Statements, and is incorporated
herein by reference.

      Prior to entering into the exclusive distribution agreements described
above, the Company's marketing efforts for its blood analysis systems focused on
acute care hospitals. Under the Company's new distribution agreements, near term
end-user 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's distributors' objectives will also include
penetration of smaller hospitals and alternate-site markets, such as emergency
medical facilities, home healthcare agencies, outpatient clinics, skilled
nursing homes and doctors' offices or clinics. The Company believes that the
advantages of its blood analysis and monitoring systems will help overcome the
possible reluctance of acute care hospitals to change standard operating
procedures for performing blood and tissue analysis or incur additional capital
expenses.

      The Company's established arrangements with hospital systems, healthcare
facilities and other influential healthcare buying groups which established the
Company as a sole, preferred or dual source supplier of its blood analysis
systems are now administered by Agilent. The Company expects its distribution
partners to continue to enter into arrangements with buying groups and customers
with respect to purchases of its blood and tissue analysis systems.

                                       7
<PAGE>

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 cartridges in its Roseville, Minnesota facility.
Components for the Company's continuous monitoring sensors used in the Paratrend
7, Neotrend and Neurotrend products are sourced from a variety of outside
vendors, but the unique assembly and testing of the sensing elements is
performed in the Company's High Wycombe facility. The sub-assembly of external
plastic assemblies is sub-contracted to outside vendors. The Company uses
external manufacturers to produce a range of hardware items, including the
Trendcare and Neurotrend monitors and patient data module. The Company assembles
in-house the IRMA SL analyzer and the continuous monitoring calibrator 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, without further significant capital investments.

      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 October 1998 and October
1999 for Roseville and High Wycombe facilities, respectively), and by the
British Standards Institution for the High Wycombe facility (most recently in
July 2000). As a result of these inspections, the Company's manufacturing
facilities and documentation and quality control systems are deemed satisfactory
and in compliance with Quality System Regulations.

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 and tissue analysis systems and for those
inventions most likely to be used by others as competing alternatives.

      For its intermittent testing platform, the Company currently maintains
four patents issued for its calibration technology, four patents related to its
sensor technology and four for companion technology. In addition, two patents
have been issued and maintained covering the IRMA SL analyzer and disposable
cartridge designs. Additionally, the Company has submitted patent applications
pertaining to an enzymatic sensor. 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
maintains 16 foreign patents; two issued in the United Kingdom, two in Germany,
two in France, five in Canada and five in Japan.

                                       8
<PAGE>

      As it relates to its continuous monitoring platform, the Company currently
maintains eight U.S. patents associated with the design and manufacture of its
sensor technology platforms, and has filed two patent applications. These
patents are at various patent process stages in the major European countries and
Japan.

      Material patents have expirations ranging from the year 2006 to 2018.  The
Company is not currently a party to any patent litigation.

      The Company has federally registered the trademarks "IRMA SL," "Diametrics
Medical, Inc.," "Diametrics Medical, Incorporated," "IRMA Data Management System
(IDMS)," "Neocath," "Paratrend," "Tissutrak," "Paratrend 7+," "Neotrend,"
"Trendcare," and "Neurotrend."

Competition

       The Company believes that potential purchasers of point-of-care blood and
tissue 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 other
company, i-STAT, that is marketing a hand-held 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 room temperature instead of
refrigerated storage of reagents.

      The Company also competes with companies that market near-patient multi-
use blood analysis systems. These companies include AVL Scientific Corporation,
Radiometer, Inc., Instrumentation Laboratories and Bayer (with their acquisition
of Chiron Diagnostics). However, the Company believes that to be successful in
the point-of-care market, a device must not only be able to perform a variety of
commonly ordered blood chemistry tests, but also be very portable to facilitate
ease of use at the patient's bedside.

      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.  The Company believes that its multi-parameter
continuous arterial blood gas and tissue monitoring systems are currently the
only products of their kind commercially available.

      The Company's products are competitively priced with other point-of-care
product offerings and are lower in price than centralized testing labs when the
full cost of implementation is considered (i.e., equipment, maintenance,
facilities and trained lab personnel). Centralized testing labs also do not
provide the convenience and fast turnaround time for test results that point-of-
care products offer.

      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 and tissue information 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 sold by the Company or that would render the Company's technology
and products obsolete or noncompetitive.

                                       9
<PAGE>

Executive Officers

        Name                 Age          Position
        ----                 ---          --------

David T. Giddings            57           President, Chief Executive Officer and
                                          Chairman

Roy S. Johnson               48           Executive Vice President and
                                          President and Managing Director of
                                          Diametrics Medical, Ltd.

Laurence L. Betterley        47           Senior Vice President and
                                          Chief Financial Officer

      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 U.S. subsidiary of Corange Ltd., a
private global healthcare corporation. 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 subsidiary of the Company established in conjunction with the
acquisition in November 1996 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 Wellcome in pharmaceutical
production management and was the head of manufacturing in Burroughs' Sydney,
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.

Employees

      As of December 31, 2000, the Company had a total of 154 full-time
employees, including 47 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

      This Annual Report on Form 10-K and the Company's financial statements,
"Management's Discussion and Analysis of Results of Operations and Financial
Condition" in Item 7 and other documents incorporated by reference contain
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended. These forward-looking statements represent our expectations or
beliefs, including, but not limited to, our current assumptions about future
financial performance, anticipated problems, and our plans for future
operations, which are subject to various risks and uncertainties. When used in
this Form 10-K and in future filings by the Company with the Securities and
Exchange Commission, in our press releases, presentations

                                       10
<PAGE>

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.
However, any statements contained in this Form 10-K that are not statements of
historical fact may be deemed to be forward-looking statements. We caution that
these statements by their nature involve risks and uncertainties, certain of
which are beyond our control, and actual results may differ materially depending
upon a variety of important factors, including those described in Exhibit 99 to
this Form 10-K.



Item 2.  Properties

         The Company's principal properties are as follows:

<TABLE>
<CAPTION>
Location of                               Use of                     Approximate                 Lease
 Property                                Facility                   Square Footage          Expiration Date
----------------                   ------------------               --------------          ---------------
<S>                            <C>                                  <C>                     <C>
Roseville, Minnesota           Manufacturing, research                  43,300              February 2004
                                 and development, sales,
                                 marketing and administration

Malvern, Pennsylvania          Research and development                  2,000              March 2002


High Wycombe,                  Manufacturing, process                   14,500              September 2005
   United Kingdom                engineering, purchasing
                                 and distribution

High Wycombe,                  Sales, marketing and                      5,500              January 2015 (1)
  United Kingdom                 administration

High Wycombe,                  Research and development                  6,000              April 2004 (2)
   United Kingdom
</TABLE>

     (1)  Lease can be terminated without penalty at the Company's sole
          discretion in July 2002 and January 2005.
     (2)  Lease can be terminated without penalty at the Company's sole
          discretion in April of 2001, 2002 and 2003.

The Company believes that its facilities are sufficient for its projected needs
through 2002.

Item 3.  Legal Proceedings

         The Company is currently not subject to any material pending or
threatened legal proceedings.

Item 4.  Submission of Matters to a Vote of Security Holders

         No matters were submitted to a vote of security holders during the
fourth quarter of the year ended December 31, 2000.


                                    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" on page 36 in the

                                       11
<PAGE>

Company's Annual Report to Shareholders for the year ended December 31, 2000
(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 13 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 18 in the Annual Report to Shareholders is incorporated herein by
reference.

Item 7.a.  Quantitative and Qualitative Disclosures About Market Risk

           The information contained under the heading "Market Risk" on page 17
in the Annual Report to Shareholders is incorporated herein by reference.

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 and Comprehensive Loss," "Consolidated Statements of Cash
Flows" and "Notes to Consolidated Financial Statements" on pages 19 through 33
and "Report of Independent Auditors" on page 34 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 2001 Annual Meeting of
Shareholders to be held on May 23, 2001, which definitive Proxy Statement will
be filed within 120 days after the close of the fiscal year ended December 31,
2000 (the "Proxy Statement"), is incorporated herein by reference.

           Executive Officers of the Registrant

           See Part I, Item 1 of this Report for information on Executive
Officers of the Company.

           The information contained under the heading "Compliance with Section
16(a) of the Securities Exchange Act of 1934" in the Proxy Statement is
incorporated herein by reference.

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.

                                       12
<PAGE>

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, 2000
      Consolidated Balance Sheets at December 31, 2000 and 1999
      Consolidated Statements of Shareholders' Equity and Comprehensive Loss for
          each of the years in the three-year period ended December 31, 2000
      Consolidated Statements of Cash Flows for each of the years in the three-
          year period ended December 31, 2000
      Notes to Consolidated Financial Statements

      Except for the financial statements listed above and the items
specifically incorporated by reference in Items 5, 6, 7, 7.a. 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

Schedule II - Valuation and Qualifying Accounts

<TABLE>
<CAPTION>
                            Balance at            Charged to
                           Beginning of           Costs and             Charged to                                   Balance at End
                              Period               Expenses           Other Accounts            Deductions             of Period
                           ------------           ----------          --------------           ------------          --------------
<S>                        <C>                    <C>                 <C>                      <C>                   <C>
Allowance for doubtful
accounts:
2000                           $200,000             $ 15,000             $         -           $   (61,250)*               $153,750
1999                            280,000              301,836                       -              (381,836)*                200,000
1998                            188,599              207,511                       -              (116,110)*                280,000

Inventory reserve:
2000                           $ 70,125             $ 64,693             $         -           $         -                 $134,818
1999                             45,135               24,990                       -                     -                   70,125
1998                             91,260                    -                       -               (46,125)**                45,135
</TABLE>

*    Trade accounts receivable written off against the allowance for doubtful
accounts.
**   Excess, slow moving or obsolete inventory written off against the inventory
reserve.

                                       13
<PAGE>

          All other 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.

          3.  Exhibits

<TABLE>
<CAPTION>
Exhibit
No.                          Description                                          Method of Filing
---                          -----------                                          ----------------
<S>                                                                               <C>
3.1       Articles of Incorporation of the Company (as amended)                           (6)

3.2       Bylaws of the Company (as amended)                                             (13)

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                             (2)

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                                                   (4)

4.5       Registration Rights Agreement, dated as of June 10, 1997,
          by and between the Company and the Purchasers                                   (7)

4.6       Form of Certificate for Series I Junior Participating Preferred Stock           (4)

4.7       Form of Stock Purchase Warrant, dated as of January 30, 1997                    (4)

4.8       Form of Stock Purchase Warrant, dated as of June 10, 1997                       (7)

10.1      Real Property Lease Agreements dated July 31, 1996, between
          Commers-Klodt, a Minnesota General Partnership, and the Company                (11)

10.2      Amendments, dated June 15, 1999, to Real Property Lease Agreements
          dated July 31, 1996, between Commers-Klodt, a Minnesota General
          Partnership, and the Company                                                   (13)

10.3      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)

10.4*     1990 Stock Option Plan (as amended and restated), including
          form of option agreement                                                        (9)

10.5*     1993 Directors' Stock Option Plan, as amended and restated                      (9)

10.6*     1995 Equalizing Director Stock Option Plan                                      (3)

10.7      1995 Employee Stock Purchase Plan (as revised and restated)                     (5)
</TABLE>

                                       14
<PAGE>

<TABLE>
<S>                                                                                       <C>
10.8      Agreement dated January 1, 1995 between the Company and Vencor, Inc.                  (2)

10.10     Stock Purchase Agreement, dated as of January 30, 1997,
          between the Company and the Purchasers named therein                                  (4)

10.11     Stock Purchase Agreement dated as of June 10, 1997,
          between the Company and the Purchasers named therein                                  (7)

10.12     Loan and Security Agreement, dated March 31, 1998, between
          DVI Business Credit and the Company                                                   (8)

10.13     Common Stock Purchase Agreement, dated June 30, 1998, between
          the Company and the Purchasers named therein                                          (9)

10.14     Form of Stock Purchase Warrant, dated August 4, 1998                                  (9)

10.15     Note Purchase Agreement, dated August 4, 1998, between the
          Company and the Purchasers named therein                                              (9)

10.16     Form of Convertible Senior Secured Fixed Rate Note due August 4, 2003                 (9)

10.17     Distribution Agreement, dated October 1, 1998, between the Company
          and Johnson & Johnson Professional, Inc.                                             (10)

10.18     Put Option and Stock Purchase Agreement, dated October 1, 1998,
          between the Company and Johnson & Johnson Development Corporation                    (10)

10.19     Severance Pay Agreement (in the event of Change of Control) dated
          July 31, 1998, between the  Company and David T. Giddings                            (10)

10.20     Form of Severance Pay Agreement (in the event of Change of Control)
          dated July 31, 1998, between the Company and its executive officers                  (10)

10.21     Form of Severance Pay Agreement (in the event of Termination Without
          Cause) dated July 31, 1998, between the Company and its executive
          officers                                                                             (10)

10.22     Distribution Agreement, dated June 6, 1999, between the Company
          and Hewlett-Packard Company                                                          (12)

10.23     Common Stock Purchase Agreement, dated June 6, 1999, between the
          Company and Hewlett-Packard Company                                                  (12)

10.24     Stock Purchase Warrant, dated effective as of June 28, 1999                          (12)

13        Portions of the Company's Annual Report to Shareholders
          for the year ended December 31, 2000 incorporated by reference
          in this Form 10-K                                                               Filed herewith

21        List of Subsidiaries                                                            Filed herewith

23        Consent of KPMG LLP                                                             Filed herewith

24        Powers of Attorney (included in signature page of Report)                       Filed herewith
</TABLE>

                                       15
<PAGE>

<TABLE>
<S>                                                                                  <C>
99    Cautionary Statements Under the Private Securities Litigation
      Reform Act                                                                      Filed herewith
</TABLE>
___________________

*     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 Registration Statement on Form
      S-1 (Registration Number 33-94442).

