**SECURITIES AND EXCHANGECOMMISSION**

**Washington, D.C. 20549**

 

**FORM 10-Q**

 

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

 

**For the quarterly period ended September 30, 2002**

 

**Commission File Number 0-19841**

 

**i-STAT CORPORATION**

(Exactname of registrant as specified in its charter)

 

|                                                       | **Delaware**                                                     |   |   |   | **22-2542664**                        |
|------------------------------------------------------------|------------------------------------------------------------------|--------|--------|--------|---------------------------------------|
|                                                       | (State or other  jurisdiction of  incorporation or organization) |   |   |   | (I.R.S. Employer  Identification No.) |
|                                                       |                                                             |   |   |   |                                  |
|                                                       | **104  Windsor Center Drive, East Windsor, NJ**                  |   |   |   | **08520**                             |
|                                                       | (Address of Principal  Executive Offices)                        |   |   |   | (Zip Code)                            |
|                                                       |                                                             |   |   |   |                                  |
| **(609) 443-9300**                                         |
| (Registrant’s  telephone number, including area code) |

 

Indicateby check mark whether the registrant (1) has filed all reports required to befiled by Section 13 or 15(d) of the Securities Exchange Act of 1934 during thepreceding 12 months (or for such shorter period that the registrant wasrequired to file such reports), and (2) has been subject to such filingrequirements for the past 90 days.

 
| Yes  ý |   | No  o |
|------------------|--------|------------|

 

Thenumber of shares outstanding of each of the Issuer’s classes of Common Stock asof the latest practicable date.

 

| **Class**                      |   | **November 11, 2002** |
|--------------------------------|--------|-----------------------|
|                           |   |                  |
| Common  Stock, $0.15 par value |   | 20,117,110            |

 

 

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**i-STAT CORPORATION**

** **

**TABLE OF CONTENTS**

 
| PART I         | FINANCIAL INFORMATION                                                                                                    |
|----------------|--------------------------------------------------------------------------------------------------------------------------|
|           |                                                                                                                     |
|           | Item 1 - Financial Statements                                                                                            |
|           |                                                                                                                     |
|           | Consolidated  Condensed Statements of Operations for the three months and nine months ended  September 30, 2002 and 2001 |
|           |                                                                                                                     |
|           | Consolidated  Condensed Balance Sheets as of September 30, 2002 and December 31, 2001                                    |
|           |                                                                                                                     |
|           | Consolidated  Condensed Statements of Cash Flows for the nine months ended September 30,  2002 and 2001                  |
|           |                                                                                                                     |
|           | Notes  to Consolidated Condensed Financial Statements                                                                    |
|           |                                                                                                                     |
|           | Item  2 - Management’s Discussion and Analysis of Financial Condition and Results  of Operations                    |
|           |                                                                                                                     |
|           | Item 4 - Controls and Procedures                                                                                         |
|           |                                                                                                                     |
|           |                                                                                                                     |
| PART II        | OTHER INFORMATION                                                                                                        |
|           |                                                                                                                     |
|           | Item 1 - Legal Proceedings                                                                                               |
|           |                                                                                                                     |
|           | Item 6 -  Exhibits and Reports on Form 8-K                                                                               |
|           |                                                                                                                     |
| SIGNATURES     |
|           |
| CERTIFICATIONS |

 

2

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**i-STATCORPORATION**

**CONSOLIDATED CONDENSEDSTATEMENTS OF OPERATIONS**

** **

**(Inthousands of dollars, except share and per share data)**

**(unaudited)**

 
|                                                                                             |   | **Three Months Ended  September 30,** |    | **Nine Months Ended  September 30,** |   |
|--------------------------------------------------------------------------------------------------|--------|---------------------------------------|---------|--------------------------------------|--------|
|                                                                                             |   | **2002**                              |    | **2001**                             |   | **2002** |   | **2001** |   |
| Net revenues:                                                                                    |   |                                  |    |                                 |   |   |   |   |   |
| Related party product  sales                                                                     |   | $                                     | 12,764  |                                 | $      | 11,949 |   | $ | 36,696 |   | $ | 34,193 |   |
| Third party product  sales                                                                       |   | 1,899                                 |    | 2,462                                |   | 6,797 |   | 6,236 |   |
| Other related party  revenues                                                                    |   | 175                                   |    | 175                                  |   | 525 |   | 525 |   |
| Other third party  revenues                                                                      |   | —                                |    | —                               |   | — |   | 327 |   |
| Total  net revenues                                                                              |   | 14,838                                |    | 14,586                               |   | 44,018 |   | 41,281 |   |
|                                                                                             |   |                                  |    |                                 |   |   |   |   |   |
| Cost of products sold                                                                            |   | 9,855                                 |    | 11,574                               |   | 34,801 |   | 34,145 |   |
| Write-down of certain  production assets                                                         |   | 1,217                                 |    | —                               |   | 1,217 |   | — |   |
| Research and  development                                                                        |   | 1,947                                 |    | 1,877                                |   | 5,821 |   | 5,806 |   |
| Sales and marketing                                                                              |   | 2,458                                 |    | 2,215                                |   | 7,257 |   | 6,954 |   |
| Abbott termination  charges                                                                      |   | 52,000                                |    | —                               |   | 52,000 |   | — |   |
| General and  administrative                                                                      |   | 1,335                                 |    | 1,718                                |   | 4,734 |   | 5,222 |   |
| Write-down of certain  intangible assets                                                         |   | 1,036                                 |    | —                               |   | 1,036 |   | — |   |
| Litigation settlement                                                                            |   | —                                |    | —                               |   | — |   | 10,491 |   |
| Total operating  expenses                                                                        |   | 69,848                                |    | 17,384                               |   | 106,866 |   | 62,618 |   |
|                                                                                             |   |                                  |    |                                 |   |   |   |   |   |
| Operating loss                                                                                   |   | (55,010                               | )       | (2,798                               | )      | (62,848 | ) | (21,337 | ) |
|                                                                                             |   |                                  |    |                                 |   |   |   |   |   |
| Other (expense)  income, net                                                                     |   | (657                                  | )       | 192                                  |   | (146 | ) | 683 |   |
|                                                                                             |   |                                  |    |                                 |   |   |   |   |   |
| Net loss                                                                                         |   | (55,667                               | )       | (2,606                               | )      | (62,994 | ) | (20,654 | ) |
|                                                                                             |   |                                  |    |                                 |   |   |   |   |   |
| Dividends on Preferred  Stock                                                                    |   | (183                                  | )       | —                               |   | (1,006 | ) | — |   |
| Accretion of Preferred  Stock                                                                    |   | (111                                  | )       | (2,622                               | )      | (334 | ) | (2,622 | ) |
|                                                                                             |   |                                  |    |                                 |   |   |   |   |   |
| Net loss available to  Common Stockholders                                                       |   | $                                     | (55,961 | )                                    | $      | (5,228 | ) | $ | (64,334 | ) | $ | (23,276 | ) |
|                                                                                             |   |                                  |    |                                 |   |   |   |   |   |
| Basic and diluted net  loss per share available to Common Stockholders                           |   | $                                     | (2.78   | )                                    | $      | (0.27 | ) | $ | (3.21 | ) | $ | (1.25 | ) |
| Shares used in  computing basic and diluted net loss per share available to Common  Stockholders |   | 20,117,110                            |    | 19,306,880                           |   | 20,061,384 |   | 18,618,732 |   |

 

The accompanying notesare an integral part of these consolidated condensed financial statements.

 

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**i-STATCORPORATION**

**CONSOLIDATED CONDENSEDBALANCE SHEETS**

** **

**(Inthousands of dollars, except share and per share data)**

(unaudited)

