**SECURITIES
      AND EXCHANGE COMMISSION**





**Washington,
      D.C. 20549**









**FORM
      10-QSB/A**





**Amendment
      No. 2**










þ
            **QUARTERLY
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                ACT OF
                1934**





For
      the
      quarterly period ended September 30, 2006





OR





o
            **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





6033
      West
      Century Blvd., Suite 1090, Los Angeles, California 90045





(310)
      670-2093










Check
      whether the issuer (1) 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 þ No o





Indicate
      by check mark whether the Registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act).    Yes o No þ





As
      of
      November 14, 2006, 3,509,458 shares of Common Stock were
      outstanding.





Transitional
      Small Business Disclosure Format. Yes  ̈ No þ









**Diametrics
      Medical, Inc. Form 10-QSB/A**





**Amendment
      No. 2**





**Explanatory
      Note**





This
      amended Form 10-QSB/A is being filed by us to further amend our Quarterly Report
      on Form 10-QSB/A (the “Original Filing”) for the period ended September 30,
      2006 for the purpose of restating our condensed consolidated balance sheet
      as of
      September 30, 2006, our condensed consolidated statement of operations for
      the three and nine months ended September 30, 2006, our consolidated
      statement of shareholders’ equity for the three months ended September 30,
      2006, our statement of cash flows for the nine months ended September 30,
      2006, and related disclosures. Such financial statements should no longer be
      relied upon.





Such
      financial statements are being restated to reflect changes in the valuation
      of
      stock options granted on August 11, 2006, the reclassification within the
      consolidated statement of operations of certain stock options and warrants,
      and
      the reclassification of certain acquisition related costs to be included as
      elements of the purchase price in connection with our acquisition of Vanguard
      Synfuels, LLC on September 20, 2006 (the “Acquisition”).





For
      purposes of accounting for the valuation of 361,243 stock options granted to
      certain officers, directors and a consultant on August 11, 2006, we had
      previously estimated a fair value of $0.42 per share of the underlying common
      stock. In making
      this determination, we had relied on a number of factors including the fact
      that, as of September 18, 2006, our liabilities exceeded our assets; we had
      no ongoing business and were a “shell company,” as defined under the rules and
      regulations of the Securities and Exchange Commission (“SEC”); trading in our
      common stock was extremely limited and sporadic in nature; and we determined
      in
      August 2006 that stated that the value of our equity as a “shell company” was
      $0.42 per share on a fully-diluted basis. Subsequently, we amended our valuation of the stock options to utilize the
      quoted closing market price of our common stock on August 11, 2006 of $6.00
      per
      share as the basis for valuation of the underlying common stock.





On
      September 20, 2006, in connection with the Acquisition, we granted warrants
      to
      purchase up to 4,827,921 shares and a stock option to purchase 2,069,109 shares
      of common stock to Ocean Park Advisors, LLC (“OPA”). We included the fair value
      of the warrants and stock options in our consolidated statement of operations
      as
“Transaction Related Charges”. Subsequently, we elected to reclassify the fair
      value of these securities to “Selling, General & Administrative” with a
      corresponding decrease to “Transaction Related Charges” in our consolidated
      statement of operations.





Also
      in
      connection with the Acquisition, on September 20, 2006, we (i) issued warrants
      for the purchase 6,500,000 shares of our common stock at exercise prices of
      $1.138 and $1.328 to M.A.G. Capital, LLC (“MAG”), (ii) paid cash due diligence
      fees to MAG totaling $435,000, (iii) paid $714,976 of transaction bonuses to
      officers of Vanguard, and (iv) issued 4,300 shares of Series K convertible
      preferred stock. We initially determined such costs were “indirect” costs
      related to the Acquisition and recorded them as an expense. We also initially
      viewed the transaction bonuses and a significant portion of the fair value
      of
      the Series K convertible preferred stock as “indirect” costs and recorded these
      amounts as expenses as well. Subsequently, we determined such costs should
      be
      included as “direct” acquisition costs as defined under SFAS No. 141 “Accounting
      for Business Combinations” and be included as part of the purchase price of the
      Acquisition. The inclusion of these costs resulted in the immediate impairment
      of the carrying amount of goodwill on September 20, 2006, the date of the
      Acquisition. The reclassification of these items to the consolidated statement
      of operations resulted in a decrease of $55,712,872 in “Transaction Related
      Charges” and a corresponding increase to “Impairment of Goodwill”.





This
      amended Form 10-QSB/A has not been updated for events or information subsequent
      to the date of the Original Filing, except in connection with the restatement.
      In accordance with applicable SEC rules, this amended Form 10-QSB/A includes
      updated certifications from our Chief Executive Officer and Chief Financial
      Officer as Exhibits 31.1, 31.2, 32.1 and 32.2.





For
      the
      convenience of the reader, this amended Form 10-QSB/A sets forth the Original
      Filing in its entirety, as amended by and to reflect the restatement. The
      following items have been amended to reflect the restatement, and other
      information in the Original Filing and are amended hereby as a result of the
      restatement:





Part
      I -
      Item 1. Financial Statements





Part
      II -
      Item 2. Management’s Discussion and Analysis or Plan of
      Operation




2




**Table
      of Contents**


**Diametrics
      Medical, Inc.**





**Table
      of Contents**


**Part
                  I — FINANCIAL INFORMATION**
              Page**Item
                  1.Financial Statements (as restated)**
              4**Item
                  2.Management’s Discussion and Analysis or Plan of
                  Operation**
              19**Item
                  3. Controls and Procedures**
              26**Part
                  II — OTHER INFORMATION****Item
                  6. Exhibits**
              26**Signatures**
              27
  3




Table
      of Contents




**PART
      I — FINANCIAL INFORMATION**





**ITEM 1.
      FINANCIAL STATEMENTS**





**DIAMETRICS
      MEDICAL, INC.**





**CONSOLIDATED
      BALANCE SHEET**





**(UNAUDITED)**


**September 30,**
                **2006****(as
                  restated)****Assets**Current
                  assets:Cash
                  and cash equivalents
              
              $
              8,505,969Accounts
                  receivable, no allowance provided
              
              
              176,029Inventories,
                  net
              
              
              437,302Other
                  current assets
              
              
              33,030Total
                  current assets
              
              
              9,152,330Property
                  and equipment, net
              
              
              4,314,865Intangible
                  assets, net
              
              
              4,527,000Goodwill
              
              
              20,044,763Other
                  assets, net
              
              
              30,809Total
                  assets
              
              $
              38,069,767**Liabilities
                  and Shareholders’ Equity**Current
                  liabilities:Line
                  of credit
              
              $
              1,667,380Notes
                  payable
              
              
              1,500,000Accounts
                  payable
              
              
              1,166,799Accrued
                  expenses
              
              
              486,168Deferred
                  income taxes
              
              
              451,614Total
                  current liabilities
              
              
              5,271,961Deferred
                  income taxes
              
              
              1,806,456Total
                  liabilities
              
              
              7,078,417Commitments
                  and contingencies
              
              
              —Shareholders’
                  equity:Convertible
                  preferred stock, $1.00 par value; 50,000 shares
                  authorized:Issued
                  and outstanding shares - 34,374
              
              
              34,374Common
                  stock, $1.00 par value: 10,000,000 shares authorized,Issued
                  and outstanding shares - 3,509,458
              
              
              3,509,458Additional
                  paid-in capital
              
              
              307,154,724Accumulated
                  deficit
              
              
              (279,707,206
              )Total
                  shareholders’ equity
              
              
              30,991,350Total
                  liabilities and shareholders’ equity
              
              $
              38,069,767





See
      accompanying Notes to Consolidated Financial Statements.




4





Table
      of Contents





**DIAMETRICS
      MEDICAL, INC.**





**CONSOLIDATED
      STATEMENTS OF OPERATIONS**





**(UNAUDITED)**




**Three
                Months Ended**
              **September 30,**
            
            **Nine
                Months Ended**
              **September 30,****2006**
            
            **2005**
            
            **2006**
            
            **2005****(as
                restated)**
            
            
            
            **(as
                restated)**Sales,
                including excise tax credits
            
            $
            126,281
            
            $
            —
            
            $
            126,281
            
            $
            —Cost
                of sales, net of excise tax credits
            
            
            150,222
            
            
            —
            
            
            150,222
            
            
            —Gross
                profit (loss)
            
            
            (23,941
            )
            
            —
            
            
            (23,941
            )
            
            —Operating
                expenses:Research
                and development
            
            
            —
            
            
            —
            
            
            —
            
            
            477,432Selling,
                general and administrative
            
            
            22,216,802,
            
            
            198,394
            
            
            22,415,182
            
            
            983,297Impairment
                of goodwill
            
            
            51,012,250
            
            
            
            
            
            51,012,250Total
                operating expenses
            
            
            73,229,052
            
            
            198,394
            
            
            73,427,432
            
            
            1,460,729Operating
                loss
            
            
            (73,252,993
            )
            
            (198,394
            )
            
            (73,451,373
            )
            
            (1,460,729
            )Interest
                income
            
            
            5,579
            
            
            —
            
            
            7,316
            
            
            —Interest
                expense
            
            
            (639,438
            )
            
            (350,493
            )
            
            (803,855
            )
            
            (8,832,800
            )Gain
                on change in fair value of warrant liability
            
            
            —
            
            
            182,306
            
            
            —
            
            
            1,863,429Other
                income
            
            
            125,116
            
            
            —
            
            
            140,100
            
            
            15,008Loss
                before income taxes
            
            
            (73,761,736
            )
            
            (366,581
            )
            
            (74,107,812
            )
            
            (8,415,092
            )Provision
                for income taxes
            
            
            —
            
            
            —
            
            
            —
            
            
            —Net
                loss
            
            
            (73,761,736
            )
            
            (366,581
            )
            
            (74,107,812
            )
            
            (8,415,092
            )Preferred
                stock dividends - beneficial conversion feature
            
            
            (28,500,000
            )
            
            —
            
            
            (28,500,000
            )
            
            —Net
                loss attributable to common stockholders
            
            $
            (102,261,736
            )
            $
            (366,581
            )
            $
            (102,607,812
            )
            $
            (8,415,092
            )Net
                loss per share, basic and diluted
            
            $
            (134.96
            )
            $
            (1.04
            )
            $
            (201.64
            )
            $
            (23.96
            )Weighted-average
                number of shares used in per share calculations
            
            
            757,698
            
            
            351,217
            
            
            508,877
            
            
            351,217


See
      accompanying Notes to Consolidated Financial Statements.




5




Table
      of Contents





**DIAMETRICS
      MEDICAL, INC.**





**CONSOLIDATED
      STATEMENTS OF CASH FLOWS**





**(UNAUDITED)**


**Nine
                  Months Ended,**
                **September 30,****2006**
              
              **2005****(as
                  restated)****Cash
                  flows from operating activities:**Net
                  loss
              
              $
              (74,107,812
              )
              $
              (8,415,092
              )Adjustments
                  to reconcile net loss to net cash flows from operating
                  activities:Depreciation
                  and amortization
              
              
              8,959
              
              
              —Stock-based
                  compensation
              
              
              21,506,591
              
              
              89,801Impairment
                  of goodwill
              
              
              51,012,250
              
              
              —Accretion
                  of convertible notes and amortization of debt issue costs
              
              
              737,443
              
              
              8,218,612Gain
                  on change in warrant and derivative liabilities
              
              
              —
              
              
              (1,862,800
              )Gain
                  on liquidation of discontinued operations
              
              
              —
              
              
              (14,500
              )Changes
                  in operating assets and liabilities, net of operating assets acquired
                  and
                  liabilities assumed:Accounts
                  receivable
              
              
              (30,571
              )
              
              —Inventories
              
              
              (194,074
              )
              
              —Prepaid
                  expenses and other assets
              
              
              56,590
              
              
              32,386Accounts
                  payable
              
              
              (167,135
              )
              
              (72,482
              )Accrued
                  interest
              
              
              —
              
              
              1,160,458Other
                  accrued expenses
              
              
              87,266
              
              
              (381,598
              )Net
                  cash used in continuing operating activities
              
              
              (1,090,493
              )
              
              (1,245,215
              )**Cash
                  flows from investing activities**Capital
                  expenditures
              
              
              (25,424
              )
              
              —Acquisition
                  of Vanguard Synfuels LLC, net of cash acquired
              
              
              (18,538,953
              )
              
              —Net
                  cash used in investing activities
              
              
              (18,564,377
              )
              
              —**Cash
                  flows from financing activities**Proceeds
                  from the issuance of convertible promissory notes
              
              
              300,000
              
              
              150,000Repayment
                  of notes payable
              
              
              (759,988
              )
              
              —Net
                  proceeds from the issuance of convertible preferred stock
              
              
              28,240,000
              
              
              —Net
                  cash provided by financing activities
              
              
              27,780,012
              
              
              150,000Net
                  increase (decrease) in cash and cash equivalents
              
              
              8,125,142
              
              
              (1,095,215
              )Cash
                  and cash equivalents at beginning of period
              
              
              380,827
              
              
              1,095,800Cash
                  and cash equivalents at end of period
              
              $
              8,505,969
              
              $
              585Supplemental
                  disclosure of cash flow information:Cash
                  paid during the period for income taxes
              
              $
              —
              
              $
              —Cash
                  paid during the period for interest
              
              $
              —
              
              $
              —Supplemental
                  disclosure of non-cash investing and financing activities:Issuance
                  of Series K convertible preferred stock in connection with the
                  acquisition
                  of Vanguard Synfuels LLC
              
              $
              34,441,000
              
              $
              —Conversion
                  of convertible debt into common stock
              
              $
              750,000
              
              $
              —




See
      accompanying Notes to Consolidated Financial Statements.




