SECURITIES AND EXCHANGE
COMMISSIONWashington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT
TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the quarterly
period ended June 30, 2003

Commission file number
0-19841

i-STAT Corporation(Exact name of
Registrant as specified in its charter)

|                                                                                                  | 
|------------------------------------------------------------------------------------------------- | 
|Delaware                                                                                          | 
|(State or other jurisdiction of                                    incorporation or organization) | 

|                                           | 
|------------------------------------------ | 
|104 Windsor Center Drive, East Windsor, NJ | 
|(Address of Principle Executive Offices)   | 

(609) 443-9300 (Registrants
telephone number, including area code)

| | Indicate
by check mark whether the Registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the Registrant was required to file such reports) and
(2) has been subject to such filing requirements for the past 90 days.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Yes
___X____ No_______
| | ----------------------

| | Indicate
by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of
the Act)
| | -----------------------------------------------------------------------------------------------------------

| | Yes
___X___No______
| | -------------------

| | The number of shares outstanding of each Issuer's classes of Common Stock as of the latest
practicable date.
| | ------------------------------------------------------------------------------------------------------------

|Class | August 1, 2003
|----- | --------------

|Common Stock, $0.15 par value | 20,138,831
|----------------------------- | ----------

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i-STAT CORPORATION

TABLE OF CONTENTS

PART I        FINANCIAL INFORMATION

Item 1.     Financial Statements











PART II        OTHER INFORMATION







2

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# i-STAT Corporation
                                            CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS(In thousands of
dollars, except share and per share data)(unaudited)

|                                     |  |  |   |                    |   |   |                  |         
|------------------------------------ |  |  | - | ------------------ | - | - | ---------------- | --------
|
|
|
|                                     |  |  |   | Three Months Ended |   |   | Six Months Ended |         
|                                     |  |  |   | June 30,           |   |   |                  | June 30,
|                                     |  |  |   |                    |   |   |                  |         
|                                     |  |  |   |                    |   |   |                  |         
|                                     |  |  |   | 2003               |   |   | 2002             |         
|Net revenues:                        |  | 
|Related party net revenues           |  |  | $ | 14,447             |   | $ | 12,376           |         
|Third party net revenues             |  |  |   | 2,458              |   |   | 2,229            |         
|Other related party net revenues     |  |  |   | 175                |   |   | 175              |         
|                                     |  |  |   |                    |   |   |                  |         
|Total net revenues                   |  |  |   | 17,080             |   |   | 14,780           |         
|                                    
|Cost of net revenues                 |  |  |   | 13,351             |   |   | 12,198           |         
|                                     |  |  |   |                    |   |   |                  |         
|Gross margin on total net revenues   |  |  |   | 3,729              |   |   | 2,582            |         
|                                    
|Operating expenses:                  |  | 
|Research and development             |  |  |   | 1,731              |   |   | 1,891            |         
|Sales and marketing                  |  |  |   | 3,158              |   |   | 2,417            |         
|General and administrative           |  |  |   | 2,008              |   |   | 2,171            |         
|                                     |  |  |   |                    |   |   |                  |         
|Total operating expenses             |  |  |   | 6,897              |   |   | 6,479            |         
|                                     |  |  |   |                    |   |   |                  |         
|                                    
|Operating loss                       |  |  |   | (3,168)            |   |   | (3,897)          |         
|                                     |  |  |   |                    |   |   |                  |         
|Other income, net                    |  |  |   | 1,582              |   |   | 322              |         
|                                     |  |  |   |                    |   |   |                  |         
|                                    
|Net loss                             |  |  |   | ( 1,586)           |   |   | (3,575)          |         
|                                    
|Accretion of Preferred Stock         |  |  |   | (113)              |   |   | (111)            |         
|Dividends on Preferred Stock         |  |  |   | (734)              |   |   | (274)            |         
|                                     |  |  |   |                    |   |   |                  |         
|Net loss available to                |  | 
|Common Stockholders                  |  |  |   | ($     2,433       | ) |   | ($     3,960     | )       
|                                     |  |  |   |                    |   |   |                  |         
|Basic and diluted net loss per share |  | 
|available to Common Stockholders     |  |  |   | ($     0.12)       |   |   | ($     0.20)     |         
|                                     |  |  |   |                    |   |   |                  |         
|Shares used in computing basic and   |  | 
|diluted net loss per share available |  | 
|to Common Stockholders               |  |  |   | 20,117,555         |   |   | 20,084,703       |         
|                                     |  |  |   |                    |   |   |                  |         

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

3

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# i-STAT CORPORATION
                                                 CONSOLIDATED CONDENSED BALANCE SHEETS (In thousands of
dollars, except share and per share data)(unaudited)

|                                                                        |  | 
|----------------------------------------------------------------------- |  | 
|                                                                        |  | 
|Assets                                                                  |  | 
|Current assets:                                                         |  | 
|Cash and cash equivalents                                               |  | 
|Martketable securities, current                                         |  | 
|Accounts receivable from related party, net                             |  | 
|Accounts receivable, net                                                |  | 
|Inventories (Note 2)                                                    |  | 
|Prepaid expenses and other current assets                               |  | 
|                                                                        |  | 
|Total current assets                                                    |  | 
|Martketable securities, long-term                                       |  | 
|Plant and equipment, net of accumulated depreciation of $42,864 as      |  | 
|of June 30, 2003 and $36,130 as of December 31, 2002                    |  | 
|Other assets                                                            |  | 
|                                                                        |  | 
|Total assets                                                            |  | 
|                                                                        |  | 
|Liabilities, Redeemable Preferred Stock and Stockholders' Deficit       |  | 
|Current liabilities:                                                    |  | 
|Accounts payable                                                        |  | 
|Accrued expenses                                                        |  | 
|Related party liability, current                                        |  | 
|Deferred revenue, current                                               |  | 
|                                                                        |  | 
|Total current liabilities                                               |  | 
|Deferred revenue, non-current                                           |  | 
|Related party liability, non-current (Note 4)                           |  | 
|                                                                        |  | 
|Total liabilities                                                       |  | 
|                                                                        |  | 
|Series D Redeemable Convertible Preferred Stock, liquidation value      |  | 
|of $34,003 as of June 30, 2003 and $32,617 as of December 31, 2002      |  | 
|Stockholders' deficit:                                                  |  | 
|Preferred Stock, $0.10 par value, shares authorized 7,000,000:          |  | 
|Series A Junior Participating Preferred Stock, $0.10 par                |  | 
|value, 1,500,000 shares authorized; none issued                         |  | 
|Series C Convertible Preferred Stock, 25,000 shares                     |  | 
|authorized; none issued                                                 |  | 
|Common Stock, $0.15 par value, 50,000,000 shares authorized;            |  | 
|20,178,773 and 20,157,927 shares issued;                                |  | 
|and 20,137,956 and 20,117,110 shares outstanding                        |  | 
|as of June 30, 2003 and December 31, 2002, respectively                 |  | 
|Treasury Stock, at cost, 40,817 shares                                  |  | 
|Additional paid-in capital                                              |  | 
|Loan to officer                                                         |  | 
|Accumulated deficit                                                     |  | 
|Accumulated other comprehensive loss                                    |  | 
|                                                                        |  | 
|Total stockholders' deficit                                             |  | 
|                                                                        |  | 
|Total liabilities, redeemable preferred stock and stockholders' deficit |  | 
|                                                                        |  | 

