##### 



SECURITIES AND EXCHANGE COMMISSION
Washington, 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, 2001

Commission File Number 0-19841

i-STAT CORPORATION

(Exact name of registrant as specified in its charter)


|                                           |  |                    
|------------------------------------------ |  | -------------------
|Delaware                                   |  | 22-2542664         
|                                          
|                                          
|                                          
|                                          
|(State or other jurisdiction of            |  | (I.R.S. Employer   
|incorporation or organization)             |  | Identification No.)
|                                          
|                                          
|                                          
|                                          
|                                           |  |                    
|                                          
|                                          
|                                          
|                                          
|104 Windsor Center Drive, East Windsor, NJ |  | 08520              
|                                          
|                                          
|                                          
|                                          
|(Address of Principal Executive Offices)   |  | (Zip Code)         

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

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 (CHECKBOX) |  | No (BOX)

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

|                              |  |                 
|----------------------------- |  | ----------------
|Class                         |  | November 7, 2001
|                             
|Common Stock, $0.15 par value |  | 20,057,997      





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##### 



i-STAT CORPORATION
TABLE OF CONTENTS

|                             |                                                                                                                        |  |        |       | 
|---------------------------- | ---------------------------------------------------------------------------------------------------------------------- |  | ------ | ----- | 
|                             |                                                                                                                        |  | PAGE  
|                             |                                                                                                                        |  | NUMBER
|                             |                                                                                                                        |  |       
|PART I FINANCIAL INFORMATION |                                                                                                                        |  |        |      
|                            
|                            
|                            
|                            
|                             | Item 1 - Financial Statements                                                                                          |  |        |       | 
|                            
|                            
|                            
|                            
|                             | Consolidated Condensed Statements of Operations
for the three months and nine months ended September 30, 2001 and 2000 |  |        | 3     | 
|                            
|                            
|                            
|                            
|                             |                                                                                                                        |  |        |      
|                            
|                            
|                            
|                            
|                             | Consolidated Condensed Balance Sheets
as of September 30, 2001 and December 31, 2000                                   |  |        | 4     | 
|                            
|                            
|                            
|                            
|                             |                                                                                                                        |  |        |      
|                            
|                            
|                            
|                            
|                             | Consolidated Condensed Statements of Cash Flows
for the nine months ended September 30, 2001 and 2000                  |  |        | 5     | 
|                            
|                            
|                            
|                            
|                             |                                                                                                                        |  |        |      
|                            
|                            
|                            
|                            
|                             | Notes to Consolidated Condensed Financial Statements                                                                   |  |        | 6-9   | 
|                            
|                            
|                            
|                            
|                             |                                                                                                                        |  |        |      
|                            
|                            
|                            
|                            
|                             | Item 2
- Managements Discussion and Analysis of FinancialCondition and Results of Operations                          |  |        | 10-17 | 
|                            
|                            
|                            
|                            
|                             |                                                                                                                        |  |        |      
|                            
|                            
|                            
|                            
|PART II OTHER INFORMATION    |                                                                                                                        |  |        |      
|                            
|                            
|                            
|                            
|                             | Item 1 - Legal Proceedings                                                                                             |  |        | 18    | 
|                            
|                            
|                            
|                            
|                             |                                                                                                                        |  |        |      
|                            
|                            
|                            
|                            
|                             | Item 2  Changes in Securities                                                                                         |  |        | 18    | 
|                            
|                            
|                            
|                            
|                             |                                                                                                                        |  |        |      
|                            
|                            
|                            
|                            
|                             | Item 6 - Exhibits and Reports on Form 8-K                                                                              |  |        | 19    | 
|                            
|                            
|                            
|                            
|                             |                                                                                                                        |  |        |      
|                            
|                            
|                            
|                            
|SIGNATURES                   |                                                                                                                        |  | 20     |      

2



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##### 



i-STAT CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS

(In thousands of dollars, except share and per share data)
(unaudited)

|                                                                                                  |                              |                             |            |                    |        |                   |            |        |        |      |            |        |        |   |            |        |        | 
|------------------------------------------------------------------------------------------------- | ---------------------------- | --------------------------- | ---------- | ------------------ | ------ | ----------------- | ---------- | ------ | ------ | ---- | ---------- | ------ | ------ | - | ---------- | ------ | ------ | 
|                                                                                                  |                              |                             |            | Three Months Ended |        | Nine Months Ended
|                                                                                                  |                              |                             |            | September 30,      |        | September 30,    
|                                                                                                  |                              |                             |            |                    |        |                  
|                                                                                                  |                              |                             |            | 2001               |        | 2000              |            | 2001   |        | 2000
|                                                                                                  |                              |                             |            |                    |        |                   |            |        |        |     
|Net revenues:                                                                                     |                              |                             |            |                    |        |                   |            |        |        |      |            |        |        |   |            |       
|                                                                                                 
|                                                                                                 
|                                                                                                 
|                                                                                                 
|                                                                                                  | Related party product sales  |                             | $          | 11,949             |        |                   | $          | 10,432 |        |      | $          | 34,193 |        |   | $          | 30,425 |       
|                                                                                                 
|                                                                                                 
|                                                                                                 
|                                                                                                 
|                                                                                                  | Third party product sales    |                             |            | 2,462              |        |                   |            | 2,047  |        |      |            | 6,236  |        |   |            | 6,117  |       
|                                                                                                 
|                                                                                                 
|                                                                                                 
|                                                                                                 
|                                                                                                  | Other related party revenues |                             |            | 175                |        |                   |            | 825    |        |      |            | 525    |        |   |            | 2,725  |       
|                                                                                                 
|                                                                                                 
|                                                                                                 
|                                                                                                 
|                                                                                                  | Other third party revenues   |                             |            |                   |        |                   |            | 149    |        |      |            | 327    |        |   |            | 149    |       
|                                                                                                  |                              |                             |            |                    |        |                   |            |        |        |      |            |        |        |   |            |       
|                                                                                                  |                              | Total net revenues          |            |                    | 14,586 |                   |            |        | 13,453 |      |            |        | 41,281 |   |            |        | 39,416 | 
|                                                                                                 
|                                                                                                 
|                                                                                                 
|                                                                                                 
|Cost
of products sold                                                                             |                              |                             | 11,574     |                    |        |                   | 8,351      |        |        |      | 34,145     |        |        |   | 30,247     |       
|                                                                                                 
|                                                                                                 
|                                                                                                 
|                                                                                                 
|Research and development                                                                          |                              |                             | 1,877      |                    |        |                   | 1,860      |        |        |      | 5,806      |        |        |   | 6,129      |       
|                                                                                                 
|                                                                                                 
|                                                                                                 
|                                                                                                 
|General and administrative                                                                        |                              |                             | 1,718      |                    |        |                   | 1,952      |        |        |      | 5,222      |        |        |   | 5,378      |       
|                                                                                                 
|                                                                                                 
|                                                                                                 
|                                                                                                 
|Sales and marketing                                                                               |                              |                             | 2,215      |                    |        |                   | 1,865      |        |        |      | 6,954      |        |        |   | 5,842      |       
|                                                                                                 
|                                                                                                 
|                                                                                                 
|                                                                                                 
|Litigation settlement                                                                             |                              |                             |           |                    |        |                   |           |        |        |      | 10,491     |        |        |   | 1,500      |       
|                                                                                                  |                              |                             |            |                    |        |                   |            |        |        |      |            |        |        |   |            |       
|                                                                                                  |                              | Total operating expenses    |            |                    | 17,384 |                   |            |        | 14,028 |      |            |        | 62,618 |   |            |        | 49,096 | 
|                                                                                                  |                              |                             |            |                    |        |                   |            |        |        |      |            |        |        |   |            |       
|Operating
loss                                                                                    |                              |                             | (2,798     | )                  |        |                   | (575       | )      |        |      | (21,337    | )      |        |   | (9,680     | )     
|                                                                                                  |                              |                             |            |                    |        |                   |            |        |        |      |            |        |        |   |            |       
|Other
income, net                                                                                 |                              |                             | 192        |                    |        |                   | 461        |        |        |      | 683        |        |        |   | 1,406      |       
|                                                                                                  |                              |                             |            |                    |        |                   |            |        |        |      |            |        |        |   |            |       
|Net
loss                                                                                          |                              |                             | (2,606     | )                  |        |                   | (114       | )      |        |      | (20,654    | )      |        |   | (8,274     | )     
|                                                                                                 
|                                                                                                 
|                                                                                                 
|                                                                                                 
|Accretion
of Preferred Stock                                                                      |                              |                             | (2,254     | )                  |        |                   |           |        |        |      | (2,254     | )      |        |   |           |       
|                                                                                                  |                              |                             |            |                    |        |                   |            |        |        |      |            |        |        |   |            |       
|                                                                                                  |                              |                             |            |                    |        |                   |            |        |        |      |            |        |        |   |            |       
|                                                                                                 
|                                                                                                 
|                                                                                                 
|                                                                                                 
|Net loss available to Common
Stockholders                                                         |                              | $                           | (4,860     | )                  |        | $                 | (114       | )      |        | $    | (22,908    | )      |        | $ | (8,274     | )     
|
|                                                                                                  |                              |                             |            |                    |        |                   |            |        |        |      |            |        |        |   |            |       
|                                                                                                 
|                                                                                                 
|                                                                                                 
|Basic
and diluted net loss per
share available to Common
Stockholders                             |                              | $                           | (0.25      | )                  |        | $                 | (0.01      | )      |        | $    | (1.23      | )      |        | $ | (0.48      | )*    
|                                                                                                  |                              |                             |            |                    |        |                   |            |        |        |      |            |        |        |   |            |       
|Shares
used in computing basic
and diluted net loss per
share available to Common
Stockholders    |                              |                             | 19,306,880 |                    |        |                   | 18,060,265 |        |        |      | 18,618,732 |        |        |   | 17,313,498 | *     
|                                                                                                  |                              |                             |            |                    |        |                   |            |        |        |      |            |        |        |   |            |       
|                                                                                                 
|The accompanying notes are an
integral part of these consolidated condensed financial
statements.
|                                                                                                 
|                                                                                                  |                              | *  As restated. See note 1.