6




Table
      of Contents





**DIAMETRICS
      MEDICAL, INC.**





**CONSOLIDATED
      STATEMENT OF SHAREHOLDERS’ EQUITY (DEFICIT)**





**(UNAUDITED)**





(as
      restated)


**Preferred**
                **Shares**
              
              
              **Preferred**
                **Stock**
              
              
              **Common**
                **Shares**
              
              
              **Common**
                **Stock**
              
              
              **Additional**
                **Paid-in
                  Capital**
              
              
              **Accumulated**
                **Deficit**
              
              
              **Total**
                **Shareholders’**
                **Equity
                  (Deficit)**Balance,
                  December 31, 2005
              
              
              41,683
              
              $
              417
              
              
              351,218
              
              $
              351,218
              
              $
              176,331,330
              
              $
              (177,024,552
              )
              $
              (341,587
              )Beneficial
                  conversion value related to convertible senior notes
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              300,000
              
              
              —
              
              
              300,000Conversion
                  of Series H preferred stock into common stock
              
              
              (12
              )
              
              (1
              )
              
              2,959
              
              
              350
              
              
              (37
              )
              
              
              
              
              312Net
                  loss
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              (110,907
              )
              
              (110,907
              )Balance,
                  March 31, 2006
              
              
              41,671
              
              $
              416
              
              
              354,177
              
              $
              351,568
              
              $
              176,631,293
              
              $
              (177,135,459
              )
              $
              (152,182
              )Stock
                  split
              
              
              —
              
              
              41,255
              
              
              —
              
              
              —
              
              
              (106,751
              )
              
              —
              
              
              (65,496
              )Conversion
                  of Series H convertible preferred stock into common stock
              
              
              (653
              )
              
              (653
              )
              
              63,540
              
              
              66,149
              
              
              —
              
              
              —
              
              
              65,496Stock
                  compensation expense
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              10,558
              
              
              —
              
              
              10,558Net
                  loss
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              (235,169
              )
              
              (235,169
              )Balance,
                  June 30, 2006
              
              
              41,018
              
              $
              41,018
              
              
              417,717
              
              $
              417,717
              
              $
              176,535,100
              
              $
              (177,370,628
              )
              $
              (376,793
              )Stock
                  split
              
              
              —
              
              
              —
              
              
              258
              
              
              258
              
              
              (258
              )
              
              —
              
              
              —Stock
                  compensation expense
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              918,219
              
              
              —
              
              
              918,219Sale
                  of Series J convertible preferred stock, net of offering costs
                  of
                  $260,000
              
              
              2,850
              
              
              2,850
              
              
              —
              
              
              —
              
              
              28,237,150
              
              
              —
              
              
              28,240,000Beneficial
                  conversion value assigned on Series J convertible preferred
                  stock
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              28,500,000
              
              
              (28,500,000
              )
              
              —Value
                  assigned to the issuance of stock options to Ocean Park Advisors
                  LLC
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              6,044,040
              
              
              —
              
              
              6,044,040Value
                  assigned to the issuance of common stock warrants to Ocean Park
                  Advisors
                  LLC
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              14,807,934
              
              
              —
              
              
              14,807,934Value
                  assigned to the Issuance of common stock warrants to MAG Capital
                  LLC
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              19,872,178
              
              
              —
              
              
              19,872,178Conversion
                  of Series I convertible preferred stock into common stock
              
              
              (13,794
              )
              
              (13,794
              )
              
              1,379,400
              
              
              1,379,400
              
              
              (1,365,606
              )
              
              —
              
              
              —Conversion
                  of convertible debt into common stock
              
              
              —
              
              
              —
              
              
              1,631,350
              
              
              1,631,350
              
              
              (750,000
              )
              
              (74,842
              )
              
              806,508Issuance
                  of common stock through exercise of warrants
              
              
              —
              
              
              —
              
              
              80,733
              
              
              80,733
              
              
              (80,733
              )
              
              —
              
              
              —Issuance
                  of Series K convertible preferred stock in connection with the
                  acquisition
                  of Vanguard
              
              
              4,300
              
              
              4,300
              
              
              —
              
              
              —
              
              
              34,436,700
              
              
              —
              
              
              34,441,000Net
                  loss
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              (73,761,736
              )
              
              (73,761,736
              )Balance,
                  September 30, 2006
              
              
              34,374
              
              $
              34,374
              
              
              3,509,458
              
              $
              3,509,458
              
              $
              307,154,724
              
              $
              (279,707,206,
              )
              $
              30,991,350







See
      accompanying Notes to Consolidated Financial Statements.




7




Table
      of Contents





**DIAMETRICS
      MEDICAL, INC.**





**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**September 30,
      2006**





**(UNAUDITED)**




**1.**
            **Organization
                and Business**





*Organization*





On
      September 20, 2006, Diametrics Medical, Inc. (the “Company” or
“Diametrics”) acquired Vanguard Synfuels, LLC (“Vanguard”), a producer of
      biodiesel fuel that owns and operates a production facility located in Pollock,
      Louisiana (the “Acquisition”). The Acquisition is more fully described in the
      Form 8-K we filed with the SEC on September 26, 2006. From January 2005 to
      September 19, 2006, the Company was considered a “shell company” as defined
      by the Securities and Exchange Commission, wherein its business activities
      were
      primarily focused on raising additional financing and the pursuit of a strategic
      transaction. Prior to January 2005, Diametrics was involved with the
      development, production and distribution of medical devices since its inception.
      All such operations were discontinued during 2005.





In
      connection with the Acquisition, the Company received $28.5 million in gross
      proceeds from the issuance of Series J Convertible Preferred Stock. The Company
      used $17.7 million of these proceeds and issued shares of its Series K
      Convertible Preferred Stock to purchase 100% of the equity interests of Vanguard
      in a transaction intended to qualify as a tax-free exchange.





The
      Company intends to reincorporate in the State of Delaware (the
“Reincorporation”) and, in connection with the Reincorporation, change its
      corporate name to Allegro Biodiesel Corporation. The Reincorporation will also
      result in an increase in the number of our authorized shares of common stock
      to
      150,000,000 shares and the authorized shares of preferred stock to 50,000,000
      shares. Such actions are subject to the approval of our shareholders at a
      Special Meeting of Shareholders to be held on November 28, 2006. Pursuant
      to voting agreements entered into in connection with the Acquisition, the
      holders of the Company’s securities representing approximately 99% of the voting
      power of the capital stock have each agreed to vote their shares for the
      Reincorporation and related measures to be presented at the Special Meeting.
      Accordingly, the Company expects the Reincorporation, the name change and
      related measures will be approved.





*Business*





Through
      the acquisition of Vanguard, the Company owns an operating biodiesel production
      facility that uses renewable agricultural-based feedstock (primarily soybean
      oil) to produce biodiesel fuel, which is sold in both blended and unblended
      form
      with petroleum diesel. The product is sold primarily to regional wholesale
      bulk
      fuel distributors.




**2.**
            **Acquisition
                of Vanguard Synfuels, LLC (as
                restated)**





On
      September 20, 2006, the Company acquired 100% of the membership interests
      of Vanguard for an aggregate purchase price of $73,412,250. The acquisition
      has
      been accounted for using the purchase method of accounting in accordance with
      Statement of Financial Accounting Standards (“SFAS”) No. 141, “Business
      Combinations” (“SFAS 141”), whereby the estimated purchase price has been
      allocated to tangible and intangible net assets acquired based upon their fair
      values at the date of acquisition.





The
      purchase price consisted of cash paid to selling shareholders for their 80%
      membership interest in Vanguard totaling $17,699,378. Additionally, the Company
      issued 4,300 shares of Series K convertible preferred stock for the remaining
      20% membership interests with a deemed fair value of $34,441,000 for financial
      reporting purposes based on the quoted market price of $3.10 per share on the
      date of Acquisition. The Series K convertible preferred stock was convertible
      into 11,110,000 shares of common stock.





The
      Company also incurred direct acquisition costs totaling $21,271,872. Included
      in
      the direct acquisition costs are the fair value of
      warrants to purchase up to 6,500,000 shares of common stock granted to M.A.G.
      Capital, LLC (“MAG”), the largest single beneficial owner of the Company’s
      equity securities. These warrants were granted in exchange for MAG’s assignment
      of the rights they held to acquire Vanguard. The Company also paid MAG a cash
      due-diligence fee of $435,000, incurred legal and other direct costs of $249,721
      and paid $714,976 in transaction bonuses to certain officers of Vanguard.
      Management applied the guidance set forth under SFAS 141, paragraph 24 to
      determine its accounting for direct acquisition costs. The Company accounted
      for
      the issuance of the warrants in accordance with SFAS No. 123R “Share-Based
      Payment” and utilized the quoted market price of $3.10 per share as of September
      20, 2006 to value the securities which resulted in a fair value of
      $19,872,178.





The
      components of the aggregate purchase price are as follows:


Consideration
                  paid:Net
                  cash paid to selling shareholders
              
              $
              17,699,378Value
                  assigned to the of Series K convertible preferred stock
              
              
              34,441,000Direct
                  acquisition costs
              
              
              21,271,872Total
              
              $
              73,412,250





The
      purchase price of Vanguard has been allocated to assets acquired and liabilities
      assumed based on their estimated fair values determined by management as
      follows:


Cash
              
              $
              125,373Accounts
                  receivable, net
              
              
              145,458Inventory
              
              
              243,228Plant
                  and equipment
              
              
              3,589,000Land
              
              
              709,400Other
                  assets
              
              
              28,200Customer
                  relationships
              
              
              4,527,000Goodwill
              
              
              71,207,293Accounts
                  payable
              
              
              (677,782
              )Accrued
                  liabilities
              
              
              (299,481
              )Line
                  of credit
              
              
              (1,667,379
              )Notes
                  payable to bank
              
              
              (1,500,000
              )Notes
                  payable to related parties
              
              
              (759,990
              )Deferred
                  income tax liabilities
              
              
              (2,258,070
              )Total
              
              $
              73,412,250
  8




The
      purchase price represented a premium over Vanguard’s appraised assets, resulting
      in the recognition of $71,207,293 of goodwill.  Management determined that
      the cash purchase price of $17,699,378, excluding direct acquisition costs,
      implied the fair value of Vanguard’s business was approximately $22,400,000;
      however, the purchase price was increased through the issuance of Series K
      Convertible preferred stock in the amount of $34,441,000. Management believed
      this additional consideration was appropriate to retain key management of
      Vanguard. The implied cash purchase price was determined based on the projected
      future cash flows of the business, based on the favorable market conditions
      at
      the time (primarily high oil prices and lower soybean prices) and extant
      government support for the industry in the form of a $1.00 per gallon of
      biodiesel tax credit.  Management also assessed comparable publicly-traded
      companies in biodiesel and other alternative energy sectors which commanded
      significant valuation premiums in the capital markets.  Additionally,
      management found there were few established biodiesel assets in the United
      States and construction times for new production facilities are typically in
      excess of one year.  Management believed Vanguard’s established operations
      and early-mover advantage merited the cash purchase consideration paid in the
      transaction.





