I STAT CORPORATION /DE/, 10-K405, 1999-03-30

I STAT CORPORATION /DE/
10-K405, 1999-03-30
ELECTROMEDICAL & ELECTROTHERAPEUTIC APPARATUS

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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 30, 1999
================================================================================

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, 1998

|_| 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)

DELAWARE 22-2542664
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)

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

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

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

Securities registered pursuant to
Section 12(g) of the Act: Common Stock, par value $.15 per share
Series A Preferred Stock Purchase Rights

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

Yes |X| No |_|

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

Number of shares of Common Stock outstanding as of March 8, 1999: 15,322,782

The aggregate market value of the Registrant's voting stock held by
non-affiliates of the Registrant as of March 8, 1999 is approximately
$119,633,569. Shares of voting stock held by each executive officer and director
and by each person who owns 5% or more of any voting stock have been excluded in
that such persons may be deemed affiliates of the Registrant. This determination
of affiliate status is not necessarily a conclusive determination for other
purposes.

DOCUMENTS INCORPORATED BY REFERENCE
(To The Extent Indicated Herein)

Part III incorporates certain information by reference to the Registrant's Proxy
Statement for its 1999 Annual Meeting of Stockholders.
<PAGE> 2

TABLE OF CONTENTS

Item Page

Part I

1. Business.............................................................1

2. Properties..........................................................10

3. Legal Proceedings...................................................10

4. Submission of Matters to a Vote of Security Holders.................11

Part II

5. Market for the Registrant's Common Equity
and Related Stockholder Matters.....................................13

6. Selected Consolidated Financial Data................................14

7. Management's Discussion and Analysis of Financial Condition
and Results of Operations...........................................15

7(a). Quantitative and Qualitative Disclosures about Market Risk..........20

8. Financial Statements and Supplementary Data
(a) Financial Statements............................................20
(b) Selected Quarterly Financial Data...............................42

9. Changes in and Disagreements with
Accountants on Accounting and Financial Disclosure..................20

Part III

10. Directors and Executive Officers of the Registrant..............12, 21

11. Executive Compensation..............................................21

12. Security Ownership of Certain
Beneficial Owners and Management....................................21

13. Certain Relationships and Related Transactions......................21

Part IV

14. Exhibits, Financial Statement
Schedules and Reports on Form 8-K...................................21
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SPECIAL NOTE ON FORWARD-LOOKING STATEMENTS

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

PART 1

Item 1. Business

i-STAT Corporation ("i-STAT" or the "Company"), was incorporated in Delaware in
1983, and develops, manufactures and markets medical diagnostic products for
blood analysis that provide health care professionals with immediate and
accurate critical diagnostic information at the point of patient care. The
Company's current products, known as the i-STAT System(R), consist of portable,
hand-held analyzers and single-use, disposable cartridges, each of which
simultaneously performs different combinations of commonly ordered blood tests
in approximately two minutes. The i-STAT System uses a simple, one-step
procedure, the results of which can be easily linked by infrared transmission to
a health care provider's information system. As of December 31, 1998, i-STAT had
customers throughout the United States, as well as customers in Japan, Europe,
Canada, South America and Asia. The Company intends for the i-STAT System to
become the standard of care for blood analysis at the patient's side, enabling
rapid clinical intervention, improved patient outcomes, and lower operational
costs.

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

The original i-STAT System, introduced in September 1992, was capable of
performing six of the most commonly ordered blood tests, which are tests for
sodium, potassium, chloride, glucose, urea nitrogen and hematocrit. In 1994, the
Company expanded the testing capabilities of the i-STAT System through the
introduction of cartridges which perform tests for pH, ionized calcium and
bicarbonate. In 1995, the Company introduced cartridges which measure arterial
blood gases (pH, PCO2 and PO2), and in 1998 the Company added a creatinine test.
The Company believes that 95% of the approximately 200 million blood tests
(electrolyte and blood gas) performed on a "stat" basis in the United States
each year now can be performed using the i-STAT System. The Company believes
that because the i-STAT System can now perform the vast majority of the tests
required on a "stat" basis, it is substantially more attractive as a total
replacement for hospital "stat" laboratories. The Company has additional tests
under development.

i-STAT's recent marketing objective has been to further increase sales of its
test cartridges to the critical care departments of hospitals where the highest
volume of "stat" blood tests are performed. The Company focused its sales
efforts on those hospitals that have the greatest likelihood of fully adopting
the i-STAT System throughout all of their critical care departments and of using
the i-STAT System as their principal means of testing blood. By virtue of the
strategic technology and marketing alliance concluded in mid-1995 between the
Company and Hewlett-Packard Company ("HP"), the i-STAT System was introduced and
marketed in Europe by HP in 1996. In addition, i-STAT and HP have jointly
developed a blood analysis device (the "Integrated Analyzer"), based on the
i-STAT System, for integration into HP's customer installed base of patient
monitoring systems. This device was introduced in 1997. In order to accelerate
and increase sales of the i-STAT System, in September 1998 the Company entered
into a long-term global product marketing and product development alliance with

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Abbott Laboratories ("Abbott"). See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Long-Term Sales, Marketing and
Research Alliance with Abbott Laboratories". The Company's longer-term strategy
is to expand its distribution throughout the world and to market its products to
alternate site health care providers such as physician offices, freestanding
dialysis centers, nursing homes, outpatient clinics, emergency medical services
units, home healthcare agencies and veterinary clinics.

i-STAT System Components

The i-STAT System is composed of two types of analyzers, which are hand-held,
portable instruments, and various single-use, disposable cartridges, which
contain the electrochemical biosensors necessary to perform the desired blood
tests. One of the Company's analyzers is thermostatically controlled and can be
used for all cartridges manufactured by the Company and the other can be used
for all cartridges manufactured by the Company except the arterial blood gas
cartridges. The Company's single-use, disposable cartridges currently allow the
i-STAT System to perform blood tests for sodium, potassium, chloride, glucose,
creatinine, urea nitrogen, hematocrit, ionized calcium, 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 i-STAT System also includes peripheral
components that enable the results of tests to be transmitted by infrared means
to both a proprietary information system for managing the user's point-of-care
testing program and to the user's information systems for billing and archiving.

i-STAT believes its proprietary thin-film, biosensor technology provides the
Company with significant competitive advantages over other technologies. As a
result of the Company's proprietary know-how and the attributes of its thin-film
biosensors, the i-STAT System produces accurate results in approximately two
minutes in an easy, single step procedure, is small enough to be hand-held and
to be carried from patient to patient, operates with only two to three drops of
blood and is virtually maintenance free. The Company's thin-film technology uses
micro-fabrication techniques which permit dimensionally small product features
resulting in faster reactions than larger configurations such as those used in
thick-film technology. Thin-film technology permits i-STAT's biosensors to
"wet-up" quickly with small amounts of calibrant and blood samples, thereby
enabling the Company to package its biosensors in a dry state while retaining
the ability to produce results in approximately two minutes. The Company
believes that packaging its biosensors in a dry state facilitates extended shelf
life and simplifies the calibration process. The Company's disposable cartridges
have a shelf life ranging from a minimum of six months to a maximum of twelve
months. In addition, the Company's thin-film biosensor technology permits the
cartridges in the i-STAT System to be configured to perform multiple tests and
combinations of tests. The Company believes products based on other existing
technologies cannot achieve performance characteristics or product design
features of the type described above.

Marketing and Distribution

The 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 also is marketed to
hospitals in Japan, Europe, Canada, South America and Asia. Prior to November 1,
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 HP, in Japan through Japanese marketing partners
and in South America and Asia through selected distribution channels. Since
November 1, 1998, Abbott has become, subject to the existing rights of the
Company's other international distributors, the exclusive worldwide distributor
of the Company's hand-held blood analyzer products (including cartridges) and
any new products the Company may develop for use in the professionally attended
human healthcare delivery market. Sales to Abbott represented approximately
11.5% of the Company's worldwide sales for 1998. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Long-Term Sales,
Marketing and Research Alliance with Abbott Laboratories."

The Company's strategy also has included partnering with large purchasing
organizations, including large hospital networks and health maintenance
organizations. In November 1997, the Company entered into a sole source three
year contract with Premier Inc. for point-of-care blood gas analyzers pursuant
to which Premier members may purchase the Company's products at reduced cost in
exchange for minimum blood gas commitments. Premier is a strategic alliance of
leading hospitals and healthcare systems across the U.S., representing more than
1,800 member hospitals and healthcare facilities. In January 1998, the Company
entered into a three year contract with Kaiser Permanente pursuant to which
Kaiser Permanente is recommending the Company's products to its facilities
nationwide, by designating the Company a "preferred provider". Kaiser Permanente
is the largest non-profit health maintenance organization in the U.S. In March
1998, VHA, Inc.,

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renewed its existing contract with the Company for an additional two years.
Under that agreement, the Company has been named as the sole contracted provider
of point-of-care blood gas analyzers. VHA is a nationwide network of more than
1,750 leading community owned healthcare organizations and their physicians,
which comprises 24% of the nation's community hospitals. The Company has agreed
to agree to assign its rights to these contracts to Abbott under the terms of
its Distribution Agreement with Abbott.

In July 1995, the Company entered into license and distribution agreements with
HP at which time HP invested approximately $61 million in exchange for 2,138,702
shares of the Company's Series B Preferred Stock. Under the distribution
agreement, HP has the right to distribute the Company's current products in
Europe, Africa, the Middle East and the former Soviet bloc countries. The
Company's license agreement with HP provides for the grant by the Company to HP
of a perpetual, worldwide license under certain of the Company's intellectual
property to develop and distribute the Integrated Analyzer to professionally
attended human healthcare institutions. The license does not include the right
to make, use or sell the Company's cartridges and provides for the payment of
royalties to the Company. If the Company grants to any third party a license to
make and distribute Integrated Analyzers on royalty terms more favorable to the
third party than under the HP license agreement, then HP's royalty obligations
generally will be adjusted to such third party's rates. The license agreement is
scheduled to expire generally at the time of expiration of the Company's
last-to-expire patent covering the licensed technology. In August of 1997, the
Company signed an agreement with HP to supply electromechanical components to HP
for use in the HP Integrated Analyzer. This electromechanical mechanism is
substantially equivalent to the mechanism used in the Company's portable
hand-held analyzer. The initial term of the agreement is one year and is subject
to yearly extensions. Total sales to HP represented approximately 8.2% of the
Company's worldwide sales for 1998.

In August 1988, the Company entered into product commercialization and
distribution agreements with JCR Pharmaceuticals Inc. and FUSO Inc., two
Japanese pharmaceutical and medical device companies. Pursuant to such
agreements, i-STAT granted product distribution rights covering Japan, South
Korea and Taiwan for an initial exclusive period which expired, and a
non-exclusive period from December 1997 to December 2002 which covers only
Japan. The Company understands that JCR has assigned to FUSO all distribution
rights under these agreements. Sales to FUSO represented approximately 9.7% of
the Company's worldwide sales for 1998.

The Company also markets its products to veterinarians' offices in the United
States and selected other countries through a three year distribution agreement
with Heska Corporation, signed in February 1999.

