<PAGE>   1
     AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 23, 1998

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K

       / X /      ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997

                                       OR

       /   /    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                 For the transition period from ______ to ______

                         COMMISSION FILE NUMBER 0-19841

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

<TABLE>
<CAPTION>
                         DELAWARE                                                       22-2542664
<S>                                                                        <C>
(State or other jurisdiction of incorporation or organization)             (I.R.S. Employer Identification No.)
</TABLE>

                   303 COLLEGE ROAD EAST, PRINCETON, NJ 08540
               (Address of principal executive offices) (Zip code)

                                 (609) 243-9300
              (Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK, PAR
VALUE $.15 PER SHARE SERIES A PREFERRED STOCK PURCHASE RIGHTS

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

Yes X        No __________________

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. / /

Number of shares of Common Stock outstanding as of March 9, 1998: 13,208,885

The aggregate market value of the Registrant's voting stock held by
non-affiliates of the Registrant as of March 9, 1998 is approximately
$113,818,930. Shares of voting stock held by each executive officer and
director and by each person who owns 5% or more of any voting stock have been
excluded in that such persons may be deemed affiliates of the Registrant. This
determination of affiliate status is not necessarily a conclusive determination
for other purposes.

                       DOCUMENTS INCORPORATED BY REFERENCE
                        (To The Extent Indicated Herein)

Part III incorporates certain information by reference to the Registrant's Proxy
Statement for its 1998 Annual Meeting of Stockholders.
<PAGE>   2
                                TABLE OF CONTENTS


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ITEM                                                                                                       PAGE
<S>    <C>                                                                                              <C>
                                     PART I

1.     Business
       (a) General development of business....................................................................1
       (b) Industry segment and geographic area data..........................................................8
       (c) Description of business............................................................................1

2.     Properties.............................................................................................8

3.     Legal Proceedings......................................................................................8

4.     Submission of Matters to a Vote of Security Holders....................................................9


                                     PART II

5.     Market for the Registrant's Common Equity
       and Related Stockholder Matters.......................................................................11

6.     Selected Consolidated Financial Data..................................................................12

7.     Management's Discussion and Analysis of Financial Condition
       and Results of Operations.............................................................................13

8.     Financial Statements and Supplementary Data
       (a) Financial Statements..............................................................................21
       (b) Selected Quarterly Financial Data.................................................................36

9.     Changes in and Disagreements with
       Accountants on Accounting and Financial Disclosure....................................................16


                                    PART III

10.    Directors and Executive Officers of the Registrant................................................10, 17

11.    Executive Compensation................................................................................17

12.    Security Ownership of Certain
       Beneficial Owners and Management......................................................................17

13.    Certain Relationships and Related Transactions........................................................17

                                     PART IV

14.    Exhibits, Financial Statement
       Schedules and Reports on Form 8-K.....................................................................17
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This Annual Report contains both historical information and forward looking
statements. The Company operates in a high technology, emerging market
environment that involves significant risks and uncertainties which may cause
actual results to vary from such forward looking statements and to vary
significantly from reporting period to reporting period. These risks include,
among others, competition from existing manufacturers and marketers of blood
analysis products who have greater resources than the Company, the uncertainty
of new product development initiatives, difficulties in transferring new
technology to the manufacturing stage, market resistance to new products and
point-of-care blood diagnosis, domestic and international regulatory
constraints, uncertainties of international trade, pending and potential
disputes concerning ownership of intellectual property, dependence upon
strategic corporate partners for assistance in development of new markets and
other risks detailed from time to time in the Company's filings with the
Securities and Exchange Commission.


                                     PART 1

ITEM 1. BUSINESS

i-STAT Corporation ("i-STAT" or the "Company"), was incorporated in Delaware in
1983, and 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(R) 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 System uses a simple, one-step
procedure, the results of which can be easily linked by infrared transmission to
a health care provider's information system. As of December 31, 1997, i-STAT had
customers throughout the United States, as well as customers in Japan, Western
Europe, Canada, South America and Asia. The Company intends for the i-STAT
System to become the standard of care for blood analysis at the patient's side,
enabling rapid clinical intervention, improved patient outcomes, and lower
operational costs. Consonant with the Company's leadership position in the
point-of-care blood analysis market, the Company has also recently formed a
business unit to design, develop and install information management solutions
for point-of-care testing. Initial products will link instrument-based
point-of-care testing systems for blood gases, electrolytes, coagulation, blood
glucose and urinalysis, whether or not they are the Company's products, with a
centralized management station and a hospital's primary information system.

The i-STAT System provides accurate and reliable blood test results more quickly
and more simply than the most advanced clinical laboratory equipment. Blood
analysis performed at the point of patient care with the i-STAT System permits
more timely diagnosis and therapeutic intervention and reduces the occurrence of
common testing errors. The Company believes these attributes of the i-STAT
System result in improved patient care and lower overall health care costs. In
addition, the Company believes that the i-STAT System reduces or eliminates the
need for expensive capital equipment, specialized labor force, equipment
maintenance and space required for traditional testing laboratories.

The original i-STAT System, introduced in September 1992, was capable of
performing six of the most commonly ordered blood tests, which are tests for
sodium, potassium, chloride, glucose, urea nitrogen and hematocrit. In 1994, the
Company expanded the testing capabilities of the i-STAT System through the
introduction of cartridges which perform tests for pH, ionized calcium and
bicarbonate. In 1995, the Company introduced cartridges which measure arterial
blood gases (pH, PCO(2) and PO(2)), and in the fourth quarter of 1997 the
Company received Food and Drug Administration clearance to market its creatinine
test. The Company believes that 95% of the approximately 200 million blood tests
(electrolyte and blood gas) performed on a "stat" basis in the United States
each year now can be performed using the i-STAT System. The Company believes
that because the i-STAT System can now perform the vast majority of the tests
required on a "stat" basis, it is substantially more attractive as a total
replacement for hospital "stat" laboratories. The Company has additional tests
under development.

i-STAT's near-term objective is to further increase sales of its test cartridges
to the critical care departments of hospitals where the highest volume of "stat"
blood tests are performed. The Company intends to achieve this goal, for the
most part, by focusing its sales efforts on those hospitals that have the
greatest likelihood of fully adopting the i-STAT System throughout all of their
critical care departments and of using the i-STAT System as their principal
means of testing blood. By virtue of the strategic technology and marketing
alliance concluded in mid-1995 between the Company and Hewlett-Packard Company
("HP"), the i-STAT System was introduced and marketed in Western Europe by HP
during 1996. In addition, i-STAT and HP have jointly developed a blood analysis
device (the "Integrated Analyzer"),

                                       1
<PAGE>   4
based on the i-STAT System, for integration into HP's customer installed base of
patient monitoring systems. This device was introduced during 1997. The
Company's longer-term strategy is to expand its distribution throughout the
world and to increase its efforts, through the use of distribution and
partnering arrangements, to market its products to alternate site health care
providers such as physician offices, freestanding dialysis centers, nursing
homes, outpatient clinics, emergency medical services units, home healthcare
agencies and veterinary clinics.


i-STAT SYSTEM COMPONENTS

The i-STAT System is composed of two types of analyzers, which are hand-held,
portable instruments, and various single-use, disposable cartridges, which
contain the electrochemical biosensors necessary to perform the desired blood
tests. One of the Company's analyzers is thermostatically controlled and can be
used for all cartridges manufactured by the Company and the other can be used
for all cartridges manufactured by the Company except the arterial blood gas
cartridges. The Company's single-use, disposable cartridges currently allow the
i-STAT System to perform blood tests for sodium, potassium, chloride, glucose,
urea nitrogen, hematocrit, ionized calcium, arterial blood gases, (pH, PCO(2)and
PO(2), and bicarbonate and to derive certain other values, such as total carbon
dioxide, base excess, anion gap, hemoglobin and O(2) saturation, by calculation
from the tests performed. The i-STAT System also includes peripheral components
that enable the results of tests to be transmitted by infrared means to both a
proprietary information system for managing the user's point-of-care testing
program and to the user's information systems for billing and archiving.
                                                                               
i-STAT believes its proprietary thin-film, biosensor technology provides the
Company with significant competitive advantages over other technologies. As a
result of the Company's proprietary know-how and the attributes of its thin-film
biosensors, the i-STAT System produces accurate results in approximately two
minutes in an easy, single step procedure, is small enough to be hand-held and
to be carried from patient to patient, operates with only two to three drops of
blood and is virtually maintenance free. The Company's thin-film technology uses
micro-fabrication techniques which permit dimensionally small product features
resulting in faster reactions than larger configurations such as those used in
thick-film technology. Thin-film technology permits i-STAT's biosensors to
"wet-up" quickly with small amounts of calibrant and blood samples, thereby
enabling the Company to package its biosensors in a dry state while retaining
the ability to produce results in approximately two minutes. The Company
believes that packaging its biosensors in a dry state facilitates extended shelf
life and simplifies the calibration process. The Company's disposable cartridges
have a shelf life ranging from a minimum of six months to a maximum of twelve
months. In addition, the Company's thin-film biosensor technology permits the
cartridges in the i-STAT System to be configured to perform multiple tests and
combinations of tests. The Company believes products based on other existing
technologies cannot achieve performance characteristics or product design
features of the type described above.


MARKETING AND DISTRIBUTION

The Company currently markets the i-STAT System primarily to the critical care
departments of hospitals in the United States, where the highest volume of blood
tests are performed on a "stat" basis. The i-STAT System also is marketed to
hospitals in Japan, Western Europe, Canada, South America and Asia. The Company
markets and distributes the i-STAT System in the United States and Canada
principally through its own direct sales and marketing organization, in Japan
through Japanese marketing partners and in South America and Asia through
selected distribution channels. In February 1996, HP began marketing and
distributing the i-STAT System in certain countries in Europe through its
distribution arrangements with the Company. The Company is actively planning
market introduction into other foreign markets, including, but not limited to,
through its arrangements with HP. The Company's strategy includes partnering
with large purchasing organizations, including large hospital networks and
health maintenance organizations. In November 1997, the Company entered into a
sole source three year contract with Premier Inc. for point-of-care blood gas
analyzers pursuant to which Premier members may purchase the Company's products
at reduced cost in exchange for minimum blood gas commitments. Premier is a
strategic alliance of leading hospitals and healthcare systems across the U.S.,
representing more than 1,800 member hospitals and healthcare facilities. In
January 1998, the Company entered into a three year contract with Kaiser
Permanente pursuant to which Kaiser Permanente is recommending the Company's
products to its facilities nationwide, by designating the Company a "preferred
provider". Kaiser Permanente is the largest non-profit health maintenance
organization in the U.S. In March 1998, VHA, Inc., renewed its existing contract
with the Company for an additional two years. Under that agreement, the Company
has been named as the sole contracted provider of point-of-care blood gas
analyzers. VHA is a nationwide network of more than 1,600 leading community
owned healthcare organizations and their physicians, which comprises 24% of the
nation's community hospitals.

                                       2
<PAGE>   5
In July 1995, the Company entered into license and distribution agreements with
HP at which time HP invested approximately $61 million in exchange for 2,138,702
shares of the Company's Series B Preferred Stock (the "Series B Stock"). Under
the distribution agreement, HP is the exclusive distributor of the Company's
current products, and certain new products the Company may develop, in Europe,
Africa, the Middle East and the former Soviet block countries until July 1998.
Upon the occurrence of certain events, HP's exclusivity term may be extended
beyond July 1998 or the distributorship may be converted into a non-exclusive
arrangement. If HP's distributorship is converted to a non-exclusive arrangement
for failure to meet designated milestones, HP will not be entitled to distribute
new products introduced by the Company. The Company's license agreement with HP
provides for the grant by the Company to HP of a perpetual, worldwide license
under certain of the Company's intellectual property to develop and distribute
the Integrated Analyzer to professionally attended human healthcare
institutions. The license does not include the right to make, use or sell the
Company's cartridges and provides for the payment of royalties to the Company.
The license is exclusive until July 1998 and exclusivity may be extended beyond
July 1998 depending on the achievement by HP of designated milestones. Under
certain circumstances the license may be extended under a non-exclusive
arrangement. The license agreement also provides that, during the exclusivity
period, HP will have a right of first refusal to license from the Company new
intellectual property for Integrated Analyzers on substantially the same terms
as the license agreement. In addition, if after the exclusivity period the
Company grants to any third party a license to make and distribute Integrated
Analyzers on royalty terms more favorable to the third party than under the HP
license agreement, then HP's royalty obligations generally will be adjusted to
such third party's rates. The license agreement is scheduled to expire generally
at the time of expiration of the Company's last-to-expire patent covering the
licensed technology. In August of 1997, the Company signed an agreement with HP
to supply electromechanical components to HP for use in the HP Integrated
Analyzer. This electromechanical mechanism is substantially equivalent to the
mechanism used in the Company's portable hand-held analyzer. The initial term of
the agreement is one year and is subject to yearly extensions.

In August 1988, the Company entered into product commercialization and
distribution agreements with JCR Pharmaceuticals Inc. and FUSO Inc., two
Japanese pharmaceutical and medical device companies. Pursuant to such
agreements, i-STAT granted product distribution rights covering Japan, South
Korea and Taiwan for an initial exclusive period which expired in December 1997,
and a non-exclusive period from December 1997 to December 2002. These
agreements, which expire in 2002, also provide the Japanese companies with a
right of first offer with respect to the distribution of the covered products in
certain Southeast Asian countries. The Company understands that JCR has assigned
to Fuso all distribution rights under these agreements. Sales to FUSO
represented approximately 21.0% of the Company's worldwide sales (including
deferred revenue and the creatinine milestone payment of $0.9 million, net) for
1997.

The Company, through its direct marketing efforts and through distribution and
partnering arrangements, is in the early stages of introduction of the i-STAT
System to health care providers other than hospitals, such as free-standing
dialysis centers, emergency medical services, home care providers, outpatient
clinics, physicians' offices and nursing homes. The Company markets its products
to veterinarians' offices in the U.S. through a distribution agreement with
Heska Corporation. Over the longer term, the Company expects to increase its
efforts to market its products to such alternate site health care providers
through the use of distribution and partnering arrangements.

See "Government Regulation" for a description of the regulatory framework
impacting the Company's ability to market its products into certain geographical
areas and alternate site markets.


COMPETITION

The Company competes principally with manufacturers of traditional blood
analysis equipment used by clinical laboratories. Historically, most clinical
testing has been performed in the hospital or commercial laboratory setting.
These clinical laboratories provide analyses similar to those conducted by the
i-STAT System and have traditionally been effective at processing large panels
of tests with the use of skilled technicians and complex equipment. While i-STAT
cannot provide the same range of tests, the Company believes that its products
offer several advantages over clinical laboratories, including lower costs,
faster results and reduced opportunity for error. In addition, the i-STAT
System's testing capabilities currently are sufficiently broad to enable larger
health care facilities to close "stat" laboratories and replace them wholly with
the i-STAT System.


