<PAGE>

================================================================================


                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                               ------------------

                                    FORM 10-Q

                               ------------------

           [X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

                For the quarterly period ended September 30, 2001

                                       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.
                 Incorporated pursuant to the Laws of Minnesota


                               ------------------


       Internal Revenue Service--Employer Identification No. 41-1663185

                  2658 Patton Road, Roseville, Minnesota 55113
                                 (651) 639-8035

                               ------------------


Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [_]

The total number of shares of the registrant's Common Stock, $.01 par value,
outstanding on October 31, 2001, was 26,794,354.




================================================================================
<PAGE>

                            Diametrics Medical, Inc.

                                                                          Page
                                                                          ----

Part I -- FINANCIAL INFORMATION

   Item 1.  Consolidated Financial Statements (unaudited)

            Consolidated Statements of Operations:

               Three Months Ended September 30, 2001 and 2000...............3

               Nine Months Ended September 30, 2001 and 2000................3

            Consolidated Balance Sheets as of September 30, 2001
             and December 31, 2000..........................................4

            Consolidated Statements of Cash Flows:
               Nine Months Ended September 30, 2001 and 2000................5

            Notes to Consolidated Financial Statements......................6

   Item 2.  Management's Discussion and Analysis of Results of
             Operations and Financial Condition.............................7

   Item 3.  Quantitative and Qualitative Disclosure About Market Risk......11


Part II -- OTHER INFORMATION

   Item 1.  Legal Proceedings..............................................11

   Item 2.  Changes in Securities..........................................11

   Item 3.  Defaults Upon Senior Securities................................11

   Item 4.  Submission of Matters to a Vote of Security Holders............11

   Item 5.  Other Information..............................................11

   Item 6.  Exhibits and Reports on Form 8-K...............................12

   Signatures..............................................................13

                                       2
<PAGE>

                         PART I - FINANCIAL INFORMATION

Item 1.  Consolidated Financial Statements (unaudited)
------------------------------------------------------

                            DIAMETRICS MEDICAL, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                   Three Months Ended              Nine Months Ended
                                                     September 30,                   September 30,
                                                  2001           2000             2001            2000
                                              ------------    ------------    ------------    ------------
<S>                                           <C>             <C>             <C>             <C>
Net sales                                     $  6,262,823    $  6,580,956    $ 18,106,391    $ 18,342,193

Cost of sales                                    4,557,001       4,593,081      13,411,014      13,304,547
                                              ------------    ------------    ------------    ------------

    Gross profit                                 1,705,822       1,987,875       4,695,377       5,037,646
                                              ------------    ------------    ------------    ------------

Operating expenses:
    Research and development                     1,292,495       1,249,809       3,764,062       3,612,796
    Selling, general and administrative          1,254,939       1,272,306       3,810,157       4,088,429
                                              ------------    ------------    ------------    ------------

    Total operating expenses                     2,547,434       2,522,115       7,574,219       7,701,225
                                              ------------    ------------    ------------    ------------

Operating loss                                    (841,612)       (534,240)     (2,878,842)     (2,663,579)

Other income (expense), net                        (82,979)         46,969        (200,600)        140,249
                                              ------------    ------------    ------------    ------------

Net loss                                      $   (924,591)   $   (487,271)   $ (3,079,442)   $ (2,523,330)
                                              ============    ============    ============    ============

Basic and diluted net loss per common share   $      (0.03)   $      (0.02)   $      (0.12)   $      (0.10)
                                              ============    ============    ============    ============

Weighted average number of
common shares outstanding                       26,785,721      26,661,162      26,748,316      26,423,504
                                              ============    ============    ============    ============
</TABLE>

See accompanying notes to consolidated financial statements.

                                       3
<PAGE>

                            DIAMETRICS MEDICAL, INC.
                           CONSOLIDATED BALANCE SHEETS
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                   September 30,    December 31,
                                                                       2001             2000
                                                                   -------------    -------------
<S>                                                                <C>              <C>
ASSETS
    Current assets:
      Cash and cash equivalents                                    $   8,163,325    $   2,431,704
      Marketable securities                                                 --          6,281,761
      Accounts receivable                                              5,030,851        6,682,129
      Inventories                                                      4,253,977        4,280,234
      Prepaid expenses and other current assets                          350,907          397,406
                                                                   -------------    -------------

         Total current assets                                         17,799,060       20,073,234
                                                                   -------------    -------------

    Property and equipment                                            23,114,980       22,474,247
      Less accumulated depreciation and amortization                 (16,375,621)     (15,137,964)
                                                                   -------------    -------------

                                                                       6,739,359        7,336,283
                                                                   -------------    -------------

    Other assets                                                          46,264          401,240
                                                                   -------------    -------------

                                                                   $  24,584,683    $  27,810,757
                                                                   =============    =============

LIABILITIES AND SHAREHOLDERS' EQUITY
    Current liabilities:
      Accounts payable                                             $   1,474,621    $   2,398,987
      Accrued expenses                                                 1,356,812        1,914,409
      Other current liabilities                                        2,690,831        1,426,140
                                                                   -------------    -------------

         Total current liabilities                                     5,522,264        5,739,536
                                                                   -------------    -------------

    Long-term liabilities:
      Long-term liabilities, excluding current portion                 7,603,701        7,472,215
      Other liabilities                                                  414,115          414,115
                                                                   -------------    -------------

         Total liabilities                                            13,540,080       13,625,866
                                                                   -------------    -------------

    Shareholders' equity:
      Common stock, $.01 par value: 45,000,000 authorized
         26,794,354 and 26,713,166 shares issued and outstanding         267,944          267,132
      Additional paid-in capital                                     147,493,218      147,291,259
      Accumulated deficit                                           (135,091,013)    (132,011,571)
      Accumulated other comprehensive loss                            (1,625,546)      (1,361,929)
                                                                   -------------    -------------

         Total shareholders' equity                                   11,044,603       14,184,891
                                                                   -------------    -------------

                                                                   $  24,584,683    $  27,810,757
                                                                   =============    =============
</TABLE>

    See accompanying notes to consolidated financial statements.