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

Competition

The Company competes principally with manufacturers of traditional blood
analysis equipment used by clinical laboratories. Historically, most clinical
testing has been performed in the hospital or commercial laboratory setting.
These clinical laboratories provide analyses similar to those conducted by the
i-STAT System and have traditionally been effective at processing large panels
of tests with the use of skilled technicians and complex equipment. While i-STAT
cannot provide the same range of tests, the Company believes that its products
offer several advantages over clinical laboratories, including lower costs,
faster results and reduced opportunity for error. In addition, the i-STAT
System's testing capabilities currently are sufficiently broad to enable larger
health care facilities to close "stat" laboratories and replace them wholly with
the i-STAT System. Other companies may introduce products performing the same or
similar functions as the i-STAT System. In such case, the Company may not be
able to compete effectively with these products, or these products may render
the Company's products obsolete. The Company is aware of products that have been
developed and are being marketed for point-of-care analysis of some or all of
the analytes measured by the i-STAT System. The Company believes that these
products are more difficult to use, less efficient and test for fewer analytes
than the i-STAT System, and otherwise do not offer the same features and
benefits.

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

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Manufacturing

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

Most product manufacturing and assembly by the Company is conducted in its
52,480 square foot facility in Kanata, Ontario, Canada and in a 16,800 square
foot facility in an adjoining building. This facility, which is leased, includes
an 8,000 square foot Class 1000 clean room augmented by additional
environmentally controlled assembly and packaging space. In addition, the
Company assembles analyzers at its principal offices in East Windsor, New
Jersey. In mid-1998, the Company commenced the transfer of its New Jersey
cartridge assembly and inspection operations to the Kanata facility and expects
to complete that transfer by May 1999. See "Properties" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations". The
Company believes that its manufacturing capacity is sufficient to meet its
immediately foreseeable production requirements. The Company is currently
manufacturing its cartridges at a rate of over 8,000,000 cartridges per year,
but has the capacity to manufacture over 20,000,000 cartridges at full factory
utilization using the current generation of its biosensor chips and taking into
account planned yield and productivity improvements.

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

The majority of the raw materials and purchased components used to manufacture
the Company's products are readily available from more than one source. The
Company is also developing alternative sources for some of the raw materials it
presently obtains from a single source. Some of the components of the i-STAT
System are custom manufactured by a limited number of outside vendors.

Research and Development

From commencement of the Company's operations in 1984 until 1992, most of its
financial resources were dedicated to the development of the core technology
that has resulted in the i-STAT System. The Company continues to engage in
research and development in order to improve its existing products and develop
new products based on the i-STAT System technology. The Company currently is
developing a test for lactate and three tests for the measurement of
coagulation: partial thromboplastin time ("aPTT"), activated clotting time
("ACT") and prothombin time ("PT"). The Company is also studying the development
of cardiac marker tests, and other tests to measure enzymes and other analytes.
Subject to receipt of clearance to market by the FDA, the Company expects to
commence commercialization of its first coagulation test near the end of 1999.
In connection with their strategic alliance, the Company and Abbott entered into
a Research Agreement pursuant to which certain of the Company's research and
development may be funded by Abbott. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Long-Term Sales, Marketing and
Research Alliance with Abbott Laboratories". See also "Management's Discussion
and Analysis of Financial Condition and Results of Operations" for a discussion
of research and development costs during 1996, 1997 and 1998.

As of December 31, 1998, the Company's research and technology development staff
consisted of 91 full-time degreed employees, 30 of whom hold advanced degrees in
chemistry, engineering, software and related disciplines.

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Patents and Proprietary Rights

i-STAT pursues a policy of seeking patent protection, both in the United States
and abroad, for each of the areas of invention embodied in the i-STAT System.
The Company holds twenty eight United States utility patents related to the
i-STAT System, the earliest of which was issued on September 5, 1989, which on
average have over 12 years remaining on their patent terms, and two United
States design patents related to the i-STAT System. These patents relate to the
unique functional features and fabrication of the electrode technology contained
in the i-STAT cartridges, operation of the cartridges, the technologies used in
the i-STAT analyzers, in-house quality control instrumentation and matters
related to other potential uses of the i-STAT System. The Company has five
pending United States utility patent applications. The Company has received
patents in Japan, Europe, Canada and Taiwan corresponding to certain of the
patents issued in the United States and has filed or plans to file for patent
protection in certain countries which represent a significant segment of the
intended market for its products. There can be no assurance that additional
patents for i-STAT's products will be obtained, or that issued patents will
provide substantial protection or be of commercial benefit to i-STAT.

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

Government Regulation

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

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

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

The FDA has the authority to conduct unannounced inspections of all facilities
where devices are manufactured or assembled, and, if the investigator observes
conditions which might be violations, those conditions must be corrected or

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satisfactorily explained, or the manufacturer could face regulatory action that
might include physical removal of the product from the marketplace. The
Company's New Jersey facilities were inspected in November 1994, June 1995, and
March 1997, and the FDA did not issue a Record of Inspection Observations (FDA
483) on any of those occasions. The FDA also regulates labeling and advertising
for devices restricted to use by health care professionals, such as the i-STAT
System.

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

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

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

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

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

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

Reimbursement

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

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Employees

As of December 31, 1998, the Company employed 531 persons on a full-time basis.
None of i-STAT's employees are 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.

Insurance

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

Backlog

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

Seasonality

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

Geographic Segment Data

Information regarding geographic segment data is provided in Note 18 to Notes to
Consolidated Financial Statements.

Factors That May Affect Future Results

Absence of Profitability. The Company was organized in 1983 and from its
inception through December 31, 1998, the Company has never made a profit. There
can be no assurance that the Company will ever achieve profitability, and the
Company anticipates incurring additional losses. No assurance exists that the
Company will be able to market its products at prices and in quantities that
will enable the Company to achieve profitability or that the Company will not
encounter substantial delays and expenses related to new product development,
production and marketing problems or other unforeseen difficulties. In addition,
because the Company has appointed Abbott as the worldwide exclusive distributor
of its products, the Company's revenues will be significantly affected by the
product revenues generated through Abbott. Accordingly, the Company's future
profitability will be highly dependent on Abbott's success in marketing the
Company's products.

Need for Increased Market Acceptance of the i-STAT System. The future of the
Company is dependent on the success of the i-STAT System. The success of the
i-STAT System is dependent primarily upon its acceptance by hospitals as a
reliable, accurate and cost-effective replacement for traditional blood
measurement methods. The Company is unable to predict the rate of future market
acceptance of the i-STAT System. Because the i-STAT System is a "point-of-care"
blood testing device, it represents a new practice in the analysis of blood.
Critical or stat blood testing is currently performed primarily by central and
"stat" laboratories of hospitals or by independent commercial laboratories.
Although market acceptance of point-of-care blood testing is increasing, most
acute care hospitals already use costly benchtop blood testing instruments in

7
<PAGE> 10

their central and "stat" laboratories and many are reluctant to change standard
operating procedures for performing blood analysis. In addition, the number and
types of analytes that can be currently measured on the i-STAT System is
considered by some hospitals insufficient to enable broad adoption. Although the
Company is currently working on the development of additional tests to add to
its test menu, no assurance exists that the Company will be able to develop
additional tests on a timely or cost effective basis, if at all.

Strategic Alliance with Abbott Laboratories. In September 1998, the Company
concluded certain agreements with Abbott which provide for a long-term sales,
marketing and research alliance. This includes a Marketing and Distribution
Agreement (the "Distribution Agreement") pursuant to which Abbott has become,
subject to the existing rights of certain other international distributors, the
exclusive worldwide distributor of the i-STAT System and any new products the
Company may develop for use in the professionally attended human healthcare
market. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Long-Term Sales, Marketing and Research Alliance with
Abbott Laboratories". As a result of the Distribution Agreement, the Company has
reduced its marketing and sales resources and expenditures. Substantial
marketing challenges lie ahead for Abbott and the Company, and no assurance
exists that Abbott can market the Company's products in an effective manner. If
Abbott is unsuccessful in marketing the i-STAT System or the Distribution
Agreement is terminated, the Company will be required to hire and train
marketing and sales personnel and/or enter into new product distribution
arrangements. There can be no assurance that the Company will be able to
reproduce Abbott's marketing channels, hire competent marketing and sales
personnel in a timely manner or enter into new product distribution
arrangements.

Manufacturing Considerations. Because the Company operates in a new technology
environment, it is normal to experience unforeseen technical issues in
transferring technology from the development stage to the manufacturing stage.
This may affect the timing of new product introductions. In addition, the
Company's manufacturing operations involve unique, proprietary biosensor
microfabrication techniques which require continuous monitoring and updating,
especially as the Company's product menu expands. Moreover, in an environment
where new products are being introduced, customer product demand patterns are
sometimes unpredictable and the Company's biosensor manufacturing processes
require long lead times to respond to significant shifts in product demand. A
consequence of the foregoing is that the Company may, from time to time, find
that its inventory of certain products will not always match the customer demand
for such products, which can affect the Company's relationship with its
customers and adversely impact its working capital. In order to be profitable,
the Company must manufacture its products in greater quantities than it has to
date and continue to improve production efficiencies. No assurance can be given
that the Company will ultimately be able to produce its products at commercially
reasonable costs. Some of the components of the i-STAT System are custom
manufactured by a limited number of outside vendors. While the Company continues
to expand the number of vendors which have the capacity to produce these
components, the loss of its sources of supply for such components could
adversely impact the Company's ability to meet the demand for its products. The
Company's Kanata, Ontario, facility is the Company's only cartridge
manufacturing facility and consequently, any damage to or closure of the
facility as a result of fire or other causes could materially and adversely
impact the Company.

Future Capital Needs. The Company expects its existing funds to be sufficient to
meet its obligations and its liquidity and capital requirements for the
foreseeable future. However, the Company's capital requirements may change based
on numerous factors, including the results of the product marketing and sales
activities of the Company, Abbott and other distributors, the Company's new
product development initiatives, its ability to continue to achieve
manufacturing efficiencies and competitive conditions. The Company has no
commitments for any additional financing, and no assurance exists that any such
commitments can be obtained on favorable terms, if at all. Any additional equity
financing may result in dilution to the Company's stockholders, and any debt
financing may entail restrictions on the Company's right to declare dividends or
on the manner in which the Company conducts its business.

Dependence on Patents and Proprietary Technology. The commercial success of the
Company is dependent, in part, upon trade secrets, know-how, trademarks, patents
and other proprietary rights owned by the Company. While the Company actively
seeks patent protection both in the United States and abroad for certain of its
proprietary technology, no assurance exists that the Company's patents will not
be challenged by third parties, invalidated or designed around or that they will
provide protection that has commercial significance. Furthermore, there can be
no assurance that any pending patent applications or applications filed in the
future will result in the issuance of a patent. The issuance of a patent is not
conclusive as to its validity or enforceability, nor does it provide the patent
holder with freedom to operate without infringing the patent rights of others.
The invalidation or expiration of key patents owned by the Company could permit

8
<PAGE> 11

increased competition, with potential adverse effects on the Company and its
business prospects. In addition, there can be no assurance that the Company will
not in the future be found to have infringed the proprietary rights of others or
become subject to patent infringement claims and litigation to determine the
priority of inventions. Litigation may be necessary to enforce any patents
issued to the Company, to protect trade secrets or know-how owned by the Company
or to determine the enforceability, scope and validity of the proprietary rights
of others. The defense and prosecution of intellectual property suits and
related legal and administrative proceedings involves substantial expense to the
Company and significant diversion of effort by the Company's technical and
management personnel. An adverse determination in litigation to which the
Company is a party could subject the Company to significant liabilities to third
parties or require the Company to seek licenses from third parties which may not
be available on commercially reasonable terms, if at all. Furthermore, no
assurance exists that the Company will be able to maintain the confidentiality
of its trade secrets or know-how or that others may not develop or acquire trade
secrets or know-how similar to those of the Company.