                                       3
<PAGE>   6
Other companies may introduce products performing the same or similar functions
as the i-STAT System. In such case, the Company may not be able to compete
effectively with these products, or these products may render the Company's
products obsolete. The Company is aware of products that have been developed and
are being marketed for point-of-care analysis of some or all of the analytes
measured by the i-STAT System. The Company believes that these products are more
difficult to use and more costly, test for fewer analytes than the i-STAT System
and otherwise do not offer the same features and benefits.

To the extent that the i-STAT System achieves penetration into non-hospital
markets such as veterinarians' offices, doctors' offices, nursing homes and
outpatient clinics, it may face competition from commercial laboratories and
from established pharmaceutical and medical device companies which have
developed multitest blood analyzers specifically for use in these markets. The
Company believes that its products are capable of competing favorably with these
other products on the basis of ease-of-use, speed, the ability to conduct tests
without a skilled technician, variety of test menu, cost-effectiveness and
accuracy of results.

Other manufacturers and academic institutions are currently conducting research
and development with respect to blood testing technologies, including biosensor
technology, and other companies may in the future engage in research and
development activities regarding products competitive with those of the Company.
Certain of the Company's current and potential competitors have significantly
greater financial, technical, manufacturing and marketing resources than the
Company.

Although the Company's patents may prevent or restrict others from successfully
developing or marketing competing systems in the United States or other
countries, the Company may be required to expend substantial resources to
enforce its patents through litigation or otherwise to maintain its competitive
advantage. See "Patents and Proprietary Rights."


MANUFACTURING

The Company's products are manufactured by the Company with various components
being supplied by outside vendors. The Company manufactures its biosensors in
order to protect the proprietary nature of the Company's products and to control
the development and enhancement of its proprietary technology. Other cartridge
components are manufactured to the Company's specifications by outside vendors.
Final assembly, quality testing and inspection of cartridges are performed by
the Company. All components of the analyzers as well as peripheral components,
such as the infrared data communication link, are either custom fabricated by
outside suppliers or purchased by the Company from outside sources. Software for
the analyzers and peripheral systems is engineered and maintained by the
Company. All major assembly, software download and final quality testing and
inspection are performed by the Company.

Most product manufacturing and assembly by the Company is conducted in its
52,000 square foot facility in Kanata, Ontario, Canada. This facility, which is
leased, includes an 8,000 square foot Class 1000 clean room augmented by
additional environmentally controlled assembly and packaging space. The Company
also conducts cartridge assembly and inspection in a 30,325 square foot leased
facility in Plainsboro, New Jersey. In addition, the Company assembles analyzers
at its principal offices in Princeton, New Jersey. In mid-1998, the Company
plans to transfer the New Jersey cartridge assembly and inspection operations to
the existing Kanata facility. See Item 2. "Properties" and Item 7. "Management's
Discussion and Analysis of Financial Condition and Results of Operations". The
Company believes that its manufacturing capacity is sufficient to meet its
immediately foreseeable production requirements. The Company is currently
manufacturing its cartridges at a rate of over 5,000,000 cartridges per year,
but has the capacity to manufacture over 20,000,000 cartridges at full factory
utilization using the current generation of its biosensor chips. The Company
believes that, through successive shrinks of its biosensor chips it is in the
process of implementing, its existing wafer fabrication facilities could produce
chips to support in excess of 100,000,000 cartridges per year. Additional
assembly capacity would be required to achieve this output.

Because the Company operates in a new technology environment, it is normal to
experience  technical issues in transferring technology from the development
stage to the manufacturing stage. This may affect the timing of new product
introductions. In addition, the Company's manufacturing operations involve
unique, proprietary biosensor microfabrication techniques which require
continuous monitoring and updating, especially as the Company's product menu
expands. Moreover, in an environment where new products are being introduced,
customer product demand patterns are sometimes unpredictable and it can be
difficult to accurately anticipate  


                                      4
<PAGE>   7
product manufacturing needs. Additionally, the Company's biosensor
manufacturing processes require a lead time of approximately six weeks to
respond to significant shifts in product demand. A consequence of the foregoing
is that the Company may find that its inventory of certain products will not
always match the customer demand for such products, which can have an adverse
impact on the Company's gross operating margins.     

The Company maintains a comprehensive quality assurance and quality control
program, which includes complete documentation of all material specifications,
operating procedures, maintenance and equipment calibration procedures, training
programs and quality control test methods. To control the quality of its
finished products, the Company utilizes statistical process control systems
during the manufacturing process and comprehensive performance testing of
finished goods. The Company believes that it operates in accordance with all
applicable regulations including the Food and Drug Administration (the "FDA")
Good Manufacturing Practices. The Company has received ISO 9001 and EN
46001 certification for the development and commercialization of its products.
ISO 9001 comprises a set of standards covering the quality of design,
development, production, installation, and servicing of products and systems. EN
46001 is the European quality standard for the manufacture of medical devices.
Compliance with these standards is increasingly required by European buyers of
manufactured products.

The majority of the raw materials and purchased components used to manufacture
the Company's products are readily available from more than one source. The
Company is also developing alternative sources for some of the raw materials it
presently obtains from a single source. Some of the components of the i-STAT
System are custom manufactured by a limited number of outside vendors. While the
Company's efforts to expand the number of vendors having the capacity to produce
these components continue, the loss of its sources of supply for these
components could adversely impact, for a period of time, the Company's ability
to meet the demand for its products.


RESEARCH AND DEVELOPMENT

From commencement of the Company's operations in 1984 until 1992, most of its
financial resources were dedicated to the development of the core technology
that has resulted in the i-STAT System. The Company continues to engage in
research and development in order to improve its existing products and develop
new products based on the i-STAT System technology. The Company currently is
developing tests for measurement of coagulation, and is working on expanding its
existing product range. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" for a discussion of research and
development costs during 1995, 1996 and 1997.

As of December 31, 1997 the Company's research and technology development  
staff consisted of 72 full-time degreed employees, 26 of whom hold advanced
degrees in chemistry, engineering, software and related disciplines.       

PATENTS AND PROPRIETARY RIGHTS

i-STAT pursues a policy of seeking patent protection, both in the United States
and abroad, for each of the areas of invention embodied in the i-STAT System.
The Company holds twenty four United States utility patents related to the
i-STAT System, the earliest of which was issued on September 5, 1989, which on
average have over 13 years remaining on their patent terms, and two United
States design patents related to the i-STAT System. These patents relate to the
unique functional features and fabrication of the electrode technology contained
in the i-STAT cartridges, operation of the cartridges, the technologies used in
the i-STAT analyzers, in-house quality control instrumentation and matters
related to other potential uses of the i-STAT System. The Company has eight
pending United States utility patent applications. The Company has received
patents in Japan, Europe, Canada and Taiwan corresponding to certain of the
patents issued in the United States and has filed or plans to file for patent
protection in certain countries which represent a significant segment of the
intended market for its products. There can be no assurance that additional
patents for i-STAT's products will be obtained, or that issued patents will
provide substantial protection or be of commercial benefit to i-STAT. The
issuance of a patent is not conclusive as to its validity or enforceability, nor
does it provide the patent holder with freedom to operate without infringing the
patent rights of others. A patent could be challenged by litigation and, if the
outcome of such litigation were adverse to the patent holder, competitors could
be free to use the subject matter covered by the patent, or the patent holder
may license the technology to others in settlement of such litigation. The
invalidation of key patents owned by the Company or nonapproval of pending
patent applications could create increased competition, with potential adverse
effects on the Company and its business prospects. In addition, there can be no
assurance that any application of the Company's technology will not infringe
patents or proprietary rights of others or that, as a result of such
infringement, licenses that might be required for the Company's processes or
products would be available on commercially reasonable terms, if at all. See
Item 3. "Legal Proceedings".



                                       5
<PAGE>   8
Pursuant to the Company's license agreement with HP, the Company has granted HP
certain rights to commence and control prosecution of any third party
infringement actions involving the intellectual property covered under the HP
license agreement.

In addition to its patent protection, i-STAT also relies upon trade secrets,
know-how and continuing technological innovation. The Company maintains a policy
requiring all employees and consultants to sign confidentiality agreements under
which they agree not to use or disclose i-STAT's confidential information as
long as that information remains proprietary or, in some cases, for fixed time
periods. There can be no assurance, however, that such proprietary technology
will not be independently developed or that secrecy will not be breached. Under
Company policy, all technical employees are required to agree to assign to the
Company all rights to any inventions made during their employment or relating
to the Company's activities and not to engage in activities similar to the
Company's for any other person or entity during the term of their employment or
for at least six months thereafter.                             

i-STAT is aware that research efforts in biosensor technology are taking place
at universities, government laboratories and other corporations around the world
and that numerous patent applications have been filed, and that patents have
been issued, relating to fundamental technologies and to specific biosensor
products and processes. If patents that cover the technologies, products or
processes utilized by the Company are issued to third parties, i-STAT may have
to obtain licenses under such patents. No assurance can be given concerning the
terms on which such licenses would be available, if at all.


GOVERNMENT REGULATION

The i-STAT System is a medical diagnostic device subject to the provisions of
the Food, Drug and Cosmetic Act (the "FDC Act") and implementing regulations.
The 1976 Medical Device Amendments and the Safe Medical Device Amendments of
1990 to the FDC Act provide comprehensive regulation of all stages of
development, manufacture, distribution and promotion of medical devices. There
are two regulatory routes by which to bring a medical diagnostic device to
market: the Pre-market Approval Application ("PMA") and the Pre-market
Notification ("510(k) Notification"). The PMA requires a comprehensive review of
specified pre-clinical and clinical data, prior to an FDA finding that a device
is safe and effective for its designated indicated use. The 510(k) Notification
permits marketing upon a demonstration to the FDA's satisfaction that a device
is substantially equivalent to a device already in commercial distribution. The
clearance process can require extended periods of testing, both prior to and
after submissions are made. Review of submissions can take protracted periods of
time and involve significant resource expenditure. There is no certainty that
the FDA will clear any given device for marketing.

All of the Company's current products have received clearance to market for use
by health care professionals in all health care settings pursuant to 510(k)
Notifications. Any change or modification of an analyzer or a cartridge that
could significantly affect the safety or efficacy of the device would require
the filing of a new 510(k) Notification, and the Company would not be able to
market the i-STAT System as modified until FDA clearance is received. The FDA
may not concur in any such modification, and any such concurrence may be subject
to delay and require significant resources to provide the FDA with needed data.

FDA regulations classify medical devices into three classes that determine the
degree of regulatory control to which the manufacturer of the device is subject.
The FDA classified the i-STAT System (as currently configured) in Class II,
meaning that the device may at some time in the future also have to comply with
mandatory performance standards or other "special controls" if it is to remain
in commercial distribution. The Company cannot predict whether such additional
standards or controls will ever be enacted, nor what impact the enactment of
such standards or controls might have on its ability to produce and sell its
products. Such standards or controls may relate to any aspect of product
performance which must be controlled to minimize any risk associated with use of
the device. All devices, including those manufactured in Canada, must be
manufactured in accordance with Good Manufacturing Practices specified in
implementing regulations under the FDC Act. These practices control every phase
of production from the design control and incoming receipt of raw materials,
components and subassemblies to the labeling, tracing of consignees after
distribution and follow-up and reporting of complaint information.

The FDA has the authority to conduct unannounced inspections of all facilities
where devices are manufactured or assembled, and, if the investigator observes
conditions which might be violations, those conditions must be corrected or
satisfactorily explained, or the manufacturer could face regulatory action that
might include physical removal of
                                       6
<PAGE>   9
the product from the marketplace. The Company's New Jersey facilities were
inspected in November 1994, June 1995, and March 1997, and at each time found
free of any violations. The FDA also regulates labeling and advertising for
devices restricted to use by health care professionals, such as the i-STAT
System.                                      

Recently, the FDA has pursued a more rigorous enforcement program to ensure that
regulated firms, such as the Company, comply with the provisions of the FDC Act.
A firm not in compliance may face a variety of regulatory actions, ranging from
warning letters, product detention, device alerts and mandatory recalls or field
corrections, to seizures, injunction actions, civil penalties and criminal
prosecutions of the firm or responsible individuals, employees, officers or
directors. The commencement of any action against the Company of the type
described above could seriously impact the Company's ability to conduct
business.                                                                      

The Company's products are also affected by the Clinical Laboratory Improvement
Act of 1988 ("CLIA"). This law is intended to assure the quality and reliability
of all medical testing in the United States regardless of where tests are
performed. The regulations require laboratories performing blood chemistry tests
to meet specified standards in the areas of personnel qualification,
administration, participation in proficiency testing, patient test management,
quality control, quality assurance and inspections. The regulations have
established three levels of regulatory control based on test complexity --
"waived," "moderate complexity" and "high complexity." The Company's products
have been designated as "moderate complexity." Subsequent categorization of the
Company's products as "high complexity" tests could hinder the Company's ability
to market its products. Expansion into alternate site markets, particularly
doctors' offices, may be limited by the regulatory burden imposed by the
classification of the i-STAT System as a moderately complex test under CLIA.
There can be no assurance that CLIA regulations or future administrative
interpretations of CLIA will not have an adverse impact on the Company.

The Company and its products are also subject to a variety of state laws and
regulations in those states where its products are marketed, sold or used.
Certain states currently restrict or control, to varying degrees, the use of
medical devices such as the i-STAT System outside the clinical laboratory by
persons other than doctors or technologists. These restrictions have hindered
the Company's ability to market its products in these locations. The Company is
seeking interpretations, rulings or changes in relevant laws and regulations
that will remove or ameliorate these restrictions. Although the Company has been
successful in gaining favorable rulings and changes in certain relevant laws and
regulations, there can be no assurance that the Company will be successful in
its efforts to remove or ameliorate all these legal restrictions.

The Company distributes the i-STAT System outside the United States in Japan,
Western Europe, Canada, South America and Asia and plans to do so in other
foreign countries. The i-STAT System is and will be subject to a wide variety of
laws and regulations in these markets, ranging from simple product registration
in certain countries to complex clearance and production controls in others.
Speaking generally, the extent and complexity of regulation of medical devices
is increasing worldwide, with regulation in some countries already nearly as
comprehensive as that in the United States. The Company anticipates that this
trend will continue and that the cost and time required to obtain approval to
market in any given country will increase, with no assurance that such approval
will be given.

Because some of the Company's production facilities currently are located in
Canada, sales of the Company's products in the United States are subject to U.S.
laws regulating international trade practices. The Company does not believe that
these laws will materially and adversely affect its marketing strategy or
operations generally, although such laws are subject to change and the Company
cannot accurately predict the impact on the Company of any future changes.

Federal, state and foreign regulations regarding the sale of medical devices are
subject to change. The Company cannot predict what impact, if any, such changes
may have on its business.


REIMBURSEMENT

Third party payors can indirectly affect the pricing or the relative
attractiveness of the Company's products by regulating the maximum amount of
reimbursement provided for blood testing services. If the reimbursement amounts
for blood testing services are decreased in the future, it may decrease the
amount which physicians and hospitals are able to charge patients for such
services and consequently the price the Company can charge for its products.