                                       4
<PAGE>

                            DIAMETRICS MEDICAL, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                       Nine Months Ended
                                                                         September 30,
                                                                      2001            2000
                                                                  ------------    ------------
<S>                                                               <C>             <C>
Cash flows from operating activities:
    Net loss                                                      $ (3,079,442)   $ (2,523,300)
    Adjustments to reconcile net loss to net cash
      provided by (used in) operating activities:
      Depreciation and amortization                                  1,831,225       1,490,319
      Other                                                              1,506            (102)
      Changes in operating assets and liabilities:
         Accounts receivable                                         1,651,278         403,259
         Inventories                                                    26,257         668,227
         Prepaid expenses and other current assets                      46,499        (225,062)
         Accounts payable                                             (924,366)       (283,406)
         Accrued expenses                                             (557,597)       (772,724)
         Deferred credits and revenue                                1,303,585      (2,802,987)
                                                                  ------------    ------------
           Net cash provided by (used in) operating activities         298,945      (4,045,776)
                                                                  ------------    ------------

Cash flows from investing activities:
    Purchases of property and equipment                               (928,035)     (2,942,443)
    Purchases of marketable securities                              (3,569,950)    (15,355,231)
    Proceeds from maturities of marketable securities                9,851,711      17,587,747
    Other                                                               (1,100)            702
                                                                  ------------    ------------
           Net cash provided by (used in) investing activities       5,352,626        (709,225)
                                                                  ------------    ------------

Cash flows from financing activities:
    Principal payments on borrowings                                  (394,718)       (276,379)
    Proceeds from borrowings                                           487,310         115,846
    Net proceeds from the issuance of common stock                     202,771       3,695,813
                                                                  ------------    ------------
           Net cash provided by financing activities                   295,363       3,535,280
                                                                  ------------    ------------

Effect of exchange rate changes on cash and cash equivalents          (215,313)       (160,342)
                                                                  ------------    ------------

           Net increase (decrease) in cash and cash equivalents      5,731,621      (1,380,063)

Cash and cash equivalents at beginning of period                     2,431,704       2,786,162
                                                                  ------------    ------------

Cash and cash equivalents at end of period                        $  8,163,325    $  1,406,099
                                                                  ============    ============

Supplemental disclosure of cash flow information:
    Cash paid during the period for interest                      $    429,777    $    443,914
                                                                  ============    ============
</TABLE>

See accompanying notes to consolidated financial statements.

                                       5
<PAGE>

                            DIAMETRICS MEDICAL, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2001
                                   (UNAUDITED)

(1)      UNAUDITED FINANCIAL STATEMENTS

         The interim consolidated financial statements of Diametrics Medical,
         Inc. (the "Company") are unaudited and have been prepared by the
         Company in accordance with accounting principles generally accepted in
         the United States of America for interim financial information,
         pursuant to the rules and regulations of the Securities and Exchange
         Commission. Pursuant to such rules and regulations, certain financial
         information and footnote disclosures normally included in the financial
         statements have been condensed or omitted. However, in the opinion of
         management, the financial statements include all adjustments,
         consisting of normal recurring accruals, necessary for a fair
         presentation of the interim periods presented. Operating results for
         these interim periods are not necessarily indicative of results to be
         expected for the entire year, due to seasonal, operating and other
         factors.

         These statements should be read in conjunction with the financial
         statements and related notes which are incorporated by reference in the
         Company's Annual Report on Form 10-K for the year ended December 31,
         2000.

(2)      COMPREHENSIVE LOSS

<TABLE>
<CAPTION>
                                                  Three Months Ended            Nine Months Ended
                                                    September 30,                 September 30,
                                                 2001           2000           2001           2000
                                              -----------    -----------    -----------    -----------
<S>                                           <C>            <C>            <C>            <C>
Net loss                                      $  (924,591)   $  (487,271)   $(3,079,442)   $(2,523,300)
Change in cumulative translation adjustment        54,255        (90,585)      (263,617)      (366,916)
                                              -----------    -----------    -----------    -----------
Comprehensive loss                            $  (870,336)   $  (577,856)   $(3,343,059)   $(2,890,216)
                                              -----------    -----------    -----------    -----------
</TABLE>

(3)      INVENTORIES

                                           September 30,    December 31,
                                               2001             2000
                                           -------------    ------------
Raw materials                               $1,873,414       $1,735,460
Work-in-process                              1,294,381        1,320,521
Finished goods                               1,086,182        1,224,253
                                            ----------       ----------
                                            $4,253,977       $4,280,234
                                            ==========       ==========

(4)      OTHER CURRENT LIABILITIES

                                           September 30,    December 31,
                                               2001             2000
                                           -------------    ------------
Deferred research and development funding    $2,250,000      $  833,334
Current portion of long-term debt               386,881         425,775
Other                                            53,950         167,031
                                             ----------      ----------
                                             $2,690,831      $1,426,140
                                             ==========      ==========

         The Company's distribution agreement with Philips Medical Systems
         ("Philips") provides for prepaid funding of research and development
         costs over the initial term of the agreement. These prepayments are
         being recognized ratably over the periods earned.

                                       6
<PAGE>

(5)      RELATED PARTY TRANSACTIONS

         One of the Company's directors is also a director of DVI, Inc., a
         health care finance company with which the Company has a credit line,
         outstanding notes payable and a capital lease. As of September 30,
         2001, there were no outstanding advances against the $1,000,000
         receivable-backed credit line and the outstanding balance of the notes
         payable and capital lease debt totaled $226,365 and $391,387,
         respectively.

         The Company's exclusive distributors, Philips and Codman & Shurtleff, a
         Johnson & Johnson company ("Codman"), are shareholders of the Company.
         Sales to these parties were approximately $6.1 million and $17 million
         for the three and nine months ended September 30, 2001, compared to $6
         million and $16.2 million for the same periods in the prior year.
         Outstanding accounts receivable for these distributors represented 98%
         and 89% of total outstanding accounts receivable as of September 30,
         2001 and December 31, 2000, respectively.

(6)      EFFECT OF NEW ACCOUNTING STANDARDS

         In July 2001, the Financial Accounting Standards Board ("FASB") issued
         Statement of Financial Accounting Standards ("SFAS") No. 141 "Business
         Combinations," and SFAS No. 142 "Goodwill and Other Intangible Assets,"
         which change the accounting for business combinations and goodwill.
         SFAS No. 141 requires that the purchase method of accounting be used
         for business combinations initiated after June 30, 2001. Use of the
         pooling-of-interests method will be prohibited. SFAS No. 142 changes
         the accounting for goodwill from an amortization method to an
         impairment-only approach. Amortization of goodwill, including goodwill
         recorded in past business combinations, will therefore cease upon
         adoption of the Statement, which for the Company will be January 1,
         2002. The Company has evaluated SFAS No. 141 and SFAS No. 142, and has
         concluded that they do not have a material effect on its financial
         statements.

         Item 2. Management's Discussion and Analysis of Results of Operations
                 and Financial Condition
         ---------------------------------------------------------------------

         The Company's discussion and analysis of results of operations and
         financial condition, including statements regarding the Company's
         expectations about new and existing products, future financial
         performance, market risk exposure and other forward looking statements
         are subject to various risks and uncertainties, including, without
         limitation, demand and acceptance of new and existing products,
         technological advances and product obsolescence, competitive factors,
         stability of domestic and international financial markets and
         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 Exhibit 99 to the Company's Form 10-K
         filed with the U.S. Securities and Exchange Commission, with respect to
         the Company's fiscal year ended December 31, 2000. When used in the
         Form 10-Q, and in future filings by the Company with the Securities and
         Exchange Commission, in the Company's press releases, presentations to
         securities analysts or investors, in oral statements made by or with
         the approval of an executive officer of the Company, the words or
         phrases "believes," "may," "will," "expects," "should," "continue,"
         "anticipates," "intends," "will likely result," "estimates,"
         "projects," or similar expressions and variations thereof are intended
         to identify such forward-looking statements.