 
|                                                                                                                                                                                     |   | **September  30,  2002** |   | **December  31,  2001** |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------|--------|-------------------------|--------|
| ASSETS                                                                                                                                                                                   |   |                     |   |                    |   |
| Current assets:                                                                                                                                                                          |   |                     |   |                    |   |
| Cash and cash  equivalents                                                                                                                                                               |   | $                        | 27,586 |                    | $      | 43,112 |   |
| Accounts receivable,  net                                                                                                                                                                |   | 405                      |   | 546                     |   |
| Accounts receivable  from related party, net                                                                                                                                             |   | 6,688                    |   | —                  |   |
| Inventories                                                                                                                                                                              |   | 13,287                   |   | 13,393                  |   |
| Prepaid expenses and  other current assets                                                                                                                                               |   | 897                      |   | 1,924                   |   |
| Total  current assets                                                                                                                                                                    |   | 48,863                   |   | 58,975                  |   |
|                                                                                                                                                                                     |   |                     |   |                    |   |
| Plant and equipment,  net of accumulated depreciation of $34,857 in 2002 and $31,151 in 2001                                                                                             |   | 12,599                   |   | 14,964                  |   |
| Other assets                                                                                                                                                                             |   | 1,067                    |   | 1,950                   |   |
| Total assets                                                                                                                                                                             |   | $                        | 62,529 |                    | $      | 75,889 |   |
|                                                                                                                                                                                     |   |                     |   |                    |   |
| LIABILITIES AND  STOCKHOLDERS’ (DEFICIT) EQUITY                                                                                                                                     |   |                     |   |                    |   |
| Current liabilities:                                                                                                                                                                     |   |                     |   |                    |   |
| Accounts payable                                                                                                                                                                         |   | $                        | 2,728  |                    | $      | 2,662 |   |
| Accounts payable to  related party, net                                                                                                                                                  |   | —                   |   | 2,673                   |   |
| Accrued expenses                                                                                                                                                                         |   | 4,398                    |   | 4,896                   |   |
| Deferred revenue -  related party, current                                                                                                                                               |   | 42                       |   | 662                     |   |
| Total current  liabilities                                                                                                                                                               |   | 7,168                    |   | 10,893                  |   |
|                                                                                                                                                                                     |   |                     |   |                    |   |
| Long-term liability -  related party, non-current                                                                                                                                        |   | 57,019                   |   | 5,058                   |   |
| Total liabilities                                                                                                                                                                        |   | 64,187                   |   | 15,951                  |   |
| Series D Redeemable  Convertible Preferred Stock, liquidation value $31,977                                                                                                              |   | 27,471                   |   | 25,334                  |   |
| Stockholders’  (deficit) equity:                                                                                                                                                    |   |                     |   |                    |   |
| Preferred Stock, $0.10  par value, 7,000,000 shares authorized:                                                                                                                          |   |                     |   |                    |   |
| Series A Junior  Participating Preferred Stock, $0.10 par value, 1,500,000 shares authorized;  none issued                                                                               |   | —                   |   | —                  |   |
| Series C Convertible  Preferred Stock, $0.10 par value, 25,000 shares authorized; none issued                                                                                            |   | —                   |   | —                  |   |
| Common Stock, $0.15  par value, 50,000,000 shares authorized: 20,157,927 and 20,107,483 shares  issued, and 20,117,110 and 20,066,666 shares outstanding in 2002 and 2001,  respectively |   | 3,024                    |   | 3,016                   |   |
| Treasury Stock, at  cost, 40,817 shares                                                                                                                                                  |   | (750                     | )      | (750                    | )      |
| Additional paid-in  capital                                                                                                                                                              |   | 253,520                  |   | 255,442                 |   |
| Unearned compensation                                                                                                                                                                    |   | —                   |   | (55                     | )      |
| Loan to officer, net                                                                                                                                                                     |   | (174                     | )      | (417                    | )      |
| Accumulated deficit                                                                                                                                                                      |   | (283,179                 | )      | (220,185                | )      |
| Accumulated other  comprehensive loss                                                                                                                                                    |   | (1,570                   | )      | (2,447                  | )      |
| Total stockholders’  (deficit) equity                                                                                                                                               |   | (29,129                  | )      | 34,604                  |   |
| Total liabilities and  stockholders’ (deficit) equity                                                                                                                               |   | $                        | 62,529 |                    | $      | 75,889 |   |

 

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

 

4

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**i-STATCORPORATION**

**CONSOLIDATED CONDENSEDSTATEMENTS OF CASH FLOWS**

** **

**(Inthousands of dollars)**

**(unaudited)**

** **
|                                                                        |   | **Nine  Months Ended  September 30,** |    |
|-----------------------------------------------------------------------------|--------|---------------------------------------|---------|
|                                                                        |   | **2002**                              |    | **2001** |   |
|                                                                        |   |                                  |    |   |   |
| Cash flows from  operating activities:                                      |   |                                  |    |   |   |
| Net loss                                                                    |   | $                                     | (62,994 | ) | $ | (20,654 | ) |
| Adjustments to  reconcile net loss to net cash used in operating activities |   | 5,858                                 |    | (1,870 | ) |
| Changes in assets and  liabilities                                          |   | 43,555                                |    | 7,211 |   |
| Net cash used in  operating activities                                      |   | (13,581                               | )       | (15,313 | ) |
|                                                                        |   |                                  |    |   |   |
| Cash flows from  investing activities:                                      |   |                                  |    |   |   |
| Restricted cash  collateralizing letters of credit                          |   | —                                |    | (21,541 | ) |
| Purchase of equipment                                                       |   | (2,328                                | )       | (3,877 | ) |
| Other                                                                       |   | (299                                  | )       | (160 | ) |
| Net cash used in  investing activities                                      |   | (2,627                                | )       | (25,578 | ) |
|                                                                        |   |                                  |    |   |   |
| Cash flows from  financing activities:                                      |   |                                  |    |   |   |
| Proceeds from stock  options exercised                                      |   | 87                                    |    | 2,053 |   |
| Proceeds from private  placement of Common Stock, net                       |   | —                                |    | 12,326 |   |
| Proceeds from private  placement of Series C Convertible Preferred Stock    |   | —                                |    | 20,463 |   |
| Expenses related to  private placement of Series D Redeemable Convertible   |   |                                  |    |   |   |
| Preferred Stock and  Warrants                                               |   | (50                                   | )       | — |   |
| Net cash provided by  financing activities                                  |   | 37                                    |    | 34,842 |   |
|                                                                        |   |                                  |    |   |   |
| Effect of currency  exchange rate changes on cash                           |   | 645                                   |    | (22 | ) |
|                                                                        |   |                                  |    |   |   |
| Net decrease in cash  and cash equivalents                                  |   | (15,526                               | )       | (6,071 | ) |
| Cash and cash  equivalents at beginning of period                           |   | 43,112                                |    | 19,536 |   |
| Cash and cash  equivalents at end of period                                 |   | $                                     | 27,586  |   | $ | 13,465 |   |

 

Theaccompanying notes are an integral part of these consolidated condensedfinancial statements.

 

5

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**i-STATCORPORATION**

**NOTES TO CONSOLIDATEDCONDENSED FINANCIAL STATEMENTS**

 

(unaudited)

 

**1.****                                      General**

 

*Basis of Presentation*

 

Theinformation presented as of September 30, 2002 and 2001, and for the periodsthen ended, is unaudited, but includes all adjustments (consisting of normalrecurring accruals except for the inventory adjustment discussed in Note 2, thelitigation settlement discussed in Note 3, the Abbott termination chargesdiscussed in Note 4 and the impairment of certain assets discussed in Note 5)which the management of i-STAT Corporation (the “Company”) believes to benecessary for the fair presentation of results for the periods presented.  The results for the interim periods are notnecessarily indicative of results to be expected for the year.  The December 31, 2001 consolidated condensedbalance sheet data was derived from the audited financial statements, but doesnot include all disclosures required by generally accepted accountingprinciples.  These condensed financialstatements should be read in conjunction with the Company’s audited financialstatements for the year ended December 31, 2001, including the Notes thereto,which were included as part of the Company’s Annual Report on Form 10-K, FileNo. 0-19841.

 

*Basic andDiluted Loss per Share*

 

Basic loss pershare is calculated by dividing income available to common stockholders by theweighted average number of shares of Common Stock outstanding for theperiod.  Diluted earnings per sharewould reflect the potential dilution that could occur if securities or othercontracts to issue Common Stock were exercised or converted into Common Stockor resulted in the issuance of Common Stock that then shared in the earnings ofthe Company.  The Company has notincluded potentially dilutive Common Shares in the diluted per-sharecomputation for all periods presented, as the result is antidilutive due to theCompany’s net loss.

 

Options topurchase 4,254,989 shares of common stock with exercise prices of $2.24 —$32.58 per share, which expire on various dates from December 2002 to September2012, were outstanding at September 30, 2002. In addition, warrants to purchase 1,875,357.5 shares of Common Stock at$8.00 per share were outstanding at September 30, 2002.  The options and warrants were not includedin the computation of diluted loss per share because the effect would beantidilutive due to the Company’s net loss.

* *

*Comprehensive Income*

 

Statement ofFinancial Accounting Standards (‘SFAS”) No. 130, “Reporting ComprehensiveIncome,” requires certain items to be included in other comprehensiveincome.  The only component ofaccumulated other comprehensive income (loss) for the Company is foreigncurrency translation adjustments resulting from the translation of thefinancial statements of the Company’s Canadian subsidiary.

 
|                                |   | **Three Months Ended  September 30,** |    | **Nine Months Ended  September 30,** |   |
|-------------------------------------|--------|---------------------------------------|---------|--------------------------------------|--------|
|                                |   | **2002**                              |    | **2001**                             |   | **2002** |   | **2001** |   |
|                                |   | ***(In thousands of dollars)***       |    |
| Net loss                            |   | $                                     | (55,667 | )                                    | $      | (2,606 | ) | $ | (62,994 | ) | $ | (20,654 | ) |
| Other  comprehensive income (loss): |   |                                  |    |                                 |   |   |   |   |   |
|                                |   |                                  |    |                                 |   |   |   |   |   |
| Foreign currency  translation       |   | 132                                   |    | (692                                 | )      | 877 |   | (924 | ) |
|                                |   |                                  |    |                                 |   |   |   |   |   |
| Comprehensive loss                  |   | $                                     | (55,535 | )                                    | $      | (3,298 | ) | $ | (62,117 | ) | $ | (21,578 | ) |

 

6

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*Foreign Currency Translation/Transactions*

 

Ingeneral, balance sheet amounts from the Company’s Canadian subsidiary have beentranslated using exchange rates in effect at the balance sheet dates and theresulting translation adjustments have been included in the accumulated othercomprehensive loss as a separate component of Consolidated Stockholder’s(Deficit) Equity.  The Statement ofOperations from the Company’s Canadian subsidiary has been translated using theaverage monthly exchange rates in effect during each period presented.  Effective May 31, 2002, as a result ofrepayment of a portion of intercompany debt owed by the Company’s Canadian subsidiaryand that subsidiary’s deemed ability to repay the remaining intercompany debt,the Company is required to treat such intercompany debt as short-term inaccordance with SFAS No. 52 “Foreign Currency Translation.”  SFAS No. 52 requires the Company to recordthe impact of foreign currency gains and losses on short-term intercompany debtin the Company’s results of operations. Foreign currency losses of $0.8 million and $0.6 million were recordedin other (expense) income, net for the three months and nine months endingSeptember 30, 2002, respectively.  Theselosses were primarily the result of the impact of the exchange rate betweenU.S. dollars and Canadian dollars on the debt owed by i-STAT Corporation’s Canadiansubsidiary to i-STAT Corporation.  Theamount of these gains and losses could be material in the event of significantchanges in the exchange rate between U.S. dollars and Canadian dollars.