(3)   Incorporated by reference to the Company's 1995 Annual Report on Form 10-
      K.

(4)   Incorporated by reference to the Company's Current Report on Form 8-K
      filed March 25, 1997.

(5)   Incorporated by reference to the Company's 1996 Annual Report on Form 10-
      K.

(6)   Incorporated by reference to the Company's Quarterly Report on Form 10-Q
      for the Quarter ended March 31, 1997.

(7)   Incorporated by reference to the Company's Current Report on Form 8-K
      filed June 26, 1997.

(8)   Incorporated by reference to the Company's Quarterly Report on Form 10-Q
      for the Quarter ended March 31, 1998.

(9)   Incorporated by reference to the Company's Quarterly Report on Form 10-Q
      for the Quarter ended June 30, 1998.

(10)  Incorporated by reference to the Company's Quarterly Report on Form 10-Q
      for the Quarter ended September 30, 1998.

(11)  Incorporated by reference to the Company's 1998 Annual Report on Form 10-
      K.

(12)  Incorporated by reference to the Company's Current Report on Form 8-K
      filed July 23, 1999.

(13)  Incorporated by reference to the Company's 1999 Annual Report on Form 10-
      K.

(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, 2000.

(c)   See Item 14(a)(3) above.

(d)   See Item 14(a)(2) above.

                                       16
<PAGE>

                                  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, in the City of
Roseville, State of Minnesota, on March 30, 2001.

                                             DIAMETRICS MEDICAL, INC.


                                             By /s/ David T. Giddings
                                                --------------------------------
                                                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, 2001.

      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,
2000 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/ Andre de Bruin
------------------------------------
        Andre de Bruin                 Director

    /s/ Gerald L. Cohn
------------------------------------
        Gerald L. Cohn                 Director

    /s/ Carl S. Goldfischer
------------------------------------
        Carl S. Goldfischer, M.D.      Director

    /s/ Hans-Guenter Hohmann
------------------------------------
        Hans-Guenter Hohmann           Director

    /s/ Roy S. Johnson
------------------------------------
        Roy S. Johnson                 Director

    /s/ Mark B. Knudson
------------------------------------
        Mark B. Knudson, Ph.D.         Director

<PAGE>

                                  EXHIBIT INDEX



Exhibit
No.                        Description
---                        -----------

13         Portions of the Company's Annual Report to Shareholders for the year
           ended December 31, 2000 incorporated by reference in this Form 10-K

21         List of Subsidiaries

23         Consent of KPMG LLP

24         Powers of Attorney (included in signature page of Report)

99         Cautionary Statements Under the Private Securities Litigation Reform
           Act
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-13
<SEQUENCE>2
<FILENAME>0002.txt
<DESCRIPTION>PORTIONS OF COMPANY'S ANNUAL REPORT
<TEXT>

<PAGE>

SELECTED FIVE-YEAR FINANCIAL DATA

<TABLE>
<CAPTION>
(in thousands, except share and per share amounts)                                       Years ended December 31,
-----------------------------------------------------------------------------------------------------------------------------------
                                                                       2000          1999          1998          1997          1996
<S>                                                             <C>           <C>           <C>           <C>           <C>
Statement of Operations Data:(3)
Net sales                                                       $    25,258   $    18,687   $    12,156   $    10,434   $     3,797
Operating loss                                                       (2,743)      (10,044)      (17,175)      (20,737)      (23,831)
Net loss                                                             (2,648)      (10,244)      (17,388)      (21,037)      (23,575)
Net loss per share (1), (2)                                           (0.10)        (0.41)        (0.79)        (1.13)        (1.56)
Weighted average shares outstanding                              26,490,826    24,719,038    21,996,382    18,665,837    15,088,493

Balance Sheet Data:(3)
Working capital                                                 $    14,334   $    15,009   $    11,415   $    12,509   $     6,649
Total assets                                                         27,811        31,972        25,346        28,662        24,059
Long-term liabilities                                                 7,886         7,823         8,345         8,969         8,582
Shareholders' equity                                                 14,185        13,841        11,366        12,773         8,674
</TABLE>

(1)  The Company has not paid any dividends since inception.

(2)  Basic and diluted net loss per share amounts are identical as the effect of
 potential common shares is antidilutive.

(3)  On November 6, 1996 the Company acquired all of the outstanding capital
stock of Biomedical Sensors, Ltd. and certain assets of Howmedica, Inc. The
Company accounted for the acquisition using the purchase method of accounting
and, accordingly, the results of operations of the acquired entities have been
included in the Company's consolidated financial statements from November 6,
1996.


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

SUMMARY

Diametrics Medical, Inc., which began operations in 1990, is engaged in the
development, manufacture 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 December 31, 2000, the primary funding for the
operations of the Company has been approximately $148 million raised through
public and private sales of its equity securities and issuance of convertible
promissory notes.

Financial results for 2000 reflect a continuation of the Company's trend of
achieving successive operational improvements, with annual sales growth of 35%;
additional improvements in gross profit, increasing 159% over 1999; and further
reductions in operating expenses, declining 21% from 1999, all resulting in a
74% reduction in annual operating loss. The Company's distribution partnerships
initiated in late 1998 and mid 1999, discussed below, again contributed
significantly to the favorable financial trend.

The Company's partnering strategy for distribution and commercialization of its
products includes Agilent Technologies, Inc. ("Agilent"), the exclusive global
distributor of the Company's leading critical care blood monitoring products,
the IRMA(R) SL blood analysis system and the Trendcare(R) continuous blood gas
monitoring systems, including Paratrend(R) and Neotrend(TM); and Codman &
Shurtleff, a Johnson & Johnson company ("Codman"), who is the exclusive
worldwide distributor of the Neurotrend(TM) Cerebral Tissue Monitoring System.

The Codman distribution agreement was initiated in October 1998, has a term of
six years and is renewable for two years. If minimum sales levels and marketing
expenditure levels are not achieved by Codman, certain payments will be due to
the Company. Also, Codman has the right of first refusal to market new
continuous monitoring products developed for the neuro market. In addition,
Johnson & Johnson Development Corporation ("JJDC") committed to purchase up to
$5 million of the Company's Common Stock at the Company's option over the
twelve-month period ended September 30, 1999 at the then current market value.
The Company exercised approximately $4 million of the available Put Option
during 1999.

                                                                              13
<PAGE>

The Agilent distribution agreement was signed in June 1999, initially as an
agreement between the Company and Hewlett Packard Company ("HP"). Under the
terms of the distribution agreement, the Company transferred full responsibility
for marketing, sales and distribution of the blood monitoring products described
above to HP. The initial term of the agreement is three and a half years, with
the option for extensions. Concurrently with the execution of the agreement, HP
made a $9.5 million equity investment in the Company. In addition to HP's equity
investment, the agreement also provides for minimum purchase commitments, market
development commitments, research and development funding and royalty payments
over its initial term, as well as funding of sales and marketing costs during
the sales transition period in 1999. In late 1999, HP assigned the distribution
agreement and its equity investment with the Company 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 spun off its ownership in
Agilent to HP shareholders during 2000.

The Company's partnerships with these market leaders were instrumental in
driving the significant sales growth and operating expense reductions achieved
in 2000. Also contributing to improved financial performance was revenue mix and
continued improvements in cartridge and sensor volumes and yields, resulting in
lower unit manufacturing costs and improved margins. Increased automation of the
Company's manufacturing processes as well as operational efficiencies and
process improvements contributed to the improvement in production yields, with
further improvements targeted for 2001.

RESULTS OF OPERATIONS

SALES  Sales of the Company's products were $25,258,407 for 2000, compared to
$18,687,184 for 1999, and $12,155,526 for 1998. The 54% increase in sales from
1998 to 1999 reflects a 99% growth in sales of instruments and a slight increase
in disposable cartridge and sensor sales. Sales grew 35% in 2000 from 1999,
reflecting a 32% increase in sales of instruments and a 9% increase in
disposable cartridge and sensor sales. The significant increase in instrument
sales each year was impacted primarily by sales to the Company's new
distribution partners, Agilent and Codman, partially offset in 1999 by the
impact of sales returns from distributors that were displaced as a result of the
new exclusive distribution agreements. While unit sales of disposable cartridges
and sensors grew 25% and 28% in 1999 and 2000, respectively, related revenues
grew at a lower rate due to the impact of lower average sales prices under the
Agilent and Codman distribution agreements. The impact of reduced pricing was
partially mitigated by the recognition of royalty revenue from the Agilent
distribution agreement of $240,000 in 1999 and $2,260,000 in 2000. The Company's
sales to Agilent and Codman comprised approximately 90%, 69%, and 3% of total
sales in 2000, 1999 and 1998, respectively, and are expected to approximate 2000
levels as a percentage of total sales in 2001. Intermittent testing products
represented 44%, 39% and 63% of sales in 2000, 1999 and 1998, respectively,
with continuous monitoring products comprising the remaining sales in each year.

For the year ended December 31, 2000, intermittent blood testing products
revenue was comprised of 67% instrument related revenue and 33% disposable
cartridge related revenue. Continuous monitoring products revenue was comprised
of 78% instrument related revenue and 22% disposable sensor revenue. 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 December 31, 2000, the Company has sold approximately 7,600 instruments. Unit
sales of instruments in 2000 increased approximately 40% from 1999, while
disposable sensor and cartridge unit sales increased approximately 28%. As the
Company grows, it is expected that the 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.

COST OF SALES   Cost of sales totaled $17,738,103 for 2000, compared to
$15,779,694 for 1999 and $11,334,721 for 1998. Cost of sales as a percentage of
revenue was 70% in 2000, 84% in 1999 and 93% in 1998. The year-to-year
improvement in the Company's cost of sales as a percentage of revenue reflects
increased unit sales volumes, a higher ratio of instrument sales to total sales,
improved cartridge and sensor yields, a reduction in instrument material costs,
and the impact of operational efficiencies and process improvements. These
improvements were partially offset by lower average sales prices each year, and
in 1999, the impact of sales returns from distributors that were displaced as a
result of the Company's exclusive distribution agreement with Agilent. The
impact of lower pricing was partially mitigated in 2000 by royalty revenue from
the Agilent distribution agreement.

OPERATING EXPENSES   Total operating expenses decreased $2.7 million or 21% from
1999 to 2000, following a decrease of $5 million or 28% from 1998 to 1999. The
significant year-to-year decline in operating expenses is primarily the result
of research and development funding received from Agilent as part of the
distribution agreement and the transfer during 1999 of the Company's sales and
marketing functions to Agilent.

Research and development expenses totaled $4,962,348, compared to $4,847,463 in
1999 and $6,466,154 in 1998. The 25% decline in expenses from 1998 to 1999 was
primarily due to the recognition in 1999 of approximately $1.2 million of
research and development funding received from Agilent as part of the
distribution agreement. Additional investments were made during 2000 to

14
<PAGE>

support new research and development projects, the impact of which was reduced
by the recognition of $2 million of funding from Agilent.

Selling, general and administrative expenses totaled $5,300,918, compared to
$8,103,826 in 1999 and $11,529,922 in 1998. The significant year-to-year
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.

INTEREST AND OTHER   The Company realized interest income of $787,396 in 2000,
compared to $528,787 in 1999 and $422,441 in 1998. The year-to-year improvements
in interest income reflect the impact of higher average cash and investment
balances each year, primarily affected by the timing of the Company's financing
activities, funding received from Agilent and improved cash flows from
operations.

