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 September 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 | November 1, 2003
|----- | ----------------

|Common Stock, $0.15 par value | 20,223,976
|----------------------------- | ----------

---

i-STAT CORPORATION

TABLE OF CONTENTS

PART I        FINANCIAL INFORMATION

Item 1.    Unaudited Financial Statements











PART II        OTHER INFORMATION





2

---

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

|                                     |    |       |  |    |        |                    |    |       
|------------------------------------ | -- | ----- |  | -- | ------ | ------------------ | -- | ------
|
|
|
|                                     |    |       |  |    |        | Three Months Ended |    |       
|                                     |    |       |  |    |        | September 30,      |    |       
|                                     |    |       |  |    |        |                    |    |       
|                                     |    |       |  |    |        |                    |    |       
|                                     |    |       |  |    |        | 2003               |    |       
|Net revenues:                        |    |       |  |    |        |                    |    |       
|Related party net revenues           |    |       |  |    | $      | 13,337             |    | $     
|Third party net revenues             |    |       |  |    |        | 2,605              |    |       
|Other related party net revenues     |    | 175   |  |    | 175    |                    |    | 525   
|                                     |    |       |  |    |        |                    |    |       
|Total net revenues                   |    |       |  |    |        | 16,117             |    |       
|                                    
|Cost of net revenues                 |    |       |  |    |        | 13,014             |    |       
|                                     |    |       |  |    |        |                    |    |       
|Gross margin on total net revenues   |    | 3,103 |  |    | 4,983  |                    |    | 10,735
|                                    
|Operating expenses:                  |    |       |  |    |        |                    |    |       
|Write-down of certain                |    |       |  |    |        |                    |    |       
|production assets                    |    |       |  |    |        |                   |    |       
|Research and development             |    |       |  |    |        | 1,734              |    |       
|Sales and marketing                  |    |       |  |    |        | 3,463              |    |       
|Abbott termination charges           |    |       |  |    |        |                   |    |       
|General and administrative           |    |       |  |    |        | 1,664              |    |       
|Write-down of certain                |    |       |  |    |        |                    |    |       
|intangible assets                    |    |       |  |    |        |                   |    |       
|                                     |    |       |  |    |        |                    |    |       
|Total operating expenses             |    | 6,861 |  |    | 59,993 |                    |    | 19,765
|                                     |    |       |  |    |        |                    |    |       
|                                    
|Operating loss                       |    |       |  |    |        | (3,758)            |    |       
|                                     |    |       |  |    |        |                    |    |       
|Other income, net                    |    |       |  |    |        | 102                |    |       
|                                     |    |       |  |    |        |                    |    |       
|                                    
|Net loss                             |    |       |  |    |        | ( 3,656)           |    |       
|                                    
|Accretion of Preferred Stock         |    |       |  |    |        | (114)              |    |       
|Dividends on Preferred Stock         |    |       |  |    |        | (1,134)            |    |       
|                                     |    |       |  |    |        |                    |    |       
|Net loss available to                |    |      
|Common Stockholders                  |    |       |  |    | ($     | 4,904)             |    | ($    
|                                     |    |       |  |    |        |                    |    |       
|Basic and diluted net loss per share |    |       |  |    |        |                    |    |       
|available to Common Stockholders     | ($ | 0.24) |  | ($ | 2.78)  |                    | ($ | 0.42) 
|                                     |    |       |  |    |        |                    |    |       
|Shares used in computing basic and   |    |       |  |    |        |                    |    |       
|diluted net loss per share available |    |       |  |    |        |                    |    |       
|to Common Stockholders               |    |       |  |    |        | 20,172,232         |    |       
|                                     |    |       |  |    |        |                    |    |       