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

4

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# i-STAT CORPORATION
                                            CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (In thousands of dollars)
(unaudited)

|                                                    |  | Six Months Ended |  
|--------------------------------------------------- |  | ---------------- | -
|
|                                                    |  |                  |  
|Cash flows from operating activities:               |  |                 
|Net loss                                            |  |                  |  
|Adjustment to reconcile net loss to net cash        |  |                 
|provided by (used in) operating activities          |  |                  |  
|Change in assets and liabilities                    |  |                  |  
|                                                    |  |                  |  
|Net cash provided by (used in) operating activities |  |                  |  
|                                                    |  |                  |  
|                                                   
|Cash flows from investing activities:               |  |                 
|Purchases of marketable securities                  |  |                  |  
|Maturities of marketable securities                 |  |                  |  
|Purchases of equipment                              |  |                  |  
|Other                                               |  |                  |  
|                                                    |  |                  |  
|Net cash used in investing activities               |  |                  |  
|                                                    |  |                  |  
|                                                   
|Cash flows from financing activities:               |  |                 
|Proceeds from stock options exercised               |  |                  |  
|Expenses related to private placement of Series D   |  |                 
|Redeemable Convertible Preferred Stock              |  |                 
|and Warrants                                        |  |                  |  
|                                                    |  |                  |  
|Net cash provided by financing activities           |  |                  |  
|                                                    |  |                  |  
|                                                   
|Effect of currency exchange rate changes on cash    |  |                  |  
|                                                    |  |                  |  
|Net decrease in cash and cash equivalents           |  |                  |  
|                                                    |  |                  |  
|Cash and cash equivalents at beginning of period    |  |                  |  
|                                                    |  |                  |  
|Cash and cash equivalents at end of period          |  |                  | $
|                                                    |  |                  |  

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

5

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# i-STAT CorporationNOTES TO CONSOLIDATED
CONDENSED FINANCIAL STATEMENTS

(unaudited)

# 1.                  General

Basis
of Presentation

| | The
information presented as of June 30, 2003, and for the three months and six months ended
June 30, 2003 and 2002, is unaudited, but includes all adjustments (consisting of normal
recurring accruals except for the inventory adjustment that was recorded in the first
quarter of 2002, see Note 2) which the management of i-STAT Corporation (the
Company) believes to be necessary for the fair presentation of results for the
periods presented. The results for the interim periods are not necessarily indicative of
results to be expected for the year. The December 31, 2002 consolidated condensed balance
sheet data was derived from the audited financial statements, but does not include all
disclosures required by generally accepted accounting principles. These consolidated
condensed financial statements should be read in conjunction with the Companys
audited financial statements for the year ended December 31, 2002, including the notes
thereto, which were included as part of the Companys Annual Report on Form 10-K,
File No. 0-19841.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Reclassification

| | Certain
reclassifications have been made to the 2002 amounts in order to conform them to the 2003
presentation.
| | ---------------------------------------------------------------------------------------------------------------

Marketable
Securities

| | Marketable
securities, current and long-term, consist of fixed-income investments in United States
Treasury securities with a maturity of greater than three months from the date of
purchase. The Company applies Statement of Financial Accounting Standards
(SFAS) No. 115 Accounting for Certain Investments in Debt and Equity
Securities to its investments in marketable securities. The Companys
marketable securities are classified as held-to-maturity and are recorded at amortized
cost.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | At
June 30, 2003, marketable securities consisted of the following:
| | -------------------------------------------------------------------

|                                     | Amortized Cost | Market Value | Unrealized Gain
|------------------------------------ | -------------- | ------------ | ---------------
|
|                                    
|U.S. Treasury securities - current   |                |              | $              
|U.S. Treasury securities - long-term |                |              |                
|                                     |                |              |                
|                                     |                |              | $              
|                                     |                |              |                

Basic
and Diluted Loss per Share

| | Basic
loss per share is computed by dividing net loss available to common stockholders by the
weighted average number of Common Shares outstanding for the period. Diluted loss per
share reflects the potential dilution that could occur if securities or other contracts to
issue Common Stock were exercised or converted into Common Stock or resulted in the
issuance of Common Stock that then shared in the earnings of the Company. The Company has
not included potentially dilutive Common Shares in the diluted per-share computation for
the periods presented, as the result is antidilutive due to the Companys net loss.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Options
to purchase 4,006,467 shares of common stock at $2.24  $32.58 per share, which
expire on various dates from January 2004 to June 2013, were outstanding at June 30, 2003.
In addition, warrants to purchase 1,875,357.5 shares of Common Stock at $8.00 per share
were outstanding at June 30, 2003. The options and warrants were not included in the
computation of diluted loss per share because the effect would be antidilutive (i.e.,
decrease the net loss per share) due to the Companys net loss.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

6

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Comprehensive
Income

| | SFAS
No. 130, Reporting Comprehensive Income, requires certain items to be included
in other comprehensive income. The only component of accumulated other comprehensive
income (loss) for the Company is foreign currency translation adjustments resulting from
the translation of the financial statements of the Companys foreign subsidiaries.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                   |  |  |  |                    |  |  |                           |             
|---------------------------------- |  |  |  | ------------------ |  |  | ------------------------- | ------------
|                                   |  |  |  | Three Months Ended |  |  | Six                       | Months Ended
|                                   |  |  |  | June 30,           |  |  |                           | June 30,    
|                                   |  |  |  |                    |  |  |                           |             
|                                   |  |  |  |                    |  |  |                           |             
|                                   |  |  |  | 2003               |  |  | 2002                      |             
|                                   |  |  |  |                    |  |  | (in thousands of dollars) |             
|                                   |  |  |  |                    |  |  |                           |             
|Net loss                           |  |  |  | ($1,586)           |  |  | ($3,575)                  |             
|Other comprehensive income (loss): |  |  |  |                    |  |  |                           |             
|Foreign currency translation       |  |  |  | (235)              |  |  | 729                       |             
|                                   |  |  |  |                    |  |  |                           |             
|Comprehensive loss                 |  |  |  | ($1,821)           |  |  | ($2,846)                  |             
|                                   |  |  |  |                    |  |  |                           |             

Foreign
Currency Translation/Transactions

| | In
general, balance sheet amounts from the Companys foreign subsidiaries have been
translated using exchange rates in effect at the balance sheet dates and the resulting
translation adjustments have been included in the accumulated other comprehensive loss as
a separate component of Consolidated Stockholders Deficit. The Statements of
Operations from the Companys foreign subsidiaries have been translated using the
average monthly exchange rates in effect during each period presented.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Effective
May 31, 2002, as a result of repayment of a portion of intercompany debt owed by the
Companys Canadian subsidiary and that subsidiarys deemed ability and intent to
repay the remaining intercompany debt, the Company is required to treat such intercompany
debt as short-term in accordance with SFAS No. 52 Foreign Currency
Translation. SFAS No. 52 requires the Company to record the impact of foreign
currency gains and losses on short-term intercompany debt in the Companys results of
operations. Foreign currency gains of $1.4 million and $0.1 million were recorded in
Other income, net for the three months ended June 30, 2003 and 2002,
respectively and $2.7 million and $0.1 million were recorded for the six months ended June
30, 2003 and 2002, respectively. These gains were primarily the result of the impact of
the exchange rate between U.S. dollars and Canadian dollars on the debt owed by the
Companys Canadian subsidiary to the Company.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Stock
Based Compensation

| | The
Company applies the provisions of Accounting Principles Board Opinion No. 25 (APB
25) and related interpretations in accounting for its stock based compensation
plans. Accordingly, compensation expense has been recognized in the financial statements
in respect to the above plans to the extent that the fair market value of the
Companys Common Stock exceeds the exercise price of the stock option on the date of
grant. During the six months ended June 30, 2003, there were no stock options granted with
exercise prices below the fair market value of the Companys Common Stock on the date
of grant. Had compensation costs for the above plans been determined based on the fair
value at the grant dates for awards under those plans consistent with the method of SFAS
No. 123, Accounting for Stock Based Compensation, the Companys net loss
and net loss per share would have been increased to the following pro forma amounts:
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