Interest expense totaled $586,616 in 2000, compared to $630,459 in 1999 and
$807,411 in 1998. The year-to-year decline in expense primarily reflects lower
average debt balances each successive year, and in 1999, a reduction in the
amount of higher interest bearing capital lease debt relative to total debt
outstanding.

Other income (expense), net, was comprised of net other expense of $105,435 and
$98,076 in 2000 and 1999, respectively, following net other income of $172,579
in 1998. The change in net amounts from 1998 to 1999 was primarily due to a
reduction in foreign currency transaction gains.

NET LOSS   Net loss for the year ended December 31, 2000 was $2,647,617,
compared to $10,243,547 in 1999 and $17,387,662 in 1998. The year-to-year
improvement in net loss reflects revenue growth; improved margins, influenced by
higher unit volumes, changes in revenue 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 currently operating in an environment with uncertainties and
changes that may impact 2001 financial results. These include the initial impact
of new product introductions on sales of existing hardware product lines, the
impact on sales of reduced capital spending in the healthcare sector over the
past year and the general slowdown of the U.S. economy, and the impact of a
potential transition of the distribution channel as a result of the pending sale
of Agilent's healthcare business to Royale Philips Electronics. Revenue and
gross profit levels in 2001 will depend in part on the impact of the above as
well as revenue mix. As a result, the Company's financial performance for 2001
may potentially not improve or substantially improve from that of 2000.

LIQUIDITY AND CAPITAL RESOURCES

At December 31, 2000, the Company had working capital of approximately $14.3
million, a decrease of approximately $700,000 from the working capital of $15
million reported at December 31, 1999. The net decrease primarily reflects the
impact of the amount and timing of proceeds from private equity placements in
1999 and the timing of proceeds from Agilent for funding of research and
development expenses and royalties, partially offset by an improvement in net
cash used in operating activities for the year ended December 31, 2000. Through
December 31, 2000, the Company raised approximately $148 million through the
public and private sales of its equity securities and the issuance of
convertible promissory notes.

Net cash used in operating activities totaled $5.2 million for the year ended
December 31, 2000, compared to $3 million and $18.8 million for the same periods
in 1999 and 1998, respectively. This was the result of net losses of $2.6
million, $10.2 million and $17.4 million for these same periods in 2000, 1999
and 1998, respectively, adjusted by changes in key operating assets and
liabilities, primarily accounts receivable, inventories, accounts payable,
accrued expenses and deferred credits and revenue.

As discussed in note 17 of Notes to Consolidated Financial Statements, effective
January 1, 1998, the Company changed the year-end of its wholly-owned
subsidiary, Diametrics Medical, Ltd. ("DML"), to December 31 from November 30 to
produce a consistent reporting period for the consolidated entity. As a result
of this change in year-end, DML's net results of operations for the month of
December 1997 were closed to beginning accumulated deficit as of January 1,
1998. Additionally, the changes in DML's operating assets and liabilities during
the month of December 1997 are included in the Consolidated Statement of Cash
Flows for the year ended December 31, 1998. The discussion below of changes in
accounts receivable, inventories, accounts payable and accrued expenses includes
the impact of the DML year-end change on these balances.

Net accounts receivable decreased $109,000 for the year ended December 31, 2000,
compared to increases of $1.4 million and $1.7 million in 1999 and 1998,
respectively. In spite of a significant increase in sales in each year, accounts
receivable growth declined between 1998 and 1999 and the balance decreased in
2000 primarily due to an improvement in days sales outstanding each successive
year, impacted by the Company's distribution partnerships, and the timing of
sales.

Inventories increased $164,000 for the year ended December 31, 2000, after a
decrease of $651,000 in 1999 and an increase of $1.3 million in 1998. The
increase in 1998 was due to increased inventory levels needed to begin internal
assembly of the Company's IRMA SL analyzers and to meet an expected increase

                                                                              15
<PAGE>

in demand. The decrease in 1999 and small increase in 2000 reflect a decrease in
finished goods inventories in both years. The decline in finished goods
inventory in 2000 was offset by an increase in work-in-process inventory to meet
anticipated production and sales requirements in the first quarter of 2001. Each
year's average inventory balance was positively impacted by successive
improvements in inventory turnover, stemming from improved inventory management.

Accounts payable and accrued expenses decreased $647,000 for the year ended
December 31, 2000, after an increase of $405,000 in 1999 and a decrease of $1.5
million in 1998. The decrease in 1998 was affected primarily by a reduction in
accrued interest payable, due to the timing of interest payments, and reductions
in product upgrade accruals as upgrades were completed from a prior year's
upgrade program, combined with timing of payments to vendors and employees. The
increase in 1999 is primarily due to increased accruals for costs to complete
additional committed product upgrades, and employee bonuses. The decline in 2000
was affected primarily by the timing of vendor payments and reductions in
product upgrade accruals as upgrades were completed from the prior year program.

Deferred credits and revenue decreased $4.1 million during 2000, after a $5.1
million increase in 1999. The increase in 1999 primarily reflects the receipt of
$9.5 million of prepaid funding from Agilent under the terms of the distribution
agreement, partially offset by the recognition of approximately $4.4 million of
the funding as a reduction of 1999 expenses. The decrease in 2000 represents the
recognition of funding from Agilent for research and development and royalties
of $4.3 million, partially offset by customer advance payments.

Net cash provided by investing activities totaled $1.4 million for the year
ended December 31, 2000, following net cash used in investing activities of $9.1
million in 1999 and net cash provided by investing activities of $3.2 million in
1998. These year-to-year changes were primarily affected 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 also
affected net cash provided by or used in investing activities, and totaled $3.6
million for the year ended December 31, 2000, $1.7 million in 1999 and $2.3
million in 1998. Capital additions in each year consisted primarily of
investments in development and production equipment and software and instruments
for internal use in research and development and sales. In 2001, the Company
expects total capital expenditures and new lease commitments to approximate $2.4
million for the year, primarily reflecting investments to support new product
development and production.

Net cash provided by financing activities totaled $3.6 million for the year
ended December 31, 2000, compared to $11.8 million in 1999 and $16.4 million in
1998. The year-to-year changes were due primarily to the amounts and timing of
equity funding and the amount of proceeds from employee stock plans and warrant
exercises in each of these years.

In late 1996 and throughout 1997, the Company entered into long-term debt
obligations of approximately $8.9 million. The original debt consisted of a $7.3
million senior secured fixed rate loan note issued to Pfizer Inc. in connection
with the Company's acquisition of DML and approximately $1.6 million in notes
payable for equipment financing. Proceeds from the issuance in August 1998 of
$7.3 million of Convertible Senior Secured Fixed Rate Notes, issued in
conjunction with a private equity placement, were simultaneously used to retire
the $7.3 million Pfizer note. The Company's long-term debt obligations require
principal and interest repayments of approximately $1 million in 2001, $700,000
in 2002 and $7.6 million in 2003.

Effective March 31, 1998, the Company secured a $1 million receivable backed
line of credit. The loan agreement requires the Company's accounts receivable
collections to be applied to reduce the loan balance, including advances,
interest and fees. At December 31, 2000, no advances were outstanding under the
line of credit.

At December 31, 2000, the Company had U.S. net operating loss and research and
development tax credit carryforwards for income tax purposes of approximately
$117.5 million and $1.3 million, respectively. (See note 12 of Notes to
Consolidated Financial Statements for further discussion).

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 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, the level of
resources devoted to expanding the Company's business and manufacturing
capabilities, and the level of 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.

16
<PAGE>

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, DML, 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. November
1, 1999 marked the completion of a sales transition period with Agilent, the
Company's exclusive global distributor of the IRMA SL blood analysis system and
the Trendcare continuous blood monitoring products, which followed the
completion of a distribution agreement in the fourth quarter 1998 with Codman,
who is the exclusive global distributor of Neurotrend, a continuous cerebral
tissue monitoring product.

The effect of foreign exchange rate fluctuations on the Company's financial
results for the years ended December 31, 2000, 1999 and 1998 was not material.
The Company does not currently use derivative financial instruments to hedge
against exchange rate risk. Because foreign exchange exposure to these rate
fluctuations increases as intercompany balances grow, the Company will continue
to evaluate the need to initiate hedging programs to mitigate the impact on
intercompany balances of changes in the exchange rate of the British pound
sterling to the U.S. dollar.

The Company's exposure to interest rate risk is limited to borrowings under a $1
million receivable backed credit line and a bank loan. Any advances under the
line of credit bear interest on the unpaid principal amount at a fluctuating
rate tied to the Prime Rate, while amounts outstanding under the bank loan bear
interest at a fluctuating rate tied to the bank's base rate. The Company does
not use derivative financial instruments to manage interest rate risk.
Borrowings under the line of credit are limited to $1 million and are generally
repaid within a few months. The outstanding balance under the bank loan is less
than $100,000. Given the above, the Company's exposure to interest rate risk is
not believed to be material. All other existing debt agreements of the Company
bear interest at fixed rates, and are therefore not subject to exposure from
fluctuating interest rates.

EURO CONVERSION

As noted under "Market Risk," the Company sells and distributes most of its
products globally through distributors, with sales denominated in U.S. dollars.
The Company's subsidiary, DML, conducts its operations from the U.K. The U.K. is
one of the four countries of the European Union ("EU") that did not adopt the
euro as its legal currency effective January 1, 1999; however, the U.K. may
convert to the euro at a later date. The conversion to the euro by the
participating countries of the EU is not expected to result in large-scale
changes to the denominations or pricing of the Company's sales contracts.

The Company has assessed the potential impact of the euro conversion on business
processes, information technology systems and fixed assets in its U.K.
operations, and has made required changes.

While the Company will continue to evaluate the impact of the euro conversion
over time, based upon currently available information, management does not
believe that the conversion to the euro currency will have a material impact on
the Company's financial condition or overall trends in results of operations.

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) is 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 has evaluated SFAS No. 133, and
has concluded that it does not 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 effective no later than the fourth fiscal quarter of all
fiscal years beginning after December 15, 1999. The Company was 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 has reviewed SAB 101
and its related guidance, and has concluded that its revenue recognition
policies are in compliance with SAB 101.

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,

                                                                              17
<PAGE>

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 economies, the
performance of the Company's distributors and the availability of capital to
finance growth. These and other risks are discussed in greater detail in an
exhibit in the Company's Form 10-K filed with the U.S. Securities and Exchange
Commission.

18
<PAGE>

CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                           Years ended December 31,
                                                 -------------------------------------------------
Diametrics Medical, Inc. and Subsidiary              2000             1999                1998
--------------------------------------------------------------------------------------------------
<S>                                              <C>              <C>                  <C>
Net sales                                       $ 25,258,407    $  18,687,184        $  12,155,526
Cost of sales                                     17,738,103       15,779,694           11,334,721
                                                --------------------------------------------------
       Gross profit                                7,520,304        2,907,490              820,805


Operating expenses:
     Research and development                      4,962,348        4,847,463            6,466,154
     Selling, general and administrative           5,300,918        8,103,826           11,529,922
                                                --------------------------------------------------

                                                  10,263,266       12,951,289           17,996,076
                                                --------------------------------------------------
       Operating loss                             (2,742,962)     (10,043,799)         (17,175,271)


Interest income                                      787,396          528,787              422,441
Interest expense                                    (586,616)        (630,459)            (807,411)
Other income (expense), net                         (105,435)         (98,076)             172,579
                                                --------------------------------------------------
       Net loss                                 $ (2,647,617)   $ (10,243,547)       $ (17,387,662)
                                                ==================================================

Basic and diluted net loss per common share     $      (0.10)   $       (0.41)       $       (0.79)
                                                ==================================================

Weighted average common shares outstanding        26,490,826       24,719,038           21,996,382
                                                ==================================================
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

                                                                              19
<PAGE>

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                           December 31,
                                                                                    ----------------------------
Diametrics Medical, Inc. and Subsidiary                                                2000            1999
----------------------------------------------------------------------------------------------------------------
<S>                                                                               <C>                <C>
Assets

Current assets:
   Cash and cash equivalents                                                      $   2,431,704      $ 2,786,162
   Marketable securities                                                              6,281,761       11,339,009
   Accounts receivable, net of allowance for doubtful accounts of
      $153,750 in 2000 and $200,000 in 1999                                           6,682,129        6,790,673
   Inventories                                                                        4,280,234        4,116,348
   Prepaid expenses and other current assets                                            397,406          285,336
                                                                                  ------------------------------
     Total current assets                                                            20,073,234       25,317,528
                                                                                  ------------------------------

Property and equipment, net                                                           7,336,283        5,774,497

Other assets, net                                                                       401,240          880,171
                                                                                  ------------------------------
                                                                                  $  27,810,757      $31,972,196
                                                                                  ==============================

