##### 



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 March 31, 2002

Commission File Number 0-19841

i-STAT CORPORATION
(Exact name of registrant as specified in its charter)

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

|        |  |      
|------- |  | -----
|YesXBOX |  | NoBOX

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

|                              |  |             |            | 
|----------------------------- |  | ----------- | ---------- | 
|Class                         |  | May 1, 2002
|Common Stock, $0.15 par value |  |             | 20,079,951 | 





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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 ended March 31, 2002 and 2001 |  | 3     
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|Consolidated Condensed Balance Sheets as of March 31, 2002 and December 31, 2001                   |  | 4     
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|Consolidated Condensed Statements of Cash Flows for the three months ended March 31, 2002 and 2001 |  | 5     
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|Notes to Consolidated Condensed Financial Statements                                               |  | 6-9   
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|Item 2  Managements Discussion and Analysis of Financial Condition and Results of Operations     |  | 10-14 
|                                                                                                  
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|                                                                                                  
|PART II OTHER INFORMATION                                                                          |  |       
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|Item 1  Legal Proceedings                                                                         |  | 15    
|                                                                                                  
|                                                                                                  
|                                                                                                  
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|Item 6  Exhibits and Reports on Form 8-K                                                          |  | 16    
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|                                                                                                   |  |       
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|SIGNATURES                                                                                         |  | 17    

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
|                                                                                               |                              |                                    |                |        | March 31,         
|                                                                                               |                              |                                    |                |        |                   
|                                                                                               |                              |                                    |                |        | 2002               |        | 2001      
|                                                                                               |                              |                                    |                |        |                    |        |           
|Net revenues:                                                                                  |                              |                                    |                |        |                    |        |            |       
|                                                                                              
|                                                                                              
|                                                                                              
|                                                                                              
|                                                                                               | Related party product sales  |                                    | $              | 11,556 |                    |        | $          | 10,309 |       
|                                                                                              
|                                                                                              
|                                                                                              
|                                                                                              
|                                                                                               | Third party product sales    |                                    |                | 2,669  |                    |        |            | 1,844  |       
|                                                                                              
|                                                                                              
|                                                                                              
|                                                                                              
|                                                                                               | Other related party revenues |                                    |                | 175    |                    |        |            | 175    |       
|                                                                                               |                              |                                    |                |        |                    |        |            |       
|                                                                                               |                              | Total net revenues                 |                |        | 14,400             |        |            |        | 12,328 |       
|                                                                                              
|                                                                                              
|                                                                                              
|                                                                                              
|Cost of products sold                                                                          |                              |                                    | 12,748         |        |                    |        | 10,526     |       
|                                                                                              
|                                                                                              
|                                                                                              
|                                                                                              
|Research and development                                                                       |                              |                                    | 1,937          |        |                    |        | 1,944      |       
|                                                                                              
|                                                                                              
|                                                                                              
|                                                                                              
|General and administrative                                                                     |                              |                                    | 1,386          |        |                    |        | 1,575      |       
|                                                                                              
|                                                                                              
|                                                                                              
|                                                                                              
|Sales and marketing                                                                            |                              |                                    | 2,270          |        |                    |        | 2,412      |       
|                                                                                               |                              |                                    |                |        |                    |        |            |       
|                                                                                               |                              | Total operating costs and expenses |                |        | 18,341             |        |            |        | 16,457 |       
|                                                                                               |                              |                                    |                |        |                    |        |            |       
|                                                                                               |                              |                                    | Operating loss |        |                    | (3,941 | )          |        |        | (4,129 | )
|                                                                                              
|                                                                                              
|                                                                                              
|                                                                                              
|Other income, net                                                                              |                              |                                    | 189            |        |                    |        | 303        |       
|                                                                                               |                              |                                    |                |        |                    |        |            |       
|Net loss                                                                                       |                              |                                    | (3,752         | )      |                    |        | (3,826     | )     
|                                                                                              
|                                                                                              
|                                                                                              
|                                                                                              
|Dividends on Preferred Stock                                                                   |                              |                                    | (549           | )      |                    |        |           |       
|                                                                                              
|                                                                                              
|                                                                                              
|                                                                                              
|Accretion of Preferred Stock                                                                   |                              |                                    | (112           | )      |                    |        |           |       
|                                                                                               |                              |                                    |                |        |                    |        |            |       
|Net loss available to Common Stockholders                                                      |                              |                                    | ($4,413        | )      |                    |        | ($3,826    | )     
|                                                                                               |                              |                                    |                |        |                    |        |            |       
|Basic and diluted net loss per share available to Common Stockholders                          |                              |                                    | ($0.22         | )      |                    |        | ($0.21     | )     
|                                                                                               |                              |                                    |                |        |                    |        |            |       
|Shares used in computing basic and diluted net loss per share
available to Common Stockholders |                              |                                    | 19,980,887     |        |                    |        | 18,232,494 |       
|                                                                                               |                              |                                    |                |        |                    |        |            |       