7

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|                                                        |  |  |  |                    |  |  |                           |             
|------------------------------------------------------- |  |  |  | ------------------ |  |  | ------------------------- | ------------
|                                                        |  |  |  | Three Months Ended |  |  | Six                       | Months Ended
|                                                        |  |  |  | June 30,           |  |  |                           | June 30,    
|                                                        |  |  |  |                    |  |  |                           |             
|                                                        |  |  |  |                    |  |  |                           |             
|                                                        |  |  |  | 2003               |  |  | 2002                      |             
|                                                        |  |  |  |                    |  |  | (in thousands of dollars) |             
|                                                        |  |  |  |                    |  |  |                           |             
|Reported net loss available to Common      Stockholders |  |  |  | ($2,433)           |  |  | ($3,960)                  |             
|Proforma compensation expense under      SFAS 123       |  |  |  | ($894)             |  |  | ($932)                    |             
|Proforma net loss available to Common      Stockholders |  |  |  | ($3,327)           |  |  | ($4,892)                  |             
|Reported basic and diluted net loss per      share      |  |  |  | ($0.12)            |  |  | ($0.20)                   |             
|Proforman basic and diluted net loss per      share     |  |  |  | ($0.17)            |  |  | ($0.24)                   |             

| | As
stock options vest over a varying number of years, and awards are generally made each
year, the proforma impacts shown here may not be representative of future pro forma
expense amounts due to the annual grant of stock options by the Company. The proforma
additional compensation expense of $0.9 million for each of the quarters ended June 30,
2003 and 2002, and $1.8 million and $2.2 million for the six months ended June 30, 2003
and 2002, respectively, was calculated based on the fair value of each stock option grant
using the Black-Scholes model with the following weighted average assumptions used for
grants:
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                        |  |  |  |                    |  |  |         |             
|----------------------- |  |  |  | ------------------ |  |  | ------- | ------------
|                        |  |  |  | Three Months Ended |  |  | Six     | Months Ended
|                        |  |  |  | June 30,           |  |  |         | June 30,    
|                        |  |  |  |                    |  |  |         |             
|                        |  |  |  |                    |  |  |         |             
|                        |  |  |  | 2003               |  |  | 2002    |             
|                        |  |  |  |                    |  |  |         |             
|Dividend yield          |  |  |  | 0%                 |  |  | 0%      |             
|Expected volatility     |  |  |  | 66.47%             |  |  | 64.81%  |             
|Risk free interest rate |  |  |  | 2.73%              |  |  | 4.47%   |             
|Expected option lives   |  |  |  | 6 years            |  |  | 6 years |             

Recently
Issued Accounting Pronouncements:

| | In
May 2003, the Financial Accounting Standards Board (FASB) issued SFAS No. 150,
Accounting for Certain Financial Instruments with Characteristics of Both
Liabilities and Equity. SFAS No. 150 is effective for financial instruments entered
into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June
15, 2003, which is the third quarter for the Company. This Statement addresses how certain
financial instruments with characteristics of both liabilities and equity are to be
measured and classified. As a result of this new pronouncement, the Company will classify
the Series D Redeemable Convertible Preferred Stock in the liabilities section of its
balance sheet, commencing with the quarterly report as of September 30, 2003.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

8

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2.                   Inventories

| | Inventories
consist of the following:
| | -------------------------------------

|                | June 30, 2003 | December 31, 2002
|--------------- | ------------- | -----------------
|
|
|               
|Raw materials   |               |                  
|Work-in-process |               |                  
|Finished goods  |               |                  
|                |               |                  
|                |               |                  
|                |               |                  

| | In
the first quarter of 2002, the Company recorded a charge to cost of net revenues of $1.6
million related to the write-off of certain cartridges in inventory and the replacement of
certain cartridges in the field that exhibited a higher than usual quality check rejection
rate.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# 3.               Commitments and
Contingencies

| | The
Company and Abbott Laboratories (Abbott) are in disagreement over the amount
of money Abbott is entitled to for the sharing of certain cartridge production cost
savings resulting from increases in the volume of cartridges sold during the term of the
Abbott Marketing and Distribution Agreement (the Abbott Distribution
Agreement). This dispute relates to different interpretations of certain terms of
the Abbott Distribution Agreement. Additionally, the Company and Abbott are in
disagreement over the amount of money the Company is entitled to for the development,
production, maintenance and support of certain software products sold by Abbott during the
term of the Abbott Distribution Agreement. If these disagreements are not resolved
amicably, the Abbott Distribution Agreement states that they must be resolved through
binding arbitration. Management of the Company believes that Abbotts position on
both of these issues in dispute is without merit and that, in the event that these issues
are resolved through arbitration, the Company will not incur any additional liability to
Abbott and may receive payments from Abbott. The contested amount regarding the sharing of
certain cartridge production cost savings resulting from an increase in sales volume
during the term of the Abbott Distribution Agreement is approximately $1.4 million at June 30,
2003, and if this matter is resolved in favor of Abbott, which management of the Company
believes is unlikely, the Companys cost of goods sold would increase by up to the
amount in dispute. The contested amount regarding payment for the development, production,
maintenance, and support of certain software sold by Abbott during the term of the Abbott
Distribution Agreement is approximately $0.9 million at June 30, 2003, and if this matter
is resolved in favor of the Company, the Companys revenue would increase by up to
the amount in dispute. The adjustment in the cost of goods sold would be made when, and
if, it is determined that an unfavorable outcome to the Company is probable, and the
adjustment in revenue would be made when payment is received by the Company.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# 4.               Related Party
Transactions

| | On
July 25, 2002, the Company announced its decision to allow the Abbott Distribution
Agreement to expire effective December 31, 2003. As a result, the Company is obligated to
make the following payments to Abbott on the dates noted: (a) on December 31, 2003, a $5.0
million one-time termination fee, (b) on December 31, 2003, approximately $5.0 million
representing the unrecognized portion of a $25.0 million prepayment received from Abbott,
(c) early in 2004, approximately $2.0 million to repurchase inventory and equipment from
Abbott, and (d) on December 31, 2004, and on each December 31 thereafter through 2008, for
a total of five unequal residual payments based upon Abbotts net sales of the
Companys products during 2003, approximately $47.0 million in the aggregate. The
Company recognized the $5.0 million one-time termination fee and the $47.0 million in
estimated residual payments as expense in the third quarter of 2002.  Since the Abbott residual payments are based on Abbotts actual net sales during
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

9

---

| | 2003, the estimated liability for these residual payments may change as the actual net sales become
known. There was no change made to the aggregate amount of the estimated liability in
the first or second quarters of 2003. These charges had a material impact on the Companys
results of operations and these payments will have a material impact on the Companys
future cash flows.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company recorded $14.4 million and $12.4 million of net
product sales to Abbott during the three months ended June 30, 2003 and 2002,
respectively, and $27.4 million and $23.9 million of net
product sales during the six-months ended June 30, 2003 and 2002, respectively. Other
related party revenues from Abbott were $0.2 million in each of the
three-month periods ended June 30, 2003 and 2002 and $0.4 million in each of the six month
periods ended June 30, 2003. The other related party revenues from Abbott consist of
amounts reimbursed by Abbott for services performed by the Companys implementation
coordinators.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# 5.               FUSO Pharmaceutical
Industries, Ltd. (FUSO) Distribution Agreement

| | In
January 2003, the Company and FUSO entered into a new Distribution Agreement (the
FUSO Distribution Agreement). The FUSO Distribution Agreement extends
FUSOs current non-exclusive distribution rights in Japan through December 31, 2003
and grants exclusive distribution rights in Japan from January 1, 2004 through December
31, 2008, subject to FUSO meeting certain sales milestones. During the first quarter of
2003, FUSO paid $2.0 million for marketing support throughout the exclusive term of the
FUSO Distribution Agreement. The $2.0 million payment is included in cash and cash
equivalents. The $2.0 million payment is refundable under certain circumstances until the
exclusive term of the FUSO Distribution Agreement takes effect January 1, 2004. The $2.0
million payment will be recognized as revenue over the five-year term of the FUSO
Distribution Agreement at the rate of $0.1 million per quarter. In addition, the FUSO
Distribution Agreement requires that FUSO pay an additional $11.0 million in October 2003
as a prepayment for future purchases of cartridges.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# 6.                Stock Options