The
      Company immediately evaluated the carrying amount of goodwill for impairment
      by
      comparing the fair value of Vanguard of $22,400,000 (using the discounted cash
      flow valuation method) to the carrying amount of goodwill. In accordance with
      SFAS No. 142 “Goodwill and Other Intangible Assets”, management determined the
      fair value of Vanguard’s net assets to be $22,400,000 and allocated such fair
      value of the net assets of Vanguard resulting in an implied goodwill of
      $20,195,043.  Accordingly, management immediately recorded an impairment of
      goodwill in the amount of $51,012,250.





The
      fixed
      assets are being depreciated from the date of acquisition with estimated useful
      lives ranging from three to twenty years. The customer relationships are
      considered an intangible asset and are being amortized over the estimated useful
      live of five years from the date of the Acquisition. The goodwill is not subject
      to amortization and the amount assigned to goodwill is not deductible for tax
      purposes.





In
      accordance with SFAS 141, the operating results of Vanguard have been included
      in the Company's consolidated operating results since the acquisition date,
      September 20, 2006. The
      pro
      forma results of operations data which assumes that the acquisition of Vanguard
      had occurred at the beginning of the respective reporting periods are not being
      presented herein, as such results would not be meaningful: in the reporting
      periods prior to September 20, 2006, the Company was defined as a “shell
      company” with no operations and limited assets, and Vanguard was still a
      development-stage company with limited operations (as biodiesel production
      and
      sale began in April 2006). The Company’s pro forma results for prior periods are
      therefore not comparable to the results for the period ending December 31,
      2006.
      The presentation of such results would not provide any additional meaningful
      financial information beyond what is provided herein and in the Company’s Form
      8-K previously filed on September 26, 2006.





**3.**
            **Basis
                of Presentation and Significant Accounting
                Policies**





The
      report of the Company’s independent registered public accounting firm on the
      consolidated financial statements for the year ended December 31, 2005
      contained an explanatory paragraph expressing substantial doubt about the
      Company’s ability to continue as a going concern, as a result of recurring
      losses, negative cash flows and being in the development stage.





*Basis
      of Presentation*





The
      consolidated financial statements of Diametrics are unaudited and have been
      prepared 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. Notes to the
      financial statements which would substantially duplicate the disclosures
      contained in the audited financial statements for the most recent fiscal
      year 2005 as reported in the Form 10-KSB, have been omitted. The
      results of operations for the three and nine month periods ended
      September 30, 2006 are not necessarily indicative of the results to be
      expected for the full year. All accounts and transactions among Diametrics
      and
      its subsidiaries have been eliminated in consolidation. In the opinion of
      management, the consolidated financial statements include all adjustments,
      consisting of normal recurring accruals, necessary to present fairly the
      Company’s financial position, results of operations and cash flows. The results
      of operations for these interim periods are not necessarily indicative of
      results to be expected for the full year. These statements should be read in
      conjunction with the financial statements and related notes which are part
      of
      the Company’s Annual Report on Form 10-KSB for the year ended December 31,
      2005 and Form 8-K filed on September 26, 2006.





The
      Company has identified certain significant accounting policies that it considers
      particularly important to the portrayal of the Company’s results of operations
      and financial position which may require the application of a higher level
      of
      judgment by the Company’s management and, as a result, are subject to an
      inherent level of uncertainty.





*Restatement*





Subsequent
      to the filing of the Company’s Form 10-QSB/A for the quarter ended September 30,
      2006, management amended its accounting for certain transactions that occurred
      during the period. Such financial statements are being restated to reflect
      changes in the valuation of stock options granted on August 11, 2006, the
      reclassification within the consolidated statement of operations of certain
      stock options and warrants, and the reclassification of certain acquisition
      related costs to be included as elements of the purchase price in connection
      with our acquisition of Vanguard Synfuels, LLC on September 20,
      2006





On
      August
      11, 2006, the Company granted an aggregate of 361,243 stock options to certain
      officers, directors and a consultant. Prior to granting such options, management
      relied on a number of factors in making its determination of the exercise price,
      including the fact that the Company’s liabilities exceeded its assets; it had no
      ongoing business and was a “shell company,” as defined under the rules and
      regulations of the Securities and Exchange Commission (“SEC”); trading in its
      common stock was extremely limited and sporadic in nature; and it determined
      in
      August 2006 that stated that the value of the equity as a “shell company” was
      $0.42 per share on a fully-diluted basis. Subsequently, management amended
      its
      valuation of the stock options to utilize the quoted closing market price of
      the
      Company’s common stock on August 11, 2006 of $6.00 per share, rather than the
      valuation of $0.42 per share. This resulted in additional non-cash stock
      compensation expense of approximately $884,000 recorded during the quarter
      ended
      September 30, 2006.




On
      September 20, 2006, in connection with the acquisition of Vanguard Synfuels,
      L.L.C. (the “Acquisition”), the Company granted warrants to purchase up to
      4,827,921 shares and a stock option to purchase 2,069,109 shares of common
      stock
      to Ocean Park Advisors, LLC (“OPA”). The Company originally classified the fair
      value of these warrants and stock options in its consolidated statement of
      operations as “Transaction Related Charges”. Subsequently, management reassessed
      the presentation of these costs and determined to reclassify the fair value
      of
      these securities of $14,807,934 to “Selling, General & Administrative” with
      a corresponding decrease to “Transaction Related Charges” in its consolidated
      statement of operations.




9




Also
      in
      connection with the Acquisition, the Company (i) issued warrants for the
      purchase 6,500,000 shares of its common stock to M.A.G. Capital, LLC (“MAG”),
      (ii) paid cash due diligence fees to MAG totaling $435,000, (iii) paid $714,976
      of transaction bonuses to officers of Vanguard, and (iv) issued 4,300 shares
      of
      Series K Convertible Preferred Stock, all as described in the Company’s Form 8-K
      dated September 20, 2006.




For
      purposes of accounting for the warrants and the cash due diligence fees paid
      to
      MAG, the Company initially determined such costs were “indirect” costs related
      to the Acquisition and recorded them as an expense. The Company also initially
      viewed the transaction bonuses and a significant portion of the fair value
      of
      the Series K Convertible Preferred Stock as “indirect” costs and recorded these
      amounts as expenses as well. Subsequently, the Company determined such costs
      should be included as “direct” acquisition costs as defined under SFAS No. 141
“Accounting for Business Combinations.” Such “direct” acquisition costs have
      been included as part of the purchase price of the Acquisition. The inclusion
      of
      these costs resulted in the immediate impairment of the carrying amount of
      goodwill on September 20, 2006, the date of the Acquisition. The
      reclassification of these items to the Company’s consolidated statement of
      operations will result in a decrease of $55,712,872 in “Transaction Related
      Charges” and a corresponding increase to “Impairment of Goodwill.”





The
      following table reflects the effect of the restatement on each of the financial
      statement line items for the three and nine months ended September 30,
      2006:


Quarter
                  Ended September 30, 2006
              
              As
                  of or for the Nine Months Ended September 30, 2006As
                  Filed
              
              Adjustment
              
              As
                  Restated
              
              As
                  Filed
              
              Adjustment
              
              As
                  RestatedConsolidated
                  Statements of Operations:Selling,
                  general & administrative
              
              $
              331,209
              
              $
              21,885,593
              
              $
              22,216,802
              
              $
              529,589
              
              $
              21,885,593
              
              $
              22,415,182Impairment
                  of goodwill
              
              
              -
              
              
              51,012,250
              
              
              51,012,250
              
              
              -
              
              
              51,012,250
              
              
              51,012,250Transaction
                  related charges
              
              
              (72,014,072
              )
              
              72,014,072
              
              
              -
              
              
              (72,014,072
              )
              
              72,014,072
              
              
              -Consolidated
                  Balance Sheet:Additional
                  paid in capital
              
              
              
              
              
              
              
              
              
              
              
              306,270,953
              
              
              883,771
              
              
              307,154,724Accumulated
                  deficit
              
              
              
              
              
              
              
              
              
              
              
              (278,823,435
              )
              
              (883,771
              )
              
              (279,707,206
              )Consolidated
                  Statement of Cash Flows
              
              
              
              
              
              
              
              
              
              
              
              8,505,969
              
              
              -
              
              
              8,505,969Consolidated
                  Statement ofShareholders'
                  Equity
              
              
              
              
              
              
              
              
              
              
              
              30,991,350
              
              
              -
              
              
              30,991,350





The
      composition of the above adjustments includes the following:





Quarter
                Ended September 30, 2006
            
            As
                of or for the Nine Months Ended September 30, 2006**Adjustment
                to selling, general & administrative
                expenses:**Reclassification
                of common stock options and warrants issued to Ocean Park Advisors
                LLC
            
            $
            20,851,974
            
            $
            20,851,974Increase
                in stock compensation for August 11, 2006 grants
            
            
            883,771
            
            
            883,771Reclassification
                of stock-based compensation
            
            
            149,848
            
            
            149,848$
            21,885,593
            
            $
            21,885,593**Adjustment
                to impairment of goodwill:**Reclassication
                of amounts previously classified as "Transaction Related
                Charges"
            
            $
            51,012,250
            
            $
            51,012,250**Adjustment
                to amounts previously classifed costs as transaction-related
                charges:**Reclassification
                of common stock options and warrants issued to Ocean Park Advisors
                LLC
            
            $
            (20,851,974
            )
            $
            (20,851,974
            )Reclassication
                of impairment of goodwill
            
            
            (51,012,250
            )
            $
            (51,012,250
            )Reclassification
                of stock-based compensation
            
            
            (149,848
            )
            
            (149,848
            )$
            (72,014,072
            )
            $
            (72,014,072
            )




The
      restatement has no effect on our assets, liabilities, or total cash flows,
      and
      none of the adjustments resulting from the restatement has any impact on cash
      balances for any period.





*Stock
      Split and Amendment to Shares Authorized*





On
      June 15, 2006, the Board of Directors of the Company approved a one
      (1) for one hundred (100) reverse stock split of the Company’s common
      stock. The record date of the stock split was June 30, 2006. All share and
      per share information has been adjusted to give effect to the stock split for
      all periods presented, including all references throughout the financial
      statements and accompanying notes. In connection with this stock split, the
      Board of Directors approved an amendment to the Company’s Articles of
      Incorporation to reduce the number of authorized shares of common stock to
      10,000,000, and the number of authorized shares of preferred stock to 50,000.
      The Board also approved amendments to the Certificates of Designations for
      the
      Company’s Series H and Series I Convertible Preferred Stock to adjust the
      conversion price of each such series of preferred stock to reflect the stock
      split.





*Revenue
      Recognition*





The
      Company generates its revenues from the sale of biodiesel fuel and recognize revenue
      when the following fundamental criteria are met:




·
            
            persuasive
                evidence that an arrangement
                exists;




10




·
            
            the
                products and services have been delivered;·
            
            selling
                prices are fixed and determinable and not subject to refund or adjustment;
                and




·
            
            collection
                of amounts due is reasonably
                assured.





Delivery
      occurs when goods are shipped and title and risk of loss transfer to the
      customer, in accordance with the terms specified in the arrangement with the
      customer. Revenue recognition is deferred in all instances where the earnings
      process is incomplete. The Company provides for sales returns and allowances
      in
      the same period as the related revenues are recognized. The Company bases its
      estimates on historical experience or the specific identification of an event
      necessitating a reserve.




The
        Company records revenues from the sale of unblended biodiesel fuel based on
        market prices the Company’s able to charge. For buyers of unblended
        fuel who are certified blenders registered with the IRS, they can pursue
        amounts
        available under federal incentive programs (currently $1.00 per gallon) related
        to the blending of biodiesel fuel with petroleum diesel.
  The
        Company also sells blended biodiesel fuel to buyers not certified as blenders
        with the IRS. Sales of blended fuel to such customers are also based on market
        prices. Upon the sale of blended biodiesel fuel, the Company (not the buyer)
        may
        be eligible to collect certain amounts under federal incentive programs
        (currently $1.00 per gallon). When all requirements of the applicable incentive
        program have been met, generally occurring at the time of sale of blended
        fuel,
        the Company records a reduction to cost of sales for the amount of credits
        we
        are to receive.