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

3

---

# 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                                                            |  | 
|Plant and equipment, net of accumulated depreciation                            |  | 
|of $44,103 as of September 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 Convertible Preferred Stock, liquidation                               |  | 
|value of $34,614 as of September 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, $0.10 par value,                          |  | 
|25,000 shares authorized; none issued                                           |  | 
|Common Stock, $0.15 par value, 50,000,000 shares authorized;                    |  | 
|20,260,693 and 20,157,927 shares issued;                                        |  | 
|and 20,219,876 and 20,117,110 shares outstanding                                |  | 
|as of September 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

---

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

|                                                    |  | Nine Months Ended |  
|--------------------------------------------------- |  | ----------------- | -
|
|                                                    |  |                   |  
|Cash flows from operating activities:               |  |                   |  
|Net loss                                            |  |                   |  
|Adjustments to reconcile net loss to net cash       |  |                   |  
|provided by (used in) operating activities          |  |                   |  
|Changes 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

---

# i-STAT CorporationNOTES TO CONSOLIDATED
CONDENSED FINANCIAL STATEMENTS

(unaudited)

# 1.  General

Basis
of Presentation

The information presented as of
September 30, 2003, and for the three months and nine months ended September 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
consists 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 September 30, 2003, marketable
securities consisted of the following:

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

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 3,859,429 shares
of common stock at $2.24  $32.58 per share, which expire on various dates from
January 2004 to September 2013, were outstanding at September 30, 2003. In addition,
warrants to purchase 1,875,357.5 shares of Common Stock at $8.00 per share were
outstanding at September 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

---

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 |  |  | Nine                      | Months Ended 
|                                   |  |  |  | September 30,      |  |  |                           | September 30,
|                                   |  |  |  |                    |  |  |                           |              
|                                   |  |  |  |                    |  |  |                           |              
|                                   |  |  |  | 2003               |  |  | 2002                      |              
|                                   |  |  |  |                    |  |  | (in thousands of dollars) |              
|                                   |  |  |  |                    |  |  |                           |              
|Net loss                           |  |  |  | ($3,656)           |  |  | ($55,667)                 |              
|Other comprehensive income (loss): |  |  |  |                    |  |  |                           |              
|Foreign currency translation       |  |  |  | (30)               |  |  | 132                       |              
|                                   |  |  |  |                    |  |  |                           |              
|Comprehensive loss                 |  |  |  | ($3,686)           |  |  | ($55,535)                 |              
|                                   |  |  |  |                    |  |  |                           |              

Foreign
Currency Translation and 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 and Statements of
Cash Flows 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. A foreign
currency loss of $0.8 million was recorded in Other income, net for the three
months ended September 30, 2002. The foreign currency loss was less than $0.1 million for
the three months ended September 30, 2003. A foreign currency gain of $2.7 million and a
loss of $0.6 million were recorded for the nine months ended September 30, 2003 and 2002,
respectively. These gains and losses 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 employee 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 nine months ended September 30, 2003, there were no stock options granted to
employees 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

---

|                                               |  |  |  |                    |  |  |                           |             
|---------------------------------------------- |  |  |  | ------------------ |  |  | ------------------------- | ------------
|                                               |  |  |  | Three Months Ended |  |  | Nine                      | Months Ended
|                                               |  |  |  | Sept. 30,          |  |  |                           | Sept. 30,   
|                                               |  |  |  |                    |  |  |                           |             
|                                               |  |  |  |                    |  |  |                           |             
|                                               |  |  |  | 2003               |  |  | 2002                      |             
|                                               |  |  |  |                    |  |  | (in thousands of dollars) |             
|                                               |  |  |  |                    |  |  |                           |             
|Reported net loss available                    |  |  |  |                    |  |  |                           |             
|to Common Stockholders                         |  |  |  | ($4,904)           |  |  | ($55,961)                 |             
|Pro forma compensation expense                 |  |  |  |                    |  |  |                           |             
|under SFAS 123                                 |  |  |  | ($782)             |  |  | ($814)                    |             
|                                               |  |  |  |                    |  |  |                           |             
|Pro forma net loss available to                |  |  |  |                    |  |  |                           |             
|Common Stockholders                            |  |  |  | ($5,686)           |  |  | ($56,775)                 |             
|Reported basic and diluted net loss per share  |  |  |  | ($0.24)            |  |  | ($2.78)                   |             
|Pro forma basic and diluted net loss per share |  |  |  | ($0.28)            |  |  | ($2.82)                   |             