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

3



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##### 



i-STAT CORPORATION

CONSOLIDATED CONDENSED BALANCE SHEETS

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

|                                                                                            |                                                                                                                                                                                       |                                                                                                          |        |           |        |              |        |          |        | 
|------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------- | ------ | --------- | ------ | ------------ | ------ | -------- | ------ | 
|                                                                                            |                                                                                                                                                                                       |                                                                                                          |        | March 31, |        | December 31,
|                                                                                            |                                                                                                                                                                                       |                                                                                                          |        | 2002      |        | 2001        
|                                                                                            |                                                                                                                                                                                       |                                                                                                          |        |           |        |             
|                                                                                            |                                                                                                                                                                                       | ASSETS                                                                                                   |        |           |        |              |        |          |        | 
|Current assets:                                                                             |                                                                                                                                                                                       |                                                                                                          |        |           |        |              |        |         
|                                                                                            | Cash and cash equivalents                                                                                                                                                             |                                                                                                          | $      | 41,789    |        |              | $      | 43,112   |       
|                                                                                            | Accounts receivable, net                                                                                                                                                              |                                                                                                          |        | 383       |        |              |        | 546      |       
|                                                                                            | Inventories                                                                                                                                                                           |                                                                                                          |        | 12,179    |        |              |        | 13,393   |       
|                                                                                            | Prepaid expenses and other current assets                                                                                                                                             |                                                                                                          |        | 953       |        |              |        | 1,924    |       
|                                                                                            |                                                                                                                                                                                       |                                                                                                          |        |           |        |              |        |         
|                                                                                            |                                                                                                                                                                                       | Total current assets                                                                                     |        |           | 55,304 |              |        |          | 58,975 | 
|Plant and equipment, net of accumulated depreciation of
$32,370 in 2002 and $31,151 in 2001 |                                                                                                                                                                                       |                                                                                                          | 14,673 |           |        |              | 14,964 |         
|Other assets                                                                                |                                                                                                                                                                                       |                                                                                                          | 1,920  |           |        |              | 1,950  |         
|                                                                                            |                                                                                                                                                                                       |                                                                                                          |        |           |        |              |        |         
|                                                                                            |                                                                                                                                                                                       | Total assets                                                                                             |        | $         | 71,897 |              |        | $        | 75,889 | 
|                                                                                            |                                                                                                                                                                                       |                                                                                                          |        |           |        |              |        |         
|                                                                                            |                                                                                                                                                                                       | LIABILITIES AND STOCKHOLDERS EQUITY                                                                     |        |           |        |              |        |          |        | 
|Current liabilities:                                                                        |                                                                                                                                                                                       |                                                                                                          |        |           |        |              |        |         
|                                                                                            | Accounts payable                                                                                                                                                                      |                                                                                                          | $      | 2,676     |        |              | $      | 2,662    |       
|                                                                                            | Accounts payable to related party, net                                                                                                                                                |                                                                                                          |        | 4,017     |        |              |        | 2,673    |       
|                                                                                            | Accrued expenses                                                                                                                                                                      |                                                                                                          |        | 3,720     |        |              |        | 4,896    |       
|                                                                                            | Deferred revenue, current (inclusive of related party deferred
revenue of $59 in 2002 and $662 in 2001)                                                                               |                                                                                                          |        | 75        |        |              |        | 662      |       
|                                                                                            |                                                                                                                                                                                       |                                                                                                          |        |           |        |              |        |         
|                                                                                            |                                                                                                                                                                                       | Total current liabilities                                                                                |        |           | 10,488 |              |        |          | 10,893 | 
|                                                                                            | Deferred liability  related party, non-current                                                                                                                                       |                                                                                                          |        | 5,041     |        |              |        | 5,058    |       
|                                                                                            |                                                                                                                                                                                       |                                                                                                          |        |           |        |              |        |         
|                                                                                            |                                                                                                                                                                                       | Total liabilities                                                                                        |        |           | 15,529 |              |        |          | 15,951 | 
|                                                                                            |                                                                                                                                                                                       |                                                                                                          |        |           |        |              |        |         
|Series D Redeemable Convertible Preferred Stock, liquidation value $30,736                  |                                                                                                                                                                                       |                                                                                                          | 26,048 |           |        |              | 25,334 |         
|Stockholders equity:                                                                       |                                                                                                                                                                                       |                                                                                                          |        |           |        |              |        |         
|                                                                                            | Preferred Stock, $0.10 par value, 7,000,000 shares authorized:                                                                                                                        |                                                                                                          |        |           |        |              |        |          |       
|                                                                                            |                                                                                                                                                                                       | Series A Junior Participating Preferred Stock, $0.10 par value,
1,500,000 shares authorized; none issued |        |           |       |              |        |          |       | 
|                                                                                            |                                                                                                                                                                                       | Series C Convertible Preferred Stock, $0.10 par value, 25,000 shares
authorized; none issued             |        |           |       |              |        |          |       | 
|                                                                                            | Common Stock, $0.15 par value, 50,000,000 shares authorized: 20,120,033
and 20,107,483 shares issued, and 20,079,216 and 20,066,666
shares outstanding in 2002 and 2001, respectively |                                                                                                          |        | 3,018     |        |              |        | 3,016    |       
|                                                                                            | Treasury Stock, at cost, 40,817 shares                                                                                                                                                |                                                                                                          |        | (750      | )      |              |        | (750     | )     
|                                                                                            | Additional paid-in capital                                                                                                                                                            |                                                                                                          |        | 254,756   |        |              |        | 255,442  |       
|                                                                                            | Unearned compensation                                                                                                                                                                 |                                                                                                          |        |          |        |              |        | (55      | )     
|                                                                                            | Loan to officer, net                                                                                                                                                                  |                                                                                                          |        | (336      | )      |              |        | (417     | )     
|                                                                                            | Accumulated deficit                                                                                                                                                                   |                                                                                                          |        | (223,937  | )      |              |        | (220,185 | )     
|                                                                                            | Accumulated other comprehensive loss                                                                                                                                                  |                                                                                                          |        | (2,431    | )      |              |        | (2,447   | )     
|                                                                                            |                                                                                                                                                                                       |                                                                                                          |        |           |        |              |        |         
|                                                                                            |                                                                                                                                                                                       | Total stockholders equity                                                                               |        |           | 30,320 |              |        |          | 34,604 | 
|                                                                                            |                                                                                                                                                                                       |                                                                                                          |        |           |        |              |        |         
|                                                                                            |                                                                                                                                                                                       | Total liabilities and stockholders equity                                                               |        | $         | 71,897 |              |        | $        | 75,889 | 
|                                                                                            |                                                                                                                                                                                       |                                                                                                          |        |           |        |              |        |         

