AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 10, 2003

SECURITIES AND EXCHANGE
COMMISSIONWashington, 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, 2002

OR

[   ]   TRANSITION REPORT
PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE
ACT OF 1934For the transition
period from________to_________

Commission file number
0-19841

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

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

104 Windsor Center
Drive, East Windsor, NJ 08520(Address of principal
executive offices) (Zip code)

(609) 443-9300 (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 $0.15 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
_______ No____X___

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

Yes _____ No____X__

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 3, 2003:    20,117,110

The aggregate market value of the
Registrants voting stock held by non-affiliates of the Registrant as of March 3,
2003 is approximately $44,551,093. 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.

DOCUMENTS INCORPORATED
BY REFERENCE (To The Extent
Indicated Herein)

Part III incorporates certain
information by reference to the Registrants Proxy Statement for its 2003 Annual
Meeting of Stockholders.

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TABLE OF CONTENTS

Part I









Part II













Part III











Part IV

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SPECIAL NOTE ON
FORWARD-LOOKING STATEMENTS

CERTAIN STATEMENTS IN THIS ANNUAL
REPORT ON FORM 10-K, UNDER THE SECTIONS MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS, BUSINESS AND ELSEWHERE
RELATE TO FUTURE EVENTS AND EXPECTATIONS AND AS SUCH CONSTITUTE FORWARD-LOOKING
STATEMENTS, WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995. THE WORDS BELIEVES, ANTICIPATES, PLANS,
EXPECTS, AND SIMILAR EXPRESSIONS IN THIS REPORT ARE INTENDED TO IDENTIFY
FORWARD-LOOKING STATEMENTS. SUCH FORWARD-LOOKING STATEMENTS INVOLVE KNOWN AND UNKNOWN
RISKS, UNCERTAINTIES, AND OTHER FACTORS WHICH MAY CAUSE THE ACTUAL RESULTS, PERFORMANCE OR
ACHIEVEMENTS OF THE COMPANY TO BE MATERIALLY DIFFERENT FROM ANY FUTURE RESULTS,
PERFORMANCE OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS AND TO
VARY SIGNIFICANTLY FROM REPORTING PERIOD TO REPORTING PERIOD. SUCH FACTORS INCLUDE, AMONG
OTHERS, THOSE LISTED IN FACTORS THAT MAY AFFECT FUTURE RESULTS UNDER ITEM 1
BELOW AND OTHER FACTORS DETAILED FROM TIME TO TIME IN THE COMPANYS OTHER FILINGS
WITH THE SECURITIES AND EXCHANGE COMMISSION.

Part I

Item 1. Business

i-STAT Corporation
(i-STAT or the Company), which was incorporated in Delaware in
1983, together with its wholly-owned subsidiary, i-STAT Canada Limited (i-STAT
Canada), develops, manufactures and markets medical diagnostic products for blood
analysis that provide health care professionals with immediate and accurate critical
diagnostic or monitoring information at the point of patient care. The Companys
principal headquarters are located in East Windsor, New Jersey and i-STAT Canada is
located in Kanata, Ontario. (All references in this Report to the Company include i-STAT
Canada unless otherwise specified.)

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

The i-STAT Systemprovides 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 Systempermits more timely diagnosis and therapeutic intervention and reduces
the occurrence of common testing errors. The Company believes these attributes of the
i-STAT Systemresult in improved patient care and lower overall health care costs. In
addition, the Company believes that the i-STAT Systemreduces or eliminates the need for
expensive capital equipment, the specialized and often underutilized labor force,
equipment maintenance and space required for traditional satellite testing laboratories
located near the point of patient care.

The original i-STAT Systemwas
introduced for commercial use in September 1992 and was capable of performing six of the
most commonly ordered blood tests. The number of tests available on the i-STAT Systemhas
increased as a result of the Companys research and development efforts. Here is a
timeline depicting the year of introduction of tests presently available on the i-STAT
System:

1992: sodium, potassium, chloride, glucose, urea nitrogen and hematocrit

1994: pH, ionized calcium and bicarbonate

1995: arterial blood gases (pH, PCO2and PO2

1998: creatinine

1999: lactate

2000: coagulation (Celite® ACT)

1

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2002: coagulation (Prothrombin Time)

The Company believes that 95% of the
approximately 200 million time-critical (stat) blood tests (electrolyte and
blood gas) performed in the United States each year now can be performed using the i-STAT
System. The Company believes that this ability to perform the vast majority of the tests
required on a stat basis, makes the i-STAT Systemattractive as a total
replacement for satellite stat laboratories. The Company has additional tests
under development (see Research and Development).

In order to accelerate acceptance and
increase sales of the i-STAT System, in August 1998 the Company and Abbott Laboratories
(Abbott) entered into a Marketing and Distribution Agreement (the Abbott
Distribution Agreement). In addition to the Abbott Distribution Agreement, the
Company and Abbott also entered into a Funded Research & Development Agreement (the
Abbott Research Agreement), a Common Stock Purchase Agreement, a Standstill
Agreement and a Registration Rights Agreement (collectively known as the Abbott
Alliance Agreements). During 2002, approximately 86% of the Companys total net
revenues were from sales to Abbott. See Managements Discussion and Analysis of
Financial Condition and Results of Operations. On July 25, 2002, the Company
announced its decision to allow the Abbott Distribution Agreement to expire on December
31, 2003.

The Company has begun to take actions
to assume direct responsibility for the marketing and sale of its products, effective
January 1, 2004. These actions have included hiring additional sales personnel, a vice
president of medical affairs and an executive vice president of commercial operations. The
Company anticipates further additions of sales and marketing personnel in the coming
quarters. The Company will incur additional costs and may recognize lower unit sales than
anticipated as a result of resuming direct distribution of its products, the combination
of which may adversely impact the Companys future results of operations and cash
flows.

i-STAT System Components

The i-STAT Systemis composed of a
battery-operated, hand-held, portable, rechargeable analyzer that weighs approximately 22
ounces, and various single-use, disposable cartridges, which contain the electrochemical
biosensors necessary to perform the desired blood tests. Various peripheral components
compliment the i-STAT Systemand provide additional features to the customer. One of these
peripheral components receives the results of tests by infrared means and transmits these
results to both a proprietary information system for managing the users
point-of-care testing activities and to the users hospital-wide information system
for billing and patient records.

The Companys single-use,
disposable cartridges are less than two square inches in size and currently allow the
i-STAT Systemto perform blood tests for sodium, potassium, chloride, glucose, creatinine,
urea nitrogen, hematocrit, ionized calcium, lactate, Celite® ACT (activated clotting
time), Prothrombin time, arterial blood gases, (pH, PCO2 and PO2), and bicarbonate and to
derive certain other values, such as total carbon dioxide, base excess, anion gap,
hemoglobin and O2 saturation, by calculation from the tests performed. The Company
currently sells the following single-use, disposable cartridges that are configured to
perform the following commonly ordered blood measurements:

| | Cartridge: | Tests Performed
| | ---------- | ---------------
| |            |                
| |            |                
| |            |                
| |            |                
| |            |                
| |            |                
| |            |                
| |            |                
| |            |                
| |            |                
| |            |                
| |            |                
| |            |                
| |            |                

2

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* Denotes calculated results

All of these tests can be run on any
i-STAT hand-held analyzer. All i-STAT analyzers provide a visual readout of results and
can store patient information. In fact, the i-STAT® 1 Analyzerpermits a customer to
run all i-STAT cartridges as well as Abbott MediSense® glucose strips on one
integrated hand-held device. The i-STAT 1 Analyzeralso incorporates a number of
enhancements not found in previous generation i-STAT analyzers, including a bar code
reader, the ability to print results via infrared means, the ability to store information
on up to 5,000 patients, an improved user interface, and an enhanced data management
system which, in conjunction with a central data management system developed by the
Company, enhances the customers ability to centrally manage a widely distributed
point-of-care testing program.

i-STAT believes its proprietary
thin-film, biosensor technology provides the Company with significant competitive
advantages over other point-of-care blood testing technologies. Results of blood tests
produced by the i-STAT Systemprovide accuracy equal to that of large, central laboratory
systems. The analyzer is operated by performing several easy steps, is small enough to be
carried from patient to patient, requires only two to three drops of blood and requires
virtually no maintenance by the user. The Companys thin-film biosensor technology
uses micro-fabrication techniques that permit dimensionally small product features
resulting in faster process times than are possible using larger configurations such as
those used in thick-film technology. The Companys thin-film technology permits the
biosensors to wet-up quickly with small amounts of calibrant and blood,
thereby enabling the Company to package its biosensors in a dry state while retaining the
ability to produce results for most tests in approximately two to three minutes. The
Companys disposable cartridges have a shelf life ranging from a minimum of six
months to a maximum of twelve months.

Marketing and Distribution

The i-STAT Systemis currently
marketed 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 Systemis also marketed to hospitals in Japan, Europe, Peoples Republic of
China, Australia, South America, Canada, Central America, Mexico, South Africa, and other
countries in Asia.

Prior to November 1998, the Company
marketed and distributed the i-STAT Systemin the United States and Canada principally
through its own direct sales and marketing organization, in Europe through Hewlett-Packard
Company (HP), in Japan through FUSO Pharmaceutical Industries, Ltd.
(FUSO) and in South America and Asia through selected medical device
distributors. Since November 1998, Abbott has become, subject to certain pre-existing
rights of the Companys other international distributors, the exclusive worldwide
distributor of the Companys existing products and any new products the Company may
develop for use in the professionally attended human healthcare delivery market during the
term of the Abbott Distribution Agreement. Revenues from Abbott represented approximately
86% of the Companys total net revenues for 2002. See Managements
Discussion and Analysis of Financial Condition and Results of Operations.

On July 25, 2002, the Company
announced its decision to allow the Abbott Distribution Agreement to expire effective
December 31, 2003. As a result, the Company is obligated to make the following payments to
Abbott on the dates noted: (a) on December 31, 2003, a $5.0 million one-time termination
fee, (b) on December 31, 2003, approximately $5.0 million representing the unrecognized
portion of a $25.0 million prepayment received from Abbott, (c) early in 2004,
approximately $2.0 million to repurchase inventory and equipment from Abbott, and (d) on
December 31, 2004, and on each December 31 thereafter through 2008, for a total of five
unequal residual payments based upon Abbotts net sales of the Companys
products during 2003, approximately $47.0 million in the aggregate. The Company recognized
the $5.0 million one-time termination fee and the $47.0 million in estimated residual
payments as expense in the third quarter of 2002. Since the Abbott residual payments are
based on Abbotts actual net sales during 2003, the estimated liability for these
residual payments is subject to change as the actual net sales become known. These charges
had a material impact on the Companys results of operations and these payments will
have a material impact on the Companys future cash flows. The Company anticipates
that the profit margins presently being earned by Abbott as a result of the sale of the
Companys products will be earned by the Company commencing January 1, 2004, and will
provide the Company with the sufficient cash to fund these payments to Abbott. The Company
has begun to take actions to assume primary responsibility for the marketing and sale of
its products, effective January 1, 2004. These actions have included hiring additional
sales personnel, a vice president of medical affairs and an executive vice president of
commercial operations. The Company anticipates further additions of sales and marketing
personnel during 2003. The Company will incur additional costs and may recognize lower
unit sales than anticipated as a result of resuming direct distribution of its products,
the combination of which may adversely impact the Companys future results of
operations and cash flows.

3

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In January 2003, the Company and FUSO
entered into a new Distribution Agreement (the FUSO Distribution Agreement).
The FUSO Distribution Agreement extends FUSOs current non-exclusive distribution
rights in Japan through December 31, 2003 and grants exclusive distribution rights in
Japan from January 1, 2004 through December 31, 2008, subject to FUSO meeting certain
sales milestones. During the first quarter of 2003, FUSO paid $2.0 million for marketing
support throughout the exclusive term of the FUSO Distribution Agreement. In addition,
FUSO is expected to pay an additional $11.0 million in October 2003 as a prepayment that
will be offset against future purchases of cartridges. Sales to FUSO represented
approximately 8% of the Companys total net revenues for 2002.

The Company also markets its products
to veterinarians offices in the United States and selected other countries through a
distribution agreement with Heska Corporation (Heska), which was signed in
February 1999. The contract automatically renews each calendar year unless either party
provides notice nine months prior to renewal. Sales to Heska represented approximately 6%
of the Companys total net revenues for 2002.

Although the Company has marketing
and distribution agreements with several third parties, the Company has always performed
and continues to perform many traditional sales, marketing and distribution activities.
For example, the Company physically distributes its products within the United States by
shipping cartridges, analyzers and other peripheral equipment directly to end-user
hospitals. The Company maintains a technical services staff, which handles product-related
technical matters directly with end-users, and a team of implementation coordinators who
install the i-STAT Systemand train end-users. Additionally, the Company employs a team of
individuals who act as sales consultants, working with Abbott sales personnel, to help
sell its products to new customers and, also, by servicing existing accounts.

Beginning in 2002, the Company
expanded its U.S. sales organization to provide additional support to Abbott, and to
position the Company for a return to direct sales and marketing in 2004. In January 2003,
the Company began hiring in order to staff a new field force of fifteen people that will
provide account management services to the existing customer base. The Company expects to
have approximately thirty field sales personnel, which the Company believes will allow it
to adequately identify, qualify, and close sales in all major metropolitan areas of the
United States. In addition to the field sales personnel, the Company has maintained a
field force of fifteen Implementation Coordinators whose responsibilities include training
customers on the i-STAT Systemand addressing technical issues that arise at the field
level. This department will continue to be an integral part of the Companys customer
support network.

See Government Regulation
for a description of the regulatory framework impacting the marketing of the
Companys products in certain geographical areas and alternate site markets.

Competition

The Company competes principally with
traditional blood analysis equipment used by clinical laboratories, either installed in
remote satellite stat labs or installed in central hospital laboratories and
serviced by expedited delivery systems including pneumatic tube systems. This equipment
provides analyses similar to those conducted by the i-STAT Systemand has traditionally
been effective at processing large panels of tests with the use of skilled technicians.
While i-STAT cannot provide the same range of tests, the Company believes that its
products offer several advantages over traditional blood analysis equipment utilized by
hospital clinical laboratories, including lower costs, faster results and reduced
opportunity for error. In addition, the i-STAT Systemstesting capabilities
currently are sufficiently broad to enable health care facilities to close expensive,
inefficient stat laboratories and replace them wholly with the i-STAT System.

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. In fact, most manufacturers of traditional
blood analysis (arterial blood gases) equipment have developed products that are marketed
as either point-of-care testing or near-patient testing products. These products generally
are not equivalent to the i-STAT system, as they are not hand-held devices, nor do they
utilize single-use cartridges. These other products tend to be bench top systems that
require greater operator training and skill and utilize multiple-test cartridge
technology. The Company is aware of one other company, Diametrics Medical Inc., that
provides a small, portable device and single use cartridges, but their market penetration
has been minimal when compared to the Companys market position.

To the extent that the i-STAT Systemreceives necessary regulatory approvals and 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 multi-test 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.

4

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Manufacturing

The Companys products are
produced by the Company with both Company-fabricated and vendor-supplied components. The
Company manufactures the biosensors used in its cartridges in order to protect the
proprietary nature of these components and to control the development and enhancement of
its proprietary technology. Other cartridge components are manufactured to the
Companys specifications by outside vendors. The Company performs final assembly,
quality testing and inspection of cartridges. All components of analyzers as well as
peripheral components, such as the infrared data communication link, are purchased by the
Company from outside sources.

The Companys cartridge
manufacturing and assembly is conducted in facilities totaling 96,856 square feet located
in Kanata, Ontario, Canada. These leased facilities include 18,925 square feet of Class
1,000 and Class 10,000 clean-rooms. The Company currently produces over fourteen million
cartridges per year, utilizing multiple shifts of labor and four cartridge assembly lines.
The Company believes that it could manufacture over 40 million cartridges annually in its
current facilities at full factory utilization using the current generation of its
biosensor chips, taking into account planned yield and productivity improvements and
capital and other expenditures, including the addition of three cartridge assembly lines.
The Company manufactures and assembles its portable, hand-held analyzers and other
peripheral equipment at its principal offices in East Windsor, New Jersey utilizing a
single shift of labor.

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) Quality System Regulation. The
Companys facilities have received ISO 9001 and ISO 13485 certifications and the
Company has received EN 46001 certification of its Quality System. ISO 9001 and ISO 13485
comprise 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. However, some of the
components of the i-STAT Systemare custom manufactured by a limited number of outside
vendors.

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
significantly improve its existing products and develop new products based on the i-STAT
Systemtechnology. Some of the Companys recent research and development achievements
during the last several years include:

| | -
       Development of its first coagulation test, Celite(R)ACT
| | ----------------------------------------------------------------

| | -
       Development of a cartridge that combines a glucose test with blood gas and
electrolyte tests
| | -----------------------------------------------------------------------------------------------------

| | -
       Expanded measurement range for its glucose test
| | --------------------------------------------------------

| | -
       Development of the i-STAT 1 Analyzer, which combines the measurement capabilities
          of the i-STAT System with the measurement capabilities of an Abbott point-of-care glucose           testing system and incorporates additional advanced
features
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | -
       Development of a range of peripheral components including an advanced data
management           system
| | ---------------------------------------------------------------------------------------------------------------

| | -
       Development of a Prothrombin Time coagulation test (the "PT" test)
| | ---------------------------------------------------------------------------

| | -
       Submission of a 510(k) filing with the FDA for a cartridge that performs the
kaolin-based          activated clotting time (kaolin ACT) test
| | -------------------------------------------------------------------------------------------------------------------------------------------------------

| | -
       Commencement of clinical trials of the Companys first immunoassay test,
troponin I, a           cardiac marker capable of indicating the degree of heart muscle
damage, which trial results           are expected to result in the
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

5

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| | filing of a 510(k)with the FDA in the second quarter of 2003
| | ------------------------------------------------------------

The Company expects to begin revenue
shipments of the PT test in the first quarter of 2003. In addition, subject to regulatory
approvals, the Company expects to begin commercial introduction of the kaolin ACT test and
the troponin I test in 2003.

The Company is currently developing
an additional test for the measurement of coagulation: activated partial thromboplastin
time (aPTT). The troponin I test is the first immunoassay test being developed
by the Company. Additional immunoassay test candidates are being evaluated.

In connection with their strategic
alliance, the Company and Abbott entered into the Abbott Research Agreement pursuant to
which certain of the Companys research and development may be funded by Abbott. If
such research and development is funded by Abbott, Abbott will have exclusive worldwide
commercialization rights to the products developed under the Abbott Research Agreement
subject to certain limitations. The Company and Abbott jointly own the intellectual
property that is developed during the course of work performed under the Abbott Research
Agreement. In connection with this agreement, reimbursements from Abbott of $2.7 million
are included in net revenues in 2000. There were no research and development
reimbursements from Abbott in 2002 and 2001 and Abbott is not currently funding any of the
Companys research and development programs. The only program that has been, or is
anticipated to be funded by Abbott during the term of the Abbott Research Agreement was
the development of certain aspects of the i-STAT 1 Analyzer, specifically the mechanism
that allows the MediSense® glucose test strips to be read. Abbott will
retain certain rights to this mechanism following expiration of the Abbott Alliance
Agreements. Abbott will retain no other rights to any other products, product components,
intellectual property, designs or trade secrets of the Company after expiration of the
Abbott Alliance Agreements. See Managements Discussion and Analysis of
Financial Condition and Results of Operations for a discussion of research and
development costs incurred during 2000, 2001 and 2002.

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 thirty-two United States
utility patents related to the i-STAT System, the earliest of which was issued on
September 5, 1989. These utility patents have an average of over ten years remaining on
their patent terms. The Company also has 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 six
pending United States utility patent applications. In the aggregate, the Company has
received 111 patents in Japan, certain European countries, Canada, Taiwan, South Korea,
Singapore, China and Australia 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.

In addition to its patent portfolio,
i-STAT also relies upon trade secrets, know-how and continuing technological innovation to
maintain its competitive advantage. 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 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.

During the third quarter of 2002, the
Company reassessed its patent and trademark strategies, narrowing and focusing its
protected assets and the territories in which investments in patent prosecution and
trademark registration are pursued. As a result, the Company reviewed the valuation of its
intangible patent and trademark assets and determined that a write-down of $1.0 million
was required. The write-down is included in the Consolidated Statement of Operations as a
separate line item.

Government Regulation

The i-STAT Systemcomprises several
In Vitro Diagnostic (IVD) medical devices subject to the provisions of the
Food,

6

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Drug and Cosmetic Act (the FDC Act) and implementing regulations. The
Medical Device Amendments of 1976 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 a
medical diagnostic device may be brought 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 the 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 IVD
devices have received clearance to market for use by health care professionals 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 Systemas
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
manufacture of the device is subject: (1) Class I  the device may have to comply
with mandatory performance standards; (2) Class II  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; and (3) Class III  the
device must comply with mandatory performance standards or other special
controls and requires pre-market clearance before the device can be distributed. The
FDA classified the i-STAT System(as currently configured) in Class II. The Company cannot
predict whether additional standards or controls will ever be enacted, or 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 that
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 by the Quality System Regulation under the FDC Act. These practices
control every phase of production from design control to incoming receipt of raw
materials, components and subassemblies and includes the labeling and tracing of
consignees after distribution and the 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. If
an investigator observes conditions that might be violations, those conditions must be
corrected or satisfactorily explained, or the manufacturer could face regulatory action
that might include removal of the product from the marketplace. The Companys New
Jersey facilities have been inspected on multiple occasions by the FDA (most recently in
January 2003) and, as of the date of those inspections, the inspectors reported that there
were no observed conditions resulting in 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). CLIA 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 are
currently 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 Systemas a moderately complex test under CLIA. The Company
believes that it may be possible to apply for and receive waived status for
its products or some sub-set of its products when used in certain applications.
Classification as waived would expand the potential markets for the
Companys products so classified. There can be no assurance that efforts to achieve
these waived classifications will be successful. There can also be no
assurance that CLIA regulations or future administrative interpretations of CLIA

7

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will not have an adverse impact on the Company.

In addition, certain aspects of the
Health Insurance Portability and Accountability Act of 1996 (HIPAA) may affect
how the Company handles and stores individually identifiable health information, and will
likely require additional electronic security and privacy measures to be put in place. At
this time, the Company has not yet determined the cost of any additional measures required
under HIPAA. These new regulatory requirements may adversely impact the Companys
ability to do business.

The Company and its products are also
subject to a variety of laws and regulations in certain 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 Systemoutside the clinical laboratory by
persons other than doctors or authorized technologists. These restrictions have hindered
the marketing of the Companys products in these locations. 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 i-STAT Systemis currently
distributed outside the United States in Japan, Europe, Peoples Republic of China,
Australia, South America, Canada, Central America, Mexico, South Africa, and other
countries in Asia and the Company expects the i-STAT Systemto be distributed in other
foreign countries in the future. The i-STAT Systemis 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 other countries. In
general, the extent and complexity of regulation of medical devices is increasing
worldwide, with regulation in some countries already 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.