Technological Change and Intense Competition; Risk of Obsolescence. The
Company's success depends significantly on its ability to establish and maintain
a competitive position in the field of blood analysis. The Company expects that
manufacturers of conventional blood analysis products used in clinical
laboratories will compete intensely to maintain their markets and revenue. Some
of these manufacturers currently offer products which are perceived as being
less expensive to operate, and which provide a broader range of tests than the
products the Company offers and expects to offer. No assurance exists that
competitive pressures will not result in reduction in prices of the Company's
products, which could adversely affect the Company's profitability. In addition,
health care providers may choose to maintain their established means of having
such tests performed. The Company also faces competition from makers of other
blood analyzers intended for point-of-care use. Many of the Company's
competitors have substantially greater capital resources, research and
development staffs and facilities than the Company. Rapid technological changes
or developments by others may result in the Company's products becoming obsolete
or non-competitive. To respond to these expected changes and to improve or
sustain marketability of its products, the Company may be required to make
substantial investments in, and commit significant resources to, product
improvement and development in order to periodically enhance its existing
products and successfully introduce new products. There can be no assurance that
the Company will have the resources required to make such investments. If the
Company has the required resources, there can be no assurance that the Company
will be able to respond adequately to changes in technology or changes in the
markets for its products.

Dependence on Management and Other Key Personnel. The success of the Company is
dependent upon its ability to attract and retain certain scientific, technical,
regulatory and managerial personnel, the loss of whom could have a materially
adverse effect on the Company. Competition for personnel having the
qualifications required by the Company is intense, and no assurance exists that
the Company will be successful in recruiting or retaining such personnel in the
future.

Risk Associated With International Operations. In recent years, the Company has
experienced substantial sales growth in international markets and expects to
continue to expand its product distribution internationally. Engaging in
international business inherently involves a number of difficulties and risks,
such as 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, product
distribution and purchase agreements may be difficult to enforce and receivables
difficult to collect through a foreign country's legal system, and the
protection of intellectual property in foreign countries may be more difficult
to enforce. There can be no assurance that one or more of these factors will not
have a material and adverse effect on the Company's international business
opportunities.

Antitakeover Provisions. Certain provisions of the Company's Certificate of
Incorporation and Bylaws, including provisions providing for exculpation of
directors in certain circumstances, the Company's Stockholder Rights Plan, and
the Company's agreements with Abbott and HP may have the effect of delaying,
deferring or preventing a change in control of the Company without further
action by the stockholders, may discourage bids for the Common Stock, may
adversely affect the market price of, and the voting and other rights of the
holders of, the 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). The Company will be
subject to Section 203 of the Delaware General Corporation Law which, in
general, imposes restrictions upon certain acquirers (including their affiliates
and associates) of 15% or more of the Company's Common Stock.

9
<PAGE> 12

Relationship with Principal Shareholders. As of December 31, 1998, directors,
executive officers and principal shareholders of the Company, including Abbott
and HP, owned beneficially approximately 36% of the Company's outstanding voting
securities. Accordingly, these shareholders, individually and/or acting in
concert, may be able to influence the outcome of shareholder votes, including
votes concerning the election of directors, changes in the Company's Certificate
of Incorporation and Bylaws and approving certain mergers or other similar
transactions, such as a sale of all or substantially all of the Company's
assets. In addition, if the Company receives an offer for its voting securities
or assets, the Company is required to provide Abbott and HP notice of such
offer. Furthermore, the Company's exclusive distribution arrangement with Abbott
and its licensing and distribution arrangement with HP could have the effect of
discouraging a third party from making any such offer.

Volatility of Stock Price. The market price of the Common Stock historically has
been 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 the Common
Stock. In addition, Abbott and HP each have the right to request that the
Company register for public sale, under the Securities Act of 1933, as amended
(the "Securities Act"), the shares of Common Stock beneficially owned by them --
up to an aggregate of 4,138,702 shares of Common Stock. Such registration would
cause the shares to become freely tradeable subject to certain restrictions (and
subject to certain rights of first refusal of the Company). In addition, HP's
2,138,702 shares currently may be freely tradeable without registration, and
after September 2, 1999, Abbott's 2,000,000 shares will be freely tradeable
without registration, each subject to certain volume and other limitations of
Rule 144 under the Securities Act, and certain other restrictions (and subject
to certain rights of first refusal of the Company). Sales of such shares,
pursuant to a registration or Rule 144, could also significantly impact the
market price of the Common Stock. Moreover, the stock market has from time to
time experienced extreme price and volume fluctuations, which have particularly
affected high technology companies and which have often been unrelated to the
operating performance of such companies. These broad market fluctuations, as
well as general economic, political and market conditions may adversely affect
the market price of the Company's Common Stock. There can be no assurance that
the trading price of the Company's Common Stock will remain at or near its
current level.

Item 2. Properties

The Company's principal manufacturing facilities are located in Kanata, Ontario,
Canada, where it leases a 52,480 square-foot building for a term expiring in
February 1999. The Company has exercised its option to renew this lease for a
five year term, but is currently negotiating the rent. The Company also leases a
16,800 square foot facility 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 also leases executive offices in East Windsor, New Jersey,
where it occupies a 37,474 square-foot facility. The East Windsor lease expires
in September 2003, subject to, at the Company's option, renewal for one
five-year term. See "Results of Operations" in "Management's Discussion and
Analysis of Financial Condition and Results of Operations".

Item 3. Legal Proceedings

The Company is a defendant in a case entitled Nova Biomedical Corporation,
Plaintiff v. i-STAT Corporation, Defendant. The Complaint, which was filed in
the United States District Court for the District of Massachusetts on June 27,
1995, alleges infringement by i-STAT of Nova's U.S. Patent No. 4,686,479. In
February 1998, the Court entered summary judgment in favor of the Company on the
issue of patent infringement. Accordingly, the Company has been found not to
infringe, either literally or under the patent law "doctrine of equivalents",
Nova's patent. However, the plaintiff has appealed and should it prevail on this
issue, a prospect which the Company believes to be unlikely, it could have a
material impact on the financial position, results of operations and cash flows
of the Company. The Company had asserted and is pursuing counterclaims under the
antitrust laws alleging that Nova commenced the action knowing that the patent
was not infringed and that it had reason to believe that the patent was invalid.

10
<PAGE> 13

unspecified compensatory damages, interest and payment of all costs and expenses
incurred in connection with the class action. The Company believes the complaint
is without merit and, on April 28, 1998, the Court entered summary judgment in
favor of all the defendants. The plaintiffs have appealed and appellate argument
was held on March 8, 1999. The appellate court's opinion will be issued in due
course. Should the plaintiffs prevail in this matter, it could have a material
impact on the financial position, results of operations and cash flows of the
Company.

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

Item 4. Submission of Matters to Vote of Security Holders

Not applicable.

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<PAGE> 14

EXECUTIVE OFFICERS

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

William P. Moffitt

Age 52. Mr. Moffitt is the President and Chief Executive Officer of the Company.
He has held various offices since he joined the Company as Executive Vice
President in July 1989. He has served as Chief Executive Officer of the Company
since February 1993, as President since November 1991 and as a director since
May 1990. From 1985 to 1989, Mr. Moffitt was President of the Physician
Diagnostics Division of Baxter Healthcare Corp., a diversified health care
company. Mr. Moffitt holds a B.S. from Duke University.

Imants R. Lauks

Age 46. Dr. Lauks is the Executive Vice President and Chief Technology Officer
of the Company. He is a founder of the Company and has served as the Company's
Executive Vice President since 1995, as its Vice President of Research and
Development from 1983 to 1995, and as its Chief Technology Officer since 1991.
Dr. Lauks has served as a director since the Company's incorporation in 1983.
Until he founded the Company in 1983, Dr. Lauks was a tenured Associate
Professor at the University of Pennsylvania in the Moore School of Engineering.
He is an Associate of the Royal College of Science in London, England. He holds
both a Ph.D. in Electrical Engineering and a B.S. in Chemistry from Imperial
College of London University.

Noah J. Kroloff

Age 36. Mr. Kroloff is the Vice President of Business Development & Strategy. He
joined the Company in May 1994. From September 1990 to May 1994, he was a
manager at McKinsey & Company, a leading management consulting firm, where he
specialized in international alliances among medical products companies. Prior
to joining McKinsey, he served in consulting and business development roles for
several biotechnology companies and for Merck & Co., Inc. Mr. Kroloff holds an
M.B.A. in finance and marketing from the MIT Sloan School of Management and a
B.A. in general science from Brandeis University.

Roger J. Mason

Age 50. Mr. Mason has served as Vice President of Finance, Treasurer and Chief
Financial Officer since he joined the Company in July 1996. From October 1994 to
June 1996, he was Vice President, Finance and Treasurer, and Chief Financial
Officer at Concurrent Computer Corporation, a publicly held, leading worldwide
supplier of networked and distributed, high performance, real time,
fault-tolerant computing systems. From April 1991 to October 1994, Mr. Mason
served as Chief Financial Officer and Treasurer at Integral Peripherals Inc., a
disk drive manufacturer. From 1981 to 1991, he held senior executive positions
at Maxtor Corporation, a publicly held disk drive manufacturer, MiniScribe
Corporation, a publicly held disk drive manufacturer whose assets were acquired
by Maxtor Corporation, and Ironstone Group, Inc., a publicly held holding
company. His experience also includes public accounting with Coopers & Lybrand
and Honey, Perriam & Company. He is a fellow of the Institute of Chartered
Accountants in England and Wales.

Michael P. Zelin

Age 38. Mr. Zelin has served as Senior Vice President since February 1999. From
March 1992 to January 1999, he was 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.

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<PAGE> 15

PART II

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

Market Information

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

<TABLE>
<CAPTION>
1998 High Low
- -------------------------------------------------------------
<S> <C> <C>
First Quarter................... 21 12 4/5
Second Quarter.................. 14 3/4 6 5/8
Third Quarter................... 14 6 3/8
Fourth Quarter.................. 9 3/4 5 3/8

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

Holders

There were approximately 430 registered holders of the Company's Common Stock of
record as of March 8, 1999.

Rights

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

Dividends

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

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<PAGE> 16

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, 1998 and 1997 and for each of the
years in the three-year period ended December 31, 1998, 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.