         SUMMARY
         -------

         Diametrics Medical, Inc., which began operations in 1990, is engaged in
         the development, 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 September
         30, 2001, the primary funding for the operations of the Company has
         been

                                       7
<PAGE>

         approximately $148 million raised through public and private sales of
         its equity securities and issuance of convertible promissory notes.

         The Company's strategy for distribution and commercialization of its
         products includes partnerships with Philips and Codman. In October
         1998, the Company entered into an exclusive distribution agreement with
         Codman for worldwide market development and distribution of the
         Company's Neurotrend(TM) Cerebral Tissue Monitoring System. The term of
         the agreement is 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 June 1999, the Company entered into
         an exclusive distribution agreement with Hewlett Packard Company
         ("HP"). Under the terms of the distribution agreement, the Company
         transferred full responsibility for marketing, sales and distribution
         of the Company's leading critical care products, the IRMA(R)SL blood
         analysis system and the Trendcare(R) continuous blood gas monitoring
         systems, including Paratrend(R) and Neotrend(TM), to HP. 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 the initial three and a half-year term. In November 1999,
         HP assigned the distribution agreement and its equity investment in the
         Company to Agilent Technologies, Inc. ("Agilent"), a leading provider
         of test and measurement solutions and communications components, which
         was formed as a new company and subsidiary of HP. HP completed the
         spin-off of its ownership in Agilent to HP shareholders in June 2000.
         In August 2001, Agilent completed the sale of its healthcare business
         to Royal Philips Electronics, including its equity investment in the
         Company. Also as part of this transaction, the distribution agreement
         between the Company and Agilent was assigned to Philips Medical
         Systems, a division of Royal Philips Electronics.

         RESULTS OF OPERATIONS
         ---------------------

         Sales. Sales of the Company's products were $6,262,823 and $18,106,391
         for the three and nine months ended September 30, 2001, compared to
         $6,580,956 and $18,342,193 for the same periods in the prior year, a
         decrease of 5% and 1% for the three and nine month periods,
         respectively. The decrease in sales for the three and nine months ended
         September 30, 2001 relative to the prior year reflects a 10% and 18%
         respective growth in disposable cartridge and sensor revenue and a 3%
         and 4% respective increase in instrument revenue, offset by a decrease
         in royalty revenue under the Philips distribution agreement of $600,000
         and $1,550,000, respectively. Comparable unit sales of disposable
         cartridges and sensors increased 12% and 33%, while unit sales of
         instruments increased 13% and 23% for the three and nine months ended
         September 30, 2001. The smaller increase in revenue growth relative to
         unit sales growth was due to the impact of a lower ratio of continuous
         monitoring product line sales, which have higher average selling
         prices, relative to total sales. Continuous monitoring products
         represented 44% and 41% of total sales for the three and nine months
         ended September 30, 2001, compared to 54% and 57% for the comparable
         periods in 2000. Intermittent testing products comprised the remaining
         sales in each period.

         The Company's direct sales to Philips and Codman comprised
         approximately 97% and 94% of total sales for the three and nine months
         ended September 30, 2001, compared to 91% and 89% for the same periods
         in the prior year.

         Intermittent blood testing products revenue was comprised of 73% and
         72% instrument related revenue and 27% and 28% disposable cartridge
         related revenue for the three and nine months ended September 30, 2001,
         respectively. Continuous monitoring products revenue was comprised of
         74% and 71% instrument related revenue and 26% and 29% disposable
         sensor revenue for the three and nine months ended September 30, 2001,
         respectively. The Company's revenues are affected principally by the
         number of instruments, both monitors and IRMA analyzers, placed with
         customers and the rate at which disposable sensors and cartridges are
         used in connection with these products. As of September 30, 2001, the
         Company has sold approximately 10,000

                                       8
<PAGE>

         instruments. As the Company grows, it is expected that the Company's
         growing end-user customer base will increase the usage and rate of
         usage of disposable products, with the result that overall disposable
         product sales will exceed that of instrument sales.

         Cost of Sales. Cost of sales totaled $4,557,001 and $13,411,014, or 73%
         and 74% of revenue for the three and nine months ended September 30,
         2001, compared to $4,593,081 and $13,304,547 or 70% and 73% of revenue
         for the same periods in the prior year. Cost of sales as a percentage
         of revenue in the current year periods reflects a lower ratio of
         continuous monitoring product line sales (which currently have higher
         gross margins than the intermittent testing product line) to total
         sales and a reduction in royalty revenue, partially offset by lower
         disposable unit manufacturing costs resulting from increased unit sales
         volumes and improved yields; a reduction in instrument material costs;
         and the impact of operational efficiencies and process improvements.

         Operating Expenses. Research and development expenditures totaled
         $1,292,495 and $3,764,062 for the three and nine months ended September
         30, 2001, compared to $1,249,809 and $3,612,766 for the same periods in
         2000. Expenses in the first nine months of 2001 reflect the impact of
         additional investments initiated throughout 2000 to support new
         research and development projects.

         Selling, general and administrative expenses totaled $1,254,939 and
         $3,810,157 for the three and nine months ended September 30, 2001,
         compared to $1,272,306 and $4,088,429 for the same periods in 2000. The
         reduction in expenses in both the quarterly and year-to-date periods
         was impacted by a reduction in headcount, and the decrease in the
         year-to-date period was further impacted by the transfer of most of the
         Company's sales and marketing activities to Philips for the IRMA and
         Trendcare product lines.

         Other Income (Expense). Net other expense totaled $82,979 and $200,600
         for the three and nine months ended September 30, 2001, compared to net
         other income of $46,969 and $140,249 for the same periods in 2000. The
         Company realized interest income of $71,351 and $273,935 for the three
         and nine months ended September 30, 2001, compared to $211,248 and
         $629,842 for the same periods in 2000. The period-to-period decrease in
         interest income reflects the impact of lower average cash and
         investment balances and lower average interest rates.

         Interest expense totaled $144,424 and $429,777 for the three and nine
         months ended September 30, 2001, compared to $146,468 and $443,914 for
         the same periods in 2000. While average debt balances were comparable
         between periods, interest expense amounts in the current year periods
         reflect the impact of slightly lower average interest rates.