Beginning on December 7, 2003 all
devices imported into the countries of the European Union (EU) will have to be
compliant with the EU In Vitro Device Directive. The Company currently is working to
ensure that it will be in compliance with this directive.

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 that physicians and hospitals are able to charge patients for such
services and, realistically, the price the Company or its distributors can charge for its
products. In addition, in Japan, the price the Company establishes for cartridges sold by
one of its distribution partners is directly based upon the local government reimbursement
amount for each particular test (subject to certain minimum prices), and thus, may vary
directly with changes in such reimbursement amounts.

Employees

As of December 31, 2002, the Company
employed 706 persons on a full-time basis; 555 persons were employed in Canada and 151
persons were employed in the United States, and there were 556 manufacturing employees, 58
employees in research and development, 66 sales and marketing employees (including sales
consultants, implementation coordinators, and technical services, clinical affairs,
marketing, data management, international marketing, and business development personnel)
and 26 general and administrative employees (including finance, information technology,
regulatory affairs, quality assurance, human resources and administration personnel). In
addition, as of December 31, 2002, the Company employed 22 persons on a part-time, on-call
or temporary basis. There are no i-STAT employees 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.

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Insurance

The Company maintains a product
liability insurance policy in the amount of $2 million and an umbrella liability insurance
policy in the aggregate amount of $19 million for all occurrences during a calendar year.
If the Company does not or cannot maintain its existing or comparable product 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 product liability claim made against the Company is
successful. No product liability insurance claim has ever been made against the Company.
The Company also maintains property and casualty, directors and officers
liability, general liability and business interruption insurance policies. The Company
maintains terrorism insurance coverage for its New Jersey facility.

Backlog

Customers generally place orders on
an as needed basis and the Company ships against those orders. Consequently, backlog is
generally 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 impacted by customers annual budget process, 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 15 to Notes to Consolidated Financial Statements.

Factors That May Affect
Future Results

We Are Not Profitable; We Must
Increase Sales Of Our Products To Be Profitable.We were formed in 1983, and we have not
yet made a quarterly operating profit. We cannot guarantee that we will ever be
profitable. Furthermore, we may incur additional losses. We can give no assurances that we
will be able to market our products at prices and in quantities that will generate a
profit. We can give no assurances that we can avoid potential delays and expenses in
developing new products, problems with production and marketing or other unexpected
difficulties.

Our Success Depends On Greater
Commercial Acceptance; We Are Not Able To Predict Future Commercial Acceptance.Our future
depends on the success of the i-STAT System, which depends primarily on its broad
acceptance by an increasing number of hospitals as a reliable, accurate and cost-effective
replacement for traditional blood testing methods. The i-STAT Systemis known as a
point-of-care blood-testing device, which is a relatively new way to analyze
blood. Our success depends upon increased adoption of point-of-care blood testing by
additional hospitals in the United States and elsewhere and upon the adoption of
point-of-care testing by additional departments within hospitals where some point-of-care
blood testing is currently done. The clinical benefits of point-of-care blood testing have
not been extensively studied, published and accepted. Hospital clinical testing management
have significant investments in equipment, personnel and organizational infrastructure to
support the traditional methods of providing expedited blood testing results
and may not view point-of-care blood testing as necessary, appropriate, sufficiently
controlled, accurate or beneficial to patients. Hospital clinical testing management may
remain unconvinced of the benefits of point-of-care blood testing and may resist the
adoption of this approach, slowing sales of the Companys products and reducing the
volume of cartridges produced and sold with a resulting adverse impact on the
Companys revenues, gross margins and profits.

We Currently Rely On Abbott
Laboratories For The Marketing And Sales Of Our Products.In August 1998, the Company and
Abbott signed the Abbott Alliance Agreements. Under the Abbott Distribution Agreement,
Abbott became the exclusive distributor of the i-STAT Systemin most parts of the world.
As a result of this alliance, our revenues are significantly affected by sales made
through Abbott, which accounted for approximately 86% of our total net revenues in 2002.
While the Abbott Distribution Agreement remains in effect, our profitability will depend
heavily upon Abbotts success in selling our products. Moreover, the Abbott
Distribution Agreement gives Abbott sole discretion to set the prices for our products and
pays Abbott a significant distributor discount from these prices, each of
which can have a significant effect on our revenues, margins and profits. The Abbott
Distribution Agreement will expire on December 31, 2003.

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Commencing January 1, 2004, We Will
No Longer Rely on Abbott Laboratories for the Marketing and Sale of Our Products.On July
25, 2002, the Company announced its decision to allow the Abbott Distribution Agreement to
expire at the end of 2003. As a result, we are obligated to make the following payments on
the dates noted: (a) on December 31, 2003, a $5.0 million one-time termination fee, (b) on
December 31, 2003, approximately $5.0 million representing the unrecognized portion of a
$25.0 million prepayment received from Abbott, (c) early in 2004, approximately $2.0
million to repurchase inventory and equipment from Abbott, and (d) on December 31, 2004
and on each December 31 thereafter through 2008, for a total of five unequal payments,
residual payments based upon Abbotts net sales of our products during 2003,
approximately $47.0 million in the aggregate. These payments to Abbott will materially
impact our cash flows and have materially impacted our results of operations. In addition,
on January 1, 2004, we will resume primary responsibility for marketing and selling our
products. This entails substantial risk and expense. We cannot guarantee that we will be
successful in marketing and selling our products without the benefit of a strong strategic
partner, or that we will be able to find such a partner if we felt this best served our
interests. The Company will incur additional costs and may recognize lower unit sales than
anticipated as a result of resuming direct distribution of its products, the combination
of which may adversely impact the Companys future results of operations and cash
flows. See Managements Discussion and Analysis of Financial Condition and
Results of Operations  Alliance with Abbott Laboratories.

Our Manufacturing Is Subject To
Certain Risks.We have, in the past, faced unexpected technical problems in trying to
transfer product ideas from the development stage to the manufacturing stage. Our
manufacturing operations use highly technical processes involving unique, proprietary
biosensor micro-fabrication techniques which our manufacturing personnel must continuously
monitor and update, especially as we develop more products. These technical problems could
recur, could result (and in the past they have resulted) in a high level of product scrap
and could delay our plans for new product releases, all with consequences to our financial
results. Also, we may not be able to predict or satisfy changing customer demands for
certain products and it could take longer than expected for us to change the manufacturing
processes to respond to these demands. As a result, we may not have sufficient inventory
to meet customer demand, which could affect our relationships with customers, or we may
have too much product inventory at times, which hurts our profitability and negatively
affects our working capital. In order to be profitable, we must manufacture greater
quantities of products than we have to date and at the same time consistently deliver high
production efficiencies. We cannot guarantee that we will be able to do so. Some of the
components of the i-STAT Systemare custom-made by only a few outside vendors. We may not
be able to meet the demand for our products if one or more of these vendors could not
supply us with the needed components or components which meet our specifications. We have
also experienced manufacturing problems in the past because of vendor or component quality
issues. Our Kanata, Ontario facility is our only cartridge manufacturing facility, and our
East Windsor, New Jersey facility is the only facility where our hand-held analyzers are
manufactured. If either facility were damaged or closed due to fire or other causes, it
would negatively impact our business.

We May Need Additional Funding In The
Future And These Funds May Not Be Available To Us.We expect our existing funds and funds
we expect to generate from future operations to be sufficient to meet our obligations and
our liquidity and capital requirements for the foreseeable future, including the payment
obligations to Abbott that result from the termination of the Abbott Distribution
Agreement, as described previously. However, numerous factors, including manufacturing
difficulties, may change this expectation. In the long-term, it is possible that we will
need additional financing before our operations generate sufficient cash to enable us to
fund additional product development and increase manufacturing capacity to meet
anticipated product demand. We have no commitments for any additional financing and we
cannot assure investors that any such commitment could be obtained on favorable terms, if
at all. Affiliates of Cerberus Capital Management, L.P. (collectively,
Cerberus), which hold all of the Companys Series D Redeemable
Convertible Preferred Stock (the Series D Stock), have a right of first
refusal with respect to certain future financings. This right of first refusal may inhibit
our ability to obtain needed financing from third parties or negatively affect the
financing terms available (see Managements Discussion and Analysis of
Financial Condition and Results of Operations). Any additional equity financing may
cause dilution of our current stockholders, and any debt financing may require
restrictions on our right to declare dividends or on other aspects of our business.

We May Not Be Successful In Defending
Our Proprietary Rights Or Proprietary Rights Claims Made By Others.Our commercial success
depends partly upon our trade secrets, know-how, trademarks, patents and other proprietary
rights. We actively seek patent protection for our proprietary technology in the United
States and internationally, but we cannot guarantee that third parties will not challenge
our patents or that they will not be invalidated or designed around or that they will
provide a commercially significant level of protection. We cannot guarantee that any
pending patent applications or applications filed in the future will result in a patent
being issued to us. Furthermore, once issued, a patent is not always valid or enforceable,
and a patent holder may still infringe the patent rights of others. If our key patents are
invalidated or expire, this could lead to increased competition and would adversely affect
our business. In addition, we may be found to have infringed the proprietary rights of
others or may be required to respond to patent infringement claims and may have to
litigate to determine the priority of inventions. Litigation may

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be necessary to enforce our patents, trade secrets or know-how, or to determine the enforceability, scope and
validity of the proprietary rights of others. The defense or prosecution of intellectual
property proceedings is costly and a diversion of our management resources. A
determination against us could be very costly and/or require us to seek licenses from
third parties, which may not be available on commercially reasonable terms, if at all.
Furthermore, we can provide no assurances that we will be able to maintain the
confidentiality of our trade secrets or know-how or that others may not develop or acquire
trade secrets or know-how that are similar to ours.

We Compete Against Larger, Stronger
Entities That Sell More Established Blood Analysis Products.Our success depends on our
ability to establish and maintain a competitive position in the blood analysis market. We
expect that manufacturers of conventional blood analysis products used in clinical
laboratories will compete intensely to maintain their market share and revenues. Some of
these manufacturers currently offer products that many perceive to be less expensive to
operate and which include a broader range of tests than the products we offer and expect
to offer. Many of our competitors have substantially greater capital resources, research
and development staffs and facilities than ours. We can provide no assurances that
competitive pressures will not result in price reductions of our products, which could
adversely affect our profitability. In addition, health care providers may choose to
maintain their current method of blood testing. We also face competition from
manufacturers of other blood analyzers intended for point-of-care use. Our products may
become obsolete or non-competitive if rapid technological changes or developments occur.
We need to continue to make substantial investments in and commit significant resources to
product improvement and development in order to stay competitive and successfully
introduce new products. We can provide no assurances that we will have the resources
necessary to make such investments. If we do have the required resources, we can provide
no assurances that we will be able to respond adequately to technological or market
changes.

We Depend On Key Members Of Our Staff
And Must Retain And Recruit Qualified Individuals If We Are To Be Competitive.Our success
depends on our ability to attract and retain certain scientific, technical, regulatory and
managerial personnel. If we lose key personnel, it could have a materially adverse effect
on our business. Competition for qualified personnel is intense and we cannot guarantee
investors that we will be successful in recruiting or retaining such personnel in the
future.

There Are Various Operational And
Financial Risks Associated With Our International Business.In recent years, we have
experienced substantial sales growth in international markets and expect to continue to
expand our product distribution internationally. We may face difficulties and risks in our
international business, including changing economic or political conditions, export
restrictions, currency risks, export controls relating to technology, compliance with
existing and changing regulatory requirements, tariffs and other trade barriers, longer
payment cycles, problems in collecting accounts receivable, reimbursement levels, and
potentially adverse tax consequences. In addition, it may be difficult for us to enforce
and collect receivables through a foreign countrys legal system and to protect our
intellectual property in foreign countries. International sales are invoiced and settled
in U.S. dollars. However, the cartridge price received from international partners,
including Abbott, may be affected by changes in the value of the U.S. dollar relative to
local currencies where our product is sold. This is because the price paid by customers to
our international partners is set in local foreign currencies. When the values of foreign
currencies change with respect to the U.S. dollar, the price changes due to the foreign
exchange conversion of local currency prices. However, price reductions may be limited by
guaranteed minimum prices established for each cartridge. We cannot assure investors that
one or more of these factors will not have a material and adverse effect on our
international business opportunities.

In addition, our cartridge
manufacturing takes place at our wholly-owned subsidiary in Kanata, Ontario. Most of the
expenses associated with producing the cartridges are incurred in Canadian Dollars. If
there is a significant change in the exchange rate between the Canadian Dollar and the
U.S. Dollar, it could have a material impact on our cost of products sold, our results of
operations, and our cash flows from operations.

Due To Antitakeover Provisions There
May Be Issues Associated With The Marketability Of The Companys Common Stock.Our
Certificate of Incorporation and Bylaws, Stockholder Rights Plan, and our agreements with
Abbott and Cerberus contain provisions which may have the effect of delaying, deferring or
preventing a change in control of the Company without further action by our stockholders.
In addition, certain of these provisions may discourage bids for the Common Stock, may
adversely affect the market price of the Common Stock, and may affect the voting and other
rights of holders of Common Stock and may discourage takeover attempts not first approved
by the Board of Directors (including takeovers which certain stockholders may deem to be
in their best interests). We will be subject to Section 203 of the Delaware General
Corporation Law, which generally imposes restrictions upon certain acquirers and their
affiliates and associates of 15% or more of our Common Stock.

Management and Significant
Stockholders Can Exercise Influence Over the Company.As of March 3, 2003, directors,
executive officers and principal stockholders of the Company beneficially owned 47.2% of
our outstanding voting

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securities. In addition, Cerberus is entitled to appoint one person to the Companys Board of Directors for so long as it holds 10% or more of the
outstanding securities of the Company on a fully diluted basis. As a result, these
stockholders, individually and/or acting together may be able to influence the outcome of
stockholder votes. Examples of stockholder votes include those for the election of
directors, changes in our Certificate of Incorporation and Bylaws and approving certain
mergers or other similar transactions, such as a sale of all or substantially all of our
assets. Cerberus also has the right to approve certain of these transactions. If we
receive certain information relating to an offer for our voting securities of all or
substantially all of our assets, we must provide notice to Abbott. Furthermore, our
exclusive product distribution arrangement with Abbott could discourage a third party from
making any such offer.

The Companys Stock Price Is
Volatile And Investing In Our Common Stock Involves A High Degree Of Risk.The market
price of our Common Stock has fluctuated significantly and as a result, it is considered
volatile. Future announcements concerning the Company or its competitors,
including operating results, technological innovations or new commercial products,
government regulations, developments concerning proprietary rights, or litigation could
have a significant impact on the market price of our Common Stock. A significant
percentage of our Common Stock is held by institutional investors. Among others, our
strategic partner Abbott owns approximately 9.34% of our outstanding voting securities,
and in 2001 we completed two financings that resulted in John Hancock Advisers Inc. and
Cerberus increasing their beneficial ownership to levels which were 14.51% and 14.99% of
our outstanding voting securities at March 3, 2003, respectively. Absent current
restrictions barring certain conversions and exercises by Cerberus described in
Managements Discussion and Analysis of Financial Condition and Results of
Operations, Cerberus current holdings would represent 27.84% of our
outstanding voting securities. The lifting of these restrictions is not entirely within
the control of the Company. The decision by any of these investors to sell all or a
substantial portion of their holdings could have an adverse impact on the market price of
our Common Stock. Furthermore, the stock market has from time to time experienced extreme
price and volume fluctuations, which may adversely affect the market price of our Common
Stock. Some of these fluctuations have particularly affected high technology companies and
they have often been unrelated to the operating performance of such companies. In
addition, general economic, political and market conditions may also adversely affect the
market price of our Common Stock.

We Are Subject to Intense Government
Regulation.Our industry is highly regulated. The governments of the United States and
other countries extensively regulate the manufacture and sale of medical diagnostic
devices intended for commercial use. For example, commercial sales of medical diagnostic
devices in the United States requires FDA clearance before selling may commence. Obtaining
FDA and other required regulatory clearances can be time-consuming, expensive and
uncertain. After any clearances, we remain subject to pervasive regulation and inspection
for compliance with regulatory requirements. We may also need to obtain FDA clearance for
any other new products we are able to develop or acquire, and we cannot guarantee that we
will be able to do so. In addition, the FDA could change the classification regarding our
existing products and we may at some time in the future also have to comply with mandatory
performance standards or other special controls to keep our products in
commercial distribution. We cannot predict whether such additional standards or controls
will ever be enacted, or what impact the enactment of such standards or controls might
have on our ability to produce and sell our products. If we do not obtain all necessary
regulatory clearances for any new products, or maintain clearance on our current products,
our ability to generate sales will materially suffer.

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Item 2. Properties

The Companys principal
cartridge manufacturing facilities are located in Kanata, Ontario, Canada, where it leases
a 53,802 square foot building for a term expiring in December 2010. The Company also
leases 43,054 square feet in an adjoining building for a term expiring in February 2004,
subject to, at the Companys option, renewal for one five-year term. The Company
leases executive offices and instrument manufacturing space in East Windsor, New Jersey,
where it occupies a 37,474 square-foot facility. The East Windsor lease expires in
December 2008, subject to, at the Companys option, renewal for one five-year term.
The Company also leases 5,950 square feet of warehouse space in Jamesburg, New Jersey. The
Jamesburg lease expires in October 2003.

Item 3. Legal Proceedings

The Company was a defendant in a case
entitled Nova Biomedical Corporation, Plaintiff v. i-STAT Corporation, Defendant.The
complaint, which was filed in the United States District Court for the District of
Massachusetts on June 27, 1995, alleged infringement by the Company of Nova Biomedical
Corporations (Nova) U.S. Patent No. 4,686,479 (the Patent).
In February 1998, the Court entered summary judgment in favor of the Company on the issue
of patent infringement. The plaintiff appealed the dismissal to the Federal Circuit. The
Federal Circuit affirmed two of the grounds of the dismissal (proper interpretation of the
Patent and that the Company does not literally infringe), but remanded the case to the
District Court with instructions to reconsider whether the Companys device performs
a certain measurement in a substantially equivalent way to a method covered by the Patent,
and therefore infringes under the doctrine of equivalents. A jury trial was
scheduled for July 2001. Management concluded that the uncertainty inherent in any jury
trial as well as the drain on the Companys resources merited a resolution of this
lawsuit. Accordingly, on July 26, 2001 the Company entered into a license agreement and a
settlement agreement under which the Company agreed to pay Nova $10.5 million, which was
recorded as a charge in the second quarter of 2001. Pursuant to the agreements, $6.5
million was paid on July 26, 2001, a retroactive royalty of $0.5 million was paid on
August 14, 2001 for the period of January 1, 2001 through June 30, 2001, and $3.5 million
plus interest was due to be paid over one year in equal quarterly installments, pursuant
to a secured promissory note. The promissory note was prepaid on August 3, 2001. The
license agreement provides for the payment to Nova of a royalty equal to 4% of the invoice
price of products sold in the United States after January 1, 2001, which products
determine hematocrit levels according to any method used by the Company prior to December
31, 2000, as well as any method covered by the Patent. The royalties are payable through
the life of the Patent (July 22, 2005). On February 28, 2002, Nova filed a demand for
arbitration claiming that the method by which products sold by the Company since July 1,
2001 determine hematocrit are covered under the Patent and the license agreement. In
December 2002, the arbitration of Novas claim was decided in favor of the Company.
The Companys current method of determining hematocrit was found not to be covered
under the license to Novas Patent, and therefore i-STAT is not required to pay any
royalties under the license agreement. This arbitration is final, binding and not
appealable.

The Company was 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, alleged infringement by i-STAT of Customedixs U.S.
Patent No. 4,342,964. The plaintiff sought injunctive relief and an accounting for
i-STATs profits and the damages to Customedix from such alleged infringement. The
Company was prepared to contest the case vigorously, did not believe that it had infringed
the Customedix patent and had obtained an opinion from recognized patent counsel to the
effect that no infringement had occurred. However, management concluded that the
uncertainty inherent in any litigation as well as the drain on managements time and
the Companys resources merited an out-of-court resolution of this lawsuit.
Accordingly, on June 14, 2000, the Company entered into a settlement agreement under which
the Company paid the plaintiff $1.5 million and the plaintiff agreed to permanently
withdraw the complaint and to release the Company from any and all claims of whatsoever
nature that the plaintiff may have had against the Company, whether under the referenced
Patent or otherwise. A charge in the amount of $1.5 million was recorded in the second
quarter of 2000 in connection with the settlement of this litigation.

Item 4. Submission of
Matters to Vote of Security Holders

Not applicable.

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EXECUTIVE OFFICERS

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

William P. Moffitt

Age 56. Mr. Moffitt is the President
and Chief Executive Officer of the Company and he is also a member of the Companys
Board of Directors. 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 is a director of Genomic
Profiling Systems (GPS), a privately held company. GPS develops and
commercializes proprietary technologies for detecting cellular, viral and molecular
targets in order to address existing needs in industrial microbiology and point-of-care
diagnostics. Mr. Moffitt holds a B.S. from Duke University.

Bruce F. Basarab

Age 57. Mr. Basarab is the Executive
Vice President of Commercial Operations. He joined the Company in August of 2002. From
1997 to 2001, Mr. Basarab was the Senior Vice President of Sales and Marketing for Geneva
Pharmaceuticals, a subsidiary of Novartis Company. Prior to Geneva Pharmaceuticals, he
held several positions with Ciba-Geigy Corporation, including Vice President of Sales for
the U.S. pharmaceutical division from 1996 to 1997 and Executive Director of the Northwest
Business Unit at Ciba-Geigy Corporation from 1994 to 1995. Mr. Basarab holds a B.A. in
Chemistry from Bucknell University.

Noah J. Kroloff

Age 40. Mr. Kroloff is the Vice
President, Corporate Development. 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 Massachusetts Institute of Technology Sloan School of
Management and a B.A. in general science from Brandeis University.

Lorin J. Randall

Age 59. Mr. Randall is the Senior
Vice President of Finance, Chief Financial Officer and Treasurer. He joined the Company in
May of 2002. From 1995 to 2001, he served as Vice President and Chief Financial Officer
for CFM Technologies, Inc., a semi-conductor equipment manufacturer. From 1991 to 1995,
Mr. Randall was Vice President and Chief Financial Officer for Greenwich Pharmaceuticals.
Mr. Randall holds a M.B.A. from Northeastern University and a B.S. in Accounting and
Mathematics from The Pennsylvania State University.

Michael P. Zelin

Age 42. Mr. Zelin is the Executive
Vice President and Chief Technology Officer of the Company. He served as Senior Vice
President, Research and Development, from February 1999 to January 2001. From March 1992
to January 1999, he served as Vice President of Systems Development. 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. A copy of the Companys Code of
Ethics for the Chief Executive Officer and Senior Financial Officers can be found on the
Companys website www.i-stat.com.