*Inventories*





Inventories
      are stated at the lower of cost, determined on a first in, first out (“FIFO”)
      basis average cost basis, or market. The Company adopted SFAS No. 151,
“Inventory Costs, an amendment of Accounting Research Bulletin No. 43,
      Chapter 4” beginning January 1, 2006, with no material effect on its
      financial condition or results of operations. Abnormal amounts of idle facility
      expense, freight, handling costs, and wasted materials (spoilage) are recognized
      as current-period charges. Fixed production overhead is allocated to the
      costs of conversion into inventories based on the normal capacity of the
      production facilities.





*Property
      and Equipment*





Property
      and equipment are stated at cost, less accumulated depreciation. Depreciation
      is
      computed using the straight-line method over the estimated useful lives of
      the
      related assets ranging from three to twenty years. Significant renewals and
      betterments are capitalized while maintenance and repairs are charged to expense
      as incurred. Leasehold improvements are amortized on the straight-line basis
      over the lesser of their estimated useful lives or the term of the related
      lease.




11




Table
      of Contents





*Long-Lived
      Assets*





The
      Company reviews its fixed assets and certain identifiable intangibles 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 the future undiscounted operating cash flow 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 asset
      exceeds the fair value of the asset. Long-lived assets to be disposed of are
      reported at the lower of carrying amount or fair value less costs to
      sell.





*Goodwill
      and Other Intangible Assets*





Statement
      of Financial Accounting Standards (“SFAS”) 141, “ *Business
      Combinations”,* requires
      that all business combinations be accounted for under the purchase method.
      The
      statement further requires separate recognition of intangible assets that meet
      certain criteria. SFAS No. 142, “ *Goodwill and Other Intangible Assets”* ,
      requires that an acquired intangible asset meeting certain criteria shall be
      initially recognized and measured based on its fair value. The statement also
      provides that goodwill and other indefinite-lived assets should not be
      amortized, but shall be tested for impairment annually or more frequently,
      if
      circumstances indicate potential impairment, through a comparison of fair value
      to their carrying amount.





In
      accordance with SFAS No. 142, the goodwill impairment test has two steps.
      The first step of the impairment test identifies potential impairment by
      comparing the fair value with the carrying amount of the reporting unit,
      including goodwill. If the carrying amount of the reporting unit exceeds its
      fair value, the second step of the impairment test shall be performed to measure
      the amount of the impairment loss, if any. Intangibles with indefinite useful
      lives are measured for impairment by the amount that the carrying value exceeds
      the estimated fair value of the intangible. The fair value is calculated using
      the income approach. Intangible assets with definite useful lives will continue
      to be amortized over their estimated useful lives. Any impairment is recorded
      at
      the date of determination.





*Income
      Taxes*





The
      Company uses the liability method of accounting for income taxes, under which
      deferred taxes are determined based on the differences between the financial
      reporting and tax basis of assets and liabilities using enacted tax rates in
      effect in the years in which the differences are expected to reverse. Valuation
      allowances are provided if, based upon available evidence, it is more likely
      than not that some or all of the deferred tax assets will not be
      realized.





*Net
      Loss per Share*





Basic
      loss per share is calculated by dividing net loss by the weighted average common
      shares outstanding during the period. Diluted net loss per share 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 our 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 net loss per share because the effect would have
      been
      antidilutive:





**September 30,**
              **2006**
            
            **September 30,**
              **2005**Common
                stock options
            
            
            3,127,312
            
            
            4,066Common
                stock warrants
            
            
            11,642,866
            
            
            705,614Convertible
                subordinated debt
            
            
            —
            
            
            3,650,000Convertible
                senior notes
            
            
            —
            
            
            975,000Convertible
                preferred stock - Series F
            
            
            —
            
            
            66,667Convertible
                preferred stock - Series G
            
            
            —
            
            
            500,000Convertible
                preferred stock - Series H
            
            
            2,722,400
            
            
            —Convertible
                preferred stock - Series J
            
            
            37,561,583
            
            
            —Convertible
                preferred stock - Series K
            
            
            11,110,000
            
            
            —Restricted
                stock
            
            
            —
            
            
            643Total
            
            
            66,164,161
            
            
            5,901,990






12




Table
      of Contents





*Stock-Based
      Compensation*





Effective
      January 1, 2006, the Company adopted SFAS No. 123 (revised 2004),
“Share-Based Payment” (“SFAS 123R”). SFAS 123R requires that the Company account
      for all stock-based compensation using a fair-value method and recognize the
      fair value of each award as an expense over the service period. For the year
      ended December 31, 2005 and earlier years, the Company accounted for
      stock-based compensation using the intrinsic value method of APB Opinion
      No. 25 “Accounting for Stock Issued to Employees” and related
      interpretations and followed the disclosure requirements of SFAS No. 123,
“Accounting for Stock-Based Compensation,” as amended by SFAS 148 “Accounting
      for Stock-Based Compensation—Transition and Disclosure.”





The
      Company elected to adopt SFAS 123R using the “modified prospective application.”
Under that method, compensation expense includes the fair value of new awards,
      modified awards and any unvested awards outstanding at January 1, 2006.
      However, the consolidated financial statements for periods prior to the adoption
      of SFAS 123R have not been restated to reflect the fair value method of
      accounting for stock-based compensation. Stock-based compensation expense for
      2005 and earlier years represents the cost of stock options and restricted
      stock
      awards determined in accordance with APB 25.





The
      fair
      value of stock options awarded during the nine months ended September 30,
      2006 was estimated at the date of grant using the Black-Scholes option-pricing
      model. The following table summarizes the weighted-average assumptions used
      and
      the resulting fair value of options granted:


**Nine months ended****September 30, 2006**Weighted-average
                  fair value of options granted
              
              $
              0.65Weighted-average
                  assumptions:Expected
                  option term (in years)
              
              
              3.4Risk-free
                  interest rate
              
              
              4.8
              %Expected
                  volatility
              
              
              204.5
              %Dividend
                  yield
              
              
              0
              %







The
      expected option term was estimated based upon the vesting period of the options
      and management’s expectation of exercise behavior. The expected volatility of
      the Company’s stock price is based upon the historical daily changes in the
      price of the Company’s common stock. The risk-free interest rate is based upon
      the current yield on U.S. Treasury securities having a term similar to the
      expected option term. Dividend yield is estimated at zero because the Company
      does not anticipate paying dividends in the foreseeable future.





The
      following table illustrates the effect on net loss and net loss per share as
      if
      compensation expense for all awards of stock-based employee compensation had
      been determined under the fair value-based method prescribed by SFAS 123 for
      periods prior to the adoption of SFAS 123R:


**Three
                  and**
                **Nine Months ended September**
                **30,
                  2005****Three**
                **Months**
              
              **Nine
                  Months**
                **(As Restated)**Loss
                  available to common shareholders, as reported
              
              $
              (366,581
              )
              $
              (8,415,092
              )Stock-based
                  employee compensation expense included in net loss available to
                  common
                  shareholders
              
              
              —
              
              
              —Stock-based
                  employee compensation expense determined under fair value
                  method
              
              
              
              
              
              (143,518
              )Pro
                  forma net loss available to common shareholders
              
              $
              (366,581
              )
              $
              (8,558,610
              )Loss
                  per share available to common shareholders:Basic
                  and diluted, as reported for 2006
              
              $
              (1.04
              )
              $
              (23.96
              )Basic
                  and diluted, pro forma
              
              $
              (1.04
              )
              $
              (23.96
              )


*Equity
      Instruments Issued with Registration Rights Agreement*




The
      Company accounts for registration rights agreement penalties as contingent
      liabilities, applying the accounting guidance of Financial Accounting Standard
      No. 5, “Accounting for Contingencies” (“FAS 5”). This accounting is consistent
      with views established by the Emerging Issues Task Force in its consensus set
      forth in EITF 05-04 (view C) and FASB Staff Positions FSP EITF 00-19-2
“Accounting for Registration Payment Arrangements”, which was issued December
      21, 2006. Accordingly, the Company recognizes the damages when it becomes
      probable that they will be incurred and amounts are reasonably estimable.





*Risks
      and Uncertainties*





The
      Company receives a federal excise tax credit of $1.00 per gallon of biodiesel

      sold in blended form (with petroleum diesel), and can sell biodiesel in
      unblended form (“B100”) at a premium over petroleum diesel of approximately
      $1.00 per gallon to other fuel blenders (as registered with the IRS) who may
      then collect the tax credit. The federal excise tax credit is scheduled to
      expire on December 31, 2008. There are no assurances the tax credit will be
      extended beyond December 31, 2008. The loss of the tax credit would have a
      significant, material adverse effect on the Company’s operations.




13




Table
      of Contents





The
      Company’s results of operations will be significantly affected by the cost and
      supply of soybean oil, other alternative feedstocks, and chemical inputs used
      in
      the production of biodiesel fuel. The price of soybean oil or other inputs
      are influenced by weather conditions and other factors affecting crop yields,
      farmer planting decisions, the output and proximity of soybean crush facilities,
      and general economic, market and regulatory factors. These factors include
      government policies and subsidies with respect to agriculture and international
      trade, and global and local demand and supply. The significance and
      relative effect of these factors on the price of soy oil is difficult to
      predict. Any event that tends to negatively affect the supply of soy oil,
      such as adverse weather or crop disease, could increase soy oil prices and
      potentially harm our business. In addition, Vanguard may also have
      difficulty, from time to time, in physically sourcing soy oil or other inputs
      on
      economical terms due to supply shortages. Such a shortage could require
      Vanguard to suspend operations until soy oil or other inputs are available
      at
      economical terms, which would have a material adverse effect on the results
      of
      operations and financial position.





The
      Company is subject to the laws of the State of Louisiana. Louisiana state law
      requires that a “distributor” or “blender” of motor fuels post a bond in the
      amount of $20,000 in favor of the state Secretary as surety against its
      collection of motor fuels sales taxes, while “suppliers” or fuel terminal
      operators are to post a $2,000,000 bond. Historically, Vanguard was classified
      as a “blender” by the Louisiana Department of Revenue (“LDR”), and is a
      registered “blender” with the Internal Revenue Service (“IRS”). In August 2006,
      Vanguard was informed by the LDR that its classification as a blender (and
      not a
      supplier), was subject to review. In October 2006, the LDR notified the Company
      that it may be classified as a supplier, but would not require the Company
      to
      post a $2,000,000 bond until January 31, 2007, pending further review of
      the state statutes and possible legislative action. As of the date of this
      report, no further action is presently required of the Company. However, if
      the
      Company is subsequently required to post a $2,000,000 surety bond, the Company
      may be asked by the surety company to establish cash collateral for a
      substantial portion or all of such amount, which would reduce the Company’s
      immediately-available cash funds and adversely affect its liquidity. There
      is no
      guarantee the Company will be classified as a blender upon further review by
      the
      LDR, or that it will obtain an extension beyond January 31, 2007, or that
      remedial legislative action will be implemented by the State of
      Louisiana.





The
      Company is also subject to federal, state and local environmental laws and
      regulations. Vanguard does not anticipate expenditures to comply with such
      laws
      and regulations would have a material impact on Vanguard’s financial position,
      results of operations, or liquidity. Vanguard believes that its operations
      comply, in all material respects, with applicable federal, state, and local
      environmental laws and regulations.





*Recent
      Accounting Pronouncements*





In
      July
      2006, the Financial Accounting Standard Board (“FASB”) issued FASB
      Interpretation No.48, “Accounting for Uncertainty in Income Taxes” (“FIN 48”)
      which clarifies the accounting for uncertainty in income taxes recognized in
      the
      financial statements in accordance with FASB Statement No. 109, “Accounting
      for Income Taxes”. This pronouncement recommends a recognition threshold and
      measurement process for recording in the financial statements uncertain tax
      positions taken or expected to be taken in the Company’s tax return. FIN 48 also
      provides guidance on derecognition, classification, interest and penalties,
      accounting in interim periods and disclosure requirements for uncertain tax
      positions. The accounting provisions of FIN 48 will be effective for the Company
      beginning January 1, 2007. The Company is in the process of evaluating the
      effect, if any, the adoption of FIN 48 will have on its financial
      statements.