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)

|                                      |                                                                            |                              |                                           |         |                    |      |      |         |   |        |  
|------------------------------------- | -------------------------------------------------------------------------- | ---------------------------- | ----------------------------------------- | ------- | ------------------ | ---- | ---- | ------- | - | ------ | -
|                                      |                                                                            |                              |                                           |         | Three Months Ended
|                                      |                                                                            |                              |                                           |         | March 31,         
|                                      |                                                                            |                              |                                           |         |                   
|                                      |                                                                            |                              |                                           |         | 2002               |      | 2001
|                                      |                                                                            |                              |                                           |         |                    |      |     
|Cash flows from operating activities: |                                                                            |                              |                                           |         |                    |      |      |        
|                                     
|                                     
|                                     
|                                     
|                                      | Net loss                                                                   |                              |                                           | ($3,752 | )                  |      |      | ($3,826 | )
|                                     
|                                     
|                                     
|                                     
|                                      | Adjustments to reconcile net loss to net cash used in operating activities |                              |                                           | 736     |                    |      |      | (636    | )
|                                     
|                                     
|                                     
|                                     
|                                      | Changes in assets and liabilities                                          |                              |                                           | 2,558   |                    |      |      | 2,942   |  
|                                      |                                                                            |                              |                                           |         |                    |      |      |         |  
|                                      |                                                                            |                              | Net cash used in operating activities     |         |                    | (458 | )    |         |   | (1,520 | )
|                                      |                                                                            |                              |                                           |         |                    |      |      |         |  
|Cash flows from investing activities: |                                                                            |                              |                                           |         |                    |      |      |        
|                                     
|                                     
|                                     
|                                     
|                                      | Purchase of equipment                                                      |                              |                                           | (858    | )                  |      |      | (1,731  | )
|                                     
|                                     
|                                     
|                                     
|                                      | Other                                                                      |                              |                                           | (21     | )                  |      |      | (53     | )
|                                      |                                                                            |                              |                                           |         |                    |      |      |         |  
|                                      |                                                                            |                              | Net cash used in investing activities     |         |                    | (879 | )    |         |   | (1,784 | )
|                                      |                                                                            |                              |                                           |         |                    |      |      |         |  
|Cash flows from financing activities: |                                                                            |                              |                                           |         |                    |      |      |        
|                                     
|                                     
|                                     
|                                     
|                                      | Proceeds from stock options exercised                                      |                              |                                           | 77      |                    |      |      | 1,493   |  
|                                     
|                                     
|                                     
|                                     
|                                      | Expenses related to private placement of Series D Redeemable Convertible   |                              |                                           |         |                    |      |      |         |  
|                                     
|                                     
|                                     
|                                     
|                                      |                                                                            | Preferred Stock and Warrants |                                           |         | (47                | )    |      |         |  |       
|                                      |                                                                            |                              |                                           |         |                    |      |      |         |  
|                                      |                                                                            |                              | Net cash provided by financing activities |         |                    | 30   |      |         |   | 1,493  |  
|                                      |                                                                            |                              |                                           |         |                    |      |      |         |  
|                                      | Effect of currency exchange rate changes on cash                           |                              |                                           | (16     | )                  |      |      | (4      | )
|                                      |                                                                            |                              |                                           |         |                    |      |      |         |  
|                                      | Net decrease in cash and cash equivalents                                  |                              |                                           | (1,323  | )                  |      |      | (1,815  | )
|                                     
|                                     
|                                     
|                                     
|                                      | Cash and cash equivalents at beginning of period                           |                              |                                           | 43,112  |                    |      |      | 19,536  |  
|                                      |                                                                            |                              |                                           |         |                    |      |      |         |  
|                                      | Cash and cash equivalents at end of period                                 |                              | $                                         | 41,789  |                    |      | $    | 17,721  |  
|                                      |                                                                            |                              |                                           |         |                    |      |      |        

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

5



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##### 



i-STAT CORPORATION

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(unaudited)

(continued)



|1. |  | General
|-- |  | -------

Basis of Presentation

The information presented as of March 31, 2002 and 2001, and for the
periods then ended, is unaudited, but includes all adjustments
(consisting of normal recurring accruals except for the inventory
adjustment discussed in Note 2) which the management of i-STAT
Corporation (the Company) believes to be necessary for the fair
presentation of results for the periods presented. The results for the
interim periods are not necessarily indicative of results to be expected
for the year. The December 31, 2001 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, 2001, including the Notes thereto, which were included
as part of the Companys Annual Report on Form 10-K, File No. 0-19841.