14

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PART II

Item 5. Market for the
Registrants Common Equity and Related Stockholder Matters

Market Information

The Companys Common Stock is
listed on the The NASDAQ Stock Market® (NASDAQ) under the symbol
STAT. The following table sets forth for the periods indicated the range of
high and low trading prices for the Companys Common Stock as reported on NASDAQ.

|2002           | High | Low
|-------------- | ---- | ---
|First Quarter  |      |    
|Second Quarter |      |    
|Third Quarter  |      |    
|Fourth Quarter |      |    
|2001           |      |    
|First Quarter  |      |    
|Second Quarter |      |    
|Third Quarter  |      |    
|Fourth Quarter |      |    

Holders

There were approximately 350
registered holders of the Companys Common Stock of record as of March 3, 2003.

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. 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, 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. In addition,
as a result of the Series D Stock financing described in greater detail under
Managements Discussion and Analysis of Financial Condition and Results of
Operations, the Company must have the consent of the holders of the Series D Stock
before any dividend can be declared on the Common Stock.

The holders of the Series D Stock are
entitled to receive a cumulative dividend equal to 8% of the Series D Stocks
liquidation preference, payable quarterly. The liquidation preference is equal to the
Series D Stock stated value of $30.0 million plus any accrued and unpaid dividends. The
dividends may be paid in cash, or they may be accrued and added to the liquidation
preference, becoming payable in cash upon redemption or payable in Common Stock upon
conversion of the Series D Stock. During the periods that the Common Stock trades at or
above $15.00 per share for 45 consecutive trading days, the dividend rate will be reduced
to 2%, and if during subsequent periods the Common Stock trades below $10.00 per share for
45 consecutive trading days, the dividend rate will adjust back to 8%. A dividend of $2.5
million and $0.1 million has been accrued and added to the carrying value and liquidation
preference of the Series D stock in the years ended 2002 and 2001, respectively. Through
December 31, 2002 the total

15

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cumulative accrued dividend added to the carrying value and liquidation preference was $2.6 million. The fair market value of the dividend of $1.3
million and $0.1 million is shown on the face of the Consolidated Statement of Operations
below the Net loss in the years ended 2002 and 2001, respectively.

Item 6. Selected
Consolidated Financial Data

The selected consolidated financial
data set forth below has been derived from the audited financial statements of the
Company. The consolidated financial statements of the Company as of December 31, 2002 and
2001 and for each of the years in the three-year period ended December 31, 2002, together
with the notes thereto and the related report of PricewaterhouseCoopers LLP, 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.

|In thousands of dollars, except share and per share data    |  | For The Years Ended | December 31, |                 |  
|----------------------------------------------------------- |  | ------------------- | ------------ | --------------- | -
|                                                            |  | 2002                |              | 2001            |  
|Statement of Operations Data:                               | 
|Net revenues                                                |  | $        59,931     |              | $        58,832 |  
|Cost of products sold                                       |  | 45,088              |              | 48,108          |  
|Gross margin                                                |  | 14,843              |              | 10,724          |  
|Research and development                                    |  | 7,716               |              | 8,040           |  
|General and administrative                                  |  | 6,102               |              | 7,182           |  
|Sales and marketing                                         |  | 9,773               |              | 9,043           |  
|Abbott termination fee                                      |  | 52,000              |              | --              |  
|Litigation settlements                                      |  | --                  |              | 10,491          |  
|Write-down of certain fixed assets                          |  | 1,217               |              | 1,124           |  
|Write-down of certain intangible assets                     |  | 1,036               |              | --              |  
|Consolidation of operations                                 |  | --                  |              | --              |  
|Operating loss                                              |  | (63,001             | )            | (25,156         | )
|Other (expense) income, net                                 |  | (516                | )            | 795             |  
|Loss before income taxes                                    |  | (63,517             | )            | (24,361         | )
|Income tax benefit                                          |  | (697                | )            | (1,141          | )
|Net loss                                                    |  | (62,820             | )            | (23,220         | )
|Accretion of Preferred Stock                                |  | (448                | )            | (1,734          | )
|Dividends on Preferred Stock                                |  | (1,326              | )            | (133            | )
|Net loss available to Common                                | 
|Stockholders                                                |  | ($ 64,594           | )            | ($ 25,087       | )
|Basic and diluted net loss per share                        | 
|available to Common Stockholders                            |  | ($      3.22        | )            | ($      1.33    | )
|Shares used in computing basic and                          | 
|diluted net loss per share available to Common Stockholders |  | 20,075,430          |              | 18,920,956      |  

16

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|In thousands of dollars              |  | As of December 31, |   |            |  
|------------------------------------ |  | ------------------ | - | ---------- | -
|                                     |  | 2002               |   | 2001       |  
|Balance Sheet Data:                  | 
|Cash and cash equivalents            |  | $   27,059         |   | $   43,112 |  
|Working capital                      |  | 33,284             |   | 48,082     |  
|Total assets                         |  | 63,958             |   | 75,889     |  
|Total liabilities                    |  | 64,836             |   | 15,951     |  
|Long-term liabilities and Preferred  | 
|Stock                                |  | 75,223             |   | 30,392     |  
|Accumulated deficit                  |  | (283,005           | ) | (220,185   | )
|Total stockholders' (deficit) equity |  | (29,101            | ) | 34,604     |  

Item 7. Managements Discussion
and Analysis of Financial Condition and Results of Operations

Background and Overview

The Company, which was incorporated
in Delaware in 1983, together with its wholly-owned subsidiary, i-STAT Canada Limited,
develops, manufactures and markets medical diagnostic products for blood analysis that
provide health care professionals with immediate and accurate critical, diagnostic or
monitoring information at the point of patient care. The Companys current products,
known as the i-STAT® System, consist of battery-operated, hand-held, portable
analyzers and single-use disposable cartridges, the majority of which simultaneously
perform different combinations of commonly ordered blood tests in approximately two to
three minutes. The i-STAT Systemalso includes peripheral components that enable the
results of tests to be transmitted by infrared means to both a proprietary information
system for managing the users point-of-care testing program and to the users
information systems for billing and archiving.

The i-STAT Systemcurrently performs
blood tests for sodium, potassium, chloride, glucose, creatinine, urea nitrogen,
hematocrit, pH, ionized calcium, lactate, coagulation, arterial blood gases, and
bicarbonate, and derives certain other values, such as total carbon dioxide, base excess,
anion gap, hemoglobin and O2 saturation, by calculation from the tests performed. The
Company continues to engage in research and development in order to improve its existing
products and develop new products based on the i-STAT Systemtechnology. During the second
quarter of 2002, the Company received approval from the Food and Drug Administration
(FDA) to market a test that measures Prothrombin Time (PT). The PT
test is used to monitor patients on anti-coagulant therapy, such as COUMADIN®, to
prevent blood clot formation. The Company began shipment of the PT test for initial
evaluation in the third quarter of 2002 and expects the first revenue producing shipments
of the product to occur in the first quarter of 2003. In addition, during the fourth
quarter of 2002, the Company submitted a 510(k) filing with the FDA for a cartridge that
performs the kaolin-based activated clotting time (kaolin ACT) test. Assuming timely
regulatory approvals, the Company expects to begin commercial introduction of the kaolin
ACT in 2003. The Company is also conducting clinical trials on immunoassay tests, the
first of which is a test for troponin I, a marker of myocardial damage. The Company
expects to file a 510(k) application with the FDA in the second quarter of 2003, and
subject to regulatory approval, to begin commercial introduction of troponin I in the
second half of 2003.

Prior to November 1, 1998, the
Company marketed and distributed its products in the United States and Canada principally
through its own direct sales and marketing organization, in Japan through FUSO
Pharmaceutical Industries, Ltd. (FUSO), in Europe through Hewlett-Packard
Company (HP) and in Mexico, South America, China, Australia, and certain other
countries in Asia, through selected distribution channels. In August 1998, the Company and
Abbott Laboratories (Abbott) entered into a Marketing and Distribution
Agreement (the Abbott Distribution Agreement). In addition to the Abbott
Distribution Agreement, the Company and Abbott also entered into a Funded Research &
Development Agreement (the Abbott Research Agreement), a Common Stock Purchase
Agreement, a Standstill Agreement and a Registration Rights Agreement (collectively known
as the Abbott Alliance Agreements). During 2002, approximately 86% of the
Companys total net revenues were from sales to Abbott. See Alliance with
Abbott Laboratories, below, for a description of the Abbott Alliance Agreements.

On July 25, 2002, the Company
announced its decision to allow the Abbott Distribution Agreement to expire effective
December 31, 2003. Accordingly, the Company has begun to take actions to assume direct
responsibility for the marketing and sale of its products, effective January 1, 2004.
These actions have included hiring additional sales personnel, a vice president of medical
affairs and an executive vice president of commercial operations. The Company anticipates
further additions of sales and marketing personnel in the coming quarters. The Company
will incur additional costs and may recognize lower unit sales than anticipated as a
result of resuming direct distribution of its

17

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products, the combination of which may adversely impact the Companys future results of operations and cash flows.

In January 2003, the Company and FUSO
entered into a new Distribution Agreement (the FUSO Distribution Agreement).
The FUSO Distribution Agreement extends FUSOs current non-exclusive distribution
rights in Japan through December 31, 2003 and grants exclusive distribution rights in
Japan from January 1, 2004 through December 31, 2008, subject to FUSO meeting certain
sales milestones. During the first quarter of 2003, FUSO paid $2.0 million for marketing
support throughout the exclusive term of the FUSO Distribution Agreement. In addition,
FUSO is expected to pay an additional $11.0 million in October 2003 as a prepayment that
will be offset against future purchases of cartridges. Sales to FUSO represented
approximately 8% of the Companys total net revenues for 2002.

Results of Operations

The Company generated total net
revenues of $59.9 million, $58.8 million and $55.0 million in 2002, 2001 and 2000,
respectively, including international revenues (as a percentage of worldwide total net
revenues) of $15.1 million (25.2%), $14.6 million (24.9%) and $15.1 million (27.5%),
respectively. Total net revenues from Abbott represented 86.0%, 84.3% and 83.5% of the
Companys worldwide total net revenues for 2002, 2001 and 2000, respectively.

The $1.1 million, or 1.9%, increase
in total net revenues from 2001 to 2002 was primarily due to the increased international
sales of the Companys cartridges reflecting higher cartridge consumption by existing
hospital customers and the addition of new hospital customers in markets outside the
United States. Cartridge sales volume increased 6.3% to 12,574,875 units in 2002 from
11,835,075 units in 2001. Increased cartridge revenue from the increase in sales volume
was partially offset by a decrease in worldwide average selling prices per cartridge from
$3.38 in 2001 to $3.34 in 2002. The decrease in worldwide average selling prices is
primarily a result of the decrease in the Japanese governments reimbursement rate
for our cartridges which in turn negatively impacted the average selling price of
cartridges sold to FUSO, one of our marketing partners in Japan. For 2003, cartridge
average selling prices are expected to continue to decline because of the product pricing
arrangements found in the strategic alliance with Abbott that produce lower average
selling prices as volume increases. (See Alliance with Abbott Laboratories.)
Also, offsetting the increase in revenue related to increased cartridge sales was the
reduction in worldwide analyzer sales of 8.5% to 4,001 units in 2002 from 4,371 units in
2001. Total net revenues in 2002 and 2001 each include approximately $0.9 million of sales
and marketing cost reimbursements from Abbott.

The $3.8 million (6.9%) increase in
total net revenues from 2000 to 2001 was primarily due to increased shipment volume of the
Companys cartridges and increased sales of the i-STAT 1 Analyzer, introduced in
December 2000, partially offset by the elimination of research and development
reimbursements from Abbott during 2001. Cartridge shipments increased 20.4% to 11,835,075
units in 2001 from 9,829,225 units in 2000, as a result of higher cartridge consumption by
existing hospital users and the addition of new hospital users. Revenues from the
increased cartridge shipments were partially offset by lower worldwide average selling
prices per cartridge, which declined from approximately $3.69 to $3.38 in the same period.
The decrease in worldwide average selling prices during 2001 was primarily a function of
pricing arrangements under the strategic alliance with Abbott, which produce lower average
selling prices as volume increases, and the impact of price discounting by Abbott to its
customers in the United States. Also contributing to the increase in total net revenues
was an increase in worldwide analyzer sales volume of 1.4% to 4,371 units in 2001 from
4,311 units in 2000 and a favorable shift in mix to the higher priced i-STAT 1 Analyzer.
Total net revenues in 2001 and 2000 also include approximately $0.9 million of sales and
marketing cost reimbursements from Abbott in 2001 and $2.7 million of research and
development reimbursements and $0.9 million of sales and marketing cost reimbursements
from Abbott in 2000.

As a result of the expiration of the
Abbott Distribution Agreement, effective January 1, 2004, the Company expects a material
increase in net revenues resulting from the increase in the average sales price it will
recognize as a result of selling the Companys products directly to end-user
customers and distributors. Currently, the Companys average sales price is lower
than the end-user average sales price or average sales price to sub-distributors due to
distribution discounts taken by Abbott.

The gross margin on total net
revenues in 2002, 2001 and 2000 was $14.8 million, $10.7 million and $14.1 million,
respectively. Gross margin percentage on sales of products and services, which excludes
other net revenues such as royalties and reimbursements of research and
development and sales and marketing expenses, was 23.6%, 16.3% and 20.3% in 2002, 2001 and
2000, respectively. Gross margin percentage on the sale of products generally improves
with increased shipment volume of the Companys cartridges and as a result of
overhead absorption and improvements in manufacturing productivity and yields. In recent
years there have been several factors that have impacted the gross margin on sales of
products and services. For example, in the first quarter of 2000, reduced levels of
production and higher than normal scrap levels caused by manufacturing process problems
increased costs. Gross margin on sales of products subsequently improved for the remainder
of 2000 due to the rebuilding of cartridge inventories, which

18

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caused fixed manufacturing costs to be spread over a larger number of product units and also due to improvements in
cartridge production yields. In 2001, despite an increase in shipment volume, gross margin
on sales of products increased primarily as a result of lower average selling prices per
unit and a charge of $1.7 million recorded in the fourth quarter of 2001, related to the
write-off of certain cartridges in inventory and the replacement of certain cartridges in
the field that exhibited a higher than usual quality check rejection rate as a result of a
production process issue. Gross margin on sales of products in 2002 was also negatively
impacted by a charge of $1.6 million recorded in the first quarter of 2002 for the
write-off of certain cartridges in inventory and the replacement of certain cartridges in
the field that also exhibited a higher than usual quality check rejection rate, caused by
the same production process issue.

The Company incurred expenses of $1.2
million and $1.1 million for the write-down of certain production assets in the years
ended 2002 and 2001, respectively. The Company reviewed its plant and equipment assets in
2002 and 2001 and determined that the write-down was required in each year for certain
fixed assets that were associated with projects at the Companys manufacturing
facility in Canada. The Company abandoned these projects due to the identification of more
efficient alternatives. The write-down reduced the carrying value of those assets down to
their estimated fair values of zero. The write-downs are included in the Consolidated
Statement of Operations as a separate line item.

The Company incurred research and
development expenses (as a percentage of total net revenues) of $7.7 million (12.9%), $8.0
million (13.7%) and $7.9 million (14.4%) in 2002, 2001 and 2000, respectively. Research
and development expenses consist of costs associated with the personnel, material,
equipment and facilities necessary to conduct new product development. Research and
development expenditures may vary over the next several years. The amount and timing of
any change will depend upon numerous factors including the level of research and
development activity at any point in time, the breadth of the Companys development
objectives and the stage of its development programs. Revenues from Abbott of
approximately $2.7 million for research and development activities are included in net
revenues in 2000. There were no research and development revenues from Abbott in 2002 and
2001 and Abbott currently is not funding any of the Companys research and
development programs.

The Company incurred sales and
marketing expenses (as a percentage of total net revenues) of approximately $9.8 million
(16.3%), $9.0 million (15.4%) and $7.8 million (14.1%) in 2002, 2001 and 2000,
respectively. Sales and marketing expenses consist primarily of salaries, commissions,
benefits, travel, business development and similar expenditures for sales representatives,
implementation coordinators and international marketing support, as well as order entry,
product distribution, technical services, clinical affairs, product literature, market
research, and other sales infrastructure costs. The increase in 2002 is primarily related
to an increase in sales personnel as the Company prepares to assume direct responsibility
for the marketing and sale of its products. The Company anticipates further personnel
additions and increased sales and marketing costs in the future as a result of its planned
resumption of primary responsibility for the marketing and sales of its products. Included
in revenues are amounts reimbursed by Abbott for services performed by the implementation
coordinators, approximating $0.9 million in each of the years ended for 2002, 2001 and
2000.

On July 25, 2002, the Company
announced its decision to allow the Abbott Distribution Agreement to expire effective
December 31, 2003. As a result, the Company is obligated to make the following payments to
Abbott on the dates noted: (a) on December 31, 2003, a $5.0 million one-time termination
fee, (b) on December 31, 2003, approximately $5.0 million representing the unrecognized
portion of a $25.0 million prepayment received from Abbott, (c) early in 2004,
approximately $2.0 million to repurchase inventory and equipment from Abbott, and (d) on
December 31, 2004, and on each December 31 thereafter through 2008, for a total of five
unequal residual payments based upon Abbotts net sales of the Companys
products during 2003, approximately $47.0 million in the aggregate. The Company recognized
the $5.0 million one-time termination fee and the $47.0 million estimated residual
payments as expense in the third quarter of 2002. Since the Abbott residual payments are
based on Abbott actual net sales during 2003, the estimated liability for these residual
payments is subject to change as the actual net sales become known. These charges had a
material impact on the Companys results of operations and these payments will have a
material impact on the Companys future cash flows. The Company anticipates that the
profit margins presently being earned by Abbott as a result of the sale of the
Companys products will be earned by the Company commencing January 1, 2004, and will
provide the Company with the sufficient cash to fund these payments to Abbott. The Company
has begun to take actions to assume direct responsibility for the marketing and sale of
its products, effective January 1, 2004. These actions have included hiring additional
sales personnel, a vice president of medical affairs and an executive vice president of
commercial operations. The Company anticipates further additions of sales and marketing
personnel in the coming quarters. The Company will incur additional costs and may
recognize lower unit sales than anticipated as a result of resuming direct distribution of
its products, the combination of which may adversely impact the Companys future
results of operations and cash flows.

19

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The Company incurred general and
administrative expenses (as a percentage of total net revenues) of approximately $6.1
million (10.2%), $7.2 million (12.2%) and $7.0 million (12.7%) in 2002, 2001 and 2000,
respectively. General and administrative expenses consist primarily of salaries and
benefits of personnel, office costs, legal and other professional fees and other costs
necessary to support the Companys infrastructure. The reduction in general and
administrative expenses in 2002 is attributable to a decrease in legal fees associated
with certain litigation and arbitration matters.

During the third quarter of 2002, the
Company reassessed its patent and trademark strategies, narrowing and focusing its
protected assets and the territories in which investments in patent prosecution and
trademark registration are pursued. As a result, the Company reviewed the valuation of its
intangible patent and trademark assets and determined that a write-down of $1.0 million
was required. The write-down is included in the Consolidated Statement of Operations as a
separate line item.

Investment income was approximately
$0.5 million, $0.9 million and $1.6 million in 2002, 2001 and 2000, respectively. The
changes in investment income primarily reflect changes in the level of cash balances and
lower interest rates.

Other expenses of $1.1 million in
2002 primarily reflects the net impact of foreign currency gains and losses as a result of
short-term intercompany debt. Effective May 31, 2002, as a result of repayment of a
portion of the intercompany debt owed by the Companys Canadian subsidiary and that
subsidiarys deemed ability to repay its remaining intercompany debt, the Company is
required to treat such intercompany debt as short-term in accordance with SFAS No. 52
Foreign Currency Translation. SFAS No. 52 requires the Company to record the
impact of foreign currency gains and losses on short-term intercompany debt in the
Companys results of operations. These losses were the result of the impact of
changes in the exchange rate between U.S. dollars and Canadian dollars on the debt owed by
i-STAT Corporations Canadian subsidiary to i-STAT Corporation. The amount of such
gains and losses could have a material impact on the Companys results of operations
in the event of significant changes in the exchange rate between U.S. dollars and Canadian
dollars, however, these gains and losses will have no impact on the Companys cash
flows.

In 2002, 2001 and 2000, the New
Jersey Economic Development Authority approved the Companys application to sell New
Jersey State income tax benefits under the New Jersey Technology Tax Transfer Program (the
Program). During the fourth quarters of 2002, 2001 and 2000, the Company
recognized $0.7 million, $1.1 million and $0.9 million, respectively, from the sale of
these tax benefits. The Program requires that the Company maintain certain employment
levels in New Jersey and that the proceeds from the sale of the tax benefits be spent in
New Jersey. There is no guarantee that the Company will qualify for this Program in the
future or that the Program will not be terminated by the State of New Jersey. At December
31, 2002, the Company had net operating loss carryforwards of approximately $88.0 million
for New Jersey income tax purposes, which expire in varying amounts through 2009.

In 2002 and 2001, the Company
recorded accretion of Preferred Stock of approximately $0.4 million and $1.7 million,
respectively. The accretion of Preferred Stock in 2001 results from the issuance by the
Company of Series C Redeemable Convertible Preferred Stock issued in August 2001 (the
Series C Stock) and the issuance of Series D Redeemable Convertible Preferred
Stock (the Series D Stock) in December 2001. Both the Series C Stock and the
Series D Stock were initially recorded at their relative fair values and net of allocated
issuance expenses. The accretion recorded by the Company reflects the amortization of the
difference between the net relative fair value and the redemption (or stated) value of
such stock. The Company recorded the Series C Stock, related Warrants and Common Stock
issued in the transaction in August 2001 at their net relative fair values of $18.8
million, $3.0 million and $11.0 million, respectively, as determined by an independent,
third party appraisal firm, net of aggregate issuance expenses of $1.3 million. Accretion
of the Series C Stock from its net relative fair value on the date of issuance of
approximately $18.8 million to its redemption value on November 29, 2001 of approximately
$20.5 million was recorded in 2001. Also included in the amounts reported as accretion of
Preferred Stock is a $3.7 million charge recorded in the third and fourth quarters of 2001
relating to the beneficial conversion feature associated with the Series C Stock. This
$3.7 million charge was subsequently reversed in December 2001 as a result of the
Companys redemption of the Series C Stock on December 6, 2001. The Company recorded
the Series D Stock and the Warrants to purchase Common Stock (the Series D
Warrants) issued in the December 2001 transaction at their net relative fair values
of $25.2 million and $2.5 million, respectively, as determined by an independent, third
party appraisal firm, net of aggregate issuance expenses of $2.3 million. Accretion of the
Series D Stock is being recorded over a period of ten years, adjusting its reported value
from its net relative fair value on the date of issuance of approximately $25.2 million to
its stated value of $30.0 million. In 2002, accretion of Preferred Stock of $0.4 million
was solely related to the Series D Stock.

