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

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

[X]   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2002

OR

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

Commission file number 0-19841

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

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.

TABLE OF CONTENTS

Part I

Part II

Part III

Part IV

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 System requires the user to perform several simple steps, the results of which can be easily linked by infrared transmission to a health care provider’s information system. The Company intends for the i-STAT System to become the standard of care for blood analysis at the point of patient care, enabling rapid clinical intervention, improved patient outcomes, and lower operational costs.

The i-STAT System provides accurate and reliable blood test results more quickly and more simply than the most advanced clinical laboratory equipment. Blood analysis performed at the point of patient care with the i-STAT System permits more timely diagnosis and therapeutic intervention and reduces the occurrence of common testing errors. The Company believes these attributes of the i-STAT System result in improved patient care and lower overall health care costs. In addition, the Company believes that the i-STAT System reduces or eliminates the need for expensive capital equipment, 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 System was 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 System has 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, PCO₂ and PO₂

            1998: creatinine

            1999: lactate

            2000: coagulation (Celite® ACT)

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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 System attractive 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 System is 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 System and 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 System to 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:

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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 Analyzer permits 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 Analyzer also 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 System provide 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 System is 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 System is 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 System in 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.

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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 System and 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 System and 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 System and 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’s testing 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 System receives 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.

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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 System are 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 System technology. Some of the Company’s recent research and development achievements during the last several years include:

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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 System comprises several In Vitro Diagnostic (“IVD”) medical devices subject to the provisions of the Food,

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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 System as modified until FDA clearance is received. The FDA may not concur in any such modification, and any such concurrence may be subject to delay and require significant resources to provide the FDA with needed data.

FDA regulations classify medical devices into three classes that determine the degree of regulatory control to which the 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 System as 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

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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 System outside 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 System is 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 System to be distributed in other foreign countries in the future. The i-STAT System is and will be subject to a wide variety of laws and regulations in these markets, ranging from simple product registration in certain countries to complex clearance and production controls in 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 System is 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 System in 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 System are 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.

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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.

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

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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.

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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 System also includes peripheral components that enable the results of tests to be transmitted by infrared means to both a proprietary information system for managing the user’s point-of-care testing program and to the user’s information systems for billing and archiving.

The i-STAT System currently 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 System technology. 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

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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

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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.

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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

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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.

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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.

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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

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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.

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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:

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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.

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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:

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.

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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.

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(3)     Exhibits:

   Exhibit No.     Description

* 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.

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   Exhibit No.     Description

* 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.

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   Exhibit No.     Description

* 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.

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i-STAT CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Description

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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 Jersey
February 5, 2003

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i-STAT CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS

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

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i-STAT CORPORATION
CONSOLIDATED BALANCE SHEETS

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

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

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