         Net Loss. The net loss for the three and nine months ended September
         30, 2001 was $924,591 and $3,079,442, compared to $487,271 and
         $2,523,300 for the same periods in 2000, an increase of 90% and 22%,
         respectively. The primary contributors to the increase in net loss were
         the reductions in royalty revenue and interest income, discussed above.

         The Company is currently operating in an environment with uncertainties
         and changes that will impact future 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, the general slowdown of the U.S. economy, and
         the impact of a transition of the IRMA and Trendcare distribution
         channel as a result of the sale of Agilent's healthcare business to
         Royal Philips Electronics in August 2001. Future revenue and gross
         profit levels will depend in part on the impact of the above as well as
         revenue mix. Pending resolution of these uncertainties, the Company has
         limited visibility of its future financial performance.

                                       9
<PAGE>

         LIQUIDITY AND CAPITAL RESOURCES
         -------------------------------

         At September 30, 2001, the Company had working capital of $12,276,796,
         a decrease of $2,056,902 from the working capital reported at December
         31, 2000. The decrease is impacted primarily by the year-to-date net
         loss before depreciation and amortization of approximately $1,248,000
         and purchases of property and equipment of approximately $928,000,
         partially offset by net proceeds from borrowing activities of
         approximately $93,000.

         Net cash provided by operating activities totaled $298,945 for the nine
         months ended September 30, 2001, compared to net cash used of
         $4,045,776 for the same period in 2000. This was the result of net
         losses of $3,079,442 and $2,523,300 for these same periods in 2001 and
         2000, respectively, adjusted by changes in key operating assets and
         liabilities, primarily accounts receivable, inventories, accounts
         payable, accrued expenses and deferred credits and revenue.

         Net accounts receivable decreased $1,651,278 for the nine months ended
         September 30, 2001, compared to a $403,259 decrease for the same period
         in 2000. The larger decline in accounts receivable during the 2001
         year-to-date period is primarily due to the timing of sales, an
         improvement in days sales outstanding and a slight reduction in sales
         between periods.

         Inventories decreased $26,257 for the nine months ended September 30,
         2001, compared to a decrease of $668,227 for the same period in 2000.
         The decrease in 2000 was primarily due to improvements in inventory
         turnover as a result of improvements in inventory management initiated
         during 2000. The smaller decline in inventories during the 2001
         year-to-date period was primarily affected by higher inventory
         requirements stemming from increased product sales.

         Accounts payable and accrued expenses decreased $1,481,963 and
         $1,056,130 for the nine months ended September 30, 2001 and 2000,
         respectively. The larger decrease in 2001 was primarily due to the
         timing of vendor payments.

         Deferred credits and revenue increased $1,303,585 during the nine
         months ended September 30, 2001 compared to a $2,802,987 decrease for
         the same period in 2000. The increase in 2001 represents the receipt of
         $3 million of prepaid research and development funding from Philips
         under the terms of the distribution agreement ($2 million of which was
         accelerated), partially offset by the recognition of a portion of this
         funding. The decrease in 2000 represents the recognition of funding
         from Philips for research and development costs and royalty payments
         received in 1999.

         Net cash provided by investing activities totaled $5,352,626 for the
         nine months ended September 30, 2001, compared to net cash used in
         investing activities of $709,225 for the same period in 2000. This
         change was affected primarily by the amounts and timing of equity
         funding, funding received from Philips and operating cash flow
         requirements, which all affected the amount of cash available for the
         purchase of marketable securities. Purchases of property and equipment,
         totaling $928,035 in 2001 and $2,942,443 in 2000, also affected net
         cash used in investing activities in each period. In 2001, the Company
         expects capital expenditures and new lease commitments to approximate
         $1.2 million, primarily reflecting investments to support new product
         development and production.

         Net cash provided by financing activities totaled $295,363 and
         $3,535,280 for the nine months ended September 30, 2001 and 2000,
         respectively. In 2001, net cash provided by financing activities
         consisted primarily of net proceeds from borrowings and proceeds from
         employee stock plans. In 2000, net cash provided by financing
         activities consisted primarily of proceeds from employee stock plans
         and warrant exercises.

         At September 30, 2001, the Company had U.S. tax net operating loss and
         research and development tax credit carryforwards for income tax
         purposes of approximately $121 million and $1.3 million, respectively.
         Pursuant to the Tax Reform Act of 1986, use of a portion of the
         Company's net operating loss carryforwards are limited due to a "change
         in ownership." If not used, these net operating loss carryforwards
         begin to expire in 2005. The Company's foreign subsidiary

                                       10
<PAGE>

         also has a net operating loss carryforward of approximately $47
         million, which can be carried forward indefinitely, subject to review
         by the governmental taxing authority.

         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, will meet the
         Company's currently anticipated working capital needs. If the amount or
         timing of funding from these sources or cash requirements vary
         materially from those currently planned, the Company could require
         additional capital. The Company's long-term capital requirements will
         depend upon numerous factors, including the rate of market acceptance
         of the Company's products and the level of resources devoted to
         expanding the Company's business 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.

         Item 3. Quantitative and Qualitative Disclosure About Market Risk
         -----------------------------------------------------------------

         The Company's primary market risk exposure is foreign exchange rate
         fluctuations of the British pound sterling to the U.S. dollar as the
         financial position and operating results of the Company's U.K.
         subsidiary, Diametrics Medical, Ltd., are translated into U.S. dollars
         for consolidation. The Company's exposure to foreign exchange rate
         fluctuations also arises from transferring funds to its U.K. subsidiary
         in British pounds sterling. Effective November 1, 1999 most of the
         Company's sales are made to distributors and denominated in U.S.
         dollars, thereby significantly mitigating the risk of exchange rate
         fluctuations on trade receivables. The Company does not currently use
         derivative financial instruments to hedge against exchange rate risk or
         manage interest rate risk. The Company's exposure to interest rate risk
         is limited to short-term borrowings under its $1,000,000 receivable
         backed credit line and a bank loan. Based upon currently available
         information, management does not believe that the effect of foreign
         exchange rate fluctuations and interest rate risk will have a material
         impact on the Company's financial condition or overall trends in
         results of operations. There have been no material changes in market
         risk faced by the Company from what has been previously reported in the
         Company's Annual Report on Form 10-K for the year ended December 31,
         2000.

                           PART II - OTHER INFORMATION

         Item 1. Legal Proceedings

                 None

         Item 2. Changes in Securities

                 None

         Item 3. Defaults Upon Senior Securities

                 None

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

                 None

         Item 5. Other Information

                 None

                                       11
<PAGE>

         Item 6. Exhibits and Reports on Form 8-K

              a. Exhibits

                 None

              b. Reports on Form 8-K.

                 None

                                       12
<PAGE>

                            DIAMETRICS MEDICAL, INC.


SIGNATURE
---------

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.