Holders of the Series D Stock are
entitled to receive a cumulative dividend of 8% of the liquidation preference, payable
quarterly. The dividends may be paid in cash, or accrue and be added to the liquidation
preference, becoming payable in cash upon redemption or payable in Common Stock upon
conversion. The Company recorded the

20

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dividend on the Series D Stock at its fair value of approximately $1.3 million and $0.1 million in 2002 and 2001, respectively. Net loss
available to Common Stockholders in 2002 increased to approximately $64.6 million, or
$3.22 per share, from approximately $25.1 million, or $1.33 per share in 2001. Net loss in
2001 increased to approximately $25.1 million or $1.33 per share, from approximately $7.5
million or $0.43 per share in 2000. The weighted average number of shares used in
computing basic and diluted net loss per share was 20.1 million, 18.9 million and 17.5
million in 2002, 2001 and 2000, respectively. The increases in the weighted average number
of shares primarily reflect the conversion of 2,138,702 shares of Series B Preferred Stock
into 2,138,702 shares of Common Stock in March 2000, the issuance of 1,480,000 shares of
Common Stock in August 2001, and the exercise of employee stock options in 2001 and 2000.
The weighted average shares used in computing the basic losses per share do not include
any potentially dilutive instruments, such as options, warrants or Convertible Preferred
Stock, as such inclusion would be anti-dilutive (i.e., decrease the net loss per share).

Contingencies

The Company was a defendant in a case
entitled Nova Biomedical Corporation, Plaintiff v. i-STAT Corporation, Defendant.The
complaint, which was filed in the United States District Court for the District of
Massachusetts on June 27, 1995, alleged infringement by the Company of Nova Biomedical
Corporations (Nova) U.S. Patent No. 4,686,479 (the Patent).
In February 1998, the Court entered summary judgment in favor of the Company on the issue
of patent infringement. The plaintiff appealed the dismissal to the Federal Circuit. The
Federal Circuit affirmed two of the grounds of the dismissal (proper interpretation of the
Patent and that the Company does not literally infringe), but remanded the case to the
District Court with instructions to reconsider whether the Companys device performs
a certain measurement in a substantially equivalent way to a method covered by the Patent,
and therefore infringes under the doctrine of equivalents. A jury trial was
scheduled for July 2001. Management concluded that the uncertainty inherent in any jury
trial as well as the drain on the Companys resources merited a resolution of this
lawsuit. Accordingly, on July 26, 2001 the Company entered into a license agreement and a
settlement agreement under which the Company agreed to pay Nova approximately $10.5
million, which was recorded as a charge in the second quarter of 2001. Pursuant to the
agreements, $6.5 million was paid on July 26, 2001, a retroactive royalty of $0.5 million
was paid on August 14, 2001 for the period of January 1, 2001 through June 30, 2001, and
$3.5 million plus interest was due to be paid over one year in equal quarterly
installments, pursuant to a secured promissory note. The promissory note was prepaid on
August 3, 2001. The license agreement provides for the payment to Nova of a royalty equal
to 4% of the invoice price of products sold in the United States after January 1, 2001,
which products determine hematocrit levels according to any method used by the Company
prior to December 31, 2000, as well as any method covered by the Patent. The royalties are
payable through the life of the Patent (July 22, 2005). On February 28, 2002, Nova filed a
demand for arbitration claiming that the method by which products sold by the Company
since July 1, 2001 determine hematocrit are covered under the Patent and the license
agreement. In December 2002, the arbitration of Novas claim was decided in favor of
the Company. The Companys current method of determining hematocrit was found not to
be covered under the license to Novas Patent, and therefore i-STAT is not required
to pay any royalties under the license agreement. This arbitration is final, binding and
not appealable.

The Company was 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, alleged infringement by i-STAT of Customedixs U.S.
Patent No. 4,342,964. The plaintiff sought injunctive relief and an accounting for
i-STATs profits and the damages to Customedix from such alleged infringement. The
Company was prepared to contest the case vigorously, did not believe that it had infringed
the Customedix patent and had obtained an opinion from recognized patent counsel to the
effect that no infringement had occurred. However, management concluded that the
uncertainty inherent in any litigation as well as the drain on managements time and
the Companys resources merited an out-of-court resolution of this lawsuit.
Accordingly, on June 14, 2000, the Company entered into a settlement agreement under which
the Company paid the plaintiff $1.5 million and the plaintiff agreed to permanently
withdraw the complaint and to release the Company from any and all claims of whatsoever
nature that the plaintiff may have had against the Company, whether under the referenced
Patent or otherwise. A charge in the amount of $1.5 million was recorded in the second
quarter of 2000 in connection with the settlement of this litigation.

The Company and Abbott are in
disagreement over the amount of money Abbott is entitled to for the sharing of certain
cartridge production cost savings resulting from increases in the volume of cartridges
sold during the term of the Abbott Distribution Agreement. This disputed item relates to
different interpretations of certain terms of the Abbott Distribution Agreement.
Additionally, the Company and Abbott are in disagreement over the amount of money the
Company is entitled to for the development, production, maintenance and support of certain
software products sold by Abbott during the term of the Abbott Distribution Agreement. If
these disagreements are not resolved amicably, the Abbott Distribution Agreement states
that they must be resolved through binding arbitration.



21

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Management of the Company believes that Abbotts position on both of these issues in dispute are without merit and that,
in the event that these issues are resolved through arbitration, the Company will not
incur any additional liability to Abbott. The disagreement regarding the sharing of
certain cartridge production cost savings resulting from an increase in sales volume over
the past three years is approximately $1.2 million at December 31, 2002, and if this
matter is resolved in favor of Abbott, which management of the Company believes is
unlikely, the Companys cost of goods sold would increase by up to the amount in
dispute. The disagreement regarding payment for the development, production, maintenance
and support of certain software sold by Abbott over the past three years is approximately
$0.8 million at December 31, 2002, and if this matter is resolved in favor of the Company,
the Companys cost of goods sold would decrease by up to the amount in dispute. Such
adjustments would be made when, and if, it is determined that an unfavorable outcome to
the Company is probable or, in the case of a payment of the disputed amounts by Abbott,
when payment is received by the Company.

Liquidity and Capital
Resources

At December 31, 2002, the Company had
cash and cash equivalents of $27.1 million, a decrease of $16.0 million from the December
31, 2001 balance of $43.1 million. The decrease in cash reflects $13.0 million of cash
used in operating activities primarily resulting from a credit due to Abbott of $10.2
million which was applied to amounts owed by Abbott, and $2.6 million of cash used for
equipment purchases. Working capital decreased by $14.8 million during 2002 from $48.1
million at December 31, 2001 to $33.3 million at December 31, 2002. The decrease in
working capital during the year is primarily the result of the change in classification of
the $10 million termination payments due to Abbott from long-term liability to short-term
liability.

The Company expects its existing cash
to be sufficient to meet its short-term obligations, liquidity and capital requirements.
In addition, the Company expects its existing cash and cash expected to be generated from
future operations, including the payments due from the new FUSO Distribution Agreement and
the increased cash flows from selling its products direct to end-users (the profit margins
presently being earned by Abbott as a result of the sale of the Companys products
will be earned by the Company commencing January 1, 2004), to be sufficient to meet all of
its obligations and capital requirements for the foreseeable future, including those
payment obligations resulting from the termination of the Abbott Distribution Agreement.
However, numerous factors may change this expectation, including the results of its sales
and marketing activities, the success of its new product development efforts,
manufacturing difficulties, manufacturing efficiencies, the results of dispute resolution
proceedings, competitive conditions, and long-term strategic decisions. 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.

On March 16, 2000, Agilent
Technologies, Inc. converted its holding of 2,138,702 shares of the Companys Series
B Preferred Stock (formerly held by Hewlett-Packard Company) into 2,138,702 shares of
Common Stock and sold these shares. Accordingly, it is no longer a related party for
financial statement purposes.

At December 31, 2002, the Company had
available for Federal income tax purposes net operating loss carryforwards of
approximately $189.5 million, which expire in varying amounts through 2022. The timing and
manner in which these operating loss carryforwards are utilized in any year by the Company
may be limited by Section 382 of the Internal Revenue Code. Given the Companys
history of losses and the uncertainty regarding the Company future profitability, the
Company has recorded a full valuation allowance against its deferred tax assets.

International sales are invoiced and
paid in U.S. dollars, however, the price received from sales of our products to
international partners, including Abbott, are subject to subsequent adjustments based upon
changes in the value of the U.S. dollar relative to local currencies. The price paid by
customers to the Companys partners is set in local foreign currencies. When the
value of foreign currencies changes with respect to the U.S. dollar, the final price paid
by the Companys partners may change due to the foreign exchange conversion of local
currency prices. Price reductions are limited, however, by guaranteed U.S. dollar minimum
prices established for each cartridge. The Companys cartridge manufacturing is
conducted in Canada. Most manufacturing labor and overhead costs are incurred in Canadian
dollars, while some raw material purchases are made in U.S. dollars. The Canadian
operation is primarily funded by payments in U.S. dollars made by the U.S. parent company
for cartridges purchased for resale to its customers. In 2002, the accumulated other
comprehensive loss related to foreign currency translation decreased by approximately $1.4
million to approximately $1.0 million, and reflects the adjustment to translate the
Canadian subsidiarys balance sheet to U.S. dollars at the December 31, 2002 exchange
rate. Since most of the cartridge manufacturing expenses are incurred in Canadian dollars,
the cost of products sold and therefore, the Companys consolidated results of
operations and cash flows can be impacted by a change in exchange rates between the
Canadian dollar and the U.S. dollar.

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

22

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Financings Concluded in
2001

In August 2001, the Company closed a
$34.1 million private placement with several institutional investors. In this financing
the Company issued 1,480,000 shares of Common Stock at $9.218 per share, 20,464 shares of
Series C Stock at $1,000 per share, and six year warrants to purchase up to 1,295,000
shares of Common Stock at $10.139 per share (the Series C Warrants). The
Series C Warrants are callable by the Company if the closing price of the Companys
Common Stock is greater than $16.50 for ten consecutive business days. If the Company
calls the Series C Warrants, then the Company must issue replacement warrants of equal
quantity at a strike price of $19.25 and with a term equal to the remaining term on the
initial Series C Warrants.

At the time of issuance the Series C
Stock was deemed to have a beneficial conversion feature because the
conversion price of the Series C Stock would reflect a twelve percent discount to the fair
market value of the Common Stock. The beneficial conversion feature was calculated on
August 3, 2001, the commitment date, and was approximately $3.7 million. The beneficial
conversion feature was accreted into the Series C Stock from the date of issuance through
November 29, 2001. In December 2001, the Company elected to redeem all outstanding shares
of Series C Stock at their face value, thus leaving no Series C Stock outstanding. As a
result of the redemption of the Series C Stock, approximately $20.5 million was returned
to the holders and Series C Warrants to purchase 555,000 shares of Common Stock were
cancelled. As a result of the redemption of the Series C Stock, the accretion related to
the beneficial conversion feature of $3.7 million was reversed. Thus, the
Companys 2001 Consolidated Statements of Operations do not include any accretion
related to the beneficial conversion feature of the Series C Stock. In
December 2001, as a result of the issuance of the Series D Stock (see below), and pursuant
to applicable anti-dilution provisions, the Series C Warrants were adjusted from 740,000
shares of Common Stock at a strike price of $10.139 per share, to 937,857.51 shares at a
strike price of $8.00 per share.

In December 2001, the Company closed
a $30 million private placement with affiliates of Cerberus Capital Management, L.P.
(collectively, Cerberus). In this financing, the Company issued 30,000 shares
of Series D Stock with a stated value of $1,000 per share and an 8% preferential dividend
and six-year warrants to purchase up to 937,500 shares of Common Stock at $8.00 per share
(the Series D Warrants). The Series D Stock is mandatorily redeemable in
December 2011 and may be redeemed by the Company any time after December 2007 (at a price
equal to the stated value plus accrued and unpaid dividends). The Series D Stock may be
converted into Common Stock at the holders option at a conversion price of $8.00 per
share of Common Stock, subject to certain ownership level restrictions described below and
subject to customary anti-dilution protection adjustments. At the closing of the issuance
of Series D Stock, such shares were convertible into 3.75 million shares of the
Companys Common Stock without giving effect to the ownership level restrictions.
This number increases to the extent that the Company elects to accrue the dividend.

No holder of the Series D Stock and
Series D Warrants may convert or exercise its securities into shares of the Companys
Common Stock if after the conversion, such holder, together with any of its affiliates,
would beneficially own over the ownership limitation percentage set by the Company,
initially 14.99%. Under certain circumstances, the restrictions for Cerberus may be eased
so that it will be entitled to convert or exercise its securities into shares of Common
Stock if after the conversion it does not beneficially own in excess of 34.00% of the
outstanding shares of the Companys Common Stock. These restrictions are eased as
certain restrictions on Abbotts ownership levels ease or terminate. Absent these
limitations, Cerberus current ownership would represent the right to acquire
approximately 27.76% of the outstanding voting securities of the Company at March 3, 2003.
These limitations do not prevent the holders from acquiring and selling shares of the
Companys Common Stock within these limitations. Cerberus is entitled to appoint one
person to the Companys Board of Directors for so long as it holds 10% of the
outstanding securities of the Company on a fully diluted basis (excluding employee stock
options).

Holders of the Series D Stock have a
right of first refusal to participate in certain financings proposed to be consummated by
the Company for so long as such holders hold at least 15% of the fully diluted securities
of the Company outstanding immediately after the closing of the Series D financing.

Holders of the Series D Stock are
entitled to receive a cumulative dividend of 8% of the liquidation preference, payable
quarterly. The dividends may be paid in cash, or accrue and be added to the liquidation
preference, becoming payable in cash upon redemption or payable in Common Stock upon
conversion. During the periods that the Common Stock trades at or above $15.00 per share
for 45 consecutive trading days, the dividend rate will be reduced to 2%, and if during
subsequent periods the Common Stock trades below $10.00 per share for 45 consecutive
trading days, the dividend rate will adjust back to 8%.

At December 31, 2002, the liquidation
preference amount of the Series D Stock is $32.6 million, comprised of the stated value of $30.0 million plus accrued and unpaid dividends of approximately $2.6 million, and the
Series D Stock is



23

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convertible into approximately 3.7 million shares of Common Stock at a
conversion price of $8.00 per share of Common Stock.

Alliance with Abbott
Laboratories

Distribution under the Abbott
Distribution Agreement commenced in the United States on November 1, 1998. A subsequent
international rollout commenced in various countries during the second half of 1999. As a
result of the Abbott Distribution Agreement, the majority of the Companys revenues
are now derived from Abbott. The primary objective of the Abbott Alliance Agreements was
to strengthen the Companys product marketing and distribution capability and
accelerate the development of new products.

Under the Abbott Distribution
Agreement, Abbott has become, subject to certain pre-existing rights of the Companys
other international distributors, the exclusive worldwide distributor of the
Companys existing products and any new products the Company may develop for use in
the professionally attended human healthcare delivery market during the term of the Abbott
Distribution Agreement. Abbott has assumed the Companys product sales to U.S.
customers that were in place as of the inception of the Abbott Distribution Agreement (the
Base Business) at no profit to Abbott, and the Company and Abbott share in the
incremental profits derived from product sales beyond the Base Business. Abbott agreed to
prepay to the Company a total of $25.0 million during the first three years of the Abbott
Distribution Agreement against future incremental product sales. Such prepayments were
applied as incremental cartridges were sold to Abbott over the first three years of the
Agreement. Prepayments in amounts of $5.0 million, $4.0 million, $10.8 million and $5.2
million were received in September 1998, January 1999, January 2000 and January 2001,
respectively. The remaining balance relating to these prepayments in the amount of $5.0
million is included in Related party liability, current at December 31, 2002
and $0.6 million is included in Deferred revenues, current at December 31,
2001.

On July 25, 2002, the Company
announced its decision to allow the Abbott Distribution Agreement to expire effective
December 31, 2003. The anticipated impact of this expiration, in terms of operating
revenues and expenses and cash flow, as well as the Companys strategic direction, is
covered previously in this Report.

Under the terms of the Abbott
Research Agreement, the Company is required to conduct research and develop products
primarily to be commercialized by Abbott. Such research and development is to be funded by
Abbott and Abbott will have exclusive worldwide commercialization rights to the products
developed under the Abbott Research Agreement subject to certain limitations. The Company
and Abbott will jointly own the intellectual property that is developed during the course
of work performed under the Abbott Research Agreement. In connection with this agreement,
reimbursements from Abbott of $2.7 million are included in net revenues in 2000. There
were no research and development reimbursements from Abbott in 2002 and 2001 and Abbott is
not currently funding any of the Companys research and development programs. The
Abbott Research Agreement terminates upon expiration or termination of the Abbott
Distribution Agreement, unless earlier terminated as provided therein. Upon such
expiration or earlier termination, both the Company and Abbott will be permitted to
distribute the products developed under the Abbott Research Agreement in the territory
covered by the Abbott Distribution Agreement. The only program that has been, or is
anticipated to be, funded by Abbott during the term of the Abbott Research Agreement was
the development of certain aspects of the i-STAT 1 Analyzer, specifically the mechanism
that allows the MediSense® glucose test strips to be read. Abbott will
retain certain rights to this mechanism following expiration of the Abbott Alliance
Agreements. Abbott will retain no other rights to any other products, product components,
intellectual property, designs or trade secrets of the Company after expiration of the
Abbott Alliance Agreements.

In 1998, under the Common Stock
Purchase Agreement with Abbott, Abbott purchased 2,000,000 shares (the Purchased
Shares) of the Companys Common Stock, at a price of $11.35 per share,
resulting in net proceeds of $20.6 million. The Common Stock Purchase Agreement, together
with the Registration Rights Agreement, contains certain terms and conditions pertaining
to the voting and sale of the Purchased Shares. Abbott may not sell more than 200,000
shares of the Companys Common Stock during any three-month period and, when selling
the Companys Common Stock, must use its best efforts to sell the stock to as wide a
distribution as reasonably practicable so as to prevent any one buyer from acquiring more
than 5% ownership in the Company. The Standstill Agreement provides for limitations on
Abbotts ability to purchase the Companys Common Stock, or to propose any
merger or business combination with the Company or purchase of a material portion of the
Companys assets for a period of one year following the termination of the initial
term of the Abbott Distribution Agreement. Therefore, the Standstill Agreement will remain
in force until December 31, 2004.

The foregoing description of the
Abbott Alliance Agreements is qualified in its entirety by reference to the actual text of
such agreements, copies of which were filed with the Commission as exhibits to the
Companys Quarterly Report on Form 10-Q for the quarterly period ended June 30, 1998.

24

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Critical Accounting
Policies and Estimates

i-STATs discussion and analysis
of its financial condition and results of operations are based upon i-STATs
consolidated financial statements, which have been prepared in accordance with accounting
principles generally accepted in the United States. The preparation of these financial
statements requires i-STAT to make estimates and judgments that affect the reported
amounts of assets, liabilities, revenues and expenses, and related disclosure of
contingent assets and liabilities. On an on-going basis, i-STAT evaluates its estimates,
including those related to the liability resulting from the termination of the Abbott
Distribution Agreement, bad debt reserves, inventory valuation, intangible asset
valuation, fixed asset valuation, income tax accruals, deferred assets and valuation
allowances, warranty obligations, and other contingencies. i-STAT bases its estimates on
historical experience and on various other assumptions that are believed to be reasonable
under the circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent from other
sources. Actual results may differ from these estimates under different assumptions or
conditions.

i-STAT believes the following
critical accounting policies affect its more significant judgments and estimates used in
the preparation of its consolidated financial statements:

| |  | o |  | Revenues from the sale of products are recorded when the product is shipped, title and
risk of loss have transferred to the purchaser, payment terms are fixed or determinable
and payment is reasonably assured. Revenues from service contracts are recognized when
performance of the service is complete or over the term of the contract.
| |  | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | o |  | The Company values its inventory at the lower of cost or market. The Company reviews its
inventory for quantities in excess of production requirements, obsolescence and for
compliance with internal quality specifications. Any adjustments to inventory would be
equal to the difference between the cost of inventory and the estimated net market value
based upon assumptions about future demand, market conditions and expected cost to
distribute those products to market. If actual market conditions are less favorable than
those projected by management, additional inventory adjustments may be required.
| |  | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | o |  | The Company records a valuation allowance to reduce its deferred tax assets to the amount
that is more likely than not to be realized. While the Company has considered future
taxable income and ongoing prudent and feasible tax planning strategies in assessing the
need for the valuation allowance, in the event the Company were to determine that it would
be able to realize its deferred tax assets in the future in excess of its net recorded
amount, an adjustment to the deferred tax asset would increase income in the period such
determination was made.
| |  | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | o |  | As a result of the termination of the Abbott Distribution Agreement, the Company recorded
accruals for (a) a $5.0 million one-time termination fee and (b) $47.0 million for the
five unequal residual payments due to Abbott starting in 2004 through 2008 based upon
managements estimate of Abbotts net sales of the Companys products
during 2003. If Abbotts actual net sales are more or less than managements
estimate, then the accrual will need to be adjusted accordingly. For example, if
Abbotts actual net sales results for 2003 are 10% greater than managements
current estimate, then the residual payment liability to Abbott would increase by
approximately $4.5 million to $51.5 million. On the other hand, if Abbotts actual
net sales results for 2003 are 10% less than managements current estimate, then the
residual payment liability to Abbott would decrease by approximately $4.8 million to $42.2
million. The final and exact amount of the five unequal residual payments will not be
determinable until the beginning of 2004, when Abbotts net sales numbers are fixed
and determinable.
| |  | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | o |  | The Company periodically evaluates the carrying value of long-lived assets to be held and
used, including intangible assets. The carrying value of long-lived assets is considered
impaired when the anticipated undiscounted cash flows are less than the carrying value. In
that event, a loss is recognized based on the amount by which the carrying value exceeds
the fair value of long-lived assets. Fair value is determined by comparisons to quoted or
estimated selling prices or by using the anticipated cash flows discounted at a rate
commensurate with the risk involved.
| |  | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | o |  | The Company establishes liabilities for litigation and contingencies when the matters
become probable and the amount of the potential liability is reasonably estimable. The
Company generally will consult with its outside legal counsel, assess the merits of the
claim, evaluate the likelihood of an unfavorable outcome and consider the range of
potential losses in reaching its conclusion.
| |  | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

25

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Recent Accounting
Pronouncements

In May 2002, the Financial Accounting
Standards Board (FASB) issued SFAS No. 145, Rescission of SFAS No. 4, 44
and 64, Amendment of SFAS 13, and Technical Corrections as of April 2002. SFAS No.
145 is effective for fiscal years after May 15, 2002 and is effective for SFAS No. 13
transactions occurring after May 15, 2002. This statement rescinds SFAS No. 4 and, thus
the exception to applying Accounting Principles Board Opinion (APB) No. 30 to
all gains and losses related to extinguishments of debt. As a result, gains and losses
from extinguishments of debt are classified as extraordinary items only if they met the
criteria in APB No. 30. SFAS No. 64 previously amended SFAS No. 4 and is no longer
necessary. This statement also amends SFAS No. 13 to require sale-leaseback accounting for
certain lease modifications that have economic effects that are similar to sale-leaseback
transactions. This statement rescinds SFAS No. 44 and makes various technical corrections
to other existing pronouncements. The Company does not expect that the adoption of this
statement will have a material impact on its financial position or results of operations.