                                       7
<PAGE>   10
EMPLOYEES

As of December 31, 1997, the Company employed 499 persons on a full-time basis.
The Company expects to hire additional employees during 1998. None of i-STAT's
employees is covered by a collective bargaining agreement. i-STAT believes that
its relationship with its employees is good and that its success is dependent
on, among other things, achieving and retaining scientific and technological
superiority and being capably managed. Consequently, the success of the Company
is highly dependent upon the continued availability of a limited number of
executives, scientists and engineers, the loss of some of whom could have a
material and adverse effect on the Company.           

INSURANCE

The Company maintains product liability insurance policy in the amount of $1
million, and an excess liability insurance policy in the amount of $20 million,
which are the maximum payouts for all claims that could be made during a
calendar year. If the Company does not or cannot maintain its existing or
comparable products liability insurance, its ability to market its products may
be significantly impaired. The amount and scope of any insurance coverage upon
which the Company relies may not be adequate to protect the Company in the event
a successful product liability claim is made upon the Company. No product
liability insurance claim has ever been made against the Company. The Company
also maintains comprehensive general liability and business interruption
liability insurance policies. The Company's Kanata, Ottawa, wafer fabrication
facility is the only source of its proprietary thin film, biosensor chips, and,
consequently, any damage to the facility as a result of fire or other causes
could materially and adversely impact the Company. The amount and scope of any
insurance coverage may not be adequate to protect the Company in the event of
any such loss.


BACKLOG

Customers generally place orders on an as needed basis and the Company ships
against those orders. Consequently, backlog is not a material factor in the
Company's operations.


SEASONALITY

The Company's operating results may fluctuate from quarter to quarter due to
many factors. Sales may be slower in the traditional vacation months, may be
accelerated in the fourth calendar quarter by customers whose annual budgets are
about to expire (especially affecting analyzer purchases), may be distorted by
unusually large analyzer shipments from time to time, or may be affected by the
timing of customer cartridge ordering patterns. (For example, a customer might
order two quarterly cartridge shipments in one quarter, perhaps at the beginning
and the end of the quarter, and none in the next quarter.)

GEOGRAPHIC SEGMENT DATA

Information regarding geographic segment data is provided in Note 16 to Notes to
Consolidated Financial Statements.


ITEM 2. PROPERTIES

The Company's principal manufacturing facility is located at 436 Hazeldean Road,
Kanata, Ontario, Canada, where it leases a 52,000 square-foot space. The lease
is for a term expiring in February 1999, subject, at the Company's option, to
renewal for one five-year term. The Company also leases executive offices in
Princeton, New Jersey, where it occupies approximately a 30,745 square-foot
space. The Princeton lease expires in September 1998. The Company has
established a cartridge assembly facility in Plainsboro, New Jersey, where it
leases a 30,325 square-foot space. The lease is for a term expiring in February
1999, subject, at the Company's option, to renewal for one five-year term. See
"Operations Consolidation" in Item 7. "Management's Discussion and Analysis of
Financial Condition and Results of Operations".


ITEM 3. LEGAL PROCEEDINGS

The Company is 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, alleges infringement by i-STAT of Nova's U.S. Patent No. 4,686,479. In
February 1998, the Court entered summary judgement in favor of the Company on
the issue of patent infringement. Accordingly, the Company has been found not to
infringe, either literally or under the patent law "doctrine of equivalents",
Nova's patent. 

                                       8
<PAGE>   11
However, if the plaintiff should appeal and prevail on this
issue, a prospect which the Company believes to be highly unlikely, it could
have a material impact on the financial position, results of operations and cash
flows of the Company. The Company had asserted and is pursuing counterclaims
under the antitrust laws alleging that Nova commenced the action knowing that
the patent was not infringed and that it has reason to believe that the patent
was invalid and unenforceable.                   

The Company is a defendant in a class action complaint entitled Susan Kaufman,
on behalf of herself and all other similarly situated, Plaintiff, v. i-STAT
Corporation, William P. Moffitt, Lionel M. Sterling, Imants R. Lauks and
Matthias Plum, Jr. The class action was brought by Susan Kaufman on her behalf
and on behalf of all purchasers of the Company's Common Stock between May 9,
1995 and March 19, 1996. The complaint, which was filed in the Superior Court of
New Jersey in Mercer County on June 19, 1996, alleges New Jersey common law
fraud and negligent misrepresentation, and is predicated on a "fraud on the
market" theory in connection with certain sales of i-STAT stock by the Company's
chief executive officer, chief technology officer and two outside directors
during a nine-month period. The plaintiffs seek unspecified compensatory
damages, interest and payment of all costs and expenses incurred in connection
with the class action. The Company and individual defendants filed an answer to
the complaint on August 20, 1996, denying all the pertinent charging
allegations. No formal discovery has yet been taken. Based on its review of the
allegations, the Company believes that there are numerous substantial factual
and legal defenses to the charges. Furthermore, the Company believes that the
case law in New Jersey is not favorable to plaintiff's fraud on the market
theory for common law claims, and is endeavoring to obtain an early
determination on this issue. Based on that belief, and certain stipulations as
to plaintiff's lack of reliance on the alleged inadequate disclosure, the
Company and the individual named defendants filed a Motion for Summary Judgment
in December 1997, which will be decided on a date to be determined
by the Court. The Company believes the complaint is without merit and intends to
vigorously contest it. However, if the plaintiff should prevail in this matter,
it could have a material impact on the financial positions, results of
operations and cash flows of the Company.

The Company is a defendant in a case entitled Customedix Corporation, Plaintiff
v. i-STAT Corporation, Defendant. The Complaint, which was filed in the United
States District Court for the District of Connecticut on December 26, 1996,
alleges infringement by i-STAT of Customedix's U.S. Patent No. 4,342,964. The
Plaintiff seeks injunctive relief and an accounting for i-STAT's profits and the
damages to Customedix from such alleged infringement. The case currently is in
the preliminary stages of discovery. The Company intends to contest the case
vigorously and does not believe that it has infringed the Customedix patent. The
Company has obtained an opinion from recognized patent counsel to the effect
that no infringement has occurred. However, if the plaintiff should prevail in
this matter, it could have a material impact on the financial position, results
of operation and cash flows of the Company.


ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS

Not applicable.

                                       9
<PAGE>   12
                               EXECUTIVE OFFICERS

The executive officers of the Company and their respective ages and positions
with the Company are as follows:

WILLIAM P. MOFFITT
Age 51. Mr. Moffitt is the President and Chief Executive Officer of the Company.
He has held various offices since he joined the Company as Executive Vice
President in July 1989. He has served as Chief Executive Officer of the Company
since February 1993, as President since November 1991 and as a director since
May 1990. From 1985 to 1989, Mr. Moffitt was President of the Physician
Diagnostics Division of Baxter Healthcare Corp., a diversified health care
company. Mr. Moffitt holds a B.S. from Duke University.

IMANTS R. LAUKS
Age 45. Dr. Lauks is the Executive Vice President and Chief Technology Officer
of the Company. He is a founder of the Company and has served as the Company's
Executive Vice President since 1995, as its Vice President of Research and
Development from 1983 to 1995, and as its Chief Technology Officer since 1991.
Dr. Lauks has served as a director since the Company's incorporation in 1983.
Until he founded the Company in 1983, Dr. Lauks was a tenured Associate
Professor at the University of Pennsylvania in the Moore School of Engineering.
He is an Associate of the Royal College of Science in London, England. He holds
both a Ph.D. in Electrical Engineering and a B.S. in Chemistry from Imperial
College of London University.

PATRICIA HENNESSEY
Age 44. Ms. Hennessey has served as Vice President of Sales and Marketing since
she joined the Company in January 1995. She has over fifteen years of sales,
marketing and general management experience in the medical device field. From
1986 to 1994, Ms. Hennessey was employed by C.R. Bard, Inc. in a series of
senior-level marketing and general management positions and most recently Vice
President of Marketing of the USCI Division. Ms. Hennessey holds an M.B.A. from
Harvard University.

NOAH J. KROLOFF
Age 35. Mr. Kroloff has served as Vice President of Business Development and
Strategy since he joined the Company in May 1994. From September 1990 to May
1994, he was a manager at McKinsey & Company, a leading management consulting
firm, where he specialized in international alliances among medical products
companies. Prior to joining McKinsey, he served in consulting and business
development roles for several biotechnology companies and for Merck & Co., Inc.
Mr. Kroloff holds an M.B.A. in finance and marketing from the MIT Sloan School
of Management and a B.A. in general science from Brandeis University.

ROGER J. MASON
Age 49. Mr. Mason has served as Vice President of Finance, Treasurer and Chief
Financial Officer since he joined the Company in July 1996. From October 1994 to
June 1996, he was Vice President, Finance and Treasurer, and Chief Financial
Officer at Concurrent Computer Corporation, a publicly held, leading worldwide
supplier of networked and distributed, high performance, real time,
fault-tolerant computing systems. From April 1991 to October 1994, Mr. Mason
served as Chief Financial Officer and Treasurer at Integral Peripherals Inc., a
disk drive manufacturer. From 1981 to 1991, he held senior executive positions
at Maxtor Corporation, a publicly held disk drive manufacturer, MiniScribe
Corporation, a publicly held disk drive manufacturer whose assets were acquired
by Maxtor Corporation, and Ironstone Group, Inc., a publicly held holding
company. His experience also includes public accounting with Coopers & Lybrand
and Honey, Perriam & Company. He is a fellow of the Institute of Chartered
Accountants in England and Wales.

MICHAEL P. ZELIN
Age 37. Mr. Zelin has served as Vice President of Systems Development since
March 1992. Since joining the Company in February 1986 he has held various
technical positions including Manager and Director of Systems Engineering, and
has contributed to nine of the Company's U.S. patents or patents pending.

Executive officers of the Company are elected by the Board of Directors of the
Company.

                                       10
<PAGE>   13
                                     PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS

MARKET INFORMATION

The Company's Common Stock is traded on the NASDAQ National Market System under
the symbol "STAT". The following table sets forth for the periods indicated the
range of high and low prices for the Company's Common Stock as reported on
NASDAQ.

<TABLE>
<CAPTION>
1997                                                 High                         Low
----                                                 ----                         ---
<S>                                                  <C>                          <C>
First Quarter..................................      29 1/2                       13 1/4
Second Quarter.................................      18 1/4                       11 1/2
Third Quarter..................................      24 1/2                       15 3/4
Fourth Quarter.................................      24 3/16                      15 3/8

1996                                                 High                         Low
----                                                 ----                         ---

First Quarter..................................      41                           24
Second Quarter.................................      30 1/2                       14 3/4
Third Quarter..................................      19                           11 1/2
Fourth Quarter.................................      25                           13 3/4
</TABLE>


HOLDERS

There were approximately 423 registered holders of the Company's Common Stock of
record as of March 9, 1998.


RIGHTS

On June 29, 1995, the Company declared a dividend distribution of rights (each,
a "Right") to purchase a certain number of units at a price of $104.00, subject
to adjustment. The Rights are deemed to attach to and trade together with the
Common Stock. Each unit is equal to one one-hundredth of a share of Series A
Junior Participating Preferred Stock of the Company. Rights are distributed in
connection with issuances of shares of Common Stock and Series B Stock. The
Rights are not exercisable until the occurrence of certain events enumerated in
the Stockholder Protection Agreement between the Company and First Union
National Bank, the Company's rights agent. Until a Right is exercised, no holder
of Rights will have rights as a stockholder of the Company (other than rights
resulting from such holder's ownership of Common Stock or Series B Stock),
including, without limitation, the right to vote or to receive dividends. A
description of the Rights is hereby incorporated by reference from the Company's
Current Report on Form 8-K dated July 10, 1995, as amended.

DIVIDENDS

Except for the Rights, the Company has not declared or paid dividends on its
Common Stock to date and intends to retain future earnings, if any, for use in
its business for the foreseeable future.

                                       11
<PAGE>   14
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA

The selected consolidated financial data set forth below have been derived from
the audited financial statements of the Company. The consolidated financial
statements of the Company as of December 31, 1997 and 1996 and for each of the
years in the three-year period ended December 31, 1997, together with the notes
thereto and the related report of Coopers & Lybrand L.L.P., independent
accountants, are included elsewhere in this Report. The selected consolidated
financial data set forth below should be read in conjunction with the
consolidated financial statements, related notes thereto and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere in this Report.


<TABLE>
<CAPTION>
In thousands of dollars, except share and per share data                  Year Ended December 31,
-----------------------------------------------------------------------------------------------------------------------------
                                                      1997             1996             1995            1994             1993
<S>                                           <C>              <C>              <C>              <C>              <C>
Statement of Operations Data:
Net sales ................................    $     37,840     $     30,330     $     20,102     $     10,695     $     4,798
Cost of sales ............................          30,962           26,291           22,013           14,803          10,227
Operating expenses:
   Research and development ..............           6,721            5,780            5,664            8,333           4,476
   General and administrative ............           5,761            5,778            4,937            4,004           3,584
   Sales and marketing ...................          13,020           11,991           11,506            8,484           6,051
   Relocation ............................              --               --               --               --            (900)
Other income, net ........................           1,651            2,054            1,010            1,249           1,563
Net loss .................................         (16,973)         (17,456)         (23,008)         (23,680)        (17,077)
Basic and diluted net loss per share .....          ($1.17)          ($1.31)          ($1.90)          ($2.16)         ($1.87)
Shares used in computing basic and diluted
   net loss per share ....................      14,497,530       13,321,603       12,122,089       10,974,467       9,110,888
</TABLE>


<TABLE>
<CAPTION>
In thousands of dollars                           As of December 31,
----------------------------------------------------------------------------------------------
                                   1997          1996          1995          1994         1993
<S>                             <C>           <C>           <C>           <C>           <C>
Balance Sheet Data:
Cash, cash equivalents
and short-term investments..    $  32,914     $  28,417     $  49,519     $  21,619     $ 47,030
Working capital ............       38,697        33,056        55,426        23,082       46,794
Total assets ...............       59,170        55,365        74,050        39,178       59,239
Accumulated deficit ........     (158,273)     (141,300)     (123,844)     (100,836)     (77,156)
Total stockholders' equity..    $  53,045     $  46,834     $  63,594     $  26,093     $ 49,517
</TABLE>

                                       12
<PAGE>   15
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

BACKGROUND AND OVERVIEW

The Company's revenues are affected principally by the number of hospitals using
the i-STAT System and the rate at which i-STAT's disposable cartridges are used
by these hospitals. This, in turn, is highly dependent upon the willingness of
hospitals to adapt their traditional blood diagnostic testing approaches to the
point-of-care system advocated by the Company. During 1997 the Company continued
to focus its marketing efforts primarily on potential large scale adopters of
the i-STAT System. Such high volume customers tend to require a longer sales
cycle as the marketing focus with respect to such customers is on having these
customers re-engineer or replace their "stat" lab departments with the i-STAT
System, as compared to other potential customers who may be using the i-STAT
System as a supplement to their existing arrangements. To further this strategy,
in early 1997 the Company expanded its policy of offering substantial price
discounts to high volume users. These volume discounts only will be provided to
customers who commit to purchase 18,000 or more cartridges per year, with the
highest discounts going to purchasers of 120,000 or more cartridges per year.
The Company believes that this strategy will accelerate the rate of market
penetration for its products and thus have a beneficial long-term effect upon
revenue growth. However, the near-term rate of growth in sales revenue and gross
margin will be adversely impacted by both the longer sales cycle and the lower
cartridge prices that such high volume customers may receive.