<TABLE>
<CAPTION>
In thousands of dollars, except share and per share data Year Ended December 31,
- ------------------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Net sales .......................................... $ 39,101 $ 37,840 $ 30,330 $ 20,102 $ 10,695
Cost of sales ...................................... 30,664 30,962 26,291 22,013 14,803
Operating expenses:
Research and development ........................... 7,281 6,721 5,780 5,664 8,333
General and administrative ......................... 7,152 5,761 5,778 4,937 4,004
Sales and marketing ................................ 12,956 13,020 11,991 11,506 8,484
Consolidation of operations ........................ 1,115 -- -- -- --
Other income, net .................................. 1,672 1,651 2,054 1,010 1,249
Net loss ........................................... (18,395) (16,973) (17,456) (23,008) (23,680)
Basic and diluted net loss per share ............... ($1.15) ($1.17) ($1.31) ($1.90) ($2.16)
Shares used in computing basic and diluted
net loss per share ................................. 16,050,877 14,497,530 13,321,603 12,122,089 10,974,467
</TABLE>

<TABLE>
<CAPTION>
In thousands of dollars As of December 31,
- ------------------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash, cash equivalents
and short-term investments ......................... $ 38,390 $ 32,914 $ 28,417 $ 49,519 $ 21,619
Working capital .................................... 44,605 38,697 33,056 55,426 23,082
Total assets ....................................... 68,906 59,170 55,365 74,050 39,178
Accumulated deficit ................................ (176,668) (158,273) (141,300) (123,844) (100,836)
Total stockholders' equity ......................... $ 54,660 $ 53,045 $ 46,834 $ 63,594 $ 26,093
</TABLE>

14
<PAGE> 17

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

Background and Overview

The Company was incorporated in Delaware in 1983 and develops, manufactures and
markets medical diagnostic products for blood analysis that provide health care
professionals with immediate and accurate critical, diagnostic information at
the point of patient care. The Company's current products, known as the i-STAT
System, consist of portable, hand-held analyzers and single-use disposable
cartridges, each of which simultaneously performs different combinations of
commonly ordered blood tests in approximately two minutes. The i-STAT System
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, ionized calcium,
arterial blood gases, 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 continues to engage in
research and development in order to improve its existing products and develop
new products based on the i-STAT System technology. The Company currently is
developing a test for lactate and three tests for the measurement of
coagulation: partial thromboplastin time ("aPTT"), activated clotting time
("ACT") and prothombin time ("PT"). The Company is also studying the development
of cardiac marker tests, and other tests to measure enzymes and other analytes.
Subject to receipt of clearance to market by the FDA, the Company expects to
commence commercialization of its first coagulation test near the end of 1999.

Prior to November 1, 1998, the Company marketed and distributed its products in
the United States and Canada principally through its own direct sales and
marketing organization, in Japan through Japanese marketing partners, in Europe
through Hewlett-Packard Company ("HP") and in Mexico, South America, China,
Australia, and certain other Asian and Pacific Rim countries, through selected
distribution channels. Pursuant to a technology collaboration between the
Company and HP, in November 1997 HP commenced selling a patient monitoring
system (the "Integrated Analyzer") which integrates all of the blood diagnostics
capabilities of the i-STAT System. On September 2, 1998, the Company entered
into a long-term sales, marketing and research alliance with Abbott Laboratories
("Abbott") which, among other things, is expected both to significantly affect
the Company's research and development programs and alter the manner in which
the Company markets and sells its products worldwide. See "Long-Term Sales,
Marketing and Research Alliance with Abbott Laboratories". Abbott commenced
distribution of the i-STAT System on November 1, 1998.

Results of Operations

The Company generated revenues of approximately $39.1 million, $37.8 million and
$30.3 million in 1998, 1997 and 1996, including international revenues (as a
percentage of worldwide revenues) of $9.8 million (25.1%), $12.5 million (33.1%)
and $9.5 million (31.2%), respectively. International revenues for 1997 and 1996
include deferred Japanese revenue which has been amortized to income at the rate
of approximately $3.1 million and $3.2 million, respectively. The deferred
Japanese revenue was fully amortized to revenue during December 1997, when the
period of exclusivity under the Company's agreements with its Japanese partners
expired. The Company also received a one-time milestone payment of $0.9 million,
net, from its Japanese marketing partners during the fourth quarter of 1997 for
the development of the Company's creatinine product. Sales to its Japanese
marketing partners represented approximately 9.7%, 21.0% and 24.7% of the
Company's worldwide sales (including deferred revenue in 1997 and 1996, and the
milestone payment in 1997) for 1998, 1997 and 1996, respectively.

The $1.3 million (3.3%) increase in revenues from 1997 to 1998 was primarily due
to increased shipment volume of the Company's cartridges, reflecting higher
cartridge consumption by existing hospital customers and the addition of new
hospital customers in the U.S. and internationally. Worldwide cartridge
shipments increased 32.8% to 6,046,825 units in 1998 from 4,551,743 units in
1997. Revenues from the increased cartridge shipments were partially offset by
lower worldwide average selling prices per cartridge, which declined from
approximately $5.25 to $4.66 per cartridge in the same periods. For the
foreseeable future, cartridge average selling prices are expected to continue to
decline because of the product transfer pricing arrangements applicable under
the strategic alliance between the Company and Abbott. See "Long-Term Sales,
Marketing and Research Alliance with Abbott Laboratories". The increase in
revenues in 1998 was also partially offset by the absence of deferred revenue
and a one-time milestone payment from the Company's Japanese marketing partner,
totalling $4.0 million in 1997.

15
<PAGE> 18

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

The manufacturing costs associated with product sales in 1998, 1997 and 1996
were approximately $30.7 million, $31.0 million and $26.3 million, respectively.
This resulted in a gross profit (as a percentage of sales) of approximately $8.4
million (21.6%), $6.9 million (18.2%) and $4.0 million (13.3%) in 1998, 1997 and
1996, respectively. The improvement in gross margin each year was primarily due
to increased shipment volume of the Company's cartridges, which caused fixed
manufacturing costs to be spread over a larger number of product units. The
Japanese deferred revenue and milestone payment of $4.0 million and $3.2 million
noted above also contributed to the gross margin improvement in 1997 and 1996,
respectively.

The Company incurred research and development costs (as a percentage of sales)
of approximately $7.3 million (18.6%), $6.7 million (17.8%) and $5.8 million
(19.1%) in 1998, 1997 and 1996, respectively, consisting of costs associated
with the personnel, material, equipment and facilities necessary for conducting
new product development. The Company's current research and development program
includes the development of tests for lactate and coagulation, which are
expected to move into the commercialization phase near the end of 1999. The
Company also is studying the development of cardiac marker tests, and other
tests to measure enzymes and other analytes. Consequently, research and
development expenditures are expected to increase over the next three years. The
amount and timing of such increase will depend upon numerous factors including
the level of activity at any point in time, the breadth of the Company's
development objectives and the success of its development programs. Some portion
of these expenditures may be funded by Abbott. See "Long-Term Sales, Marketing
and Research Alliance with Abbott Laboratories".

The Company incurred general and administrative expenses (as a percentage of
sales) of approximately $7.2 million (18.3%), $5.8 million (15.2%) and $5.8
million (19.1%) in 1998, 1997 and 1996, respectively. General and administrative
expenses consisted primarily of salaries and benefits of personnel, office
costs, professional fees and other costs necessary to support the Company's
infrastructure. The increase from 1997 to 1998 primarily reflects the Company's
increased need for management personnel and other services to support its
growth, and legal fees and expenses associated with the defense of certain legal
proceedings and other legal matters.

In January 1998, the Company decided to consolidate all its cartridge assembly
operations in its manufacturing facility in Ontario, Canada. In order to
facilitate this move, the Company has relocated its cartridge assembly operation
from Plainsboro, New Jersey, to its manufacturing facility in Ontario, Canada.
The relocation of cartridge assembly commenced in June 1998, with the transfer
of one assembly line to Canada, and the Company expects to complete the
relocation by April 1999. As a result of this consolidation of operations, 66
employees in the cartridge assembly operations were notified during the first
quarter of 1998 that their employment would be terminated. The Company's lease
for its instrument operations, engineering, customer support, selected research
and development, marketing and administrative facility in Princeton, New Jersey,
expired in September 1998. The Company relocated these activities to a 37,474
square foot leased facility in East Windsor, New Jersey. The product
distribution operations formerly located in the Company's Plainsboro, New Jersey
facility were relocated to the Company's East Windsor, New Jersey facility in
early 1999. The charge to earnings in 1998 for these relocations, including
severance and retention payments to affected employees, the physical move of
equipment, rent and utilities on the unoccupied Plainsboro facility until that
lease expired in February 1999, and miscellaneous costs was approximately $1.1
million. The charge to earnings in 1998 comprises approximately $1.0 million for
severance and retention payments, and approximately $0.1 million for lease costs
in respect of the unoccupied Plainsboro facility and other expenses associated
with the move to the East Windsor facility. At December 31, 1998, approximately
$236,000 remained in accrued liabilities in respect of consolidation expenses,
which are expected to be paid during the first half of 1999. An additional
charge to earnings of approximately $0.1 million is anticipated in 1999.
Retention payments are charged to expense over the retention period. The Company
expects the consolidation to reduce future manufacturing and operating costs by
over $2.0 million per year, commencing in the first quarter of 1999. Such
savings will come from lower personnel costs, after hiring 52 employees for the
expanded cartridge assembly operations in Ontario, Canada, and lower rent,
utilities and other overhead expenses.

16
<PAGE> 19

The Company incurred sales and marketing expenses (as a percentage of sales) of
approximately $13.0 million (33.1%), $13.0 million (34.4%) and $12.0 million
(39.5%) in 1998, 1997 and 1996, respectively, consisting primarily of salaries,
commissions, benefits, travel and other expenditures for sales representatives,
implementation coordinators, international marketing support, order entry,
distribution, technical services, clinical affairs, product literature, market
research, and other sales infrastructure costs. Sales and marketing expenses in
1998 include approximately $483,000 for severance and retention bonus amounts
payable to the Company's sales representatives and sales management personnel.
The employment of the majority of the Company's sales representatives was
terminated on December 31, 1998, in connection with the Distribution Agreement
with Abbott. Sales and marketing expenses are expected to decline in 1999 as a
result of the Distribution Agreement with Abbott. See "Long-Term Sales,
Marketing and Research Alliance with Abbott Laboratories".

Investment income was approximately $1.7 million, $1.6 million and $2.1 million
in 1998, 1997 and 1996, respectively. The changes in investment income primarily
reflect changes in the level of cash and cash equivalent balances. The higher
investment income in 1996 reflects the receipt in July 1995 of net proceeds of
approximately $59.2 million in connection with the issuance of Series B
Preferred Stock to HP. Interest income is expected to decline in the near future
as cash and cash equivalent balances decline.

Net loss in 1998 increased to approximately $18.4 million or $1.15 per share,
from $17.0 million or $1.17 per share in 1997, and $17.5 million or $1.31 per
share in 1996. The weighted average number of shares used in computing basic and
diluted net loss per share was 16.05 million, 14.50 million and 13.32 million in
1998, 1997 and 1996, respectively. The increases in the weighted average number
of shares primarily reflect the private placement of 1.85 million shares of
Common Stock in June 1997 and the issuance of 2 million shares of Common Stock
to Abbott in September 1998.