As stock options vest over a varying
number of years, and awards are generally made each year, the pro forma 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 pro forma additional compensation expense of $0.8
million for each of the quarters ended September 30, 2003 and 2002, and $2.6 million and
$3.3 million for the nine months ended September 30, 2003 and 2002, respectively, were
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 |  |  | Nine    | Months Ended
|                        |  |  |  | Sept. 30,          |  |  |         | Sept. 30,   
|                        |  |  |  |                    |  |  |         |             
|                        |  |  |  |                    |  |  |         |             
|                        |  |  |  | 2003               |  |  | 2002    |             
|                        |  |  |  |                    |  |  |         |             
|Dividend yield          |  |  |  | 0%                 |  |  | 0%      |             
|Expected volatility     |  |  |  | 66.28%             |  |  | 65.27%  |             
|Risk free interest rate |  |  |  | 3.08%              |  |  | 3.29%   |             
|Expected option lives   |  |  |  | 6 years            |  |  | 6 years |             

In accordance with SFAS No. 123,
Accounting for Stock-Based Compensation, the Company accounts for the
issuance of equity instruments to non-employees based on the fair value of the
consideration received or the fair value of the equity instrument that is issued,
whichever is more reliably measurable.

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. This Statement addresses how certain financial instruments with characteristics of both liabilities and equity are
to be measured and classified. This new pronouncement does not apply to the Companys Series D Redeemable Convertible Preferred Stock due to the
fact that it is convertible at the holder's option prior to the mandatory redemption date.

8

---

2.   Inventories

Inventories consist of the
following:

|                | September 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 receive 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 receive 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 $1.5 million at September 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 net revenues 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 September 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 net revenues 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 as currently estimated, 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

9

---

net sales during 2003, the
estimated liability for these residual payments may change as the actual net sales become
known. There has been no change made to the aggregate amount of the estimated liability
in anyof the first three 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 $13.3 million
and $12.8 million of net product sales to Abbott during the three months ended September
30, 2003 and 2002, respectively, and $40.8 million and $36.7 million of net product sales
during the nine months ended September 30, 2003 and 2002, respectively. Other related
party revenues from Abbott were $0.2 million in each of the three month periods ended
September 30, 2003 and 2002 and $0.5 million in each of the nine month periods ended
September 30, 2003 and 2002. 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 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 exclusive term of the FUSO Distribution Agreement at
the rate of $0.1 million per quarter. In addition, FUSO paid $11.0 million in September
2003 as a prepayment for future purchases of cartridges as required by the FUSO
Distribution Agreement. This prepayment, also refundable under certain circumstances until
FUSOs exclusive rights take effect on January 1, 2004, will be applied as partial payment
for purchases of cartridges by FUSO during the exclusive term of the FUSO Distribution Agreement.

# 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 1,635,842 are available for grant at
September 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 nine months ended September 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                   |  |           |  | 339,159         |   | $                                         | 5.05  |                                                
|Options exercised                 |  |           |  | (82,534         | ) | $                                         | 8.34  |                                                
|Options forfeited                 |  |           |  | (577,509        | ) | $                                         | 17.91 |                                                
|Options expired                   |  |           |  | (41,715         | ) | $                                         | 8.88  |                                                
|Outstanding at September 30, 2003 |  | 3,859,429 |  |                 |   | $                                         | 7.53  |                                                
|Exercisable at September 30, 2003 |  | 1,808,959 |  |                 |   | $                                         | 9.68  |                                                

The weighted average remaining contractual lives of outstanding options at September 30, 2003 was approximately 7.19 years.