Liabilities and Shareholders' Equity

Current liabilities:
   Accounts payable                                                               $   2,398,987      $ 2,438,550
   Accrued expenses                                                                   1,914,409        2,414,785
   Deferred credits and revenue                                                       1,000,365        5,105,214
   Current portion of long-term liabilities                                             425,775          349,511
                                                                                  ------------------------------
     Total current liabilities                                                        5,739,536       10,308,060
                                                                                  ------------------------------
Long-term liabilities:
   Long-term liabilities, excluding current portion                                   7,472,215        7,813,796
   Other liabilities                                                                    414,115            9,684
                                                                                  ------------------------------
     Total liabilities                                                               13,625,866       18,131,540
                                                                                  ------------------------------

Shareholders' equity:
    Preferred stock, $.01 par value: 5,000,000 shares
     authorized, none issued                                                                  -                -
   Common stock, $.01 par value: 35,000,000 shares authorized, 26,713,166
     and 25,778,499 shares issued and outstanding at December 31, 2000
     and 1999, respectively                                                             267,132          257,785
   Additional paid-in capital                                                       147,291,259      143,463,332
   Accumulated deficit                                                             (132,011,571)    (129,363,954)
   Accumulated other comprehensive loss                                              (1,361,929)        (516,507)
                                                                                  ------------------------------
     Total  shareholders' equity                                                     14,184,891       13,840,656
                                                                                  ------------------------------
Commitments and contingencies (notes 8, 15, and 16)
                                                                                  $  27,810,757      $31,972,196
                                                                                  ==============================

</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

20
<PAGE>

CONSOLIDATED STATEMENTS OF  SHAREHOLDERS' EQUITY AND COMPREHENSIVE LOSS

<TABLE>
<CAPTION>
                                                        Additional                   Accumulated other     Total
Diametrics Medical, Inc.                      Common     paid-in       Accumulated     comprehensive   shareholders'
and Subsidiary                                stock      capital         deficit       income (loss)      equity
-----------------------------------------------------------------------------------------------------------------------
<S>                                         <C>       <C>            <C>              <C>              <C>
   Balance, December 31, 1997               $ 208,899 $ 113,970,247  $ (101,055,680)  $   (350,189)     $ 12,773,277
                                           =========================================================================

Net loss                                            -             -     (17,387,662)             -       (17,387,662)
Foreign currency translation adjustment             -             -               -        (98,328)          (98,328)
Minimum pension liability                           -             -               -        223,352           223,352
                                           -------------------------------------------------------------------------
Comprehensive loss for the year ended
   December 31, 1998                                -             -     (17,387,662)       125,024                 -
Issued common stock                            21,582    14,792,052               -              -        14,813,634
Issued common stock under
   employee stock purchase plan                   450       209,646               -              -           210,096
Exercise of options to common stock             2,441     1,183,531               -              -         1,185,972
Exercise of warrants to common stock              544       309,144               -              -           309,688
Issued stock options in lieu of cash
   compensation                                     -        12,600               -              -            12,600
Effect of subsidiary's year-end change              -             -        (677,065)             -          (677,065)
                                           -------------------------------------------------------------------------
   Balance, December 31, 1998                 233,916   130,477,220    (119,120,407)      (225,165)       11,365,564
                                           =========================================================================
Net loss                                            -             -     (10,243,547)             -       (10,243,547)
Foreign currency translation adjustment             -             -               -       (405,483)         (405,483)
Minimum pension liability                           -             -               -        114,141           114,141
                                           -------------------------------------------------------------------------
Comprehensive loss for the year ended
   December 31, 1999                                -             -     (10,243,547)      (291,342)                -
Issued common stock                            21,303    11,849,017               -              -        11,870,320
Issued common stock under
   employee stock purchase plan                   329       146,284               -              -           146,613
Exercise of options to common stock             2,237       976,708               -              -           978,945
Issued stock options in lieu of cash
   compensation                                     -        14,103               -              -            14,103
                                           -------------------------------------------------------------------------
   Balance, December 31, 1999                 257,785   143,463,332    (129,363,954)      (516,507)       13,840,656
                                           =========================================================================
Net loss                                            -             -      (2,647,617)             -        (2,647,617)
Foreign currency translation adjustment             -             -               -       (333,522)         (333,522)
Minimum pension liability                           -             -               -       (511,900)         (511,900)
                                           -------------------------------------------------------------------------
Comprehensive loss for the year ended
   December 31, 2000                                -             -      (2,647,617)      (845,422)                -
Issued common stock under
   employee stock purchase plan                   190       107,743               -              -           107,933
Exercise of options to common stock             3,134     1,332,694               -              -         1,335,828
Exercise of warrants to common stock            6,023     2,387,490               -              -         2,393,513
                                           -------------------------------------------------------------------------
   Balance, December 31, 2000               $ 267,132 $ 147,291,259  $ (132,011,571)  $ (1,361,929)     $ 14,184,891
                                           =========================================================================

<CAPTION>
                                                  Total
Diametrics Medical, Inc.                      comprehensive
and Subsidiary                                income (loss)
                                           -------------------
<S>                                        <C>
Balance, December 31, 1997


Net loss                                      $(17,387,662)
Foreign currency translation adjustment            (98,328)
Minimum pension liability                          223,352
                                              ------------
Comprehensive loss for the year ended
   December 31, 1998                          $(17,262,638)
                                              ============
Issued common stock
Issued common stock under
   employee stock purchase plan
Exercise of options to common stock
Exercise of warrants to common stock
Issued stock options in lieu of cash
   compensation
Effect of subsidiary's year-end change
   Balance, December 31, 1998
Net loss                                      $(10,243,547)
Foreign currency translation adjustment           (405,483)
Minimum pension liability                          114,141
                                              ------------
Comprehensive loss for the year ended
   December 31, 1999                          $(10,534,889)
                                              ============
Issued common stock
Issued common stock under
   employee stock purchase plan
Exercise of options to common stock
Issued stock options in lieu of cash
   compensation
   Balance, December 31, 1999
Net loss                                       $(2,647,617)
Foreign currency translation adjustment           (333,522)
Minimum pension liability                         (511,900)
                                               -----------
Comprehensive loss for the year ended
   December 31, 2000                           $(3,493,039)
                                               ===========
Issued common stock under
   employee stock purchase plan
Exercise of options to common stock
Exercise of warrants to common stock
   Balance, December 31, 2000
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

                                                                              21
<PAGE>

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                               Years ended December 31,
                                                                      --------------------------------------------
Diametrics Medical, Inc. and Subsidiary                                   2000           1999           1998
------------------------------------------------------------------------------------------------------------------
<S>                                                                   <C>            <C>            <C>
Cash flows from operating activities:
   Net loss                                                           $ (2,647,617)  $ (10,243,547) $ (17,387,662)
   Adjustments to reconcile net loss to net cash
     used in operating activities:
      Depreciation and amortization                                      2,157,034       2,224,519      3,147,460
      Other                                                                   (102)         12,988         13,252
      Changes in operating assets and liabilities:
        Receivables, net                                                   108,544      (1,370,581)    (1,652,185)
        Inventories                                                       (163,886)        651,189     (1,325,613)
        Prepaid expenses and other current assets                         (112,070)        168,955        (44,360)
        Accounts payable                                                   (39,563)        (96,793)       393,253
        Accrued expenses                                                  (607,845)        501,842     (1,899,428)
        Deferred credits and revenue                                    (4,104,849)      5,105,214              -
                                                                      --------------------------------------------
          Net cash used in operating activities                         (5,410,354)     (3,046,214)   (18,755,283)
                                                                      --------------------------------------------

Cash flows from investing activities:
   Purchases of property and equipment                                  (3,437,775)     (1,689,372)    (2,252,544)
   Sale of evaluation and demonstration instruments                              -         944,737              -
   Purchases of marketable securities                                  (18,230,499)    (16,026,009)    (6,558,430)
   Proceeds from maturities of marketable securities                    23,287,747       7,663,443     11,983,629
   Other                                                                     4,261          25,819         11,891
                                                                      --------------------------------------------
          Net cash provided by (used in) investing activities            1,623,734      (9,081,382)     3,184,546
                                                                      --------------------------------------------

Cash flows from financing activities:
   Principal payments on borrowings                                       (370,679)     (1,143,337)    (1,306,067)
   Proceeds from borrowings                                                115,846               -      1,818,823
   Net proceeds from issuance of common stock                            3,837,274      12,995,878     16,519,390
   Principal payments on capital lease obligations                               -        (101,995)      (611,809)
                                                                      --------------------------------------------
          Net cash provided by financing activities                      3,582,441      11,750,546     16,420,337
                                                                      --------------------------------------------

Effect of subsidiary's year-end change on cash and cash equivalents              -               -       (664,819)

Effect of exchange rate changes on cash and cash equivalents              (150,279)       (269,402)      (110,851)

          Net increase (decrease) in cash and cash equivalents            (354,458)       (646,452)        73,930

Cash and cash equivalents at beginning of year                           2,786,162       3,432,614      3,358,684
                                                                      --------------------------------------------
Cash and cash equivalents at end of year                              $  2,431,704   $   2,786,162  $   3,432,614
                                                                      ============================================

Supplemental disclosures of cash flow information:

   Cash paid during the year for interest                             $    586,616   $     630,459  $   1,544,161
                                                                      ============================================
</TABLE>

Supplemental disclosure of noncash investing and financing activities:

On August 4, 1998, the Company entered into a convertible senior secured fixed
rate note of $7,300,000 in connection with a private equity placement and used
the proceeds to retire another note.

The accompanying notes are an integral part of these consolidated financial
statements.

22
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1)  DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

DESCRIPTION OF THE BUSINESS  Diametrics Medical, Inc. along with its subsidiary
("the Company"), is a medical device company engaged in the development,
manufacture and commercialization of critical care blood and tissue analysis
systems which provide immediate or continuous diagnostic results at the
point-of-patient care.

The Company markets its products to health care organizations primarily through
distribution partners with exclusive global distribution rights. The Company
also continues to sell direct to end-users for a small volume of products and
transactions that are not subject to the exclusive distribution agreements.

PRINCIPLES OF CONSOLIDATION  The accompanying consolidated financial statements
include the accounts of Diametrics Medical, Inc. and Diametrics Medical, Ltd.,
its wholly-owned subsidiary. All material intercompany accounts and transactions
have been eliminated.

FOREIGN CURRENCY TRANSLATION/TRANSACTIONS  The financial statements of the
Company's foreign subsidiary are translated into U.S. dollars for consolidation.
All assets and liabilities are translated using period-end exchange rates and
statements of operations items are translated using average exchange rates for
the period. The resulting translation adjustments are recorded as a separate
component of shareholders' equity. Also recorded as translation adjustments in
shareholders' equity are transaction gains and losses on intercompany
transactions and balances for which settlement is not planned or anticipated in
the foreseeable future. Other foreign currency transaction gains and losses are
included in determining net income, but have not been material in any of the
years presented.

CASH AND CASH EQUIVALENTS  The Company considers highly liquid debt instruments
purchased with an original maturity of three months or less to be cash
equivalents. At December 31, 2000, cash and cash equivalents consist mainly of
U.S. government money market funds.

MARKETABLE SECURITIES  Investments in marketable debt securities are classified
as held to maturity and are stated at amortized cost, which approximates
estimated fair value. At December 31, 2000, marketable securities consist mainly
of investment grade commercial paper, with original maturities ranging from five
to six months. These securities are classified as held-to-maturity because of
the Company's intent and ability to hold its investments to maturity.

CONCENTRATION OF CREDIT RISK  Financial instruments that may subject the Company
to significant concentrations of credit risk consist primarily of trade
receivables. The Company has two major distribution partners in the medical
diagnostic device industry who market and sell the Company's products globally
under exclusive distribution agreements. As of December 31, 2000, outstanding
accounts receivable for one of these distributors represented 85% of total
outstanding accounts receivable, and sales to this distributor represented 82%
of sales for the year ended December 31, 2000. Customer creditworthiness is
routinely monitored and collateral is not required.

INVENTORIES  Inventories are stated at the lower of cost or market using the
first in, first out method.

PROPERTY AND EQUIPMENT  Property and equipment and purchased software are
recorded at cost. Depreciation and amortization are computed using the straight-
line method over estimated useful lives of 2 to 7 years for equipment and
furniture and the term of the underlying lease for leasehold improvements. Costs
of computer software to be sold are accounted for in accordance with SFAS No. 86
"Accounting for the Costs of Computer Software to Be Sold, Leased or Otherwise
Marketed," and are amortized over a three-year estimated product life pro-
ratably with projected sales over that period. Maintenance and repairs are
expensed as incurred.