In
      September 2006, the FASB issued Statement of Financial Accounting Standards
      No. 157 (SFAS No. 157), *Fair
      Value Measurements* .
      SFAS
      157 defines fair value, establishes a framework for measuring fair value, and
      expands disclosures about fair value measurements. This statement clarifies
      fair
      value as permitted under other accounting pronouncements but does not require
      any new fair value measurements. However, for some entities, the application
      of
      this statement will change current practice. The Company will be required to
      adopt SFAS No. 157 as of January 1, 2008 and is evaluating the impact
      and has not yet determined the effect on its earnings or financial
      position.




**4.**
            **Inventories**





Inventories
      consist of the following:


**September 30,**
                **2006**Raw
                  materials
              
              $
              371,136Finished
                  goods
              
              
              66,166$
              437,302


14




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      of Contents




**5.**
            **Line
                of Credit and Notes
                Payable**





In
      connection with the Acquisition, the Company assumed and is party to a credit
      agreement with First South Farm Credit, ACA that provides for borrowings of
      up
      to $3,500,000 which includes a line of credit and a term loan.





The
      line
      of credit provides for borrowings of up to $2,000,000, bearing interest at
      the
      lender’s referenced prime rate plus 1.25%, or 9.5% per annum at
      September 30, 2006, and is payable monthly with the outstanding principal
      balance due on July 1, 2007. The line of credit is due upon demand. The
      agreement also permits the Company to issue letters of credit which are secured
      by the line and reduces the amount of borrowings available under the agreement.
      At September 30, 2006, the amount available under the line of credit was
      $500,000, with additional advances subject to the discretion of the lender.
      Pursuant to the lender’s agreement to make such additional advances, the amount
      outstanding under the line of credit at September 30, 2006 was
      $1,667,380.





The
      term
      loan provides for borrowings of up to $1,500,000 which is secured by
      substantially all of the assets of the Company. The loan bears interest at
      the
      lender’s referenced prime rate plus 1.25%, or 9.5% per annum at
      September 30, 2006 and is payable quarterly. Commencing January 1,
      2007, the Company is required to make 10 annual principal payments of $150,000
      each.





The
      credit agreement requires the Company to achieve by December 31, 2006 and
      maintain thereafter certain financial and non-financial covenants based on
      Vanguard’s working capital and net assets position, the most restrictive of
      which is maintaining a cash flow coverage ratio of at least 1.25 to 1.00. As
      of
      September 30, 2006, the Company was not yet required to comply with these
      covenants.




**6.**
            **Convertible
                Promissory Notes**





On
      December 6, 2005, the Company entered into an agreement to issue up to
      $750,000 principal amount of convertible promissory notes. The Company received
      $450,000 in proceeds on December 6, 2005 and $300,000 on January 18,
      2006. The Company accounted for the embedded conversion feature in accordance
      with EITF 98-5 and EITF 00-27 since the embedded conversion feature was
      considered conventional as defined in EITF 00-19 and EITF 05-02. This resulted
      in the calculation of the intrinsic value of the embedded beneficial conversion
      feature in the amount of $450,000 for the December 6, 2005 advance and
      $300,000 for the January 18, 2006 advance, which have been treated as a
      discount to the underlying debt and were amortized into interest expense over
      the term of the notes.





These
      notes together with accrued interest were originally due on November 30,
      2008. On September 20, 2006, the notes and accrued interest were cancelled
      and converted into 1,631,350 shares of common stock. The Company recorded a
      charge to the statement of operations for the difference between the face value
      and the carrying value of the notes.




**7.**
            **Income
                Taxes**





At
      September 30, 2006, the Company had available no significant U.S. tax net
      operating loss carry forwards, pursuant to the Tax Reform Act of 1986, which
      assesses the utilization of a company’s net operating loss carry forwards
      resulting from retaining continuity of its business operations and changes
      within its ownership structure. The Company’s net operating loses will be
      subject to limitations due to a change in ownership that occurred in December
      2005. The Company provided for a valuation allowance of 100% of the net deferred
      tax assets.





The
      Acquisition was structured as a tax-free acquisition. Accordingly, the
      difference between the recognized fair values of the acquired net assets and
      their historical tax base are not deductible for tax purposes. As a result,
      a
      deferred tax liability of $2,258,070 was been established for financial
      reporting purposes for an amount equal to the Company’s statutory tax rate
      multiplied by the difference between the allocated book value of acquired
      non-goodwill assets and the tax bases of those assets.




**8.**
            **Preferred
                Stock**





The
      Company’s issued and outstanding preferred stock consists of Series H, Series J
      and Series K convertible preferred stock (herein referred to as “Series H
      Preferred”, “Series J Preferred” and “Series K Preferred”, respectively or
      collectively the “Preferred”). The Company has authorized 50,000 shares of
      preferred stock, $1.00 par value per share, of which 28,222, 2,850 and 4,300
      shares are designated as Series H, Series J and Series K preferred stock,
      respectively.





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      of Contents





On
      December 6, 2005, the Company issued 27,889 and 13,794 shares of Series H
      and Series I Preferred in exchange for the cancellation of 10,000 and 15,000
      shares of Series F and Series G convertible preferred stock. In connection
      with
      the Acquisition, the holders of the Series I preferred stock converted their
      shares into 1,379,400 shares of common stock.





In
      connection with the Acquisition, the Company issued 2,850 shares of Series
      J
      Preferred at $10,000 per share, for total cash proceeds of $28,500,000. Each
      share is convertible at any time into 10,000 shares of common stock. On an
      as
      converted basis, the preferred stock was issued at $0.7587 per share. The quoted
      closing market price of the Company’s common stock on the date of issuance of
      the Series J Preferred was $3.10. In accordance with EITF 00-27, this created
      a
      beneficial conversion to the holders of the preferred stock and a deemed
      dividend, which was limited to the proceeds received of $28.5 million. In the
      third quarter of 2006, the Company recognized a non-cash charge of $28.5 million
      relating to a deemed dividend upon our issuance of our Series J preferred stock.
      The full intrinsic value of the beneficial conversion feature was recognized
      on
      the date of issuance since the underlying security was immediately convertible
      to common stock.





Also
      in
      connection with the Acquisition, the Company issued 4,300 shares of Series
      K
      Preferred stock to two officers of Vanguard in exchange for their 20% ownership
      interest in Vanguard. The Company assigned a value to these shares of
      $34,441,000 which was allocated to the Acquisition purchase price based on
      the
      quoted closing price of the Company’s common stock on the date of
      acquisition.





The
      outstanding preferred stock has the following characteristics:





*Dividends*





The
      holders of Series H and Series K Preferred are entitled to receive dividends
      when and as if declared by the Board of Directors of the Company.





The
      holders of Series J Preferred are entitled to receive dividends at a rate of
      8% per annum in cash or additional shares of Series J Preferred, at the
      option of the Company. The dividends accrue whether or not the Board of
      Directors declares a dividend. If the Company elects to pay the dividend in
      additional shares of Series J Preferred, the value of each such share paid
      as a
      dividend shall be deemed to be equal to the product of a) the number of common
      shares into which the preferred share is convertible into, and b) the conversion
      price then in effect (currently $0.76 per common share).





*Conversion*





Each
      share of Series H Preferred is convertible at the option of the holders at
      any
      time into 10,000 shares of common stock, subject to adjustment for
      dividends.





The
      Series J Preferred is convertible into common stock at the option of the holder.
      Each share is convertible by dividing the Series J Preferred purchase price
      per
      share ($10,000) by the then existing conversion price, currently $0.7587 per
      share. Each holder may convert their shares into common stock, provided the
      Company has the requisite number of authorized shares of common stock available.
      Provided that (i) there is an effective Registration Statement on file with
      the Securities and Exchange Commission registering the maximum number of shares
      of Common Stock to be issued upon conversion of the Series J Preferred, and
      (ii) the closing price of the common stock for the twenty
      (20) preceding trading days is equal to or greater than two times the
      conversion price, then the Company, at its option, may require any holder of
      Series J Preferred to convert all, or a portion, of the then outstanding Series
      J Preferred into common stock.





In
      the
      event the Company issues additional shares of common stock or common stock
      equivalents at a price per share lower than the Series J conversion price,
      the
      Series J Preferred is entitled to a weighted-average anti-dilution adjustment
      its conversion price. The Series J conversion price is also subject to
      proportional adjustment in the event of stock splits, combinations and other
      recapitalizations or reorganizations.





Each
      share of Series K Preferred is convertible into 2,584 shares of common stock,
      subject to adjustment for dividends. All Series K Preferred will automatically
      convert into fully-paid and non-assessable shares of Common Stock at the
      conversion rate in effect at the time of conversion, determined as the first
      to
      occur of either (i) an amendment to the Company’s Amended and Restated
      Articles of Incorporation, or (ii) the merger of the Company into a
      Delaware corporation, in either case resulting in a sufficient number of
      authorized shares of Common Stock to issue the number of shares of Common Stock
      that are issuable upon conversion of all outstanding shares of Series K
      Preferred.




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Table
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*Voting*





The
      Series H Preferred is non-voting.





The
      holders of shares of Series J and Series K Preferred are entitled to the number
      of votes equal to the number of shares of common stock into which each preferred
      share is convertible at the time of such vote (assuming, for such purposes,
      the
      effectiveness of the Reincorporation and the related increase in the authorized
      capital stock of the Company).





*Liquidation
      Preference*





Each
      holder of the Series H and Series J Preferred is entitled to receive a
      liquidation preference equal to an amount equal to the assets available for
      distribution to shareholders at an amount equal to the greater of (i) the
      respective purchase price per share and any declared but unpaid dividends on
      such share, or (ii) the amount such holders would be entitled to receive
      had such holders converted their shares into shares of common
      stock.





The
      holders of Series K Preferred do not have liquidation rights other than those
      afforded to common stockholders.





*Registration
      Rights*





In
      connection with the issuance of the Series J Preferred, the Company is require
      to file a registration statement on Form SB-2 or Form S-3 with the Securities
      and Exchange Commission no later than the later of (x) the date that is
      ninety days from September 20, 2006 or the date that is five business days
      following the receipt of shareholder approval of the Reincorporation in order
      to
      register the resale of the Series J Preferred under the Securities Act. In
      the
      event that the Company fails to have the registration statement declared
      effective by the SEC by the date that is 60 days after the filing of the
      registration statement, in the event the SEC has no comments, or by the date
      that is 120 days after the date of filing, in the event the SEC has comments
      on
      the registration statement, or fails to maintain on the registration statement
      the effectiveness of the registration statement thereafter, then the Company
      must pay the Holders an amount equal to $6,250 for each day the registration
      statement remains uncured; provided, however, that the obligation of the Company
      to pay such amount shall cease on September 20, 2008. As
      of
      September 30, 2006, the Company concluded the registration rights did not
      represent a liability.





*Redemption*





The
      Series H, Series J and Series K Preferred are non-redeemable.




**9.**
            **Common
                Stock and Common Stock Warrants
                (restated)**





*Common
      Stock*





Each
      share of common stock is entitled to one vote. The holders of common stock
      are
      also entitled to receive non-cumulative dividends whenever funds are legally
      available and when and as declared by the Board of Directors, subject to the
      prior rights of holders of all classes of stock outstanding.





*Common
      Stock Warrants*





On
      September 20, 2006, in connection with the Acquisition, the Company issued
      warrants to M.A.G. Capital, LLC (“MAG”), to purchase up to 6,500,000 shares of
      common stock as consideration for the assignment by MAG to the Company of
      certain rights to acquire Vanguard. One-half of the warrants have an exercise
      price of $1.14 per share, and the other half have a strike price of $1.33 per
      share. The warrants are exercisable upon the effectiveness of the
      Reincorporation and the related increase in the authorized common stock of
      the
      Company. The value of the warrants was determined using the Black-Scholes model
      with the following assumptions:


Estimated
                  fair value of underlying common stock
              
              $
              3.10Expected
                  life (in years)
              
              
              5.0Risk-free
                  interest rate
              
              
              4.68
              %Expected
                  volatility
              
              
              204.5
              %Dividend
                  yield
              
              
              0
              %





The
      value
      ascribed to the MAG warrants was $19,872,178. The fair value of the warrants
      were deemed to be a direct acquisition cost in connection with the Acquisition
      and included as part of the purchase price.