Option
Program Description

| | As
incentives to Company personnel and others, the Board of Directors from time to time
grants stock options to purchase shares of the Companys Common Stock. Most options
are granted under the 1985 Stock Option Plan or Equity Incentive Plan (the
Plans). Both Plans have been approved by the Companys stockholders. The
maximum number of issuable shares of Common Stock under the Plans is 7,300,000 of which
1,550,724 are available for grant at June 30, 2003. Stock options under the 1985 Stock
Option Plan can be granted until November 26, 2005, and stock options under the Equity
Incentive Plan can be granted until March 31, 2008. The exercise price of a stock option
is generally based upon the fair market value of the Companys Common Stock at the
time of the grant, as determined by utilizing the closing price of the Companys
Common Stock on the day prior to the date of grant. In general, the Company issues stock
options that vest annually over a period of at least three years but not longer than five
years. In addition, the Company has in the past, and may in the future, issue stock
options with performance-based acceleration provisions. Acceleration of vesting can only
occur if certain clearly defined and objective goals are met. These stock options with
accelerated vesting are treated as fixed awards in accordance with APB 25 and FASB
Interpretation No. 44. Unexercised options issued under the Plans generally expire ten
years from the date of grant or three months following termination of the optionees
employment, whichever occurs first.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

10

---

General
Option Information

| | The table below is a summary of stock option activity for the six months ended June 30, 2003.
| | ---------------------------------------------------------------------------------------------

|                                 |  | Options   |  | Option
Activity |   | Weighted
Average
Exercise Price
per Share |       | Weighted
Average
Black-Scholes
Value per Option
|-------------------------------- |  | --------- |  | --------------- | - | ----------------------------------------- | ----- | -----------------------------------------------
|Outstanding at December 31, 2002 |  | 4,222,028 |  |                 |   | $                                         | 9.18  |                                                
|Exercisable at December 31, 2002 |  | 1,592,672 |  |                 |   | $                                         | 11.97 |                                                
|2003 Activity:                   |  |           |  |                 |   |                                           |       |                                                
|Options granted                  |  |           |  | 294,159         |   | $                                         | 4.43  |                                                
|Options exercised                |  |           |  | (614            | ) | $                                         | 6.44  |                                                
|Options forfeited                |  |           |  | (467,391        | ) | $                                         | 17.48 |                                                
|Options expired                  |  |           |  | (41,715         | ) | $                                         | 8.88  |                                                
|Outstanding at June 30, 2003     |  | 4,006,467 |  |                 |   | $                                         | 7.86  |                                                
|Exercisable at June 30, 2003     |  | 1,910,624 |  |                 |   | $                                         | 10.41 |                                                

| | 
| | 

| | The
weighted average remaining contractual lives of outstanding options at June 30, 2003 was
approximately 7.32 years.
| | ----------------------------------------------------------------------------------------------------------------------

| | The following table summarizes information about stock options outstanding at June 30,
2003.
| | --------------------------------------------------------------------------------------------

|                          |               | Options Outstanding |           | Options Exercisable
|------------------------- | ------------- | ------------------- | --------- | -------------------
|
|In the Money Options (1): |               |                     |           |                    
|                          | $2.24$4.41   |                     | 1,192,739 |                    
|                          | $5.07$8.63   |                     | 1,366,041 |                    
|Out of the Money Options: |               |                     |           |                    
|                          | $8.88$10.13  |                     | 656,965   |                    
|                          | $11.81$17.96 |                     | 589,297   |                    
|                          | $21.00$32.58 |                     | 201,425   |                    
|                          |               |                     |           |                    
|                          | $2.24$32.58  |                     | 4,006,467 |                    
|                          |               |                     |           |                    

(1) In-the-money options are those
options with an exercise price less than the fair market value closing price of $8.82 at
the end of the quarter.

11

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Options
Granted to Executive Officers

| | The following table details option grants to executive officers during the six months ended June 30, 2003:
| | ----------------------------------------------------------------------------------------------------------

Individual Grants

|                   |  |  |        |  |      |   |   |            |  | Potential Realizable
Value at
Assumed Annual
Rates of Stock
Price Appreciation
for Option Term ($)
|------------------ |  |  | ------ |  | ---- | - | - | ---------- |  | --------------------------------------------------------------------------------------------------
|
|
|
|
|William P. Moffitt |  |  |       |  |     |   |   |           |  |                                                                                                   
|Bruce F. Basarab   |  |  | 6,219  |  | 2.11 | % | $ | 3.87/Share |  |                                                                                                   
|Noah Kroloff       |  |  | 6,468  |  | 2.20 | % | $ | 3.87/Share |  |                                                                                                   
|Lorin J. Randall   |  |  | 10,883 |  | 3.70 | % | $ | 3.87/Share |  |                                                                                                   
|Michael Zelin      |  |  |       |  |     |   |   |           |  |                                                                                                   

| | The following table details option exercises during the six months ended June 30, 2003 and remaining holdings of executive
officers:
| | ------------------------------------------------------------------------------------------------------------------------------------

|                   |  |   |  |   |  | Number of Securities
Underlying Outstanding
Options at June 
30, 2003 |  | Values of Outstanding
In-the-Money Options
at June 30,
2003
|------------------ |  | - |  | - |  | --------------------------------------------------------------------- |  | -----------------------------------------------------------
|
|
|
|William P. Moffitt |  |  |  |  |  | 129,456                                                               |  | 342,235                                                    
|Bruce F. Basarab   |  |  |  |  |  |                                                                      |  | 126,219                                                    
|Noah Kroloff       |  |  |  |  |  | 142,605                                                               |  | 85,778                                                     
|Lorin J. Randall   |  |  |  |  |  | 5,000                                                                 |  | 90,883                                                     
|Michael Zelin      |  |  |  |  |  | 180,788                                                               |  | 161,082                                                    

12

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# i-STAT CorporationMANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

# General

i-STAT Corporation
(i-STAT or the Company) was incorporated in Delaware in 1983.
Together with its wholly-owned subsidiaries, i-STAT Europe, i-STAT Canada Limited and
i-STAT Limited, the Company develops, manufactures and markets medical diagnostic products
for blood analysis that provide health care professionals with immediate and accurate
critical, diagnostic information at the point of patient care.

The
Companys current products, known as the i-STAT® System,
consist of portable, hand-held analyzers and single-use, disposable cartridges, the
majority of which simultaneously perform different combinations of commonly ordered blood
tests in approximately two to three minutes. Coagulation and immunoassay tests take longer
than two to three minutes because of the nature of these tests. The i-STAT System
requires the user to perform several simple steps, the results of which can be easily
linked by infrared transmission to a health care providers information system. The
i-STAT System also includes peripheral components that enable the results of tests
to be transmitted by infrared means to both a proprietary information system for managing
the users point-of-care testing program and to the users information systems
for billing and archiving. The Company intends for the i-STAT System to become the
standard of care for blood analysis at the point of patient care, enabling rapid clinical
intervention, improved patient outcomes, and lower operational costs.

The
i-STAT System currently performs blood tests for sodium, potassium, chloride,
glucose, creatinine, urea nitrogen, hematocrit, ionized calcium, lactate,
Celite® ACT (activated clotting time), Prothrombin time, arterial blood
gases (pH, PCO2 and PO2), and bicarbonate, and derives certain other values,
such as total carbon dioxide, base excess, anion gap, hemoglobin and O2saturation, by calculation from the tests performed. The Company continues to engage
in research and development in order to improve its existing products and develop new
products based on the i-STAT System technology. During the fourth quarter of 2002,
the Company submitted a 510(k) filing with the Food and Drug Administration (the
FDA) for a cartridge that performs the kaolin-based activated clotting time
(kaolin ACT) test. Following a formal notification of deficiencies in the submission, the
Company responded addressing the issues raised by the FDA. While the Company believes that
submission of its responses and a conclusion to the FDA review will result in clearance to
market its kaolin ACT test, there can be no assurance that such clearance will occur. In
June 2003, the Company submitted a 510(k) application for its first immunoassay test, a test
for troponin I, a cardiac marker capable of indicating the degree of heart muscle damage.
Subject to regulatory clearance, the Company expects to begin commercial introduction of
its troponin I test in the second half of 2003.

Prior
to November 1, 1998, the Company marketed and distributed its products in the United
States and Canada principally through its own direct sales and marketing organization, in
Japan through FUSO Pharmaceutical Industries, Ltd. (FUSO), in Europe through
Hewlett-Packard Company and in Mexico, South America, China, Australia, and certain other
Asian and Pacific Rim countries, through selected distribution channels. Since November
1998, Abbott Laboratories (Abbott) has become, subject to certain pre-existing
rights of the Companys other international distributors, the exclusive worldwide
distributor of the Companys existing products and any new products the Company may
develop for use in the professionally attended human healthcare delivery market during the
term of the Abbott Marketing and Distribution Agreement (the Abbott Distribution
Agreement). The majority of the Companys net revenues are currently derived
from Abbott.