3



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##### 



i-STAT CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS

(In thousands of dollars, except share and per share data)
(unaudited)

|                                                                                                 |  |                                                                                                                |                                                                                                                              |                                                                                                                          |          |               |        |              |          |        |        | 
|------------------------------------------------------------------------------------------------ |  | -------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------ | -------- | ------------- | ------ | ------------ | -------- | ------ | ------ | 
|                                                                                                 |  |                                                                                                                |                                                                                                                              |                                                                                                                          |          | September 30, |        | December 31,
|                                                                                                 |  |                                                                                                                |                                                                                                                              |                                                                                                                          |          | 2001          |        | 2000        
|                                                                                                 |  |                                                                                                                |                                                                                                                              |                                                                                                                          |          |               |        |             
|                                                                                                 |  |                                                                                                                | ASSETS                                                                                                                       |                                                                                                                          |          |               |        |              |          |       
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                 |  |                                                                                                                |                                                                                                                              |                                                                                                                          |          |               |        |             
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                
|Current assets:                                                                                  |  |                                                                                                                |                                                                                                                              |                                                                                                                          |          |               |        |             
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                 |  | Cash and cash equivalents                                                                                      |                                                                                                                              | $                                                                                                                        | 13,465   |               |        | $            | 19,536   |       
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                 |  | Restricted cash                                                                                                |                                                                                                                              |                                                                                                                          | 21,541   |               |        |              |         |       
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                 |  | Accounts receivable, net                                                                                       |                                                                                                                              |                                                                                                                          | 684      |               |        |              | 868      |       
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                 |  | Accounts receivable from related party, net                                                                    |                                                                                                                              |                                                                                                                          | 230      |               |        |              | 3,607    |       
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                 |  | Inventories                                                                                                    |                                                                                                                              |                                                                                                                          | 15,763   |               |        |              | 15,402   |       
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                 |  | Prepaid expenses and other current assets                                                                      |                                                                                                                              |                                                                                                                          | 731      |               |        |              | 884      |       
|                                                                                                 |  |                                                                                                                |                                                                                                                              |                                                                                                                          |          |               |        |             
|                                                                                                 |  |                                                                                                                |                                                                                                                              | Total current assets                                                                                                     |          |               | 52,414 |              |          |        | 40,297 | 
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                
|Plant
and equipment, net of accumulated depreciation of
     $30,255 in 2001 and $27,346 in 2000 |  |                                                                                                                | 16,926                                                                                                                       |                                                                                                                          |          |               | 17,766 |             
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                
|Other assets                                                                                     |  |                                                                                                                | 1,950                                                                                                                        |                                                                                                                          |          |               | 1,871  |             
|                                                                                                 |  |                                                                                                                |                                                                                                                              |                                                                                                                          |          |               |        |             
|                                                                                                 |  |                                                                                                                |                                                                                                                              | Total assets                                                                                                             |          | $             | 71,290 |              |          | $      | 59,934 | 
|                                                                                                 |  |                                                                                                                |                                                                                                                              |                                                                                                                          |          |               |        |             
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                 |  |                                                                                                                |                                                                                                                              |                                                                                                                          |          |               |        |             
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                 |  |                                                                                                                | LIABILITIES AND STOCKHOLDERS EQUITY                                                                                         |                                                                                                                          |          |               |        |              |          |        |       
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                 |  |                                                                                                                |                                                                                                                              |                                                                                                                          |          |               |        |             
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                
|Current liabilities:                                                                             |  |                                                                                                                |                                                                                                                              |                                                                                                                          |          |               |        |             
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                 |  | Accounts payable                                                                                               |                                                                                                                              | $                                                                                                                        | 3,133    |               |        | $            | 3,464    |       
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                 |  | Accrued expenses                                                                                               |                                                                                                                              |                                                                                                                          | 3,759    |               |        |              | 4,488    |       
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                 |  | Deferred
revenue, current (inclusive of related party deferred
 revenue of $4,288 in 2001 and $10,675 in 2000) |                                                                                                                              |                                                                                                                          | 4,308    |               |        |              | 10,824   |       
|                                                                                                 |  |                                                                                                                |                                                                                                                              |                                                                                                                          |          |               |        |             
|                                                                                                 |  |                                                                                                                |                                                                                                                              | Total current liabilities                                                                                                |          |               | 11,200 |              |          |        | 18,776 | 
|                                                                                                 |  |                                                                                                                |                                                                                                                              |                                                                                                                          |          |               |        |             
|                                                                                                 |  | Deferred
liability  related party, non-current                                                                |                                                                                                                              |                                                                                                                          | 4,890    |               |        |              | 106      |       
|                                                                                                 |  |                                                                                                                |                                                                                                                              |                                                                                                                          |          |               |        |             
|                                                                                                 |  |                                                                                                                |                                                                                                                              | Total liabilities                                                                                                        |          |               | 16,090 |              |          |        | 18,882 | 
|                                                                                                 |  |                                                                                                                |                                                                                                                              |                                                                                                                          |          |               |        |             
|Series C
Convertible Preferred Stock, $0.10 par value, 25,000 and 0 shares authorized:           |  |                                                                                                                |                                                                                                                              |                                                                                                                          |          |               |        |             
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                 |  | 20,463 and 0 shares issued and outstanding in 2001 and 2000, respectively                                      |                                                                                                                              |                                                                                                                          | 18,054   |               |        |              |         |       
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                 |  |                                                                                                                |                                                                                                                              |                                                                                                                          |          |               |        |             
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                
|Stockholders equity:                                                                            |  |                                                                                                                |                                                                                                                              |                                                                                                                          |          |               |        |             
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                 |  | 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 B
Preferred Stock, $0.10 par value, 0 and 2,138,702
shares authorized in 2001 and 2000, respectively; none issued |          |               |       |              |          |        |       | 
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                 |  |                                                                                                                |                                                                                                                              |                                                                                                                          |          |               |        |             
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                 |  | Common Stock, $0.15 par value, 50,000,000 and 25,000,000 shares authorized:                                    |                                                                                                                              |                                                                                                                          |          |               |        |              |          |       
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                 |  |                                                                                                                | 20,099,939
and 18,436,654 shares issued, and 20,059,122 and 18,395,837
    shares outstanding in 2001 and 2000, respectively |                                                                                                                          |          | 3,015         |        |              |          | 2,766  |       
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                 |  | Treasury Stock, at cost, 40,817 shares                                                                         |                                                                                                                              |                                                                                                                          | (750     | )             |        |              | (750     | )     
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                 |  | Additional paid-in capital                                                                                     |                                                                                                                              |                                                                                                                          | 255,484  |               |        |              | 238,814  |       
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                 |  | Unearned compensation                                                                                          |                                                                                                                              |                                                                                                                          | (230     | )             |        |              | (764     | )     
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                 |  | Loan to officer, net                                                                                           |                                                                                                                              |                                                                                                                          | (498     | )             |        |              | (717     | )     
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                 |  | Accumulated deficit                                                                                            |                                                                                                                              |                                                                                                                          | (217,619 | )             |        |              | (196,965 | )     
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                 |  | Accumulated other comprehensive loss related to foreign currency translation                                   |                                                                                                                              |                                                                                                                          | (2,256   | )             |        |              | (1,332   | )     
|                                                                                                 |  |                                                                                                                |                                                                                                                              |                                                                                                                          |          |               |        |             
|                                                                                                 |  |                                                                                                                | Total stockholders equity                                                                                                   |                                                                                                                          |          | 37,146        |        |              |          | 41,052 |       
|                                                                                                 |  |                                                                                                                |                                                                                                                              |                                                                                                                          |          |               |        |             
|                                                                                                 |  |                                                                                                                | Total liabilities and stockholders equity                                                                                   |                                                                                                                          | $        | 71,290        |        |              | $        | 59,934 |       
|                                                                                                 |  |                                                                                                                |                                                                                                                              |                                                                                                                          |          |               |        |             