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Table
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On
      September 20, 2006, in connection with the Acquisition, the Company issued
      warrants to Ocean Park Advisors, LLC (“OPA”), a firm controlled by W. Bruce
      Comer III and Heng Chuk (the Company’s Chief Executive Officer and Chief
      Financial Officer, respectively), to purchase up to 4,827,921 shares of common
      stock as consideration for OPA’s waiver of certain anti-dilution provisions of
      its Series I convertible preferred stock, and OPA’s subsequent conversion of
      13,794 shares of Series I convertible preferred stock into 1,379,400 shares
      of
      common stock. The OPA warrants have an exercise price of $0.7587 per share
      and
      are exercisable upon the effectiveness of the Reincorporation and the related
      increase in the authorized common stock of the Company. The value of the
      warrants was determined using the Black-Scholes model with the following
      assumptions:


Estimated
                  fair value of underlying common stock
              
              $
              3.10Expected
                  life (in years)
              
              
              5.0Risk-free
                  interest rate
              
              
              4.77
              %Expected
                  volatility
              
              
              204.5
              %Dividend
                  yield
              
              
              0
              %





The
      value
      ascribed to the OPA warrants was $14,807,934. As the principals of OPA are
      officers and directors of the Company and OPA held more than 10% of the
      Company’s outstanding common stock at the time of the transaction, the
      transaction was deemed to be related-party in nature, and the Company charged
      the value ascribed to the warrants to operations on the date of the
      Acquisition.





*Stock
      Option Plan*





On
      August 11, 2006, the Company’s board of directors adopted the 2006
      Incentive Compensation Plan (the “2006 Plan”). The 2006 Plan, as amended on
      September 20, 2006, shall be submitted to the stockholders of the Company
      at a meeting of stockholders and, if approved by a majority of the voting power
      thereof, the 2006 Plan shall become effective as of August 11, 2006. The
      2006 Plan provides for the grant of equity awards to directors, officers, other
      employees, consultants, independent contractors and agents of the Company and
      its subsidiaries, including stock options to purchase shares of the Company’s
      common stock, stock appreciation rights (“SARs”), restricted stock, restricted
      stock units, bonus stock and performance shares. Up to 6,592,755 shares of
      the
      Company’s common stock, subject to adjustment in the event of stock splits and
      other similar events may be issued pursuant to awards granted under the 2006
      Plan. The 2006 Plan shall be administered by the Compensation Committee of
      the
      Board of Directors, and shall expire 10 years after adoption, unless terminated
      earlier by the Board.





The
      2006
      Plan has been submitted to the stockholders of the Company for approval.
      Pursuant to voting agreements dated September 20, 2006 (the “Voting
      Agreements”), the holders of our securities representing approximately 99% of
      the voting power of our capital stock have each agreed to vote their shares
      for
      the approval of the 2006 Plan. Accordingly, the Company expects the 2006 Plan
      will be approved. In the event that Plan is not approved on or before
      May 31, 2007, it and any awards granted under it shall be null and
      void.





On
      August 11, 2006, the Company granted W. Bruce Comer III, its Chief
      Executive Officer, and Heng Chuk, its Chief Financial Officer options to
      purchase 180,622 and 86,698 shares of common stock, respectively, with an
      exercise price of $0.46 per share, or 110% of the fair value of the common
      stock
      on the date of grant, and vesting fully on December 1, 2006. Two members of
      the Company’s board of directors were each awarded an option to purchase 36,124
      shares of common stock, at an exercise price of $0.42 per share and vesting
      fully on September 13, 2006 and November 4, 2006, respectively (being
      six months after the appointment of each director) as discussed above. The
      Company also issued an option to purchase 21,675 shares of common stock to
      an
      advisor, at an exercise price of $0.42 per share and vesting fully on
      December 1, 2006. All stock options issued to the above individuals expire
      on March 15, 2007, and are not exercisable until approval by the
      stockholders of the Company. The Company estimated the value of the underlying
      common shares using the quoted closing price of $6.00 per share on the date
      of
      grant.





On
      September 20, 2006, in connection with the Acquisition, the Company granted
      options to purchase an aggregate of 0.5% of the fully-diluted common stock
      (equal to 348,480 common shares as of September 20, 2006), to each of two
      non-executive members of the Company’s Board of Directors.




18




Table
      of Contents





The
      value
      ascribed to the two non-executive Directors’ options was $2,035,884. The Company
      has recorded stock-based compensation in the amount of $58,567 for the three
      and
      nine months ended September 30, 2006 for the issuances to the two non-executive
      Directors and will continue to record compensation costs over the remaining
      requisite service periods.





The
      value
      of the stock was determined using the Black-Scholes model with the following
      assumptions:




Estimated
                fair value of underlying common stock
            
            $
            3.10Expected
                life (in years)
            
            
            5.0Risk-free
                interest rate
            
            
            4.77
            %Expected
                volatility
            
            
            204.5
            %Dividend
                yield
            
            
            0
            %





On
      September 20, 2006, in connection with the Acquisition, the Board of
      Directors granted OPA options to purchase 2,069,109 shares of common stock
      in
      connection with a Management Services Agreement dated September 20, 2006.
      The options have an exercise price of $0.7587 per share and vest fully at the
      later of 1) the date the quoted closing price for the Company’s common stock
      reaches $1.33 per share or higher, and 2) the date the Plan and the requisite
      increase in the Company’s authorized capital stock are approved by shareholders.
      The OPA options have an expected life of five years.





The
      values of these stock options were determined using the Black-Scholes model
      with
      the following assumptions:




Estimated
                fair value of underlying common stock
            
            $
            3.10Expected
                life (in years)
            
            
            5.0Risk-free
                interest rate
            
            
            4.77
            %Expected
                volatility
            
            
            204.5
            %Dividend
                yield
            
            
            0
            %





The
      value
      ascribed to the OPA stock options was $6,044,040. Since the quoted closing
      price
      of the Company’s common stock on the date of grant was above $1.33 and
      shareholder approval of the Plan and related measures was considered perfunctory
      due to the obligations of the parties under the Voting Agreements, the options
      were considered fully vested and the Company charged the value ascribed to
      the
      statement of operations on the date of acquisition.





**ITEM 2.**
            **MANAGEMENT’S
                DISCUSSION AND ANALYSIS OR PLAN OF
                OPERATION**





**Forward
      Looking Statements**





This
      quarterly report on Form 10-QSB/A of Diametrics Medical, Inc. for the three
      and
      nine months ended September 30, 2006 contains forward-looking statements,
      principally in the sections entitled “Management’s Discussion and Analysis of
      Results of Operations and Financial Condition” and “Business.” Generally, you
      can identify these statements because they use words like “anticipates,”
“believes,” “expects,” “future,” “intends,” “plans,” and similar terms. These
      statements reflect only our current expectations. Although we do not make
      forward-looking statements unless we believe we have a reasonable basis for
      doing so, we cannot guarantee their accuracy and actual results may differ
      materially from those we anticipated due to a number of uncertainties, many
      of
      which are unforeseen, including, among others, the risks described on pages
      10-18 of the Form 8-K we filed with the SEC on September 26, 2006 (the
“September 8-K”). You should not place undue reliance on these forward-looking
      statements which apply only as of the date of this annual report. These
      forward-looking statements are 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, and are intended to be covered by the safe harbors
      created thereby. To the extent that such statements are not recitations of
      historical fact, such statements constitute forward-looking statements that,
      by
      definition, involve risks and uncertainties. In any forward-looking statement
      where we express an expectation or belief as to future results or events, such
      expectation or belief is expressed in good faith and believed to have a
      reasonable basis, but there can be no assurance that the statement of
      expectation of belief will be accomplished.





We
      believe it is important to communicate our expectations to our investors. There
      may be events in the future, however, that we are unable to predict accurately
      or over which we have no control. The risk factors listed in the
      September 8-K and this filing, as well as any cautionary language in this
      report, provide examples of risks, uncertainties and events that may cause
      our
      actual results to differ materially from the expectations we describe in our
      forward-looking statements.





**Recent
      Developments**





On
      September 20, 2006, we acquired Vanguard Synfuels, LLC (“Vanguard”), a
      producer of biodiesel fuel that owns and operates a production facility located
      in Pollock, Louisiana (the “Acquisition”). The Acquisition is more fully
      described in the Form 8-K we filed with the SEC on September 26, 2006. From
      January 2005 to September 19, 2006, the Company was considered a “shell
      company” as defined by the Securities and Exchange Commission, wherein its
      business activities were primarily focused on raising additional financing
      and
      the pursuit of a strategic transaction. Prior to January 2005, Diametrics was
      involved with the development, production and distribution of medical devices
      since its inception. All such operations were discontinued during
      2005.




19





Table
      of Contents





In
      connection with the Acquisition, the Company received $28.5 million in gross
      proceeds from the issuance of Series J Convertible Preferred Stock. The Company
      used $17.7 million of these proceeds and issued shares of its Series K
      Convertible Preferred Stock to purchase 100% of the equity interests of Vanguard
      in a transaction intended to qualify as a tax-free exchange.





The
      Company intends to reincorporate in the State of Delaware (the
“Reincorporation”) and, in connection with the Reincorporation, change its
      corporate name to Allegro Biodiesel Corporation. The Reincorporation will also
      result in an increase in the number of our authorized shares of common stock
      to
      150,000,000 shares and our authorized shares of preferred stock to 50,000,000
      shares. Such actions are subject to the approval of our shareholders at a
      Special Meeting of Shareholders to be held on November 28, 2006. Pursuant
      to voting agreements entered into in connection with the Acquisition, the
      holders of our securities representing approximately 99% of the voting power
      of
      our capital stock have each agreed to vote their shares for the Reincorporation
      and related measures to be presented at the Special Meeting. Accordingly, we
      expect the Reincorporation, the name change and related measures will be
      approved.





**Our
      New Business**





As
      a
      result of the Acquisition, our new business is the production of biodiesel
      fuel
      and the development of biodiesel production facilities in the United States.
      We
      own an operating biodiesel fuel production facility located in Pollock,
      Louisiana that uses renewable agricultural-based feedstock (primarily soybean
      oil) to produce biodiesel.





The
      Pollock facility is situated on a 320-acre site with access to transportation
      infrastructure, including a nearby navigable tributary river to the Mississippi
      (for barge freight) and major highways and rail service. Construction of
      the Pollock facility was completed in early 2006 and is currently estimated
      to
      be capable of producing twelve million gallons of biodiesel per year. Vanguard
      began biodiesel production and sales in April 2006, making Vanguard the first
      operational producer of biodiesel in Louisiana.





Our
      primary source of revenue is the sale of biodiesel fuel, both in blended and
      unblended forms with petroleum-based diesel fuel. Our sales are dependent on
      the
      volume and price of the biodiesel fuel we sell. The selling prices we realize
      for our biodiesel are closely linked to the prices of petroleum-based diesel
      fuel and the supply and demand for biodiesel, as well as the tax incentives
      offered by federal and state governments for the production and blending of
      alternative fuels. Furthermore, the amount of revenue that we may recognize
      from
      the sale of a gallon of biodiesel may depend on whether it is sold as a blended
      product with petroleum diesel (whereby we collect a $1.00 per gallon federal
      excise tax credit in addition to the sale price of the fuel), as an unblended
      B100 product (whereby a buyer who is a registered blender with the IRS pays
      a
      premium of approximately $1.00 per gallon over the market price of diesel fuel,
      and may collect the tax credit), or under a tolling arrangement (whereby a
      customer provides feedstock, such as soybean oil, which we then convert into
      biodiesel fuel for a fee or a toll).





Our
      gross
      margin is driven by the cost of feedstock (primarily soybean oil) and other
      chemical inputs used in our production of biodiesel fuel. We purchase feedstock
      and other inputs both on the spot market and pursuant to fixed, short-term
      supply agreements. Our profit margins and financial condition are significantly
      affected by our cost and supply of soybean oil feedstock and other inputs in
      the
      commodity markets.





**Strategy**





We
      plan
      to increase our production and sales of biodiesel to utilize the full capacity
      of our existing Pollock facility. Though the bulk of our sales to-date have
      been generated from sales to regional wholesale bulk fuel distributors, we
      may
      pursue long-term sales or tolling arrangements with wholesale fuel distributors
      in the future. Furthermore, we intend to pursue an increase to our current
      production capacity of 12 million gallons annually to 20 million
      gallons annually. It is expected that such expansion would require
      approximately $3 million in capital expenditures.