Basic and Diluted Loss per Share

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

Options to purchase 3,264,221 shares of common stock with exercise prices
of $6.02  $32.58 per share, which expire on various dates from April
2002 to March 2012, were outstanding at March 31, 2002. In addition,
warrants to purchase 1,875,357.5 shares of Common Stock at $8.00 per
share were outstanding at March 31, 2002. The options and warrants were
not included in the computation of diluted loss per share 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 certain items to be included in other
comprehensive income. The only component of accumulated other
comprehensive income (loss) for the Company is foreign currency
translation adjustments resulting from the translation of the financial
statements of the Companys Canadian subsidiary.

|                                   |                              |  |                              |    |      |  |         |      |  
|---------------------------------- | ---------------------------- |  | ---------------------------- | -- | ---- |  | ------- | ---- | -
|                                   |                              |  | Three Months Ended March 31,
|                                   |                              |  |                             
|                                   |                              |  | 2002                         |    | 2001
|                                   |                              |  |                              |    |     
|                                   |                              |  | (In thousands of dollars)   
|Net loss                           |                              |  | ($3,752                      | )  |      |  | ($3,826 | )   
|                                  
|                                  
|                                  
|                                  
|Other comprehensive income (loss): |                              |  |                              |    |      |  |         |     
|                                  
|                                  
|                                  
|                                  
|                                   | Foreign currency translation |  |                              | 16 |      |  |         | (893 | )
|                                   |                              |  |                              |    |      |  |         |     
|Comprehensive loss                 |                              |  | ($3,736                      | )  |      |  | ($4,719 | )   
|                                   |                              |  |                              |    |      |  |         |     

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



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##### 



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 adopted this
statement in the first quarter of 2002, as required, and there was no
impact on the Companys financial position or results of operations.

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.



|2. |  | Inventories
|-- |  | -----------

Inventories consist of the following:

|                |  |                           |        |                   |  |   |        | 
|--------------- |  | ------------------------- | ------ | ----------------- |  | - | ------ | 
|                |  | March 31, 2002            |        | December 31, 2001
|                |  |                           |        |                  
|                |  | (In thousands of dollars)
|Raw materials   |  | $                         | 4,357  |                   |  | $ | 4,462  | 
|               
|               
|               
|               
|Work-in-process |  |                           | 4,382  |                   |  |   | 3,058  | 
|               
|               
|               
|               
|Finished goods  |  |                           | 3,440  |                   |  |   | 5,873  | 
|                |  |                           |        |                   |  |   |        | 
|                |  | $                         | 12,179 |                   |  | $ | 13,393 | 
|                |  |                           |        |                   |  |   |        | 

In the first quarter of 2002, the Company recorded a charge of
approximately $1.6 million related to the write-off of certain cartridges
in inventory and the replacement of certain cartridges in the field that
exhibited a higher than usual quality check rejection rate (the entire
$1.6 million relates to inventory produced during the first quarter of
2002). This charge was in addition to a charge of approximately $1.7
million that was recorded in the fourth quarter of 2001 related to the
same quality check rejection rate issue. At March 31, 2002 and December
31, 2001, as a result of the charges, work-in-process and finished goods
inventory are presented net of an aggregate reserve of approximately $1.1
million and approximately $1.0 million, respectively. In addition, a
reserve of approximately $0.2 million and approximately $0.6 million
related to the replacement of certain cartridges in the field is recorded
in accrued expenses at March 31, 2002 and December 31, 2001,
respectively.



|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 (the
Patent). 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. On July 26,
2001 the Company entered into a license agreement and a settlement
agreement with Nova under which the Company agreed to pay Nova $10.5
million, which was recorded as a charge in the second quarter of 2001.
Pursuant to the agreements, $6.5 million 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
7

i-STAT CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(unaudited)

(continued)

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 Patent (July 22, 2005).
The Company has commercialized products that 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. On February 28, 2002, Nova filed a demand for
arbitration claiming that the method by which the Companys products
determine hematocrit are covered under the Patent and the license
agreement. Nova is seeking royalties from July 1, 2001 to date. If the
Company is unsuccessful in defending its position in the arbitration and
does not develop new methods that do not utilize the covered technology,
it may be forced to continue to pay royalties to Nova through the life of
the Patent and approximately $0.8 million in respect of products sold
through March 31, 2002. The Company plans to defend this matter
vigorously.