On
July 25, 2002, the Company announced its decision to allow the Abbott Distribution
Agreement to expire effective December 31, 2003. As a result, the Company is obligated to
make the following payments to Abbott on the dates noted: (a) on December 31, 2003, a $5.0
million one-time termination fee, (b) on December 31, 2003, approximately $5.0 million
representing the unrecognized portion of a $25.0 million prepayment received from Abbott,
(c) early in 2004, approximately $2.0 million to repurchase inventory and equipment from
Abbott, and (d) on December 31, 2004, and on each December 31 thereafter through 2008, for
a total of five unequal residual payments based upon Abbotts net sales of the
Companys products during 2003, approximately $47.0 million in the aggregate. The
Company recognized the $5.0 million one-time termination fee and the $47.0 million in
estimated residual payments as expense in the third quarter of 2002. Since the Abbott
residual payments are based on

13

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Abbotts actual net sales
during 2003, the estimated liability for these residual payments may change as the actual
net sales become known. There was no change made to the aggregate amount of the
estimated liability in the first or second quarters of 2003. These charges had a material
impact on the Companys results of operations and these payments will have a
material impact on the Companys future cash flows. The Company anticipates that the
profit margins presently being earned by Abbott as a result of the sale of the Companys
products will be earned by the Company commencing January 1, 2004, and will provide the
Company with the sufficient cash to fund these payments to Abbott.

The
Company has begun to take actions to assume primary responsibility for the marketing and
sale of its products, effective January 1, 2004. These actions have included hiring
additional sales personnel, a vice president of medical affairs, an executive vice
president of commercial operations, a director of marketing, and a general manager in
Europe. The Company anticipates further additions of sales and marketing personnel during
2003. In April 2003, the Company created i-STAT Ltd., a wholly-owned subisidiary located
in England, that will facilitate direct sales to customers in certain countries in Europe
starting in 2004. The Company will incur additional costs and may recognize lower unit
sales than anticipated as a result of resuming direct distribution of its products, the
combination of which may adversely impact the Companys future results of operations
and cash flows.

In
January 2003, the Company and FUSO entered into a new Distribution Agreement (the
FUSO Distribution Agreement). The FUSO Distribution Agreement extends
FUSOs current non-exclusive distribution rights in Japan through December 31, 2003
and grants exclusive distribution rights in Japan from January 1, 2004 through December
31, 2008, subject to FUSO meeting certain sales milestones. During the first quarter of
2003, FUSO paid $2.0 million for marketing support throughout the exclusive term of the
FUSO Distribution Agreement. The $2.0 million payment is included in cash and cash
equivalents. The $2.0 million payment is refundable under certain circumstances until the
exclusive term of the FUSO Distribution Agreement takes effect January 1, 2004. The $2.0
million payment will be recognized as revenue over the five-year term of the FUSO
Distribution Agreement at a rate of $0.1 milion per quarter. In addition, the FUSO
Distribution Agreement requires that FUSO pay an additional $11.0 million in October 2003
as a prepayment that will be offset against future purchases of cartridges.

# Results of Operations

Three
Months Ended June 30, 2003

The
Company generated total net revenues of $17.1 million and $14.8 million for the three
months ended June 30, 2003 and 2002, respectively, including international net revenues
(as a percentage of total net revenues) of $5.6 million (32.8%) and $3.9 million (26.1%),
respectively. Total net revenues from Abbott represented 85.6% and 84.9% of the
Companys worldwide total net revenues for the three months ended June 30, 2003 and
2002, respectively.

The
$2.3 million, or 15.6%, increase in total net revenues was primarily due to increased
sales volume of the Companys analyzers and peripheral equipment, reflecting
increased sales to China resulting from an order to fill demand created by the outbreak of
Severe Acute Respiratory Syndrome (SARS). Analyzer revenue increased $1.4
million, or 69.5%, as analyzer sales volume increased from 846 units in the three months
ended June 30, 2002 to 1,395 units, including approximately 400 units related to the SARS
order for China, in the three months ended June 30, 2003. Worldwide cartridge shipments
decreased by 1.3% to 3,364,945 units in the three months ended June 30, 2003, from
3,407,850 units in the three months ended June 30, 2002. The decrease in worldwide
cartridge volume was offset by an increase in worldwide average selling prices per
cartridge, which increased from $3.30 in the second quarter of 2002 to $3.48 in the second
quarter of 2003, primarily as a result of exchange rate changes that favorably impacted
international revenue. Other related party revenues from Abbott were $0.2 million in each of the
three-month periods ended June 30, 2003 and June 30, 2002, representing amounts reimbursed by Abbott for services performed by the
Companys implementation coordinators.

14

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As
a result of the expiration of the Abbott Distribution Agreement, effective December 31,
2003, the Company expects a material increase in net revenues resulting from the increase
in the average sales price it will recognize as a result of selling the Companys
products directly to end-user customers and distributors. Currently, the Companys
average sales price is lower than the end-user average sales price or average sales price
to sub-distributors due to distribution discounts taken by Abbott.

The
gross margin on total net revenues was $3.7 million and $2.6 million in the three months
ended June 30, 2003 and 2002, respectively. Gross margin percentage on sales of products
and services, which excludes other net revenues such as royalties and
reimbursements of sales and marketing expenses, was 21.0% and 16.5% in the three months
ended June 30, 2003 and 2002, respectively. Gross margin percentage on the sale of
products generally improves with increased production and shipment volume of the
Companys cartridges and as a result of overhead absorption and improvements in
manufacturing productivity and yields. Gross margin percentage improved in the second
quarter of 2003 compared to the second quarter of 2002 primarily because of the sale of
refurbished analyzers that were needed to fulfill the orders resulting from the SARS
outbreak in China, which had a favorable impact on gross margin.

The
Company incurred research and development costs (as a percentage of total net revenues) of
$1.7 million (10.1%) and $1.9 million (12.8%) for the three months ended June 30, 2003 and
2002, respectively. Research and development expenses consist of costs associated with the
personnel, material, equipment and facilities necessary for conducting new product
development.

The
Company incurred sales and marketing expenses (as a percentage of total net revenues) of
$3.2 million (18.5%) and $2.4 million (16.4%) for the three months ended June 30, 2003 and
2002, respectively. Sales and marketing expenses consist primarily of salaries,
commissions, benefits, travel, and similar expenditures for sales representatives,
implementation coordinators and international marketing support, as well as order entry,
product distribution, technical services, clinical affairs, product literature, market
research, and other sales infrastructure costs. The increase in sales and marketing
expenses is attributable to the actions taken by the Company to assume primary
responsibility for the marketing and sale of its products, effective January 1, 2004.
These actions have included hiring additional sales personnel, a vice president of medical
affairs, an executive vice president of commercial operations, a director of marketing and
a general manager in Europe. The Company anticipates further additions of sales and
marketing personnel during 2003. The Company will incur additional costs and may recognize
lower unit sales than anticipated as a result of resuming direct distribution of its
products, the combination of which may adversely impact the Companys future results
of operations and cash flows. A portion of the costs of implementation coordinators is
reimbursed by Abbott, and as a result, $0.2 million of reimbursement is included in total
net revenues in each of the three month periods ended June 30, 2003 and 2002.

The
Company incurred general and administrative expenses (as a percentage of total net
revenues) of $2.0 million (11.8%) and $2.2 million (14.7%) for the three months ended June
30, 2003 and 2002, respectively. General and administrative expenses consist primarily of
salaries and benefits of personnel, office costs, legal and other professional fees and
other costs necessary to support the Companys infrastructure. The Company expects
that general and administrative costs will remain relatively consistent with current
levels despite the actions taken to terminate the Abbott Distribution Agreement and assume
the primary responsibility for the marketing and sale of its products.