On July 29, 2002, the FASB issued
SFAS No. 146, Accounting for Costs Associated with Exit or Disposal
Activities. SFAS No. 146 is effective for exit or disposal activities that are
initiated after December 31, 2002. This statement addresses financial accounting and
reporting for costs associated with exit or disposal activities and nullifies Emerging
Issues Task Force (EITF) Issue No. 94-3. Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit an Activity (including
Certain Costs Incurred in Restructuring). This statement requires that a liability
for a cost associated with an exit or disposal activity be recognized when the liability
is incurred. Under EITF Issue 94-3, a liability for an exit cost as defined in EITF Issue
94-3 was recognized at the date of an entitys commitment to an exit plan. Therefore,
this statement eliminates the definition and requirements for recognition of exit costs in
EITF Issue 94-3. This statement also establishes that fair value is the objective for
initial measurement of the liability. The Company does not expect that the adoption of
this statement will have a material impact on its financial position or results of
operation.

In December 2002, the FASB issued
SFAS No. 148, Accounting for Stock-Based Compensation-Transition and
Disclosure. SFAS No. 148 amends SFAS No. 123 providing alternative methods of
transition for a voluntary change to the fair value based method of accounting for
stock-based employee compensation. SFAS No. 148 also amends the disclosure requirements of
SFAS No. 123 and requires additional disclosures in annual and interim financial
statements regarding the method of accounting for stock-based employee compensation and
the effect of the method used on financial results. The Company will continue to account
for stock-based compensation in accordance with Accounting Principles Bulleting No. 25
Accounting for Stock Issued to Employees and it will provide the additional
disclosures in its annual and interim financial statements.

All statements contained in this
Managements Discussion and Analysis of Financial Condition and Results of Operation
other than statements of historical financial information, are forward-looking statements.
Forward-looking statements include statements concerning plans, objectives, goals,
strategies, future events or performance and underlying assumptions and other statements
which are other than historical facts. Although the Company believes that its expectations
are based on reasonable assumptions, 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, those listed in
Factors That May Affect Future Results, in Item 1 of this Annual Report on
Form 10-K, and other risks detailed from time to time in the Companys filings with
the Securities and Exchange Commission. The Company does not undertake to update the
results discussed herein as a result of changes in risks or operating results.

26

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Item 7(a). Quantitative
and Qualitative Disclosures about Market Risk

The Companys primary market
risk exposure relates to foreign currency exchange risk (see discussion within
Liquidity and Capital Resources section of Managements Discussion
and Analysis of Financial Condition and Results of Operations).

Item 8. Financial
Statements and Supplementary Data

See Item 15 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.

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 2003 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 2003 Annual Meeting of Stockholders and is incorporated herein by
reference.

Item 12. Security
Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Equity Compensation Plans

As of December 31, 2002 the Company had the following equity compensation plans in place:

|                                    |  | Number of
securities to be
issued upon
exercise of
outstanding options |  | Weighted-average
exercise price of
outstanding options |      | Number of securities
remaining available
for future issuance
under equity
compensation plans
|----------------------------------- |  | ---------------------------------------------------------------------- |  | ------------------------------------------------------ | ---- | --------------------------------------------------------------------------------------------
|Plans approved by shareholders      |  | 4,182,813                                                              |  | $                                                      | 9.18 |                                                                                             
|Plans not approved by shareholders1 |  | 39,215                                                                 |  | $                                                      | 9.06 |                                                                                             
|Total                               |  | 4,222,028                                                              |  | $                                                      | 9.18 |                                                                                             

1Represents options that were granted to certain consultants of the Company in May 1999 for services performed during 1998.  The options were not granted
under the Company's approved plans.  The options are exercisable for a period of four years from the date of grant at an exercise price of $9.06 and will expire in May 2003.  The Company is not required to grant
any additional options to these consultants.

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 2003 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 2003 Annual Meeting of Stockholders and is incorporated herein
by reference.

Item 14. Controls and
Procedures

The Chief Executive Officer and Chief
Financial Officer of the Company (its principal officer and principal financial officer,
respectively) have concluded, based on their evaluation as of a date within 90 days prior
to filing this Report, that the Companys disclosure controls and procedures are
effective to ensure that information required to be disclosed by the Company in the
reports filed or submitted by it under the Securities Exchange Act of 1934, as amended, is
recorded, processed, summarized and reported within the time periods specified in the
Securities and Exchange Commissions rules and forms, and include controls and
procedures designed to ensure that information required to be disclosed by the Company in
such reports is accumulated and communicated to the companys management, including
the Chief Executive Officer and Chief Financial Officer, as appropriate and allow timely
decisions regarding required disclosure.

There were no significant changes in
the Companys internal controls or in other factors that could significantly affect
these controls subsequent to the date of this evaluation.

27

PART IV

Item 15. 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:











(2)    
Financial Statement Schedules--The following are included in Item 14(d):





Consolidated financial statement
schedules not included in this Annual Report on Form 10-K 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.

(b)    
          Reports on Form 8-K

On
November 14, 2002, the Company filed a current Report on Form 8-K with regard to the
Section 906 certifications of the Sarbanes-Oxley Act of 2002 supporting its financial
results for the third quarter of 2002.

On
December 13, 2002, the Company filed current Reports on Form 8-K with regard to the Nova
Biomedical Corporation patent infringement arbitration decided in favor of i-STAT
Corporation.

On
February 3, 2003, the Company filed a current Report on Form 8-K with regard to the new
marketing and distribution agreement executed with FUSO Pharmaceutical Industries, Ltd.

On
February 21, 2003, the Company filed a current Report on Form 8-K with regard to its
fourth quarter and year-end earnings release.

28

---

(3)    
Exhibits:

Exhibit No.     Description

|(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 C Preferred Stock
               (Form 10-Q for the quarterly period ended September 30, 2001)*
|----- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3.5) |  | Certificate of Amendment to the Restated Certificate of Incorporation (Form 10-Q
               for the quarterly period ended September 30, 2001)*
|----- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------

|(3.6) |  | Certificate of Designation, Preferences and Rights of Series D Convertible
               Preferred Stock (Form 10-K for fiscal year ended December 31, 2001)*
|----- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------

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

|(10.1) |  | 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)*
|------ |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(10.2) |  | 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)*
|------ |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(10.3) |  | 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) |  | 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)*
|------ |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(10.5) |  | Letter Agreement, dated April 15, 1994, between Registrant and Noah Kroloff
               (Form 10-Q for quarter ended June 30, 1994)*
|------ |  | ---------------------------------------------------------------------------------------------------------------------------------------

|(10.6) |  | 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)*
|------ |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(10.7) |  | Letter Agreement, dated June 6, 1996 between the Registrant and Roger J. Mason
               (Form 10-Q for quarter ended June 30, 1996)*
|------ |  | ------------------------------------------------------------------------------------------------------------------------------------------

|(10.8) |  | Form of Officer Indemnification Agreement (Form 10-K for fiscal year ended
               December 31, 1996)*
|------ |  | -------------------------------------------------------------------------------------------------------------

* 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.

29

---

Exhibit No.     Description

|(10.9) |  | Form of Director Indemnification Agreement (Form 10-K for fiscal year ended
               December 31, 1996)*
|------ |  | --------------------------------------------------------------------------------------------------------------

|(10.10) |  | 1985 Stock Option Plan, as amended (Form 10-K for fiscal year ended December 31,
               1997)*
|------- |  | ------------------------------------------------------------------------------------------------------

|(10.11) |  | Employment Agreement, dated January 23, 1998, between the Registrant and William
               P. Moffitt (Form 10-K for fiscal year ended December 31, 1997)*
|------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------

|(10.12) |  | Non-Statutory Stock Option Agreement, dated January 23, 1998, between the
               Registrant and William P. Moffitt (Form 10-K for fiscal year ended December 31,
               1997)*
|------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(10.13) |  | Lease Agreement, dated July 16, 1998, between Brandywine Operating Partnership,
               L.P. and Registration (Form 10-Q for fiscal quarter ended June 30, 1998)*
|------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(10.14) |  | Amendment, dated December 10, 2002 to Lease Agreement dated July 16, 1998,
               between Brandywine Operating Partnership, L.P. and the Registrant
|------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------

|(10.15) |  | Common Stock Purchase Agreement, dated as of August 3, 1998, between Registrant
               and Abbott Laboratories (Form 10-Q for fiscal quarter ended June 30, 1998)*
|------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(10.16) |  | Standstill Agreement, dated as of August 3, 1998, between Registrant and Abbott
               Laboratories (Form 10-Q for fiscal quarter ended June 30, 1998)*
|------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------

|(10.17) |  | Form of Registration Rights Agreement entered into by Registrant and Abbott
               Laboratories on September 2, 1998 (Form 10-Q for fiscal quarter ended June 30,
               1998)*
|------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(10.18) |  | Marketing and Distribution Agreement, dated as of August 3, 1998, between
               Registrant and Abbott Laboratories (Form 10-Q for fiscal quarter ended June 30,
               1998)*
|------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(10.19) |  | Funded Research & Development and License Agreement, dated as of August 3,
               1998, between Registrant and Abbott Laboratories (Form 10-Q for fiscal quarter
               ended June 30, 1998)*
|------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(10.20) |  | Form of Director Non-Statutory Stock Option Agreement (Form 10-K for fiscal year
               ended December 31, 1998) *
|------- |  | --------------------------------------------------------------------------------------------------------------------------

|(10.21) |  | Lease Agreement dated August 27, 1998, between Urigold Holdings Ltd. and the
               Registrant (Form 10-K for the fiscal year ended December 31, 1998)*
|------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------

|(10.22) |  | i-STAT Corporation Equity Incentive Plan, as amended (Form 10-K for fiscal year
               ended December 31, 1999)*
|------- |  | ------------------------------------------------------------------------------------------------------------------------

|(10.23) |  | Form of Executive Officer Restricted Share Agreement under Equity Incentive Plan
               (Form 10-Q for fiscal quarter ended March 31, 1999)*
|------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------

|(10.24) |  | Form of Restricted Share Award Agreement with President and Chief Executive
               Officer (Form 10-Q for fiscal quarter ended March 31, 1999)*
|------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------

* 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.

30

---

Exhibit No.     Description

|(10.25) |  | Form of Director Restricted Share Award Agreement (Form 10-K for fiscal year
               ended December 31, 1999)*
|------- |  | ---------------------------------------------------------------------------------------------------------------------

|(10.26) |  | Form of Agreement Relating to State of New Jersey Technology Business Tax
               Certificate Program (Form 10-K for fiscal year ended December 31, 2000)*
|------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------

|(10.27) |  | Form of Settlement Agreement dated as of July 26, 2001 between the Company and
               Nova Biomedical Corporation (Form 8-K dated July 27, 2001)*
|------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------

|(10.28) |  | Registration Rights Agreement, dated as of August 2, 2001, between Registrant
               and the Purchasers named therein (Form 8-K dated August 3, 2001)*
|------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------

|(10.29) |  | Form of Warrant, issued as of August 2, 2001, to purchase shares of Common Stock
               of Registrant (Form 8-K dated August 3, 2001)*
|------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------

|(10.30) |  | Securities Purchase Agreement, dated as of August 2, 2001, between the
               Registrant and the Purchasers named therein (Form 8-K dated August 3, 2001)*
|------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(10.31) |  | Securities Purchase Agreement, dated as of December 6, 2001, between the
               Registrant and the Purchasers named therein (Form 8-K dated December 7, 2001)*
|------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(10.32) |  | Form of Registration Rights Agreement between Registrant and the Purchasers
               named therein (Form 8-K dated December 7, 2001)*
|------- |  | -------------------------------------------------------------------------------------------------------------------------------------------

|(10.33) |  | Form of Warrant issued to each of the Series D Stock investors to purchase
               Common Stock of Registrant (Form 8-K dated December 7, 2001)*
|------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------

|(10.34) |  | Employment Agreement, dated May 30, 2002, between the Registrant and Lorin J.
               Randall (Form 10-Q for fiscal quarter ended June 30, 2002)*
|------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------

|(10.35) |  | Employment Agreement, dated August 16, 2002, between the Registrant and Bruce F.
               Basarab (Form 10-Q for fiscal quarter ended September 30, 2002)*
|------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------

|(10.36) |  | Distribution Agreement, dated January 18, 2003, between Registrant and FUSO
               Pharmaceutical Industries, Ltd.**
|------- |  | ----------------------------------------------------------------------------------------------------------------------------

|(10.37) |  | Prepayment Agreement, dated January 18, 2003, between Registrant and FUSO
               Pharmaceutical Industries, Ltd.**
|------- |  | --------------------------------------------------------------------------------------------------------------------------

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

|(23) |  | Consent of PricewaterhouseCoopers LLP, 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.
|---- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

* 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.

** Certain portions of this exhibit have been ommitted pursuant to a request for confidential treatment separately filed with the Securities and Exchange Commission.

31

---

i-STAT CORPORATIONINDEX TO CONSOLIDATED
FINANCIAL STATEMENTS

Description











32

---

Report of Independent Accountants

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

In our opinion, the accompanying
consolidated balance sheets and the related consolidated statements of operations, changes
in stockholders equity and cash flows present fairly, in all material respects, the
financial position of i-STAT Corporation and its subsidiary (the Company) at
December 31, 2002 and 2001, and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 2002 in conformity with
accounting principles generally accepted in the United States of America. 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 of these statements in accordance with auditing standards generally accepted in the
United States of America, which 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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis for our
opinion.

PricewaterhouseCoopers LLP
Florham Park, New JerseyFebruary 5, 2003

33

---

# i-STAT CORPORATION
                                       CONSOLIDATED STATEMENTS OF OPERATIONS

|In thousands of dollars, except share and per share data | For  the | Years  Ended | December 31,
|-------------------------------------------------------- | -------- | ------------ | ------------
|                                                         |          |              |             
|Net revenues:                                            |          |             
|Related party net revenues                               |          |              | $           
|Third party net revenues                                 |          |              |             
|Other net revenues                                       |          |              |             
|Total net revenues                                       |          |              |             
|Cost of net revenues                                     |          |              |             
|Gross margin on total net revenues                       |          |              |             
|Operating expenses:                                      |          |             
|Write-down of certain production assets (Note 3)         |          |              |             
|Research and development                                 |          |              |             
|Sales and marketing                                      |          |              |             
|Abbott termination charges (Note 11)                     |          |              |             
|General and administrative                               |          |              |             
|Write-down of certain intangible assets (Note 4)         |          |              |             
|Litigation settlement (Note 14)                          |          |              |             
|Total operating expenses                                 |          |              |             
|Operating loss                                           |          |              |             
|Other income (expense):                                  |          |             
|Investment income                                        |          |              |             
|Other (expense) income                                   |          |              |             
|Other (expense) income, net                              |          |              |             
|Loss before income taxes                                 |          |              |             
|Income tax benefit (Note 12)                             |          |              |             
|Net loss                                                 |          |              |             
|Accretion of Preferred Stock (Note 7)                    |          |              |             
|Dividends on Preferred Stock (Note 7)                    |          |              |             
|Net loss available to Common Stockholders                |          |              |             
|Basic and diluted net loss per share                     |          |             
|available to Common Stockholders                         |          |              |             
|Shares used in computing basic and diluted net           |          |             
|loss per share available to Common Stockholders          |          |              |             
|                                                        

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

34

---

# i-STAT CORPORATION
                                            CONSOLIDATED BALANCE SHEETS

|In thousands of dollars, except share and per share data           | December 31, | 
|------------------------------------------------------------------ | ------------ | 
|                                                                   |              | 
|Assets                                                             |              | 
|Current assets:                                                    |              | 
|Cash and cash equivalents                                          |              | 
|Accounts receivable, net of reserve for doubtful accounts          |              | 
|of $28 in 2002 and 2001                                            |              | 
|Accounts receivable from related party, net                        |              | 
|Inventories (Note 2)                                               |              | 
|Prepaid expenses and other current assets                          |              | 
|Total current assets                                               |              | 
|Plant and equipment, net (Note 3)                                  |              | 
|Intangible assets, net (Note 4)                                    |              | 
|Other assets                                                       |              | 
|Total assets                                                       |              | 
|Liabilities and Stockholders' (Deficit) Equity                     |              | 
|Current liabilities:                                               |              | 
|Accounts payable                                                   |              | 
|Accounts payable to related party, net                             |              | 
|Accrued expenses (Note 5)                                          |              | 
|Related party deferred revenue                                     |              | 
|Related party liability, current (Note 11)                         |              | 
|Total current liabilities                                          |              | 
|Related party liability, non-current (Note 11)                     |              | 
|Total liabilities                                                  |              | 
|Series D Redeemable Convertible Preferred Stock, liquidation value |              | 
|$32,617 in 2002 and $30,133 in 2001 (Note 7)                       |              | 
|Commitments and Contingencies (Note 14)                            |              | 
|Stockholders' (deficit) equity:                                    |              | 
|Preferred Stock, $0.10 par value, shares authorized 7,000,000:     |              | 
|Series A Junior Participating Preferred Stock, $0.10 par           |              | 
|value, 1,500,000 shares authorized; none issued                    |              | 
|Series C Convertible Preferred Stock, 25,000 shares                |              | 
|authorized; none issued                                            |              | 
|Common Stock, $0.15 par value, 50,000,000 shares authorized;       |              | 
|20,157,927 and 20,107,483 shares issued; and 20,117,110 and        |              | 
|20,066,666 shares outstanding in 2002 and 2001, respectively       |              | 
|Treasury Stock, at cost, 40,817 shares                             |              | 
|Additional paid-in capital                                         |              | 
|Unearned compensation                                              |              | 
|Loan to officer, net                                               |              | 
|Accumulated deficit                                                |              | 
|Accumulated other comprehensive loss                               |              | 
|Total stockholders' (deficit) equity                               |              | 
|Total liabilities and stockholders' (deficit) equity               |              | 

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

35

---

I-STAT CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' (DEFICIT) EQUITY

|                                                                             |                          | Preferred
Stock |      |   |            |   |   |       |  |   |         |   |   |      |   |   |        |   |   |      |  
|---------------------------------------------------------------------------- | ------------------------ | --------------- | ---- | - | ---------- | - | - | ----- |  | - | ------- | - | - | ---- | - | - | ------ | - | - | ---- | -
|
|
|
|Balance, December 31, 1999                                                   |                          | $               | 214  |   | 15,761,630 |   | $ | 2,364 |  | $ | 234,487 |   |   |     |   | $ | (1,547 | ) | $ | (716 | )
|Net loss for 2000                                                            |                          |                 |      |   |            |   |   |       |  |   |         |   |   |      |   |   |        |   |   |      |  
|Other comprehensive loss (Note 1)                                            |                          |                 |      |   |            |   |   |       |  |   |         |   |   |      |   |   |        |   |   |      |  
|                                                                             |                          |                 |      |   |            |   |   |       |  |   |         |   |   |      |   |   |        |   |   |      |  
|                                                                             | Total comprehensive loss |                 |      |   |            |   |   |       |  |   |         |   |   |      |   |   |        |   |   |      |  
|Shares issued at $1.50 to $16.75 per share under stock option plans (Note 8) |                          |                 |      |   | 526,066    |   |   | 79    |  |   | 4,303   |   |   |      |   |   |        |   |   |      |  
|Restricted Stock issued at $13.00 per share                                  |                          |                 |      |   | 10,256     |   |   | 2     |  |   | 131     |   |   |      |   |   | (133   | ) |   |      |  
|Conversion of Series B Preferred Stock to Common Stock                       |                          |                 | (214 | ) | 2,138,702  |   |   | 321   |  |   | (107    | ) |   |      |   |   |        |   |   |      |  
|Amortization of unearned compensation related to Restricted Stock            |                          |                 |      |   |            |   |   |       |  |   |         |   |   |      |   |   | 916    |   |   |      |  
|Purchase of Treasury Stock                                                   |                          |                 |      |   |            |   |   |       |  |   |         |   | $ | (750 | ) |   |        |   |   |      |  
|Loan to officer (Note 8)                                                     |                          |                 |      |   |            |   |   |       |  |   |         |   |   |      |   |   |        |   |   | (257 | )
|Forgiveness of loan to officer (Note 8)                                      |                          |                 |      |   |            |   |   |       |  |   |         |   |   |      |   |   |        |   |   | 256  |  
|                                                                             |                          |                 |      |   |            |   |   |       |  |   |         |   |   |      |   |   |        |   |   |      |  
|Balance, December 31, 2000                                                   |                          |                 |     |   | 18,436,654 |   |   | 2,766 |  |   | 238,814 |   |   | (750 | ) |   | (764   | ) |   | (717 | )
|Net loss for 2001                                                            |                          |                 |      |   |            |   |   |       |  |   |         |   |   |      |   |   |        |   |   |      |  
|Other comprehensive loss (Note 1)                                            |                          |                 |      |   |            |   |   |       |  |   |         |   |   |      |   |   |        |   |   |      |  
|                                                                             |                          |                 |      |   |            |   |   |       |  |   |         |   |   |      |   |   |        |   |   |      |  
|                                                                             | Total comprehensive loss |                 |      |   |            |   |   |       |  |   |         |   |   |      |   |   |        |   |   |      |  
|Shares issued at $1.50 to $18.50 per share under stock option plans (Note 8) |                          |                 |      |   | 181,728    |   |   | 27    |  |   | 2,037   |   |   |      |   |   |        |   |   |      |  
|Restricted Stock issued at $6.02 per share                                   |                          |                 |      |   | 2,791      |   |   |      |  |   | 17      |   |   |      |   |   | (17    | ) |   |      |  
|Restricted Stock issued at $16.75 per share                                  |                          |                 |      |   | 7,960      |   |   | 1     |  |   | 132     |   |   |      |   |   | (133   | ) |   |      |  
|Cancellation of Restricted Stock                                             |                          |                 |      |   | (1,650     | ) |   |      |  |   |        |   |   |      |   |   |        |   |   |      |  
|Amortization of unearned compensation related to Restricted Stock            |                          |                 |      |   |            |   |   |       |  |   |         |   |   |      |   |   | 859    |   |   |      |  
|Forgiveness of loan to officer                                               |                          |                 |      |   |            |   |   |       |  |   |         |   |   |      |   |   |        |   |   | 300  |  
|Issuance of Common Stock (Note 7)                                            |                          |                 |      |   | 1,480,000  |   |   | 222   |  |   | 10,817  |   |   |      |   |   |        |   |   |      |  
|Issuance of Series C Warrant (Note 7)                                        |                          |                 |      |   |            |   |   |       |  |   | 2,976   |   |   |      |   |   |        |   |   |      |  
|Accretion of Series C Redeemable Convertible Preferred Stock (Note 7)        |                          |                 |      |   |            |   |   |       |  |   | (1,698  | ) |   |      |   |   |        |   |   |      |  
|Issuance of Series D Warrant (Note 7)                                        |                          |                 |      |   |            |   |   |       |  |   | 2,516   |   |   |      |   |   |        |   |   |      |  
|Dividend on Series D Redeemable Convertible Preferred Stock (Note 7)         |                          |                 |      |   |            |   |   |       |  |   | (133    | ) |   |      |   |   |        |   |   |      |  
|Accretion of Series D Redeemable Convertible Preferred Stock (Note 7)        |                          |                 |      |   |            |   |   |       |  |   | (36     | ) |   |      |   |   |        |   |   |      |  
|                                                                             |                          |                 |      |   |            |   |   |       |  |   |         |   |   |      |   |   |        |   |   |      |  
|Balance, December 31, 2001                                                   |                          |                 |     |   | 20,107,483 |   |   | 3,016 |  |   | 255,442 |   |   | (750 | ) |   | (55    | ) |   | (417 | )
|Net loss for 2002                                                            |                          |                 |      |   |            |   |   |       |  |   |         |   |   |      |   |   |        |   |   |      |  
|Other comprehensive loss (Note 1)                                            |                          |                 |      |   |            |   |   |       |  |   |         |   |   |      |   |   |        |   |   |      |  
|                                                                             |                          |                 |      |   |            |   |   |       |  |   |         |   |   |      |   |   |        |   |   |      |  
|                                                                             | Total comprehensive loss |                 |      |   |            |   |   |       |  |   |         |   |   |      |   |   |        |   |   |      |  
|Shares issued at $6.13 per share under stock option plans (Note 8)           |                          |                 |      |   | 14,200     |   |   | 3     |  |   | 82      |   |   |      |   |   |        |   |   |      |  
|Restricted Stock issued at $5.08 per share                                   |                          |                 |      |   | 36,244     |   |   | 5     |  |   | 179     |   |   |      |   |   | (184   | ) |   |      |  
|Amortization of unearned compensation related to Restricted Stock            |                          |                 |      |   |            |   |   |       |  |   |         |   |   |      |   |   | 239    |   |   |      |  
|Forgiveness of loan to officer                                               |                          |                 |      |   |            |   |   |       |  |   |         |   |   |      |   |   |        |   |   | 324  |  
|Dividend on Series D Redeemable Convertible Preferred Stock (Note 7)         |                          |                 |      |   |            |   |   |       |  |   | (2,484  | ) |   |      |   |   |        |   |   |      |  
|Accretion of Series D Redeemable Convertible Preferred Stock (Note 7)        |                          |                 |      |   |            |   |   |       |  |   | (448    | ) |   |      |   |   |        |   |   |      |  
|                                                                             |                          |                 |      |   |            |   |   |       |  |   |         |   |   |      |   |   |        |   |   |      |  
|Balance, December 31, 2002                                                   |                          | $               |     |   | 20,157,927 |   | $ | 3,024 |  | $ | 252,771 |   | $ | (750 | ) | $ |       |   | $ | (93  | )
|                                                                             |                          |                 |      |   |            |   |   |       |  |   |         |   |   |      |   |   |        |   |   |      |  