The Company and Abbott Laboratories (Abbott) are in disagreement over
the amount of money Abbott is entitled to for the sharing of certain
cartridge production cost savings resulting from an increase in sales
volume. This disputed item relates to different interpretations of
certain terms of the Distribution Agreement between Abbott and the
Company. If this disagreement is not resolved amicably, under the
Distribution Agreement between the Company and Abbott it must be resolved
through binding arbitration. Management of the Company believes that
Abbotts position on this issue in dispute is without merit and that, in
the event that this issue is resolved through arbitration, the Company
will not incur any additional liability to Abbott. The amount in dispute
is approximately $1.1 million at March 31, 2002, and if this matter is
resolved in favor of Abbott, which management of the Company believes is
unlikely, the Companys cost of goods sold would increase by up to the
amount in dispute. Such adjustment would be made when, and if, it is
determined that an unfavorable outcome to the Company is probable.



|4. |  | Related Party Transactions
|-- |  | --------------------------

In January 2001, the Company received a payment of $5.2 million from
Abbott for the fourth and final installment of the $25 million prepayment
for guaranteed future incremental cartridge sales (as defined in the
Distribution Agreement with Abbott). Unamortized revenue relating to the
prepayments in the amount of approximately $0.6 million is included in
deferred revenue, current, at December 31, 2001, and approximately $5.0
million is included in deferred liability  related party, non-current,
at March 31, 2002 and December 31, 2001. The unamortized revenue of
approximately $5.0 million will be recognized in the Companys income if
Abbott unilaterally terminates the Distribution Agreement. If the
Distribution Agreement is terminated, other than (i) by the Company for
cause; or (ii) by Abbott, if Abbott delivers the requisite notice
terminating the Distribution Agreement after the initial term, then, the
Company will be obligated to pay to Abbott (a) a one-time termination fee
calculated to compensate Abbott for a portion of its costs in undertaking
the distribution relationship, (b) approximately $5.0 million of
unamortized revenue related to the $25.0 million in prepayments made by
Abbott against incremental product sales, and (c) residual payments for
five years following termination based on a declining percentage of
Abbotts net sales of the Companys products during the final twelve
months of the Distribution Agreement. The Company expects that such
payments would have a material impact on its cash flows and results of
operations. The Company currently is evaluating whether or not to seek
an extension of the Distribution Agreement after 2003. If the
Distribution Agreement is terminated, the Company must take steps that it
deems appropriate or necessary to resume primary responsibility for the
marketing and sales of its products. This includes hiring additional
marketing and sales personnel and allocating resources to this endeavor.

During the first quarter of each year under the Abbott Distribution
Agreement, the Company and Abbott conduct a reconciliation of several
items, including the reconciliation of the annual prepayments made by
Abbott against future incremental cartridge sales, which amounted to
approximately $10.2 million. During the first quarter the Company
applied approximately $3.1 million of the credit to regular trade
receivables from Abbott. As a result of the remaining credit due to
Abbott at March 31, 2002, the net balance is a liability in the amount of
approximately $4.0 million (comprised of gross receivables of
approximately $3.8 million offset by a credit balance owed to Abbott of
approximately $7.8 million) and is classified as Accounts payable to
related party, net within short-term liabilities.

8



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##### 



i-STAT CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(unaudited)

(continued)

The Company generated approximately $11.6 million and approximately $10.3
million of net product sales to Abbott for the three months ended March
31, 2002 and 2001, respectively. Other related party revenues from
Abbott were approximately $0.2 million in both of the three month periods
ended March 31, 2002 and 2001. The other related party revenues from
Abbott consist of amounts reimbursed by Abbott for services performed by
the Companys implementation coordinators.

9



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##### 



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

General

i-STAT Corporation (i-STAT or the Company), which was incorporated in
Delaware in 1983, together with its wholly-owned subsidiary, i-STAT Canada
Limited, 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 (pH, PCO2
and PO2), 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).
Assuming timely regulatory approvals, the Company expects to begin commercial
introduction of the kaolin ACT and PT tests during the second half of 2002.
The Company also is conducting research and development on cardiac marker
tests. In the fourth quarter of 2000, the Company introduced the i-STAT 1
Analyzer. The i-STAT 1 Analyzerpermits a customer to run all i-STAT
cartridges as well as Abbott MediSense® glucose strips on one integrated
hand-held device. The i-STAT 1 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 central data
management system developed by the Company, 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 and in Mexico, South America, China,
Australia, and certain other Asian and Pacific Rim countries, through selected
distribution channels. On September 2, 1998, the Company entered into a
long-term sales, marketing and research alliance with Abbott Laboratories
(Abbott), which, among other things, since November 1, 1998, has altered
significantly the manner in which the Company markets and sells its products
worldwide. The 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, 2001 for a
description of the Companys agreements with Abbott. If the Distribution
Agreement is terminated, other than (i) by the Company for cause; or (ii) by
Abbott, if Abbott delivers the requisite notice terminating the Distribution
Agreement after the initial term, then, the Company will be obligated to pay to
Abbott (a) a one-time termination fee calculated to compensate Abbott for a
portion of its costs in undertaking the distribution relationship, (b)
approximately $5.0 million of unamortized revenue related to the $25.0 million
in prepayments made by Abbott against incremental product sales, and (c)
residual payments for five years following termination based on a declining
percentage of Abbotts net sales of the Companys products during the final
twelve months of the Distribution Agreement. The Company expects that such
payments would have a material impact on its cash flows and results of
operations. The Company currently is evaluating whether or not to seek an
extension of the Distribution Agreement after 2003. If the Distribution
Agreement is terminated, the Company must take steps that it deems appropriate
or necessary to resume primary responsibility for the marketing and sales of
its products. This includes hiring additional marketing and sales personnel
and allocating resources to this endeavor.

10



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##### 



i-STAT CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)

Results of Operations

Three Months Ended March 31, 2002

The Company generated total net revenues of approximately $14.4 million
and approximately $12.3 million for the three months ended March 31, 2002 and
2001, respectively, including international net revenues (as a percentage of
total net revenues) of approximately $4.0 million (27.8%) and approximately
$3.2 million (25.7%), respectively. Total net revenues from Abbott represented
approximately 81.5% and 85.0% of the Companys worldwide total net revenues for
the three months ended March 31, 2002 and 2001, respectively.