In
      addition to expanding the Pollock facility’s production capacity, we may seek to
      acquire additional biodiesel production facilities and transport and
      distribution sites in the Gulf Coast region, nationwide, or
      internationally. Furthermore, we may seek to acquire, construct or
      otherwise participate in other projects relating to the production,
      transportation, marketing or distribution of biodiesel, feedstock or other
      chemical inputs to the biodiesel process.




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**Critical
      Accounting Policies**





*Estimates*





Our
      discussion and analysis of our financial condition and results of operations
      are
      based on our consolidated financial statements, which have been prepared in
      accordance with accounting principles generally accepted in the United States.
      The preparation of financial statements in conformity with accounting principles
      generally accepted in the United States 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 consolidated
      financial statements and the reported amounts of revenues and expenses during
      the reporting period. By their nature, these estimates and judgments are subject
      to an inherent degree of uncertainty. We review our estimates on an on-going
      basis, including those related to sales allowances, the allowance for doubtful
      accounts, inventories and related reserves, long-lived assets, income taxes,
      litigation and stock-based compensation. We base our estimates on our historical
      experience, knowledge of current conditions and our beliefs of what could occur
      in the future considering available information. Actual results may differ
      from
      these estimates, and material effects on our operating results and financial
      position may result. We believe the following critical accounting policies
      involve our more significant judgments and estimates used in the preparation
      of
      our consolidated financial statements.





*Revenue
      Recognition*





We
      generate our revenues from the sale of biodiesel fuel and recognize revenue
      when
      the following fundamental criteria are met:




·
            
            persuasive
                evidence that an arrangement
                exists;




·
            
            the
                products and services have been delivered;·
            
            selling
                prices are fixed and determinable and not subject to refund or adjustment;
                and




·
            
            collection
                of amounts due is reasonably
                assured.





Delivery
      occurs when goods are shipped and title and risk of loss transfer to the
      customer, in accordance with the terms specified in the arrangement with the
      customer. Revenue recognition is deferred in all instances where the earnings
      process is incomplete. We provide for sales returns and allowances in the same
      period as the related revenues are recognized. We base these estimates on our
      historical experience or the specific identification of an event necessitating
      a
      reserve. To the extent actual sales returns differ from our estimates; our
      future results of operations may be affected. Should changes in conditions
      cause
      management to determine that these criteria are not met for certain future
      transactions, revenue recognized for any reporting period could be adversely
      affected.




When
        we
        sell unblended biodiesel fuel (i.e., to certified blenders as registered
        with
        the IRS), we record revenues that result from federal incentive programs
        for the production of biodiesel. When we sell blended biodiesel fuel to
        non-certified blenders, we are eligible for tax credits under certain
        federal incentive programs. When all requirements of the applicable incentive
        program have been met, generally occurring at the time of sale, we record a
        reduction to cost of sales for the credit it is to receive.


*Accounts
      Receivable*





We
      perform ongoing credit evaluations of our customers and adjust credit limits
      based upon payment history and the customer’s current credit worthiness, as
      determined by our review of their current credit information. We continuously
      monitor collections and payments from our customers and maintain an allowance
      for doubtful accounts based upon our historical experience and any specific
      customer collection issues that we have identified. While our credit losses
      have
      historically been within our expectations and the allowance established, we
      may
      not continue to experience the same credit loss rates as we have in the past.
      Our accounts receivable are concentrated in a relatively few number of
      customers. Therefore, a significant change in the liquidity or financial
      position of any one customer could make it more difficult for us to collect
      our
      accounts receivable and require us to increase our allowance for doubtful
      accounts, which could have a material adverse impact on our consolidated
      financial position, results of operations and cash flows.





*Inventories*





We
      seek
      to purchase and maintain raw materials at sufficient levels to meet lead times
      based on forecasted demand. If forecasted demand exceeds actual demand, we
      may
      need to provide an allowance for excess or obsolete quantities on hand. We
      also
      review our inventories for changes in the market prices of biodiesel fuel and
      provide reserves as deemed necessary. If actual market conditions are less
      favorable than those projected by management, additional inventory reserves
      may
      be required. We state our inventories at the lower of cost, using the first-in,
      first-out method on an average costs basis, or market.




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We
      adopted SFAS No. 151, “Inventory Costs, an amendment of Accounting Research
      Bulletin (ARB) No. 43, Chapter 4” beginning January 1, 2006, with no
      material effect on our financial condition or results of operations. Abnormal
      amounts of idle facility expense, freight, handling costs, and wasted materials
      (spoilage) are recognized as current-period charges. Fixed production
      overhead is allocated to the costs of conversion into inventories based on
      the
      normal capacity of the production facilities. We utilize an expected normal
      level of production units, based on our plant capacity. To the extent we do
      not
      achieve a normal expected production levels, we charge such under-absorption
      of
      fixed overhead to operations.





*Long-lived
      Assets*





We
      continually monitor and review long-lived assets, including fixed assets,
      goodwill and intangible assets, for impairment whenever events or changes in
      circumstances indicate that the carrying amount of any such asset may not be
      recoverable. The determination of recoverability is based on an estimate of
      the
      undiscounted cash flows expected to result from the use of an asset and its
      eventual disposition. The estimate of cash flows is based upon, among other
      things, certain assumptions about expected future operating performance, growth
      rates and other factors. Our estimates of undiscounted cash flows may differ
      from actual cash flows due to, among other things status of federal and state
      fuel tax credit programs, market spot rates for raw material used in our
      production process, market spot rates for biodiesel, all which can cause
      materially changes our operating performance. If the sums of the undiscounted
      cash flows are less than the carrying value, we recognize an impairment loss,
      measured as the amount by which the carrying value exceeds the fair value of
      the
      asset.





*Accounting
      for Income Taxes*





We
      account for income taxes under the provisions of Statement of Financial
      Accounting Standards (SFAS) No. 109, *Accounting for Income Taxes* .
      Under
      this method, we determine deferred tax assets and liabilities based upon the
      difference between the financial statement and tax bases of assets and
      liabilities using enacted tax rates in effect for the year in which the
      differences are expected to affect taxable income. The tax consequences of
      most
      events recognized in the current year’s financial statements are included in
      determining income taxes currently payable. However, because tax laws and
      financial accounting standards differ in their recognition and measurement
      of
      assets, liabilities, equity, revenues, expenses, gains and losses, differences
      arise between the amount of taxable income and pre-tax financial income for
      a
      year and between the tax bases of assets or liabilities and their reported
      amounts in the financial statements. Because it is assumed that the reported
      amounts of assets and liabilities will be recovered and settled, respectively,
      a
      difference between the tax basis of an asset or a liability and its reported
      amount on the consolidated balance sheet will result in a taxable or a
      deductible amount in some future years when the related liabilities are settled
      or the reported amounts of the assets are recovered. We then assess the
      likelihood that our deferred tax assets will be recovered from future taxable
      income and unless we believe that recovery is more likely than not, we must
      establish a valuation allowance.





We
      have
      provided a full valuation allowance against our U.S federal and state deferred
      tax assets. If sufficient evidence of our ability to generate future U.S federal
      and/or state taxable income becomes apparent, we may be required to reduce
      our
      valuation allowance, resulting in income tax benefits in our statement of
      operations. We evaluate the realizability of our deferred tax assets and assess
      the need for a valuation allowance quarterly.





*Stock-Based
      Compensation*





We
      account for stock-based compensation in accordance with SFAS No. 123R,
“Share-Based Payment.” SFAS 123R requires that we account for all stock-based
      compensation transactions using a fair-value method and recognize the fair
      value
      of each award as an expense, generally over the service period. The fair value
      of stock options is based upon the market price of our common stock at the
      grant
      date. We estimate the fair value of stock option awards, as of the grant date,
      using the Black-Scholes option-pricing model. The use of the Black-Scholes
      model
      requires that we make a number of estimates, including the expected option
      term,
      the expected volatility in the price of our common stock, the risk-free rate
      of
      interest and the dividend yield on our common stock. If our expected option
      term
      and stock-price volatility assumptions were different, the resulting
      determination of the fair value of stock option awards could be materially
      different and our results of operations could be materially
      impacted.





*Equity
      Instruments Issued with Registration Rights Agreement*




We
      account for these penalties as contingent liabilities, applying the accounting
      guidance of Financial Accounting Standard No. 5, “Accounting for Contingencies”
(“FAS 5”). This accounting is consistent with views established by the Emerging
      Issues Task Force in its consensus set forth in EITF
      05-04 (view C) and FASB Staff Positions FSP EITF 00-19-2 “Accounting for
      Registration Payment Arrangements”, which was issued December 21, 2006.
      Accordingly, we recognize the damages when it becomes probable that they will
      be
      incurred and amounts are reasonably estimable. As of September 30, 2006, we
      concluded the registration rights did not represent a
      liability.





**Recent
      Accounting Pronouncements**





In
      May
      2005, the FASB issued SFAS No. 154, “Accounting Changes and Error
      Corrections,” which replaces APB Opinion No. 20, “Accounting Changes,” and
      SFAS No. 3, “Reporting Accounting Changes in Interim Financial Statements.”
SFAS No. 154 applies to all voluntary changes in accounting principle and
      requires retrospective application (a term defined by the statement) to prior
      periods’ financial statements, unless it is impracticable to determine the
      effect of a change. It also applies to changes required by an accounting
      pronouncement that does not include specific transition provisions. SFAS 154
      is
      effective for accounting changes and corrections of errors made in fiscal years
      beginning after December 15, 2005. We adopted SFAS No. 154 as of
      January 1, 2006 with no material impact on our financial condition or
      results of operations.




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In
      July
      2006, the FASB issued FASB Interpretation No. 48, “Accounting for
      Uncertainty in Income Taxes” (“FIN 48”) which clarifies the accounting for
      uncertainty in income taxes recognized in the financial statements in accordance
      with FASB Statement No. 109, “Accounting for Income Taxes”. This
      pronouncement recommends a recognition threshold and measurement process for
      recording in the financial statements uncertain tax positions taken or expected
      to be taken in the Company’s tax return. FIN 48 also provides guidance on
      derecognition, classification, interest and penalties, accounting in interim
      periods and disclosure requirements for uncertain tax positions. The accounting
      provisions of FIN 48 will be effective for the Company beginning January 1,
      2007. The Company is in the process of evaluating the effect, if any, the
      adoption of FIN 48 will have on its financial statements.





**Results
      of Operation**





As
      a
      result of the Acquisition, our new business is the production of biodiesel
      fuel
      and the development of biodiesel production facilities in the United States.
      Prior to the Acquisition, we were considered a “shell company” as defined by the
      Securities and Exchange Commission with our business activities primarily
      focused on raising additional financing and the pursuit of a strategic
      transaction. The Company was previously involved with the development,
      production and distribution of medical devices since its inception; all such
      operations were discontinued during 2005. The Company’s financial results for
      the three and nine month periods of fiscal 2005, as compared to the three and
      nine month periods of fiscal 2006 are not meaningful. Accordingly, only the
      results of the post-Acquisition company will be discussed, unless we determine
      certain pre-Acquisition information may be useful.





*Sales*





From
      the
      date of the Acquisition through September 30, 2006, we generated $126,281
      in revenue through sales of biodiesel.





*Gross
      Profit (Loss)*





Our
      gross
      loss represents revenues less the cost of goods sold. Our cost of goods sold
      consists of raw materials including the cost of vegetable oils, chemicals,
      labor
      and overhead incurred with the production of biodiesel.





Our
      gross
      loss for the period from September 20, 2006 to September 30, 2006
      primarily resulted from our sub-scale production level during the period; we
      were operating at approximately 15% of planned production capacity, resulting
      in
      lower efficiencies, high usage and cost of chemical inputs, and high fixed
      operating costs in relation to our output.





*Selling,
      General and Administrative*





Our
      selling, general and administrative expenses include personnel costs, product
      marketing, the costs of corporate functions (including our Services Agreement
      with Ocean Park Advisors, LLC), accounting, transaction costs, legal, public
      company, information systems and non-cash stock-based compensation.





During
      the third quarter of 2006, we incurred $22,216,802 of SG&A costs including
      $57,567 by Vanguard and $86,653 by Diametrics from the date of the Acquisition
      to September 30, 2006. Included in these costs are non-cash, nonrecurring
      expenses incurred in connection with the Acquisition, granting of stock options
      and issuance of warrants. The charges include the following items:





·
            $14,807,934,
                representing the fair value of warrants granted to Ocean Park Advisors,
                LLC for the waiving of anti-dilution provisions held in connection
                with
                the Series I preferred stock; and,





·
            $6,044,040
                for the fair value of vested stock options granted to Ocean Park
                Advisors,
                LLC in connection with its Services Agreement with
                us.