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

36

---

# i-STAT CORPORATION
                                       CONSOLIDATED STATEMENTS OF CASH FLOWS

|In thousands of dollars, except share and per share data   | For the | Years  Ended | December 31,
|---------------------------------------------------------- | ------- | ------------ | ------------
|                                                           |         |              |             
|Cash flows from operating activities:                      |         |             
|Net loss                                                   |         |              |             
|Adjustment to reconcile net loss to net cash               |         |             
|used in operating activities:                              |         |             
|Depreciation and amortization                              |         |              |             
|Gains on disposal of equipment                             |         |              |             
|Amortization of deferred revenue                           |         |              |             
|Expense related to restricted stock and forgiveness        |         |             
|of loan to officer                                         |         |              |             
|Loss on write-down of certain production assets            |         |              |             
|Loss on write-down of certain intangible assets            |         |              |             
|Foreign currency loss on intercompany loan (Note 1)        |         |              |             
|Change in assets and liabilities:                          |         |             
|Accounts receivable                                        |         |              |             
|Accounts receivable from related party                     |         |              |             
|Accounts payable to related party                          |         |              |             
|Inventories                                                |         |              |             
|Prepaid expenses and other current assets                  |         |              |             
|Accounts payable                                           |         |              |             
|Accrued expenses                                           |         |              |             
|Abbott termination liabilities                             |         |              |             
|Restricted cash, letter of credit                          |         |              |             
|Deferred revenue                                           |         |              |             
|Net cash used in operating activities                      |         |              |             
|Cash flows from investing activities:                      |         |             
|Purchase of equipment                                      |         |              |             
|Cost of intangible assets                                  |         |              |             
|Proceeds from sale of equipment                            |         |              |             
|Net cash used in investing activities                      |         |              |             
|Cash flows from financing activities:                      |         |             
|Proceeds from issuance of Common Stock                     |         |              |             
|Net proceeds from private placement of Common Stock        |         |              |             
|Net proceeds from issuance of Series C Redeemable          |         |             
|Convertible Preferred Stock and Warrants                   |         |              |             
|Redemption of Series C Convertible Preferred Stock         |         |              |             
|Net proceeds (expenses) from private placement of Series D |         |             
|Redeemable Convertible Preferred Stock and Warrants        |         |              |             
|Purchase of Treasury Stock                                 |         |              |             
|Loan to officer                                            |         |              |             
|Net cash provided by financing activities                  |         |              |             
|Effect of currency exchange rate changes on cash           |         |              |             
|Net (decrease) increase in cash and cash equivalents       |         |              |             
|                                                           |         |              |             
|Cash and cash equivalents at beginning of year             |         |              |             
|Cash and cash equivalents at end of year                   |         |              | $           

Supplemental disclosures of cash
flow information and non cash investing and financing activities:

|                                                             |  |  |  
|------------------------------------------------------------ |  |  | -
|Dividends on Series D Stock declared and not paid            |  |  | $
|Equipment purchases included in accounts payable at year end |  |  | $
|Conversion of Preferred Stock to Common Stock                |  |  | $

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

37

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i-STAT CORPORATIONNOTES TO THE 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 its wholly owned
subsidiary i-STAT Canada Limited, collectively known as i-STAT or the Company. All
significant inter-company accounts and transactions have been eliminated in consolidation.
The Company develops, manufactures, markets and sells 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 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
manufacturing existing products as well as 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 sale of our products and assistance in
development of new markets.

Cash and Cash Equivalents

Cash and cash equivalents include
highly liquid investments with original maturities of three months or less from the date
of purchase.

Foreign Currency
Translation/Transactions

In general, balance sheet amounts
from the Companys Canadian subsidiary have been translated using exchange rates in
effect at the balance sheet dates and the resulting translation adjustments have been
included in the accumulated other comprehensive loss as a separate component of
Consolidated Stockholders (Deficit) Equity. The Statement of Operations from the
Companys Canadian subsidiary has been translated using the average monthly exchange
rates in effect during each year. Foreign currency transaction gains and losses have been
included in other income.

Effective May 31, 2002, as a result
of repayment of a portion of intercompany debt owed by the Companys Canadian
subsidiary and that subsidiarys deemed ability to repay the remaining intercompany
debt, the Company is required to treat such intercompany debt as short-term in accordance
with Statement of Financial Accounting Standards (SFAS) No. 52 Foreign
Currency Translation. SFAS No. 52 requires the Company to record the impact of
foreign currency gains and losses on short-term intercompany debt in the Companys
results of operations. Foreign currency losses of $1.1 million were recorded in
Other (expense) income, net for the year ending December 31, 2002. These
losses were primarily the result of the impact of the exchange rate between U.S. dollars
and Canadian dollars on the debt owed by i-STAT Corporations Canadian subsidiary to
i-STAT Corporation. The amount of these gains and losses could have a material impact on
the Companys results of operations in the event of significant changes in the
exchange rate between U.S. dollars and Canadian dollars, however, these gains and losses
will have no impact on the Companys cash flows.

Inventories

Inventories are carried at the lower
of actual cost or market. Costs are accounted for on the first-in first-out (FIFO) basis.
Inventories are reviewed on a regular basis for quantities in excess of production
requirements, obsolescence, and for compliance with the Companys quality
specifications.

Plant and Equipment

Plant and equipment are stated at the
lower of cost or fair value and are depreciated on a straight-line basis over their useful
lives, which are estimated to be three to five years. Leasehold improvements are amortized
over five years or the remaining term of the lease, whichever is less. The cost of major
additions and betterments are capitalized; maintenance and repairs that do not improve or
extend the life of the respective assets are charged to expenses 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 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.

38

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Valuation of Long-Lived
Assets

In accordance with SFAS No. 144,
Accounting for the Impairment or Disposal of Long-Lived Assets, the Company
periodically evaluates the carrying value of long-lived assets to be held and used,
including intangible assets. The carrying value of long-lived assets is considered
impaired when the anticipated undiscounted cash flows are less than the carrying value. In
that event, a loss is recognized based on the amount by which the carrying value exceeds
the fair value of long-lived assets. Fair value is determined by comparisons to quoted or
estimated selling prices or by using the anticipated cash flows discounted at a rate
commensurate with the risk involved.

Income Taxes

The Company accounts for income taxes
in accordance with SFAS 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. SFAS No. 109 requires that deferred tax assets be reduced by a valuation
allowance if it is more likely than not that some portion or all of the deferred tax asset
will not be realized.

Revenue Recognition

Revenues from the sale of products
are recorded when the product is shipped, title and risk of loss have transferred to the
purchaser, payment terms are fixed or determinable and payment is reasonably assured.
Revenues from service contracts are recognized when performance of the service is complete
or over the term of the contract.

Warranty Reserve

The Company establishes a reserve for
future warranty repairs as the Company ships its products. The reserve is based on the
Companys actual historical experience of repaired units as compared to total units
shipped. The Company reviews the reasonableness of this accrual on a regular basis.

Basic and Diluted Loss
per Share

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

Options to purchase 4,222,028 shares
of Common Stock at $2.24  $32.58 per share, which expire on various dates from
January 2003 to November 2012, were outstanding at December 31, 2002. In addition,
warrants to purchase 1,875,357.5 shares of Common Stock at $8.00 per share were
outstanding at December 31, 2002. The options and warrants were not included in the
computation of diluted loss per share because the effect would be anti-dilutive (i.e.,
decrease the net loss per share) due to the Companys net loss.

Estimates

The preparation of financial
statements in conformity with generally accepted accounting principles in the United
States 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.

Segment Information

The Company operates within one
business segment comprising the i-STAT® System. The i-STAT System consists of a
portable handheld analyzer and single-use, disposable cartridges, which are interdependent
on one another in the functionality of the system.

Comprehensive Income

SFAS No. 130, Reporting
Comprehensive Income, requires foreign currency translation adjustments to be
included in other comprehensive loss. The only components of accumulated other
comprehensive loss for the Company are foreign currency translation adjustments resulting
from the translation of the financial statements of the Companys Canadian
subsidiary.

39

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|In thousands of dollars            | 2002 | 2001     | 2000
|---------------------------------- | ---- | -------- | ----
|Net loss                           |      | ($62,820 | )   
|Other comprehensive income (loss): |     
|Foreign currency translation       |      | 1,399    |     
|Comprehensive loss                 |      | ($61,421 | )   

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,
2002 were held at one institution and invested in a money market fund that invests in
short-term U.S. Government Securities. Accounts receivable are generally with distributors
such as Abbott Laboratories, Inc. (Abbott) (86% of total net revenues in
2002), FUSO Pharmaceutical Industries, Ltd. (FUSO), and Heska Corporation. The
Company provides credit to its customers on an unsecured basis after evaluating their
credit status.

Preferred Stock Dividends

The Company records dividends at
their fair market value. If the Series D Redeemable Convertible Preferred Stock (the
Series D Stock) dividend is paid in cash, the amount of cash paid is deemed to
be the fair value of the dividend. If the Series D Stock dividend is accrued and not paid
in cash, the fair value of the dividend is dependent upon the fair market value of the
Companys Common Stock when the dividend is declared at the end of each calendar
quarter. The Series D Stock and accrued dividends can be converted into Common Stock by
the holder at a fixed conversion price of $8.00 per share. In order to determine the fair
value of the dividend, the amount of the dividend to be accrued is divided by $8.00 per
share in order to determine the equivalent number of Common Shares. The equivalent number
of Common Shares is then multiplied by the fair market value, which is deemed to be the
closing price of the Common Stock on the date the dividend was declared, and the result is
the fair value of the dividend. Any difference in the actual dividend accrued and the fair
value of the dividend is recorded in additional paid-in capital.

Stock Based Compensation

The Company applies the provisions of
Accounting Principles Bulletin (APB) No. 25, Accounting for Stock Issued
to Employees when accounting for stock options and restricted stock issued to
employees and non-employee directors. In general, the Company issues stock options that do
not require the recognition of compensation expense as the awards are fixed for accounting
purposes and the exercise price of the option is equal to or greater than the fair market
value of the stock on the date of grant. However, if the exercise price of the stock
option is less than the fair market value of the stock, the Company will record
compensation expense for the intrinsic value of the option. The intrinsic value of the
option is calculated by the extent to which the fair market value of the underlying stock
exceeds the exercise price of the option on the measurement date. The measurement date is
usually equivalent to the grant date as the number of shares and price are fixed at that
time. The Company recognizes compensation expense from stock options and grants of
restricted stock when it is earned, which, in general, is ratably over the vesting period
of the stock option. The Company does issue stock options with acceleration provisions.
Acceleration of vesting can only occur if certain clearly defined and objective goals are
met. These stock options with accelerated vesting are treated as fixed awards in
accordance with APB 25 and FASB Interpretation No. 44.

Had compensation costs for the
Companys stock options been determined based on the fair value at the grant dates
for awards under those plans consistent with the method of SFAS No. 123, Accounting
for Stock Based Compensation, the Companys net loss and net loss per share
would have been increased to the pro forma amounts below:

|In thousands of dollars, except per share data     | 2002 | 2001     | 2000
|-------------------------------------------------- | ---- | -------- | ----
|Actual net loss available to Common Stockholders   |      | ($64,594 | )   
|Proforma compensation expense under SFAS 123       |      | ($ 4,502 | )   
|Proforma net loss available to Common Stockholders |      | ($69,096 | )   
|Actual basic and diluted net loss per share        |      | ($  3.22 | )   
|Pro forma basic and diluted net loss per share     |      | ($  3.44 | )   

In general, the Company does not
grant stock options to non-employees or to vendors in exchange for services. In addition,
the Company does not expense stock options as permitted under SFAS 123, Accounting
for Stock Based

40

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Compensation however it does disclose the proforma impact of SFAS
123 in the footnotes of the consolidated financial statements.

Research and Development
Expenses

The Company accounts for research and
development expenses in accordance with SFAS No. 2, Accounting for Research and
Development Costs and expenses all research and development expenses as they are
incurred. In addition, if the Company is contracted to perform research and development
activities on behalf of another party, the Company recognizes the reimbursement for those
activities as revenue in the period the activity is performed.

Reclassification

Certain reclassifications have been
made to 2000 and 2001 amounts to conform them to the 2002 presentation.

Recently Issued
Accounting Pronouncements

In May 2002, the Financial Accounting
Standards Board (FASB) issued SFAS No. 145, Rescission of SFAS No. 4, 44
and 64, Amendment of SFAS 13, and Technical Corrections as of April 2002. SFAS No.
145 is effective for fiscal years after May 15, 2002 and is effective for SFAS No. 13
transactions occurring after May 15, 2002. This statement rescinds SFAS No. 4 and, thus
the exception to applying Accounting Principles Board Opinion (APB) No. 30 to
all gains and losses related to extinguishments of debt. As a result, gains and losses
from extinguishments of debt are classified as extraordinary items only if they met the
criteria in APB No. 30. SFAS No. 64 previously amended SFAS No. 4 and is no longer
necessary. This statement also amends SFAS No. 13 to require sale-leaseback accounting for
certain lease modifications that have economic effects that are similar to sale-leaseback
transactions. This statement rescinds SFAS No. 44 and makes various technical corrections
to other existing pronouncements. The Company does not expect that the adoption of this
statement will have a material impact on its financial position or results of operations.

On July 29, 2002, the FASB issued
SFAS No. 146, Accounting for Costs Associated with Exit or Disposal
Activities. SFAS No. 146 is effective for exit or disposal activities that are
initiated after December 31, 2002. This statement addresses financial accounting and
reporting for costs associated with exit or disposal activities and nullifies Emerging
Issues Task Force (EITF) Issue No. 94-3. Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit an Activity (including
Certain Costs Incurred in Restructuring). This statement requires that a liability
for a cost associated with an exit or disposal activity be recognized when the liability
is incurred. Under EITF Issue 94-3, a liability for an exit cost as defined in EITF Issue
94-3 was recognized at the date of an entitys commitment to an exit plan. Therefore,
this statement eliminates the definition and requirements for recognition of exit costs in
EITF Issue 94-3. This statement also establishes that fair value is the objective for
initial measurement of the liability. The Company does not expect that the adoption of
this statement will have a material impact on its financial position or results of
operation.

In December 2002, the FASB issued
SFAS No. 148, Accounting for Stock-Based Compensation-Transition and
Disclosure. SFAS No. 148 amends SFAS No. 123 providing alternative methods of
transition for a voluntary change to the fair value based method of accounting for
stock-based employee compensation. SFAS No. 148 also amends the disclosure requirements of
SFAS No. 123 and requires additional disclosures in annual and interim financial
statements regarding the method of accounting for stock-based employee compensation and
the effect of the method used on financial results. The Company will continue to account
for stock-based compensation in accordance with Accounting Principles Bulleting No. 25
Accounting for Stock Issued to Employees and it will provide the additional
disclosures in its annual and interim financial statements.

2. Inventories

Inventories consist of the following:

|In thousands of dollars | December | 31,    
|----------------------- | -------- | -------
|
|Raw materials           |          | $ 4,356
|Work-in-process         |          | 3,920  
|Finished goods          |          | 6,233  
|                        |          | $14,509

41

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In the fourth quarter of 2001 the
Company recorded a charge of $1.7 million related to the write-off of certain cartridges
in inventory and the replacement of certain cartridges in the field that exhibited a
higher than usual quality check rejection rate. At December 31, 2001 finished goods
inventory is presented net of a reserve of approximately $1.0 million related to the
write-off of certain cartridges in inventory at year-end. In addition, a reserve of $0.6
million related to the replacement of certain cartridges in the field is recorded in
accrued expenses at December 31, 2001 (see Note 5). In the first quarter of 2002, the
Company recorded a charge of $1.6 million related to the write-off of certain cartridges
in inventory and the replacement of certain cartridges in the field that exhibited a
higher than usual quality check rejection rate (the entire $1.6 million relates to
inventory produced during the first quarter of 2002). This charge was in addition to a
charge of $1.7 million that was recorded in the fourth quarter of 2001 related to the same
quality check rejection rate issue.

3. Plant and Equipment

Plant and equipment, net, consists of
the following:

|In thousands of dollars                        | December | 31,      
|---------------------------------------------- | -------- | ---------
|                                               |          | 2002     
|Other equipment                                |          | $   8,886
|Manufacturing equipment                        |          | 30,319   
|Fixed assets projects in progress              |          | 2,199    
|Furniture and fixtures                         |          | 1,386    
|Leasehold improvements                         |          | 5,198    
|                                               |          | 47,988   
|Less accumulated depreciation and amortization |          | (36,130  
|                                               |          | $ 11,858 

Depreciation expense was
approximately $4.8 million, $5.1 million and $4.6 million for the years ended December 31,
2002, 2001 and 2000, respectively. Maintenance and repairs expense for the years ended
December 31, 2002, 2001 and 2000 was approximately $0.9 million, $0.9 million and $1.0
million, respectively.

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

During the fourth quarter of 2001,
the Company reviewed its plant and equipment assets and determined that a write-down of
$1.1 million was required for certain fixed assets, which were associated with certain
projects that had not been completed at the Companys Canadian facility, as lower
cost alternatives were found. This write-down reduced the carrying value of certain assets
down to their estimated fair values. The write-down is included in the Consolidated
Statement of Operations as a separate line item.

4. Intangible Assets

Intangible assets, net, consist of
the following:

|In thousands of dollars          | December | 31,     
|-------------------------------- | -------- | --------
|                                 |          | 2002    
|Patents, licenses and trademarks |          | $ 1,549 
|Less accumulated amortization    |          | (634    
|                                 |          | $    915

Amortization expense was
approximately $0.1 million, $0.2 million and $0.1 million for the years ended December 31,
2002, 2001 and 2000, respectively.

42

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During the third quarter of 2002, the
Company reassessed its patent and trademark strategies narrowing and focusing its
protected assets and the territories in which investments in patent prosecution and
trademark registration are pursued. As a result, the Company reviewed the valuation of its
intangible patent and trademark assets and determined that a write-down of $1.0 million
was required. The write-down is included in the Consolidated Statement of Operations as a
separate line item.

5. Accrued Expenses

Accrued expenses consist of the
following:

|In thousands of dollars                    | December | 31,   
|------------------------------------------ | -------- | ------
|                                           |          | 2002  
|Accrued employee incentive awards          |          | $1,326
|Compensated absences                       |          | 1,176 
|Cartridge replacement reserve (see Note 2) |          | --    
|Professional fees                          |          | 420   
|Accrued commissions                        |          | 193   
|Abbott cartridge volume benefit            |          | 673   
|Other                                      |          | 1,072 
|                                           |          | $4,860

6. Leasing Transactions

The Company leases two facilities as
part of its manufacturing facilities in Ontario, Canada. One facility, comprised of 53,802
square feet, has a lease that expires in 2010. The second facilitys lease, comprised
of 43,054 square feet, expires in February 2004, subject to, at the Companys option,
renewal for one five-year term. Rent expense for these facilities was approximately $0.7
million for each of the years ended December 31, 2002, 2001 and 2000.

The Company leases a 37,474 square
foot facility in East Windsor, New Jersey. The lease expires on December 31, 2008,
subject, at the Companys option, to one five-year option to renew. The Company also
leases 5,950 square feet of warehouse space in Jamesburg, New Jersey. The lease expires in
October 2003. Rent expense for these facilities was approximately $0.7 for each of the
years ended December 31, 2002, 2001 and 2000.

43

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As of December 31, 2002, future
minimum lease payments for the next five years are as follows:

|Year Ending December 31: In thousands of dollars | Operating Leases
|------------------------------------------------ | ----------------
|2003                                             | $ 1,380         
|2004                                             | 1,095           
|2005                                             | 1,042           
|2006                                             | 1,057           
|2007                                             | 1,076           

7. Preferred Stock and
Warrants

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 at the time of issuance.