The approximately $2.1 million, or 16.8%, increase in total net revenues
was primarily due to increased shipment volumes of the Companys analyzers and
peripheral equipment. Worldwide hand-held analyzer shipments increased 53.8% to 1,175
units in the three months ended March 31, 2002, from 764 units in the three
months ended March 31, 2001. Shipments of the new i-STAT 1 Analyzercomprise a
majority of the increase. Total worldwide cartridge shipments decreased by
2.5% to 2,688,825 units in the three months ended March 31, 2002, from
2,759,000 units in the three months ended March 31, 2001. The decline in
worldwide cartridge volume was partially offset by an increase in worldwide
average selling prices per cartridge, which increased from approximately $3.39
in the first quarter of 2001 to $3.47 in the first quarter of 2002. Other
related party revenues were approximately $0.2 million in each of the three
month periods ended March 31, 2002 and March 31, 2001.

Manufacturing costs (as a percentage of product sales) associated with
product sales for the three months ended March 31, 2002 and 2001 were
approximately $12.7 million (89.6%) and approximately $10.5 million (86.6%),
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 first quarter
of 2002 compared to the first quarter of 2001 primarily because of a charge of
approximately $1.6 million (11.2%) recorded in the first quarter of 2002 for
the write-off of certain cartridges in inventory and the replacement of certain
cartridges in the field that exhibited a higher than usual quality check
rejection rate.

The Company incurred research and development costs (as a percentage of
total net revenues) of approximately $1.9 million (13.5%) and approximately
$1.9 million (15.8%) for the three months ended March 31, 2002 and 2001,
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 $1.4 million (9.6%) and approximately
$1.6 million (12.8%) for the three months ended March 31, 2002 and 2001,
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 a
decrease in litigation costs.

The Company incurred sales and marketing expenses (as a percentage of
total net revenues) of approximately $2.3 million (15.8%) and approximately
$2.4 million (19.6%) for the three months ended March 31, 2002 and 2001,
respectively. Sales and marketing expenses consist primarily of salaries,
commissions, benefits, travel, business development and similar expenditures
for sales representatives, implementation coordinators and international
marketing support, as well as order entry, product distribution, technical
services, clinical affairs, product literature, market research, and other
sales infrastructure costs. A portion of the costs of the implementation
coordinators is reimbursed by Abbott, and as a result, approximately $0.2
million of reimbursement is included in total net revenues in each of the three
month periods ended March 31, 2002 and 2001.

Other income, net, of approximately $0.2 million and approximately $0.3
million for the three months ended March 31, 2002 and 2001, respectively,
primarily reflects interest income earned on cash and cash equivalents.

11



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##### 



i-STAT CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)

In the first quarter of 2002, the Company recorded accretion of Preferred
Stock of approximately $0.1 million and dividends on Preferred Stock of
approximately $0.5 million. The accretion of Preferred Stock relates to the
issuance by the Company of Series D Redeemable Convertible Preferred Stock (the
Series D Stock) in December of 2001. The accretion recorded by the Company
reflects amortization of the difference between the net fair value and the
redemption (or stated) value of such stock. The Company recorded the Series D
Stock and the Warrants to purchase Common Stock (the Series D Warrants)
issued in the transaction at their net relative fair values of approximately
$25.2 million and approximately $2.5 million, respectively, which were
determined by an independent third party appraisal firm and were net of
issuance expenses of approximately $2.3 million. The Series D Stock is being
accreted over a period of ten years.

The Series D Stock carries a dividend of 8%, which is either accrued or
paid in cash quarterly, at the option of the Company. The first quarter 2002
dividend on the Series D Stock was recorded at its fair value of approximately
$0.5 million. The dividend was not paid in cash and its stated value of
approximately $0.6 million was accrued and added to the liquidation preference
of the Series D Stock.

Net loss available to Common Stockholders for the three months ended March
31, 2002 was approximately $4.4 million, or 22 cents per basic and diluted
share, compared with a net loss of approximately $3.8 million, or 21 cents per
basic and diluted share, for the first quarter of 2001. The principal factors
contributing to the increase of approximately $0.6 million in the net loss
available to Common Stockholders were the write-off of certain cartridges in
inventory and the replacement of certain cartridges in the field that exhibited
a higher than usual quality check rejection rate in the amount of approximately
$1.6 million, the Series D Stock dividend of approximately $0.5 million and the
Series D Stock accretion of approximately $0.1 million. The weighted average
number of shares used in computing basic and diluted net loss per share was
approximately 19.981 million and 18.232 million in the 2002 and 2001 periods,
respectively. The increase in the weighted average number of shares primarily
reflects the issuance of 1,480,000 shares of Common Stock in August 2001 and
the exercise of employee stock options.

Liquidity and Capital Resources

At March 31, 2002, the Company had cash and cash equivalents of
approximately $41.8 million, a decrease of approximately $1.3 million from the
December 31, 2001 balance of approximately $43.1 million. The decrease
primarily reflects approximately $0.5 million of cash used in operating
activities and approximately $0.9 million of equipment purchases. Working
capital decreased by approximately $3.3 million from approximately $48.1
million to approximately $44.8 million during the same period. Changes in
working capital during the three months ended March 31, 2002 were primarily
comprised of the decrease in cash and cash equivalents of approximately $1.3
million and the decrease in inventory of approximately $1.2 million due
primarily to the inventory scrap reserve charge.