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

4



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##### 



i-STAT CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

(In thousands of dollars)
(unaudited)

|                                      |                                                                            |                                           |   |                   |         |      |   |        |        |  
|------------------------------------- | -------------------------------------------------------------------------- | ----------------------------------------- | - | ----------------- | ------- | ---- | - | ------ | ------ | -
|                                      |                                                                            |                                           |   | Nine Months Ended
|                                      |                                                                            |                                           |   | September 30,    
|                                      |                                                                            |                                           |   |                  
|                                      |                                                                            |                                           |   | 2001              |         | 2000
|                                      |                                                                            |                                           |   |                   |         |     
|Cash flows from operating activities: |                                                                            |                                           |   |                   |         |      |   |       
|                                     
|                                     
|                                     
|                                     
|                                      | Net loss                                                                   |                                           | $ | (20,654           | )       |      | $ | (8,274 | )     
|                                     
|                                     
|                                     
|                                     
|                                      | Adjustments to reconcile net loss to net cash used in operating activities |                                           |   | ( 1,870           | )       |      |   | (  242 | )     
|                                     
|                                     
|                                     
|                                     
|                                      | Change in assets and liabilities                                           |                                           |   | 7,211             |         |      |   | 7,380  |       
|                                      |                                                                            |                                           |   |                   |         |      |   |       
|                                      |                                                                            | Net cash used in operating activities     |   |                   | (15,313 | )    |   |        | (1,136 | )
|                                      |                                                                            |                                           |   |                   |         |      |   |       
|                                      |                                                                            |                                           |   |                   |         |      |   |       
|                                     
|                                     
|                                     
|                                     
|Cash flows from investing activities: |                                                                            |                                           |   |                   |         |      |   |       
|                                     
|                                     
|                                     
|                                     
|                                      | Restricted cash collateralizing letters of credit                          |                                           |   | (21,541           | )       |      |   |       |       
|                                     
|                                     
|                                     
|                                     
|                                      | Purchase of equipment                                                      |                                           |   | ( 3,877           | )       |      |   | (5,051 | )     
|                                     
|                                     
|                                     
|                                     
|                                      | Other                                                                      |                                           |   | (   160           | )       |      |   | (  105 | )     
|                                      |                                                                            |                                           |   |                   |         |      |   |       
|                                      |                                                                            | Net cash used in investing activities     |   |                   | (25,578 | )    |   |        | (5,156 | )
|                                      |                                                                            |                                           |   |                   |         |      |   |       
|                                      |                                                                            |                                           |   |                   |         |      |   |       
|                                     
|                                     
|                                     
|                                     
|Cash flows from financing activities: |                                                                            |                                           |   |                   |         |      |   |       
|                                     
|                                     
|                                     
|                                     
|                                      | Proceeds from issuance of Common Stock                                     |                                           |   | 2,053             |         |      |   | 3,863  |       
|                                     
|                                     
|                                     
|                                     
|                                      | Proceeds from private placement of Common Stock, net                       |                                           |   | 12,326            |         |      |   |       |       
|                                     
|                                     
|                                     
|                                     
|                                      | Proceeds from private placement of Series C Convertible Preferred Stock    |                                           |   | 20,463            |         |      |   |       |       
|                                     
|                                     
|                                     
|                                     
|                                      | Purchase of Treasury Stock                                                 |                                           |   |                  |         |      |   | (  750 | )     
|                                     
|                                     
|                                     
|                                     
|                                      | Loan to officer                                                            |                                           |   |                  |         |      |   | (  257 | )     
|                                      |                                                                            |                                           |   |                   |         |      |   |       
|                                      |                                                                            | Net cash provided by financing activities |   |                   | 34,842  |      |   |        | 2,856  |  
|                                      |                                                                            |                                           |   |                   |         |      |   |       
|                                      | Effect
of currency exchange rate changes on cash                           |                                           |   | (    22           | )       |      |   | (   10 | )     
|                                      |                                                                            |                                           |   |                   |         |      |   |       
|                                      | Net decrease in cash and cash equivalents                                  |                                           |   | ( 6,071           | )       |      |   | (3,446 | )     
|                                     
|                                     
|                                     
|                                     
|                                      | Cash and cash equivalents at beginning of period                           |                                           |   | 19,536            |         |      |   | 25,575 |       
|                                      |                                                                            |                                           |   |                   |         |      |   |       
|                                      | Cash and cash equivalents at end of period                                 |                                           | $ | 13,465            |         |      | $ | 22,129 |       
|                                      |                                                                            |                                           |   |                   |         |      |   |       

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

5



---



##### 



i-STAT CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(unaudited)

(continued)

1.     General



| |  | Basis of Presentation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | The information presented as of September 30, 2001 and 2000, and for the
periods then ended, is unaudited, but includes all adjustments
(consisting only of normal recurring accruals) 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 year end 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
condensed financial statements should be read in conjunction with the
Companys audited financial statements for the year ended December 31,
2000, including the Notes thereto, which were included as part of the
Companys Annual Report onForm 10-K, File
No. 0-19841.                                                                                                                                                                             
|
| |  | Basic and Diluted Loss per Share (Restated)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|
| |  | Basic and diluted net loss per share is calculated using the weighted
average number of common shares outstanding for all periods presented.
Basic EPS excludes any potential dilution and is computed by dividing
income available to common stockholders by the weighted-average number of
common shares outstanding for the period. Diluted EPS 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 entity. The Company has not included potentially dilutive common
shares in the diluted per-share computation for all periods presented, as
the result is antidilutive due to the Companys net loss. The Company has restated its net loss per
share for the nine months ended September 30, 2000 to exclude
the Series B Preferred Shares from the calculation of basic and
diluted net loss per share. The impact of restating the basic and
diluted net loss per share was to increase the net loss per share by
$0.02.
|
| |  | Options to purchase 2,508,968 shares of common stock with exercise prices
of $6.13  $32.58 per share, which expire on various dates from December
2001 to August 2011, were outstanding at September 30, 2001. These
shares were not included in the computation of diluted EPS for all
periods presented because the effect would be antidilutive due to the
Companys net loss.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|
| |  | Comprehensive Income                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|
| |  | Statement of Financial Accounting Standards (SFAS) No. 130, Reporting
Comprehensive Income, requires foreign currency translation adjustments
to be included in other comprehensive earnings. 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 Canadian subsidiary.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     