Liquidity and Capital Resources

At December 31, 1998, the Company had cash and cash equivalents of approximately
$38.4 million, an increase of $5.5 million from the December 31, 1997 balance of
approximately $32.9 million. The increase primarily reflects net proceeds of
approximately $20.7 million from the issuance of Common Stock to Abbott in
September 1998, partially offset by approximately $9.5 million of cash used in
operating activities and equipment purchases of approximately $5.9 million
during the year ended December 31, 1998. Working capital increased by
approximately $5.9 million from $38.7 million at December 31, 1997 to $44.6
million at December 31, 1998, primarily reflecting the increase in cash and cash
equivalents. The change in working capital also reflects an increase in
inventory of $2.6 million which in part reflects the rebuilding of inventory
following a manufacturing transition to smaller biosensor chips in the fourth
quarter of 1997. In addition, the Company has increased and expects to continue
to increase the inventory volumes on hand to meet the anticipated growth of
customer sales. The aforementioned increases in working capital were partially
offset by an increase in accrued expenses of approximately $2.3 million which in
part reflects retention bonuses and severance payments in connection with the
consolidation of operations and the reduction in the sales force. The Company
expects its existing funds to continue to decline until its revenues are
sufficient to support its growth, but to be sufficient to meet its obligations
and its liquidity and capital requirements for the near term. The Company
regularly monitors capital raising alternatives in order to take advantage of
opportunities to supplement its current working capital upon favorable terms,
including joint ventures, strategic corporate partnerships or other alliances
and the sale of equity and/or debt securities. The Company's need, if any, to
raise additional funds to meet its working capital and capital requirements will
depend upon numerous factors, including the results of its product marketing and
sales activities, its new product development efforts, manufacturing
efficiencies and competitive conditions.

At December 31, 1998, the Company had available for Federal Income Tax purposes
net operating loss carryforwards of approximately $148 million, which expire in
varying amounts through 2018. The timing and manner in which the operating loss
carryforwards may be utilized in any year by the Company will be limited by
Section 382 of the Internal Revenue Code.

Almost all of the Company's international sales are invoiced and settled in U.S.
dollars. However, while sales to FUSO in Japan are invoiced in U.S. dollars, the
Company's U.S. dollar sales prices for cartridges (but not equipment) reflect
twice yearly adjustments for changes in the Japanese Yen/U.S. dollar exchange
rate. Cartridge revenues from Japan would have been approximately $0.2 million
higher in 1998 if the average Japanese Yen/U.S. dollar exchange rates in effect
in 1997 were applied to 1998 sales prices. The growth in international sales in
other countries may be affected by foreign exchange movements, in that potential
customers may be discouraged from placing orders for U.S. dollar denominated
products if changes in exchange rates are adverse to the customer.

17
<PAGE> 20

A large part of the Company's cartridge production and all biosensor chip
production has been conducted in Canada. Substantially all cartridge production
will be conducted in Canada in 1999 following the Operations Consolidation
discussed above. Most labor and overhead costs are incurred in Canadian currency
funded by U.S. dollar transfers from the U.S. each week, while most raw material
purchases are in U.S dollars. In 1998, the accumulated other comprehensive loss
related to foreign currency translation increased by approximately ($1.1)
million to approximately ($1.3) million, and reflects the adjustment to
translate the Canadian Subsidiary's balance sheet to U.S. dollars at the
December 31, 1998 exchange rate. The decline in the value of the Canadian dollar
(by approximately 7% in 1998), has reduced the U.S. dollar cost of product
produced in Canada.

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

Long-Term Sales, Marketing and Research Alliance with Abbott Laboratories

On September 2, 1998, the Company and Abbott entered into agreements (the
"Alliance Agreements") providing for a long-term sales, marketing and research
alliance. The Alliance Agreements comprise a Distribution Agreement, a Research
Agreement, a Stock Purchase Agreement, a Standstill Agreement and a Registration
Rights Agreement.

Under the Distribution Agreement, Abbott has become, subject to the existing
rights of the Company's other international distributors, the exclusive
worldwide distributor of the Company's hand-held blood analyzer products
(including cartridges) and any new products the Company may develop for use in
the professionally attended human healthcare delivery market. Abbott has assumed
the Company's current product sales to U.S. customers (the "Base Business") at
no profit to Abbott, and the Company and Abbott will share in the incremental
profits derived from product sales beyond the Base Business. Abbott will prepay
to the Company a total of $25,000,000 during the first three years of the
Distribution Agreement as guaranteed future incremental product sales. Such
prepayments will be repaid by the Company to Abbott as a credit against actual
incremental product sales. The first prepayment of $5,000,000 was received on
September 2, 1998, and is carried on the consolidated balance sheet as deferred
revenue from related parties, non-current, at December 31, 1998. A second
prepayment of $4,000,000 was received in January 1999. Distribution under the
Distribution Agreement commenced in the United States on November 1, 1998. A
subsequent international rollout is planned. As a result of the Distribution
Agreement, the majority of the Company's revenues will be derived from Abbott.

The Distribution Agreement expires on December 31, 2003, subject to automatic
extensions for additional one-year periods unless either party provides the
other with at least 12 months prior written notice, except that the Company may
terminate the Distribution Agreement after December 31, 2001 if Abbott fails to
achieve a three-year milestone minimum growth rate in sales of the Company's
products covered by the Distribution Agreement. If the Distribution Agreement is
terminated, other than (i) by the Company for cause or for Abbott's failure to
achieve the minimum growth rate; or (ii) by Abbott, if Abbott delivers the
requisite notice terminating the Distribution Agreement after the initial term,
then, the Company will be obligated to pay to Abbott a one-time termination fee
calculated to compensate Abbott for a portion of its costs in undertaking the
distribution relationship, and residual payments for five years following
termination based on a percentage of Abbott's net sales of the Company's
products during the final twelve months of the Distribution Agreement. In the
event that such termination occurs within the first three years of the
Distribution Agreement, the Company also must refund to Abbott any prepayments
made and not yet credited to Abbott at the time of such termination.

Under the terms of the Research Agreement, the Company will conduct research and
will develop products primarily to be commercialized by Abbott. Such research
and development will be funded by Abbott and Abbott will have exclusive
worldwide commercialization rights to the products developed under the Research
Agreement subject to certain limitations. The parties have identified two
initial projects to pursue under the Research Agreement, including the research
and development of tests useful in the diagnosis and treatment of myocardial
infarction and coronary artery disease. The Company and Abbott will jointly own
the intellectual property which is developed during the course of work performed
under the Research Agreement. In connection with this agreement, the Company
received a $517,000 prepayment in December 1998 for research and development to
be pursued by the Company. During 1998, $110,000 of this amount was expended by
the Company and included in net sales. The remaining prepaid portion of $407,000
as of December 31, 1998 has been included in deferred revenue from related
parties, current, on the consolidated balance sheet. The Research Agreement
terminates upon expiration or termination of the 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 Research Agreement in the territory covered by the
Distribution Agreement.

18
<PAGE> 21

Under the Stock Purchase Agreement, 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 $20,641,000. The Purchased Shares
represented at closing approximately 11.5% of the outstanding voting securities
of the Company. The Stock Purchase Agreement, together with the Registration
Rights Agreement, contains certain terms and conditions pertaining to the voting
and transfer of the Purchased Shares.

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.

The foregoing description of the 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.

The objective of the Abbott alliance is to strengthen the Company's product
marketing and distribution capability and accelerate the development of new
products. Because the alliance is in its very earliest implementation stage, it
is difficult at this time for the Company to predict, within a reasonable degree
of certainty, the likely impact of the alliance upon its operations,
particularly in the long-term. In the near term, the Company expects to reduce
its sales and marketing expenses as Abbott assumes principal responsibility for
many of the Company's marketing and sales activities.

Impact of Year 2000

The "Year 2000" or "Y2K" issue is the result of computer programs being written
using two digits rather than four to define the applicable year. Any of the
Company's computer programs that have time-sensitive software may recognize a
date using "00" as the year 1900 rather than the year 2000. This could result in
a system failure or miscalculations causing disruptions of operations,
including, among other things, a temporary inability to process transactions,
send invoices, or engage in similar normal business activities.

The Company has identified its Year 2000 risks in five categories: internal
business operations software, internal manufacturing control software, software
used in computer controlled manufacturing equipment, software used in
computer-controlled products and external noncompliance by suppliers and
customers.

Internal Business Operations Software: The Company runs its financial and
inventory operations using a commercially available package supplied by QAD Inc.
running on a UNIX operating system supplied by HP. The Company's computer
networks are controlled by software provided by Microsoft Corporation and
Novell(R) Inc., and applications used for miscellaneous business operations are
supplied by Microsoft Corporation. All the above mentioned products are
certified Year 2000 compliant by these vendors.

Internal manufacturing Control Software: Certain manufacturing operations are
managed by internally developed software tools. Date handling software
operations in most of these tools utilize software routines that are part of the
software "platform" upon which these tools operate. These platforms, primarily
supplied by HP, are certified Y2K compliant. The Company has identified only a
few exceptions but has determined these tools either to be compliant, not
significant to the production process or require only minor modifications
included in planned upgrades. All upgrades are expected to be completed during
the first half of 1999.

Software Used in Computer Controlled manufacturing Equipment: The Company has
identified all pieces of computer controlled manufacturing equipment used in
production processes and determined that where date handling functions are
significant to the production process, the functions are Y2K compliant.

Software Used in Computer Controlled Products: Certain products made by the
Company have software components developed and maintained by the Company. The
Company has completed the software changes and testing necessary to certify
substantially all of these products as Y2K compliant, and expects to complete
the remaining changes and testing by mid-1999. The Company regularly distributes
software updates for these products as part of its normal business practices. To
date, the cost of providing the updated, Y2K compliant software to customers has
been at no incremental cost to the Company.

19
<PAGE> 22

External Non Compliance by Suppliers and Customers: The Company is engaged in
the process of monitoring the Y2K program status of critical suppliers. The
Company expects to establish the appropriate contingency plans for suppliers
that are not able to supply sufficient certification by early 1999. These
contingency plans may include establishing alternative suppliers and/or
accumulating inventory as appropriate. By the year 2000 the Company's revenues
are expected to be substantially derived from a few authorized distributors,
including Abbott and HP. The Company believes that these companies have adequate
Y2K compliance programs in place. Accordingly, it has no reason to believe that
additional operational risks are presented by the Company's relationship with
its most significant customers.

The cost of the Company's activities related to the Year 2000 project have not
been, nor are expected to be, material. Where modifications have been required
they have been incremental additions to software upgrades driven by other
business needs. The principal Company resource allocated to the Y2K issue has
been, and is expected to be, management time. Such internal personnel costs
allocated to the Y2K issue are estimated to have been less than $150,000 through
December 31, 1998, and are expected to be less than $50,000 in 1999.

Despite the Company's activities in regards to the Year 2000 issue, there can be
no assurance that Year 2000 problems will not result in an interruption in, or
failure of, certain normal business activities or operations, that may have a
material adverse effect on the Company's results of operations, liquidity or
financial condition.

Recent Accounting Pronouncements

In February 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 132, "Employers'
Disclosures about Pensions and other Post-retirement Benefits," and is effective
for fiscal years beginning after December 15, 1997. As the Company does not
maintain a pension or other post-retirement plan, the statement is not
applicable and has no impact on the Company.