During the first quarter of each year under the Abbott Distribution
Agreement, the Company and Abbott conduct a reconciliation of several items,
including the reconciliation of the annual prepayments made by Abbott against
future incremental cartridge sales, which amounted to approximately $10.2
million. During the first quarter the Company applied approximately $3.1
million of the credit to regular trade receivables from Abbott. As a result of
the remaining credit due to Abbott at March 31, 2002, the net balance is a
liability in the amount of approximately $4.0 million (comprised of gross
receivables of approximately $3.8 million offset by a credit balance owed to
Abbott of approximately $7.8 million) and is classified as Accounts payable to
related party, net within short-term liabilities.

The Company expects its cash and cash equivalents to be sufficient to meet
its obligations and its liquidity and capital requirements for the foreseeable
future. However, numerous factors may change this expectation, including the
results of its sales and marketing activities and its new product development
efforts, manufacturing difficulties, manufacturing efficiencies and plant
expansion plans, the results of litigation and other dispute resolution
proceedings, competitive conditions, long-term strategic decisions (including
the continuation or termination of the Abbott alliance), and other factors
listed under Factors That May Affect Future Results in the Companys 2001
Annual Report on Form 10-K on file with the Securities and Exchange Commission.
The Company regularly monitors capital raising alternatives in order to take
advantage of opportunities to supplement its current working capital upon
favorable terms, including joint ventures, strategic corporate partnerships or
other alliances and the sale of equity and/or debt securities.

12



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##### 



i-STAT CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)

International sales are invoiced and paid in U.S. dollars. However, the
cartridge price received from international partners, including Abbott, may be
affected by changes in the value of the U.S. dollar relative to local
currencies because the price paid by customers to our partners is set in local
currencies. When the value of foreign currencies changes with respect to the
U.S. dollar, the price paid by our partners to us changes due to the foreign
exchange conversion of local currency prices. Price reductions are limited,
however, by guaranteed U.S. dollar minimum prices established for each
cartridge.

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

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

Contingencies

The
Company 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 (the Patent). 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. On July 26, 2001 the Company
entered into a license agreement and a settlement agreement with Nova under
which the Company agreed to pay Nova $10.5 million, which was recorded as a
charge in the second quarter of 2001. Pursuant to the agreements, $6.5 million
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 Patent (July 22, 2005). The Company has commercialized products
that 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. On February 28, 2002, Nova filed a demand
for arbitration claiming that the method by which the Companys products
determine hematocrit are covered under the Patent and the license agreement.
Nova is seeking royalties from July 1, 2001 to date. If the Company is
unsuccessful in defending its position in the arbitration and does not develop
new methods that do not utilize the covered technology, it may be forced to
continue to pay royalties to Nova through the life of the Patent and
approximately $0.8 million in respect of products sold through March 31, 2002.
The Company plans to defend this matter vigorously.

The Company and Abbott Laboratories (Abbott) are in disagreement over
the amount of money Abbott is entitled to for the sharing of certain cartridge
production cost savings resulting from an increase in sales volume. This
disputed item relates to different interpretations of certain terms of the
Distribution Agreement between Abbott and the Company. If this disagreement is
not resolved amicably, under the Distribution Agreement between the Company and
Abbott it must be resolved through binding arbitration. Management of the
Company believes that Abbotts position on this issue in dispute is without
merit and that, in the event that this issue is resolved through arbitration,
the Company will not incur any additional liability to Abbott. The amount in
dispute is approximately $1.1 million at March 31, 2002, and if this matter is
resolved in favor of Abbott, which management of the Company believes is
unlikely, the Companys cost of goods sold would increase by up to the amount
in dispute. Such adjustment would be made when, and if, it is determined that
an unfavorable outcome to the Company is probable.

13



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i-STAT CORPORATION
(continued)

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 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 adopted this statement in
the first quarter of 2002, as required, and there was no impact on the
Companys financial position or results of operations.

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.