* *

*Recently Issued Accounting Pronouncements:*

 

InMay 2002, the Financial Accounting Standards Board (“FASB”) issued SFAS No.145, “Rescission of SFAS No. 4, 44 and 64, Amendment of SFAS 13, and TechnicalCorrections as of April 2002.”  SFAS No.145 is effective for fiscal years after May 15, 2002 and is effective for SFASNo. 13 transactions occurring after May 15, 2002.  This statement rescinds SFAS No. 4 and, thus the exception toapplying Accounting Principles Board Opinion (“APB”) No. 30 to all gains andlosses related to extinguishments of debt. As a result, gains and losses from extinguishments of debt areclassified as extraordinary items only if they met the criteria in APB No.30.  SFAS No. 64 previously amended SFASNo. 4 and is no longer necessary.  Thisstatement also amends SFAS No. 13 to require sale-leaseback accounting forcertain lease modifications that have economic effects that are similar tosale-leaseback transactions.  Thisstatement rescinds SFAS No. 44 and makes various technical corrections to otherexisting pronouncements.  The Companydoes not expect that the adoption of this statement will have a material impacton its financial position or results of operations.

 

OnJuly 29, 2002, FASB issued SFAS No. 146, “Accounting for Costs Associated withExit or Disposal Activities.”  SFAS No.146 is effective for exit or disposal activities that are initiated afterDecember 31, 2002.  This statementaddresses financial accounting and reporting for costs associated with exit ordisposal activities and nullifies Emerging Issues Task Force (“EITF”) Issue No.94-3.  “Liability Recognition forCertain Employee Termination Benefits and Other Costs to Exit an Activity(including Certain Costs Incurred in Restructuring).”  This statement requires that a liability for a cost associatedwith an exit or disposal activity be recognized when the liability isincurred.  Under EITF Issue 94-3, aliability for an exit cost as defined in EITF Issue 94-3 was recognized at thedate of an entity’s commitment to an exit plan.  Therefore, this statement eliminates the definition andrequirements for recognition of exit costs in EITF Issue 94-3.  This statement also establishes that fairvalue is the objective for initial measurement of the liability.  The Company does not expect that theadoption of this statement will have a material impact on its financial positionor results of operation.

 

7

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**2.****                                     ****Inventories**

 

Inventoriesconsist of the following:

 
|            |   | **September 30, 2002**         |   | **December 31, 2001** |   |
|-----------------|--------|--------------------------------|--------|-----------------------|--------|
|            |   | **(In thousands of  dollars)** |   |
| Raw  materials  |   | $                              | 4,253  |                  | $      | 4,462 |   |
| Work-in-process |   | 3,780                          |   | 3,058                 |   |
| Finished  goods |   | 5,254                          |   | 5,873                 |   |
|            |   | $                              | 13,287 |                  | $      | 13,393 |   |

 

Inthe first quarter of 2002, the Company recorded a charge of $1.6 millionrelated to the write-off of certain cartridges in inventory and the replacementof certain cartridges in the field that exhibited a higher than usual qualitycheck rejection rate (the entire $1.6 million relates to inventory producedduring the first quarter of 2002).  Thischarge was in addition to a charge of $1.7 million that was recorded in the fourthquarter of 2001 related to the same quality check rejection rate issue.

 

**3.**                                      **Commitments and Contingencies**

 

TheCompany was a defendant in a case entitled Nova Biomedical Corporation,Plaintiff v. i-STAT Corporation, Defendant.  The complaint, which was filed in the United States DistrictCourt for the District of Massachusetts on June 27, 1995, alleged infringementby the Company of Nova Biomedical Corporation’s (“Nova”) U.S. Patent No.4,686,479 (the “Patent”).  In February1998, the Court entered summary judgment in favor of the Company on the issueof patent infringement.  The plaintiffappealed the dismissal to the Federal Circuit. The Federal Circuit affirmed two of the grounds of the dismissal (properinterpretation of the Patent and that the Company does not literally infringe),but remanded the case to the District Court with instructions to reconsiderwhether the Company’s device performs a certain measurement in a substantiallyequivalent way to a method covered by the Patent, and therefore infringes underthe “doctrine of equivalents.”  On July26, 2001 the Company entered into a license agreement and a settlementagreement with Nova under which the Company agreed to pay Nova $10.5 million,which was recorded as a charge in the second quarter of 2001.  Pursuant to the agreements, $6.5 million waspaid on July 26, 2001, a retroactive royalty of $0.5 million was paid on August14, 2001 for the period of January 1, 2001 through June 30, 2001, and $3.5million plus interest was due to be paid over one year in equal quarterlyinstallments, pursuant to a secured promissory note.  The promissory note was prepaid on August 3, 2001.  The license agreement provides for the paymentto Nova of a royalty equal to 4% of the invoice price of products sold in theUnited States after January 1, 2001, which products determine hematocrit levelsaccording to any method used by the Company prior to December 31, 2000, as wellas any method covered by the Patent. The royalties are payable through the life of the Patent (July 22,2005).  The Company has commercializedproducts that determine hematocrit levels using a method that was not used bythe Company prior to December 31, 2000 and which the Company believes is notcovered by the Patent.  Consequently,the Company does not believe that it owes any additional royalties toNova.  On February 28, 2002, Nova fileda demand for arbitration claiming that the method by which the Company’sproducts determine hematocrit is covered under the Patent and the licenseagreement.  Nova is seeking royaltiesfrom July 1, 2001.  If the Company isunsuccessful in defending its position in the arbitration and does not developnew methods that do not utilize the covered technology, it may be forced tocontinue to pay royalties to Nova through the life of the Patent andapproximately $1.4 million in respect of products sold from July 1, 2001through September 30, 2002.  Anarbitration hearing is scheduled for November 22, 2002.  The Company plans to defend this mattervigorously.

 

8

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TheCompany and Abbott Laboratories (“Abbott”) are in disagreement over the amountof money Abbott is entitled to for the sharing of certain cartridge productioncost savings resulting from an increase in sales volume.  This disputed item relates to differentinterpretations of certain terms of the Company’s exclusive marketing anddistribution agreement with Abbott dated August 3, 1998 (the “DistributionAgreement”).  If this disagreement isnot resolved amicably, it must be resolved through binding arbitration asprescribed under the Distribution Agreement. Management of the Company believes that Abbott’s position on this issuein dispute is without merit and that, in the event that this issue issuccessfully resolved through arbitration, the Company will not incur anyadditional liability to Abbott.  Theamount in dispute is approximately $1.2 million at September 30, 2002, and ifthis matter is resolved in favor of Abbott, which management of the Companybelieves unlikely, the Company’s cost of goods sold would increase by up to theamount in dispute.  Such adjustmentwould be made when, and if, it is determined that an unfavorable outcome to theCompany is probable.

 

**4.****                                      RelatedParty Transactions**

 

OnJuly 25, 2002, the Company announced its intention to allow its DistributionAgreement with Abbott to expire effective December 31, 2003. As a result, theCompany is obligated to make the following payments to Abbott on the datesnoted: (a) on December 31, 2003 a $5.0 million one-time termination fee tocompensate Abbott for a portion of its costs in undertaking the distributionrelationship, (b) on December 31, 2003 $5.0 million representing theunrecogized portion of a $25.0 million prepayment made by Abbott againstincremental product sales, (c) early in 2004, approximately $2.0 million torepurchase inventory and equipment from Abbott, as required in the DistributionAgreeement, and (d) on December 31, 2004 and on each December 31 thereafterthrough 2008, for a total of five unequal residual payments based upon Abbott’snet sales of the Company’s products during the final twelve months of theDistribution Agreement term, approximately $47.0 million.  The Company recognized the $5.0 millionone-time termination fee and the $47.0 million estimated residual paymentsexpenses in the third quarter of 2002. Since the  Abbott residualpayments are based on Abbott actual net sales during the final twelve months ofthe Distribution Agreement term, the estimated liability for these residualpayments is subject to change as the actual net sales become known.  These charges had a material impact on theCompany’s results of operations and these payments will have a material impacton the Company’s future cash flows.  TheCompany anticipates that the profit margins presently being earned by Abbott asa result of the sale of the Company’s products will be earned by the Companycommencing January 1, 2004, and will provide the Company with the sufficientcash to fund these payments to Abbott. The Company has begun to take actions to assume primary responsibilityfor the marketing and sale of its products, effective January 1, 2004.  These actions have included hiringadditional sales personnel, a vice president of medical affairs and anexecutive vice president of commercial operations.  The Company anticipates further additions of sales and marketingpersonnel in the coming quarters.  The Company may incur additional costs orrecognize lower revenues than anticipated as a result of resuming directdistribution of its products, which may adversely impact the Company’s futureresults of operations and cash flows.