|                                   |                              |   |                                  |      |                                 |   |      |      |      |   |         |      |   |   |        |      |  
|---------------------------------- | ---------------------------- | - | -------------------------------- | ---- | ------------------------------- | - | ---- | ---- | ---- | - | ------- | ---- | - | - | ------ | ---- | -
|                                   |                              |   | Three Months Ended September 30, |      | Nine Months Ended September 30,
|                                   |                              |   |                                  |      |                                
|                                   |                              |   | 2001                             |      | 2000                            |   | 2001 |      | 2000
|                                   |                              |   |                                  |      |                                 |   |      |      |     
|                                   |                              |   | (In thousands of dollars)       
|                                   |                              |   |                                  |      |                                 |   |      |      |      |   |         |      |   |   |        |     
|                                  
|                                  
|                                  
|                                  
|Net loss                           |                              | $ | (2,606                           | )    |                                 | $ | (114 | )    |      | $ | (20,654 | )    |   | $ | (8,274 | )   
|                                  
|                                  
|                                  
|                                  
|Other comprehensive income (loss): |                              |   |                                  |      |                                 |   |      |      |      |   |         |      |   |   |        |     
|                                  
|                                  
|                                  
|                                  
|                                   | Foreign currency translation |   |                                  | (692 | )                               |   |      | (366 | )    |   |         | (924 | ) |   |        | (513 | )
|                                   |                              |   |                                  |      |                                 |   |      |      |      |   |         |      |   |   |        |     
|Comprehensive loss                 |                              | $ | (3,298                           | )    |                                 | $ | (480 | )    |      | $ | (21,578 | )    |   | $ | (8,787 | )   
|                                   |                              |   |                                  |      |                                 |   |      |      |      |   |         |      |   |   |        |     



| |  | Recently Issued Accounting Pronouncements:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | On June 20, 2001, the Financial Accounting Standards Board (FASB)
issued SFAS No. 141, Business Combinations. SFAS No. 141 is effective
for all business combinations initiated after June 30, 2001. This
Statement addresses financial accounting and reporting for business
combinations and supersedes APB Opinion No. 16, Business Combinations,
and SFAS No. 38, Accounting for Preacquisition Contingencies of Purchased
Enterprises. All business combinations within the scope of this
Statement are to be accounted for using one method, the purchase method.

6



---



##### 



i-STAT CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(unaudited)

(continued)



| |  | On June 20, 2001, FASB also issued SFAS No. 142, Goodwill and Other
Intangible Assets. SFAS No. 142 is effective for fiscal years beginning
after December 15, 2001 for all goodwill and other intangible assets
recognized in an entitys statement of financial position at the
beginning of that fiscal year, regardless of when those previously
recognized assets were initially recognized. This Statement supersedes
APB Opinion No. 17, Intangible Assets. It addresses how intangible
assets that are acquired individually or with a group of other assets
should be accounted for in the financial statements upon their
acquisition. This Statement also addresses how goodwill and other
intangible assets should be accounted for after they have been initially
recognized in the financial statements. The Company is in the process of
evaluating the impact of adopting this Statement.                                                                                                 
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | On August 15, 2001, FASB issued SFAS No. 143, Accounting for Asset
Retirement Obligations. SFAS No. 143 is effective for fiscal years
beginning after June 15, 2002. This Statement requires that the fair
value of a liability for an asset retirement obligation be recognized in
the period in which it is incurred if a reasonable estimate of fair value
can be made. In addition, the associated asset retirement costs are
capitalized as part of the carrying amount of the long-lived asset and
subsequently allocated to expense over the assets useful life. The
Company does not expect that the adoption of this Statement will have a
material impact on its financial position or results of operations.                                                                                                                                                                                                                                                                                    
|
| |  | On October 4, 2001, FASB issued SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets. SFAS No. 144 is effective
for fiscal years beginning after December 15, 2001. This Statement
supersedes SFAS No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of, and the accounting
and reporting provisions of APB Opinion No. 30, Reporting the Results of
Operations  Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events
and Transactions. This Statement requires that one accounting model be
used for long-lived assets to be disposed of by sale, whether previously
held and used or newly acquired, and broadens the presentation of
discontinued operations to include more disposal transactions. The
Company does not expect that the adoption of this Statement will have a
material impact on its financial position or results of operations.

2.     Inventories



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

| |                 |   |                           |       |                   |   |        |       | 
| | --------------- | - | ------------------------- | ----- | ----------------- | - | ------ | ----- | 
| |                 |   | September 30, 2001        |       | December 31, 2000
| |                 |   |                           |       |                  
| |                 |   | (In thousands of dollars)
| |                 |   |                           |       |                   |   |        |      
|
|
|
|
| | Raw materials   |   | $                         | 5,343 |                   |   | $      | 5,696 | 
|
|
|
|
| | Work-in-process |   |                           | 4,010 |                   |   |        | 3,700 | 
|
|
|
|
| | Finished goods  |   |                           | 6,410 |                   |   |        | 6,006 | 
| |                 |   |                           |       |                   |   |        |      
| |                 | $ | 15,763                    |       |                   | $ | 15,402 |      
| |                 |   |                           |       |                   |   |        |      

3.     Commitments and Contingencies



| |  | The Company was a defendant in a case entitled Nova Biomedical
Corporation, Plaintiff v. i-STAT Corporation, Defendant. The Complaint,
which was filed in the United States District Court for the District of
Massachusetts on June 27, 1995, alleged infringement by the Company of
Nova Biomedical Corporations (Nova) U.S. Patent No. 4,686,479. In
February 1998, the Court entered summary judgment in favor of the Company
on the issue of patent infringement. The plaintiff appealed the
dismissal to the Federal Circuit. The Federal Circuit affirmed two of
the grounds of the dismissal (proper interpretation of the Patent and
that the Company does not literally infringe), but remanded the case to
the District Court with instructions to reconsider whether the Companys
device performs a certain measurement in a substantially equivalent way
to a method covered by the Patent, and therefore infringes under the
doctrine of equivalents. A jury trial was scheduled for July 2001.
Management concluded that the uncertainty inherent in any jury trial as
well as the drain on the Companys resources merited a resolution of this
lawsuit. Accordingly, on July 26, 2001 the Company entered into a
license agreement and a settlement agreement under which the Company
agreed to pay Nova $10.5 million. Pursuant to the agreements, $6.5
million was paid on July 26, 2001, a retroactive royalty of $0.5 million
was paid on August 14, 2001 for the period of January 1, 2001 through
June 30,
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

7



---



##### 



i-STAT CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(unaudited)

(continued)



| |  | 2001, and $3.5 million plus interest was due to be paid over one year in
equal quarterly installments, pursuant to a secured promissory note. The
promissory note was prepaid on August 3, 2001. The license agreement
provides for the payment to Nova of a royalty equal to 4% of the invoice
price of products sold in the United States after January 1, 2001, which
products determine hematocrit levels according to any method used by the
Company prior to December 31, 2000, as well as any method covered by the
Patent. The royalties are payable through the life of the Nova patent
(July 22, 2005). The Company has commercialized products which determine
hematocrit levels using a method that was not used by the Company prior
to December 31, 2000 and which the Company believes is not covered by the
Patent. Consequently, the Company does not believe that it owes any
additional royalties to Nova.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