The following table summarizes information about stock options outstanding at September 30, 2003.

|                          |               | Options Outstanding |           | Options Exercisable
|------------------------- | ------------- | ------------------- | --------- | -------------------
|
|In the Money Options (1): |               |                     |           |                    
|                          | $2.24$4.41   |                     | 1,188,106 |                    
|                          | $5.07$8.63   |                     | 1,346,142 |                    
|                          | $8.88$13.00  |                     | 1,036,175 |                    
|Out of the Money Options: |               |                     |           |                    
|                          | $14.10$17.96 |                     | 157,430   |                    
|                          | $21.00$32.58 |                     | 131,576   |                    
|                          |               |                     |           |                    
|                          | $2.24$32.58  |                     | 3,859,429 |                    
|                          |               |                     |           |                    

(1) In-the-money options are those
options with an exercise price less than the fair market value closing price of $13.37 at
the end of the quarter.

On September 10, 2003, the Company
issued an option to purchase 20,000 shares of the Company's Common Stock to a third party
consulting firm in exchange for certain services .  The 20,000 shares were immediately
exercisable at an exercise price of $10.00 per share.  As a result of this grant, the
Company recorded an expense of $0.2 million utlizing the Black-Scholes method to
determine the fair market value.

11

---

Options
Granted to Executive Officers

The following table details option
grants to executive officers during the nine months ended September 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  |  | 1.95 | % | $ | 3.87/Share |  |                                                                                                   
|Noah Kroloff       |  |  | 6,468  |  | 2.03 | % | $ | 3.87/Share |  |                                                                                                   
|Lorin J. Randall   |  |  | 10,883 |  | 3.41 | % | $ | 3.87/Share |  |                                                                                                   
|Michael Zelin      |  |  |       |  |     |   |   |           |  |                                                                                                   

The following table details option exercises during the nine months ended September 30, 2003 and remaining holdings of
executive officers:

|                   |  |   |  |   |  | Number of Securities
Underlying Outstanding
Options at September
30, 2003 |  | Values of Outstanding
In-the-Money Options
at September 30,
2003
|------------------ |  | - |  | - |  | ------------------------------------------------------------------------- |  | ----------------------------------------------------------------
|
|
|
|William P. Moffitt |  |  |  |  |  | 169,456                                                                   |  | 302,235                                                         
|Bruce F. Basarab   |  |  |  |  |  | 8,000                                                                     |  | 118,219                                                         
|Noah Kroloff       |  |  |  |  |  | 142,605                                                                   |  | 85,778                                                          
|Lorin J. Randall   |  |  |  |  |  | 8,000                                                                     |  | 87,883                                                          
|Michael Zelin      |  |  |  |  |  | 180,788                                                                   |  | 161,082                                                         

12

---

# 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), kaolin ACT, Prothrombin time, arterial blood gases (PCO2 and
PO2), bicarbonate, pH, and troponin I, a cardiac marker capable of indicating
the degree of heart muscle damage. The i-STAT System also derives certain other values,
such as total carbon dioxide, base excess, anion gap, hemoglobin and O2 saturation, 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.

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 as currently estimated, 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 2003, the estimated liability for these residual payments may change as the actual
net sales become known. There has been no change made to the aggregate amount of the
estimated liability in any of the first three 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

13

---

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
the remainder of 2003. In April 2003, the Company created i-STAT Limited, a wholly-owned
subisidiary located in the United Kingdom, 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 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
exclusive term of the FUSO Distribution Agreement at a rate of $0.1 million per quarter. In
addition, FUSO paid $11.0 million in September 2003 as a prepayment that will be offset
against future purchases of cartridges. This prepayment, also refundable under certain
circumstances until FUSOs exclusive rights take effect on January 1, 2004, will be applied as
partial payment for purchases of cartridges by FUSO during the exclusive term of the FUSO Distribution Agreement.