 

Netproduct sales to Abbott were $12.8 million and $11.9 million for the threemonths ended September 30, 2002 and 2001, respectively, and $36.7 million and$34.2 million for the nine months ended September 30, 2002 and 2001,respectively.  Other related partyrevenues from Abbott were $0.2 million in each of the three-month periods endedSeptember 30, 2002 and 2001 and $0.5 million in each of the nine-month periodsended September 30, 2002 and 2001.  Theother related party revenues from Abbott consist of amounts reimbursed byAbbott for services performed by the Company’s implementation coordinators.

 

**5.****                                      Impairmentof Certain Assets**

 

Duringthe third quarter of 2002, the Company reviewed its plant and equipment assetsand determined that a write-down of $1.2 million was required for certain fixedassets that were associated with certain projects at the Company’smanufacturing facility in Canada.  TheCompany abandoned these projects due to the identification of more efficientalternatives. The write-down reduced the carrying value of those assets downto their estimated fair values of zero. The write-down is included in the Consolidated Statement of Operationsas a separate line item.

 

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**Duringthe third quarter of 2002, the Company reassessed its patent and trademarkstrategies.  As a result, the Companyreviewed the valuation of its intangible patent and trademark assets anddetermined that a write-down of $1.0 million was required.  The write-down is included in theConsolidated Statement of Operations as a separate line item.**

 

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**i-STAT CORPORATION**

**MANAGEMENT’S DISCUSSION ANDANALYSIS OF**

**FINANCIAL CONDITION AND RESULTS OF OPERATIONS**

 

**General**

 

i-STAT Corporation (“i-STAT” or the “Company”), whichwas incorporated in Delaware in 1983, together with its wholly-ownedsubsidiary, i-STAT Canada Limited, develops, manufactures and markets medicaldiagnostic products for blood analysis that provide health care professionalswith immediate and accurate critical diagnostic information at the point ofpatient care.

 

The Company’scurrent products, known as the *i-STAT® System*, consist ofportable, hand-held analyzers and single-use disposable cartridges, themajority of which simultaneously performs different combinations of commonlyordered blood tests in approximately two minutes.  Coagulation and immunoassay tests take longer than two minutes toprocess results because of the nature of the tests being performed.  The *i-STAT System* also includes peripheralcomponents that enable the results of tests to be transmitted by infrared meansto both a proprietary information system for managing the user’s point-of-caretesting program and to the user’s information systems for billing andarchiving.

 

The *i-STAT System* currently performs bloodtests for sodium, potassium, chloride, glucose, creatinine, urea nitrogen,hematocrit, ionized calcium, lactate, coagulation, arterial blood gases (pH,PCO2 and PO2), and bicarbonate, and derives certain other values, such as totalcarbon dioxide, base excess, anion gap, hemoglobin and O2 saturation, bycalculation from the tests performed. The Company continues to engage in research and development in order toimprove its existing products and develop new products based on the *i-STAT System* technology.  During the second quarter of 2002, theCompany received approval from the Food and Drug Administration to market atest which measures Prothrombin Time (“PT”). The Company began shipment of the PT test for initial evaluation in thethird quarter of 2002 and expects the first revenue shipments of the product tooccur in the first quarter of 2003.  TheCompany is currently developing two additional tests for the measurement ofcoagulation: kaolin ACT and partial thromboplastin time (“aPTT”).  In October 2002, an 510(k) pre-marketapproval application was filed with the U.S. Food and Drug Administrationrequesting approval to market a kaolin ACT test and, subject to regulatoryapprovals, the Company expects to begin commercial introduction of the kaolinACT test in early 2003.  The Companyalso is conducting research and development on immunoassay tests, the first ofwhich is a test for Troponin I, a marker of myocardial damage.  The Troponin I test is scheduled to commenceclinical trials late in 2002 and, subject to regulatory approvals, to becommercially introduced in the second half of 2003.

 

Prior toNovember 1, 1998, the Company marketed and distributed its products in theUnited States and Canada principally through its own direct sales and marketingorganization, in Japan through Japanese marketing partners, in Europe throughHewlett-Packard Company and in Mexico, South America, China, Australia, andcertain other Asian and Pacific Rim countries, through selected distributionchannels.  On August 3, 1998, theCompany entered into a long-term sales, marketing and research alliance withAbbott Laboratories (“Abbott”), which, among other things, since November 1,1998, has altered significantly the manner in which the Company markets andsells its products worldwide.  The majorityof the Company’s revenues are now derived from Abbott.  Please see “Alliance with AbbottLaboratories” under Item 7 of the Company’s Annual Report on Form 10–Kfor the year ended December 31, 2001 for a description of the Company’sagreements with Abbott.

 

On July 25,2002, the Company announced its intention to allow its exclusive marketing anddistribution agreement dated August 3, 1998 (the “Distribution Agreement”) withAbbott to expire effective December 31, 2003. As a result, the Company is obligated to make the following payments on thedates noted: (a) on December 31, 2003, a $5.0 million one-time termination feeto compensate Abbott for a portion of its costs in undertaking the distributionrelationship, (b) on December 31, 2003, $5.0 million representing theunrecognized portion of a $25.0 million prepayment made by Abbott againstincremental product sales, (c) early in 2004, approximately $2.0 million torepurchase inventory and equipment from Abbott, as required in the DistributionAgreement, and (d) on December 31, 2004 and on each December 31 thereafterthrough 2008, for a total of five unequal payments, residual payments basedupon Abbott’s net sales of the Company’s products during the final twelvemonths of the Distribution Agreement term, approximately $47.0 million.  TheCompany recognized the $5.0 million one-time termination fee and the $47.0million estimated residual payments expenses in the third quarter of 2002.  Since the Abbott residual payments are based on Abbott actual net sales during thefinal twelve months of the Distribution Agreement term, the estimated liabilityfor these residual payments is subject to change as the actual net sales becomeknown.  These charges had a material impact on the Company’s results ofoperations and these payments will have a material impact on the Company’sfuture cash flows.  The Companyanticipates that the profit margins presently being earned by Abbott as aresult of the sale of the Company’s products, will be earned by the Companycommencing January 1, 2004, and will provide the Company with the

 

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sufficient cash to fund these payments toAbbott.  On October 9, 2002, the Companyfiled a current report on Form 8-K consisting of a presentation containingprojections of selected financial information which the Company believessupports this anticipation.  The Company has begun to take actions toassume primary responsibility for the marketing and sale of its products,effective January 1, 2004.  Theseactions have included hiring additional sales personnel, a vice president ofmedical affairs, and an executive vice president of commercial operations.  The Company anticipates further additions ofsales and marketing personnel in coming quarters.  The Company may incur additional costs or recognize lowerrevenues than anticipated as a result of resuming direct distribution of itsproducts, which may adversely impact the Company’s future results of operationsand cash flows.

 

**Resultsof Operations**

 

**ThreeMonths Ended September 30, 2002**

 

The Company generatedtotal net revenues of $14.8 million and $14.6 million for the three monthsended September 30, 2002 and 2001, respectively, including international netrevenues (as a percentage of total net revenues) of $4.0 million (26.8%) and$3.7 million (25.3%), respectively. Total net revenues from Abbott represented 87.2% and 83.1% of theCompany’s worldwide total net revenues for the three months ended September 30,2002 and 2001, respectively.

 

The $0.2 million, or1.7%, increase in total net revenues was primarily due to increased shipmentvolumes of the Company’s cartridges. Total worldwide cartridge shipments increased by 23.0% to 3,201,225units in the three months ended September 30, 2002, from 2,602,650 units in thethree months ended September 30, 2001. The increase in worldwide cartridgevolume was partially offset by a decrease in worldwide average selling priceper cartridge, which decreased from $3.55 in the third quarter of 2001 to $3.36in the third quarter of 2002.  Thedecrease in average selling price per cartridge is primarily a function of thepricing arrangements under the Distribution Agreement with Abbott, whichproduces lower average selling prices as volume increases.  Worldwide hand-held analyzer shipmentsdecreased 31.1% to 913 units in the three months ended September 30, 2002, from1,326 units in the three months ended September 30, 2001.  The decrease in analyzer sales volume is, inpart, a result of lower sales to the Company’s veterinary distribution partnerand to its marketing partner in Japan. Other related party revenues were $0.2 million in each of thethree-month periods ended September 30, 2002 and September 30, 2001.

 

Costs of products sold(as a percentage of product sales) associated with product sales for the threemonths ended September 30, 2002 and 2001 were $9.9 million (67.2%) and $11.6million (80.3%), respectively.  Theimprovement in manufacturing costs as a percentage of product sales isattributable to improvements in productivity resulting from programs to improvemanufacturing efficiency, enhancements in yield resulting from the developmentof improved production processes and a record level of production of cartridgesin the third quarter of 2002 as the Company replenished inventory levels thatwere negatively impacted in the fourth quarter of 2001 and the first quarter of2002 by the disposal of certain cartridges that experienced a higher thannormal reject rate.  The Company expectslower production volumes that coincide with expected sales levels in the comingquarters.  Cost of products sold as apercentage of product sales generally decrease with increased productionvolumes of the Company’s cartridges and with improvements in manufacturingproductivity yields.

 

During the third quarter of 2002, theCompany reviewed its plant and equipment assets and determined that awrite-down of $1.2 million was required for certain fixed assets that wereassociated with certain projects at the Company’s manufacturing facility inCanada.  The Company abandoned theseprojects due to the identification of more efficient alternatives. Thewrite-down reduced the carrying value of those assets down to their estimatedfair values of zero.  The write-down isincluded in the Consolidated Statement of Operations as a separate line item.