4.     Related Party Transactions



| |  | In January 2001, the Company received a payment of $5.2 million from
Abbott Laboratories (Abbott) for the fourth and final installment of
prepayments for guaranteed future incremental cartridge sales (as defined
in the Distribution Agreement with Abbott). The fourth installment of
$5.2 million and the third installment of $10.8 million, which was
received in January 2000, are presented on the consolidated condensed
balance sheets as deferred revenue, current and deferred liability 
related party, non-current, and are carried net of amortization of such
prepayments to income. The prepayments are amortized to related party
product sales as incremental cartridge sales are generated. The Company
had $4,288,000 and $10,675,000 of deferred revenue, current from Abbott
at September 30, 2001, and December 31, 2000, respectively. Any
unamortized deferred revenue prepayments will remain as a liability until
the contract is terminated, at which time, except for termination
resulting from Abbotts failure to achieve a certain growth rate
milestone or termination by the Company for cause, the balance will be
paid to Abbott. The Company recorded $4,890,000 as deferred liability 
related party, non-current at September 30, 2001. The Company generated
$11,949,000 and $10,432,000 of net product sales from Abbott for the
three months ended September 30, 2001 and 2000, respectively, and
$34,193,000 and $30,286,000 for the nine months ended September 30, 2001
and 2000, respectively.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Other related party revenues from Abbott were $175,000 and $825,000 for
the three months ended September 30, 2001 and 2000, respectively, and
$525,000 and $2,725,000 for the nine months ended September 30, 2001 and
2000, respectively. The other related party revenues from Abbott consist
of reimbursement of certain research and development and/or marketing
expenses. At September 30, 2001, the Company had $230,000 of related
party accounts receivable, net, due from Abbott. The net related party
accounts receivable balance of $230,000 at September 30, 2001 is composed
of gross receivables of $6,909,000 which are offset by a receivable
credit balance owed to Abbott of $6,679,000 that will be paid during the
first quarter of 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

5.     Financing Transaction



| |  | On August 3, 2001, the Company closed a $34.1 million private placement
with several institutional investors, which consisted of 1,480,000 shares
of Common Stock at $9.218 per share and 20,463 shares of Series C
Convertible Preferred Stock with a stated value of $1,000 per share.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | The Company has registered the resale of all shares of Common Stock
issued in the private placement (including shares issuable upon
conversion of the Series C Convertible Preferred shares and upon exercise
of warrants issued in the private placement) with the Securities and
Exchange Commission. Beginning on December 6, 2001, the Series C
Convertible Preferred Stock shareholders have the option to convert their
shares into Common Stock and on December 10, 2001, any Series C
Convertible Preferred shares still outstanding will automatically convert
into Common Stock, with the conversion ratio based on a twelve percent
discount to the trading price of the Common Stock during a 20-day
measurement period which commences on November 1, 2001 and concludes on
November 29, 2001 (the Conversion Price). In addition, for a period of
five business days commencing on November 30, 2001 and ending on December
6, 2001, the Series C Convertible Preferred shares are subject to being
redeemed (either in whole or in part) at the option of either the Company
or the investors for up to $20.46 million if the Conversion Price is
below $9.218. The Common Stock has recently been trading at prices
which, if they remain at substantially the same levels during the
applicable measurement period, would result in a Conversion Price
below $9.218. In no event can the
maximum number of shares

8



---



##### 



i-STAT CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(unaudited)

(continued)



| |  | of Common Stock issuable upon conversion of the
Series C Convertible Preferred shares exceed approximately 3.7 million
shares.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | In connection with the private placement, the investors were issued
6-year warrants to purchase up to an additional 1,295,000 shares of
Common Stock for a strike price of $10.139. The warrants are subject to
anti-dilution protection and are callable by the Company under certain
circumstances, in exchange for replacement warrants with a higher strike
price. The number of shares underlying the warrants will be reduced
ratably to the extent the Series C Convertible Preferred shares are
redeemed (but not more than 42.857% of the total shares initially covered
by the warrants). Under certain circumstances, the investors will have
the right to participate in i-STAT financings which are concluded within
a year after the closing of the private placement.
|
| |  | The Company has established letters of credit totaling $20.46 million to
guarantee the Companys potential obligation to redeem the Series C
Convertible Preferred shares. The Company has pledged $21.5 million of
cash as collateral for the letters of credit which is shown as restricted
cash on the Companys balance sheet as of September 30, 2001.                                                                                                                                                                                                                                                                                                                                                                                                                         
|
| |  | The Company has recorded the Series C Convertible Preferred Stock, the
warrants and the Common Stock issued in this transaction at their
relative fair values which were determined by an independent, third party
appraisal firm. The Series C Convertible Preferred Stock is being
accreted from its relative fair value of approximately $19.53 million to
its potential redemption amount of $20.46 million from the date of
issuance on August 3, 2001 through November 29, 2001. Accretion of
Preferred Stock of approximately $453,000 was recorded during the three
months ended September 30, 2001.                                                                                                                                                                        
|
| |  | The Series C Convertible Preferred Stock contains a beneficial
conversion feature because the conversion price of the Preferred Stock
will be at a twelve percent discount to the fair market value of the
Common Stock. The beneficial conversion feature was calculated on August
3, 2001, the commitment date, and was approximately $3.7 million. The
beneficial conversion feature is being accreted into Preferred Stock from
the date of issuance on August 3, 2001 through November 29, 2001.
Accretion of Preferred Stock of approximately $1,801,000 was recorded
during the three months ended September 30, 2001.                                                                                                                                                     

9



---



##### 



i-STAT CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

General

The Company, which was incorporated in Delaware in 1983, 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, each of which simultaneously performs
different combinations of commonly ordered blood tests in approximately two
minutes. The i-STAT Systemalso 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 i-STAT Systemcurrently performs blood tests for sodium, potassium,
chloride, glucose, creatinine, urea nitrogen, hematocrit, ionized calcium,
lactate, Celite® ACT (activated clotting time), arterial blood gases, and
bicarbonate, and 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 Systemtechnology. The Company is currently developing three additional
tests for the measurement of coagulation: kaolin ACT, partial thromboplastin
time (aPTT), and prothrombin time (PT). The Company is also researching
and developing cardiac marker tests. In the fourth quarter of 2000, the
Company introduced the i-STAT1 Analyzerand associated peripheral equipment,
which, in addition to having the measurement capabilities possessed by the
i-STAT System, incorporates the glucose measurement capabilities of the Abbott
Laboratories MediSense® glucose strips on one integrated hand-held device. The
i-STAT1 Analyzeralso incorporates a number of enhancements, including a bar
code reader, an improved user interface, and an enhanced data management system
which, in conjunction with a new central data management system, enhances the
customers ability to centrally manage a widely distributed point-of-care
testing program.

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 Japanese marketing partners,
in Europe through Hewlett-Packard Company (HP) and in Mexico, South America,
China, Australia, and certain other Asian and Pacific Rim countries, through
selected distribution channels. Pursuant to a technology collaboration between
the Company and HP, in November 1997 HP commenced selling a patient monitoring
system which integrates all of the blood diagnostics capabilities of the i-STAT
System. (As part of a spin-off of its measurement systems business in 1999, HP
assigned its rights and obligations under its agreements with the Company to
Agilent Technologies, Inc.) On September 2, 1998, the Company entered into a
long-term sales, marketing and research alliance with Abbott Laboratories
(Abbott), which has significantly altered the manner in which the Company
markets and sells its products worldwide. A substantial majority of the
Companys revenues are now derived from Abbott. Please see Alliance with
Abbott Laboratories under Item 7 of the Companys Annual Report on Form 10-K
for the year ended December 31, 2000 for a description of the Companys
agreements with Abbott.

Recent Developments

On July 26, 2001, the Company and Nova Biomedical Corporation (Nova)
agreed to dismiss the litigation entitled Nova Biomedical Corp. v. i-STAT
Corporation, No. 95-11396 (D. Mass) (RGS)with prejudice, effectively releasing
each other from all claims that can be brought by either party in the lawsuit.
As part of the settlement (the Nova Settlement), the Company paid Nova $6.5
million in cash and issued a $3.5 million one-year secured promissory note,
payable in equal quarterly installments. The promissory note was repaid on
August 3, 2001.

Nova agreed to grant the Company a world-wide, non-exclusive license under
the patent which was the subject of the lawsuit, to manufacture and sell
analyzers and cartridges that determine hematocrit levels according to any
method the Company used to determine hematocrit levels before December 31, 2000
and any method claimed by the patent. The Company is obligated to pay Nova a
royalty of four percent of the invoice price of products sold in the United
States utilizing the licensed method. The royalties are payable on sales
beginning from January 1, 2001 through the life of the Nova patent (July 22,
2005). On August 14, 2001, the Company paid Nova a royalty of approximately
$0.5 million in respect of product sales from January 1, 2001 through June 30,
2001. The Company has commercialized products which determine hematocrit
levels using a method that was not used

10



---



##### 



i-STAT CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(continued)

by the Company prior to December 31, 2000 and which the Company believes is not
covered by the Nova patent which was the subject of the lawsuit. Consequently,
the Company does not believe it owes any additional royalties to Nova.