DIAMETRICS MEDICAL, INC.


By: /s/ Laurence L. Betterley
-----------------------------------
Laurence L. Betterley
Senior Vice President and Chief
Financial Officer (and Duly
Authorized Officer)



Dated: November 9, 2001

                                       13
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================================================================================

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                               ------------------

                                    FORM 10-Q

                               ------------------

           [X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

                For the quarterly period ended September 30, 2001

                                       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.
                 Incorporated pursuant to the Laws of Minnesota

                               ------------------

       Internal Revenue Service--Employer Identification No. 41-1663185

                  2658 Patton Road, Roseville, Minnesota 55113
                                 (651) 639-8035

                               ------------------

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [_]

The total number of shares of the registrant's Common Stock, $.01 par value,
outstanding on October 31, 2001, was 26,794,354.

================================================================================
Diametrics Medical, Inc.

                                                                          Page
                                                                          ----

Part I -- FINANCIAL INFORMATION

   Item 1.  Consolidated Financial Statements (unaudited)

            Consolidated Statements of Operations:

               Three Months Ended September 30, 2001 and 2000...............3

               Nine Months Ended September 30, 2001 and 2000................3

            Consolidated Balance Sheets as of September 30, 2001
             and December 31, 2000..........................................4

            Consolidated Statements of Cash Flows:
               Nine Months Ended September 30, 2001 and 2000................5

            Notes to Consolidated Financial Statements......................6

   Item 2.  Management's Discussion and Analysis of Results of
             Operations and Financial Condition.............................7

   Item 3.  Quantitative and Qualitative Disclosure About Market Risk......11

Part II -- OTHER INFORMATION

   Item 1.  Legal Proceedings..............................................11

   Item 2.  Changes in Securities..........................................11

   Item 3.  Defaults Upon Senior Securities................................11

   Item 4.  Submission of Matters to a Vote of Security Holders............11

   Item 5.  Other Information..............................................11

   Item 6.  Exhibits and Reports on Form 8-K...............................12

   Signatures..............................................................13

                                       2
PART I - FINANCIAL INFORMATION

Item 1.  Consolidated Financial Statements (unaudited)
------------------------------------------------------

                            DIAMETRICS MEDICAL, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (UNAUDITED)
Three Months Ended              Nine Months Ended
                                                     September 30,                   September 30,
                                                  2001           2000             2001            2000
                                              ------------    ------------    ------------    ------------
Net sales                                     $  6,262,823    $  6,580,956    $ 18,106,391    $ 18,342,193

Cost of sales                                    4,557,001       4,593,081      13,411,014      13,304,547
                                              ------------    ------------    ------------    ------------

    Gross profit                                 1,705,822       1,987,875       4,695,377       5,037,646
                                              ------------    ------------    ------------    ------------

Operating expenses:
    Research and development                     1,292,495       1,249,809       3,764,062       3,612,796
    Selling, general and administrative          1,254,939       1,272,306       3,810,157       4,088,429
                                              ------------    ------------    ------------    ------------

    Total operating expenses                     2,547,434       2,522,115       7,574,219       7,701,225
                                              ------------    ------------    ------------    ------------

Operating loss                                    (841,612)       (534,240)     (2,878,842)     (2,663,579)

Other income (expense), net                        (82,979)         46,969        (200,600)        140,249
                                              ------------    ------------    ------------    ------------

Net loss                                      $   (924,591)   $   (487,271)   $ (3,079,442)   $ (2,523,330)
                                              ============    ============    ============    ============

Basic and diluted net loss per common share   $      (0.03)   $      (0.02)   $      (0.12)   $      (0.10)
                                              ============    ============    ============    ============

Weighted average number of
common shares outstanding                       26,785,721      26,661,162      26,748,316      26,423,504
                                              ============    ============    ============    ============
See accompanying notes to consolidated financial statements.

                                       3
DIAMETRICS MEDICAL, INC.
                           CONSOLIDATED BALANCE SHEETS
                                   (UNAUDITED)
September 30,    December 31,
                                                                       2001             2000
                                                                   -------------    -------------
ASSETS
    Current assets:
      Cash and cash equivalents                                    $   8,163,325    $   2,431,704
      Marketable securities                                                 --          6,281,761
      Accounts receivable                                              5,030,851        6,682,129
      Inventories                                                      4,253,977        4,280,234
      Prepaid expenses and other current assets                          350,907          397,406
                                                                   -------------    -------------

         Total current assets                                         17,799,060       20,073,234
                                                                   -------------    -------------

    Property and equipment                                            23,114,980       22,474,247
      Less accumulated depreciation and amortization                 (16,375,621)     (15,137,964)
                                                                   -------------    -------------

                                                                       6,739,359        7,336,283
                                                                   -------------    -------------

    Other assets                                                          46,264          401,240
                                                                   -------------    -------------

                                                                   $  24,584,683    $  27,810,757
                                                                   =============    =============

LIABILITIES AND SHAREHOLDERS' EQUITY
    Current liabilities:
      Accounts payable                                             $   1,474,621    $   2,398,987
      Accrued expenses                                                 1,356,812        1,914,409
      Other current liabilities                                        2,690,831        1,426,140
                                                                   -------------    -------------

         Total current liabilities                                     5,522,264        5,739,536
                                                                   -------------    -------------

    Long-term liabilities:
      Long-term liabilities, excluding current portion                 7,603,701        7,472,215
      Other liabilities                                                  414,115          414,115
                                                                   -------------    -------------

         Total liabilities                                            13,540,080       13,625,866
                                                                   -------------    -------------

    Shareholders' equity:
      Common stock, $.01 par value: 45,000,000 authorized
         26,794,354 and 26,713,166 shares issued and outstanding         267,944          267,132
      Additional paid-in capital                                     147,493,218      147,291,259
      Accumulated deficit                                           (135,091,013)    (132,011,571)
      Accumulated other comprehensive loss                            (1,625,546)      (1,361,929)
                                                                   -------------    -------------

         Total shareholders' equity                                   11,044,603       14,184,891
                                                                   -------------    -------------

                                                                   $  24,584,683    $  27,810,757
                                                                   =============    =============
See accompanying notes to consolidated financial statements.