 

The Company incurredresearch and development costs (as a percentage of total net revenues) of $1.9million (13.1%) and $1.9 million (12.9%) for the three months ended September30, 2002 and 2001, respectively.  Researchand development expenses consist of costs associated with the personnel,material, equipment and facilities necessary for conducting new productdevelopment.  Research and developmentexpenditures may vary over the next several years.  The amount and timing of any changes will depend upon numerousfactors including the level of research and development activity at any pointin time, the breadth of the Company’s development objectives and the success ofits development programs.

 

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The Company incurredsales and marketing expenses (as a percentage of total net revenues) of $2.5million (16.6%) and $2.2 million (15.2%) for the three months ended September30, 2002 and 2001, respectively.  Salesand marketing expenses consist primarily of salaries, commissions, benefits,travel, business development and similar expenditures for salesrepresentatives, implementation coordinators and international marketingsupport, as well as order entry, product distribution, technical services,clinical affairs, product literature, market research, and other salesinfrastructure costs.  A portion of thecosts of the implementation coordinators is reimbursed by Abbott, and as aresult, $0.2 million of reimbursement is included in total net revenues in eachof the three-month periods ended September 30, 2002 and 2001.  The increase in sales and marketing expensesis primarily attributable to the increase in sales personnel as the Companyprepares to assume primary responsibility for the marketing and sale of itsproducts.   The Company anticipatesfurther personnel additions and increased sales and marketing costs in thecoming quarters.

 

As a result of theCompany’s announcement of its intention to allow the Distribution Agreement toexpire effective December 31, 2003, the Company recorded charges of $52.0million for the three months ended September 30, 2002 comprised of (a) a $5.0million charge for a one-time termination fee and (b) an aggregate $47.0million for estimated residual payments due to Abbott at the end of each yearfrom 2004 to 2008.

 

The Company incurredgeneral and administrative expenses (as a percentage of total net revenues) of$1.3 million (9.0%) and $1.7 million (11.8%) for the three months endedSeptember 30, 2002 and 2001, respectively. General and administrative expenses consist primarily of salaries andbenefits of personnel, office costs, legal and other professional fees andother costs necessary to support the Company’s infrastructure.

 

During the third quarterof 2002, the Company reassessed its patent and trademark strategies.  As a result, the Company reviewed thevaluation of its intangible patent and trademark assets and determined that awrite-down of $1.0 million was required. The write-down is included in the Consolidated Statement of Operationsas a separate line item.

 

Other (expense) income,net, of ($0.7) million and $0.2 million for the three months ended September30, 2002 and 2001, respectively, primarily reflects interest income earned oncash and cash equivalents and the net impact of foreign currency gains andlosses.  Effective May 31, 2002, as a result of repayment of a portion ofintercompany debt owed by the Company’s Canadian subsidiary and thatsubsidiary’s deemed ability to repay the remaining intercompany debt, theCompany is required to treat such intercompany debt as short-term in accordancewith Statement of Financial Accounting Standards (“SFAS”) No. 52 “ForeignCurrency Translation.”  SFAS No. 52 requiresthe Company to record the impact of foreign currency gains and losses onshort-term intercompany debt in the Company’s results of operations.  Foreign currency losses of $0.8million were recorded for the three months ended September 30, 2002.  These losses were the result of the impact ofthe exchange rate between U.S. dollars and Canadian dollars on the debt owed byi-STAT Corporation’s Canadian subsidiary to i-STAT Corporation.  The amount of the gains and losses could bematerial in the event of significant changes in the exchange rate between U.S.dollars and Canadian dollars.

 

In the third quarter of2002, the Company recorded accretion of Preferred Stock of $0.1 million anddividends on Preferred Stock of $0.2 million. The accretion of Preferred Stock relates to the issuance by the Companyof Series D Redeemable Convertible Preferred Stock (the “Series D Stock”) inDecember of 2001.  The accretionrecorded by the Company reflects amortization of the difference between the netfair value at issuance and the redemption (or stated) value of such stock.  The Series D Stock is being accreted over aperiod of ten years.  In the thirdquarter of 2001, the Company recorded accretion of Preferred Stock of $2.6 millionrelated to the issuance by the Company of Series C Redeemable Convertible PreferredStock (the “Series C Stock”).  InDecember of 2001, the Company redeemed all outstanding shares of the Series CStock.

 

The Series D Stockcarries a dividend of 8%, which is either accrued or paid in cash quarterly, atthe option of the Company.  The thirdquarter 2002 dividend on the Series D Stock was recorded at its fair value of$0.2 million.  The dividend was not paidin cash and its stated value of $0.6 million was accrued and added to thecarrying value and liquidation preference of the Series D Stock.  The difference between the stated value andthe fair value of the dividend was recorded as a charge to additionalpaid-in-capital.

 

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Net loss available toCommon Stockholders for the three months ended September 30, 2002 was $56.0million, or $2.78 per basic and diluted share, compared with a net loss of $5.2million, or $0.27 per basic and diluted share, for the third quarter of 2001.The primary factors contributing to the increase in net loss were the $52.0million in charges related to the Distribution Agreement and $2.2 millionrelated to the write-down of certain assets. The weighted average number of shares used in computing basic anddiluted net loss per share was 20,117,110 and 19,306,880 in the 2002 and 2001periods, respectively.  The increase inthe weighted average number of shares primarily reflects the issuance of1,480,000 shares of Common Stock in August 2001 and the exercise of employeestock options.

 

**NineMonths Ended September 30, 2002**

 

The Company generatedtotal net revenues of $44.0 million and $41.3 million for the nine months endedSeptember 30, 2002 and 2001, respectively. Total net revenues included international revenues (as a percentage oftotal revenues) of  $11.8 million(26.9%) and $10.3 million (25.0%), respectively.  Total net revenues from Abbott represented 84.6% and 84.1% of theCompany’s worldwide total net revenues for the nine months ended September 30,2002 and 2001, respectively.

 

The $2.7 million (6.6%)increase in total net revenues was primarily due to increased sales volume ofthe Company’s cartridges, reflecting higher cartridge consumption by existinghospital customers and the addition of new hospital customers.  Worldwide cartridge sales increased 11.2% to9,298,900 units in the nine months ended September 30, 2002, from 8,361,000units in the nine months ended September 30, 2001.  The worldwide average selling price per cartridge was $3.37 and$3.44 in the periods ended September 30, 2002 and September 30, 2001,respectively.  The decrease in averageselling price per cartridge is primarily a function of the pricing arrangementsunder the Distribution Agreement with Abbott, which produce lower average sellingprices as volume increases.  Analyzer salesvolume decreased 3.6% to 2,934 units in the nine months ended September 30,2002, from 3,045 units in the nine months ended September 30, 2001.  Other related party revenues were $0.5million in each of the nine-month periods ended September 30, 2002 andSeptember 30, 2001.

 

Costs of products sold(as a percentage of product sales) associated with product sales for the ninemonths ended September 30, 2002 and 2001 were $34.8 million (80.0%) and $34.1million (84.4%), respectively.  Cost ofproducts sold, as a percentage of product sales, generally decrease withincreased production volume of the Company’s cartridges and improvements inmanufacturing productivity and yields. Cost of products sold, as a percentage of product sales, improved forthe nine months ended September 30, 2002 as compared to 2001 due to increasedproduction volume, which caused fixed manufacturing costs to be spread over alarger number of product units, and the fact that the first half of 2001 wasnegatively impacted by reduced levels of production and higher than normalscrap levels.  However, cost of productssold as a percentage of product sales was negatively impacted by a charge of$1.6 million recorded in the first quarter of 2002 for the write-off of certaincartridges in inventory and the replacement of certain cartridges in the fieldthat exhibited a higher than usual quality check rejection rate.

 

During the nine monthsended September 30, 2002, the Company reviewed its plant and equipment assetsand determined that a write-down of $1.2 million was required for certain fixedassets that were associated with certain projects at the Company’smanufacturing facility in Canada.  TheCompany abandoned these projects due to the identification of more efficientalternatives.  The write-down reducedthe carrying value of those assets down to their estimated fair values ofzero.  The write-down is included in theConsolidated Statement of Operations as a separate line item.

 

The Company incurredresearch and development costs (as a percentage of total net revenues) of $5.8million (13.2%) and $5.8 million (14.1%) for the nine months ended September30, 2002 and 2001, respectively. Research and development expenses consist of costs associated with thepersonnel, material, equipment and facilities necessary for conducting newproduct development. Research and development expenditures may vary over thenext several years.  The amount andtiming of any change will depend upon numerous factors including the level ofresearch and development activity at any point in time, the breadth of theCompany’s development objectives and the success of its development programs.

 

The Company incurredsales and marketing expenses (as a percentage of total net revenues) of $7.3million (16.5%) and $7.0 million (16.8%) for the nine months ended September30, 2002 and 2001, respectively.  Salesand marketing expenses consist primarily of salaries, benefits, travel, andother expenditures for sales representatives, product implementationcoordinators, international marketing support, order entry, distribution,technical services, product literature, market research,

 

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clinical studies and other sales infrastructurecosts.  A portion of the costs ofproduct implementation coordinators is reimbursed by Abbott, and as result,total net revenues and gross profit include $0.5 million of such reimbursementin each of the nine-month periods ended September 30, 2002 and 2001.  The increase in sales and marketing expensesis primarily attributable to the increase in sales personnel as the Companyprepares to assume primary responsibility for the marketing and sale of itsproducts.   The Company anticipatesfurther personnel additions and increased sales and marketing costs in thecoming quarters.