In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities". SFAS 133 is effective for all fiscal
quarters of all fiscal years beginning after June 15, 1999 (January 1, 2000 for
the Company). SFAS 133 requires that all derivative instruments be recorded on
the balance sheet at their fair value. Changes in the fair value of derivatives
are recorded each period in current earnings or other comprehensive income,
depending on whether a derivative is designated as part of a hedge transaction
and, if it is, the type of hedge transaction. The Company presently does not
have any derivative instruments or hedging activities and, consequently, SFAS
133 is not expected to have a material impact on the Company's consolidated
results of operations, financial position or cash flows.

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.

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

Not applicable.

Item 8. Financial Statements and Supplementary Data

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

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

Not applicable.

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<PAGE> 23

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 1999 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 1999 Annual Meeting of
Stockholders and is incorporated herein by reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management

Information concerning security ownership of certain beneficial owners and
management is included under the captions "Principal Stockholders" and "Election
of Directors" of the Proxy Statement for the 1999 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 1999 Annual
Meeting of Stockholders and is incorporated herein by reference.

PART IV

Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K

(a) Financial Statements and Schedules

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

Report of Independent Accountants.........................................26

Consolidated Statements of Operations for each of the
three years in the period ended December 31, 1998.........................27

Consolidated Balance Sheets at December 31, 1998 and 1997.................28

Consolidated Statements of Changes in Stockholders' Equity for each
of the three years in the period ended December 31, 1998..................29

Consolidated Statements of Cash Flows for each of the
three years in the period ended December 31, 1998.........................30

Notes to Consolidated Financial Statements................................31

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

Report of Independent Accountants.........................................43

Schedule II--Valuation and Qualifying Accounts............................44

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

21
<PAGE> 24

(3) Exhibits:

Exhibit No. Description

(3.1) Restated Certificate of Incorporation (Form S-8/S-3 Registration
Statement,File No. 33-48889)*

(3.2) By-laws (Form 10-K for fiscal year ended December 31, 1996)*

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

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

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

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

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

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

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

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

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

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

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

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

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

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

* These items are hereby incorporated by reference from the exhibits of the
filing or report indicated (except where noted, Commission File No.
0-19841) and are hereby made a part of this Report.

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

22
<PAGE> 25

Exhibit No. Description

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

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

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

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

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

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

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

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

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

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

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

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

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

(10.38)** 1985 Stock Option Plan, as amended (Form 10-K for fiscal year ended
December 31, 1997)*

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

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

* These items are hereby incorporated by reference from the exhibits of the
filing or report indicated (except where noted, Commission File No.
0-19841) and are hereby made a part of this Report.

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

23
<PAGE> 26

Exhibit No. Description

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

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

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

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

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

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

(10.47) 1998 Stock Option Plan (Form S-8 Registration Statement, File No.
333-65357)*

(10.48) Form of Director Non-Statutory Stock Option Agreement

(10.49) Lease Agreement dated August 27, 1998, between Urigold Holdings
Ltd. and the Registrant

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

(23) Consent of PricewaterhouseCoopers LLP, Independent Accountants

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

(27) Financial Data Schedule

* These items are hereby incorporated by reference from the exhibits of the
filing or report indicated (except where noted, Commission File No.
0-19841) and are hereby made a part of this Report.

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

24
<PAGE> 27

i-STAT CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Description Page

Report of Independent Accountants............................................26

Consolidated Statements of Operations for each of the three years
in the period ended December 31, 1998........................................27

Consolidated Balance Sheets as of December 31, 1998 and 1997.................28

Consolidated Statements of Changes in Stockholders' Equity for each of
the three years in the period ended December 31, 1998........................29

Consolidated Statements of Cash Flows for each of the three years
in the period ended December 31, 1998........................................30

Notes to Consolidated Financial Statements...................................31

25
<PAGE> 28

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, 1998 and 1997,
and the results of their operations and their cash flows for each of the three
years in the period ended December 31, 1998, in conformity with generally
accepted accounting principles. 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 generally accepted auditing
standards 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 the opinion expressed above.

PricewaterhouseCoopers LLP
Florham Park, New Jersey
January 25, 1999

26
<PAGE> 29

i-STAT CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
In thousands of dollars, except share and per share data For the Years Ended December 31,
- ------------------------------------------------------------------------------------------------------------------------------------
1998 1997 1996
<S> <C> <C> <C>
Net sales (inclusive of related party sales of
$7,727, $2,897 and $961) ................................... $ 39,101 $ 37,840 $ 30,330
Cost of sales ................................................. 30,664 30,962 26,291
----------------------------------------------------------
Gross profit ............................................... 8,437 6,878 4,039
Operating expenses:
Research and development ................................... 7,281 6,721 5,780
General and administrative ................................. 7,152 5,761 5,778
Consolidation of operations ................................ 1,115 -- --
Sales and marketing ........................................ 12,956 13,020 11,991
----------------------------------------------------------
Total operating expenses ................................ 28,504 25,502 23,549
----------------------------------------------------------
Operating loss ....................................... (20,067) (18,624) (19,510)
Other income (expense):
Investment income .......................................... 1,694 1,612 2,105
Other ...................................................... (22) 39 (51)
----------------------------------------------------------
Other income (expense), net ............................. 1,672 1,651 2,054
----------------------------------------------------------
Net loss ...................................................... (18,395) (16,973) (17,456)
Other comprehensive loss:
Foreign currency translation ............................... (1,064) (100) (79)
----------------------------------------------------------

Comprehensive loss ............................................ ($19,459) ($17,073) ($17,535)
==========================================================

Basic and diluted net loss per share .......................... ($1.15) ($1.17) ($1.31)
==========================================================

Shares used in computing basic and diluted
net loss per share ............................................ 16,050,877 14,497,530 13,321,603
==========================================================
</TABLE>

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

27
<PAGE> 30

i-STAT CORPORATION
CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
In thousands of dollars, except share and per share data December 31,
- ------------------------------------------------------------------------------------------------------------------------------------
1998 1997
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents ..................................................................... $ 38,390 $ 32,914
Accounts receivable, net of reserve for doubtful accounts of $190
in 1998 and $109 in 1997 ................................................................... 2,849 4,827
Accounts receivable from related parties ...................................................... 2,843 379
Inventories (Note 2) .......................................................................... 8,296 5,927
Prepaid expenses and other current assets ..................................................... 1,473 775
---------------------------
Total current assets ....................................................................... 53,851 44,822
Plant and equipment, net (Note 3) ................................................................ 13,336 12,619
Intangible assets, net (Note 4) .................................................................. 1,344 1,330
Other assets ..................................................................................... 375 399
---------------------------
Total assets ............................................................................... $ 68,906 $ 59,170
===========================

Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable .............................................................................. $ 2,684 $ 2,174
Accrued expenses (Note 5) ..................................................................... 6,003 3,733
Deferred revenue (inclusive of related party deferred revenue of $407 in 1998
and $ 0 in 1997) .............................................................................. 559 218
---------------------------
Total current liabilities .................................................................. 9,246 6,125
---------------------------

Deferred revenue from related party, non-current ................................................. 5,000 --
---------------------------
Total liabilities ............................................................................. 14,246 6,125
---------------------------

Commitments and Contingencies

Stockholders' Equity:
Preferred Stock, $.10 par value, shares authorized 7,000,000:
Series A Junior Participating Preferred Stock, $.10 par value,
1,500,000 shares authorized; none issued at December 31, 1998
and December 31, 1997 ................................................................... -- --
Series B Preferred Stock, $.10 par value, 2,138,702 shares authorized, issued
and outstanding at December 31, 1998 and December 31, 1997 .............................. 214 214
Common Stock, $.15 par value, shares authorized 25,000,000;
shares issued and outstanding 15,308,995 at December 31, 1998
and 13,203,527 at December 31, 1997 ........................................................ 2,296 1,981
Treasury Stock at cost ........................................................................ -- (13)
Additional paid-in capital .................................................................... 230,328 209,594
Unearned compensation ......................................................................... (169) (181)
Accumulated deficit ........................................................................... (176,668) (158,273)
Accumulated other comprehensive loss .......................................................... (1,341) (277)
---------------------------
Total stockholders' equity .................................................................... 54,660 53,045
---------------------------
Total liabilities and stockholders' equity ................................................. $ 68,906 $ 59,170
===========================
</TABLE>

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

28
<PAGE> 31

i-STAT CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
Preferred
Stock Common Stock
--------- ---------------------------------------------

Additional
In thousands of dollars, Par Number Par Paid-in Treasury
except share and per share data Value of Shares Value Capital Stock
- -----------------------------------------------------------------------------------------------------------

<S> <C> <C> <C> <C> <C>
Balance, December 31, 1995................... $ 214 11,123,698 $1,669 $188,698 ($691)
Net loss for 1996............................
Other comprehensive loss on foreign currency
translation adjustments..................

Total comprehensive loss.................
Shares issued at $1.50 to $23.125 per share
under the 1985 Stock Option Plan
(Note 9)................................. 111,347 16 706
Compensation related to options
issued net of forfeitures ............... (2,216)
Amortization of unearned compensation
related to options and Restricted Stock..
Purchase of Treasury Stock .................. (66)
Retirement of Treasury Stock................. (19,831) (3) (754) 757
-----------------------------------------------------------
Balance, December 31, 1996................... 214 11,215,214 1,682 186,434 --
Net loss for 1997............................
Other comprehensive loss on foreign currency
translation adjustments..................

Total comprehensive loss.............
Shares issued at $.525 to $23.125 per share
under the 1985 Stock Option Plan (Note 9) 127,613 19 426
Private placement of Common Stock............ 1,850,000 278 22,555
Restricted Stock issued at $16.875 per share. 10,700 2 179
Amortization of unearned compensation
related to options and Restricted Stock..
Purchase of Treasury Stock................... (13)
-----------------------------------------------------------
Balance, December 31, 1997............... 214 13,203,527 1,981 209,594 (13)
Net loss for 1998............................
Other comprehensive loss on foreign
currency translation adjustments ........