Other
income, net, of $1.6 million and $0.3 million for the three months ended June 30, 2003 and
2002, respectively, primarily reflects the net impact of certain foreign currency gains
and losses and interest income earned on cash, cash equivalents, and marketable
securities. Effective May 31, 2002, as a result of repayment of a portion of intercompany
debt owed by the Companys Canadian subsidiary and that subsidiarys deemed
ability and intent to repay the remaining intercompany debt, the Company is required to
treat such intercompany debt as short-term in accordance with Statement of Financial
Accounting Standards (SFAS) No. 52 Foreign Currency Translation.
SFAS No. 52 requires the Company to record the impact of foreign currency gains and losses
on short-term intercompany debt in the Companys results of operations. Foreign
currency gains of $1.4 million and $0.1 million were recorded for the three months ended
June 30, 2003 and 2002, respectively. These gains were the result of the

15

---



impact of the exchange rate between
U.S. dollars and Canadian dollars on the debt owed by i-STAT Corporations Canadian
subsidiary to i-STAT Corporation. The amount of the gains and losses could continue to be
material in the event of significant changes in the exchange rate between U.S. dollars
and Canadian dollars.

The
Company recorded accretion of Preferred Stock of $0.1 million in each of the three months
ended June 30, 2003 and 2002. The accretion of Preferred Stock relates to the issuance by
the Company of Series D Redeemable Convertible Preferred Stock (the Series D
Stock) in December of 2001. Costs of issuance of the Series D Stock and the relative
fair value assigned to the Series D Warrants that were issued in the transaction reduced
the carrying value of the Series D Stock below the redemption value to the holders. The
reduction to the carrying value of $4.9 million is being accreted over a period of ten
years at the rate of approximately $0.1 million per quarter.

The
Series D Stock carries a dividend of 8%, which is either accrued or paid in cash
quarterly, at the option of the Company. The dividend on the Series D Stock was recorded
at its fair value of $0.7 million and $0.3 million in the three months ended June 30, 2003
and 2002, respectively. The dividend was not paid in cash and $0.7 million and $0.6
million were accrued and added to the liquidation preference of the Series D Stock in the
three months ended June 30, 2003 and 2002, respectively.

Net
loss available to Common Stockholders for the three months ended June 30, 2003 was $2.4
million, or 12 cents per basic and diluted share, compared with a net loss of $4.0
million, or 20 cents per basic and diluted share, for the second quarter of 2002. The
principal factors contributing to the $1.6 million improvement in the net
loss available to Common Stockholders were the exchange rate gains of $1.4 million related
to the inter-company debt owed by the Companys Canadian subsidiary and the increase
in gross margins. The weighted average number of shares used in computing basic and
diluted net loss per share was approximately 20.1 million in each of the 2003 and 2002
periods.

Six
Months Ended June 30, 2003

The
Company generated total net revenues of $32.5 million and $29.2 million for the six months
ended June 30, 2003 and 2002, respectively, including international net revenues (as a
percentage of total net revenues) of $9.7 million (30.0%) and $7.9 million (26.9%),
respectively. Total net revenues from Abbott represented 85.5% and 83.2% of the
Companys worldwide total net revenues for the six months ended June 30, 2003 and
2002, respectively.

The
$3.3 million, or 11.3%, increase in total net revenues was primarily due to increased
sales volume of the Companys cartridges, reflecting higher cartridge consumption by
existing hospital customers. Worldwide cartridge shipments increased by 11.9% to 6,824,020
units in the six months ended June 30, 2003, from 6,097,675 units in the six months ended
June 30, 2002. Worldwide average selling prices per cartridge were approximately $3.36 in
the first six months of 2003 as compared to $3.37 in the first six months of 2002. The
decrease in worldwide average selling prices per cartridge is primarily a result of the
pricing arrangements under the Abbott Distribution Agreement, which produce lower average
selling prices in the domestic market as volume increases. The decrease in the domestic
average selling prices was offset by increases in international average selling prices
that were favorably impacted by exchange rates. Analyzer revenue increased $1.0 million,
or 20.8%, as analyzer sales volume increased from 2,021 units in the six months ended June
30, 2002 to 2,331 units in the six months ended June 30, 2003. The increase in analyzer
sales volume was primarily due to increased sales to China resulting from an order to fill
demand created by the SARS outbreak. Other related party revenues from Abbott were $0.4
million in each of the six-month periods ended June 30, 2003 and June 30, 2002, representing amounts reimbursed by Abbott for services
performed by the Companys implementation coordinators.

As
a result of the expiration of the Abbott Distribution Agreement, effective December 31,
2003, the Company expects a material increase in net revenues resulting from the increase
in the average sales price it will recognize as a result of selling the Companys
products directly to end-user customers and distributors. Currently,

16

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the Companys average sales
price is lower than the end-user average sales price or average sales price to
sub-distributors due to distribution discounts taken by Abbott.

The
gross margin on total net revenues was $7.6 million and $4.2 million in the six months
ended June 30, 2003 and 2002, respectively. Gross margin percentage on sales of products
and services, which excludes other net revenues such as royalties and
reimbursements of sales and marketing expenses, was 22.7% and 13.5% in the six months
ended June 30, 2003 and 2002, respectively. Gross margin percentage on the sale of
products generally improves with increased production and shipment volume of the
Companys cartridges and as a result of overhead absorption and improvements in
manufacturing productivity and yields. Gross margin percentage improved in the first six
months of 2003 compared to the first six months of 2002 primarily because 2002 included
approximately $1.6 million of charges related to the write-down of certain cartridges in
inventory that were experiencing a higher than normal quality check rejection rate.

The
Company incurred research and development costs (as a percentage of total net revenues) of
$3.5 million (10.6%) and $3.8 million (13.0%) for the six months ended June 30, 2003 and
2002, respectively. Research and development expenses consist of costs associated with the
personnel, material, equipment and facilities necessary for conducting new product
development.

The
Company incurred sales and marketing expenses (as a percentage of total net revenues) of
$5.8 million (18.0%) and $4.6 million (15.8%) for the six months ended June 30, 2003 and
2002, respectively. Sales and marketing expenses consist primarily of salaries,
commissions, benefits, travel, and similar expenditures for sales representatives,
implementation coordinators and international marketing support, as well as order entry,
product distribution, technical services, clinical affairs, product literature, market
research, and other sales infrastructure costs. The increase in sales and marketing
expenses is attributable to the actions taken by the Company to assume primary
responsibility for the marketing and sale of its products, effective January 1, 2004.
These actions have included hiring additional sales personnel, a vice president of medical
affairs, an executive vice president of commercial operations, a director of marketing and
a general manager in Europe. The Company anticipates further additions of sales and
marketing personnel during 2003. The Company will incur additional costs and may recognize
lower unit sales than anticipated as a result of resuming direct distribution of its
products, the combination of which may adversely impact the Companys future results
of operations and cash flows. A portion of the costs of implementation coordinators is
reimbursed by Abbott, and as a result, $0.4 million of reimbursement is included in total
net revenues in each of the six month periods ended June 30, 2003 and 2002.

The
Company incurred general and administrative expenses (as a percentage of total net
revenues) of $3.6 million (11.2%) and $3.7 million (12.6%) for the six months ended June
30, 2003 and 2002, respectively. General and administrative expenses consist primarily of
salaries and benefits of personnel, office costs, legal and other professional fees and
other costs necessary to support the Companys infrastructure. The Company expects
that general and administrative costs will remain relatively consistent with current
levels despite the actions taken to terminate the Abbott Distribution Agreement and assume
the primary responsibility for the marketing and sale of its products.

Other
income, net, of $3.1 million and $0.5 million for the six months ended June 30, 2003 and
2002, respectively, primarily reflects the net impact of certain foreign currency gains
and losses and interest income earned on cash, cash equivalents and marketable securities.
Effective May 31, 2002, as a result of repayment of a portion of intercompany debt owed by
the Companys Canadian subsidiary and that subsidiarys deemed ability and
intent to repay the remaining intercompany debt, the Company is required to treat such
intercompany debt as short-term in accordance with SFAS No. 52 Foreign Currency Translation. SFAS No. 52
requires the Company to record the impact of foreign currency gains and losses on
short-term intercompany debt in the Companys results of operations. Foreign currency
gains of $2.7 million and $0.1 million were recorded for the six months ended June 30,
2003 and 2002, respectively. These gains were the result of the impact of the exchange
rate between U.S. dollars and Canadian dollars on the debt owed by i-STAT
Corporations Canadian subsidiary to i-STAT Corporation. The amount of the gains and
losses could continue to be material in the event of significant changes in the exchange
rate between U.S. dollars and Canadian dollars.