OTHER ASSETS  Other assets consist principally of intangible assets representing
purchased completed technology and other intangible assets resulting from the
excess of the cost of a purchased business over the fair value of the net assets
acquired. The intangible assets are amortized using the straight-line method
over five years. The recoverability of the purchased completed technology and
other intangible assets is assessed quarterly based upon an analysis of
undiscounted cash flows projected to be generated by the acquired business.

REVENUE RECOGNITION  The Company recognizes revenue upon shipment of product to
its distributors or customers or, in the case of trial instruments and monitors
placed directly with end-user customers, upon the customer's acceptance of the
product. The Company's sales terms to its distributors and customers provide no
right of return outside of the Company's standard warranty policy discussed
below under "Product Warranty," and payment terms consistent with industry
standards apply.

RESEARCH AND DEVELOPMENT   Research and development costs relate to hardware and
software development and enhancements to existing products. All such costs are
expensed as incurred, with the exception of software costs incurred after the
technological feasibility of a software product to be sold has been

                                                                              23
<PAGE>

established. Such software costs are capitalized and amortized in accordance
with SFAS 86, discussed under "Property and Equipment" above. Research and
development funds earned by the Company under the Agilent distribution agreement
are recorded as a reduction of the development costs incurred.

NET LOSS PER COMMON SHARE  Basic earnings per share ("EPS") is calculated by
dividing net loss by the weighted average common shares outstanding during the
period. Diluted EPS reflects the potential dilution to basic EPS that could
occur upon conversion or exercise of securities, options, or other such items,
to common shares using the treasury stock method based upon the weighted average
fair value of the Company's common shares during the period. For each period
presented, basic and diluted loss per share amounts are identical, as the effect
of potential common shares is antidilutive.

The following is a summary of outstanding securities which have been excluded
from the calculation of diluted EPS because the effect on net loss per common
share would have been antidilutive:

<TABLE>
<CAPTION>
                                                                                December 31,
                                                                   2000             1999             1998
                                                              -------------------------------------------
<S>                                                           <C>              <C>              <C>
Common stock options                                          2,424,141        2,496,241        2,552,845
Common stock warrants                                         1,414,667        2,121,217        1,713,086
Convertible senior secured fixed rate notes                     869,047          869,047          869,047
</TABLE>

PRODUCT WARRANTY  The Company, in general, warrants its new hardware and
operating system software products to be free from defects in material and
workmanship under normal use and service for a period of eighteen months after
date of shipment in the case of distributors, and one year after date of sale in
the case of end-user customers. The Company warrants its disposable products to
be free from defects in material and workmanship under normal use until its
stated expiration date. Provisions are made for the estimated cost of
maintaining product warranties for the hardware, software and disposable
products at the time the products are sold.

INCOME TAXES  Deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date. Due to historical net losses of the
Company, a valuation allowance is established to offset the net deferred tax
asset.

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

STOCK BASED COMPENSATION  The Company applies the intrinsic value method
prescribed in Accounting Principles Board ("APB") Opinion No. 25, "Accounting
for Stock Issued to Employees," to account for the issuance of stock incentives
to employees and directors and, accordingly, no compensation expense related to
employees' and directors' stock incentives has been recognized in the financial
statements.

IMPAIRMENT OF LONG-LIVED ASSETS  The Company reviews its long-lived assets for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets to
be held and used is measured by a comparison of the carrying amount of an asset
to future net cash flows expected to be generated by the asset. If such assets
are considered to be impaired, the impairment to be recognized is measured by
the amount by which the carrying amount of the assets exceeds the fair value of
the assets. Assets to be disposed of are reported at the lower of the carrying
amount or fair value less costs to sell.

RECLASSIFICATIONS  Certain 1999 and 1998 amounts have been reclassified from
prior reported balances to conform to the 2000 presentation.

(2)  LIQUIDITY

The Company incurred a net loss of $2,647,617 for the year ended December 31,
2000. In addition, the Company has incurred net losses and has had negative cash
flows from operating activities since inception. The Company believes proceeds
from the funding agreements with Agilent, currently available funds and cash
generated from projected revenues, supplemented by proceeds from employee stock
plans, warrant exercises and asset based credit, will meet the Company's working
capital needs.

24
<PAGE>

(3)  INVENTORIES

                                                         December 31,
                                                   2000                1999
                                                ------------------------------
Raw materials                                   $1,735,460          $1,920,706
Work-in-process                                  1,320,521             658,983
Finished goods                                   1,224,253           1,536,659
                                                ------------------------------
                                                $4,280,234          $4,116,348
                                                ------------------------------


(4)    PROPERTY AND EQUIPMENT


                                                         December 31,
                                                   2000               1999
                                              -------------------------------
Manufacturing equipment                       $  7,417,492       $  6,412,203
Laboratory fixtures and equipment                1,870,254          1,874,789
Data equipment and furniture                     3,678,089          3,494,892
Leasehold improvements                           3,352,540          3,338,370
Purchased software                               1,022,330                  -
Tooling                                          2,601,734          2,071,556
Demonstration instruments                        1,765,246          1,300,443
Equipment-in-progress                              766,562            963,045
                                              -------------------------------
                                                22,474,247         19,455,298
Less accumulated depreciation
  & amortization                               (15,137,964)       (13,680,801)
                                              -------------------------------

                                              $  7,336,283       $  5,774,497
                                              -------------------------------


(5)  OTHER ASSETS

                                                         December 31,
                                                   2000                1999
                                                 ----------------------------

Purchased completed technology, net              $328,381            $722,442
Acquired customer base and
  other intangible assets, net                     67,259             147,970
Other                                               5,600               9,759
                                                 ----------------------------
                                                 $401,240            $880,171
                                                 ----------------------------


Amortization charged to expense for intangible assets was $474,772 in 2000, 1999
and 1998.


(6)    ACCRUED EXPENSES

                                                        December 31,
                                                 2000                1999
                                              ------------------------------
Employee compensation                         $1,195,974          $1,236,319
Product upgrades                                 171,577             292,746
Other                                            546,858             885,720
                                              ------------------------------
                                              $1,914,409          $2,414,785
                                              ------------------------------


(7)  DEFERRED CREDITS AND REVENUE

                                                         December 31,
                                                    2000              1999
                                                 ----------------------------

Deferred research and development funding        $  833,334        $2,833,334
Deferred royalty payments                                 -         2,260,000
Other deferred                                      167,031            11,880
                                               ------------------------------
                                                 $1,000,365        $5,105,214
                                               ------------------------------


The Company's distribution agreement with Agilent provides for prepaid funding
of research and development costs and royalty payments over the initial term of
the agreement. These prepayments are recognized ratably over the periods earned.


(8)    BORROWINGS
                                                            December 31,
                                                        2000          1999
                                                     ------------------------
Long-term debt:
     Convertible senior secured fixed
      rate notes                                     $7,300,000    $7,300,000
     Notes payable and bank loan                        597,990       863,307
                                                     ------------------------
                                                      7,897,990     8,163,307
Less current portion of long-term debt                 (425,775)     (349,511)
                                                     ------------------------
                                                     $7,472,215    $7,813,796
                                                     ------------------------

The aggregate maturities of outstanding long-term debt are:

Year ending December 31:
2001                                                            $  425,775
2002                                                               162,771
2003                                                             7,309,444
                                                                ----------
                                                                $7,897,990
                                                                ----------

                                                                              25
<PAGE>

On August 4, 1998, the Company issued Convertible Senior Secured Fixed Rate
Notes with proceeds aggregating $7,300,000. Interest on the Convertible Senior
Secured Fixed Rate Notes is payable quarterly in arrears, at 7.00% per annum.
The full principal balance is due August 4, 2003. The notes are secured by the
issued and outstanding shares of DML, 100% of which are owned by the Company.

The Convertible Senior Secured Fixed Rate Note agreements contain provisions,
which in the event of a change in control of the Company, allow the note holders
to require the Company to repurchase all or a portion of the holders' notes at a
purchase price of 100% of the principal amount plus accrued and unpaid interest.
In addition, the note agreements contain provisions under which the note holders
may convert the notes into shares of Common Stock of the Company at a conversion
price of $8.40 per share, subject to adjustment for the impact of certain
transactions initiated by the Company that result in dilution of the note
holders' investment in the Company.

Amounts outstanding under notes payable total $513,796 and $863,307 at December
31, 2000 and 1999, respectively, and require principal and interest payments in
monthly installments at varying amounts through September 2003. The annual
interest rates for the notes range from 10.1% to 10.95%. The amount outstanding
under the bank loan totals $84,194 at December 31, 2000 and bears interest at a
fluctuating rate equal to the bank's base rate plus 2.25%. Maturity dates of the
notes and loan range from December 1, 2001 to September 25, 2003, and all
related borrowings are secured by equipment. See also note 13.

The Company has a $1,000,000 receivable backed credit line. The loan agreement
requires the Company's accounts receivable collections be applied to reduce the
loan balance, including advances, interest and fees. All advances under the line
of credit bear interest on the unpaid principal amount at a fluctuating rate
equal to the Prime Rate plus three percent. Interest is payable monthly in
arrears. The loan agreement requires the monthly payment of an annualized
unutilized loan fee equal to one half of one percent (.5%) of the difference
between the committed available loan amount and the average outstanding loan
balance. The full $1,000,000 available under the line of credit was unused at
December 31, 2000. See also note 13.

(9)  STOCK OPTIONS AND WARRANTS

Under the terms of the 1990 Stock Option Plan, incentive stock options and non-
qualified stock options to purchase up to 3,750,000 shares of common stock may
be granted to Company employees and consultants.

Additionally, the 1993 Directors' Stock Option Plan provides grants to non-
employee directors of the Company of non-qualified stock options to purchase up
to an aggregate of 367,500 shares of common stock.

Under the plans, the option price is equal to the fair value on the date of
grant. Under the 1990 Stock Option Plan, options become exercisable over varying
periods and terminate up to ten years from the date of grant. Under the 1993
Directors' Stock Option Plan, initial grants of options to new directors become
exercisable over a three-year period and terminate ten years from the date of
grant. Subsequent annual grants to directors vest six months after the date of
grant. At December 31, 2000, 319,686 and 91,058 additional shares were available
for grant under the 1990 Stock Option Plan and 1993 Directors' Stock Option
Plan, respectively.

The following tables reflect the per share weighted-average fair value of stock
options granted during 2000, 1999 and 1998 under each of the plans on the date
of grant using the Black Scholes option-pricing model with the following
assumptions: annualized volatility of 77.94%, 76.93% and 84.42% for 2000, 1999
and 1998, respectively; risk-free interest rate of 5.9% in 2000, 5.6% in 1999
and 5.0% in 1998; and for each year, an expected life of five and three years
for the 1990 Stock Option Plan and 1993 Directors' Stock Option Plan,
respectively.

26
<PAGE>

Summarized below is the status of the Company's stock option plans as of
December 31, 2000, 1999 and 1998 and changes during those years:

<TABLE>
<CAPTION>
                                                   2000                             1999                             1998
                                         ----------------------------    ----------------------------      -------------------------
                                                          Weighted                        Weighted                       Weighted
                                                          average                         average                        average
1990 Stock Option Plan                    Shares       exercise price      Shares      exercise price       Shares    exercise price
                                         ----------------------------    ----------------------------      -------------------------
<S>                                      <C>           <C>               <C>           <C>                 <C>        <C>
Outstanding at beginning of year         2,292,079          $ 5.50        2,392,714         $ 5.43         2,387,797        $ 5.26
Granted                                    286,000           11.80          447,668           6.02           321,554          6.59
Exercised                                 (280,236)           4.14         (223,723)          4.38          (236,062)         4.87
Expired                                    (83,275)           6.23         (324,580)          6.46           (80,575)         6.63
                                        ----------                       ----------                       ----------
Outstanding at end of year               2,214,568            6.46        2,292,079           5.50         2,392,714          5.43
                                        ----------                       ----------                       ----------

Options exercisable at year-end          1,572,067            5.57        1,422,129           5.22         1,420,403          5.05

Weighted-average fair value of
 options granted during the year        $     7.03                       $     4.00                       $     4.59

1993 Directors' Stock Option Plan

Outstanding at beginning of year           204,162          $ 6.17          160,131         $ 6.12           114,375        $ 5.89
Granted                                     57,334            8.80           44,031           6.38            64,631          7.32
Exercised                                  (33,119)           5.34                -              -            (8,000)         4.63
Expired                                    (18,804)           7.78                -              -           (10,875)        12.00
                                        ----------                       ----------                       ----------
Outstanding at end of year                 209,573            6.88          204,162           6.17           160,131          6.12
                                        ----------                       ----------                       ----------

Options exercisable at year-end            191,573            6.77          195,162           6.13           131,256          6.08

Weighted-average fair value of
 options granted during the year        $     4.79                       $     3.42                       $     4.45
</TABLE>