Total comprehensive loss.............
Shares issued at $1.50 to $12.625 per share
under the 1985 Stock Option Plan (Note 9) 90,260 13 149
Private placement of Common Stock............ 2,000,000 300 20,341
Restricted Stock issued at $15.938 per share. 750 12
Restricted Stock issued at $16.438 per share. 3,000 49
Restricted Stock issued at $16.50 per share.. 12,000 2 196
Amortization of unearned compensation
related to Restricted Stock..............
Retirement of Treasury Stock................. (542) (13) 13
-----------------------------------------------------------
Balance, December 31, 1998............... $214 15,308,995 $2,296 $230,328 $--
===========================================================

Accumulated
Other Total
Unearned Compre- Stock-
In thousands of dollars, Compen- hensive Accumulated holders
except share and per share data sation Loss Deficit Equity
- ---------------------------------------------------------------------------------------------

<S> <C> <C> <C> <C>
Balance, December 31, 1995................... ($2,354) ($98) ($123,844) $63,594
Net loss for 1996............................ (17,456)
Other comprehensive loss on foreign currency
translation adjustments.................. (79)
--------------------
Total comprehensive loss................. (17,535)
Shares issued at $1.50 to $23.125 per share
under the 1985 Stock Option Plan
(Note 9)................................. 722
Compensation related to options
issued net of forfeitures ............... 2,216
Amortization of unearned compensation
related to options and Restricted Stock.. 119 119
Purchase of Treasury Stock .................. (66)
Retirement of Treasury Stock.................
----------------------------------------------
Balance, December 31, 1996................... (19) (177) (141,300) 46,834
Net loss for 1997............................ (16,973)
Other comprehensive loss on foreign currency
translation adjustments.................. (100)
--------------------
Total comprehensive loss............. (17,073)
Shares issued at $.525 to $23.125 per share
under the 1985 Stock Option Plan (Note 9) 445
Private placement of Common Stock............ 22,833
Restricted Stock issued at $16.875 per share. (181)
Amortization of unearned compensation
related to options and Restricted Stock.. 19 19
Purchase of Treasury Stock................... (13)
----------------------------------------------
Balance, December 31, 1997............... (181) (277) (158,273) 53,045
Net loss for 1998............................ (18,395)
Other comprehensive loss on foreign
currency translation adjustments ........ (1,064)
--------------------
Total comprehensive loss............. (19,459)
Shares issued at $1.50 to $12.625 per share
under the 1985 Stock Option Plan (Note 9) 162
Private placement of Common Stock............ 20,641
Restricted Stock issued at $15.938 per share. (12)
Restricted Stock issued at $16.438 per share. (49)
Restricted Stock issued at $16.50 per share.. (198)
Amortization of unearned compensation
related to Restricted Stock.............. 271 271
Retirement of Treasury Stock.................
----------------------------------------------
Balance, December 31, 1998............... ($169) ($1,341) ($176,668) $54,660
==============================================
</TABLE>

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

29
<PAGE> 32

i-STAT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
In thousands of dollars, except share and per share data For the Years Ended December 31,
- ------------------------------------------------------------------------------------------------------------------------------------
1998 1997 1996
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss ........................................................................... ($18,395) ($16,973) ($17,456)
Adjustment to reconcile net loss to net cash used in operating activities:
Depreciation and amortization ................................................... 4,591 3,878 2,831
Accounts receivable provision ................................................... 103 53 145
Gains on disposal of equipment .................................................. -- (27) (8)
Amortization of deferred revenue ................................................ (218) (3,022) (3,136)
Expense related to restricted stock and options ................................. 271 19 119
Change in assets and liabilities:
Accounts receivable ................................................................ 1,875 1 (980)
Accounts receivable from related parties ........................................... (2,464) (312) (60)
Inventories ........................................................................ (2,596) 1,340 1,256
Prepaid expenses and other current assets .......................................... (660) 180 (224)
Accounts payable ................................................................... 568 476 (17)
Accrued expenses ................................................................... 2,321 140 1,227
Restricted cash, letter of credit .................................................. (219) 158 96
Deferred revenue ................................................................... 5,559 -- --
---------------------------------------
Net cash used in operating activities ........................................... (9,264) (14,089) (16,207)
---------------------------------------

Cash flows from investing activities:
Purchases of investments ........................................................... -- (22,976) --
Sales of investments ............................................................... -- 22,976 2,025
Purchase of equipment .............................................................. (5,925) (4,376) (5,180)
Cost of intangible assets .......................................................... (193) (259) (311)
Proceeds from sale of equipment .................................................... -- 56 19
---------------------------------------
Net cash used in investing activities ........................................... (6,118) (4,579) (3,447)
---------------------------------------

Cash flows from financing activities:
Proceeds from issuance of Common Stock ............................................. 162 445 656
Net proceeds from private placement of Common Stock ................................ 20,641 22,833 --
Retirement (purchase) of Treasury Stock ............................................ 13 (13) --
Other .............................................................................. 29 -- --
---------------------------------------
Net cash provided by financing activities ....................................... 20,845 23,265 656
---------------------------------------

Effect of currency exchange rate changes on cash ...................................... 13 (100) (79)
---------------------------------------
Net increase (decrease) in cash and cash equivalents ............................... 5,476 4,497 (19,077)
Cash and cash equivalents at beginning of year ..................................... 32,914 28,417 47,494
---------------------------------------
Cash and cash equivalents at end of year ........................................... $ 38,390 $ 32,914 $ 28,417
=======================================

Supplemental disclosure of cash flow information:
Cash paid for income taxes ......................................................... -- -- --
=======================================
Cash paid for interest ............................................................. $ -- $ -- $ 1
=======================================

Supplemental disclosures of cash flow information and non cash investing and
financing activities:
Equipment purchases included in accounts payable at year end ....................... $ 181 $ 33 $ 136
=======================================
</TABLE>

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

30
<PAGE> 33

i-STAT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Summary of Significant Accounting Policies

Principles of Consolidation and Nature of Operations

The accompanying consolidated financial statements include the accounts of
i-STAT Corporation and i-STAT Canada Limited, collectively known as i-STAT or
the Company. All significant intercompany accounts and transactions have been
eliminated in consolidation. The Company develops, manufactures and markets
medical diagnostic products for blood analysis that provide health care
professionals with immediate and accurate critical diagnostic information at the
point of patient care. As of November 1998, the Company's products are marketed
and distributed principally to hospitals by Abbott Laboratories ("Abbott") in
connection with the Company's long-term sales and marketing alliance (see note
12).

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

Cash and Cash Equivalents

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

Foreign Currency Translation/Transactions

Consolidated Balance Sheet amounts have been translated using exchange rates in
effect at the balance sheet dates and the translation adjustments have been
included in the accumulated other comprehensive loss as a separate component of
Consolidated Stockholders' Equity. The Consolidated Statements of Operations has
been translated using the average exchange rates in effect each year. The
transaction gains and losses, which are not material, have been included in
other income.

Inventories

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

Plant and Equipment

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

Patents, Licenses and Trademarks

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

31
<PAGE> 34

i-STAT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Unearned Compensation

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

Income Taxes

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

Revenue Recognition

Revenues are recorded at the time of shipment of products and when title
transfers or upon performance of services. Revenues from service contracts are
recognized in earnings over the term of the contract.

Basic and Diluted Loss per Share

Basic and diluted net loss per share is calculated using the weighted average
number of common shares and preferred shares outstanding for all periods
presented. Preferred shares have been included in the calculations since their
date of issuance as they are convertible into common shares on a 1:1 basis and
have substantially the same characteristics as common stock. Basic EPS excludes
dilution and is computed by dividing income available to common stockholders by
the weighted-average number of common shares outstanding for the period. Diluted
EPS reflects the potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted into common stock or
resulted in the issuance of common stock that then shared in the earnings of the
entity. The Company has not included potential common shares in the diluted
per-share computation as the result is antidilutive.

Options to purchase 2,141,865 shares of common stock at $1.50 - $32.58 per
share, which expire on various dates from May 1999 to August 2008, were
outstanding at December 31, 1998. These shares were not included in the
computation of diluted EPS because the effect would be antidilutive due to the
net loss.

Estimates

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

Concentration of Credit Risk

The Company's significant concentrations of credit risk are with its cash and
cash equivalents and accounts receivable. Substantially all the Company's cash
and cash equivalents at December 31, 1998 were invested in the securities of a
single U.S. Government Agency. Accounts receivable are generally with major
hospitals and distributors such as Abbott, Hewlett-Packard Company ("HP") and
FUSO, Inc. The Company provides credit to its customers on an unsecured basis
after evaluating their credit status.

Comprehensive Income

The Company has adopted SFAS No. 130, "Reporting Comprehensive Income", which
establishes standards for the reporting and display of comprehensive income and
its components in a full set set of financial statements. The adoption of this
Statement has no impact on the Company's net loss or stockholders' equity.
Statement No. 130 requires foreign currency translation adjustments, which prior
to adoption were reported separately in stockholders' equity, to be included in
other comprehensive earnings. The only components of accumulated other
comprehensive loss for the Company are foreign currency translation adjustments.
Prior year financial statements have been reclassified to conform to the
requirements of Statement No. 130.

32
<PAGE> 35

i-STAT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Segment Information

In 1998, the Company adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information". The Company operates within one business
segment comprising the i-STAT System. The i-STAT System consists of a portable
handheld analyzer and single-use, disposable cartridges, which are
interdependent on one another in the functionality of the system. Prior years
segment and geographic data has been restated to present the required
information.

Recently Issued Accounting Pronouncements

If February 1998, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 132, "Employers' Disclosures about Pensions and Other Post-retirement
Benefits", and is effective for fiscal years beginning after December 15, 1997.
As the Company does not maintain a pension or other post-retirement plan, the
statement is not applicable and has no impact on the Company.

In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities". SFAS No. 133 is effective for all fiscal
quarters of all fiscal years beginning after June 15, 1999 (January 1, 2000 for
the Company). SFAS No. 133 requires that all derivative instruments be recorded
on the balance sheet at their fair value. Changes in the fair value of
derivatives are recorded each period in current earnings or other comprehensive
income depending on whether a derivative is designated as part of a hedge
transaction and, if it is, the type of hedge transaction. The Company presently
does not have any derivative instruments or hedging activities and,
consequently, SFAS No. 133 is not expected to have a material impact on the
Company's consolidated results of operations, financial position or cash flow.

Reclassification

Certain reclassifications have been made to 1996 and 1997 amounts to conform
them to the 1998 presentation.

2. Inventories

Inventories consist of the following:

<TABLE>
<CAPTION>
In thousands of dollars December 31,
- --------------------------------------------------------------------------------
1998 1997

<S> <C> <C>
Raw materials ............................ $2,537 $2,206
Work in process .......................... 3,206 1,633
Finished goods ........................... 2,553 2,088
-------------------------
$8,296 $5,927
=========================
</TABLE>

3. Plant and Equipment

Plant and equipment, net, consists of the following:

<TABLE>
<CAPTION>
In thousands of dollars December 31,
- --------------------------------------------------------------------------------
1998 1997

<S> <C> <C>
Equipment loaned to customers ...................... $ 2,496 $ 1,945
Manufacturing equipment ............................ 26,297 23,299
Furniture and fixtures ............................. 993 907
Leasehold improvements ............................. 3,271 3,326
----------------------
33,057 29,477
Less accumulated depreciation and amortization ..... (19,721) (16,858)
----------------------
$ 13,336 $ 12,619
======================
</TABLE>

Depreciation expense was approximately $4,412,000, $3,622,000 and $2,479,000 for
the years ended December 31, 1998, 1997 and 1996, respectively. Accumulated
depreciation and amortization includes accumulated depreciation on loaned
equipment of approximately $1,532,000 and $1,000,000 for the years ended
December 31, 1998 and 1997, respectively.

33
<PAGE> 36

i-STAT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

4. Intangible Assets

Intangible assets, net, consist of the following:

<TABLE>
<CAPTION>
In thousands of dollars December 31,
- --------------------------------------------------------------------------------
1998 1997

<S> <C> <C>
Patents, licenses and trademarks ............... $ 1,892 $ 1,699
Less accumulated amortization .................. (548) (369)
------------------------
$ 1,344 $ 1,330
========================
</TABLE>

Amortization expense was approximately $179,000, $95,000 and $73,000 for the
years ended December 31, 1998, 1997 and 1996, respectively.