Series A Junior
Participating Preferred Stock

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. 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. 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), including, without limitation, the right to vote
or to receive dividends.

Series C Redeemable
Convertible Preferred Stock and Warrants

In August 2001, the Company closed a
$34.1 million private placement with several institutional investors. The financing
consisted of 1,480,000 shares of Common Stock at $9.218 per share, 20,464 shares of Series
C Redeemable Convertible Preferred Stock with a stated value of $1,000 per share (the
Series C Stock) and six year warrants to purchase up to 1,295,000 shares of
Common Stock at $10.139 per share (the Series C Warrants). The Series C
Warrants are callable by the Company if the closing price of the Companys Common
Stock is greater than $16.50 for ten consecutive business days. If the Company calls the
Series C Warrants, then the Company must issue replacement warrants of equal quantity at a
strike price of $19.25 and with a term equal to the remaining term on the initial Series C
Warrants. The Company recorded the Series C Stock, Series C Warrants and the Common Stock
issued in the transaction at their net relative fair values of $18.8 million, $3.0 million
and $11.0 million, respectively, which were determined by an independent, third party
appraisal firm and were net of issuance expenses in the aggregate amount of $1.3 million.
The Series C Stock was accreted from its relative fair value on the date of issuance of
approximately $18.8 million to its redemption value on November 29, 2001 of approximately
$20.5 million. The resulting accretion of approximately $1.7 million is shown as Accretion
of Preferred Stock below the net loss in the Companys Consolidated Statements of
Operations. The Company incurred expenses of approximately $1.3 million related to the
transaction, which were allocated to the Common Stock, Series C Stock and Series C
warrants based on their relative fair values.

In addition, at the time of issuance
the Series C Stock was deemed to have a beneficial conversion feature because
the conversion price of the Series C Stock reflected a twelve percent discount to the fair
market value of the Common Stock. The beneficial conversion feature was calculated on
August 3, 2001, the commitment date, and was approximately $3.7 million. The beneficial
conversion feature was accreted into the Series C Stock from the date of issuance through
November 29, 2001.

In December 2001, the Company elected
to redeem all outstanding shares of Series C Stock at their face value, thus leaving no
Series C Stock outstanding. As a result of the redemption of the Series C Stock,
approximately $20.5 million was returned to the holders and Series C Warrants representing
555,000 shares of Common Stock were cancelled. In December 2001, as a result of the
issuance of the Series D Stock and pursuant to anti-dilution provisions, the Series C
Warrants were adjusted from 740,000 shares of Common Stock at a strike price of $10.139
per share, to 937,857.5 shares at a strike price of $8.00 per share. In addition, as a
result of the redemption of the Series C Stock, the accretion related to

44

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the beneficial conversion feature of $3.7 million was reversed. Thus, the 2001
Companys Consolidated Statements of Operations does not include any accretion
related to the beneficial conversion feature.

Series D Redeemable
Convertible Preferred Stock and Warrants

In December 2001, the Company closed
a $30.0 million private placement with affiliates of Cerberus Capital Management, L.P.
(collectively Cerberus). The financing consisted of 30,000 shares of Series D
Stock with a stated value of $1,000 per share and an 8% preferential dividend and six year
warrants to purchase up to 937,500 shares of Common Stock at $8.00 per share (the
Series D Warrants). The Series D Stock is mandatorily redeemable in December
2011 and may be redeemed by the Company any time after December 2007. The Series D Stock
may be converted into Common Stock at the holders option at a conversion price of
$8.00 per share of Common Stock, subject to certain ownership level restrictions. No
holder of the Series D Stock and Series D Warrants may convert or exercise its securities
into shares of the Companys Common Stock if after the conversion, such holder,
together with any of its affiliates, would beneficially own over the ownership limitation
percentage set by the Company, initially 14.99%. Under certain circumstances, the
restrictions for Cerberus may be eased so that it will be entitled to convert or exercise
its securities into shares of Common Stock if after the conversion it, together with any
of its affiliates, do not beneficially own in excess of 34.00% of the outstanding shares
of the Companys Common Stock. Absent these limitations, Cerberus current
ownership would represent the right to acquire approximately 27.76% of the outstanding
voting securities of the Company at December 31, 2002. These limitations do not prevent
the holders from acquiring and selling shares of the Companys Common Stock. Cerberus
is entitled to appoint one person to the Companys Board of Directors for so long as
it holds 10% of the outstanding securities of the Company on a fully diluted basis.

The Company recorded the Series D
Stock and the Series D Warrants issued in the transaction at their net relative fair
values of $25.2 million and $2.5 million, respectively, which were determined by an
independent, third party appraisal firm and were net of issuance expenses in the aggregate
amount of $2.3 million. The Series D Stock is being accreted over a period of ten years
from its relative fair value on the date of issuance of approximately $25.2 million to its
stated value of $30.0 million. The resulting accretion of $0.4 million and $0.036 million
is shown below net loss in the Consolidated Statements of Operations for the years ended
December 31, 2002 and 2001, respectively. The Company incurred issuance expenses of
approximately $2.3 million related to the transaction, which were allocated to the Series
D Stock and Series D Warrants based on their relative fair values.

The holders of the Series D Stock are
entitled to receive a cumulative dividend of 8% of the liquidation preference, payable
quarterly. The dividends may be paid in cash, or accrue and be added to the liquidation
preference, becoming payable in cash upon redemption or payable in Common Stock upon
conversion. During the periods that the Common Stock trades at or above $15.00 per share
for 45 consecutive trading days, the dividend rate will be reduced to 2%, and if during
subsequent periods the Common Stock trades below $10.00 per share for 45 consecutive
trading days, the dividend rate will adjust back to 8%. A dividend of approximately $1.3
million and $0.1 million was recorded at its fair value for the years ending December 2002
and December 2001, respectively, and has been accrued and is shown in the Consolidated
Statement of Operations below the net loss.

The value of the Series D Stock
presented in the Consolidated Balance Sheets of approximately $28.2 million and $25.3
million at December 31, 2002 and 2001, respectively, is comprised of its initial net
relative fair value of approximately $25.2 million, plus accretion of $0.4 million and
$0.036 million, plus the accrued and unpaid dividends of approximately $2.6 million and
$0.1 million at December 31, 2002 and 2001, respectively.

The liquidation preference amount of
the Series D Stock is approximately $32.6 and $30.1 million at December 31, 2002 and 2001,
respectively, comprised of the stated value of $30.0 million plus accrued and unpaid
dividends of approximately $2.6 million and $0.1 million, and the Series D Stock is
convertible into approximately 3.767 million shares of Common Stock at a conversion price
of $8.00 per share of Common Stock.

8.    Stock Options and Restricted Stock

Option Program Description

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. Most
options are granted under the 1985 Stock Option Plan or Equity Incentive Plan ("the Plans"). Both Plans have been approved by the Company's stockholders. The maximum number of issuable shares of
Common Stock under the Plans is 7,300,000 of which 1,395,224 are available for grant at December 31, 2002.

45

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Options under the 1985 Stock Option Plan can be granted until November 26,
2005, and options under the Equity Incentive Plan can be granted until March 31, 2008. The exercise price of an option is based upon the fair market value of the Company's Common Stock at the
time of the grant, as determined by utilizing the closing price of the Company's Common Stock on the day prior to the date of grant. In general, the Company issues stock options that vest annually
over a period of at least three years but not longer than five years. In addition, the Company has in the past, and may in the future, issue stock options with performance-based acceleration
provisions. Acceleration of vesting can only occur if certain clearly defined and objective goals are met. These stock options with accelerated vesting are treated as fixed awards in accordance with
APB 25 and FASB Interpretation No. 44. Unexercised options issued under the Plans expire ten years from the date of grant or three months following termination of the optionee's employment,
whichever occurs first.

General Option Information

The table below is a summary of stock option activity for the years 2000, 2001, and 2002.

|                                 |  | Options   |  | Option
Activity |   | Weighted
Average
Exercise Price
per Share |       | Weighted
Average
Black-Scholes
Value per Option
|-------------------------------- |  | --------- |  | --------------- | - | ----------------------------------------- | ----- | -----------------------------------------------
|Outstanding at December 31, 1999 |  | 2,859,497 |  |                 |   | $                                         | 11.45 |                                                
|Exercisable at December 31, 1999 |  | 1,349,002 |  |                 |   | $                                         | 12.19 |                                                
|2000 Activity:                   |  |           |  |                 |   |                                           |       |                                                
|Options granted                  |  |           |  | 474,047         |   | $                                         | 13.16 |                                                
|Options exercised                |  |           |  | (526,066        | ) | $                                         | 8.33  |                                                
|Options forfeited                |  |           |  | (204,791        | ) | $                                         | 13.61 |                                                
|Options expired                  |  |           |  | (22,001         | ) | $                                         | 20.64 |                                                
|Outstanding at December 31, 2000 |  | 2,580,686 |  |                 |   | $                                         | 12.15 |                                                
|Exercisable at December 31, 2000 |  | 1,167,008 |  |                 |   | $                                         | 12.49 |                                                
|2001 Activity:                   |  |           |  |                 |   |                                           |       |                                                
|Options granted                  |  |           |  | 222,242         |   | $                                         | 19.52 |                                                
|Options exercised                |  |           |  | (181,728        | ) | $                                         | 11.52 |                                                
|Options forfeited                |  |           |  | (120,618        | ) | $                                         | 15.67 |                                                
|Options expired                  |  |           |  | (114,745        | ) | $                                         | 11.60 |                                                
|Outstanding at December 31, 2001 |  | 2,385,837 |  |                 |   | $                                         | 12.73 |                                                
|Exercisable at December 31, 2001 |  | 1,330,620 |  |                 |   | $                                         | 11.96 |                                                
|2002 Activity:                   |  |           |  |                 |   |                                           |       |                                                
|Options granted                  |  |           |  | 1,988,624       |   | $                                         | 4.96  | *                                              
|Options exercised                |  |           |  | (14,200         | ) | $                                         | 6.13  |                                                
|Options forfeited                |  |           |  | (106,133        | ) | $                                         | 10.12 |                                                
|Options expired                  |  |           |  | (32,100         | ) | $                                         | 10.23 |                                                
|Outstanding at December 31, 2002 |  | 4,222,028 |  |                 |   | $                                         | 9.18  |                                                
|Exercisable at December 31, 2002 |  | 1,592,672 |  |                 |   | $                                         | 11.97 |                                                

*
The weighted average exercise price of $4.96 exceeded the weighted average fair market value of the underlying stock on the dates of grants because 150,000 options were granted with an
exercise price in excess of the fair market value.

The
weighted average remaining contractual lives of outstanding options at December 31, 2002 was approximately 7.26 years.

46

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The
following table summarizes information about stock option grants made during 2002, 2001 and 2000:

|                                 |  | 2002    |  | 2001      |  | 2000     
|-------------------------------- |  | ------- |  | --------- |  | ---------
|
|Annual Incentive Program2        |  | 68,460  |  | 234,462   |  | 302,922  
|Long-term Incentive Program3     |  | 110,976 |  | 369,702   |  | 480,678  
|Strategic Incentive Program4     |  | 460,000 |  | 405,000   |  | 865,000  
|Restoration5                     |  | 167,000 |  |          |  | 167,000  
|New Hire6                        |  | 65,000  |  | 55,000    |  | 120,000  
|Election to the Board and Other7 |  | 41,024  |  | 12,000    |  | 53,024   
|Total                            |  | 912,460 |  | 1,076,164 |  | 1,988,624

---

47

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The following table summarizes information about stock options outstanding at December 31, 2002.

|                          |               | Options Outstanding |           | Options Exercisable
|------------------------- | ------------- | ------------------- | --------- | -------------------
|
|In the Money Options (1): |               |                     |           |                    
|                          | $2.24$3.75   |                     | 936,000   |                    
|Out of the Money Options: |               |                     |           |                    
|                          | $4.41$6.44   |                     | 1,212,177 |                    
|                          | $7.89$10.81  |                     | 859,742   |                    
|                          | $11.81$17.96 |                     | 900,236   |                    
|                          | $21.00$32.58 |                     | 313,873   |                    
|                          |               |                     |           |                    
|                          | $2.24$32.58  |                     | 4,222,028 |                    
|                          |               |                     |           |                    

---

Distribution and Dilutive Effect of Options

The following table summarizes all option activity for the stated annual period:

2002

2001

2000Grants during the period as % of outstanding shares

9.87
%
1.11
%
2.57
%Grants to executive officers* during the period as % of total options granted (%)

43.82
%
18.22
%
0.00
%Grants to executive officers* during the period as % of outstanding shares(%)

4.13
%
0.16
%
0.00
%Cumulative options held by executive officers* as % of total options outstanding (%)

38.91
%
35.19
%
36.59
%


---

48

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Options Granted to Executive Officers

The following table details option grants to executive officers during 2002:

|                   |  |  |         |  |      |   |   |             |  | Potential Realizable
Value at
Assumed Annual
Rates of Stock
Price Appreciation
for Option Term ($)
|------------------ |  |  | ------- |  | ---- | - | - | ----------- |  | --------------------------------------------------------------------------------------------------
|
|
|
|
|William P. Moffitt |  |  | 71,798  |  | 3.61 | % | $ | 6.44/Share  |  |                                                                                                   
|                   |  |  | 150,000 |  | 7.54 | % | $ | 10.00/Share |  |                                                                                                   
|                   |  |  | 160,000 |  | 8.05 | % | $ | 2.89/Share  |  |                                                                                                   
|Bruce F. Basarab   |  |  | 120,000 |  | 6.03 | % | $ | 2.80/Share  |  |                                                                                                   
|Noah Kroloff       |  |  | 27,387  |  | 1.38 | % | $ | 6.44/Share  |  |                                                                                                   
|                   |  |  | 50,000  |  | 2.51 | % | $ | 2.89/Share  |  |                                                                                                   
|Lorin J. Randall   |  |  | 25,000  |  | 1.26 | % | $ | 5.08/Share  |  |                                                                                                   
|                   |  |  | 60,000  |  | 3.02 | % | $ | 2.89/Share  |  |                                                                                                   
|Michael Zelin      |  |  | 41,878  |  | 2.11 | % | $ | 6.44/Share  |  |                                                                                                   
|                   |  |  | 17,000  |  | 0.85 | % | $ | 5.08/Share  |  |                                                                                                   
|                   |  |  | 110,000 |  | 5.53 | % | $ | 2.89/Share  |  |                                                                                                   

The
following table details option exercises during 2002 and remaining holdings of executive officers:

|                      |  |   |  |   |  | Number of Securities
Underlying Unexercised
Options at December 
31, 2002 (#) |  | Values of Unexercised
In-the-Money Options
at December 31,
2002 ($)
|--------------------- |  | - |  | - |  | ----------------------------------------------------------------------------- |  | -------------------------------------------------------------------
|
|
|
|William P. Moffitt(1) |  |  |  |  |  | 177,748                                                                       |  | 626,311                                                            
|Bruce F. Basarab      |  |  |  |  |  |                                                                              |  | 120,000                                                            
|Noah Kroloff          |  |  |  |  |  | 131,451                                                                       |  | 90,464                                                             
|Lorin J. Randall      |  |  |  |  |  |                                                                              |  | 85,000                                                             
|Michael Zelin2        |  |  |  |  |  | 196,207                                                                       |  | 215,556                                                            

Subsequent Option Forfeitures

---

Proforma Financial
Information

The Company applies the provisions of
APB Opinion No. 25 (APB 25) and related Interpretations in accounting for its
stock based compensation plans. Accordingly, compensation expense has been recognized in
the financial statements in respect to the above plans to the extent 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 SFAS 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:

49

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|In thousands of dollars, except per share data     | 2002      | 2001      | 2000     
|-------------------------------------------------- | --------- | --------- | ---------
|Actual net loss available to Common Stockholders   | ($64,594) | ($25,087) | ($7,495) 
|Proforma compensation expense under SFAS 123       | ($4,502)  | ($4,608)  | ($4,419) 
|Proforma net loss available to Common Stockholders | ($69,096) | ($29,695) | ($11,914)
|Actual basic and diluted net loss per share        | ($3.22)   | ($1.33)   | ($0.43)  
|Pro forma basic and diluted net loss per share     | ($3.44)   | ($1.57)   | ($0.68)  

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 approximately
$4.5 million, $4.6 million and $4.4 million for 2002, 2001 and 2000, 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:

|                        | 2002 | 2001  | 2000
|----------------------- | ---- | ----- | ----
|Dividend yield          |      | 0     | %   
|Expected volatility     |      | 64    | .76%
|Risk free interest rate |      | 3     | .85%
|Expected option lives   |      | 6 yea | rs  

Restricted Stock
Transactions

On February 5, 1999, the Board of
Directors awarded 310,000 shares of restricted Common Stock to four executive officers of
the Company. The restricted Common Stock had a fair value at the date of grant of
approximately $2.8 million. The fair value was determined by utilizing the closing price
of the Companys Common Stock on the day prior to the date of grant. One executive
officer was awarded 250,000 shares of restricted Common Stock, 50,000 shares of which
immediately vested on February 5, 1999, and 200,000 shares of which vested on February 5,
2002. The remaining 60,000 shares were awarded to the other three executive officers and
vested over a three-year period.

On June 30, 1999, in connection with
the award of 250,000 shares to one executive officer, the Company loaned the executive
officer approximately $0.7 million to pay withholding taxes. The promissory note carries
an interest rate of 5.37%, payable annually, and the principal amount of the loan is
repayable in April 2003. In April 2000, a second promissory note of approximately $0.3
million was issued. The second promissory note carries an interest rate of 6.36%, payable
annually. One third of the principal amount of these loans will be forgiven each April
through 2003 if the executive officer remains in the employment of the Company. The
Company will also make a tax gross-up payment to the executive officer in
connection with any taxes that may be due as result of the forgiveness of these loans.

On May 30, 2002, the Board of
Directors awarded 10,000 shares of restricted Common Stock to one executive officer of the
Company. The restricted Common Stock had a fair value at the date of grant of
approximately $0.1 million. The fair value was determined by utilizing the closing price
of the Companys Common Stock on the day prior to the date of grant. The 10,000
shares immediately vested on May 30, 2002.

Compensation expense in the amount of
approximately $0.7 million, $1.3 million and $1.2 million was recorded in connection with
these awards, the loan forgiveness and the associated tax gross-up payment during the
years ended December 31, 2002, 2001 and 2000, respectively.

During 2002, 2001 and 2000, 26,244,
10,751 and 10,256 shares of restricted Common Stock were awarded to outside directors as
part of their annual compensation. The restricted Common Stock grants had fair values of
approximately $0.1 million in each of 2002, 2001 and 2000 at their respective dates of
grant, as determined by utilizing the closing price of the Companys Common Stock on
the day prior to the dates of grant. The fair value of each grant was recorded as
compensation expense in its respective year of grant.

The Company has a restricted stock
plan whereby the Company can award shares of Common Stock to employees, other than its
executive officers. The sale or transfer of the shares is limited during the restricted
period, not exceeding four years. For the years ended December 31, 2002, 2001 and 2000, no
shares of restricted Common Stock were awarded.

50

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9. Development, Distribution and Manufacturing Rights Agreements

In August 1988,
          the Company entered into development, distribution and instrument manufacturing
          license agreements with FUSO Pharmaceutical Industries, Ltd. (FUSO).
          In January 2003, the Company and FUSO entered into a new Distribution Agreement
          (the FUSO Distribution Agreement). The FUSO Distribution Agreement
          extends FUSOs current non-exclusive distribution rights in Japan through
          December 31, 2003 and grants exclusive distribution rights in Japan from January
          1, 2004 through December 31, 2008, subject to FUSO meeting certain sales
          milestones. During the first quarter of 2003, FUSO paid $2.0 million for
          marketing support throughout the exclusive term of the FUSO Distribution
          Agreement. In addition, FUSO is expected to pay an additional $11.0 million in
          October 2003 as a prepayment that will be offset against future purchases of
          cartridges. Total sales under these agreements were $4.8 million, $5.7 million
          and $5.2 million for the years ended December 31, 2002, 2001 and 2000,
          respectively, including deferred revenue of $0.1 million in 2001 and 2000. The
          Company also has other current and terminated license and distribution
          agreements, including agreements with HP and Abbott (see Notes 10 & 11).

10. Related Party
Transactions

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

|Abbott Laboratories  In thousands of dollars | 2002 | 2001       | 2000
|-------------------------------------------- | ---- | ---------- | ----
|Revenues                                     |      | $51,505    |     
|Receivable (payable) at year end             |      | $  7,070   |     
|Deferred revenue at year end                 |      | $       30 |     
|Other liabilities                            |      | $57,019    |     



|Hewlett-Packard Company  In thousands of dollars | 2000
|------------------------------------------------ | ----
|Revenues                                         |     
|Purchases                                        |     

HP assigned its license agreement
with the Company and its holding of Series B Stock to Agilent. On March 16, 2000,
Agilent converted its holding of 2,138,702 shares of Series B Stock into 2,138,702 shares
of Common Stock and sold its holding to two financial institutions and is no longer a
related party.

11. Alliance with Abbott
Laboratories

In August 1998, the Company and
Abbott entered into a Marketing and Distribution Agreement (the Abbott Distribution
Agreement). In addition to the Abbott Distribution Agreement, the Company and Abbott
also entered into a Funded Research & Development Agreement (the Abbott Research
Agreement), a Common Stock Purchase Agreement, a Standstill Agreement and a
Registration Rights Agreement (collectively known as the Abbott Alliance
Agreements). Distribution under the Abbott Distribution Agreement commenced in the
United States on November 1, 1998. A subsequent international rollout commenced in various
countries during the second half of 1999. As a result of the Abbott Distribution
Agreement, the majority of the Companys revenues are now derived from Abbott. The
primary objective of the Abbott Alliance Agreements was to strengthen the Companys
product marketing and distribution capability and accelerate the development of new
products.

Under the Abbott Distribution
Agreement, Abbott has become, subject to certain pre-existing rights of the Companys
other international distributors, the exclusive worldwide distributor of the
Companys existing products and any new products the Company may develop for use in
the professionally attended human healthcare delivery market during the term of the Abbott
Distribution Agreement. Abbott has assumed the Companys product sales to U.S.
customers that were in place as of the inception of the Abbott Distribution Agreement (the
Base Business) at no profit to Abbott, and



51

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the Company and Abbott share in the incremental profits derived from product sales beyond the Base Business. Abbott agreed to
prepay to the Company a total of $25.0 million during the first three years of the Abbott
Distribution Agreement against future incremental product sales. Such prepayments were
applied as incremental cartridges were sold to Abbott over the first three years of the
Agreement. Prepayments in amounts of $5.0 million, $4.0 million, $10.8 million and $5.2
million were received in September 1998, January 1999, January 2000 and January 2001,
respectively. The remaining balance relating to these prepayments in the amount of approximately $5.0
million is included in Related party liability, current at December 31, 2002
and approximately $0.6 million is included in Deferred revenues, current at December 31,
2001.