Pursuant to a technology collaboration between the Company and Hewlett-Packard
Company ("HP"), in May 1997 HP introduced a patient monitoring system (the
"Integrated Analyzer") which integrates all of the blood diagnostics
capabilities of the i-STAT System. In the long-term, the Company hopes to
realize significant cartridge revenue growth and royalty revenues from the sale
of the Integrated Analyzer by HP. However, in the near-term revenue growth from
sales of the Integrated Analyzer is expected to be insignificant because of the
uncertainties associated with new product introduction and because some of the
initial purchasers of the Integrated Analyzer will be existing users of the
hand-held analyzer sold by the Company.


RESULTS OF OPERATIONS

The Company generated revenues of approximately $37.8 million, $30.3 million and
$20.1 million in 1997, 1996 and 1995, including international revenues (as a
percentage of worldwide revenues) of $12.5 million (33.1%), $9.5 million (31.2%)
and $3.9 million (19.4%), respectively. International revenues include deferred
Japanese revenue which has been amortized to income at the rate of approximately
$3.1 million, $3.2 million and $1.4 million for 1997, 1996 and 1995,
respectively. The deferred Japanese revenue was fully amortized to revenue
during December 1997, when the period of exclusivity under the Company's
agreements with its Japanese partners expired. The Company also received a one
time milestone payment of $0.9 million, net, from its Japanese marketing
partners during the fourth quarter of 1997 for the development of the Company's
creatinine product. Sales to its Japanese marketing partners represented
approximately 21.0%, 24.7% and 14.4% of the Company's worldwide sales (including
deferred revenue and the milestone payment) for 1997, 1996 and 1995,
respectively.

The $7.5 million (24.8%) increase in revenues from 1996 to 1997 was primarily
due to increased shipment volume of the Company's cartridges, reflecting higher
cartridge consumption by existing hospital customers and the addition of new
hospital customers in the U.S. and internationally. Worldwide cartridge
shipments increased 44.2% to 4,551,743 units from 3,157,192 units for the twelve
months ended December 31, 1997 and 1996, respectively. Revenues from the
increased cartridge shipments were partially offset by lower worldwide average
selling prices per cartridge, which declined from approximately $5.79 to $5.25
per cartridge in the same periods. Cartridge average selling prices are expected
to continue to decline as the customer mix shifts to higher volume customers
qualifying for cartridge price discounts. Other elements of the increase in
revenues in 1997 included the commencement of shipments to HP of components for
the HP Integrated Analyzer, and the receipt of the creatinine milestone payment
of $0.9 million, net, from the Company's Japanese marketing partners.

The $10.2 million (50.9%) increase in revenues from 1995 to 1996 was primarily
due to increased shipment volume of the Company's cartridges and analyzers,
reflecting higher cartridge consumption by existing hospital customers and the
addition of new hospital customers in the U.S. and internationally. Worldwide
cartridge shipments increased 50.1% to 3,157,192 units from 2,104,061 units and
worldwide analyzer shipments increased 85.9% to 2,340 units

                                       13
<PAGE>   16
from 1,259 units for the twelve months ended December 31, 1996 and 1995,
respectively. Other elements of the increase in revenues included 1) recognition
of an additional $1.8 million of deferred revenue, due to a change in accounting
estimate in 1996, from the Company's Japanese marketing partners, 2) higher
average selling prices per unit of the Company's analyzers and 3) slightly
higher worldwide average selling prices per unit of the Company's cartridges,
reflecting increases in the unit transfer prices specified in the Company's
contracts with its Japanese partners which were partially offset by lower
average selling prices per unit in the U.S. as a result of a shift to higher
volume U.S. customers that qualified for discounted cartridge prices.

The manufacturing costs associated with product sales in 1997, 1996 and 1995
were approximately $31.0 million, $26.3 million and $22.0 million, respectively.
This resulted in a gross profit of $6.9 million and $4.0 million in 1997 and
1996, respectively, compared with a gross loss of $1.9 million in 1995. The
improvement in gross margin was primarily due to increased shipment volume of
the Company's cartridges, which caused manufacturing costs (including direct
labor and a large component of overhead) to be spread over a larger number of
product units. The additional Japanese deferred revenue and milestone payment
noted above also contributed to the gross margin improvement.

The Company incurred research and development costs (as a percentage of sales)
of approximately $6.7 million (17.8%), $5.8 million (19.1%) and $5.7 million
(28.2%) in 1997, 1996 and 1995, respectively, consisting of costs associated
with the personnel, material, equipment and facilities necessary for conducting
new product development. The Company's current research and development program
includes the development of tests for coagulation, which are scheduled to move
into the production phase towards the end of 1998. The Company also is studying
the development of tests to measure enzymes, hematology parameters (such as
platelets and white blood cell counts) and other analytes. Consequently,
research and development expenditures are expected to increase significantly
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
sales) of approximately $5.8 million (15.2%), $5.8 million (19.1%) and $4.9
million (24.6%) in 1997, 1996 and 1995, respectively. General and administrative
expenses consisted primarily of salaries and benefits of personnel, office
costs, professional fees and other costs necessary to support the Company's
infrastructure. The increase from 1995 to 1996 primarily reflects the Company's
increased need for management personnel and other services to support its
growth, and legal fees and expenses associated with the defense of the Nova
patent infringement action.

The Company incurred sales and marketing expenses (as a percentage of sales) of
approximately $13.0 million (34.4%), $12.0 million (39.5%) and $11.5 million
(57.2%) in 1997, 1996 and 1995, respectively, consisting primarily of salaries,
commissions, benefits, travel and other expenditures for sales representatives,
product literature, market research, clinical studies and other sales
infrastructure costs. The dollar increase from year to year is attributable to
increased marketing activities, and the hiring of management and other marketing
personnel necessary to support the Company's growth in product sales.

Investment income was approximately $1.6 million, $2.1 million and $1.4 million
in 1997, 1996 and 1995, respectively. The changes in investment income primarily
reflect changes in the level of cash and cash equivalent balances. The higher
investment income in 1996 reflects the receipt in July 1995 of net proceeds of
approximately $59.2 million in connection with the issuance of Series B
Preferred Stock to HP. Interest income is expected to decline in the near future
as cash and cash equivalent balances decline.

Other income (expense), net, in 1995 includes a charge of approximately $0.4
million relating to the implementation of stockholder protection measures and a
proposed offering of securities that was terminated.

Net loss in 1997 decreased to approximately $17.0 million or $1.17 per share,
from $17.5 million or $1.31 per share in 1996, and from $23.0 million or $1.90
per share in 1995. The weighted average number of shares used in computing basic
and diluted net loss per share was 14.498 million, 13.322 million and 12.122
million in 1997, 1996 and 1995, respectively. The increases in the weighted
average number of shares primarily reflect the issuance of 2.139 million shares
of Series B Preferred Stock to HP in July 1995 and the private placement of
1.850 million shares of Common Stock in June 1997.

                                       14
<PAGE>   17
LIQUIDITY AND CAPITAL RESOURCES

At December 31, 1997, the Company had cash and cash equivalents of approximately
$32.9 million, an increase of $4.5 million from the December 31, 1996 balance of
approximately $28.4 million. The increase primarily reflects net proceeds of
approximately $22.8 million from the private placement of Common Stock in June
1997, partially offset by approximately $14.1 million of cash used in operating
activities and equipment purchases of approximately $4.4 million during the year
ended December 31, 1997. Working capital increased by approximately $5.6 million
from $33.1 million to $38.7 million during the same period, primarily reflecting
the increase in cash and cash equivalents, and the reduction of deferred revenue
by approximately $3.0 million, reflecting the amortization of deferred Japanese
revenue. The change in working capital also reflects a reduction of
approximately $1.3 million in inventories, that in part reflects a reduction in
inventories in the fourth quarter of 1997 in connection with a manufacturing
transition to smaller biosensor chips. The Company expects its existing funds to
continue to decline until its revenues are sufficient to support its growth, but
to be sufficient to meet its obligations and its liquidity and capital
requirements for the near term. The Company regularly monitors capital raising
alternatives in order to take advantage of opportunities to supplement its
current working capital upon favorable terms, including joint ventures,
strategic corporate partnerships or other alliances and the sale of equity
and/or debt securities. The Company's need, if any, to raise additional funds to
meet its working capital and capital requirements will depend upon numerous
factors, including the results of its product marketing and sales activities,
its new product development efforts, manufacturing efficiencies and competitive
conditions.

At December 31, 1997, the Company had available for Federal Income Tax purposes
net operating loss carryforwards of approximately $139 million, which expire in
varying amounts through 2012. The timing and manner in which the operating loss
carryforwards may be utilized in any year by the Company will be limited by
Section 382 of the Internal Revenue Code.

Almost all of the Company's international sales are invoiced and settled in U.S.
dollars. However, while sales to Japan are invoiced in U.S. dollars, the
Company's U.S. dollar sales prices for cartridges (but not equipment) reflect
twice yearly adjustments for changes in the Japanese Yen/U.S. dollar exchange
rate. Cartridge revenues from Japan would have been approximately $0.3 million
higher in 1997 if the Japanese Yen/U.S. dollar exchange rates in effect in 1996
were applied to 1997 sales prices. The growth in international sales in other
countries may be affected by foreign exchange movements, in that potential
customers may be discouraged from placing orders for U.S. dollar denominated
products if changes in exchange rates are adverse to the customer. The recent
currency turmoil in Southeast Asia is unlikely to have a significant effect on
current sales, as countries in that region accounted for less than 1% of the
Company's worldwide revenue in 1997.

A large part of the Company's cartridge production and all biosensor chip
production is currently conducted in Canada. All cartridge production will be
conducted in Canada in the latter half of 1998 after the Operations
Consolidation discussed below. Most labor and overhead costs are incurred in
Canadian currency funded by U.S. dollar transfers from the U.S. each week, while
most raw material purchases are in U.S. dollars. In 1997, a Canadian foreign
exchange gain of approximately $5,000 is included in Other Income and the
foreign currency translation adjustment carried in stockholders' equity
increased by approximately ($0.1) million to approximately ($0.3) million. The
decline in the value of the Canadian dollar (by approximately 5% in 1997), has
reduced the U.S. dollar cost of product produced in Canada.

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


OPERATIONS CONSOLIDATION

In January 1998, the Company decided to consolidate all its cartridge assembly
operations in its manufacturing facility in Ontario, Canada. In order to
facilitate this move, the Company will relocate its cartridge assembly operation
in Plainsboro, New Jersey to its manufacturing facility in Ontario, Canada. The
relocation of cartridge assembly is anticipated to commence in May 1998 and be
completed by August 1998. The Company's lease for its instrument operations,
engineering, customer support, selected research and development, marketing and
administrative facility in Princeton, New Jersey, expires in September 1998. The
Company anticipates that it will relocate these activities to either its
Plainsboro, New Jersey, facility (after the cartridge assembly operation
currently located there is relocated to Ontario, Canada) or to another building
in the general area of Princeton, New Jersey. The charge to earnings in 1998 for
these relocations, including severance and retention payments to affected
employees, the physical move of equipment, rent and utilities on the potentially
unoccupied Plainsboro facility until that lease expires in February

                                       15
<PAGE>   18
1999, and readdressing packaging, marketing materials and stationery, and
miscellaneous costs is estimated to be approximately $1.4 million, with
approximately $0.7 million being recorded as a charge to earnings in the first
quarter of 1998.


IMPACT OF YEAR 2000

The "Year 2000" issue is the result of computer programs being written using two
digits rather than four to define the applicable year. Any of the Company's
computer programs that have time-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in a system
failure or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process transactions, send invoices, or
engage in similar normal business activities.

Based on a recent assessment, the Company determined that it will be required to
modify some portions of its software so that its computer systems will function
properly with respect to dates in the year 2000 and thereafter. The Company
presently believes that with modifications to existing software and conversions
to new software, the Year 2000 issue will not pose significant operational
problems for its computer systems. However, if such modifications and
conversions are not made, or are not completed timely, the Year 2000 issue could
have a material impact on the operations of the Company.

The Company has initiated formal communications with all of its significant
suppliers to determine the extent to which the Company is vulnerable to those
third parties' failure to remediate their own Year 2000 issues. However, there
can be no guarantee that the systems of other companies on which the Company's
systems rely will be timely converted, or that a failure to convert by another
company or a conversion that is incompatible with the Company's system would not
have an adverse effect on the Company's systems. The Company has determined that
it has no exposure to contingencies related to the Year 2000 issue for the
products it has sold.

The Company will utilize both internal and external resources to reprogram and
test its computer software for Year 2000 modifications. The Company anticipates
completing the Year 2000 project prior to any anticipated impact on its
operating systems. The cost of the Year 2000 project is not expected to be
material, as the required changes to internally supported software are small
relative to the updates performed in the normal course of business and changes
to externally supported software are covered by service contracts. The
assessment of the costs of the project and the timing of the completion of Year
2000 modifications is based on management's best estimates, which were derived
utilizing numerous assumptions of future events, including the continued
availability of certain resources, third party modification plans and other
factors. However, there can be no guarantee that these estimates will be
achieved and actual results could differ materially from those anticipated.
Specific factors that might cause such material differences include, but are not
limited to, the availability and cost of personnel trained in this area, the
ability to locate and correct all relevant computer codes, and similar
uncertainties.

This management's discussion and analysis of financial condition and results of
operation contains both historical financial information and forward looking
statements. The Company operates in a high technology, emerging market
environment that involves significant risks and uncertainties which may cause
actual results to vary from such forward looking statements and to vary
significantly from reporting period to reporting period. These risks include,
among others, competition from existing manufacturers and marketers of blood
analysis products who have greater resources than the Company, the uncertainty
of new product development initiatives, difficulties in transferring new
technology to the manufacturing stage, market resistance to new products and
point-of-care blood diagnosis, domestic and international regulatory
constraints, uncertainties of international trade, pending and potential
disputes concerning ownership of intellectual property, dependence upon
strategic corporate partners for assistance in development of new markets and
other risks detailed from time to time in the Company's filings with the
Securities and Exchange Commission.


ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

See Item 14 for an Index to Financial Statements and Financial Statement
Schedules. Such Financial Statements and Schedules are incorporated herein by
reference.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

Not applicable.