                                       4
DIAMETRICS MEDICAL, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)
Nine Months Ended
                                                                         September 30,
                                                                      2001            2000
                                                                  ------------    ------------
Cash flows from operating activities:
    Net loss                                                      $ (3,079,442)   $ (2,523,300)
    Adjustments to reconcile net loss to net cash
      provided by (used in) operating activities:
      Depreciation and amortization                                  1,831,225       1,490,319
      Other                                                              1,506            (102)
      Changes in operating assets and liabilities:
         Accounts receivable                                         1,651,278         403,259
         Inventories                                                    26,257         668,227
         Prepaid expenses and other current assets                      46,499        (225,062)
         Accounts payable                                             (924,366)       (283,406)
         Accrued expenses                                             (557,597)       (772,724)
         Deferred credits and revenue                                1,303,585      (2,802,987)
                                                                  ------------    ------------
           Net cash provided by (used in) operating activities         298,945      (4,045,776)
                                                                  ------------    ------------

Cash flows from investing activities:
    Purchases of property and equipment                               (928,035)     (2,942,443)
    Purchases of marketable securities                              (3,569,950)    (15,355,231)
    Proceeds from maturities of marketable securities                9,851,711      17,587,747
    Other                                                               (1,100)            702
                                                                  ------------    ------------
           Net cash provided by (used in) investing activities       5,352,626        (709,225)
                                                                  ------------    ------------

Cash flows from financing activities:
    Principal payments on borrowings                                  (394,718)       (276,379)
    Proceeds from borrowings                                           487,310         115,846
    Net proceeds from the issuance of common stock                     202,771       3,695,813
                                                                  ------------    ------------
           Net cash provided by financing activities                   295,363       3,535,280
                                                                  ------------    ------------

Effect of exchange rate changes on cash and cash equivalents          (215,313)       (160,342)
                                                                  ------------    ------------

           Net increase (decrease) in cash and cash equivalents      5,731,621      (1,380,063)

Cash and cash equivalents at beginning of period                     2,431,704       2,786,162
                                                                  ------------    ------------

Cash and cash equivalents at end of period                        $  8,163,325    $  1,406,099
                                                                  ============    ============

Supplemental disclosure of cash flow information:
    Cash paid during the period for interest                      $    429,777    $    443,914
                                                                  ============    ============
See accompanying notes to consolidated financial statements.

                                       5
DIAMETRICS MEDICAL, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2001
                                   (UNAUDITED)

(1)      UNAUDITED FINANCIAL STATEMENTS

         The interim consolidated financial statements of Diametrics Medical,
         Inc. (the "Company") are unaudited and have been prepared by the
         Company in accordance with accounting principles generally accepted in
         the United States of America for interim financial information,
         pursuant to the rules and regulations of the Securities and Exchange
         Commission. Pursuant to such rules and regulations, certain financial
         information and footnote disclosures normally included in the financial
         statements have been condensed or omitted. However, in the opinion of
         management, the financial statements include all adjustments,
         consisting of normal recurring accruals, necessary for a fair
         presentation of the interim periods presented. Operating results for
         these interim periods are not necessarily indicative of results to be
         expected for the entire year, due to seasonal, operating and other
         factors.

         These statements should be read in conjunction with the financial
         statements and related notes which are incorporated by reference in the
         Company's Annual Report on Form 10-K for the year ended December 31,
         2000.

(2)      COMPREHENSIVE LOSS
Three Months Ended            Nine Months Ended
                                                    September 30,                 September 30,
                                                 2001           2000           2001           2000
                                              -----------    -----------    -----------    -----------
Net loss                                      $  (924,591)   $  (487,271)   $(3,079,442)   $(2,523,300)
Change in cumulative translation adjustment        54,255        (90,585)      (263,617)      (366,916)
                                              -----------    -----------    -----------    -----------
Comprehensive loss                            $  (870,336)   $  (577,856)   $(3,343,059)   $(2,890,216)
                                              -----------    -----------    -----------    -----------
(3)      INVENTORIES

                                           September 30,    December 31,
                                               2001             2000
                                           -------------    ------------
Raw materials                               $1,873,414       $1,735,460
Work-in-process                              1,294,381        1,320,521
Finished goods                               1,086,182        1,224,253
                                            ----------       ----------
                                            $4,253,977       $4,280,234
                                            ==========       ==========

(4)      OTHER CURRENT LIABILITIES

                                           September 30,    December 31,
                                               2001             2000
                                           -------------    ------------
Deferred research and development funding    $2,250,000      $  833,334
Current portion of long-term debt               386,881         425,775
Other                                            53,950         167,031
                                             ----------      ----------
                                             $2,690,831      $1,426,140
                                             ==========      ==========

         The Company's distribution agreement with Philips Medical Systems
         ("Philips") provides for prepaid funding of research and development
         costs over the initial term of the agreement. These prepayments are
         being recognized ratably over the periods earned.

                                       6
(5)      RELATED PARTY TRANSACTIONS

         One of the Company's directors is also a director of DVI, Inc., a
         health care finance company with which the Company has a credit line,
         outstanding notes payable and a capital lease. As of September 30,
         2001, there were no outstanding advances against the $1,000,000
         receivable-backed credit line and the outstanding balance of the notes
         payable and capital lease debt totaled $226,365 and $391,387,
         respectively.

         The Company's exclusive distributors, Philips and Codman & Shurtleff, a
         Johnson & Johnson company ("Codman"), are shareholders of the Company.
         Sales to these parties were approximately $6.1 million and $17 million
         for the three and nine months ended September 30, 2001, compared to $6
         million and $16.2 million for the same periods in the prior year.
         Outstanding accounts receivable for these distributors represented 98%
         and 89% of total outstanding accounts receivable as of September 30,
         2001 and December 31, 2000, respectively.

(6)      EFFECT OF NEW ACCOUNTING STANDARDS

         In July 2001, the Financial Accounting Standards Board ("FASB") issued
         Statement of Financial Accounting Standards ("SFAS") No. 141 "Business
         Combinations," and SFAS No. 142 "Goodwill and Other Intangible Assets,"
         which change the accounting for business combinations and goodwill.
         SFAS No. 141 requires that the purchase method of accounting be used
         for business combinations initiated after June 30, 2001. Use of the
         pooling-of-interests method will be prohibited. SFAS No. 142 changes
         the accounting for goodwill from an amortization method to an
         impairment-only approach. Amortization of goodwill, including goodwill
         recorded in past business combinations, will therefore cease upon
         adoption of the Statement, which for the Company will be January 1,
         2002. The Company has evaluated SFAS No. 141 and SFAS No. 142, and has
         concluded that they do not have a material effect on its financial
         statements.

         Item 2. Management's Discussion and Analysis of Results of Operations
                 and Financial Condition
         ---------------------------------------------------------------------

         The Company's discussion and analysis of results of operations and
         financial condition, including statements regarding the Company's
         expectations about new and existing products, future financial
         performance, market risk exposure and other forward looking statements
         are subject to various risks and uncertainties, including, without
         limitation, demand and acceptance of new and existing products,
         technological advances and product obsolescence, competitive factors,
         stability of domestic and international financial markets and
         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 Exhibit 99 to the Company's Form 10-K
         filed with the U.S. Securities and Exchange Commission, with respect to
         the Company's fiscal year ended December 31, 2000. When used in the
         Form 10-Q, and in future filings by the Company with the Securities and
         Exchange Commission, in the Company's press releases, presentations to
         securities analysts or investors, in oral statements made by or with
         the approval of an executive officer of the Company, the words or
         phrases "believes," "may," "will," "expects," "should," "continue,"
         "anticipates," "intends," "will likely result," "estimates,"
         "projects," or similar expressions and variations thereof are intended
         to identify such forward-looking statements.