On August 3, 2001, the Company closed a $34.1 million private placement
with several institutional investors, which consisted of 1,480,000 shares of
Common Stock at $9.218 per share and 20,463 shares of Series C Convertible
Preferred Stock with a stated value of $1,000 per share.

The Company registered the resale of all shares of Common Stock issued in
the private placement (including shares issuable upon conversion of the Series
C Convertible Preferred shares and upon exercise of warrants issued in the
private placement) with the Securities and Exchange Commission. Beginning on
December 6, 2001, the Series C Convertible Preferred Stock shareholders have
the option to convert their shares into Common Stock and on December 10, 2001,
any Series C Convertible Preferred shares still outstanding will automatically
convert into Common Stock, with the conversion ratio based on a twelve percent
discount to the trading price of the Common Stock during a 20-day measurement
period which commences on November 1, 2001 and concludes on November 29, 2001
(the Conversion Price). In addition, for a period of five business days
commencing on November 30, 2001, and ending on December 6, 2001, the Series C
Convertible Preferred shares are subject to being redeemed (either in whole or
in part) at the option of either the Company or the investors for up to $20.46
million if the Conversion Price is below $9.218. The Common Stock has
recently been trading at prices which, if they remain at
substantially the same levels during the applicable measurement
period, would result in a Conversion Price below $9,218. In no event can the maximum number of shares of Common Stock issuable upon
conversion of the Series C Convertible Preferred shares exceed approximately
3.7 million shares.

In connection with the private placement, the investors were issued 6-year
warrants to purchase up to an additional 1,295,000 shares of Common Stock for a
strike price of $10.139. The warrants are subject to anti-dilution protection
and are callable by the Company under certain circumstances, in exchange for
replacement warrants with a higher strike price. The number of shares
underlying the warrants will be reduced ratably to the extent the Series C
Convertible Preferred shares are redeemed (but not more than 42.857% of the
total shares initially covered by the warrants). Under certain circumstances,
the investors will have the right to participate in i-STAT financings which are
concluded within a year after the closing of the private placement.

The Company has established letters of credit totaling $20.46 million to
guarantee the Companys potential obligation to redeem the Series C Convertible
Preferred shares. The Company has pledged $21.5 million of cash as collateral
for the letters of credit which is shown as restricted cash on the Companys
balance sheet as of September 30, 2001.

The Company has recorded the Series C Convertible Preferred Stock, the
warrants and the Common Stock issued in this transaction at their relative fair
values which were determined by an independent, third party appraisal firm.
The Series C Convertible Preferred Stock is being accreted from its relative
fair value of approximately $19.53 million to its potential redemption amount
of $20.46 million from the date of issuance on August 3, 2001 through November
29, 2001. Accretion of Preferred Stock of approximately $453,000 was recorded
during the three months ended September 30, 2001.

The Series C Convertible Preferred Stock contains a beneficial conversion
feature because the conversion price of the Preferred Stock will be at a
twelve percent discount to the fair market value of the Common Stock. The
beneficial conversion feature was calculated on August 3, 2001, the commitment
date, and was approximately $3.7 million. The beneficial conversion feature is
being accreted into Preferred Stock from the date of issuance on August 3, 2001
through November 29, 2001. Accretion of Preferred Stock of approximately
$1,801,000 was recorded during the three months ended September 30, 2001.

The foregoing summary is not a complete description of the terms of either
the settlement with Nova Biomedical Corporation or the private placement
transaction. For further information concerning these developments, please see
the Companys Current Reports on Form 8-K dated July 27, 2001 and August 3,
2001, respectively.

11



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##### 



i-STAT CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(continued)

Results of Operations

Three Months Ended September 30, 2001

The Company generated net revenues of approximately $14.6 million and
$13.5 million for the three months ended September 30, 2001 and 2000,
respectively, including international net revenues (as a percentage of total
net revenues) of $3.7 million (25.3%) and $3.5 million (26.0%), respectively.
Net revenues from Abbott represented approximately 83.1% and 83.7% of the
Companys worldwide net revenues for the three months ended September 30, 2001
and 2000, respectively.

The $1.1 million, or 8.4%, increase in net revenues was primarily due to
increased shipment volumes of the Companys analyzers and peripheral equipment.
Worldwide analyzer shipments increased 60.5% to 1,326 units in the three
months ended September 30, 2001, from 826 units in the three months ended
September 30, 2000. Shipments of the new i-STAT1 Analyzercomprise a majority
of the increase. Total worldwide cartridge shipments increased by 3.1% to
2,602,650 units in the three months ended September 30, 2001, from 2,525,050
units in the three months ended September 30, 2000. Net cartridge revenues
declined as the increased shipments were offset by lower worldwide average
selling prices per cartridge, which declined from approximately $3.77 to $3.55
per cartridge in the same periods. The lower worldwide average
selling price per cartridge is primarily attributable to lower
international average selling prices. During the term of the strategic alliance
between the Company and Abbott, cartridge average selling prices are expected
to decline as domestic cartridge sales volume increases because of the applicable product pricing arrangements. Other
related party revenues decreased by approximately $0.6 million, from
approximately $0.8 million in the three months ended September 30, 2000 to
approximately $0.2 million in the three months ended September 30, 2001. This
decrease reflects the cessation in reimbursements from Abbott related to
certain research and development expenses. Abbott currently is not funding any
of the Companys research and development programs.

Manufacturing costs (as a percentage of product sales) associated with
product sales for the three months ended September 30, 2001 and 2000 were
approximately $11.6 million (80.3%) and $8.4 million (66.9%), respectively.
Cost of products sold as a percentage of product sales generally decreases with
increased production volumes of the Companys cartridges and with improvements
in manufacturing productivity yields. However, cost of products sold as a
percentage of product sales increased in the third quarter of 2001 compared to
the third quarter of 2000 primarily because of lower cartridge production
volume and lower cartridge production yields. The lower cartridge
production volume reflects the record level of cartridge production
in  the third quarter of 2000 as the Company was in the process of
rebuilding its inventory levels. In addition, cost of products sold
as a percentage of sales increased as a result of lower cartridge
average selling prices and changes in mix between cartridges and
analyzers.

The Company incurred research and development costs (as a percentage of
total net revenues) of approximately $1.9 million (12.9%) and $1.9 million
(13.8%) for the three months ended September 30, 2001 and 2000, respectively.
Research and development expenses consist of costs associated with the
personnel, material, equipment and facilities necessary for conducting new
product development. Research and development expenditures may increase over
the next three years. The amount and timing of such increase will depend upon
numerous factors including the level of activity at any point in time, the
breadth of the Companys development objectives and the success of its
development programs.

The Company incurred general and administrative expenses (as a percentage
of total net revenues) of approximately $1.7 million (11.8%) and $2.0 million
(14.5%) for the three months ended September 30, 2001 and 2000, 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 decrease in general and
administrative expenses is primarily attributable to lower litigation expenses.

The Company incurred sales and marketing expenses (as a percentage of
total net revenues) of approximately $2.2 million (15.2%) and $1.9 million
(13.9%) for the three months ended September 30, 2001 and 2000, respectively.
Sales and marketing expenses consist primarily of salaries, benefits, travel,
and other expenditures for sales representatives, product implementation
coordinators, international marketing support, order entry, distribution,
technical services, clinical affairs, product literature, market research, and
other sales infrastructure costs. The $0.3 million increase from the third
quarter of 2001 as compared to the third quarter of 2000 is primarily
attributable to higher staffing levels and increased marketing activities. A
portion of the costs of the product implementation coordinators is reimbursed
by Abbott, and as a result, total net revenues in the

12



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##### 



i-STAT CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(continued)

three months ended September 30, 2001 and 2000,
include approximately $0.2 million and $0.2 million, respectively, of
such reimbursement.