SPECIAL NOTE ON FORWARD-LOOKING STATEMENTS

CERTAIN STATEMENTS IN THIS MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS, MAY RELATE TO FUTURE EVENTS AND
EXPECTATIONS AND AS SUCH CONSTITUTE FORWARD-LOOKING STATEMENTS, WITHIN THE
MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. THE WORDS
BELIEVES, ANTICIPATES, PLANS, EXPECTS, AND SIMILAR EXPRESSIONS ARE
INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS. SUCH FORWARD-LOOKING
STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES, AND OTHER FACTORS
WHICH MAY CAUSE THE ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS OF THE COMPANY
TO BE MATERIALLY DIFFERENT FROM ANY FUTURE RESULTS, PERFORMANCE OR ACHIEVEMENTS
EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS AND TO VARY
SIGNIFICANTLY FROM REPORTING PERIOD TO REPORTING PERIOD. SUCH FACTORS INCLUDE,
AMONG OTHERS, COMPETITION FROM EXISTING MANUFACTURERS AND MARKETERS OF BLOOD
ANALYSIS PRODUCTS WHO HAVE GREATER RESOURCES THAN THE COMPANY, ECONOMIC AND
GEOPOLITICAL CONDITIONS AFFECTING THE COMPANYS TARGET MARKETS, ACTS OF
TERRORISM, THE UNCERTAINTY OF NEW PRODUCT DEVELOPMENT INITIATIVES, THE ABILITY
TO ATTRACT AND RETAIN KEY SCIENTIFIC, TECHNOLOGICAL AND MANAGEMENT PERSONNEL,
DEPENDENCE UPON LIMITED SOURCES FOR PRODUCT MANUFACTURING COMPONENTS, UPON A
SINGLE MANUFACTURING FACILITY AND UPON INNOVATIVE AND HIGHLY TECHNICAL
MANUFACTURING TECHNIQUES, MARKET RESISTANCE TO NEW PRODUCTS AND
POINT-OF-CARE-BLOOD DIAGNOSIS, INCONSISTENCY IN CUSTOMER ORDER PATTERNS,
DOMESTIC AND INTERNATIONAL REGULATORY CONSTRAINTS, UNCERTAINTIES OF
INTERNATIONAL TRADE, PENDING AND POTENTIAL DISPUTES CONCERNING OWNERSHIP OF
INTELLECTUAL PROPERTY, AVAILABILITY OF CAPITAL UPON FAVORABLE TERMS AND
DEPENDENCE UPON AND CONTRACTUAL RELATIONSHIPS WITH STRATEGIC PARTNERS,
PARTICULARLY ABBOTT LABORATORIES. 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, 2001, AND OTHER FACTORS DETAILED FROM TIME TO TIME
IN THE COMPANYS OTHER FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION.

14



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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 (the Patent). 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. On July 26, 2001 the Company entered into a
license agreement and a settlement agreement with Nova under which the Company
agreed to pay Nova $10.5 million, which was recorded as a charge in the second
quarter of 2001. Pursuant to the agreements, $6.5 million 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 Patent (July 22,
2005). The Company has commercialized products that 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. On February 28, 2002, Nova filed a demand for arbitration
claiming that the method by which the Companys products determine hematocrit
are covered under the Patent and the license agreement. Nova is seeking
royalties from July 1, 2001 to date. If the Company is unsuccessful in
defending its position in the arbitration and does not develop new methods that
do not utilize the covered technology, it may be forced to continue to pay
royalties to Nova through the life of the Patent and approximately $0.8 million
in respect of products sold through March 31, 2002. The Company plans to
defend this matter vigorously.

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##### 



EXHIBIT INDEX

ITEM 6. Exhibits and Reports on Form 8-K

|    |  |                                                                                                                                                                                                                                                                                                                                                         
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) |  | Exhibits                                                                                                                                                                                                                                                                                                                                                
|   
|   
|   
|   
|3.1 |  | Restated Certificate of Incorporation (Form S-8/S-3
Registration Statement, File No. 33-48889)*                                                                                                                                                                                                                                                         
|   
|   
|   
|   
|3.2 |  | By-Laws (Form 10-K for fiscal year ended December 31, 1996)*                                                                                                                                                                                                                                                                                            
|   
|   
|   
|   
|3.3 |  | Certificate of Designation, Preferences and Rights of Series
A Preferred Stock (Form 8-K, dated July 10, 1995 and amended on
September 11, 1995)*                                                                                                                                                                                                       
|   
|   
|   
|   
|3.5 |  | Certificate of Designation, Preferences and Rights of Series
C Preferred Stock (Form 10-Q for the quarterly period ended
September 30, 2001)*                                                                                                                                                                                                           
|   
|   
|   
|   
|3.6 |  | Certificate of Amendment to the Restated Certificate of
Incorporation (Form 10-Q for the quarterly period ended September
30, 2001)*                                                                                                                                                                                                                    
|   
|   
|   
|   
|3.7 |  | Certificate of Designation, Preferences and Rights of Series
D Preferred Stock (Form 10-K for fiscal year ended December 31,
2001.)*                                                                                                                                                                                                                    
|   
|   
|   
|   
|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)*                                                                                                                                                        
|   
|   
|   
|   
|*   |  | 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 April 1, 2002, the Company filed a current Report on Form 8-K
attaching press releases pertaining to adjustments to its
previously announced 2001 financial results and the acknowledgement
by the Company that Abbott Laboratories had met the minimum
three-year growth rate milestone provided for in its Distribution
Agreement with the Company.

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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: May 14, 2002

| |  |     |  |                                                                                                                                     
| |  | --- |  | ------------------------------------------------------------------------------------------------------------------------------------
| |  |     |  | i-STAT CORPORATION
(Registrant)                                                                                                     
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| |  |     |  |                                                                                                                                     
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| |  | BY: |  | /s/William P. Moffitt                                                                                                               
|
|
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| |  |     |  |                                                                                                                                     
|
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|
| |  |     |  | William P. Moffitt
President and Chief Executive Officer
(Principal Executive Officer)                                              
|
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| |  |     |  |                                                                                                                                     
|
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| |  | BY: |  | /s/Roger J. Mason                                                                                                                   
|
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| |  |     |  |                                                                                                                                     
|
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|
|
| |  |     |  | Roger J. Mason
Vice President of Finance,
Treasurer and Chief Financial Officer
(Principal Financial Officer and
Accounting Officer)

17