         SUMMARY
         -------

         Diametrics Medical, Inc., which began operations in 1990, is engaged in
         the development, 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 September
         30, 2001, the primary funding for the operations of the Company has
         been

                                       7
approximately $148 million raised through public and private sales of
         its equity securities and issuance of convertible promissory notes.

         The Company's strategy for distribution and commercialization of its
         products includes partnerships with Philips and Codman. In October
         1998, the Company entered into an exclusive distribution agreement with
         Codman for worldwide market development and distribution of the
         Company's Neurotrend(TM) Cerebral Tissue Monitoring System. The term of
         the agreement is 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 June 1999, the Company entered into
         an exclusive distribution agreement with Hewlett Packard Company
         ("HP"). Under the terms of the distribution agreement, the Company
         transferred full responsibility for marketing, sales and distribution
         of the Company's leading critical care products, the IRMA(R)SL blood
         analysis system and the Trendcare(R) continuous blood gas monitoring
         systems, including Paratrend(R) and Neotrend(TM), to HP. 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 the initial three and a half-year term. In November 1999,
         HP assigned the distribution agreement and its equity investment in the
         Company to Agilent Technologies, Inc. ("Agilent"), a leading provider
         of test and measurement solutions and communications components, which
         was formed as a new company and subsidiary of HP. HP completed the
         spin-off of its ownership in Agilent to HP shareholders in June 2000.
         In August 2001, Agilent completed the sale of its healthcare business
         to Royal Philips Electronics, including its equity investment in the
         Company. Also as part of this transaction, the distribution agreement
         between the Company and Agilent was assigned to Philips Medical
         Systems, a division of Royal Philips Electronics.

         RESULTS OF OPERATIONS
         ---------------------

         Sales. Sales of the Company's products were $6,262,823 and $18,106,391
         for the three and nine months ended September 30, 2001, compared to
         $6,580,956 and $18,342,193 for the same periods in the prior year, a
         decrease of 5% and 1% for the three and nine month periods,
         respectively. The decrease in sales for the three and nine months ended
         September 30, 2001 relative to the prior year reflects a 10% and 18%
         respective growth in disposable cartridge and sensor revenue and a 3%
         and 4% respective increase in instrument revenue, offset by a decrease
         in royalty revenue under the Philips distribution agreement of $600,000
         and $1,550,000, respectively. Comparable unit sales of disposable
         cartridges and sensors increased 12% and 33%, while unit sales of
         instruments increased 13% and 23% for the three and nine months ended
         September 30, 2001. The smaller increase in revenue growth relative to
         unit sales growth was due to the impact of a lower ratio of continuous
         monitoring product line sales, which have higher average selling
         prices, relative to total sales. Continuous monitoring products
         represented 44% and 41% of total sales for the three and nine months
         ended September 30, 2001, compared to 54% and 57% for the comparable
         periods in 2000. Intermittent testing products comprised the remaining
         sales in each period.

         The Company's direct sales to Philips and Codman comprised
         approximately 97% and 94% of total sales for the three and nine months
         ended September 30, 2001, compared to 91% and 89% for the same periods
         in the prior year.

         Intermittent blood testing products revenue was comprised of 73% and
         72% instrument related revenue and 27% and 28% disposable cartridge
         related revenue for the three and nine months ended September 30, 2001,
         respectively. Continuous monitoring products revenue was comprised of
         74% and 71% instrument related revenue and 26% and 29% disposable
         sensor revenue for the three and nine months ended September 30, 2001,
         respectively. The Company's revenues are affected principally by the
         number of instruments, both monitors and IRMA analyzers, placed with
         customers and the rate at which disposable sensors and cartridges are
         used in connection with these products. As of September 30, 2001, the
         Company has sold approximately 10,000

                                       8
instruments. As the Company grows, it is expected that the Company's
         growing end-user customer base will increase the usage and rate of
         usage of disposable products, with the result that overall disposable
         product sales will exceed that of instrument sales.

         Cost of Sales. Cost of sales totaled $4,557,001 and $13,411,014, or 73%
         and 74% of revenue for the three and nine months ended September 30,
         2001, compared to $4,593,081 and $13,304,547 or 70% and 73% of revenue
         for the same periods in the prior year. Cost of sales as a percentage
         of revenue in the current year periods reflects a lower ratio of
         continuous monitoring product line sales (which currently have higher
         gross margins than the intermittent testing product line) to total
         sales and a reduction in royalty revenue, partially offset by lower
         disposable unit manufacturing costs resulting from increased unit sales
         volumes and improved yields; a reduction in instrument material costs;
         and the impact of operational efficiencies and process improvements.

         Operating Expenses. Research and development expenditures totaled
         $1,292,495 and $3,764,062 for the three and nine months ended September
         30, 2001, compared to $1,249,809 and $3,612,766 for the same periods in
         2000. Expenses in the first nine months of 2001 reflect the impact of
         additional investments initiated throughout 2000 to support new
         research and development projects.

         Selling, general and administrative expenses totaled $1,254,939 and
         $3,810,157 for the three and nine months ended September 30, 2001,
         compared to $1,272,306 and $4,088,429 for the same periods in 2000. The
         reduction in expenses in both the quarterly and year-to-date periods
         was impacted by a reduction in headcount, and the decrease in the
         year-to-date period was further impacted by the transfer of most of the
         Company's sales and marketing activities to Philips for the IRMA and
         Trendcare product lines.

         Other Income (Expense). Net other expense totaled $82,979 and $200,600
         for the three and nine months ended September 30, 2001, compared to net
         other income of $46,969 and $140,249 for the same periods in 2000. The
         Company realized interest income of $71,351 and $273,935 for the three
         and nine months ended September 30, 2001, compared to $211,248 and
         $629,842 for the same periods in 2000. The period-to-period decrease in
         interest income reflects the impact of lower average cash and
         investment balances and lower average interest rates.

         Interest expense totaled $144,424 and $429,777 for the three and nine
         months ended September 30, 2001, compared to $146,468 and $443,914 for
         the same periods in 2000. While average debt balances were comparable
         between periods, interest expense amounts in the current year periods
         reflect the impact of slightly lower average interest rates.

         Net Loss. The net loss for the three and nine months ended September
         30, 2001 was $924,591 and $3,079,442, compared to $487,271 and
         $2,523,300 for the same periods in 2000, an increase of 90% and 22%,
         respectively. The primary contributors to the increase in net loss were
         the reductions in royalty revenue and interest income, discussed above.