Other income, net, of approximately $0.2 million and $0.5 million for the
three months ended September 30, 2001 and 2000, respectively, primarily
reflects interest income earned on cash, cash equivalents and restricted cash
balances.

Net loss available to Common Stockholders for the three months ended
September 30, 2001 was approximately $4.9 million, or 25 cents per basic and
diluted share, compared with a net loss of approximately $0.1 million, or 1
cent per basic and diluted share, for the third quarter of 2000. The
net loss available to Common Stockholders for the three months ended
September 30, 2001 included approximately $2.3 million of
accretion of Preferred Stock related to the private placement which
is described in the "Recent Developments" section of "Management's
Discussion and Analysis of Financial Condition and Results of
Operations." The weighted
average number of shares used in computing basic and diluted net loss per share
was approximately 19.307 million and 18.060 million in the 2001 and 2000
periods, respectively.

13



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##### 



i-STAT CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(continued)

Nine Months Ended September 30, 2001

The Company generated net revenues of approximately $41.3 million and
$39.4 million for the nine months ended September 30, 2001 and 2000,
respectively, including international net revenues (as a percentage of total
net revenues) of $10.3 million (25.0%) and $10.3 million (26.2%), respectively.
Net revenues from Abbott represented approximately 84.1% and 83.8% of the
Companys worldwide net revenues for the nine months ended September 30, 2001
and 2000, respectively.

The $1.9 million (4.7%) increase in net revenues was primarily due to
increased shipment volume of the Companys cartridges, reflecting higher
cartridge consumption by existing hospital users and the addition of new
hospital accounts in the United States and internationally. Worldwide
cartridge shipments increased 16.5% to 8,361,000 units in the nine months ended
September 30, 2001, from 7,177,450 units in the nine months ended September 30,
2000. Revenues from the increased cartridge shipments were partially offset by
lower worldwide average selling prices per cartridge, which declined from
approximately $3.71 to $3.44 per cartridge in the same periods. During the
term of the strategic alliance between the Company and Abbott, cartridge
average selling prices are expected to continue to decline as
domestic cartridge sales volume increases because of the
applicable product pricing arrangements. The increase in revenues also
reflects an increase in shipment volumes of the Companys analyzers and
peripheral equipment offset by a decrease in other related party revenues.
Worldwide analyzer shipments increased 16.2% to 3,045 units in the nine months
ended September 30, 2001 from 2,620 units in the nine months ended September
30, 2000. Shipments of the new i-STAT1 Analyzercomprise a majority of the
increase. The related party revenue decrease of approximately $2.2 million,
from approximately $2.7 million in the nine months ended September 30, 2000 to
approximately $0.5 million in the nine months ended September 30, 2001,
reflects the cessation in reimbursements from Abbott related to certain
research and development expenses. Abbott currently is not funding any of the
Companys research and development programs.

Manufacturing costs (as a percentage of product sales) associated with
product sales for the nine months ended September 30, 2001 and 2000 were
approximately $34.1 million (84.4%) and $30.2 million (82.8%), respectively.
Cost of products sold, as a percentage of product sales, generally decreases
with increased production volume of the Companys cartridges and improvements
in manufacturing productivity and yields. However, cost of products sold as a
percentage of product sales increased in the nine months ended September 30,
2001 compared to the nine months ended September 30, 2000, primarily because of lower cartridge average selling
prices.

The Company incurred research and development costs (as a percentage of
total net revenues) of approximately $5.8 million (14.1%) and $6.1 million
(15.5%) for the nine months ended September 30, 2001 and 2000, respectively.
Research and development expenses consist of costs associated with the
personnel, material, equipment and facilities necessary for conducting new
product development. The $0.3 million decrease from year to year is primarily
attributable to reduced consulting expenses and reduced consumption of
materials used in research and development. Research and development
expenditures may increase over the next three years. The amount and timing of
such increase will depend upon numerous factors including the level of activity
at any point in time, the breadth of the Companys development objectives and
the success of its development programs.

The Company incurred general and administrative expenses (as a percentage
of total net revenues) of approximately $5.2 million (12.6%) and $5.4 million
(13.6%) for the nine months ended September 30, 2001 and 2000, 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 decrease in general and
administrative expenses is primarily attributable to lower litigation expenses.

The Company incurred sales and marketing expenses (as a percentage of
total net revenues) of approximately $7.0 million (16.8%) and $5.8 million
(14.8%) for the nine months ended September 30, 2001 and 2000, respectively.
Sales and marketing expenses consist primarily of salaries, benefits, travel,
and other expenditures for sales representatives, product implementation
coordinators, international marketing support, order entry, distribution,
technical services, product literature, market research, clinical studies and
other sales infrastructure costs. The $1.2 million increase from year to year
is primarily attributable to higher staffing levels and increased marketing
activities. A portion of the costs of product implementation coordinators is
reimbursed by Abbott, and as a result, total net revenues in the nine months
ended September 30, 2001 and 2000, include approximately $0.5 million and $0.5
million, respectively, of such reimbursement.

14



---



##### 



i-STAT CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(continued)

During the nine months ended September 30, 2001, the Company incurred
settlement costs of $10.5 million related to the settlement of the patent
infringement lawsuit with Nova Biomedical Corporation, of which $10.0 million
was a settlement payment to Nova and approximately $0.5 million was for
retroactive royalties due to Nova based on sales of certain products. During
the nine months ended September 30, 2000, the Company incurred settlement costs
of $1.5 million related to the patent infringement lawsuit with Customedix
Corporation.

Other income, net, of approximately $0.7 million and $1.4 million for each
of the nine months ended September 30, 2001 and September 30, 2000, primarily
reflects interest income earned on cash, cash equivalents and restricted cash
balances.

Net loss available to Common Stockholders for the nine months ended
September 30, 2001 was approximately $22.9 million, or $1.23 per basic and
diluted share, compared with a net loss of approximately
$8.3 million, or 48 cents per basic and diluted share, for the nine months ended September 30,
2000. The net loss available to Common Stockholders for the nine
months ended September 30, 2001 included approximately
$2.3 million of accretion of Preferred Stock related to the
private placement which is described in the Recent
Developments section of Managements Discussion and
Analysis of Financial Condition and Results of Operations. The weighted average number of shares used in computing basic and
diluted net loss per share was approximately 18.619 million and 17.313 million
in the 2001 and 2000 periods, respectively.

Liquidity and Capital Resources

At September 30, 2001, the Company had cash and cash equivalents of
approximately $13.5 million, a decrease of approximately $6.1 million from the
December 31, 2000 balance of approximately $19.5 million. The decrease
primarily reflects approximately $15.3 million of cash used in operating
activities and approximately $3.9 million of equipment purchases, partially
offset by the receipt of approximately $12.3 million, net of expenses, from the
issuance of 1,480,000 shares of Common Stock and $2.1 million from the proceeds
of stock option exercises. Working capital increased by approximately $19.7
million from $21.5 million to $41.2 million during the same period. Changes in
working capital during the nine months ended September 30, 2001 were primarily
comprised of the increase in restricted cash which primarily represents $20.5
million in gross proceeds received from the private placement of the Series C
Convertible Preferred Stock in August 2001, offset by the decrease in cash and
cash equivalents of $6.1 million. Changes in working capital also include the
receipt of $5.2 million from Abbott in January 2001, representing the fourth
and final installment of prepayments for guaranteed future incremental
cartridge sales, partially offset by the amortization of such prepayments to
income as incremental cartridge sales (as defined in the Distribution Agreement
with Abbott) are generated.

The Company expects its cash resources to be sufficient to meet its
obligations and its liquidity and capital requirements for the foreseeable
future. However, if the Series C Convertible Preferred Stock described
previously under Recent Developments is redeemed in part or in full, the
Company may seek additional financing in order to support the pursuit of its
current strategic objectives. The Companys need, if any, to raise additional
funds to meet its working capital and capital requirements will depend upon
numerous additional factors, including the results of marketing and sales
activities by Abbott and other distribution partners, its new product
development efforts, manufacturing efficiencies, manufacturing plant expansion
plans and competitive conditions. 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.