*Impairment
      of Goodwill*





In
      connection with the Acquisition, we utilized the quoted closing market price
      of
      $3.10 per share of common stock for financial reporting purposes to compute
      the
      purchase price and to perform our purchase price allocation, which resulted in $71,207,293 of goodwill. We then assessed this
      carrying amount of the resulting goodwill, and determined that such amount
      exceeded the implied fair value for such goodwill. Since the carrying value
      of
      the goodwill was greater than its implied fair value, we recognized an
      impairment loss of $51,012,250 on the date of the Acquisition.





The
      implied fair value of goodwill was derived from our valuation of Vanguard which
      was performed prior to the Acquisition. Based on Vanguard’s future projected
      discounted cash flows at that time, we determined the valuation of Vanguard
      was
      approximately $22.0 million. Such valuation was reflected in the cash purchase
      price of $17,699,378 paid for 80% of the Vanguard membership interests. The
      remaining 20% of the Vanguard membership interests were acquired through the
      issuance of 4,300 shares of our Series K convertible preferred stock with a
      fair
      value of $34,441,000 based on the quoted closing of our stock on the date the
      Acquisition. We also incurred direct acquisition costs totaling $21,271,872.
      Included in direct acquisition costs are the fair value of
      warrants to purchase up to 6,500,000 shares of common stock to M.A.G. Capital,
      LLC (“MAG”), the largest single beneficial owner of our equity securities. These
      warrants were granted in exchange for MAG’s assignment of the rights they held
      to acquire Vanguard.  We also paid MAG a cash due-diligence fee of $435,000
      and incurred legal and other direct acquisition costs of $249,721. The fair
      value of the warrants was valued at $19,872,178.





*Interest
      Expense*





Subsequent
      to September 20, 2006, interest expense consists of outstanding principal
      amounts due under our line of credit and notes payable agreements assumed in
      connection with the Acquisition. See “Liquidity and Capital Resources.” From
      December 2005 through September 19, 2006, we had convertible notes with
      outstanding principal balances ranging from $400,000 to $750,000 which were
      converted into common stock on September 20, 2006. From January 1,
      2005 to December 5, 2005 we had approximately $9,250,000 of convertible
      notes outstanding which were converted into Series H and I preferred stock
      on
      December 6, 2005.




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Interest
      expense for the third quarter of 2006 totaled $639,438, including $626,451
      of
      non-cash accretion for the $750,000 convertible notes which were cancelled
      and converted into common stock on September 20, 2006. We incurred $12,987
      of cash-based interest expense attributable to the line of credit and notes
      payable assumed from Vanguard from the date of the Acquisition to
      September 30, 2006.





During
      the three month and nine month periods ended September 30, 2005, we
      incurred interest expense including accretion of the $1,800,000 senior secured
      convertible notes and the $7,300,000 convertible subordinated
      notes.





*Other
      Income*





Other
      income for the third quarter of 2006 totaled $125,116, and consisted of proceeds
      received from the sale of our equity interests in TGC Research Limited, a
      subsidiary that held intellectual property assets related to Diametrics’
previously discontinued business operations, to Glumetrics, Inc. in July
      2006.





*Change
      in Fair Value of Derivative Liabilities*





The
      change in the fair value of derivative liabilities for the three and nine month
      periods ended September 30, 2006 totaled $0, as compared to a gain of
      $182,306 and $1,863,427 for the three months and nine months ended
      September 30, 2005, respectively. As part of an exchange offering
      undertaken by us in December 2005, the underlying securities were exchanged
      for
      preferred stock. As such, the Company’s liabilities under the convertible
      instrument were terminated.





*Preferred
      Stock Dividends*





In
      the
      third quarter of 2006, we recognized a non-cash charge of $28.5 million relating
      to a deemed dividend upon the issuance of our Series J convertible preferred
      stock. The full intrinsic value of the beneficial conversion feature was
      recognized on the date of issuance since the underlying security was immediately
      convertible into common stock.





**Liquidity
      and Capital Resources**





The
      accompanying consolidated financial statements have been prepared on a
      going-concern basis, which contemplates the realization of assets and
      satisfaction of liabilities and other commitments in the normal course of
      business. The report of our independent registered public accounting firm on
      the
      consolidated financial statements for the year ended December 31, 2005
      contained an explanatory paragraph expressing substantial doubt about our
      ability to continue as a going concern as a result of recurring losses and
      negative cash flows. The consolidated financial statements do not include any
      adjustments relating to the recoverability and classification of recorded asset
      amounts or the amounts and classification of liabilities that would be necessary
      if we are unable to continue as a going concern.





Our
      principal sources of liquidity consist of cash and cash equivalents, cash
      generated from product sales, the issuance of equity securities and short-term
      debt we assumed in connection with the Acquisition. In addition to funding
      operations, our principal short-term and long-term liquidity needs have been,
      and are expected to be, the debt service requirements of our line of credit
      and
      notes payable, capital expenditures and general corporate purposes. In addition,
      as our production operations ramp up, we anticipate significant purchases of
      soy
      oil and other inputs necessary for biodiesel production. At September 30,
      2006, our cash and cash equivalents totaled $8,505,969 and we had working
      capital of $3,880,369.





At
      September 30, 2006, we had $3,167,380 in bank debt outstanding under a
      credit agreement with First South Farm Credit, ACA. The credit agreement
      provides for borrowings of up to $3,500,000, which includes a line of credit
      and
      a term loan. The line of credit provides for borrowings of up to $2,000,000,
      bearing interest at the lender’s referenced prime rate plus 1.25%, or
      9.5% per annum at September 30, 2006, and is payable monthly with the
      outstanding principal balance due on July 1, 2007. The amount available
      under the line of credit is $500,000, with additional advances subject to the
      discretion of the lender. The line of credit is due upon demand. At
      September 30, 2006, the amount outstanding under the line of credit was
      $1,667,380.





The
      term
      loan provides for borrowings of up to $1,500,000 which is secured by
      substantially all of the assets of the Company. The loan bears interest at
      the
      lender’s referenced prime rate plus 1.25%, or 9.5% per annum as at
      September 30, 2006 and is payable quarterly. Commencing January 1,
      2007, the Company is required to make 10 annual principal payments of $150,000
      each. At September 30, 2006, the principal amount of $1,500,000 was
      outstanding under the term loan.




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The
      credit agreement requires the Company to achieve by December 31, 2006 and
      maintain thereafter certain financial and non-financial covenants based on
      Vanguard’s working capital and net assets position, the most restrictive of
      which is maintaining a cash flow coverage ratio of at least 1.25 to 1.00. As
      of
      September 30, 2006, the Company was not yet required to comply with these
      covenants.





As
      discussed under the caption “Risks and Uncertainties” under Note 3 to the
      Financial Statements, pending further review by the Louisiana Department of
      Revenue and in the absence of remedial legislative action by the State of
      Louisiana, in February 2007 Vanguard may be required to post a $2,000,000 surety
      bond against its collection of motor fuels sales taxes, for which the surety
      company may ask us to put up cash collateral for a substantial portion or all
      of
      such amount. If implemented, this requirement would reduce our
      immediately-available cash funds until such time as the bond and collateral
      are
      released. As of the date of this report, no further action is presently required
      of Vanguard with respect to the surety bond.





We
      believe that our existing sources of liquidity, along with cash expected to
      be
      generated from product sales, will be sufficient to fund our operations,
      anticipated capital expenditures, working capital and other financing
      requirements for at least the next twelve months. We will need to continue
      a
      focused program of capital expenditures to meet our production capacity
      expansion. In order to fund capital expenditures, increase our working capital
      or complete any acquisitions, we may seek to obtain additional debt or equity
      financing. We may also need to seek to obtain additional debt or equity
      financing if we experience downturns or cyclical fluctuations in our business
      that are more severe or longer than anticipated, or if we fail to achieve
      anticipated revenue, experience significant increases in the cost of inputs
      we
      use to produce biodiesel fuel, declines in the selling prices of our biodiesel
      fuel, or increases in our expense levels, or if we engage in additional
      strategic transactions. However, we cannot assure you that such financing will
      be available to us on favorable terms, or at all.





*Operating
      Activities*





Cash
      used
      in operating activities was $1,090,493 for the nine months of fiscal 2006
      compared to $1,245,215 for the nine months of fiscal 2005. Operating cash flows
      for the nine months of 2006 reflect our net loss of $41,107,812 and increased
      working capital requirements, partially offset by non-cash charges
      (depreciation, amortization, stock-based compensation, impairment of goodwill,
      and accretion of convertible notes) of $73,265,243.





Operating
      cash flows for the nine months of fiscal 2005 reflect the operating losses
      of
      our former medical device business, partially offset by non-cash expenses
      relating to convertible notes and derivative liabilities which have both been
      extinguished in December 2005.





*Investing
      Activities*





We
      expect
      future capital expenditures will include equipment for the expansion of
      production capacity and expenditures to upgrade our biodiesel
      plant.





Cash
      used
      in investing activities of $18,564,377 for the nine months of fiscal 2006
      compared to nil for the nine months of fiscal 2005. During the third quarter
      of
      fiscal 2006, we paid $18,564,377 in cash to acquire Vanguard Synfuels, LLC
      and
      purchased capital expenditures to upgrade our plant.





*Financing
      Activities*





Cash
      provided by financing activities of $27,780,012 for the nine months of fiscal
      2006 compared to $150,000 for the nine months of fiscal 2005. During the third
      quarter of fiscal 2006, we received net proceeds of $28,240,000 from the
      issuance of $28,500,000 million of Series J preferred stock, partially offset
      by
      the repayment of $759,988 of notes payable assumed in connection with the
      Acquisition. Cash provided by financing activities for the nine months of 2005
      consisted of net proceeds from the sale of $150,000 principal amount of senior
      convertible promissory notes which were extinguished on December 5,
      2005.





*Income
      Tax Carryforwards*





At
      September 30, 2006, we had no available U.S. tax net operating loss
      carryforwards. Pursuant to the Tax Reform Act of 1986, utilization of a
      company’s net operating loss carryforwards is limited when continuity of
      business operations is not maintained or when there is a “change in
      ownership”.





**Off
      Balance Sheet Arrangements**





We
      have
      no significant known off balance sheet arrangements.




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**ITEM 3.
      CONTROLS AND PROCEDURES**




a)
            Evaluation
                of disclosure controls and
                procedures.





As
      of
      September 30, 2006, we carried out an evaluation, under the supervision and
      with the participation of management, including our Chief Financial Officer,
      of
      the effectiveness of the design and operation of our disclosure controls and
      procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act
      of
      1934 (the “Exchange Act”)). Based upon that evaluation, the Chief Financial
      Officer concluded that our disclosure controls and procedures were effective
      as
      of September 30, 2006 to ensure that information required to be disclosed
      by us in the reports that we file or submit under the Exchange Act is recorded,
      processed, summarized and reported within the time periods specified in
      Securities and Exchange Commission rules and forms.




(b)
            Changes
                in internal controls over financial
                reporting.





There
      were no changes in our internal controls over financial reporting during the
      quarter ended September 30, 2006 that materially affected or are reasonably
      likely to materially affect our internal control over financial
      reporting.





**PART
      II — OTHER INFORMATION**





**Item 6.
      Exhibits**




**Exhibit****No.**31.1
            
            Certification
                of the Chief Financial Officer pursuant to Section 302 of the
                Sarbanes-Oxley Act of 200231.2
            
            Certification
                of the Chief Executive Officer pursuant to Section 302 of the
                Sarbanes-Oxley Act of 200232.1
            
            Certification
                of the Chief Financial Officer pursuant to Section 906 of the
                Sarbanes-Oxley Act of 200232.2
            
            Certification
                of the Chief Executive Officer pursuant to Section 906 of the
                Sarbanes-Oxley Act of 2002




26




Table
      of
      Contents


**DIAMETRICS
      MEDICAL, INC.**





**SIGNATURES**





In
      accordance with 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/
                Heng ChukHeng
                ChukChief
                Financial Officer (and Duly Authorized
                Officer)




Date:
      June 7, 2007




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