The following table summarizes information concerning stock options outstanding
and exercisable options at December 31, 2000 for the above plans:

<TABLE>
<CAPTION>
                              OPTIONS OUTSTANDING                                                  OPTIONS EXERCISABLE
       ----------------------------------------------------------------------------        ----------------------------------
                                                      Weighted           Weighted                                  Weighted
                                                       average           average                                   average
              Range of               Number           remaining          exercise               Number             exercise
          exercise prices         outstanding           life              price              exercisable            price
       ----------------------------------------------------------------------------        ----------------------------------
        <S>                       <C>                 <C>                <C>               <C>                     <C>
        $ 1.72   -    3.88              89,875              2.5              $ 2.72                89,875              $ 2.72
          4.25   -    4.94             544,756              5.7                4.65               509,506                4.66
          5.00   -    5.94             522,716              7.2                5.60               277,191                5.41
          6.00   -    6.88             656,708              5.2                6.13               651,458                6.12
          7.00   -    7.94             100,356              6.5                7.43                63,718                7.32
          8.00   -    9.75             236,402              7.0                8.44               169,564                8.58
         11.25   -   12.63             273,328              9.2               12.00                 2,328               11.52
                                --------------                                             --------------
                                     2,424,141              6.3                6.50             1,763,640                5.70
                                --------------                                             --------------
</TABLE>

                                                                              27
<PAGE>

The Company applies APB Opinion No. 25, "Accounting for Stock Issued to
Employees," and related interpretations in accounting for its plans.
Accordingly, no compensation expense has been recognized for its stock-based
compensation plans as they relate to employees and directors. Had the Company
determined compensation cost based upon the fair value at the grant date for its
stock options under SFAS No. 123, the Company's net loss and net loss per share
would have increased to the pro forma amounts indicated below:

<TABLE>
<CAPTION>
                                                   2000                  1999                  1998
                                               --------------------------------------------------------
<S>                                            <C>                  <C>                   <C>
Net loss as reported                           $(2,647,617)         $(10,243,547)         $(17,387,662)
Net loss pro forma                             $(4,699,675)         $(12,045,839)         $(19,284,933)

Net loss per share as reported                 $     (0.10)         $      (0.41)         $      (0.79)
Net loss per share pro forma                   $     (0.18)         $      (0.49)         $      (0.88)
</TABLE>

In connection with certain financing and marketing arrangements entered into
since the Company's inception, the Company has granted stock purchase warrants
for the purchase of common stock. The stock purchase warrants become exercisable
over varying periods and expire up to ten years from the date of grant. Warrant
holders exercised warrants for the purchase of 686,550 shares during 2000, which
exceeded the number of related shares of common stock issued by the Company by
84,283 shares. This occurred due to cashless exercise provisions in certain of
the warrant agreements that allowed the warrant holders to purchase shares of
the Company's common stock by surrendering warrants valued at the then current
market value of the common stock. At December 31, 2000, stock purchase warrants
representing 1,414,667 shares were exercisable. Stock warrants outstanding under
these arrangements are summarized as follows:

<TABLE>
                                            2000                            1999                            1998
                                   ------------------------------------------------------------------------------------------------
                                                        Exercise                        Exercise                        Exercise
                                                          price                           price                           price
                                        Shares          per share       Shares          per share       Shares          per share
                                   -------------    ---------------  -----------    ---------------  -----------    ---------------
<S>                                <C>             <C>               <C>           <C>               <C>           <C>
Outstanding at beginning of year       2,121,217   $  1.72  -  8.40    1,713,086   $  1.72  -  8.40    1,028,160   $  1.72  -  6.75
Granted                                        -                  -      452,381               8.40      739,286      5.19  -  8.40
Exercised                               (686,550)     1.72  -  6.75            -                  -      (54,360)     5.19  -  6.13
Expired                                  (20,000)              5.25      (44,250)              6.00            -                  -
                                   -------------                     -----------                     -----------
Outstanding at end of year             1,414,667      4.53  -  8.40    2,121,217      1.72  -  8.40    1,713,086      1.72  -  8.40
                                   -------------                     -----------                     -----------

Warrants exercisable at year-end       1,414,667      4.53  -  8.40    2,112,880      1.72  -  8.40    1,671,753      1.72  -  8.40
</TABLE>

28
<PAGE>

(10) EMPLOYEE STOCK PURCHASE PLAN

     The Company adopted an employee stock purchase plan (the "Plan") effective
     July 3, 1995, under which 300,000 shares of common stock are available for
     sale to employees. The Plan enables all employees, after a 90-day waiting
     period, to contribute up to 10 percent of their wages toward the purchase
     of the Company's common stock at 85 percent of the lower of fair market
     value for such shares on the first business day of each quarter or the last
     business day of each quarter.

     Participant elections resulted in the issuance of 19,044 shares at an
     average price per share of $5.67 in 2000, 32,852 shares at an average price
     per share of $4.46 in 1999 and 45,012 shares at an average price per share
     of $4.67 in 1998.

(11) EMPLOYEE BENEFIT PLANS

     The Company has a 401(k) savings plan for its U.S. employees. U.S.
     employees of the Company who meet certain age and service requirements may
     contribute up to 20 percent of their salaries to the plan on a pre-tax
     basis. The Company has the discretion to match employee contributions up to
     6 percent of compensation. During 2000, the Company matched $.50 for each
     $1.00 contributed by an employee up to a maximum company contribution of
     $1,000 per year. The matching contributions in 2000 totaled $51,390.

     As part of its acquisition of DML in November 1996, the Company assumed
     sponsorship of the subsidiary's contributory defined benefit retirement
     plan (the "Retirement Plan"), covering the majority of the subsidiary's
     employees. The Retirement Plan provides benefits based upon final
     pensionable salary and years of credited service. The Company's funding
     policy for the Retirement Plan is to contribute into a trust fund at a rate
     that is intended to remain at a level percentage of total pensionable
     payroll. The assets of the Retirement Plan are held separately from those
     of the Company and invested in the London and Manchester Secure Growth
     Fund, Balanced Fund and a small holding in the Performance Fund. A portion
     of the Retirement Plan assets are also invested in the Scottish Equitable
     Funds.

     Contributions to the Retirement Plan are charged to expense so as to spread
     the cost of the pensions over the employees' working lives with the
     Company. The contributions are determined by a qualified actuary on the
     basis of a valuation using the "attained age" valuation method.

                                                                              29
<PAGE>

     The following provides a reconciliation of the projected benefit
     obligation, plan assets and funded status of the Retirement Plan at
     December 31, along with the components of net periodic pension cost for
     each year presented:

<TABLE>
<CAPTION>
                                                                            2000           1999
                                                                      ------------------------------
<S>                                                                   <C>               <C>
Change in Projected Benefit Obligation
     Projected benefit obligation at beginning of year                    $ 5,442,408    $ 4,924,458
     Service cost                                                             404,320        373,689
     Interest cost                                                            290,320        279,862
     Plan participants' contributions                                         143,201         94,316
     Actuarial (gain) loss                                                     35,266        (16,021)
     Benefits paid                                                            (26,466)       (10,352)
     Foreign currency exchange rate changes                                  (415,194)      (203,544)
                                                                      ------------------------------
     Projected benefit obligation at end of year                          $ 5,873,855    $ 5,442,408
                                                                      ------------------------------

Change in Plan Assets
     Fair value of plan assets at beginning of year                       $ 5,011,470    $ 3,970,197
     Actual return on plan assets                                            (150,062)       830,259
     Employer contribution                                                    308,448        292,580
     Plan participants' contributions                                         143,201         94,316
     Benefits paid                                                            (26,466)       (10,352)
     Foreign currency exchange rate changes                                  (374,021)      (165,530)
                                                                      ------------------------------
     Fair value of plan assets at end of year                             $ 4,912,570    $ 5,011,470
                                                                      ------------------------------

     Funded status                                                        $  (961,285)   $  (430,938)
     Unrecognized actuarial loss                                            1,091,350        453,534
                                                                      ------------------------------
     Net amount recognized                                                $   130,065    $    22,596
                                                                      ------------------------------

     Amounts recognized in the balance sheet consist of:
              Accrued benefit liability                                   $  (414,115)    $   (9,684)
              Minimum pension liability                                       544,180         32,280
                                                                      ------------------------------
     Net amount recognized                                                $   130,065     $   22,596
                                                                      ------------------------------

     Rate assumptions:
     Discount rate                                                              5.75%          5.75%
     Rate of salary progression                                                 3.75%          3.50%
     Long-term rate of return on assets                                         8.00%          9.50%

<CAPTION>
                                                                           Years ended December 31,
Components of Net Periodic Benefit Cost                                      2000           1999
                                                                      ------------------------------
<S>
     Service cost                                                         $  404,320     $  373,689
     Interest cost                                                           290,320        279,862
     Expected return on plan assets                                         (389,120)      (310,598)
     Recognized net actuarial loss                                                 -         21,030
                                                                      -----------------------------
                                                                          $  305,520     $  363,983
                                                                      -----------------------------
</TABLE>

30
<PAGE>

(12) INCOME TAXES

     The Company has incurred net operating losses since inception. The Company
     has not reflected any benefit of such net operating loss carryforwards in
     the accompanying financial statements.

     As of December 31, 2000 the Company had U.S. tax net operating loss and
     research and development tax credit carryforwards of approximately
     $117,451,000 and $1,307,000, respectively. Should a cumulative "change in
     ownership" occur within a three-year period, use of the Company's net
     operating loss carryforwards may be limited. If not used, these net
     operating loss carryforwards begin to expire in 2005.

     The Company's foreign subsidiary also has a net operating loss carryforward
     of approximately $46,288,000 which can be carried forward indefinitely,
     subject to review by the governmental taxing authority.

     The tax effects of temporary differences that give rise to significant
     portions of the deferred tax assets and deferred tax liabilities are as
     follows at December 31:

<TABLE>
<CAPTION>
                                                        2000              1999
                                                    ------------------------------
<S>                                                 <C>                <C>
Tax credits                                         $  1,307,000     $  1,234,000
Federal net operating loss carryforward               43,477,000       40,294,000
Foreign net operating loss carryforward               15,275,000       15,409,000
Deferred revenue                                         313,000        1,889,000
Fixed asset depreciation                                 524,000          705,000
Amortization of goodwill                                 488,000          371,000
Accrued expenses                                         163,000          160,000
Other differences                                        124,000          126,000
Valuation allowance                                  (61,671,000)     (60,188,000)
                                                    -----------------------------

Net deferred tax asset                              $          -     $          -
                                                    -----------------------------
</TABLE>

     The provision for income taxes differs from the expected tax expense,
     computed by applying the federal corporate rate of 34% to earnings before
     income taxes as follows:

<TABLE>
<CAPTION>
                                                            2000              1999             1998
                                                         ---------------------------------------------
<S>                                                      <C>             <C>               <C>
Expected federal benefit                                 $ (900,000)     $(3,483,000)      $(5,912,000)
State tax, net of federal benefit                          (104,000)        (293,000)         (522,000)
Compensation expense for tax purposes
   in excess of amounts recognized for
   financial reporting purposes                            (238,000)               -          (107,000)
Other, net                                                 (241,000)        (259,000)           12,000
Increase in valuation allowance                           1,483,000        4,035,000         6,529,000
                                                         ---------------------------------------------

                                                         $        -      $         -       $         -
                                                         ---------------------------------------------
</TABLE>

(13) RELATED PARTY TRANSACTIONS

     In August 1998, the Company completed the sale in a private placement of
     2,142,858 shares of Common Stock at a price of $7.00 per share as part of a
     Common Stock Purchase Agreement, resulting in aggregate proceeds to the
     Company of $15,000,006. The purchasers also received five-year warrants to
     purchase 714,286 shares of Common Stock at $8.40 per share. In addition,
     the Company issued Convertible Senior Secured Fixed Rate Notes, with
     proceeds aggregating $7,300,000, which were used to retire other debt of
     the Company. The investor group in both transactions was lead by BCC
     Acquisition II LLC.

     Two of the directors of the Company are affiliated with BCC Acquisition II
     LLC, and one of these directors participated in the Common Stock Purchase
     Agreement and the related sale of Convertible Senior Secured Fixed Rate
     Notes. This director is also a director of DVI, Inc., a health care finance
     company with which the Company has outstanding notes payable as of December
     31, 2000 and an available receivable backed credit line. See note 8 for
     further detail on the credit line, notes payable and Convertible Senior
     Secured Fixed Rate Notes.

     The Company's exclusive distributors, Codman and Agilent Technologies, are
     shareholders of the Company. Sales to these parties were approximately
     $22.7 million for the year ended December 31, 2000. As of December 31,
     2000, outstanding accounts receivable for these distributors represented
     89% of total outstanding accounts receivable.