 

As a result of theCompany’s announcement of its intention to allow the Distribution Agreement toexpire effective December 31, 2003, the Company recorded charges of $52.0million for the nine months ended September 30, 2002 comprised of (a) a $5.0million charge for a one-time termination fee and (b) an aggregate $47.0million for estimated residual payments due to Abbott at the end of each yearfrom 2004 to 2008.

 

The Company incurredgeneral and administrative expenses (as a percentage of total net revenues) of$4.7 million (10.8%) and $5.2 million (12.6%) for the nine months endedSeptember 30, 2002 and 2001, respectively. General and administrative expenses consist primarily of salaries andbenefits of personnel, office costs, legal and other professional fees andother costs necessary to support the Company’s infrastructure.

 

During the nine monthsended September 30, 2002, the Company reassessed its patent and trademarkstrategies.  As a result, the Companyreviewed the valuation of its intangible assets and determined that awrite-down of $1.0 million was required for certain patent and trademarkassets.  The write-down is included inthe Consolidated Statement of Operations as a separate line item.

 

Other (expense) income,net, of ($0.1) million and $0.7 million for the nine months ended September 30,2002 and 2001, primarily reflects interest income earned on cash and cashequivalents and the net impact of foreign currency gains and losses.  EffectiveMay 31, 2002, as a result of repayment of a portion of intercompany debt owedby the Company’s Canadian subsidiary and that subsidiary’s deemed ability torepay the remaining intercompany debt, the Company is required to treat suchintercompany debt as short-term in accordance with SFAS No. 52 “ForeignCurrency Translation.”  SFAS No. 52requires the Company to record the impact of foreign currency gains and losseson short-term intercompany debt in the Company’s results of operations.  Foreign currency losses of $0.6million were recorded for the nine months ended September 30, 2002.  These losses were the result of the impactof the exchange rate between U.S. dollars and Canadian dollars on the debt owedby i-STAT Corporation’s Canadian subsidiary to i-STAT Corporation.  The amount of the gains and losses could bematerial in the event of significant changes in the exchange rate between U.S.dollars and Canadian dollars.

 

During the nine monthsended September 30, 2001, the Company recognized settlement costs of $10.5million related to the settlement of the patent infringement lawsuit with NovaBiomedical Corporation, of which $10.0 million was a settlement payment to Novaand $0.5 million was for retroactive royalties due to Nova based on sales ofcertain products.

 

During the nine monthsended September 30, 2002, the Company recorded accretion of Preferred Stock of$0.3 million and dividends on Preferred Stock of $1.0 million.  The accretion of Preferred Stock relates tothe issuance by the Company of Series D Redeemable Convertible Preferred Stock(the “Series D Stock”) in December of 2001. The accretion recorded by the Company reflects amortization of thedifference between the net fair value at issuance and the redemption (or stated)value of such stock.  The Series D Stockis being accreted over a period of ten years. During the nine months ended September 30, 2001, the Company recordedaccretion of Preferred Stock of $2.6 million related to the issuance by theCompany of Series C Redeemable Convertible Preferred Stock (the “Series CStock”).  In December of 2001, theCompany redeemed all outstanding shares of the Series C Stock.

 

The Series D Stockcarries a dividend of 8%, which is either accrued or paid in cash quarterly, atthe option of the Company.  The dividendon the Series D Stock was recorded at its fair value of $1.0 million for thenine months ended September 30, 2002. The dividend was not paid in cash and its stated value of $1.8 millionwas accrued and added to the carrying value and liquidation preference of theSeries D Stock.  The difference betweenthe stated value and the fair value of the dividend was recorded as a charge toadditional paid-in-capital.

 

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Net loss available toCommon Stockholders for the nine months ended September 30, 2002 was $64.3million, or $3.21 per basic and diluted share, compared with a net loss of$23.2 million, or $1.25 per basic and diluted share for the nine months endedSeptember 30, 2001.  The primary factorscontributing to the increase in net loss were the $52.0 million in chargesrelated to the Distribution Agreement and $2.2 million related to thewrite-down of certain assets.  Theweighted average number of shares used in computing basic and diluted net lossper share was 20,061,384 and 18,618,732 in the 2002 and 2001 periods,respectively.  The increase in theweighted average number of shares primarily reflects the issuance of 1,480,000shares of Common Stock in August 2001 and the exercise of employee stockoptions.

 

**Liquidityand Capital Resources**

 

At September 30, 2002,the Company had cash and cash equivalents of $27.6 million, a decrease of $15.5million from the December 31, 2001 balance of $43.1 million.  The decrease primarily reflects $13.6million of cash used in operating activities as a result of the applicationof  $10.2 million received from Abbottin prior periods to amounts owed by Abbott and the $2.3 million of cash usedfor equipment purchases.  Workingcapital decreased by $6.4 million from $48.1 million to $41.7 million duringthe same period.  Changes in workingcapital during the nine months ended September 30, 2002 were primarilycomprised of the decrease in cash and cash equivalents of $15.5 million and prepaidexpenses and other current assets $1.0 million offset by an increase inaccounts receivable of $6.7 million and a decrease in accounts payable torelated party of $2.7 million.

 

The Company expects itscash and cash equivalents to be sufficient to meet its obligations and itsliquidity and capital requirements for the foreseeable future, including thosepayment obligations to Abbott that result from termination of the DistributionAgreement, as described previously. However, numerous factors may change this expectation, including theresults of the Company’s sales and marketing activities, particularly upon itsresumption of direct marketing and sale of its products, the success of its newproduct development efforts, manufacturing difficulties, manufacturingefficiencies, the results of litigation and other dispute resolutionproceedings, competitive conditions, long-term strategic decisions, and otherfactors listed under “Factors That May Affect Future Results” in the Company’s2001 Annual Report on Form 10-K and its Current Report on Form 8-K datedOctober 9, 2002 on file with the Securities and Exchange Commission.  The Company regularly monitors capitalraising alternatives in order to take advantage of opportunities to supplementits current working capital upon favorable terms, including joint ventures,strategic corporate partnerships or other alliances and the sale of equityand/or debt securities.

 

International sales areinvoiced in U.S. dollars, however, the payment received from internationalpartners, including Abbott, are subject to changes in the value of the U.S.dollar relative to local currencies.  The price paid by customers to our international partners is set inlocal foreign currencies.  Therefore,when the value of foreign currencies changes with respect to the U.S. dollar,the price paid by our partners to us changes due to the foreign exchangeconversion of local currency prices. Price reductions are limited, however, by guaranteed U.S. dollar minimumprices established for each cartridge.

 

The Company’s cartridgemanufacturing is conducted through a wholly-owned subsidiary in Canada.  Most manufacturing labor and overhead costsof this subsidiary are incurred in Canadian dollars, while some raw materialpurchases are made in U.S. dollars.  TheCanadian operation is primarily funded by payments in U.S. dollars made by theU.S. parent Company for cartridges purchased for resale to its customers.  Since most of the cartridge manufacturingexpenses are incurred in Canadian dollars, the cost of products sold andtherefore, the Company’s consolidated results of operations and cash flows canbe impacted by a change in exchange rates between the Canadian dollar and theU.S. dollar.

 

The impact of inflationon the Company’s business has been minimal and is expected to be minimal forthe near-term.

** **

**Contingencies**

 

The Company was a defendant in a caseentitled Nova Biomedical Corporation, Plaintiff v. i-STAT Corporation,Defendant.  The complaint, which wasfiled in the United States District Court for the District of Massachusetts onJune 27, 1995, alleged infringement by the Company of Nova BiomedicalCorporation’s (“Nova”) U.S. Patent No. 4,686,479 (the “Patent”).  In February 1998, the Court entered summaryjudgment in favor of the Company on the issue of patent infringement.  The plaintiff appealed the dismissal to theFederal Circuit.  The Federal Circuitaffirmed two of the grounds of the dismissal (proper interpretation of thePatent and that the Company does not literally infringe), but remanded the caseto the District Court

 

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with instructions to reconsider whetherthe Company’s device performs a certain measurement in a substantiallyequivalent way to a method covered by the Patent, and therefore infringes underthe “doctrine of equivalents.”  On July26, 2001 the Company entered into a license agreement and a settlementagreement with Nova under which the Company agreed to pay Nova $10.5 million,which was recorded as a charge in the second quarter of 2001.  Pursuant to the agreements, $6.5 million waspaid on July 26, 2001, a retroactive royalty of $0.5 million was paid on August14, 2001 for the period of January 1, 2001 through June 30, 2001, and $3.5million plus interest was due to be paid over one year in equal quarterlyinstallments, pursuant to a secured promissory note.  The promissory note was prepaid on August 3, 2001.  The license agreement provides for thepayment to Nova of a royalty equal to 4% of the invoice price of products soldin the United States after January 1, 2001, which products determine hematocritlevels according to any method used by the Company prior to December 31, 2000,as well as any method covered by the Patent. The royalties are payable through the life of the Patent (July 22,2005).  The Company has commercializedproducts that determine hematocrit levels using a method that was not used bythe Company prior to December 31, 2000 and which the Company believes is notcovered by the Patent.  Consequently,the Company does not believe that it owes any additional royalties toNova.  On February 28, 2002, Nova fileda demand for arbitration claiming that the method by which the Company’sproducts determine hematocrit is covered under the Patent and the licenseagreement.  Nova is seeking royaltiesfrom July 1, 2001.  If the Company isunsuccessful in defending its position in the arbitration and does not developnew methods that do not utilize the covered technology, it may be forced tocontinue to pay royalties to Nova through the life of the Patent andapproximately $1.4 million in respect of products sold from July 1, 2001through September 30, 2002.  Anarbitration hearing is scheduled for November 22, 2002.  The Company plans to defend this mattervigorously.