         The Company is currently operating in an environment with uncertainties
         and changes that will impact future 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, the general slowdown of the U.S. economy, and
         the impact of a transition of the IRMA and Trendcare distribution
         channel as a result of the sale of Agilent's healthcare business to
         Royal Philips Electronics in August 2001. Future revenue and gross
         profit levels will depend in part on the impact of the above as well as
         revenue mix. Pending resolution of these uncertainties, the Company has
         limited visibility of its future financial performance.

                                       9
LIQUIDITY AND CAPITAL RESOURCES
         -------------------------------

         At September 30, 2001, the Company had working capital of $12,276,796,
         a decrease of $2,056,902 from the working capital reported at December
         31, 2000. The decrease is impacted primarily by the year-to-date net
         loss before depreciation and amortization of approximately $1,248,000
         and purchases of property and equipment of approximately $928,000,
         partially offset by net proceeds from borrowing activities of
         approximately $93,000.

         Net cash provided by operating activities totaled $298,945 for the nine
         months ended September 30, 2001, compared to net cash used of
         $4,045,776 for the same period in 2000. This was the result of net
         losses of $3,079,442 and $2,523,300 for these same periods in 2001 and
         2000, respectively, adjusted by changes in key operating assets and
         liabilities, primarily accounts receivable, inventories, accounts
         payable, accrued expenses and deferred credits and revenue.

         Net accounts receivable decreased $1,651,278 for the nine months ended
         September 30, 2001, compared to a $403,259 decrease for the same period
         in 2000. The larger decline in accounts receivable during the 2001
         year-to-date period is primarily due to the timing of sales, an
         improvement in days sales outstanding and a slight reduction in sales
         between periods.

         Inventories decreased $26,257 for the nine months ended September 30,
         2001, compared to a decrease of $668,227 for the same period in 2000.
         The decrease in 2000 was primarily due to improvements in inventory
         turnover as a result of improvements in inventory management initiated
         during 2000. The smaller decline in inventories during the 2001
         year-to-date period was primarily affected by higher inventory
         requirements stemming from increased product sales.

         Accounts payable and accrued expenses decreased $1,481,963 and
         $1,056,130 for the nine months ended September 30, 2001 and 2000,
         respectively. The larger decrease in 2001 was primarily due to the
         timing of vendor payments.

         Deferred credits and revenue increased $1,303,585 during the nine
         months ended September 30, 2001 compared to a $2,802,987 decrease for
         the same period in 2000. The increase in 2001 represents the receipt of
         $3 million of prepaid research and development funding from Philips
         under the terms of the distribution agreement ($2 million of which was
         accelerated), partially offset by the recognition of a portion of this
         funding. The decrease in 2000 represents the recognition of funding
         from Philips for research and development costs and royalty payments
         received in 1999.

         Net cash provided by investing activities totaled $5,352,626 for the
         nine months ended September 30, 2001, compared to net cash used in
         investing activities of $709,225 for the same period in 2000. This
         change was affected primarily by the amounts and timing of equity
         funding, funding received from Philips and operating cash flow
         requirements, which all affected the amount of cash available for the
         purchase of marketable securities. Purchases of property and equipment,
         totaling $928,035 in 2001 and $2,942,443 in 2000, also affected net
         cash used in investing activities in each period. In 2001, the Company
         expects capital expenditures and new lease commitments to approximate
         $1.2 million, primarily reflecting investments to support new product
         development and production.

         Net cash provided by financing activities totaled $295,363 and
         $3,535,280 for the nine months ended September 30, 2001 and 2000,
         respectively. In 2001, net cash provided by financing activities
         consisted primarily of net proceeds from borrowings and proceeds from
         employee stock plans. In 2000, net cash provided by financing
         activities consisted primarily of proceeds from employee stock plans
         and warrant exercises.

         At September 30, 2001, the Company had U.S. tax net operating loss and
         research and development tax credit carryforwards for income tax
         purposes of approximately $121 million and $1.3 million, respectively.
         Pursuant to the Tax Reform Act of 1986, use of a portion of the
         Company's net operating loss carryforwards are limited due to a "change
         in ownership." If not used, these net operating loss carryforwards
         begin to expire in 2005. The Company's foreign subsidiary

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also has a net operating loss carryforward of approximately $47
         million, which can be carried forward indefinitely, subject to review
         by the governmental taxing authority.

         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, will meet the
         Company's currently anticipated working capital needs. If the amount or
         timing of funding from these sources or cash requirements vary
         materially from those currently planned, the Company could require
         additional capital. The Company's long-term capital requirements will
         depend upon numerous factors, including the rate of market acceptance
         of the Company's products and the level of resources devoted to
         expanding the Company's business 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.

         Item 3. Quantitative and Qualitative Disclosure About Market Risk
         -----------------------------------------------------------------

         The Company's primary market risk exposure is foreign exchange rate
         fluctuations of the British pound sterling to the U.S. dollar as the
         financial position and operating results of the Company's U.K.
         subsidiary, Diametrics Medical, Ltd., are translated into U.S. dollars
         for consolidation. The Company's exposure to foreign exchange rate
         fluctuations also arises from transferring funds to its U.K. subsidiary
         in British pounds sterling. Effective November 1, 1999 most of the
         Company's sales are made to distributors and denominated in U.S.
         dollars, thereby significantly mitigating the risk of exchange rate
         fluctuations on trade receivables. The Company does not currently use
         derivative financial instruments to hedge against exchange rate risk or
         manage interest rate risk. The Company's exposure to interest rate risk
         is limited to short-term borrowings under its $1,000,000 receivable
         backed credit line and a bank loan. Based upon currently available
         information, management does not believe that the effect of foreign
         exchange rate fluctuations and interest rate risk will have a material
         impact on the Company's financial condition or overall trends in
         results of operations. There have been no material changes in market
         risk faced by the Company from what has been previously reported in the
         Company's Annual Report on Form 10-K for the year ended December 31,
         2000.

                           PART II - OTHER INFORMATION

         Item 1. Legal Proceedings

                 None

         Item 2. Changes in Securities

                 None

         Item 3. Defaults Upon Senior Securities

                 None

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

                 None

         Item 5. Other Information

                 None

                                       11
Item 6. Exhibits and Reports on Form 8-K

              a. Exhibits

                 None

              b. Reports on Form 8-K.

                 None

                                       12
DIAMETRICS MEDICAL, INC.

SIGNATURE
---------

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.

DIAMETRICS MEDICAL, INC.

By: /s/ Laurence L. Betterley
-----------------------------------
Laurence L. Betterley
Senior Vice President and Chief
Financial Officer (and Duly
Authorized Officer)

Dated: November 9, 2001

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