                                       16
<PAGE>   19
                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Information concerning directors and executive officers of the Company and
compliance with Section 16(a) of the Securities Exchange Act of 1934, as
amended, is included under the caption "Election of Directors" of the Proxy
Statement for the 1998 Annual Meeting of Stockholders and is incorporated herein
by reference.


ITEM 11. EXECUTIVE COMPENSATION

Information concerning executive compensation is included under the caption
"Executive Compensation" of the Proxy Statement for the 1998 Annual Meeting of
Stockholders and is incorporated herein by reference.


ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Information concerning security ownership of certain beneficial owners and
management is included under the captions "Principal Stockholders" and "Election
of Directors" of the Proxy Statement for the 1998 Annual Meeting of Stockholders
and is incorporated herein by reference.


ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Information concerning transactions and other relationships, if any, between the
Company and its directors, officers or principal stockholders is included under
the caption "Certain Transactions" of the Proxy Statement for the 1998 Annual
Meeting of Stockholders and is incorporated herein by reference.

                                     PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a) Financial Statements and Schedules

(1) Financial Statements -- The following are included in Item 8:

<TABLE>
<CAPTION>
                                                                                                           PAGE
<S>                                                                                                       <C>
Report of Independent Accountants............................................................................22

Consolidated Statements of Operations for each of the
three years in the period ended December 31, 1997............................................................23

Consolidated Balance Sheets at December 31, 1997 and 1996....................................................24

Consolidated Statements of Changes in Stockholders' Equity
for each of the three years in the period ended December 31, 1997 ...........................................25

Consolidated Statements of Cash Flows for each of the
three years in the period ended December 31, 1997............................................................26

Notes to Consolidated Financial Statements...................................................................27


(2) Financial Statement Schedules -- The following are included in Item 14(d):
Report of Independent Accountants............................................................................38

Schedule II -- Valuation and Qualifying Accounts.............................................................39
</TABLE>

Consolidated financial statement schedules not filed herein have been omitted
either because they are not applicable, not required or the equivalent
information has been included in the consolidated financial statements and notes
thereto or elsewhere herein.

                                       17
<PAGE>   20
(3) Exhibits:

<TABLE>
<CAPTION>
EXHIBIT NO.         DESCRIPTION
<S>                 <C>
(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)*

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

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

(10.1)              Series A Convertible Preferred Stock Purchase Agreement (Form S-1
                    Registration Statement, File No. 33-44800)*

(10.2)              Restated Registration Rights Agreement, dated May 3, 1990, among the
                    Registrant and certain of its stockholders (Form S-1 Registration
                    Statement, File No. 33-44800)*

(10.4.1)            Form of Incentive Stock Option Agreement under 1985 Stock Option Plan
                    (U.S. Resident Non-Affiliate) (Form 10-K for fiscal year ended
                    December 31, 1992)*

(10.4.2)**          Form of Incentive Stock Option Agreement under 1985 Stock Option Plan
                    (U.S. Resident Affiliate) (Form 10-K for fiscal year ended December
                    31, 1992)*

(10.4.3)            Form of Non-Statutory Stock Option Agreement under 1985 Stock Option
                    Plan (U.S. Resident Non-Affiliate) (Form 10-Q for quarter ended
                    September 30, 1996)*

(10.4.4)**          Form of Non-Statutory Stock Option Agreement under 1985 Stock Option
                    Plan (U.S. Resident Affiliate) (Form 10-Q for quarter ended September
                    30, 1996)*

(10.4.5)            Form of Non-Statutory Stock Option Agreement under 1985 Stock Option
                    Plan (Ontario Resident Non-Affiliate) (Form 10-Q for quarter ended
                    September 30, 1996)*

(10.4.6)**          Form of Non-Statutory Stock Option Agreement under 1985 Stock Option
                    Plan (Ontario Resident Affiliate) (Form 10-Q for quarter ended
                    September 30, 1996)*

(10.4.7)            Form of Non-Statutory Stock Option Agreement under 1985 Stock Option
                    Plan (Quebec Resident Non-Affiliate) (Form 10-Q for quarter ended
                    September 30, 1996)*

(10.4.8)**          Form of Non-Statutory Stock Option Agreement under 1985 Stock Option
                    Plan (Quebec Resident Affiliate) (Form 10-Q for quarter ended
                    September 30, 1996)*
</TABLE>

* 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.

** This exhibit is a management contract or compensatory plan required to be
filed as an exhibit to this Form 10-K pursuant to Item 14(c).

                                            18
<PAGE>   21
<TABLE>
<CAPTION>
EXHIBIT NO.         DESCRIPTION
<S>                 <C>
(10.6)              Shareholders' Agreement, dated July 19, 1985, among the Registrant and
                    certain of its stockholders, with amendments thereto (Form S-1
                    Registration Statement, File No. 33-44800)*

(10.11)             Letter Agreement between the Registrant and Japanese corporate
                    entities, dated August 23, 1988 (Form S-1 Registration Statement, File
                    No. 33-44800)*

(10.12)             Letter Agreement between the Registrant and Japanese corporate
                    entities, dated August 23, 1988 (Form S-1 Registration Statement, File
                    No. 33-44800)*

(10.13)             Distribution Agreement between the Registrant and Japanese corporate
                    entities, dated August 23, 1988 (Form S-1 Registration Statement, File
                    No. 33-44800)*

(10.15)             Development Agreement between the Registrant and Japanese corporate
                    entities, dated August 23, 1988 (Form S-1 Registration Statement, File
                    No. 33-44800)*

(10.20)             Lease Agreement, dated May 23, 1993, between Linpro Princeton O.R.
                    Offices II L.P. and the Registrant (Form 10-Q for quarter ended June
                    30, 1993)*

(10.21)             Lease Agreement, dated December 23, 1991, between William S. Burnside
                    (Canada) Limited, "In Trust" and the Registrant (Form 10-K for fiscal
                    year ended December 31, 1993)*

(10.23)             i-STAT 1994 Stock Award Plan (Form S-8 Registration Statement, File
                    No. 33-76152)*

(10.24)             Form of Stock Award Agreement under 1994 Stock Award Plan (Form S-8
                    Registration Statement, File No. 33-76152)*

(10.25)**           Letter Agreement, dated April 15, 1994, between Registrant and Noah
                    Kroloff (Form 10-Q for quarter ended June 30, 1994)*

(10.27)**           Letter Agreement, dated November 22, 1994, between Registrant and
                    Patricia Hennessey (Form 10-K for fiscal year ended December 31,
                    1994)*

(10.28)             Series B Preferred Stock Purchase Agreement, dated as of June 23,
                    1995, between the Registrant and Hewlett-Packard Company (Form 8-K,
                    dated July 10, 1995 and amended on September 11, 1995)*

(10.29)             Registration Rights Agreement between the Registrant and
                    Hewlett-Packard Company (Form 8-K, dated July 10, 1995 and amended on
                    September 11, 1995)*

(10.30)             License Agreement between the Registrant and Hewlett-Packard Company
                    (Form 8-K, dated July 10, 1995 and amended on September 11, 1995)*

(10.31)             Distribution Agreement between the Registrant and Hewlett-Packard
                    Company (Form 8-K, dated July 10, 1995 and amended on September 11,
                    1995)*

(10.33)             Amendment, dated March 28, 1995 to Lease Agreement dated December 23,
                    1991, between William S. Burnside (Canada) Limited, "In Trust" and the
                    Registrant (Form 10-Q for quarter ended March 31, 1996)*
</TABLE>

* 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.

** This exhibit is a management contract or compensatory plan required to be
filed as an exhibit to this Form 10-K pursuant to Item 14(c).

                                            19
<PAGE>   22
<TABLE>
<CAPTION>
EXHIBIT NO.         DESCRIPTION
<S>                 <C>
(10.34)**           Letter Agreement, dated June 6, 1996 between the Registrant and Roger
                    J. Mason (Form 10-Q for quarter ended June 30, 1996)*

(10.35)             Form of Officer Indemnification Agreement (Form 10-K for fiscal year
                    ended December 31, 1996)*

(10.36)             Form of Director Indemnification Agreement (Form 10-K for fiscal year
                    ended December 31, 1996)*

(10.37)             Amendment, dated November 20, 1996 to Lease Agreement dated May 27,
                    1993, between Linpro Princeton O.R. Offices II L.P. and the
                    Registrant. (Form 10-K for fiscal year ended December 31, 1996)*

(10.38)**           1985 Stock Option Plan, as amended

(10.39)**           Employment Agreement, dated January 23, 1998, between the Registrant
                    and William P. Moffitt

(10.40)**           Non-Statutory Stock Option Agreement, dated January 23, 1998, between
                    the Registrant and William P. Moffitt

(21)                Subsidiaries of the Registrant (Form S-1 Registration Statement, File
                    No. 33-44800)*

(23)                Consent of Coopers & Lybrand L.L.P., Independent Accountants

(24)                Powers of Attorney, executed by certain officers of the Registrant and
                    the individual members of the Board of Directors, authorizing such
                    officers of the Registrant to file amendments to this Report, are
                    located on the signature page of this Report.

(27)                Financial Data Schedule and restated Financial Data
                    Schedules for other periods
</TABLE>

* 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.

**This exhibit is a management contract or compensatory plan required to be
  filed as an exhibit to this Form 10-K pursuant to Item 14(c).

                                            20
<PAGE>   23
                                    i-STAT CORPORATION
                        INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


<TABLE>
<CAPTION>
DESCRIPTION                                                                                                PAGE
<S>                                                                                                       <C>
Report of Independent Accountants............................................................................22

Consolidated Statements of Operations for each of the three years in the period
ended December 31, 1997......................................................................................23

Consolidated Balance Sheets as of December 31, 1997 and 1996.................................................24

Consolidated Statements of Changes in Stockholders' Equity
for each of the three years in the period ended December 31, 1997 ...........................................25

Consolidated Statements of Cash Flows for each of the three years
in the period ended December 31, 1997........................................................................26

Notes to Consolidated Financial Statements...................................................................27
</TABLE>

                                            21
<PAGE>   24
                             REPORT OF INDEPENDENT ACCOUNTANTS


To the Board of Directors and Stockholders of i-STAT Corporation:

We have audited the accompanying consolidated balance sheets of i-STAT
Corporation as of December 31, 1997 and 1996, and the related consolidated
statements of operations, changes in stockholders' equity, and cash flows for
each of the three years in the period ended December 31, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of i-STAT Corporation
and Subsidiary as of December 31, 1997 and 1996, and the consolidated results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1997 in conformity with generally accepted accounting
principles.




                                   Coopers & Lybrand L.L.P.



Princeton, New Jersey
January 23, 1998, except for paragraph 1 of Note 15,
  for which the date is March 4, 1998

                                            22
<PAGE>   25
                                    i-STAT CORPORATION
                           CONSOLIDATED STATEMENTS OF OPERATIONS


<TABLE>
<CAPTION>
In thousands of dollars, except share and per share data      For the Years Ended December 31,
------------------------------------------------------------------------------------------------------
                                                        1997                 1996             1995
<S>                                                 <C>                 <C>                <C>
Net sales (inclusive of related party sales of
   $2,897, $961 and $25) .....................      $     37,840        $    30,330        $    20,102
Cost of sales ................................            30,962             26,291             22,013
                                                    ------------        -----------        -----------
   Gross profit (loss) .......................             6,878              4,039             (1,911)
Operating expenses:
   Research and development ..................             6,721              5,780              5,664
   General and administrative ................             5,761              5,778              4,937
   Sales and marketing .......................            13,020             11,991             11,506
                                                    ------------        -----------        -----------
      Total operating expenses ...............            25,502             23,549             22,107
                                                    ------------        -----------        -----------
         Operating loss ......................           (18,624)           (19,510)           (24,018)

Other income (expense):
   Investment income .........................             1,612              2,105              1,421
   Other .....................................                39                (51)              (411)
                                                    ------------        -----------        -----------
      Other income (expense), net ............             1,651              2,054              1,010
                                                    ------------        -----------        -----------
Net loss .....................................          ($16,973)          ($17,456)          ($23,008)
                                                    ============        ===========        ===========
Basic and diluted net loss per share .........            ($1.17)            ($1.31)            ($1.90)
                                                    ============        ===========        ===========
Shares used in computing basic and diluted
net loss per share ...........................        14,497,530         13,321,603         12,122,089
                                                    ============        ===========        ===========
</TABLE>

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

                                            23
<PAGE>   26
                                    i-STAT CORPORATION
                                CONSOLIDATED BALANCE SHEETS


<TABLE>
<CAPTION>
In thousands of dollars, except share and per share data                                December 31,
----------------------------------------------------------------------------------------------------------
                                                                                    1997           1996
<S>                                                                              <C>             <C>
Assets
Current assets:
   Cash and cash equivalents ..............................................      $  32,914       $  28,417
   Accounts receivable, net of reserve for doubtful accounts of $109
      in 1997 and $195 in 1996 ............................................          5,206           4,948
   Inventories (Note 2) ...................................................          5,927           7,267
   Prepaid expenses and other current assets ..............................            775             955
                                                                                 ---------       ---------
      Total current assets ................................................         44,822          41,587
Plant and equipment, net (Note 3) .........................................         12,619          12,055
Intangible assets, net (Note 4) ...........................................          1,330           1,166
Other assets ..............................................................            399             557
                                                                                 ---------       ---------
      Total assets ........................................................      $  59,170       $  55,365
                                                                                 =========       =========

Liabilities and Stockholders' Equity
Current liabilities:
   Accounts payable .......................................................      $   2,174       $   1,537
   Accrued expenses (Note 5) ..............................................          3,733           3,754
   Deferred revenue (Note 10) .............................................            218           3,240
                                                                                 ---------       ---------
      Total current liabilities ...........................................          6,125           8,531
                                                                                 ---------       ---------

Commitments and Contingencies

Stockholders' Equity:
   Preferred Stock, $.10 par value, shares authorized 7,000,000:
      Series A Junior Participating Preferred Stock, $.10 par value,
         1,500,000 shares authorized; none issued at December 31, 1997
         and December 31, 1996 ............................................             --              --
      Series B Preferred Stock, $.10 par value, 2,138,702 shares authorized
         and issued at December 31, 1997 and December 31, 1996 ............            214             214
   Common Stock, $.15 par value, shares authorized 25,000,000;
      shares issued 13,203,527 at December 31, 1997
      and 11,215,214 at December 31, 1996 .................................          1,981           1,682
   Treasury Stock at cost .................................................            (13)             --
   Additional paid-in capital .............................................        209,594         186,434
   Unearned compensation ..................................................           (181)            (19)
   Foreign currency translation adjustment ................................           (277)           (177)
   Accumulated deficit ....................................................       (158,273)       (141,300)
                                                                                 ---------       ---------
      Total stockholders' equity ..........................................         53,045          46,834
                                                                                 ---------       ---------
      Total liabilities and stockholders' equity ..........................      $  59,170       $  55,365
                                                                                 =========       =========
</TABLE>


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

                                            24
<PAGE>   27
                                    i-STAT CORPORATION
                CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY


<TABLE>
<CAPTION>
                                                             PREFERRED STOCK                   COMMON STOCK
                                                           -------------------     -----------------------------------------
                                                                                                                  Additional
In thousands of dollars,                                     Number       Par        Number           Par           Paid-in
except share and per share data                            of Shares     Value     of Shares         Value          Capital
-------------------------------                            ---------     -----     ---------         -----          -------
<S>                                                       <C>           <C>        <C>              <C>          <C>
   Balance, December 31, 1994 .........................           --       --      11,007,285       $1,651         $126,177

Shares issued at $1.50 to $14.85 per share
   under the 1985 Stock Option Plan (Note 9) ..........                               112,913           15              558
Warrants exercised at $7.50 per share .................                                 2,000            3               15
Restricted Stock issued at $23.13 per share ...........                                 1,500                            34
Compensation related to options
   issued net of forfeitures ..........................                                                               2,916
Shares (Series B Preferred Stock) issued
   to Hewlett-Packard Company at
   $28.50 per share ...................................    2,138,702    $214                                         58,998
Net unrealized investment gain ........................
Amortization of unearned compensation
   related to options and Restricted Stock ............
Purchase of Treasury Stock during year ................
Translation adjustment ................................
Net loss for the year .................................
                                                           ------------------------------------------------------------------
   Balance, December 31, 1995. ........................    2,138,702     214       11,123,698        1,669          188,698

Shares issued at $1.50 to $23.125 per share
   under the 1985 Stock Option Plan (Note 9) ..........                               111,347           16              706
Compensation related to options
   issued net of forfeitures ..........................                                                              (2,216)
Amortization of unearned compensation
   related to options and Restricted Stock ............
Purchase of Treasury Stock during year ................
Retirement of Treasury Stock during year ..............                               (19,831)          (3)            (754)
Translation adjustment ................................
Net loss for the year .................................
                                                           ------------------------------------------------------------------
   Balance, December 31, 1996..........................    2,138,702     214       11,215,214        1,682          186,434

Shares issued at $.525 to $23.125 per share
   under the 1985 Stock Option Plan (Note 9) ..........                               127,613           19              426
Private placement of Common Stock .....................                             1,850,000          278           22,555
Restricted Stock issued at $16.875 per share ..........                                10,700            2              179
Amortization of unearned compensation
   related to options and Restricted Stock ............
Purchase of Treasury Stock ............................
Translation adjustment ................................
Net loss for the year .................................
                                                           ------------------------------------------------------------------
   Balance, December 31, 1997. ........................    2,138,702    $214       13,203,527       $1,981         $209,594
                                                           ==================================================================
</TABLE>



<TABLE>
<CAPTION>
                                                                           Unearned
In thousands of dollars,                                   Treasury         Compen-                            Accumulated
except share and per share data                             Stock           sation            Other              Deficit
-------------------------------                             -----           ------            -----              -------
<S>                                                       <C>             <C>               <C>               <C>
   Balance, December 31, 1994 .........................       --            ($274)           ($625)             ($100,836)

Shares issued at $1.50 to $14.85 per share
   under the 1985 Stock Option Plan (Note 9) ..........
Warrants exercised at $7.50 per share .................
Restricted Stock issued at $23.13 per share ...........                       (17)
Compensation related to options
   issued net of forfeitures ..........................                    (2,916)
Shares (Series B Preferred Stock) issued
   to Hewlett-Packard Company at
   $28.50 per share ...................................
Net unrealized investment gain ........................                                        625
Amortization of unearned compensation
   related to options and Restricted Stock ............                       853
Purchase of Treasury Stock during year ................    ($691)
Translation adjustment ................................                                        (98)
Net loss for the year .................................                                                           (23,008)
                                                           ---------------------------------------------------------------
   Balance, December 31, 1995. ........................     (691)          (2,354)             (98)              (123,844)

Shares issued at $1.50 to $23.125 per share
   under the 1985 Stock Option Plan (Note 9) ..........
Compensation related to options
   issued net of forfeitures ..........................                     2,216
Amortization of unearned compensation
   related to options and Restricted Stock ............                       119
Purchase of Treasury Stock during year ................      (66)
Retirement of Treasury Stock during year ..............      757
Translation adjustment ................................                                        (79)
Net loss for the year .................................                                                           (17,456)
                                                           ---------------------------------------------------------------
   Balance, December 31, 1996..........................       --              (19)            (177)              (141,300)

Shares issued at $.525 to $23.125 per share
   under the 1985 Stock Option Plan (Note 9) ..........
Private placement of Common Stock .....................
Restricted Stock issued at $16.875 per share ..........                      (181)
Amortization of unearned compensation
   related to options and Restricted Stock ............                        19
Purchase of Treasury Stock ............................      (13)
Translation adjustment ................................                                       (100)
Net loss for the year .................................                                                           (16,973)
                                                           ---------------------------------------------------------------
   Balance, December 31, 1997. ........................     ($13)           ($181)           ($277)             ($158,273)
                                                           ===============================================================
</TABLE>

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

                                            25
<PAGE>   28
                                    i-STAT CORPORATION
                           CONSOLIDATED STATEMENTS OF CASH FLOWS


<TABLE>
<CAPTION>
In thousands of dollars, except share and per share data                               For the Years Ended December 31,
-------------------------------------------------------------------------------------------------------------------------
                                                                                     1997            1996           1995
<S>                                                                                <C>            <C>            <C>
Cash flows from operating activities:
   Net loss .................................................................      ($16,973)      ($17,456)      ($23,008)
   Adjustment to reconcile net loss to net cash used in operating activities:
      Depreciation and amortization .........................................         3,878          2,831          2,723
      Accounts receivable provision .........................................            53           145             85
      Write-off of patents ..................................................            --             --             90
      Gains on disposal of equipment ........................................           (27)            (8)            --
      Deferred revenue ......................................................        (3,022)        (3,136)        (1,374)
      Expense related to restricted stock and options .......................            19            119            853
Change in assets and liabilities:
   Accounts receivable ......................................................          (311)        (1,040)          (655)
   Inventories ..............................................................         1,340          1,256         (4,206)
   Prepaid expenses and other current assets ................................           180           (224)          (281)
   Accounts payable .........................................................           637            (17)        (1,429)
   Accrued expenses .........................................................           (21)         1,227            174
   Restricted cash, letter of credit ........................................           158             96            118
                                                                                   --------       --------       --------
      Net cash used in operating activities .................................       (14,089)       (16,207)       (26,910)
                                                                                   --------       --------       --------
Cash flows from investing activities:
   Purchases of investments .................................................       (22,976)            --        (10,032)
   Sales of investments .....................................................        22,976          2,025         25,532
   Purchase of equipment ....................................................        (4,376)        (5,180)        (4,619)
   Cost of intangible assets ................................................          (259)          (311)          (227)
   Proceeds from sale of equipment ..........................................            56             19             --
                                                                                   --------       --------       --------
      Net cash used in investing activities .................................        (4,579)        (3,447)        10,654
                                                                                   --------       --------       --------
Cash flows from financing activities:
   Proceeds from sale of Common Stock .......................................           445            656            608
   Net proceeds from private placement of Common Stock ......................        22,833             --             --
   Proceeds from sale of Preferred Stock ....................................            --             --         59,212
   Purchase of Treasury Stock ...............................................           (13)            --           (691)
                                                                                   --------       --------       --------
      Net cash provided by financing activities .............................        23,265            656         59,129
                                                                                   --------       --------       --------
Effect of currency exchange rate changes on cash ............................          (100)           (79)           (98)
                                                                                   --------       --------       --------
   Net increase (decrease) in cash and cash equivalents .....................         4,497        (19,077)        42,775
   Cash and cash equivalents at beginning of year ...........................        28,417         47,494          4,719
                                                                                   --------       --------       --------
   Cash and cash equivalents at end of year .................................      $ 32,914       $ 28,417       $ 47,494
                                                                                   ========       ========       ========
Supplemental disclosure of cash flow information:
   Cash paid for income taxes ...............................................            --             --             --
                                                                                   ========       ========       ========
   Cash paid for interest ...................................................            --       $      1       $      1
                                                                                   ========       ========       ========
Supplemental disclosures of cash flow information and non cash investing and
financing activities:
   Equipment purchases included in accounts payable at year end .............      $     33       $    136       $    361
                                                                                   ========       ========       ========
</TABLE>

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

                                            26
<PAGE>   29
                               i-STAT CORPORATION
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES


Principles of Consolidation and Nature of Operations

The accompanying consolidated financial statements include the accounts of
i-STAT Corporation and i-STAT Canada Limited, collectively known as i-STAT or
the Company. All significant intercompany accounts and transactions have been
eliminated in consolidation. The Company develops, manufactures and markets
medical diagnostic products for blood analysis that provide health care
professionals with immediate and accurate critical diagnostic information at the
point of patient care. The Company's products currently are marketed through the
Company's direct sales force principally to hospitals in the United States and
Canada and through marketing partners in other countries.

The Company operates in a high technology, emerging market environment that
involves significant risks and uncertainties which may cause results to vary
significantly from reporting period to reporting period. These risks include,
but are not limited to, among others, competition from existing manufacturers
and marketers of blood analysis products who have greater resources than the
Company, the uncertainty of new product development initiatives, difficulties in
transferring new technology to the manufacturing stage, market resistance to new
products and point-of-care blood diagnosis, domestic and international
regulatory constraints, uncertainties of international trade, pending and
potential disputes concerning ownership of intellectual property and dependence
upon strategic corporate partners for assistance in development of new markets.


Cash, Cash Equivalents and Short-Term Investments

Cash and cash equivalents include investments with original maturities of three
months or less.


Foreign Currency Translation/Transactions

Generally Consolidated Balance Sheet amounts have been translated using exchange
rates in effect at the balance sheet dates and the translation adjustments have
been included in the foreign currency translation adjustment as a separate
component of Consolidated Stockholders' Equity. Amounts related to transactions
in the Consolidated Statements of Operations have been translated using the
average exchange rates in effect each year and transaction gains and losses
which are not material have been included therein.


Inventories

Inventories are carried at the lower of actual cost or market and cost is
accounted for on the first-in first-out (FIFO) basis.


Plant and Equipment

Plant and equipment are stated at cost and are depreciated on a straight-line
basis over their useful lives which are estimated to be three to seven years.
Leasehold improvements are amortized over five years or the term of the lease,
whichever is less. The cost of major additions and betterments are capitalized;
maintenance and repairs which do not improve or extend the life of the
respective assets are charged to operations as incurred. When depreciable assets
are retired or sold the cost and related accumulated depreciation are removed
from the accounts and any resulting gain or loss is reflected in the
Consolidated Statements of Operations.


Patents, Licenses and Trademarks

Costs to obtain and maintain patents, licenses and trademarks are capitalized
and amortized on a straight-line basis over their estimated useful lives or a
period of 17 years, whichever is shorter. The Company reviews these items on a
regular basis for realization.


                                       27
<PAGE>   30
                               i-STAT CORPORATION
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)


Unearned Compensation

Unearned compensation related to stock options and Restricted Stock awards is
amortized over the period during which the options become exercisable or
Restricted Stock awards are earned.


Income Taxes

The Company accounts for income taxes in accordance with the Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS No.
109), which requires an asset and liability approach for financial accounting
and reporting of income taxes. In addition, deferred income taxes are adjusted
for changes in income tax rates.


Revenue Recognition

Revenues are recorded at time of shipment of products or performance of
services. Revenues from service contracts are recognized in earnings over the
terms of the contract.


Basic and Diluted Loss per Share

The Company has adopted Statement of Financial Accounting Standards No. 128
"Earnings Per Share" which requires the presentation of basic earnings per share
(EPS), and diluted earnings per share. Basic EPS excludes dilution and is
computed by dividing income available to common stockholders by the
weighted-average number of common shares outstanding for the period. Diluted EPS
reflects the potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted into common stock or
resulted in the issuance of common stock that then shared in the earnings of the
entity. The Company has not included potential common shares in the diluted
per-share computation as the result is antidilutive.

The numerator and denominator of the basic and diluted per share computations
were as follows:

<TABLE>
<CAPTION>
In thousands of dollars,
except shares and per share amount                 For the Year Ended December 31, 1997
---------------------------------------------------------------------------------------------
                                                Loss           Shares        Per-Share Amount
<S>                                         <C>               <C>            <C>        
Basic and diluted EPS
Loss available to Common Stockholders...    ($ 16,973)         14,497,530      ($ 1.17)
                                            ===========================================
</TABLE>

<TABLE>
<CAPTION>
In thousands of dollars,
except shares and per share amount                For the Year Ended December 31, 1996
---------------------------------------------------------------------------------------------
                                               Loss            Shares        Per-Share Amount
<S>                                         <C>               <C>            <C>        
Basic and diluted EPS
Loss available to Common Stockholders...    ($ 17,456)         13,321,603      ($ 1.31)
                                            ===========================================
</TABLE>

<TABLE>
<CAPTION>
In thousands of dollars,
except shares and per share amount                For the Year Ended December 31, 1995
---------------------------------------------------------------------------------------------
                                               Loss             Shares       Per-Share Amount
<S>                                         <C>               <C>            <C>        
Basic and diluted EPS
Loss available to Common Stockholders...    ($ 23,008)         12,122,089      ($ 1.90)
                                            ===========================================
</TABLE>

Basic and diluted net loss per share is calculated using the weighted average
number of common shares and preferred shares outstanding for all periods
presented. Preferred shares have been included in the calculations since their
date of issuance as they are convertible into common shares on a 1:1 basis and
have substantially the same characteristics as common stock.

Options to purchase 1,637,704 shares of common stock at $1.50 - $34.11 per
share, which expire on various dates from May 1998 to October 2007, were
outstanding at December 31, 1997. These shares were not included in the
computation of diluted EPS because the effect would be antidilutive due to the
net loss.


                                       28
<PAGE>   31
                               i-STAT CORPORATION
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


Estimates

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the dates of the financial statements and
the reported amounts of revenues and expenses during the reporting periods.
Actual results could differ from those estimates.


Concentration of Credit Risk

The Company's significant concentrations of credit risk are with its cash and
cash equivalents and accounts receivable. Substantially all the Company's cash
and cash equivalents at December 31, 1997 were invested in the securities of a
single U.S. Government Agency. Accounts receivable are generally with major
hospitals. The Company provides credit to its customers on an unsecured basis
after evaluating their credit status.


Recently Issued Accounting Pronouncements

In June 1997, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards No. 130 "Reporting Comprehensive Income" which
establishes standards for the reporting and display of comprehensive income and
its components in a full set of financial statements. The Company is required to
adopt this standard in 1998 and believes the principle component of
comprehensive income will be foreign currency translation.

In June 1997, the FASB issued Statement of Financial Accounting Standards No.
131 "Disclosures about Segments of an Enterprise and Related Information" which
establishes standards for the way that public business enterprises report
information about operating segments, geographic areas, products and major
customers. The Company is required to adopt this standard in 1998 and is
currently evaluating the impact of this standard.