 

The Company and Abbottare in disagreement over the amount of money Abbott is entitled to for thesharing of certain cartridge production cost savings resulting from an increasein sales volume.  This disputed itemrelates to different interpretations of certain terms of the DistributionAgreement.  If this disagreement is notresolved amicably, it must be resolved through binding arbitration asprescribed by the Distribution Agreement. Management of the Company believes that Abbott’s position on this issuein dispute is without merit and that, in the event that this issue issuccessfully resolved through arbitration, the Company will not incur anyadditional liability to Abbott.  Theamount in dispute is approximately $1.2 million at September 30, 2002, and ifthis matter is resolved in favor of Abbott, which management of the Companybelieves is unlikely, the Company’s cost of goods sold would increase by up tothe amount in dispute.  Such adjustmentwould be made when, and if, it is determined that an unfavorable outcome to theCompany is probable.

** **

**Recent Accounting Pronouncements**

 

In May 2002, the Financial AccountingStandards Board (“FASB”) issued SFAS No. 145, “Rescission of SFAS No. 4, 44 and64, Amendment of SFAS 13, and Technical Corrections as of April 2002.”  SFAS No. 145 is effective for fiscal yearsafter May 15, 2002 and is effective for SFAS No. 13 transactions occurringafter May 15, 2002.  This statementrescinds SFAS No. 4 and, thus the exception to applying Accounting PrinciplesBoard Opinion (“APB”) No. 30 to all gains and losses related to extinguishmentsof debt.  As a result, gains and lossesfrom extinguishments of debt are classified as extraordinary items only if theymet the criteria in APB No. 30.  SFASNo. 64 previously amended SFAS No. 4 and is no longer necessary.  This statement also amends SFAS No. 13 torequire sale-leaseback accounting for certain lease modifications that haveeconomic effects that are similar to sale-leaseback transactions.  This statement rescinds SFAS No. 44 andmakes various technical corrections to other existing pronouncements.  The Company does not expect that theadoption of this statement will have a material impact on its financialposition or results of operations.

 

On July 29, 2002, FASB issued SFAS No.146, “Accounting for Costs Associated with Exit or Disposal Activities.”  SFAS No. 146 is effective for exit ordisposal activities that are initiated after December 31, 2002.  This statement addresses financialaccounting and reporting for costs associated with exit or disposal activitiesand nullifies Emerging Issues Task Force (“EITF”) Issue No. 94-3.  “Liability Recognition for Certain EmployeeTermination Benefits and Other Costs to Exit an Activity (including CertainCosts Incurred in Restructuring).”  Thisstatement requires that a liability for a cost associated with an exit ordisposal activity be recognized when the liability is incurred.  Under EITF Issue 94-3, a liability for anexit cost as defined in EITF Issue 94-3 was recognized at the date of anentity’s commitment to an exit plan. Therefore, this statement eliminates the definition and requirements forrecognition of exit costs in EITF Issue 94-3. This statement also establishes that fair value is the objective forinitial measurement of the liability. The Company does not expect that the adoption of this statement willhave a material impact on it financial position or results of operations.

 

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***SPECIAL NOTE ON FORWARD-LOOKING STATEMENTS***

 

***CERTAIN STATEMENTS IN THIS“MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OFOPERATIONS,” MAY RELATE TO FUTURE EVENTS AND EXPECTATIONS AND AS SUCHCONSTITUTE “FORWARD-LOOKING STATEMENTS,” WITHIN THE MEANING OF THE PRIVATESECURITIES LITIGATION REFORM ACT OF 1995. THE WORDS “BELIEVES,” “ANTICIPATES,” “PLANS,” “EXPECTS,” AND SIMILAREXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS.  SUCH FORWARD-LOOKING STATEMENTS INVOLVEKNOWN AND UNKNOWN RISKS, UNCERTAINTIES, AND OTHER FACTORS WHICH MAY CAUSE THEACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS OF THE COMPANY TO BE MATERIALLYDIFFERENT FROM ANY FUTURE RESULTS, PERFORMANCE OR ACHIEVEMENTS EXPRESSED ORIMPLIED BY SUCH FORWARD-LOOKING STATEMENTS AND TO VARY SIGNIFICANTLY FROMREPORTING PERIOD TO REPORTING PERIOD. SUCH FACTORS INCLUDE, AMONG OTHERS, COMPETITION FROM EXISTINGMANUFACTURERS AND MARKETERS OF BLOOD ANALYSIS PRODUCTS WHO HAVE GREATERRESOURCES THAN THE COMPANY, ECONOMIC AND GEOPOLITICAL CONDITIONS AFFECTING THECOMPANY’S TARGET MARKETS, ACTS OF TERRORISM, THE UNCERTAINTY OF NEW PRODUCTDEVELOPMENT INITIATIVES, THE ABILITY TO ATTRACT AND RETAIN KEY SCIENTIFIC,TECHNOLOGICAL AND MANAGEMENT PERSONNEL, DEPENDENCE UPON LIMITED SOURCES FORPRODUCT MANUFACTURING COMPONENTS, UPON A SINGLE MANUFACTURING FACILITY AND UPONINNOVATIVE AND HIGHLY TECHNICAL MANUFACTURING TECHNIQUES, MARKET RESISTANCE TONEW PRODUCTS AND POINT-OF-CARE-BLOOD DIAGNOSIS, INCONSISTENCY IN CUSTOMER ORDERPATTERNS, DOMESTIC AND INTERNATIONAL REGULATORY CONSTRAINTS, UNCERTAINTIES OFINTERNATIONAL TRADE, PENDING AND POTENTIAL DISPUTES CONCERNING OWNERSHIP OFINTELLECTUAL PROPERTY, AVAILABILITY OF CAPITAL UPON FAVORABLE TERMS ANDDEPENDENCE UPON AND CONTRACTUAL RELATIONSHIPS WITH STRATEGIC PARTNERS,PARTICULARLY ABBOTT LABORATORIES.  INADDITION, THE COMPANY’S DECISION TO END ITS ALLIANCE WITH ABBOTT LABORATORIESAND RESUME DIRECT DISTRIBUTION OF ITS PRODUCTS INVOLVES ADDITIONAL RISKS ANDUNCERTAINTIES THAT ARE DIFFICULT TO QUANTIFY AT THIS TIME.  FOR EXAMPLE, THE COMPANY MAY INCUR COSTS ORRECOGNIZE REVENUES IN CONNECTION WITH RESUMING DIRECT DISTRIBUTION THAT AREGREATER OR LESSER, RESPECTIVELY, THAN ANTICIPATED.  SEE ADDITIONAL DISCUSSION UNDER “FACTORS THAT MAY AFFECT FUTURERESULTS” IN THE COMPANY’S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDEDDECEMBER 31, 2001, AND OTHER FACTORS DETAILED FROM TIME TO TIME IN THECOMPANY’S OTHER FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION INCLUDINGWITHOUT LIMITATION ITS CURRENT REPORT ON FORM 8-K DATED OCTOBER 9, 2002.***

 

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**i-STAT CORPORATION**

 

**Controlsand Procedures**

 

The Chief Executive Officer and ChiefFinancial Officer of the Company (its principal officer and principal financialofficer, respectively) have concluded, based on their evaluation as of a datewithin 90 days prior to filing this Report, that the Company’s disclosurecontrols and procedures are effective to ensure that information required to bedisclosed by the Company in the reports filed or submitted by it under the SecuritiesExchange Act of 1934, as amended, is recorded, processed, summarized andreported within the time periods specified in the Securities and ExchangeCommission’s rules and forms, and include controls and procedures designed toensure that information required to be disclosed by the Company in such reportsis accumulated and communicated to the company’s management, including theChief Executive Officer and Chief Financial Officer, as appropriate and allowtimely decisions regarding required disclosure.

 

Therewere no significant changes in the Company’s internal controls or in otherfactors that could significantly affect these controls subsequent to the dateof this evaluation.