# Results of Operations

Three
Months Ended September 30, 2003

The
Company generated total net revenues of $16.1 million and $14.8 million for the three
months ended September 30, 2003 and 2002, respectively, including international net
revenues (as a percentage of total net revenues) of $4.3 million (26.4%) and $4.0 million
(26.8%), respectively. Total net revenues from Abbott represented 83.8% and 87.2% of the
Companys worldwide total net revenues for the three months ended September 30, 2003
and 2002, respectively.

The
$1.3 million, or 8.6%, increase in total net revenues was primarily due to increased
shipments volumes of the Companys cartridges, particularly domestic shipments and
shipments to China. Worldwide cartridge shipments increased by 15.6% to 3,701,453 units in
the three months ended September 30, 2003, from 3,201,225 units in the three months ended
September 30, 2002. The increase in worldwide cartridge volume was partially offset by a
decrease in worldwide average selling prices per cartridge, which decreased from $3.36 in
the third quarter of 2002 to $3.29 in the third quarter of 2003. The decrease in average
selling price per cartridge is primarily a function of the pricing arrangements under the
Abbott Distribution Agreement, which produce lower average selling prices in the domestic
market as volume increases. Other related party revenues from Abbott were $0.2 million in
each of the three-month periods ended September 30, 2003 and September 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, 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.

14

---

The
gross margin on total net revenues was $3.1 million and $5.0 million in the three months
ended September 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 18.4% and 32.8% in the three months
ended September 30, 2003 and 2002, respectively. Gross margin percentage declined in the
third quarter of 2003 compared to the third quarter of 2002 due to the costs incurred
during qualification of cartridge component improvements and higher U.S. dollar costs
related to an unfavorable exchange rate as the U.S. dollar weakened against the Canadian
dollar. The majority of the Companys cartridge production costs are incurred in
Canadian dollars. In addition, the cost of cartridges sold during the third quarter of
2002 was lower due to a record level of production of cartridges as the Company
replenished inventory levels that were negatively impacted in the fourth quarter of 2001
and the first quarter of 2002 by the disposal of certain cartridges that experienced a
higher than normal reject rate.

During
the third quarter of 2002, the Company reviewed its plant and equipment assets and
determined that a write-down of $1.2 million was required for certain fixed assets that
were associated with certain projects at the Companys manufacturing facility in
Canada. The Company abandoned these projects due to the identification of more efficient
alternatives. The write-down reduced the carrying value of those assets down to their
estimated fair values of zero. The write-down is included in the Consolidated Condensed Statement of
Operations as a separate line item.

The
Company incurred research and development costs (as a percentage of total net revenues) of
$1.7 million (10.8%) and $1.9 million (12.8%) for the three months ended September 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
$3.5 million (21.5%) and $2.4 million (16.0%) for the three months ended September 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 the remainder of 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
September 30, 2003 and 2002.

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

The
Company incurred general and administrative expenses (as a percentage of total net
revenues) of $1.7 million (10.3%) and $1.5 million (9.9%) for the three months ended
September 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.

15

---

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

Other
income (expense), net, of $0.1 million and ($0.7) million for the three months ended
September 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. A foreign currency loss of $0.8 million was recorded for the three
months ended September 30, 2002. The foreign currency loss was less than $0.1 million for
the three months ended September 30, 2003. The losses 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.

The
Company recorded accretion of Preferred Stock of $0.1 million in each of the three months
ended September 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 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
 dividend on the Series D Stock is declared  quarterly  and  carries a rate of 8% per
annum.  The Series D Stock  dividend may be paid in cash at the option of the Company.
 To date,  the Series D Stock  dividend has not been paid in cash. As a result,  $0.7
million and $0.6  million  were  added,  in the three  months  ended  September  30, 2003
and 2002,  respectively,  to the  liquidation preference of the Series D Stock for
purposes of  calculating  succeeding  dividends.  These  dividends  were recorded on the
Companys Consolidated  Condensed  Statement of  Operations at their  estimated  fair
values of $1.1 million and $0.2 million in the three months ended  September 30, 2003 and
2002,  respectively.  The estimated  fair value of the Series D Stock  dividend is based
upon the greater of the amount of cash the holders would receive upon  redemption  of the
Series D Stock or the estimated  fair value of the  additional shares of Common Stock
available to the holders of the Series D Stock upon conversion.