                                                                              31
<PAGE>

(14) BUSINESS SEGMENT INFORMATION

     The Company develops, manufactures and markets blood and tissue analysis
     systems that provide immediate or continuous diagnostic results at the
     point-of-patient care. The Company's blood and tissue analysis systems
     consist of two technology platforms. The first platform includes
     intermittent blood testing products based on electrochemical and optical
     technology, and the second platform includes continuous monitoring products
     based on fiberoptic technology. Effective November 1, 1999, the Company's
     products are sold primarily to acute care hospitals via third party
     distribution channels including corporate partners strategically positioned
     to access worldwide markets. Prior to this, sales in the U.S., United
     Kingdom and Germany were made through the Company's direct sales force. The
     Company's disposable cartridges and sensors for the intermittent and
     continuous monitoring technology platforms, respectively, are manufactured
     at the Company's facilities. Hardware components of both technology
     platforms are sub-contracted to outside vendors with portions of the
     hardware assembly performed internally at the Company's facilities. Both
     technology platforms are subject to similar regulatory monitoring by the
     United States Food and Drug Administration and comparable agencies in other
     countries. The Company's long term outlook for the two technology platforms
     is that with increased sales volumes, they will exhibit similar financial
     performance in terms of sales trends and gross margins. Based upon the
     above, the Company has identified one reportable operating segment
     consisting of medical diagnostic products which provide blood and tissue
     analysis at the point-of-patient care.

     Information regarding the Company's operations in different geographies for
     the years ended December 31 is as follows:

<TABLE>
<CAPTION>
                                                 2000               1999              1998
                                          ----------------------------------------------------
<S>                                       <C>                   <C>                <C>
Sales to unaffiliated customers
     Germany                                 $ 17,338,465       $  6,250,366       $  150,101
     United States                              6,219,310         10,281,646        4,879,367
     Japan                                        883,299            968,118        1,215,037
     All other foreign countries                  817,333          1,187,054        5,911,021
                                          ---------------------------------------------------
                                             $ 25,258,407       $ 18,687,184      $12,155,526
                                          ---------------------------------------------------
Long-lived assets
     United States                           $  4,770,092       $  3,301,162      $ 3,682,879
     United Kingdom                             2,566,191          2,473,335        3,239,914
                                          ---------------------------------------------------
                                             $  7,336,283       $  5,774,497      $ 6,922,793
                                          ---------------------------------------------------
</TABLE>

     Sales attributed to geographic areas are based upon customer location.
     Long-lived assets consist of property and equipment located at the
     Company's facilities in the United States and the United Kingdom.

     Sales to major customers that exceeded 10% of total net sales for the years
     ended December 31 were as follows:

                           2000              1999              1998
                     ------------------------------------------------
Customer A                  82%               62%                -
Customer B                   -                 -                14%

     The customers for which the above sales were generated are distributors of
     the Company operating in the medical diagnostic device industry.

32
<PAGE>

(15) COMMITMENTS

     The Company leases its facilities and some of its equipment under non-
     cancelable operating lease arrangements. The rental payments under these
     leases are charged to expense as incurred. Rent expense included in the
     accompanying consolidated statements of operations was $896,526, $873,687
     and $940,027 for the years ended December 31, 2000, 1999 and 1998,
     respectively.

     The following is a schedule of future minimum rental payments, excluding
     property taxes and other operating expenses, required under all non-
     cancelable operating leases:

          Year ending December 31:

          2001                          $   805,774
          2002                              632,510
          2003                              538,012
          2004                              219,474
          2005                              118,125
                                        -----------

          Total minimum lease payments  $ 2,313,895
                                        ===========

(16) LEGAL PROCEEDINGS

     There are no legal proceedings pending, threatened against or involving the
     Company, which, in the opinion of management, will have a material adverse
     effect upon consolidated results of operations or financial condition.

(17) CHANGE IN YEAR-END OF SUBSIDIARY

     Effective January 1, 1998, the Company changed the year-end of its wholly-
     owned subsidiary, DML, to December 31 from November 30 to produce a
     consistent reporting period for the consolidated entity. As a result of
     this change in year-end, DML's net results of operations for the month of
     December 1997 were closed to beginning accumulated deficit on the balance
     sheet as of January 1, 1998. The impact of this change was an increase in
     the beginning accumulated deficit of approximately $677,000.

(18) QUARTERLY RESULTS OF OPERATIONS (unaudited)

<TABLE>
<CAPTION>
                                         First        Second         Third        Fourth
                                       Quarter       Quarter       Quarter       Quarter
                                 --------------------------------------------------------
<S>                              <C>             <C>           <C>           <C>
2000
    Net sales                      $ 5,670,894   $ 6,090,343   $ 6,580,956   $ 6,916,214
    Gross profit                     1,400,937     1,648,834     1,987,875     2,482,658
    Operating loss                  (1,179,930)     (949,379)     (534,240)      (79,413)
    Net loss                        (1,143,409)     (892,620)     (487,271)     (124,317)
    Net loss per common share            (0.04)        (0.03)        (0.02)         0.00

1999
    Net sales                      $ 4,243,187   $ 4,639,746   $ 4,694,294   $ 5,109,957
    Gross profit                       726,281       723,373       603,890       853,946
    Operating loss                  (3,736,242)   (2,718,719)   (1,983,824)   (1,605,014)
    Net loss                        (3,907,742)   (2,782,173)   (1,981,187)   (1,572,445)
    Net loss per common share            (0.17)        (0.11)        (0.08)        (0.06)
</TABLE>

                                                                              33
<PAGE>

Report of Independent Auditors

The Board of Directors and Shareholders
Diametrics Medical, Inc.:


We have audited the accompanying consolidated balance sheets of Diametrics
Medical, Inc. and subsidiary as of December 31, 2000 and 1999, and the related
consolidated statements of operations, shareholders' equity and comprehensive
loss and cash flows for each of the years in the three-year period ended
December 31, 2000. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Diametrics Medical,
Inc. and subsidiary as of December 31, 2000 and 1999, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 2000, in conformity with accounting principles generally
accepted in the United States of America.


                                                 KPMG LLP


Minneapolis, Minnesota
February 2, 2001

34
<PAGE>

CORPORATE INFORMATION


EXECUTIVE OFFICERS


David T. Giddings
President, Chief Executive Officer and Chairman of the Board

Roy S. Johnson
Executive Vice President and President
and Managing Director of
Diametrics Medical, Ltd.

Laurence L. Betterley
Senior Vice President and Chief Financial Officer


DIRECTORS

Andre de Bruin (2)
President and Chief Executive Officer of
QUIDEL Corporation

Gerald L. Cohn (1) (2)
Consultant and Private Investor

David T. Giddings

Carl S. Goldfischer, M.D. (2)
Private Investor and
Limited Partner of Bay City Capital

Hans-Guenter Hohmann (1)
Managing Director of
Agilent Technologies, GmbH

Roy S. Johnson

Mark B. Knudson, Ph.D. (1)
Chairman and CEO of
Venturi Group, LLC and
CEO of Pi Medical, Inc. and
Chairman and Founder of HeartStent

(1) Member of the Compensation Committee of the Board of Directors

(2) Member of the Audit Committee of the Board of Directors

                                                                              35
<PAGE>

SHAREHOLDER INFORMATION

STOCK LISTING

The Company's common stock is traded on The Nasdaq National Market under the
symbol DMED.

STOCK TRANSFER AGENT

American Stock Transfer & Trust Company
40 Wall Street
New York, NY 10005
Phone: (800) 937-5449

FORM 10-K

A copy of the Company's annual report on Form 10-K as filed with the Securities
and Exchange Commission is available to shareholders free of charge by writing
to Diametrics Medical, Inc.

ANNUAL MEETING

The annual meeting of Diametrics Medical, Inc. shareholders will be held May 23,
2001, at 3:30 p.m. at the Minneapolis Marriott City Center, 30 South Seventh
Street, Minneapolis, Minnesota. All shareholders and other interested parties
are invited to attend.

INVESTOR INQUIRIES

Please direct all inquiries to Laurence L. Betterley, Senior Vice President and
Chief Financial Officer, at the Company's corporate offices.

STOCK INFORMATION

High and low quarterly closing prices for Diametrics Medical, Inc., common stock
as quoted on The Nasdaq National Market were:

                                                         2000
                                               High              Low
                                            -------------------------------
First Quarter                               $ 12 5/8           $  7 5/8
Second Quarter                                10 3/8              5 21/32
Third Quarter                                  8 1/4              6 1/8
Fourth Quarter                                 9 1/4              5 3/8


                                                         1999
                                                High              Low
                                            -------------------------------
First Quarter                               $  8 9/16          $  4 1/32
Second Quarter                                 6 3/4              4 13/16
Third Quarter                                  7 1/2              5 5/16
Fourth Quarter                                 6 13/16            3 3/4


There were 392 common shareholders of record and the Company estimates
approximately 4,800 shareholders holding stock in "street name" accounts as of
December 31, 2000. The Company has not paid any stock dividends on its common
stock since its inception, and management does not anticipate paying cash
dividends in the foreseeable future.

CORPORATE ADDRESS                  INTERNATIONAL SUBSIDIARY

Diametrics Medical, Inc.           Diametrics Medical, Ltd.
2658 Patton Road                   5 Manor Court Yard, Hughenden Ave.
St. Paul, Minnesota 55113          High Wycombe, Bucks. HP13 5RE
Phone: (651) 639-8035              England
Website:  www.diametrics.com       Phone: +44(0)1494 446651

36

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-21
<SEQUENCE>3
<FILENAME>0003.txt
<DESCRIPTION>LIST OF SUBSIDIARIES
<TEXT>

<PAGE>

                                                                      Exhibit 21


                    SUBSIDIARIES OF DIAMETRICS MEDICAL, INC.



                  The Company's consolidated subsidiaries are shown below,
together with the percentage of voting securities owned and the state or
jurisdiction of each subsidiary:




                                                                Percentage of
                                                              Outstanding Voting
Subsidiaries                                                   Securities Owned
------------                                                  ------------------

Diametrics Medical, Ltd.                                             100%
(United Kingdom)
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-23
<SEQUENCE>4
<FILENAME>0004.txt
<DESCRIPTION>CONSENT OF KPMG LLP
<TEXT>

<PAGE>

                                                                      EXHIBIT 23





                          Independent Auditor's Consent


The Board of Directors and Shareholders
Diametrics Medical, Inc.


We consent to the incorporation by reference in the Registration Statements
(Nos. 333-63689, 333-63687, 333-51951, 333-33257, 333-24169, 333-24167,
333-24079 and 33-83572) on Forms S-3 and S-8 of Diametrics Medical, Inc., of our
report dated February 2, 2001, relating to the consolidated balance sheets of
Diametrics Medical, Inc. and Subsidiary as of December 31, 2000 and 1999, and
the related consolidated statements of operations, shareholders' equity and
comprehensive loss, and cash flows for each of the years in the three-year
period ended December 31, 2000, which report appears in the Annual Report on
Form 10-K of Diametrics Medical, Inc.



                                                 /s/ KPMG LLP

Minneapolis, Minnesota
March 30, 2001
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99
<SEQUENCE>5
<FILENAME>0005.txt
<DESCRIPTION>CAUTIONARY STATEMENTS
<TEXT>

<PAGE>

                                                                      Exhibit 99

                              CAUTIONARY STATEMENT

         Forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995 (the "PSLRA") are included in our Form 10-K. The
words or phrases "believes," "may," "will," "expects," "should," "continue,"
"anticipates," "intends," "will likely result," "estimates," "projects" or
similar expressions identify forward-looking statements in our Form 10-K and in
our future filings with the Securities and Exchange Commission, in our press
releases, in our presentations to securities analysts or investors, and in oral
statements made by or approved by an executive officer of Diametrics Medical,
Inc. Forward-looking statements involve risks and uncertainties that may
materially and adversely affect our business, results of operations, financial
condition or prospects, and may cause our actual results to differ materially
from historical results or the results discussed in the forward-looking
statements.

         You should consider carefully the following cautionary statements if
you own our common stock or are planning to buy our common stock. We intend to
take advantage of the "safe harbor" provisions of the PSLRA by providing this
discussion. We are not undertaking to address or update each factor in future
filings or communications regarding our business or results except to the extent
required by law.

We are at an early stage of commercialization with limited operating history

         Founded in 1990, we were engaged primarily in the research, development
and testing of, and the development of manufacturing capabilities for, the
IRMA(R) (Immediate Response Mobile Analysis) System and the Paratrend(R) 7 until
1995. Since then, we have developed and are marketing product line extensions
from both of these core technology platforms, primarily an expansion of the
blood analysis test menu available on the IRMA System, and the extension of the
continuous monitoring technology available on the Paratrend 7 to two new
continuous monitoring products, Neotrend(TM) and Neurotrend(TM) . We have
limited operating history upon which an evaluation of our prospects can be made.
Our prospects must be considered in light of the risks, expenses and
difficulties frequently encountered in establishing a new business in the
evolving, heavily regulated medical device industry, which is characterized by
an increasing number of entrants, intense competition and a high failure rate.