17

---

The
Company recorded accretion of Preferred Stock of approximately $0.2 million in each of the
six months ended June 30, 2003 and 2002. The accretion of Preferred Stock relates to the
issuance by the Company of Series D Stock in December of 2001. Costs of issuance of the
Series D Stock and the relative fair value that was assigned to the Series D Warrants that were issued in the transaction
reduced the carrying value of the Series D Stock below the redemption value to the holders. The
reduction to the carrying value of $4.9 million is being accreted over a period of ten years at the rate of
approximately $0.1 million per quarter.

The
Series D Stock carries a dividend of 8%, which is either accrued or paid in cash
quarterly, at the option of the Company. The dividend on the Series D Stock was recorded
at its fair value of approximately $1.1 million and $0.8 million in the six months ended
June 30, 2003 and 2002, respectively. The dividend was not paid in cash and approximately
$1.4 million and $1.2 million were accrued and added to the liquidation preference of the
Series D Stock in the six months ended June 30, 2003 and 2002, respectively.

Net
loss available to Common Stockholders for the six months ended June 30, 2003 was $3.5
million, or 18 cents per basic and diluted share, compared with a net loss of
approximately $8.4 million, or 42 cents per basic and diluted share, for the first six
months of 2002. The principal factors contributing to the $4.9 million improvement in the
net loss available to Common Stockholders were the increased gross margins of $3.3 million
and the exchange rate gains of $2.7 million related to the inter-company debt owed by the
Companys Canadian subsidiary which were offset by increased sales and marketing
expenses of $1.2 million. The weighted average number of shares used in computing basic
and diluted net loss per share was 20.1 million and 20.0 million in the 2003 and 2002
periods, respectively.

Liquidity
and Capital Resources

At
June 30, 2003, the Company had cash, cash equivalents and total marketable securities of
$29.2 million, an increase of $2.1 million from the December 31, 2002 balance of $27.1
million. The increase primarily reflects the receipt of $2.0 million from FUSO for
marketing support throughout the five-year exclusive term of the FUSO Distribution
Agreement. The $2.0 million is included in cash and cash equivalents and is refundable
under certain circumstances until the exclusive term of the FUSO Distribution Agreement
takes effect January 1, 2004. Working capital decreased by $1.8 million from $33.3 million
to $31.5 million primarily because of the decrease of inventory.

The
Company expects its existing cash, cash equivalents and marketable securities to be
sufficient to meet its short-term obligations, liquidity and capital requirements. In
addition, the Company expects its existing cash, cash equivalents and marketable
securities, plus cash expected to be generated from future operations, including an $11.0
payment due from FUSO under the new FUSO Distribution Agreement and the increased cash
flows from direct distribution of its products to end-users (the profit margins presently
being earned by Abbott as a result of the sale of the Companys products will be
earned by the Company commencing January 1, 2004), to be sufficient to meet all of its
obligations and capital requirements for the foreseeable future, including those payment
obligations resulting from the termination of the Abbott Distribution Agreement. However,
numerous factors may change this expectation, including the results of its sales and
marketing activities, the success of its new product development efforts, manufacturing
difficulties, manufacturing efficiencies,
competitive conditions, long-term strategic decisions, and other factors listed under
Factors That May Affect Future Results in the Companys 2002 Annual
Report on Form 10-K on file with the Securities and Exchange Commission. The Company
regularly monitors capital raising alternatives in order to take advantage of
opportunities to supplement its current working capital upon favorable terms, including
joint ventures, strategic corporate partnerships or other alliances and the sale of equity
and/or debt securities.

International
sales are invoiced in U.S. dollars, however, payments received from international
partners, primarily Abbott, are subject to adjustments resulting from changes in the value
of the U.S. dollar relative to local currencies. The price paid by customers to our
international partners is set in local 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. Price reductions are limited, however, by guaranteed U.S. dollar minimum
prices established for each cartridge.

18

---

The
Companys cartridge manufacturing is conducted through a wholly-owned subsidiary in
Canada. Most manufacturing labor and overhead costs of this subsidiary are incurred in
Canadian dollars, while some raw material purchases are made in U.S. dollars. The
Companys Canadian operation is primarily funded by payments in U.S. dollars made by
the Company for cartridges purchased for resale to its customers. Since most of the
cartridge manufacturing expenses are incurred in Canadian dollars, the cost of products
sold and therefore, the Companys consolidated results of operations and cash flows
are impacted by a change in exchange rates between the Canadian dollar and the U.S.
dollar.

The
impact of inflation on the Companys business has been minimal and is expected to be
minimal for the near-term.

Contingencies

The
Company and Abbott are in disagreement over the amount of money Abbott is entitled to for
the sharing of certain cartridge production cost savings resulting from increases in the
volume of cartridges sold during the term of the Abbott Distribution Agreement. This
dispute relates to different interpretations of certain terms of the Abbott Distribution
Agreement. Additionally, the Company and Abbott are in disagreement over the amount of
money the Company is entitled to for the development, production, maintenance and support
of certain software products sold by Abbott during the term of the Abbott Distribution
Agreement. If these disagreements are not resolved amicably, the Abbott Distribution
Agreement states that they must be resolved through binding arbitration. Management of the
Company believes that Abbotts position on both of these issues in dispute are
without merit and that, in the event that these issues are resolved through arbitration,
the Company will not incur any additional liability to Abbott and may receive payments
from Abbott. The contested amounts regarding the sharing of certain cartridge production
cost savings resulting from an increase in sales volume during the term of the Abbott
Distribution Agreement is approximately $1.4 million at June 30, 2003, and if this matter
is resolved in favor of Abbott, which management of the Company believes is unlikely, the
Companys cost of goods sold would increase by up to the amount in dispute. The
contested amount regarding payment for the development, production, maintenance, and
support of certain software sold by Abbott during the term of the Abbott Distribution Agreement
is approximately $0.9 million at June 30, 2003, and if this matter is resolved in favor of
the Company, the Companys revenue would increase by up to the amount in dispute. The
adjustment in the cost of goods sold would be made when, and if, it is determined that an
unfavorable outcome to the Company is probable, and the adjustment in revenue would be
made when payment is received by the Company.

Recent
Accounting Pronouncements

In
May 2003, the Financial Accounting Standards Board (FASB) issued SFAS No. 150,
Accounting for Certain Financial Instruments with Characteristics of Both
Liabilities and Equity. SFAS No. 150 is effective for financial instruments entered
into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June
15, 2003, which is the third quarter for the Company. This Statement addresses how certain
financial instruments with characteristics of both liabilities and equity are to be
measured and classified. As a result of this new pronouncement, the Company will classify
the Series D Redeemable Convertible Preferred Stock in the liabilities section of its
balance sheet, commencing with the quarterly report as of September 30, 2003.