In February 1998 the FASB issued Statement of Financial Accounting Standards No.
132, "Employers' Disclosures about Pensions and Other Postretirement Benefits."
This statement modifies financial statement disclosures related to pension and
other postretirement plans, including standardization of disclosures for pension
plans and other postretirement plans, permitting the aggregation of information
regarding certain plans, additional disclosures related to the change in benefit
obligations and the fair value of plan assets, and elimination of certain other
disclosures. As with SFAS Nos. 130 and 131, this statement addresses disclosure
issues and therefore will not have an effect on the Company's financial
positions or results of operations, and is effective for periods beginning after
December 15, 1997.


Reclassification

Certain reclassifications have been made to 1995 and 1996 amounts to conform
them to the 1997 presentation.


2. INVENTORIES

Inventories consist of the following:

<TABLE>
<CAPTION>
In thousands of dollars                                      December 31,
--------------------------------------------------------------------------------
                                                      1997                 1996
<S>                                                  <C>                  <C>   
Raw materials ........................               $2,206               $2,477
Work in process ......................                1,482                1,596
Finished goods .......................                2,239                3,194
                                                     ------               ------
                                                     $5,927               $7,267
                                                     ======               ======
</TABLE>


                                       29
<PAGE>   32
                               i-STAT CORPORATION
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

3. PLANT AND EQUIPMENT

Plant and equipment, net, consists of the following:

<TABLE>
<CAPTION>
In thousands of dollars                                      December 31,
-------------------------------------------------------------------------------
                                                         1997            1996
<S>                                                    <C>             <C>     
Equipment loaned to customers ..................       $  1,945        $  1,193
Manufacturing equipment ........................         23,299          20,344
Furniture and fixtures .........................            907             762
Leasehold improvements .........................          3,326           2,992
                                                       --------        --------
                                                         29,477          25,291
Less accumulated depreciation and amortization .        (16,858)        (13,236)
                                                       --------        --------
                                                       $ 12,619        $ 12,055
                                                       ========        ========
</TABLE>

Depreciation expense was approximately $3,622,000, $2,479,000 and $2,685,000 for
the years ended December 31, 1997, 1996 and 1995, respectively. Accumulated
depreciation and amortization includes accumulated depreciation on loaned
equipment of approximately $1,000,000 and $672,000 for the years ended December
31, 1997 and 1996 respectively.


4. INTANGIBLE ASSETS

Intangible assets, net, consist of the following:

<TABLE>
<CAPTION>
In thousands of dollars                                     December 31,
-------------------------------------------------------------------------------
                                                      1997                1996
<S>                                                  <C>                <C>    
Patents, licenses and trademarks .........           $ 1,699            $ 1,440
Less accumulated amortization ............              (369)              (274)
                                                     -------            -------
                                                     $ 1,330            $ 1,166
                                                     =======            =======
</TABLE>

Amortization expense was approximately $95,000, $73,000 and $38,000 for the
years ended December 31, 1997, 1996 and 1995, respectively.


5. ACCRUED EXPENSES

Accrued expenses consist of the following:

<TABLE>
<CAPTION>
In thousands of dollars                                        December 31,
--------------------------------------------------------------------------------
                                                          1997             1996
<S>                                                      <C>              <C>   
Accrued management incentive awards ..........           $  311           $   75
Payroll and withholding taxes ................            1,099              695
Professional fees ............................              490              398
Accrued commissions ..........................              211              280
Accrued warranty expense .....................              185              174
Other ........................................            1,437            2,132
                                                         ------           ------
Total accrued expenses .......................           $3,733           $3,754
                                                         ======           ======
</TABLE>


6. LEASING TRANSACTIONS

The Company's lease for its manufacturing facility in Ontario, Canada expires in
February 1999 and is subject, at the Company's option, to one five-year option
to renew. Rent expense was approximately $342,000, $335,000 and $254,000 for the
years ended December 31, 1997, 1996 and 1995, respectively.

The Company's lease for its administrative, marketing and selected research and
development facility in Princeton, New Jersey, expires in September 1998. Rent
expense for this facility was approximately $490,000, $484,000 and $483,000 for
the years ended December 31, 1997, 1996 and 1995, respectively.


                                       30
<PAGE>   33
                               i-STAT CORPORATION
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

The Company's lease for its assembly facility in Plainsboro, New Jersey expires
in February 1999 and is subject, at the Company's option, to one five-year
option to renew. At December 31, 1997, other assets include $315,000 in
restricted cash which acts as collateral for the leasehold improvements made in
the facility. Rent expense for this facility was approximately $441,000,
$357,000 and $359,000 for the years ended December 31, 1997, 1996 and 1995,
respectively. In November 1996, the Company entered into a lease for additional
space in the assembly facility in Plainsboro, New Jersey. Rental payments on
this additional space began in 1997.

As of December 31, 1997, future minimum lease payments are as follows:

<TABLE>
<CAPTION>
Year Ending December 31,: In thousands of dollars                     Operating Leases
<S>                                                                   <C>   
1998 .....................................................                $1,011
1999 .....................................................                   117
                                                                          ------
Total minimum lease payments .............................                $1,128
                                                                          ======
</TABLE>


7. PREFERRED STOCK

The Company has authorized 7,000,000 shares of preferred stock. The rights,
preferences, qualifications, and voting powers are determined by the Board of
Directors. In June 1995 the Board designated 1,500,000 shares as Series A
Junior Participating Preferred Stock that may be issued in the future in
connection with certain shareholder protection measures. Also in June 1995 the
Board designated 2,138,702 shares as Series B Preferred Stock (the "Series B
Stock"). The Series B Stock is convertible into Common Stock on a 1:1 basis,
subject to certain potential adjustments and has substantially the same
characteristics as the Common Stock. The Series B Stock was issued to
Hewlett-Packard Company ("HP") at $28.50 per share in July 1995 for net proceeds
of approximately $59.2 million.


8. COMMON STOCK OFFERING

In June 1997, the Company completed the issuance of 1,850,000 common shares
through a private offering, resulting in net proceeds (after deducting issuance
costs) of $22,832,506. The proceeds of the offering were used to further
implement marketing plans, for product research and development programs and for
working capital and other general corporate purposes.


9. STOCK OPTIONS AND RESTRICTED STOCK

As incentives to Company personnel and others, the Board of Directors from time
to time grants options to purchase shares of the Company's Common Stock. All
options are granted under the 1985 Stock Option Plan ("the Plan"). The maximum
number of issuable shares of Common Stock is 3,000,000 of which 862,662 are
available for grant at December 31, 1997. Options under the Plan can be issued
until November 26, 2005. The option price generally is based upon the fair
market value of the Company's Common Stock at the time of the grant. Unexercised
options expire five to ten years from the date of grant or three months
following termination of the optionee's employment, whichever occurs first.

During 1995, the Company implemented a Strategic Milestone Stock Award Program
in which employees (including most executive officers) were eligible to
participate. Under this program, options were granted under the Company's 1985
Stock Option Plan to purchase up to 764,387 shares of Common Stock. The exercise
price of the options granted was $23.125 per share, representing the fair market
value of the Common Stock at the inception of the program. These options became
exercisable if two pre-selected milestones were met, on the basis of
approximately 50% of the underlying shares for each milestone. The options vest
over two years from the attainment of the applicable milestone. During the first
quarter of 1996 the Company achieved its first milestone under its Strategic
Milestone Stock Award Program; the second milestone was not achieved. In
connection with the achievement of the first milestone, an aggregate amount of
$33,000 was recognized as a non-cash compensation expense over the 27 month
period from September 1995 to December 1997.


                                       31
<PAGE>   34
                               i-STAT CORPORATION
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

The table below is a summary of stock option activity under the Plan for the
years 1995, 1996, and 1997:

<TABLE>
<CAPTION>
                                                                          Weighted     Weighted
                                                           Options         Average      Average
                                                           Granted        Exercise    Fair Value     Range of
                                             Options         and          Price per   per Option     Exercise
                                           Exercisable   Outstanding        Share       Granted       Prices
                                           -----------   -----------      --------      -------   -----------------
<S>                                        <C>           <C>              <C>         <C>         <C>
Balance December 31, 1994................    584,406                       $  5.80
Balance December 31, 1994................                1,031,868         $  8.61                $ 0.53 - $ 18.50
Options granted..........................                  185,638         $ 21.17      $ 14.60
Options exercised........................                 (112,913)       ($  5.09)
Options forfeited........................                  (20,432)       ($  9.69)
                                           -----------   -----------      --------      -------   -----------------
Balance December 31, 1995................    650,780                       $  7.71
Balance December 31, 1995................                1,084,161         $ 11.11                $ 0.53 - $ 34.31
Options granted..........................                  218,026         $ 23.74      $ 16.61
Options granted -- Strategic Milestone 
   Stock Award Program...................                  764,387         $ 23.13      $ 15.70
Options exercised........................                 (111,347)       ($  6.49)
Options forfeited........................                  (81,978)       ($ 21.51)
Options forfeited -- Strategic Milestone
   Stock Award Program ..................                 (381,050)       ($ 23.13)
                                           -----------   -----------      --------      -------   -----------------
Balance December 31, 1996................    746,700                       $  9.79
Balance December 31, 1996................                1,492,199         $ 15.82                $ 0.53 - $ 34.31
Options granted..........................                  327,523         $ 13.10       $ 7.49
Options exercised........................                 (127,613)       ($  3.49)
Options forfeited........................                  (54,405)       ($ 19.96)
                                           -----------   -----------      --------      -------   -----------------
Balance December 31, 1997................    937,322                       $ 14.69
Balance December 31, 1997................                1,637,704         $ 16.10                $ 1.50 - $ 34.31
                                           ===========   ===========      ========      =======   =================
</TABLE>

The weighted average remaining contractual lives of outstanding options at
December 31, 1997 was approximately 4.8 years.

The Company applies the provisions of Opinion 25 ("APB 25") and related
Interpretations in accounting for its stock based compensation plans.
Accordingly, compensation expense has been recognized in the financial
statements in respect to the above plans to the extent required by APB 25. Had
compensation costs for the above plans been determined based on the fair value
at the grant dates for awards under those plans consistent with the method of
Statement of Financial Accounting Standards No. 123 "Accounting for Stock Based
Compensation", the Company's net loss and net loss per share would have been
increased to the pro forma amounts below:

<TABLE>
<CAPTION>
In thousands of dollars, except per share data           1997              1996              1995
                                                     ----------        ----------        ---------- 
<S>                                                  <C>               <C>               <C>        
Pro forma net loss ...........................       ($  19,426)       ($  22,038)          (23,801)
Pro forma basic and diluted net loss per share       ($    1.34)       ($    1.65)       ($    1.96)
</TABLE>


                                       32
<PAGE>   35
                               i-STAT CORPORATION
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

As options vest over a varying number of years, and awards are generally made
each year, the pro forma impacts shown here may not be representative of future
pro forma expense amounts due to the annual grant of options by the Company. The
pro forma additional compensation expense of $2,453,000, $4,582,000 and $793,000
for 1997, 1996 and 1995, respectively, was calculated based on the fair value of
each option grant using the Black-Scholes model with the following
weighted-average assumptions used for grants:


<TABLE>
<CAPTION>
                                               1997          1996          1995
                                               ----          ----          ----
<S>                                           <C>           <C>           <C>    
Dividend yield .......................              0%            0%            0%
Expected volatility ..................          57.28         56.44         56.44
Risk free interest rate ..............           6.71%         6.40%         7.12%
Expected option lives ................        5 years       8 years       8 years
</TABLE>

The Company has a restricted stock plan whereby the Company can award up to
60,000 shares of common stock to employees. The sale or transfer of the shares
is limited during the restricted period, not exceeding four years. For the year
ended December 31, 1997, the Company awarded 10,700 shares of restricted common
stock which had a fair value at the date of grant of approximately $180,000. For
the year ended December 31, 1996, the Company did not award shares of restricted
common stock. Compensation under the plan is charged to earnings over the
restriction period and amounted to approximately $2,000, $31,000, and $109,000
in 1997, 1996 and 1995, respectively. At December 31, 1997, 18,350 shares of
common stock were available for issuance under the restricted stock plan.


10. DEVELOPMENT, DISTRIBUTION AND MANUFACTURING RIGHTS AGREEMENTS

In August 1988, the Company entered into development, distribution and
instrument manufacturing license agreements with two Japanese companies. Total
sales under these agreements were $7,929,000, $7,492,000 and $2,887,000 for the
years ended December 31, 1997, 1996 and 1995, respectively, including deferred
revenue of $3,111,000, $3,151,000 and $1,374,000, respectively. In addition,
total sales for the year ended December 31, 1997 includes a payment, in the
fourth quarter, of $900,000, net of Japanese withholding taxes, received as a
development milestone payment for creatinine. The Company also has other license
and distribution agreements, including agreements with HP (see Note 13).


11. INCOME TAXES

At December 31, 1997, the Company had a net operating loss carryforward of
approximately $139,000,000 for United States Federal income tax purposes which
expires in varying amounts through 2012. The Company also has unused research
and development tax credits of approximately $1,188,000 for United States
Federal income tax purposes which expire in varying amounts through 2012.
Additionally, the Company has unused Canadian investment tax credits of
approximately $2,697,000 which expire in varying amounts through 2005. The
timing and manner in which the operating loss carryforwards and credits may be
utilized in any year by the Company will be limited by Internal Revenue Code
Section 382.

The Company accounts for income taxes in accordance with the provisions of
Statement of Financial Accounting Standards No. 109 "Accounting for Income
Taxes" ("SFAS 109"). SFAS 109 requires recognition of deferred tax liabilities
and assets for the expected future tax consequences of events that have been
included in the financial statements or tax returns. Under this method, deferred
tax liabilities and assets are determined based on the difference between the
financial statement and tax bases of assets and liabilities using enacted tax
rates in effect for the year in which the differences are expected to reverse.
The Company provides a valuation allowance against the net deferred tax debits
due to the uncertainty of realization. The increase in the valuation allowance
for the years ended December 31, 1997 and 1996 was approximately $7,980,000 and
$3,437,000, respectively.