We have a history of operating losses

         We have only recently begun to generate revenues and have incurred net
operating losses since our inception. We expect to incur net operating losses at
least through the first half 2001. We cannot assure you that we will ever
generate substantial revenues or achieve profitability.

Our success depends upon market acceptance of new technology

         Our success depends upon acceptance of our products by the medical
community as reliable, accurate and cost-effective. Our point-of-care blood
testing and monitoring devices represent a new practice in critical or stat
blood testing, which is currently performed primarily by central and stat
laboratories of hospitals or by independent commercial laboratories. Although
professional awareness of point-of-care blood testing is increasing, most acute
care hospitals have already installed expensive blood testing instruments for
use in their central and stat laboratories and may be reluctant to change
standard operating procedures or incur additional capital expenditures for new
blood analysis equipment. In addition, the limited number of blood analytes that
can be analyzed on our products may cause certain hospitals not to consider
them. We are unable to predict how quickly, if at all, our products will be
accepted by the medical community or, if accepted, predict the volume of our
products or the related disposable cartridges and sensors we can expect to sell.

                                       1
<PAGE>

We face significant industry competition and risk of product obsolescence

         The medical technology industry is characterized by rapidly evolving
technology and intense competition. We are aware of one other commercially
available hand-held point-of-care blood analysis system, which is manufactured
and marketed by i-STAT Corporation, but we expect that manufacturers of central
and stat laboratory testing equipment will also develop new products to maintain
their revenues and market share. Many of our competitors have substantially
greater capital resources, research and development staff, and facilities than
we do, and many of these companies also have greater experience in research and
development, obtaining regulatory approvals, manufacturing, and sales and
marketing. We cannot assure you that our competitors will not succeed in
developing or marketing technologies and products that are more effective or
less expensive than ours that could render our products obsolete or
noncompetitive. Although we believe that our products may offer certain
technological advantages over our competitors' current products, earlier
entrants in the market in a therapeutic area often obtain and maintain
significant market share. Our product pricing is competitive with other
point-of-care suppliers and is, in general, lower in price than centralized
testing labs when the full cost of implementation is considered (i.e.,
equipment, maintenance, facilities and trained lab personnel). Centralized
testing labs also do not provide the convenience and fast turnaround time for
test results that point-of-care products offer. In the future, we may experience
competitive pricing pressures that may cause a decrease in unit prices and sales
levels.

We have limited manufacturing experience

         We must manufacture our products in compliance with regulatory
requirements, in sufficient quantities and on a timely basis, and still maintain
product quality and acceptable manufacturing costs. Our products consist of two
principal components: portable, microprocessor-based instruments and disposable
sensors. We have limited experience producing our products in large commercial
quantities. Although we believe that we will be able to achieve and maintain
product accuracy and reliability when producing in large quantities, on a timely
basis and at an acceptable cost, we cannot assure you that we will be able to do
so. Also, product design changes, equipment failures and manufacturing process
changes may disrupt our existing operations and impact sales.

We depend on patents and proprietary technology, which we may not be able to
protect

         Our success will depend in part on our ability to obtain patent
protection for our products and processes, to preserve our trade secrets and to
operate without infringing the intellectual property rights of others. The
patent positions of medical device companies are uncertain and involve complex
and evolving legal and factual questions. We cannot assure you that any of our
pending or future patent applications will result in issued patents, that any
current or future patents will not be challenged, invalidated or circumvented,
that the scope of any of our patents will exclude competitors or that the patent
rights granted to us will provide us any competitive advantage. In addition, we
cannot assure you that our competitors will not seek to apply for and obtain
patents that will prevent, limit or interfere with our ability to make, use or
sell our products either in the United States or in international markets.
Further, the laws of certain foreign countries may not protect our intellectual
property rights to the same extent as do the laws of the United States.

         In addition to patents, we rely on trade secrets and proprietary
knowledge that we seek to protect, in part, through confidentiality agreements
with employees, consultants and others. We cannot assure you that our
proprietary information or confidentiality agreements will not be breached, that
we will have adequate remedies for any breach, or that our trade secrets will
not otherwise become known to or independently developed by competitors.

                                       2
<PAGE>

We may face intellectual property infringement claims which would be costly to
resolve

         There has been substantial litigation regarding patent and other
intellectual property rights in the medical device industry and our competitors
may resort to intellectual property litigation as a means of competition.
Intellectual property litigation is complex and expensive and the outcome is
difficult to predict. We cannot assure you that we will not become subject to
patent infringement claims or litigation. Litigation or regulatory proceedings
may also be necessary to enforce our patents or other intellectual property
rights. We may not always have the financial resources to assert patent
infringement suits or to defend ourselves from claims. An adverse result in any
litigation could subject us to liabilities to, or require us to seek licenses
from or pay royalties to, others that may be substantial. Furthermore, we cannot
assure you that the necessary licenses would be available to us on satisfactory
terms, if at all.

Our success may depend in part on uncertain government health care policies and
reimbursement by third parties

         The willingness of hospitals to purchase our products may depend on the
extent to which hospitals limit their own capital expenditures due to existing
or future cost reimbursement regulations. In addition, sales volumes and prices
of our products in certain markets will depend in part on the level of
reimbursement to hospitals for blood analysis from third-party payors, such as
government and private insurance plans, health maintenance organizations and
preferred provider organizations. Third-party payors are increasingly
challenging the pricing of medical procedures they consider unnecessary,
inappropriate or not cost-effective. We cannot assure you that current
reimbursement amounts, if any, will not be decreased in the future, and that any
decrease will not reduce the demand for or the price of our products. Any
federal or state health care reform measures could adversely affect the price of
medical devices in the United States, including our products, or the amount of
reimbursement available. We cannot predict whether any reform measures will be
adopted or what impact they may have on us.

We must obtain regulatory approval for new products we develop

         Human diagnostic products are subject 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. We have obtained pre-market notification
clearances under Section 510(k) of the Food, Drug and Cosmetic Act (the "FDC
Act") to market our IRMA SL System to test blood gases, electrolytes (i.e.,
inorganic compounds including sodium, potassium, chloride and ionized calcium),
blood urea nitrogen and hematocrit (i.e., concentration of red blood cells) in
whole blood in hospital laboratories and at the point-of-care, and to market the
Paratrend 7 to monitor blood gases and temperature. Additional pre-market
notification clearances were obtained in late 1997 to market Neotrend for blood
gas monitoring of critically ill babies, and in early 1998 for the addition of
glucose testing capability to the IRMA SL System. In November 1999, we obtained
510(k) clearance to market Neurotrend, designed for direct continuous monitoring
of oxygen, carbon dioxide, acidity and temperature in the brain. A Section
510(k) clearance is subject to continual review, and later discovery of
previously unknown problems may result in restrictions on marketing or
withdrawal of the product from the market. Our long-term business strategy
includes development of cartridges and sensors for performing additional blood
and tissue chemistry tests, and any new tests will be subject to the same
regulatory process. We cannot assure you that we will be able to develop
additional products or uses or that we will obtain the necessary clearances for
new products and uses on a timely basis or at all.

         We also market our 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. Our manufacturing
facilities are also subject to FDA inspection on a periodic basis and we and our
contract manufacturers must demonstrate compliance with current Quality System
Regulations promulgated by the FDA. Violations of the applicable regulations at
our manufacturing facilities or the manufacturing facilities of our contract
manufacturers may prevent us from marketing of our products.

                                       3
<PAGE>

Our products and the technicians authorized to use them may be restricted by the
Clinical Laboratory Improvement Act of 1988

         Our products are affected by the Clinical Laboratory Improvement Act of
1988 ("CLIA") which has been implemented by the Health Care Financing
Administration ("HCFA"). This law is intended to assure the quality and
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:

o        personnel qualification,
o        administration,
o        participation in proficiency testing,
o        patient test management,
o        quality control,
o        quality assurance, and
o        inspections.

         The regulations have established three levels of regulatory control
based on test complexity - "waived," "moderate complexity" and "high
complexity." Although the tests performed by our products have been categorized
as moderately complex, we cannot assure you that our products will not be placed
in a more restrictive category. Personnel standards for high complexity tests
are more rigorous than those for moderate complexity tests, requiring more
education and experience. If our products are recategorized as high complexity
tests, our ability to successfully market them to hospitals or other potential
buyers may suffer. We cannot assure you that the CLIA regulations or various
state licensing requirements for technicians will not have a material adverse
effect on our financial condition or results of operation.

Our products may expose us to costly litigation

         We may be exposed to product liability claims if a patient is adversely
affected by our products. We maintain a general insurance policy which includes
coverage for product liability claims. The policy is limited to a maximum of
$1,000,000 per product liability claim and an annual aggregate policy limit of
$2,000,000. We also carry umbrella liability insurance which provides coverage
up to $10,000,000. We cannot assure you that our existing insurance coverage
limits are adequate to cover any liabilities we might incur or that insurance
will continue to be available on commercially reasonable terms, if at all.

We depend on contract manufacturers and suppliers for key components of our
products

         Our hardware products or portions of our hardware products are
manufactured for us by single vendors, generally from off-the-shelf components.
A few components are supplied by a single source and manufactured to our
specifications. Although we believe that we could find alternative vendors, any
interruption in supply could have a material and adverse effect on our ability
to manufacture our products, and our financial condition and results of
operations.

We depend on distribution partners to sell, market and distribute most of our
products

         We currently market most of our products through two global
distribution partners, Agilent Technologies, Inc. ("Agilent") and Codman &
Shurtleff ("Codman") who have exclusive distribution rights for the products
they distribute. We may experience during 2001 a transition of one of these key
distribution channels as a result of the pending sale of Agilent's healthcare
business to Royale Philips Electronics ("Philips"). If this sale is completed,
the rights and obligations under our distribution agreement with Agilent are
assignable to Philips, with our consent. It is uncertain what impact such a
transition will have on the Company's short-term financial results. Although we
believe our distribution partners will successfully perform under the terms of
their respective distribution agreements, any significant failure to do so, or a
significant failure on our part to meet requirements under the distribution
agreements, may result in early termination of the agreement(s). The time and
cost required to re-establish distribution channels with other partners

                                       4
<PAGE>

or on our own may be prohibitive, and could have a material and adverse effect
on our ability to commercialize our products, and on our financial condition and
results of operations.

International operations will expose us to additional risks

         We currently market most of our products through two global
distribution partners whose distribution channels include international markets,
subject to receipt of required foreign regulatory approvals. We cannot assure
you that our distribution partners will devote adequate resources to selling our
products internationally. Doing business outside of the United States also
exposes us to various risks that could have a material and adverse effect on our
ability to market our products internationally, including:

o        changes in overseas economic and political conditions,
o        currency exchange rate fluctuations,
o        foreign tax laws, or
o        tariffs or other trade regulations.

         Our business is also expected to subject us and our representatives,
agents and distributors to laws and regulations of the foreign jurisdictions in
which they operate or our products are sold. We may depend on foreign
distributors and agents for compliance and adherence to foreign laws and
regulations. We have no control over most of these risks and may be unable to
anticipate changes in international economic and political conditions, and may
be unable to alter our business practices in time to avoid any adverse effects.

Concentration of ownership may give some shareholders substantial influence and
may prevent or delay a change in control

         As of December 31, 2000, directors, executive officers and principal
shareholders, and certain of their affiliates, owned beneficially approximately
48% of our outstanding common stock, assuming all vested stock options, stock
purchase warrants and convertible debt held by them are exercised or converted.
These shareholders may be able to exercise substantial influence over all
matters requiring shareholder approval, including the election of directors, and
approval of significant corporate transactions. This concentration of ownership
could also have the effect of delaying, deferring or preventing a change in
control of Diametrics Medical, Inc.

We may be unable to meet our future capital requirements

         We expect that our existing capital resources, proceeds from projected
revenues and proceeds from funding agreements with our distribution partners
should enable us to maintain our current and planned operations. Nonetheless,
our capital requirements depend on many factors, including the rate of market
acceptance of our products, the level of resources we devote to expanding our
business and manufacturing capabilities, our research and development
activities, the availability of financing for capital acquisitions and other
factors. We cannot accurately predict the timing and amount of our capital
needs. If capital requirements vary materially from those currently planned, we
will require additional capital. Issuing additional shares of capital stock may
be dilutive to our shareholders, and debt financing, if available, may involve
restrictive covenants.

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