 

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**PARTII — OTHER INFORMATION**

 

**Item1. Legal Proceedings**

 

The Company was a defendant in a caseentitled Nova Biomedical Corporation, Plaintiff v. i-STAT Corporation,Defendant.  The complaint, which wasfiled in the United States District Court for the District of Massachusetts onJune 27, 1995, alleged infringement by the Company of Nova BiomedicalCorporation’s (“Nova”) U.S. Patent No. 4,686,479 (the “Patent”).  In February 1998, the Court entered summaryjudgment in favor of the Company on the issue of patent infringement.  The plaintiff appealed the dismissal to theFederal Circuit.  The Federal Circuitaffirmed two of the grounds of the dismissal (proper interpretation of thePatent and that the Company does not literally infringe), but remanded the caseto the District Court with instructions to reconsider whether the Company’sdevice performs a certain measurement in a substantially equivalent way to amethod covered by the Patent, and therefore infringes under the “doctrine ofequivalents.”  On July 26, 2001 theCompany entered into a license agreement and a settlement agreement with Novaunder which the Company agreed to pay Nova $10.5 million, which was recorded asa charge in the second quarter of 2001. Pursuant to the agreements, $6.5 million was paid on July 26, 2001, aretroactive royalty of $0.5 million was paid on August 14, 2001 for the periodof January 1, 2001 through June 30, 2001, and $3.5 million plus interest wasdue to be paid over one year in equal quarterly installments, pursuant to asecured promissory note.  The promissorynote was prepaid on August 3, 2001.  Thelicense agreement provides for the payment to Nova of a royalty equal to 4% ofthe invoice price of products sold in the United States after January 1, 2001,which products determine hematocrit levels according to any method used by theCompany prior to December 31, 2000, as well as any method covered by thePatent.  The royalties are payablethrough the life of the Patent (July 22, 2005).  The Company has commercialized products that determine hematocritlevels using a method that was not used by the Company prior to December 31,2000 and which the Company believes is not covered by the Patent.  Consequently, the Company does not believethat it owes any additional royalties to Nova. On February 28, 2002, Nova filed a demand for arbitration claiming thatthe method by which the Company’s products determine hematocrit is coveredunder the Patent and the license agreement. Nova is seeking royalties from July 1, 2001.  If the Company is unsuccessful in defending its position in thearbitration and does not develop new methods that do not utilize the coveredtechnology, it may be forced to continue to pay royalties to Nova through thelife of the Patent and approximately $1.4 million in respect of products soldfrom July 1, 2001 through September 30, 2002. An arbitration hearing is scheduled for November 22, 2002.  The Company plans to defend this mattervigorously.

 

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**EXHIBIT INDEX**

 

**ITEM6.****             Exhibitsand Reports on Form 8-K**

 

(a)                                  Exhibits

 

3.1                                 RestatedCertificate of Incorporation (Form S-8/S-3 Registration Statement, File No.33-48889)*

 

3.2                                 By-Laws(Form 10-K for fiscal year ended December 31, 1996)*

 

3.3                                 Certificateof Designation, Preferences and Rights of Series A Preferred Stock (Form 8-K,dated July 10, 1995 and amended on September 11, 1995)*

 

3.5                                 Certificateof Designation, Preferences and Rights of Series C Preferred Stock (Form 10-Qfor the quarterly period ended September 30, 2001)*

 

3.6                                 Certificateof Amendment to the Restated Certificate of Incorporation (Form 10-Q for thequarterly period ended September 30, 2001)*

 

3.7                                 Certificateof Designation, Preferences and Rights of Series D Preferred Stock (Form 10-Kfor fiscal year ended December 31, 2001)*

 

4.1                                 StockholderProtection Agreement, dated as of June 26, 1995, between Registrant and FirstFidelity Bank, National Association (Form 8-K, dated July 10, 1995 and amendedon September 11, 1995)*

 

10.57                     EmploymentAgreement between Registrant and Bruce F. Basarab dated August 16, 2002

 

 

*                                         Theseitems are hereby incorporated by reference from the exhibits of the filing orreport indicated (except where noted, Commission File No. 0-19841) and arehereby made a part of this Report

 

(b)                                 Reportson Form 8-K

 

On July 26, 2002the Company filed a current report on Form 8-K attaching press releasespertaining to the notification of its intent to terminate its exclusivemarketing and distribution agreement with Abbott Laboratories and disclosingits financial results for the second quarter of 2002.

 

On October 9,2002, the Company filed a current report on Form 8-K disclosing a slidepresentation made by the management of i-STAT Corporation at an investorconference.

 

On October 25,2002 the Company filed a current report on Form 8-K disclosing its financialresults for the third quarter of 2002.

 

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**SIGNATURES**

 

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

 

 
| DATE:  | November 14, 2002 |   |                                   |
|--------|-------------------|--------|----------------------------------------|
|   |              |   |                                   |
|   |              |   |                                   |
|   |              |   | i-STAT CORPORATION                     |
|   |              |   | (Registrant)                           |   |
|   |              |   |                                   |
|   |              |   |                                   |
|   |              | BY:    | /s/ William P. Moffitt                 |   |
|   |              |   | William P. Moffitt                     |
|   |              |   | President and Chief Executive  Officer |
|   |              |   | (Principal Executive  Officer)         |
|   |              |   |                                   |
|   |              |   |                                   |
|   |              | BY:    | /s/ Lorin J. Randall                   |   |
|   |              |   | Lorin J. Randall                       |
|   |              |   | Senior Vice President  of Finance,     |
|   |              |   | Treasurer and Chief  Financial Officer |
|   |              |   | (Principal Financial  Officer and      |
|   |              |   | Accounting Officer)                    |
|        |                   |        |                                        |  |  |

 

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**CERTIFICATION**

 

I, William P. Moffitt, certify that:

 

1.               Ihave reviewed this quarterly report on Form 10-Q of i-STAT Corporation;

 

2.               Basedon my knowledge, this quarterly report does not contain any untrue statement ofa material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements weremade, not misleading with respect to the period covered by this quarterlyreport;

 

3.               Basedon my knowledge, the financial statements, and other financial informationincluded in this quarterly report, fairly present in all material respects thefinancial condition, results of operation and cash flows of i-STAT Corporationas of, and for, the periods presented in this quarterly report;

 

4.               i-STATCorporation’s other certifying officers and I are responsible for establishingand maintaining disclosure controls and procedures (as defined in Exchange ActRules 13a-14 and 15d-14) for i-STAT Corporation and we have:

 

a)              designedsuch disclosure controls and procedures to ensure that material informationrelating to i-STAT Corporation, including its consolidated subsidiaries, ismade known to us by others within those entities, particularly during the periodin which this quarterly report is being prepared;

 

b)             evaluatedthe effectiveness of i-STAT Corporation’s disclosure controls and procedures asof a date within 90 days prior to the filing date of this quarterly report; and

 

c)              presentedin this quarterly report our conclusions about the effectiveness of thedisclosure controls and procedures based on our evaluation;

 

5.               i-STATCorporation’s other certifying officers and I have disclosed, based on our mostrecent evaluation, to i-STAT Corporation’s auditors and the audit committee ofi-STAT Corporation’s board of directors (or persons performing the equivalentfunction):

 

a)              allsignificant deficiencies in the design or operation of internal controls whichcould adversely affect i-STAT Corporation’s ability to record, process,summarize and report financial data and have identified for i-STATCorporation’s auditors any material weaknesses in internal controls; and

 

b)             anyfraud, whether or not material, that involves management or other employees whohave a significant role in i–STAT Corporation’s internalcontrols; and

 

6.               i-STATCorporation’s other certifying officers and I have indicated in this quarterlyreport whether or not there were significant changes in internal controls or inother factors that could significantly affect internal controls subsequent tothe date of our most recent evaluation, including any corrective actions withregard to significant deficiencies and material weaknesses.

 
| DATE:                                  | November 14, 2002 |   |
|----------------------------------------|-------------------|--------|
|                                   |
| /s/ William P. Moffitt                 |              |
| William P. Moffitt                     |
| President and Chief  Executive Officer |
| (Principal Executive  Officer)         |
|                                        |                   |        |  |

 

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**CERTIFICATION**

 

I, Lorin J. Randall, certify that:

 

1.               Ihave reviewed this quarterly report on Form 10-Q of i-STAT Corporation;

 

2.               Basedon my knowledge, this quarterly report does not contain any untrue statement ofa material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements weremade, not misleading with respect to the period covered by this quarterlyreport;

 

3.               Basedon my knowledge, the financial statements, and other financial informationincluded in this quarterly report, fairly present in all material respects thefinancial condition, results of operation and cash flows of i-STAT Corporationas of, and for, the periods presented in this quarterly report;

 

4.               i-STATCorporation’s other certifying officers and I are responsible for establishingand maintaining disclosure controls and procedures (as defined in Exchange ActRules 13a-14 and 15d-14) for i-STAT Corporation and we have:

 

a)              designedsuch disclosure controls and procedures to ensure that material informationrelating to i-STAT Corporation, including its consolidated subsidiaries, ismade known to us by others within those entities, particularly during theperiod in which this quarterly report is being prepared;

 

b)             evaluatedthe effectiveness of i-STAT Corporation’s disclosure controls and procedures asof a date within 90 days prior to the filing date of this quarterly report; and

 

c)              presentedin this quarterly report our conclusions about the effectiveness of thedisclosure controls and procedures based on our evaluation;

 

5.               i-STATCorporation’s other certifying officers and I have disclosed, based on our mostrecent evaluation, to i-STAT Corporation’s auditors and the audit committee ofi-STAT Corporation’s board of directors (or persons performing the equivalentfunction):

 

a)              allsignificant deficiencies in the design or operation of internal controls whichcould adversely affect i-STAT Corporation’s ability to record, process,summarize and report financial data and have identified for i-STATCorporation’s auditors any material weaknesses in internal controls; and

 

b)             anyfraud, whether or not material, that involves management or other employees whohave a significant role in i–STAT Corporation’s internalcontrols; and

 

6.               i-STATCorporation’s other certifying officers and I have indicated in this quarterlyreport whether or not there were significant changes in internal controls or inother factors that could significantly affect internal controls subsequent tothe date of our most recent evaluation, including any corrective actions withregard to significant deficiencies and material weaknesses.

 
| DATE:                                                 | November 14, 2002 |   |
|-------------------------------------------------------|-------------------|--------|
|                                                  |
| /s/ Lorin J. Randall                                  |              |
| Lorin J. Randall                                      |
| Senior Vice President  of Finance,                    |
| Treasurer and Chief  Financial Officer                |
| (Principal Financial  Officer and Accounting Officer) |
|                                                       |                   |        |  |

 

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