Net
loss available to Common Stockholders for the three months ended September 30, 2003 was
$4.9 million, or 24 cents per basic and diluted share, compared with a net loss of $56.0
million, or $2.78 per basic and diluted share, for the third quarter of 2002. The
principal factor contributing to the $51.1 million improvement in the net loss available
to Common Stockholders was the $52.0 million in charges related to the termination of the Abbott Distribution
Agreement recorded in the third quarter of 2002. The weighted average number of shares
used in computing basic and diluted net loss per share was approximately 20.2 million and
20.1 million in the three months ended September 30, 2003 and 2002, respectively.

Nine
Months Ended September 30, 2003

The
Company generated total net revenues of $48.6 million and $44.0 million for the nine
months ended September 30, 2003 and 2002, respectively, including international net
revenues (as a percentage of total net revenues) of $14.0 million (28.8%) and $11.8
million (26.9%), respectively. Total net revenues from Abbott represented 85.0% and 84.6%
of the Companys worldwide total net revenues for the nine months ended September 30,
2003 and 2002, respectively.

16

---

The
$4.6 million, or 10.4%, increase in total net revenues was primarily due to increased
shipments of the Companys cartridges, reflecting higher cartridge consumption by
existing hospital customers. Worldwide cartridge shipments increased by 13.2% to
10,525,473 units in the nine months ended September 30, 2003, from 9,298,900 units in the
nine months ended September 30, 2002. Worldwide average selling prices per cartridge were
$3.33 in the first nine months of 2003 as compared to $3.37 in the first nine 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
worldwide average selling prices resulting from the decrease in domestic average selling
prices was partially offset by increases in international average selling prices that were
favorably impacted by foreign currency exchange rates. Analyzer revenue increased $1.3
million, or 18.7%, as analyzer sales volume increased from 2,934 units in the nine months
ended September 30, 2002 to 3,198 units in the nine months ended September 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 Severe Acute Respiratory Syndrome (SARS)
outbreak. Other related party revenues from Abbott were $0.5 million in each of the
nine-month periods ended September 30, 2003 and September 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, 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 $10.7 million and $9.2 million in the nine months
ended September 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 21.2% and 20.0% in the nine months
ended September 30, 2003 and 2002, respectively.  Gross margin percentage improved in the first nine
months of 2003 compared to the first nine months of 2002 primarily because 2002 gross margins were
affected by 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.  Cartridge costs
increased as a result of the qualification of cartridge component improvements and higher U.S. dollar costs related
to an unfavorable exchange rate as the U.S. dollar weakened against the Canadian dollar.  The majority
of the Companys cartridge production costs are incurred in Canadian dollars.  These higher costs
were partially offset by gross margins recorded from the sales of the Companys analyzer and related
peripheral products during the nine months ended September 30, 2003 that were higher than the gross
margins for the same products recorded during the nine months ended September 30, 2002.

During
the nine months ended September 30, 2002, the Company reviewed its plant and equipment
assets and determined that a write-down of $1.2 million was required for certain fixed
assets that were associated with certain projects at the Companys manufacturing
facility in Canada. The Company abandoned these projects due to the identification of more
efficient alternatives. The write-down reduced the carrying value of those assets down to
their estimated fair values of zero. The write-down is included in the Consolidated
Statement of Operations as a separate line item.

The
Company incurred research and development costs (as a percentage of total net revenues) of
$5.2 million (10.7%) and $5.7 million (12.9%) for the nine months ended September 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
$9.3 million (19.1%) and $7.0 million (15.8%) for the nine months ended September 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

17

---

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, $0.5 million of reimbursement is
included in total net revenues in each of the nine month periods ended September 30, 2003
and 2002.

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

The
Company incurred general and administrative expenses (as a percentage of total net
revenues) of $5.3 million (10.9%) and $5.2 million (11.8%) for the nine months ended
September 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.