                                       33
<PAGE>   36
                               i-STAT CORPORATION
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

Temporary differences and carryforwards which give rise to the deferred tax
assets and liabilities at December 31, 1997 and 1996 are as follows:

<TABLE>
<CAPTION>
                                                     1997                1996
                                                 Deferred Tax         Deferred Tax
In thousands of dollars                       Assets (Liabilities) Assets (Liabilities)
-----------------------                       -------------------- --------------------
<S>                                           <C>                  <C>     
Net Operating Loss -- U.S. .................         $ 47,322          $ 41,439
Net Operating Loss -- Canada ...............            1,554               858
Net Operating Loss -- Province (Can) .......            1,298               846
State Taxes ................................            8,057             7,116
Deferred Revenue ...........................               36             1,101
Tax Credits -- U.S. ........................            1,188             1,100
Tax Credits -- Canada ......................            2,697             2,221
Intangibles ................................             (373)             (268)
Depreciation -- U.S. .......................              363               104
Depreciation -- Canada .....................              353               180
Depreciation -- Province (Can) .............              189               160
Other ......................................            1,298             1,145
                                                      -------           -------
                                                       63,982            56,002
                                                      -------           -------
Valuation Allowance -- U.S. ................          (49,833)          (44,621)
Valuation Allowance -- Canada ..............           (4,605)           (3,259)
Valuation Allowance -- Province (Can) ......           (1,487)           (1,006)
Valuation Allowance -- State ...............           (8,057)           (7,116)
                                                      --------          --------
Total Deferred Taxes .......................         $     --          $     --
                                                     =========         ========= 
</TABLE>


12. SAVINGS AND INVESTMENT RETIREMENT PLAN

i-STAT has a defined contribution savings and investment retirement plan under
section 401(k) of the Internal Revenue Code, as amended, whereby substantially
all full-time employees are eligible to participate. i-STAT has not made any
matching contributions to the Plan.


13. RELATED PARTY TRANSACTIONS

One director of the Company has provided consulting services to the Company.
Consulting fees incurred totaled approximately $30,000 for each of the years
ended December 31, 1997, 1996 and 1995.

The Company had the following activity with HP, primarily related to license and
distribution agreements.

<TABLE>
<CAPTION>
In thousands of dollars                    1997            1996            1995
                                          ------          ------          ------
<S>                                       <C>             <C>             <C>   
Revenues .......................          $2,897          $  961          $   25
Purchases ......................          $1,192          $  370          $   14
Receivable at year end .........          $  379          $   67          $    7
Payable at year end ............          $   26          $  158          $   --
</TABLE>


14. SUPPLEMENTARY STATEMENT OF OPERATIONS INFORMATION

Maintenance and repairs expense for the years ended December 31, 1997, 1996 and
1995 was approximately $757,000, $723,000 and $675,000, respectively.


                                       34
<PAGE>   37
                               i-STAT CORPORATION
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

15. COMMITMENTS AND CONTINGENCIES

The Company is 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, alleges infringement by i-STAT of Nova's U.S. Patent No. 4,686,479. In
February 1998, the Court entered summary judgement in favor of the Company on
the issue of patent infringement. Accordingly, the Company has been found not to
infringe, either literally or under the patent law "doctrine of equivalents",
Nova's patent. However, if the plaintiff should appeal and prevail on this
issue, a prospect which the Company believes to be highly unlikely, it could
have a material impact on the financial position, results of operations and cash
flows of the Company. The Company had asserted and is pursuing counterclaims
under the antitrust laws alleging that Nova commenced the action knowing that
the patent was not infringed and that it has reason to believe that the patent
was invalid and unenforceable.

The Company is a defendant in a class action complaint entitled Susan Kaufman,
on behalf of herself and all other similarly situated, Plaintiff, v. i-STAT
Corporation, William P. Moffitt, Lionel M. Sterling, Imants R. Lauks and
Matthias Plum, Jr. The class action was brought by Susan Kaufman on her behalf
and on behalf of all purchasers of the Company's Common Stock between May 9,
1995 and March 19, 1996. The complaint, which was filed in the Superior Court of
New Jersey in Mercer County on June 19, 1996, alleges New Jersey common law
fraud and negligent misrepresentation, and is predicated on a "fraud on the
market" theory in connection with certain sales of i-STAT stock by the Company's
chief executive officer, chief technology officer and two outside directors
during a nine-month period. The plaintiffs seek unspecified compensatory
damages, interest and payment of all costs and expenses incurred in connection
with the class action. The Company and individual defendants filed an answer to
the complaint on August 20, 1996, denying all the pertinent charging
allegations. No formal discovery has yet been taken. Based on its review of the
allegations, the Company believes that there are numerous substantial factual
and legal defenses to the charges. Furthermore, the Company believes that the
case law in New Jersey is not favorable to plaintiff's fraud on the market
theory for common law claims, and is endeavoring to obtain an early
determination on this issue. Based on that belief, and certain stipulations as
to plaintiff's lack of reliance on the alleged inadequate disclosure, the
Company and the individual named defendants filed a Motion for Summary Judgment
in December 1997, which will be decided on a date to be determined by the
Court. The Company believes the complaint is without merit and intends to
vigorously contest it. However, if the plaintiff should prevail in this matter,
it could have a material impact on the financial positions, results of
operations and cash flows of the Company.                                      

The Company is a defendant in a case entitled Customedix Corporation, Plaintiff
v. i-STAT Corporation, Defendant. The Complaint, which was filed in the United
States District Court for the District of Connecticut on December 26, 1996,
alleges infringement by i-STAT of Customedix's U.S. Patent No. 4,342,964. The
Plaintiff seeks injunctive relief and an accounting for i-STAT's profits and the
damages to Customedix from such alleged infringement. The case currently is in
the preliminary stages of discovery. The Company intends to contest the case
vigorously and does not believe that it has infringed the Customedix patent. The
Company has obtained an opinion from recognized patent counsel to the effect
that no infringement has occurred. However, if the plaintiff should prevail in
this matter, it could have a material impact on the financial position, results
of operation and cash flows of the Company.


                                       35
<PAGE>   38
                               i-STAT CORPORATION
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

16. GEOGRAPHIC SEGMENT DATA

The Company is engaged in the development, manufacturing and marketing of its
proprietary blood analysis products in the health care sector.

The Company's operations are classified into the following geographic areas:


<TABLE>
<CAPTION>
In thousands of dollars                      Year Ended December 31,
--------------------------------------------------------------------------------
                                   1997               1996                1995
<S>                              <C>                <C>                <C>      
Operating Loss:
Domestic ..............          ($16,328)          ($17,631)          ($23,613)
Canada ................            (2,296)            (1,879)              (405)
                                 --------           --------           -------- 
Total .................          ($18,624)          ($19,510)          ($24,018)
                                 ========           ========           ======== 
</TABLE>

<TABLE>
<CAPTION>
In thousands of dollars                         Year Ended December 31,
--------------------------------------------------------------------------------
                                        1997             1996             1995
<S>                                    <C>              <C>              <C>    
Identifiable Assets:
Domestic ....................          $51,033          $47,173          $66,794
Canada ......................            8,137            8,192            7,256
                                       -------          -------          -------
Total .......................          $59,170          $55,365          $74,050
                                       =======          =======          =======
</TABLE>

<TABLE>
<CAPTION>
In thousands of dollars                         Year Ended December 31,
--------------------------------------------------------------------------------
                                        1997             1996              1995
<S>                                    <C>              <C>              <C>    
Net Sales:
Domestic ....................          $25,300          $20,878          $16,194
Canada ......................              245              286              190
Japan .......................            7,929            7,492            2,887
Other International .........            4,366            1,674              831
                                       -------          -------          -------
Total .......................          $37,840          $30,330          $20,102
                                       =======          =======          =======
</TABLE>


17. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

<TABLE>
<CAPTION>
                                                                                         1997
In thousands of dollars,                                   First                Second              Third              Fourth
except share and per share data                           Quarter              Quarter             Quarter             Quarter
--------------------------------------------------------------------------------------------------------------------------------
<S>                                                     <C>                 <C>                 <C>                 <C>         
Net sales .......................................             $7,806              $9,146              $9,645        $     11,243
Gross profit ....................................             $1,473              $1,888              $1,752        $      1,765
Net loss ........................................            ($3,993)            ($4,485)            ($4,376)       ($     4,119)
Basic and diluted net loss per share ............             ($0.30)             ($0.32)             ($0.29)       ($      0.27)
Weighted average shares used in
   computing basic and diluted net loss per share         13,362,138          14,032,395          15,273,690          15,315,889
</TABLE>

<TABLE>
<CAPTION>
                                                                                         1996
In thousands of dollars,                                   First                Second              Third              Fourth
except share and per share data                           Quarter              Quarter             Quarter             Quarter
--------------------------------------------------------------------------------------------------------------------------------
<S>                                                     <C>                 <C>                 <C>                 <C>         
Net sales .......................................             $6,411              $6,740              $7,772        $      9,407
Gross profit ....................................               $612                $104              $1,122        $      2,201
Net loss ........................................            ($4,287)            ($5,102)            ($4,009)       ($     4,058)
Basic and diluted net loss per share ............             ($0.32)             ($0.38)             ($0.30)       ($      0.30)
Weighted average shares used in
   computing basic and diluted net loss per share         13,284,845          13,324,591          13,326,127          13,350,836
</TABLE>

Basic and diluted net loss per common share amounts are calculated independently
for each of the quarters presented. The sum of the quarters may not equal the
full year basic and diluted net loss per common share amounts.


                                       36
<PAGE>   39
                               i-STAT CORPORATION
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

18. SUBSEQUENT EVENTS

In January 1998, the Company decided to consolidate all its cartridge assembly
operations in its manufacturing facility in Ontario, Canada. In order to
facilitate this move, the Company will relocate its cartridge assembly operation
in Plainsboro, New Jersey to its manufacturing facility in Ontario, Canada. The
relocation of cartridge assembly is anticipated to commence in May 1998 and be
completed by August 1998. The Company's lease for its instrument operations,
engineering, customer support, selected research and development, marketing and
administrative facility in Princeton, New Jersey, expires in September 1998. The
Company anticipates that it will relocate these activities to either its
Plainsboro, New Jersey, facility (after the cartridge assembly operation
currently located there is relocated to Ontario, Canada) or to another building
in the general area of Princeton, New Jersey. The charge to earnings in 1998 for
these relocations, including severance and retention payments to affected
employees, the physical move of equipment, rent and utilities on the potentially
unoccupied Plainsboro facility until that lease expires in February 1999, and
readdressing packaging, marketing materials and stationery, and miscellaneous
costs is estimated to be approximately $1.4 million, with approximately $0.7
million being recorded as a charge to earnings in the first quarter of 1998.


                                       37
<PAGE>   40
                        REPORT OF INDEPENDENT ACCOUNTANTS
                          FINANCIAL STATEMENT SCHEDULE


Our report on the consolidated financial statements of i-STAT Corporation is
included in Item 14 of this Annual Report on Form 10-K. In connection with our
audits of such financial statements, we have also audited the related financial
statement schedule listed in the index in Item 14 of this Annual Report on Form
10-K.

In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.

Princeton, New Jersey                                   Coopers & Lybrand L.L.P.
January 23, 1998, except for paragraph 1 of Note 15,
  for which the date is March 4, 1998


                                       38
<PAGE>   41
                                                                     SCHEDULE II

                               i-STAT CORPORATION
                        VALUATION AND QUALIFYING ACCOUNTS

<TABLE>
<CAPTION>
                                            Balance at    Charged to    Charged to                    Balance at
                                            Beginning     Costs and       Other                        end of
In thousands of dollars                     of Period     Expenses      Accounts      Deductions       Period
----------------------------------------------------------------------------------------------------------------
<S>                                         <C>           <C>           <C>           <C>             <C>    
For the year ended December 31, 1997:
Reserve for Doubtful Accounts .......       $   195       $    53            --       ($  139)*       $   109
                                            =======       =======       =======       =======         =======
For the year ended December 31, 1996:
Reserve for Doubtful Accounts .......       $   110       $   144            --       ($   59)*       $   195
                                            =======       =======       =======       =======         =======
For the year ended December 31, 1995:
Reserve for Doubtful Accounts .......       $    25       $    85            --            --         $   110
                                            =======       =======       =======       =======         =======
For the year ended December 31, 1994:
Reserve for Doubtful Accounts .......       $    25            --            --            --         $    25
                                            =======       =======       =======       =======         =======
For the year ended December 31, 1997:
Tax Valuation Reserve ...............       $56,002       $ 7,980            --            --         $63,982
                                            =======       =======       =======       =======         =======
For the year ended December 31, 1996:
Tax Valuation Reserve ...............       $52,565       $ 3,437            --            --         $56,002
                                            =======       =======       =======       =======         =======
For the year ended December 31, 1995:
Tax Valuation Reserve ...............       $40,832       $11,733            --            --         $52,565
                                            =======       =======       =======       =======         =======
For the year ended December 31, 1994:
Tax Valuation Reserve ...............       $29,888       $10,944            --            --         $40,832
                                            =======       =======       =======       =======         =======
</TABLE>

* Trade accounts receivable written off against the reserve for doubtful
accounts.


                                       39
<PAGE>   42
                                   SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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, in New Jersey on the 23rd
day of March, 1998.

                                    i-STAT CORPORATION

                                    By: /s/ William P. Moffitt
                                       --------------------------
                                    William P. Moffitt
                                    President and Chief Executive Officer

                               POWERS OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints William P. Moffitt and Roger J. Mason, or either of
them, his attorney-in-fact, each with the power of substitution, for him in any
and all capacities, to sign any amendments to this Report, and to file the same,
with exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that
each of said attorney-in-fact, or his substitute or substitutes, may do or cause
to be done by virtue thereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
SIGNATURE                                TITLE                                             DATE
<S>                                      <C>                                               <C> 
/s/ William P. Moffitt                   President, Chief Executive Officer                March 23, 1998
--------------------------               and Director (Principal Executive Officer)
William P. Moffitt                       

/s/ Roger J. Mason                       Vice President of Finance, Treasurer              March 23, 1998
--------------------------               and Chief Financial Officer (Principal
Roger J. Mason                           Financial and Accounting Officer)

/s/ J. Robert Buchanan                   Director                                          March 23, 1998
--------------------------
J. Robert Buchanan

/s/ James A. Cyrier                      Director                                          March 23, 1998
--------------------------
James A. Cyrier

/s/ Curtis J. Crawford                   Director                                          March 23, 1998
--------------------------
Curtis J. Crawford

/s/ Richard Hodgson                      Director                                          March 23, 1998
--------------------------
Richard Hodgson

/s/ Imants R. Lauks                      Director                                          March 23, 1998
--------------------------
Imants R. Lauks

/s/ Matthias Plum, Jr                    Director                                          March 23, 1998
--------------------------
Matthias Plum, Jr.

/s/ Lionel N. Sterling                   Director                                          March 23, 1998
--------------------------
Lionel N. Sterling
</TABLE>


                                       40
<PAGE>   43
EXHIBIT NO.       DESCRIPTION

(10.38)           1985 Stock Option Plan, as amended

(10.39)           Employment Agreement, dated January 23, 1998, between the
                  Registrant and William P. Moffitt

(10.40)           Non-Statutory Stock Option Agreement, dated January 23, 1998,
                  between the Registrant and William P. Moffitt

23                Consent of Coopers & Lybrand L.L.P., Independent Accountants

24                Powers of Attorney, executed by certain officers of the
                  Registrant and the individual members of the Board of
                  Directors, authorizing such officers of the Registrant to file
                  amendments to this Report, are located on the signature page
                  of this report.

27                Financial Data Schedule and restated Financial Data Schedules 
                  for other periods


                                       41