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

Recent Accounting Pronouncements

On June 20, 2001, the Financial Accounting Standards Board (FASB) issued
SFAS No. 141, Business Combinations. SFAS No. 141 is effective for all
business combinations initiated after June 30, 2001. This Statement addresses
financial accounting and reporting for business combinations and supersedes APB
Opinion No. 16, Business Combinations, and SFAS No. 38, Accounting for
Preacquisition Contingencies of Purchased Enterprises. All business
combinations within the scope of this Statement are to be accounted for using
one method, the purchase method.

On June 20, 2001, FASB also issued SFAS No. 142, Goodwill and Other
Intangible Assets. SFAS No. 142 is effective for fiscal years beginning after
December 15, 2001 for all goodwill and other intangible assets recognized in an
entitys

15



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##### 



i-STAT CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(continued)

statement of financial position at the beginning of that fiscal year,
regardless of when those previously recognized assets were initially
recognized. This Statement supersedes APB Opinion No. 17, Intangible Assets.
It addresses how intangible assets that are acquired individually or with a
group of other assets should be accounted for in the financial statements upon
their acquisition. This Statement also addresses how goodwill and other
intangible assets should be accounted for after they have been initially
recognized in the financial statements. The Company is in the process of
evaluating the impact of adopting this Statement.

On August 15, 2001, FASB issued SFAS No. 143, Accounting for Asset
Retirement Obligations. SFAS No. 143 is effective for fiscal years beginning
after June 15, 2002. This Statement requires that the fair value of a
liability for an asset retirement obligation be recognized in the period in
which it is incurred if a reasonable estimate of fair value can be made. In
addition, the associated asset retirement costs are capitalized as part of the
carrying amount of the long-lived asset and subsequently allocated to expense
over the assets useful life. The Company does not expect that the adoption of
this Statement will have a material impact on its financial position or results
of operations.

On October 4, 2001, FASB issued SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets. SFAS No. 144 is effective for
fiscal years beginning after December 15, 2001. This Statement supersedes SFAS
No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of, and the accounting and reporting provisions of APB
Opinion No. 30, Reporting the Results of Operations  Reporting the Effects of
Disposal of a Segment of a Business, and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions. This Statement requires that
one accounting model be used for long-lived assets to be disposed of by sale,
whether previously held and used or newly acquired, and broadens the
presentation of discontinued operations to include more disposal transactions.
The Company does not expect that the adoption of this Statement will have a
material impact on its financial position or results of operations.

16



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##### 



i-STAT CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(continued)

SPECIAL NOTE ON FORWARD-LOOKING STATEMENTS

CERTAIN STATEMENTS IN THIS MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS, 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
CONDITIONS AFFECTING THE COMPANYS TARGET MARKETS, 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. 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, 2000, AND OTHER
FACTORS DETAILED FROM TIME TO TIME IN THE COMPANYS OTHER FILINGS WITH THE
SECURITIES AND EXCHANGE COMMISSION.

17



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##### 



i-STAT CORPORATION

PART II  OTHER INFORMATION

Item 1.  Legal Proceedings

The Company was a defendant in a case entitled Nova Biomedical Corporation,
Plaintiff v. i-STAT Corporation, Defendant. The Complaint, which was filed in
the United States District Court for the District of Massachusetts on June 27,
1995, alleged infringement by the Company of Nova Biomedical Corporations
(Nova) U.S. Patent No. 4,686,479. In February 1998, the Court entered
summary judgment in favor of the Company on the issue of patent infringement.
The plaintiff appealed the dismissal to the Federal Circuit. The Federal
Circuit affirmed two of the grounds of the dismissal (proper interpretation of
the Patent and that the Company does not literally infringe), but remanded the
case to the District Court with instructions to reconsider whether the
Companys device performs a certain measurement in a substantially equivalent
way to a method covered by the Patent, and therefore infringes under the
doctrine of equivalents. A jury trial was scheduled for July 2001.
Management concluded that the uncertainty inherent in any jury trial as well as
the drain on the Companys resources merited a resolution of this lawsuit.
Accordingly, on July 26, 2001 the Company entered into a license agreement and
a settlement agreement under which the Company agreed to pay Nova $10.5
million. Pursuant to the agreements, $6.5 million was paid on July 26, 2001, a
retroactive royalty of $0.5 million was paid on August 14, 2001 for the period
of January 1, 2001 through June 30, 2001, and $3.5 million plus interest was
due to be paid over one year in equal quarterly installments, pursuant to a
secured promissory note. The promissory note was prepaid on August 3, 2001.
The license agreement provides for the payment to Nova of a royalty equal to 4%
of the invoice price of products sold in the United States after January 1,
2001, which products determine hematocrit levels according to any method used
by the Company prior to December 31, 2000, as well as any method covered by the
Patent. The royalties are payable through the life of the Nova patent (July
22, 2005). The Company has commercialized products which determine hematocrit
levels using a method that was not used by the Company prior to December 31,
2000 and which the Company believes is not covered by the Patent.
Consequently, the Company does not believe that it owes any additional
royalties to Nova.

Item 2.  Changes in Securities

Issuance of Unregistered Securities

On August 3, 2001, the Company closed the private placement of securities which
is described under Recent Developments in Managements Discussion and
Analysis of Financial Condition and Results of Operations in Part I of this
Report. The shares of Common Stock issued in this transaction, and the shares
of Common Stock underlying the Series C Convertible Preferred Stock and
Warrants issued in this transaction, were registered with the Securities and
Exchange Commission on Form S-3 (File No. 333-68770), which was declared
effective on September 14, 2001.

18



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##### 



EXHIBIT INDEX

ITEM 6.  Exhibits and Reports on Form 8-K

|      |  |                                                                                                                                                                                                 
|----- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a)   |  | Exhibits                                                                                                                                                                                        
|     
|3.1   |  | Restated Certificate of Incorporation                                                                                                                                                           
|     
|     
|     
|     
|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                                                                                                                  
|     
|     
|     
|     
|3.5   |  | Certificate of Designation, Preferences and Rights of Series C Preferred Stock                                                                                                                  
|     
|     
|     
|     
|3.6   |  | Certificate of Amendment to the Restated Certificate of Incorporation                                                                                                                           
|     
|     
|     
|     
|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)*
|     
|     
|     
|     
|10.56 |  | Form of Settlement Agreement dated as of July 26, 2001,
between the Company and Nova Biomedical Corporation (Form 8-K dated
July 27, 2001)*                                                     
|     
|     
|     
|     
|10.57 |  | Registration Rights Agreement, dated as of August 2, 2001,
between Registrant and the Purchasers named therein (Form 8-K dated
August 3, 2001)*                                                 
|     
|     
|     
|     
|10.58 |  | Form of Warrant, issued as of August 2, 2001, to purchase
shares of Common Stock of Registrant (Form 8-K dated August 3, 2001)*                                                                 
|     
|     
|     
|     
|10.59 |  | Securities Purchase Agreement, dated as of August 2, 2001,
between the Registrant and the Purchasers named therein (Form 8-K
dated August 3, 2001)*                                             



---

|* |  | 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.
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|    |  |                                                                                                                                                                                                                                 
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(b) |  | Reports on Form 8-K                                                                                                                                                                                                             
|   
|    |  | On July 27, 2001 and August 3, 2001, the Company filed Current
Reports on Form 8-K with regard to the settlement of patent
infringement litigation and the completion of a private placement
of equity securities, respectively.

19



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##### 



i-STAT CORPORATION

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 8, 2001



| | i-STAT CORPORATION
           (Registrant)
| | ------------------------------------------



| | BY:     /s/  William P. Moffitt
William P. Moffitt
President and Chief
Executive Officer
(Principal Executive Officer)
| | ----------------------------------------------------------------------------------------------------------------------



| | BY:     /s/  Roger J. Mason
Roger J. Mason
Vice President of Finance,
Treasurer and Chief
Financial Officer
(Principal Financial Officer and
Accounting Officer)
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------

20