During
the nine months ended September 30, 2002, the Company reassessed its patent and trademark strategies. As
a result, the Company reviewed the valuation of its intangible patent and trademark assets
and determined that a write-down of $1.0 million was required. The write-down is included
in the Consolidated Condensed Statement of Operations as a separate line item.

Other
income (expense), net, of $3.2 million and ($0.1) million for the nine months ended
September 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 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. A foreign currency gain of $2.7 million and a
foreign currency loss of $0.6 million were recorded for the nine months ended September
30, 2003 and 2002, respectively. These gains and losses 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.

The
Company recorded accretion of Preferred Stock of approximately $0.3 million in each of the
nine months ended September 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 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 of 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
dividend on the Series D Stock is declared quarterly and carries a rate of 8% per annum.
 The Series D Stock dividend may be paid in cash at the option of the Company.  To date,
the Series D Stock dividend has not

18

---

been paid in cash.  As a result,
$2.0 million and $1.8 million were added, in the nine months ended September 30, 2003 and
2002, respectively, to the liquidation preference of the Series D Stock for purposes of
calculating succeeding dividends.  These dividends were recorded on the Companys
Consolidated Condensed Statement of Operations at their estimated fair values of $2.3
million and $1.0 million in the nine months ended September 30, 2003 and 2002,
respectively.

Net
loss available to Common Stockholders for the nine months ended September 30, 2003 was
$8.4 million, or 42 cents per basic and diluted share, compared with a net loss of
approximately $64.3 million, or $3.21 per basic and diluted share, for the first nine
months of 2002. The principal factors contributing to the $55.9 million improvement in the
net loss available to Common Stockholders were the $52.0 million in charges related to the termination of the
Abbott Distribution Agreement and $2.2 million related to the write-down of certain assets
in the first nine months of 2002. The weighted average number of shares used in computing
basic and diluted net loss per share was 20.1 million in each of the 2003 and 2002
periods.

Liquidity
and Capital Resources

At
September 30, 2003, the Company had cash, cash equivalents and total marketable securities
of $38.3 million, an increase of $11.2 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 and the receipt of $11.0 million from FUSO for the prepayment of future
cartridge purchases. Both the $2.0 million and $11.0 million payments are refundable under
certain circumstances until the exclusive term of the FUSO Distribution Agreement takes
effect January 1, 2004. The increases resulting from the payments from FUSO were partially
offset by $1.8 million for the purchase of equipment. Working capital increased by $5.8
million from $33.3 million to $39.1 million primarily because of the receipt of the $11.0
million and $2.0 million payments from FUSO, offset by a decrease in inventory, an
increase in accrued expenses and a increase in short term deferred revenue related to the
FUSO payments.

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 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, regulatory developments, 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.

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

19

---

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
receive 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 receive 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 $1.5 million at
September 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 net revenues 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 September 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 net revenues 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. This Statement addresses how certain financial instruments with characteristics
of both liabilities and equity are to be measured and classified. This new
pronouncement does not apply to the Companys Series D Redeemable Convertible Preferred Stock
due to the fact that it is convertible at the holders option prior to the mandatory redemption date.

20

---

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.

21

---

# PART II  OTHER
INFORMATION

# 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 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 months and six months ended June 30, 2003.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | On September 8, 2003, the Company filed a current Report on Form 8-K attaching a press release
that announced the U.S. Food and Drug Administration clearance allowing the Company to market
its i-STAT® SystemTroponin I (cTnl) test.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | On September 12, 2003, the Company filed a current Report on Form 8-K attaching a press release
that announced the U.S. Food and Drug Administration clearance allowing the Company to market
its kaolin-based activated clotting time (Kaolin ACT) test.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | On October 23, 2003, the Company filed a current Report on Form 8-K attaching a press release
that disclosed its financial results for the three and nine months ended September 30, 2003.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

22

---

# 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: November 14, 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

---