On July 25, 2002, the Company
announced its decision to allow the Abbott Distribution Agreement to expire effective
December 31, 2003. As a result, the Company is obligated to make the following payments to
Abbott on the dates noted: (a) on December 31, 2003, a $5.0 million one-time termination
fee, (b) on December 31, 2003, approximately $5.0 million representing the unrecognized
portion of a $25.0 million prepayment received from Abbott, (c) early in 2004,
approximately $2.0 million to repurchase inventory and equipment from Abbott, and (d) on
December 31, 2004, and on each December 31 thereafter through 2008, for a total of five
unequal residual payments based upon Abbotts net sales of the Companys
products during 2003, approximately $47.0 million in the aggregate. The Company recognized
the $5.0 million one-time termination fee and the $47.0 million in estimated residual
payments as expense in the third quarter of 2002. Since the Abbott residual payments are
based on Abbotts actual net sales during 2003, the estimated liability for these
residual payments is subject to change as the actual net sales become known. These charges
had a material impact on the Companys results of operations and these payments will
have a material impact on the Companys future cash flows. The Company has begun to
take actions to assume primary responsibility for the marketing and sale of its products,
effective January 1, 2004. These actions have included hiring additional sales personnel,
a vice president of medical affairs and an executive vice president of commercial
operations.

Under the terms of the Abbott
Research Agreement, the Company is required to conduct research and develop products
primarily to be commercialized by Abbott. Such research and development is to be funded by
Abbott and Abbott will have exclusive worldwide commercialization rights to the products
developed under the Abbott Research Agreement subject to certain limitations. The Company
and Abbott jointly own the intellectual property that is developed during the course of
work performed under the Abbott Research Agreement. In connection with this agreement,
reimbursements from Abbott of $2.7 million are included in net revenues in 2000. There
were no research and development reimbursements from Abbott in 2002 and 2001 and Abbott is
not currently funding any of the Companys research and development programs. The
Abbott Research Agreement terminates upon expiration or termination of the Abbott
Distribution Agreement, unless earlier terminated as provided therein. Upon such
expiration or earlier termination, both the Company and Abbott will be permitted to
distribute the products developed under the Abbott Research Agreement in the territory
covered by the Abbott Distribution Agreement. The only program that has been, or is
anticipated to be, funded by Abbott during the term of the Abbott Research Agreement was
the development of certain aspects of the i-STAT 1 Analyzer, specifically the mechanism
that allows the MediSense ® glucose test strips to be read. Abbott will
retain certain rights to this mechanism following expiration of the Abbott Alliance
Agreements. Abbott will retain no other rights to any other products, product components,
intellectual property, designs or trade secrets of the Company after expiration of the
Abbott Alliance Agreements.

In 1998, under the Common Stock
Purchase Agreement with Abbott, Abbott purchased 2,000,000 shares (the Purchased
Shares) of the Companys Common Stock, at a price of $11.35 per share,
resulting in net proceeds of $20.6 million. The Common Stock Purchase Agreement, together
with the Registration Rights Agreement, contains certain terms and conditions pertaining
to the voting and sale of the Purchased Shares. Abbott may not sell more than 200,000
shares of the Companys Common Stock during any three-month period and, when selling
the Companys Common Stock, must use its best efforts to sell the stock to as wide a
distribution as reasonably practicable so as to prevent any one buyer from acquiring more
than 5% ownership in the Company. The Standstill Agreement provides for limitations on
Abbotts ability to purchase the Companys Common Stock, or to propose any
merger or business combination with the Company or purchase of a material portion of the
Companys assets for a period of one year following the termination of the initial
term of the Abbott Distribution Agreement. Therefore, the Standstill Agreement will remain
in force until December 31, 2004.

52

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12. Income Taxes

The difference between income tax
expense and the expected tax that results from the use of the Federal Statutory income tax
rate is as follows:

|                                                         | 2002 | 2001 | 2000
|-------------------------------------------------------- | ---- | ---- | ----
|Computed tax at statutory Federal rate                   |      | (34  | .0%)
|State income taxes, net of Federal benefits              |      | (0   | .7%)
|Foreign (income)/loss not subject to   United States tax |      | 0    | .7% 
|Change in valuation allowance                            |      | 31   | .8% 
|Other                                                    |      | 1    | .1% 
|Income tax (benefit)/expense                             |      | (1   | .1%)

In 2002, 2001 and 2000, the New
Jersey Economic Development Authority approved the Companys application to sell New
Jersey State income tax benefits under the New Jersey Technology Tax Transfer Program (the
Program). During the fourth quarter of 2002, 2001 and 2000, the Company
recognized $0.7 million, $1.1 million and $0.9 million, respectively, from the sales of
State of New Jersey income tax benefits. The Program requires that the Company maintain
certain employment levels in New Jersey and that the proceeds from the sale of the tax
benefits be spent in New Jersey. At December 31, 2002, the Company had net operating loss
carryforwards of approximately $88.0 million for New Jersey income tax purposes, which
expire in varying amounts through 2009.

At December 31, 2002, the Company had
net operating loss carryforwards of approximately $189.5 million for United States Federal
income tax purposes, which expire in varying amounts through 2022. The Company also has
unused research and development tax credits of approximately $1.7 million for United
States Federal income tax purposes which expire in varying amounts through 2022. The
timing and manner in which the United States Federal operating loss carryforwards and
credits are utilized in any year by the Company may be limited by Internal Revenue Code
Section 382.

The Company has unused Canadian and
Ontario provincial capital loss on research and development expense carryforwards of
approximately $18.8 million and $14.9 million, respectively, which have an unlimited life.
Additionally, the Company has unused Canadian investment tax credits of approximately $2.4
million which expire in varying amounts through 2012.

The Company accounts for income taxes
in accordance with the provisions of SFAS No. 109. SFAS No. 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 assets due to the uncertainty of
realization. The increase in the valuation allowance for the years ended December 31, 2002
and 2001 was approximately $22.9 million and $8.0 million, respectively.

53

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Temporary differences and
carryforwards, which give rise to the deferred tax assets and liabilities at December 31,
2002 and 2001, are as follows:

|                                                           | 2002 | 2001         
|---------------------------------------------------------- | ---- | -------------
|
|
|Net Operating Loss--United States                          |      | $   64,442   
|Net Operating Loss--Canada                                 |      | 3,277        
|Net Operating Loss--Province (Canada)                      |      | 1,279        
|State Taxes                                                |      | 14,084       
|Deferred Revenue                                           |      | 1,719        
|Accrued Abbott Distribution Agreement Termination Payments |      | 17,680       
|Tax Credits--United States                                 |      | 1,706        
|Tax Credits--Canada                                        |      | 2,388        
|Intangibles                                                |      | 587          
|Depreciation--United States                                |      | (66          
|Depreciation--Canada                                       |      | 592          
|Depreciation--Province (Canada)                            |      | 410          
|Capital Loss - Canada                                      |      | 118          
|Capital Loss - Province (Canada)                           |      | 59           
|Foreign Exchange Loss on Capital- Canada                   |      | 321          
|Foreign Exchange Loss on Capital - Province (Canada)       |      | 159          
|Other - United States                                      |      | 1,560        
|Other - Canada                                             |      | 248          
|Other - Province (Canada)                                  |      | 124          
|                                                           |      | 110,687      
|Valuation Allowance--United States                         |      | (87,628      
|Valuation Allowance--Canada                                |      | (6,944       
|Valuation Allowance--Province (Canada)                     |      | (2,031       
|Valuation Allowance--State                                 |      | (14,084      
|Total Net Deferred Taxes                                   |      | $          --

Given that significant uncertainty
exists regarding the realizability of the Companys deferred tax assets, a full
valuation allowance is recorded.

13. Savings and
Investment Retirement Plan

The Company has a defined
contribution savings and investment retirement plan under section 401(k) of the Internal
Revenue Code, as amended, whereby substantially all U.S. employees are eligible to
participate, (U.S. Plan), and a deferred profit sharing plan for substantially
all Canadian employees. The Company makes matching cash contributions to these plans, and
as a result, compensation expense in the amount of approximately $0.1 million, $0.2
million and $0.1 million was recorded for the years ended December 31, 2002, 2001 and
2000, respectively. The trustee for the U.S. Plan is Fidelity Management Trust Company,
which is affiliated with a stockholder of the Company.

14. Commitments and
Contingencies

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

54

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into a license agreement and a settlement agreement under which the Company agreed to pay Nova $10.5 million, which was
recorded as a charge in the second quarter of 2001. Pursuant to the agreements, $6.5
million was paid on July 26, 2001, a retroactive royalty of $0.5 million was paid on
August 14, 2001 for the period of January 1, 2001 through June 30, 2001, and $3.5 million
plus interest was due to be paid over one year in equal quarterly installments, pursuant
to a secured promissory note. The promissory note was prepaid on August 3, 2001. The
license agreement provides for the payment to Nova of a royalty equal to 4% of the invoice
price of products sold in the United States after January 1, 2001, which products
determine hematocrit levels according to any method used by the Company prior to December
31, 2000, as well as any method covered by the Patent. The royalties are payable through
the life of the Patent (July 22, 2005). On February 28, 2002, Nova filed a demand for
arbitration claiming that the method by which the products sold by the Company since July
1, 2001 determine hematocrit are covered under the Patent and the license agreement. In
December 2002, the arbitration of Novas claim was decided in favor of the Company.
The Companys current method of determining hematocrit was found not to be covered
under the license to Novas Patent, and therefore i-STAT is not required to pay any
royalties under the license agreement. This arbitration is final, binding and not
appealable.

The Company was 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, alleged infringement by i-STAT of Customedixs U.S.
Patent No. 4,342,964. The plaintiff sought injunctive relief and an accounting for
i-STATs profits and the damages to Customedix from such alleged infringement. The
Company was prepared to contest the case vigorously, did not believe that it had infringed
the Customedix patent and had obtained an opinion from recognized patent counsel to the
effect that no infringement had occurred. However, management concluded that the
uncertainty inherent in any litigation as well as the drain on managements time and
the Companys resources merited an out-of-court resolution of this lawsuit.
Accordingly, on June 14, 2000, the Company entered into a settlement agreement under which
the Company paid the plaintiff $1.5 million and the plaintiff agreed to permanently
withdraw the complaint and to release the Company from any and all claims of whatsoever
nature that the plaintiff may have had against the Company, whether under the referenced
Patent or otherwise. A charge in the amount of $1.5 million was recorded in the second
quarter of 2000 in connection with the settlement of this litigation.

The Company and Abbott are in
disagreement over the amount of money Abbott is entitled to for the sharing of certain
cartridge production cost savings resulting from increases in the volume of cartridges
sold during the term of the Abbott Distribution Agreement. This disputed item relates to
different interpretations of certain terms of the Abbott Distribution Agreement.
Additionally, the Company and Abbott are in disagreement over the amount of money the
Company is entitled to for the development, production, maintenance and support of certain
software products sold by Abbott during the term of the Abbott Distribution Agreement. If
these disagreements are not resolved amicably, the Abbott Distribution Agreement states
that they must be resolved through binding arbitration. Management of the Company believes
that Abbotts position on both of these issues in dispute are without merit and that,
in the event that these issues are resolved through arbitration, the Company will not
incur any additional liability to Abbott. The disagreement regarding the sharing of
certain cartridge production cost savings resulting from an increase in sales volume over
the past three years is approximately $1.2 million at December 31, 2002, and if this
matter is resolved in favor of Abbott, which management of the Company believes is
unlikely, the Companys cost of goods sold would increase by up to the amount in
dispute. The disagreement regarding payment for the development, production, maintenance
and support of certain software sold by Abbott over the past three years is approximately
$0.8 million at December 31, 2002, and if this matter is resolved in favor of the Company,
the Companys cost of goods sold would decrease by up to the amount in dispute. Such
adjustments would be made when, and if, it is determined that an unfavorable outcome to
the Company is probable or, in the case of a payment of the disputed amounts by Abbott,
when payment is received by the Company.

55

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15. Geographic Segment
Data

The Company is engaged in the
development, manufacturing, marketing and sale of its proprietary blood analysis products
in the health care sector. The Companys operations are classified into the following
geographic areas:

|In thousands of dollars |  | Year Ended December 31, | 
|----------------------- |  | ----------------------- | 
|                        |  | 2002                    | 
|Net revenues:           | 
|United States           |  | $44,817                 | 
|Canada                  |  | 308                     | 
|Japan                   |  | 5,414                   | 
|Other International     |  | 9,392                   | 
|Total                   |  | $59,931                 | 

|In thousands of dollars | Year Ended December 31, |         
|----------------------- | ----------------------- | --------
|                        |                         | 2002    
|Long-lived assets:      |                        
|United States           |                         | $  2,153
|Canada                  |                         | 10,685  
|Total                   |                         | $12,838 

The Companys total net revenues
from Abbott were approximately $51.5 million, $49.6 million and $45.9 million for the
years ended December 31, 2002, 2001 and 2000, respectively.

56

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16. Quarterly Financial Information (unaudited)

|2002                                      |  |  |   |           
|----------------------------------------- |  |  | - | ----------
|
|
|Net revenues                              |  |  | $ | 14,400    
|Operating loss                            |  |  |   | ($3,941   
|Net loss available to Common Stockholders |  |  |   | ($4,413   
|Basic and diluted net loss per share      |  |  |   | ($0.22    
|Weighted average shares used in computing |  | 
|basic and diluted net loss per share      |  | 
|available to Common Stockholders          |  |  |   | 19,980,887

|2001                                      |  |  |   |           
|----------------------------------------- |  |  | - | ----------
|
|
|Net revenues                              |  |  | $ | 12,328    
|Operating loss                            |  |  |   | ($4,129   
|Net income (loss)                         |  |  |   | ($3,826   
|Basic and diluted net loss per share      |  |  |   | ($0.21    
|Weighted average shares used in computing |  | 
|basic and diluted net loss per share      |  | 
|available to common stockholders          |  |  |   | 18,232,494

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.

1Operating loss and Net loss
available to Common Stockholders for the third quarter of 2002 includes (a) a $52.0
million charge related to the Abbott Distribution Agreement termination fees, (b) a $1.2
million charge related to the write-down of certain production assets and (c) a $1.0
million charge related to the write-down of certain intangible assets.

2Net loss available to Common
Stockholders for the third quarter of 2001 includes a $1.8 million charge for accretion of
the beneficial conversion feature related to the Series C Stock. This accretion was
reversed in the fourth quarter of 2001 as a result of the redemption of all outstanding
shares of Series C Stock. Thus, the fourth quarter of 2001 includes a benefit of $1.8
million related to this reversal.

3Net loss available to Common
Stockholders and basic and diluted net loss per share amounts are $0.4 million and $0.02,
respectively, greater than the amounts originally reported in the Companys Form 10-Q
for the quarter ended September 30, 2001 because of additional accretion associated with
financing costs allocated to the Series C Stock.

4Operating loss and Net loss
available to Common Stockholders for the fourth quarter of 2001 includes a $1.1 million
charge related to the write-down of certain production assets

57

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REPORT OF INDEPENDENT
ACCOUNTANTS ON

FINANCIAL STATEMENT
SCHEDULE

To the Board of Directors of i-STAT
Corporation:

Our audits of the consolidated
financial statements referred to in our report dated February 5, 2003 appearing in this
2002 Annual Report on Form 10-K also included an audit of the financial statement schedule
listed in Item 14(a)(2) of this Form 10-K. In our opinion, this financial statement
schedule presents fairly, in all material respects, the information set forth therein when
read in conjunction with the related consolidated financial statements.

PricewaterhouseCoopers LLP
Florham Park, New Jersey February 5, 2003

58

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Schedule II

i-STAT CORPORATIONVALUATION AND
QUALIFYING ACCOUNTS

|                                      | Balance at | Charged to | Charged to |        | Balance at
|------------------------------------- | ---------- | ---------- | ---------- | ------ | ----------
|
|
|
|
|For the year ended December 31, 2002: |            |            |            |        |           
|Reserve for Doubtful Accounts         |            |            | $          | 28     |           
|For the year ended December 31, 2001: |            |           
|Reserve for Doubtful Accounts         |            |            | $          | 28     |           
|For the year ended December 31, 2000: |            |           
|Reserve for Doubtful Accounts         |            |            | $          | 128    |           
|For the year ended December 31, 2002: |            |           
|Tax Valuation Reserve                 |            |            | $          | 87,692 |           
|For the year ended December 31, 2001: |            |           
|Tax Valuation Reserve                 |            |            | $          | 79,734 |           
|For the year ended December 31, 2000: |            |           
|Tax Valuation Reserve                 |            |            | $          | 75,431 |           

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

59

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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 10th day of March, 2003.

I-STAT CORPORATION

By: /s/ William P. MoffittWilliam 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 Lorin J. Randall, 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.

|Signature                               |  | Title                                                                                                         |  | Date          
|--------------------------------------- |  | ------------------------------------------------------------------------------------------------------------- |  | --------------
|                                        |  |                                                                                                               |  |               
|/s/WILLIAM P. MOFFITTWilliam P. Moffitt |  | President, Chief Executive Officer and Director (Principal Executive Officer)                                 |  | March 10, 2003
|/s/LORIN J. RANDALLLorin J. Randall     |  | Vice President of Finance, Treasurer and Chief Financial Officer (Principal Financial and Accounting Officer) |  | March 10, 2003
|/s/J. ROBERT BUCHANANJ. Robert Buchanan |  | Chairman of the Board                                                                                         |  | March 10, 2003
|/s/SAM H. ELETRSam H. Eletr             |  | Director                                                                                                      |  | March 10, 2003
|/s/DANIEL R. FRANKDaniel R. Frank       |  | Director                                                                                                      |  | March 10, 2003
|/s/LIONEL N. STERLINGLionel N. Sterling |  | Director                                                                                                      |  | March 10, 2003
|/s/ANNE M. VANLENTAnne M. VanLent       |  | Director                                                                                                      |  | March 10, 2003

CERTIFICATION

I, William P. Moffitt, certify that:

|1. |  | I have reviewed this annual report on Form 10-K of i-STAT Corporation;
|-- |  | ----------------------------------------------------------------------

|2. |  | Based on my knowledge, this annual report does not contain any untrue statement
                    of a material fact or omit to state a material fact necessary to make the
                    statements made, in light of the circumstances under which such statements were
                    made, not misleading with respect to the period covered by this annual report;
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|3. |  | Based on my knowledge, the financial statements, and other financial information
                    included in this annual report, fairly present in all material respects the
                    financial condition, results of operation and cash flows of i-STAT Corporation
                    as of, and for, the periods presented in this annual report;
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4. |  | i-STAT Corporations other certifying officers and I are responsible for
                    establishing and maintaining disclosure controls and procedures (as defined in
                    Exchange Act Rules 13a-14 and 15d-14) for i-STAT Corporation and we have:
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|a) |  | designed such disclosure controls and procedures to ensure that material
                    information relating to i-STAT Corporation, including its consolidated
                    subsidiaries, is made known to us by others within those entities, particularly
                    during the period in which this annual report is being prepared;
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|b) |  | evaluated the effectiveness of i-STAT Corporations disclosure controls and
                    procedures as of a date within 90 days prior to the filing date of this annual
                    report; and
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|c) |  | presented in this annual report our conclusions about the effectiveness of the
                    disclosure controls and procedures based on our evaluation;
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------

|5. |  | i-STAT Corporations other certifying officers and I have disclosed, based
                    on our most recent evaluation, to i-STAT Corporations auditors and the
                    audit committee of i-STAT Corporations board of directors (or persons
                    performing the equivalent function):
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|a) |  | all significant deficiencies in the design or operation of internal controls
                    which could adversely affect i-STAT Corporations ability to record,
                    process, summarize and report financial data and have identified for i-STAT
                    Corporations auditors any material weaknesses in internal controls; and
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|b) |  | any fraud, whether or not material, that involves management or other employees
                    who have a significant role in i-STAT Corporations internal controls; and
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|6. |  | i-STAT Corporations other certifying officers and I have indicated in this
                    annual report whether or not there were significant changes in internal controls
                    or in other factors that could significantly affect internal controls subsequent
                    to the date of our most recent evaluation, including any corrective actions with
                    regard to significant deficiencies and material weaknesses.
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

DATE:
March 10, 2003

/s/ William P. Moffitt

William
P. Moffitt President and Chief Executive Officer(Principal Executive Officer)

61

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CERTIFICATION

I, Lorin J. Randall, certify that:

|1. |  | I have reviewed this annual report on Form 10-K of i-STAT Corporation;
|-- |  | ----------------------------------------------------------------------

|2. |  | Based on my knowledge, this annual report does not contain any untrue statement
                    of a material fact or omit to state a material fact necessary to make the
                    statements made, in light of the circumstances under which such statements were
                    made, not misleading with respect to the period covered by this annual report;
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|3. |  | Based on my knowledge, the financial statements, and other financial information
                    included in this annual report, fairly present in all material respects the
                    financial condition, results of operation and cash flows of i-STAT Corporation
                    as of, and for, the periods presented in this annual report;
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4. |  | i-STAT Corporations other certifying officers and I are responsible for
                    establishing and maintaining disclosure controls and procedures (as defined in
                    Exchange Act Rules 13a-14 and 15d-14) for i-STAT Corporation and we have:
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|a) |  | designed such disclosure controls and procedures to ensure that material
               information relating to i-STAT Corporation, including its consolidated
               subsidiaries, is made known to us by others within those entities, particularly
               during the period in which this annual report is being prepared;
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|b) |  | evaluated the effectiveness of i-STAT Corporations disclosure controls and
               procedures as of a date within 90 days prior to the filing date of this annual
               report; and
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|c) |  | presented in this annual report our conclusions about the effectiveness of the
               disclosure controls and procedures based on our evaluation;
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------

|5. |  | i-STAT Corporations other certifying officers and I have disclosed, based
                    on our most recent evaluation, to i-STAT Corporations auditors and the
                    audit committee of i-STAT Corporations board of directors (or persons
                    performing the equivalent function):
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|a) |  | all significant deficiencies in the design or operation of internal controls
               which could adversely affect i-STAT Corporations ability to record,
               process, summarize and report financial data and have identified for i-STAT
               Corporations auditors any material weaknesses in internal controls; and
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|b) |  | any fraud, whether or not material, that involves management or other employees
               who have a significant role in i-STAT Corporations internal controls; and
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|6. |  | i-STAT Corporations other certifying officers and I have indicated in this
                    annual report whether or not there were significant changes in internal controls
                    or in other factors that could significantly affect internal controls subsequent
                    to the date of our most recent evaluation, including any corrective actions with
                    regard to significant deficiencies and material weaknesses.
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

DATE:
March 10, 2002

/s/ Lorin J. Randall

Lorin J.
RandallSenior Vice President of Finance,Treasurer and Chief Financial Officer(Principal
Financial Officer and Accounting Officer)

62

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