19

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Special Note on
Forward-Looking Statements

CERTAIN STATEMENTS IN THIS
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS, MAY RELATE TO FUTURE EVENTS AND EXPECTATIONS AND AS SUCH CONSTITUTE
FORWARD-LOOKING STATEMENTS, WITHIN THE MEANING OF THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995. THE WORDS BELIEVES, ANTICIPATES,
PLANS, EXPECTS, AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY
FORWARD-LOOKING STATEMENTS. SUCH FORWARD-LOOKING STATEMENTS INVOLVE KNOWN AND UNKNOWN
RISKS, UNCERTAINTIES, AND OTHER FACTORS WHICH MAY CAUSE THE ACTUAL RESULTS, PERFORMANCE OR
ACHIEVEMENTS OF THE COMPANY TO BE MATERIALLY DIFFERENT FROM ANY FUTURE RESULTS,
PERFORMANCE OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS AND TO
VARY SIGNIFICANTLY FROM REPORTING PERIOD TO REPORTING PERIOD. SUCH FACTORS INCLUDE, AMONG
OTHERS, COMPETITION FROM EXISTING MANUFACTURERS AND MARKETERS OF BLOOD ANALYSIS PRODUCTS
WHO HAVE GREATER RESOURCES THAN THE COMPANY, ECONOMIC AND GEOPOLITICAL CONDITIONS
AFFECTING THE COMPANYS TARGET MARKETS, ACTS OF TERRORISM, THE UNCERTAINTY OF NEW
PRODUCT DEVELOPMENT INITIATIVES, THE ABILITY TO ATTRACT AND RETAIN KEY SCIENTIFIC,
TECHNOLOGICAL AND MANAGEMENT PERSONNEL, DEPENDENCE UPON LIMITED SOURCES FOR PRODUCT
MANUFACTURING COMPONENTS, UPON A SINGLE MANUFACTURING FACILITY AND UPON INNOVATIVE AND
HIGHLY TECHNICAL MANUFACTURING TECHNIQUES, MARKET RESISTANCE TO NEW PRODUCTS AND
POINT-OF-CARE-BLOOD DIAGNOSIS, INCONSISTENCY IN CUSTOMER ORDER PATTERNS, DOMESTIC AND
INTERNATIONAL REGULATORY CONSTRAINTS, UNCERTAINTIES OF INTERNATIONAL TRADE, PENDING AND
POTENTIAL DISPUTES CONCERNING OWNERSHIP OF INTELLECTUAL PROPERTY, AVAILABILITY OF CAPITAL
UPON FAVORABLE TERMS AND DEPENDENCE UPON AND CONTRACTUAL RELATIONSHIPS WITH STRATEGIC
PARTNERS, PARTICULARLY ABBOTT LABORATORIES. IN ADDITION, THE COMPANYS DECISION TO
END ITS ALLIANCE WITH ABBOTT LABORATORIES AND RESUME DIRECT DISTRIBUTION OF ITS PRODUCTS
INVOLVES ADDITIONAL RISKS AND UNCERTAINTIES THAT ARE DIFFICULT TO QUANTIFY AT THIS TIME.
FOR EXAMPLE, THE COMPANY MAY INCUR COSTS OR RECOGNIZE REVENUES IN CONNECTION WITH RESUMING
DIRECT DISTRIBUTION THAT ARE GREATER OR LESSER, RESPECTIVELY, THAN ANTICIPATED. SEE
ADDITIONAL DISCUSSION UNDER FACTORS THAT MAY AFFECT FUTURE RESULTS IN THE
COMPANYS ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2002, AND OTHER
FACTORS DETAILED FROM TIME TO TIME IN THE COMPANYS OTHER FILINGS WITH THE SECURITIES
AND EXCHANGE.

# Item 4. Controls and
Procedures

The
Chief Executive Officer and Chief Financial Officer of the Company (its principal officer
and principal financial officer, respectively) have concluded, based on their evaluation
as of the end of the period covered by this Report, that the Companys disclosure
controls and procedures are effective to ensure that information required to be disclosed
by the Company in the reports filed or submitted by it under the Securities Exchange Act
of 1934, as amended, is recorded, processed, summarized and reported within the time
periods specified in the Securities and Exchange Commissions rules and forms, and
include controls and procedures designed to ensure that information required to be
disclosed by the Company in such reports is accumulated and communicated to the
companys management, including the Chief Executive Officer and Chief Financial
Officer, as appropriate and allow timely decisions regarding required disclosure.

There
have not been any changes in the Companys internal control over financial reporting
during the fiscal quarter to which this report relates that have materially affected, or
are reasonably likely to materially affect the Companys internal control over
financial reporting.

20

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# i-STAT CORPORATION

# PART II  OTHER
INFORMATION

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

The company held its Annual Meeting
of Stockholders on April 30, 2003, at which time two matters were submitted to a vote of
stockholders. A description of the matters voted upon and a voting tabulation for each
matter is as follows:

I.    
          Election of six members to the Board of Directors, each to serve until the next
          Annual Meeting.

|                        |  | Number of Votes |  |                 
|----------------------- |  | --------------- |  | ----------------
|
|Name of Nominee         |  | For             |  | Against/Withheld
|J. Robert Buchanan, M.D |  | 18,259,992      |  | 50,680          
|Sam H. Eletr, Ph.D      |  | 18,282,292      |  | 28,380          
|Daniel R. Frank         |  | 18,276,791      |  | 33,881          
|William P. Moffitt      |  | 18,237,130      |  | 73,542          
|Lionel N. Sterling      |  | 18,257,492      |  | 53,180          
|Anne M. VanLent         |  | 18,257,612      |  | 53,060          



II.     Ratification
 of the  appointment  of  PricewaterhouseCoopers  LLP, as  independent  accountants  to
audit the Company's  2003 financial          statements.

| |  |            |  |                 
| |  | ---------- |  | ----------------
|
| |  | For        |  | Against/Withheld
| |  | 18,271,030 |  | 27,050          

21

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# EXHIBIT INDEX

# ITEM 6. Exhibits and
Reports on Form 8-K

(a)
Exhibits

| |  |  | 3.1 |  | Restated
Certificate 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 |  | Certificate of Designation, Preferences and Rights of Series A Preferred Stock (Form 8-K,
dated July 10, 1995 and amended on September 11, 1995)*
| |  |  | --- |  | -------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | 3.5 |  | Certificate of Designation, Preferences and Rights of Series C Preferred Stock (Form 10-Q
for the quarterly period ended September 30, 2002)*
| |  |  | --- |  | ---------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | 3.6 |  | Certificate of Amendment to the Restated Certificate of Incorporation (Form 10-Q for the
quarterly period ended September 30, 2002)*
| |  |  | --- |  | ------------------------------------------------------------------------------------------------------------------------------------

| |  |  | 3.7 |  | Certificate of Designation, Preferences and Rights of Series D Preferred Stock (Form 10-K
for fiscal year ended December 31, 2002.)*
| |  |  | --- |  | ------------------------------------------------------------------------------------------------------------------------------------

| |  |  | 4.1 |  | Stockholder Protection Agreement, dated as of June 26, 1995, between Registrant and First
Fidelity Bank, National Association (Form 8-K, dated July 10, 1995 and amended on
September 11, 1995)*
| |  |  | --- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | 31.1 |  | Certification of William P. Moffitt, Chief Executive Officer, pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
| |  |  | ---- |  | ------------------------------------------------------------------------------------------------------------------------

| |  |  | 31.2 |  | Certification of Lorin J. Randall, Chief Financial Officer, pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
| |  |  | ---- |  | ----------------------------------------------------------------------------------------------------------------------

| |  |  | 32 |  | Certification of William P. Moffitt, Chief Executive Officer and Lorin J. Randall,
Chief Financial Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.**
| |  |  | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|* |  | These items are hereby incorporated by reference from the exhibits of the filing or report
indicated (except where noted, Commission File No. 0-19841) and are hereby made a part of
this Report.
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|** |  | Pursuant to Commission Release No. 33-8212, this certification will be treated as
accompanying this report on Form 10-Q and not filed as part of
such report for the purposes of Section 18 of the Exchange Act, or otherwise subject to
the liability of Section 18 of the Exchange Act and this certification will not be deemed
to be incorporated by reference into any filing under the Securities Act of 1933, as
amended, or the Exchange Act, except to the extent that the registrant specifically
incorporates it by reference. The signed copy of this certification will be furnished upon request.
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

(b)
Reports on Form 8-K

| | On February 3, 2003, the Company filed a current Report on Form 8-K attaching a press release
pertaining to the signing of a new distribution agreement with Fuso Pharmaceutical
Industries, Ltd. which extended Fusos distribution rights for the
i-STAT®System in Japan.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | On April 24, 2003, the Company filed a current Report on Form 8-K attaching a press release
that disclosed its financial results for the first quarter of 2003.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------

| | On July 25, 2003, the Company filed a current Report on Form 8-K attaching a press release
that disclosed its financial results for the three and six months ended June 30, 2003.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

22

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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 the undersigned thereunto duly authorized.

DATE: August 12, 2003



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

23

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