5. Accrued Expenses

Accrued expenses consist of the following:

<TABLE>
<CAPTION>
In thousands of dollars December 31,
- --------------------------------------------------------------------------------
1998 1997

<S> <C> <C>
Retention bonuses and severance .................. $ 680 $ --
Accrued management incentive awards .............. 466 311
Payroll and withholding taxes .................. 905 1,099
Professional fees ................................ 423 490
Other ............................................ 3,529 1,994
---------------------
Total accrued expenses ........................... $6,003 $3,894
=====================
</TABLE>

6. Leasing Transactions

The Company's leases for its manufacturing facilities in Ontario, Canada expire
in February 2004. Rent expense was approximately $368,000, $342,000 and $335,000
for the years ended December 31, 1998, 1997 and 1996, respectively. The
Company's lease for its administrative, marketing and selected research and
development facility in Princeton, New Jersey, expired on September 30, 1998.
Rent expense for this facility was approximately $379,000, $490,000 and $484,000
for the years ended December 31, 1998, 1997 and 1996, respectively. The Company
relocated these activities to a 37,474 square foot leased facility in East
Windsor, New Jersey. The lease expires September 30, 2003, subject, at the
Company's option, to one five-year option to renew. Rent expense for this
facility was approximately $164,000 for 1998. At December 31, 1998, other assets
include $368,000 in restricted cash which acts as collateral for the leasehold
improvements made in the facility.

The Company's lease for its assembly facility in Plainsboro, New Jersey expired
in February 1999. At December 31, 1998, prepaid expenses and other current
assets include $165,000 in restricted cash which acts as collateral for the
leasehold improvements made in the facility. Rent expense for this facility was
approximately $492,000, $441,000 and $357,000 for the years ended December 31,
1998, 1997 and 1996, respectively.

As of December 31, 1998, future minimum lease payments are as follows:

<TABLE>
<CAPTION>
Year Ending December 31: In thousands of dollars Operating Leases
- --------------------------------------------------------------------------------
<S> <C>
1999......................................................... $ 1,202
2000......................................................... 1,117
2001......................................................... 1,116
2002......................................................... 1,090
2003......................................................... 921
Thereafter................................................... 64
-----------
Total minimum lease payments................................. $ 5,510
===========
</TABLE>

34
<PAGE> 37

i-STAT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

7. Preferred Stock

The Company has authorized 7,000,000 shares of preferred stock. The rights,
preferences, qualifications, and voting powers are determined by the Board of
Directors. In June 1995 the Board designated 1,500,000 shares as Series A Junior
Participating Preferred Stock that may be issued in the future in connection
with certain shareholder protection measures. Also in June 1995 the Board
designated 2,138,702 shares as Series B Preferred Stock (the "Series B Stock").
The Series B Stock is convertible into Common Stock on a 1:1 basis, subject to
certain potential adjustments and has substantially the same characteristics as
the Common Stock. The Series B Stock was issued to HP at $28.50 per share in
July 1995 for net proceeds of approximately $59.2 million. There were 2,138,702
shares of Series B Preferred Stock issued and outstanding at December 31, 1998,
1997, and 1996.

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

8. Common Stock Offerings

In September 1998, the Company completed the issuance of 2,000,000 common shares
under the Stock Purchase Agreement with Abbott Laboratories resulting in net
proceeds of $20,641,000. In June 1997, the Company completed the issuance of
1,850,000 common shares through a private offering, resulting in net proceeds of
$22,832,506. The proceeds of the offerings were used to further implement
marketing plans, for product research and development programs and for working
capital and other general corporate purposes.

9. Stock Options and Restricted Stock

As incentives to Company personnel and others, the Board of Directors from time
to time grants options to purchase shares of the Company's Common Stock. All
options are granted under the 1985 or 1998 Stock Option Plans ("the Plans"). The
maximum number of issuable shares of Common Stock is 5,300,000 of which
2,568,241 are available for grant at December 31, 1998. Options under the 1985
Stock Option Plan can be issued until November 26, 2005, and options under the
1998 Stock Option Plan can be issued until March 31, 2008. The option price
generally is based upon the fair market value of the Company's Common Stock at
the time of the grant. Unexercised options expire five to ten years from the
date of grant or three months following termination of the optionee's
employment, whichever occurs first.

On December 14, 1998, upon unanimous consent of the Board of Directors, 824,277
previously issued and outstanding stock options with an exercise price greater
than $6.125 were cancelled, except for outstanding options held by outside Board
members, the Medical Advisory Board and executive officers of the Company. Stock
options were reissued to the holders of the cancelled options to purchase
824,277 shares at $6.125, the market value on the date of grant.

35
<PAGE> 38

i-STAT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

The table below is a summary of stock option activity under the Plans for the
years 1996, 1997, and 1998:

<TABLE>
<CAPTION>
Weighted Weighted
Options Average Average
Granted Exercise Fair Value
Options and Price per per Option
Exercisable Outstanding Share Granted
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance December 31, 1995................ 650,780 $ 7.71
Balance December 31, 1995................ 1,084,161 $ 11.11
Options granted.......................... 218,026 $ 23.74 $ 16.61
Options granted--Strategic Milestone
Stock Award Program.................. 764,387 $ 23.13 $ 15.70
Options exercised........................ (111,347) ($ 6.49)
Options forfeited........................ (81,978) ($ 21.51)
Options forfeited--Strategic Milestone
Stock Award Program .................. (381,050) ($ 23.13)
---------------------------------------------------------

Balance December 31, 1996................ 746,700 $ 9.79
Balance December 31, 1996................ 1,492,199 $ 15.82
Options granted.......................... 327,523 $ 13.10 $ 7.49
Options exercised........................ (127,613) ($ 3.49)
Options forfeited........................ (54,405) ($ 19.96)
---------------------------------------------------------

Balance December 31, 1997................ 937,322 $ 14.69
Balance December 31, 1997................ 1,637,704 $ 16.10
Options granted.......................... 778,559 $ 15.44 $ 15.27
Options exercised........................ (90,260) $ 1.75
Options forfeited........................ (184,138) $ 17.91
Options cancelled........................ (824,277) $ 16.57
Options granted.......................... 824,277 $ 6.12
---------------------------------------------------------
Balance December 31, 1998................ 1,087,030 $ 12.71
Balance December 31, 1998................ 2,141,865 $ 12.30
=========================================================
</TABLE>

The weighted average remaining contractual lives of outstanding options at
December 31, 1998 was approximately 6.73 years.

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

<TABLE>
<CAPTION>
In thousands of dollars, except per share data 1998 1997 1996
- --------------------------------------------------------------------------------------------

<S> <C> <C> <C>
Pro forma net loss ............................... ($22,035) ($ 19,426) ($ 22,038)
Pro forma basic and diluted net loss per share ... ($1.37) ($ 1.34) ($ 1.65)
</TABLE>

36
<PAGE> 39

i-STAT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

As options vest over a varying number of years, and awards are generally made
each year, the pro forma impacts shown here may not be representative of future
pro forma expense amounts due to the annual grant of options by the Company. The
pro forma additional compensation expense of approximately $3,640,000,
$2,453,000 and $4,582,000 for 1998, 1997 and 1996, respectively, was calculated
based on the fair value of each option grant using the Black-Scholes model with
the following weighted-average assumptions used for grants:

<TABLE>
<CAPTION>
1998 1997 1996
- ----------------------------------------------------------------------------

<S> <C> <C> <C>
Dividend yield..................... 0% 0% 0%
Expected volatility................ 60.00 57.28 56.44
Risk free interest rate............ 5.49% 6.71% 6.40%
Expected option lives.............. 5 years 5 years 8 years
</TABLE>

The following table summarizes information about stock options outstanding at
December 31, 1998.

<TABLE>
<CAPTION>
Options Outstanding Options Exercisible

Number of Number
Range of Outstanding Weighted Average Weighted Average Exercisible Weighted Average
Exercise Price at 12/31/98 Remaining Life Exercise Price at 12/31/98 Exercise Price
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 1.50 - $ 2.25 7,093 0.95 $ 1.50 7,093 $ 1.50

$ 6.12 - $ 8.00 854,860 7.65 $ 6.24 378,624 $ 6.37

$ 9.62 - $ 14.36 493,115 4.76 $ 11.61 363,918 $ 11.42

$ 14.85 - $ 19.37 549,526 7.50 $ 17.09 154,466 $ 17.75

$ 22.37 - $ 32.58 237,271 5.92 $ 24.79 182,929 $ 24.62
- -------------------------------------------------------------------------------------------------------------
$ 1.50 - $ 32.58 2,141,865 6.73 $ 12.30 1,087,030 $ 12.71
- -------------------------------------------------------------------------------------------------------------
</TABLE>

The Company has a restricted stock plan whereby the Company can award up to
60,000 shares of common stock to employees, other than its executive officers.
The sale or transfer of the shares is limited during the restricted period, not
exceeding four years. For the year ended December 31, 1998, the Company awarded
15,750 shares of restricted common stock which had a fair value at the date of
grant of approximately $259,000. For the year ended December 31, 1997, the
Company awarded 10,700 shares of restricted common stock which had a fair value
at the date of grant of approximately $181,000. For the year ended December 31,
1996, the Company did not award shares of restricted common stock. Compensation
under the plan is charged to earnings over the restriction period and amounted
to approximately $271,000, $2,000 and $31,000 in 1998, 1997 and 1996,
respectively. At December 31, 1998, 2,600 shares of common stock were available
for issuance under the restricted stock plan.

10. Development, Distribution and Manufacturing Rights Agreements

In August 1988, the Company entered into development, distribution and
instrument manufacturing license agreements with two Japanese companies. Total
sales under these agreements were $3,794,000, $7,929,000 and $7,492,000 for the
years ended December 31, 1998, 1997 and 1996, respectively, including deferred
revenue of $0, $3,111,000 and $3,151,000 respectively. In addition, total sales
for the year ended December 31, 1997 includes a payment, in the fourth quarter,
of $900,000, net of Japanese withholding taxes, received as a development
milestone payment for creatinine. The Company also has other license and
distribution agreements, including agreements with HP and Abbott (see Notes 11 &
12).

37
<PAGE> 40

i-STAT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

11. Related Party Transactions

One director of the Company has provided consulting services to the Company.
Consulting fees incurred totaled approximately $30,000 for each of the years
ended December 31, 1998, 1997 and 1996.

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

<TABLE>
<CAPTION>
Hewlett-Packard Company In thousands of dollars 1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------

<S> <C> <C> <C>
Revenues ...................................................... $ 3,212 $ 2,897 $ 961
Purchases ..................................................... $ 728 $ 1,192 $ 370
Receivable at year end ........................................ $ 404 $ 379 $ 67
Payable at year end ........................................... $ 1 $ 26 $ 158
</TABLE>

<TABLE>
<CAPTION>
Abbott Laboratories In thousands of dollars 1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------

<S> <C> <C> <C>
Revenues ...................................................... $ 4,515 $ -- $ --
Receivable at year end ........................................ $ 2,439 $ -- $ --
Deferred revenue at year end .................................. $ 5,407 $ -- $ --
</TABLE>

12. Long-Term Sales, Marketing and Research Alliance with Abbott Laboratories

38
<PAGE> 41

i-STAT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

worldwide commercialization rights to the products developed under the Research
Agreement subject to certain limitations. The parties have identified two
initial projects to pursue under the Research Agreement, including the research
and development of tests useful in the diagnosis and treatment of myocardial
infarction and coronary artery disease. The Company and Abbott will jointly own
the intellectual property which is developed during the course of work performed
under the Research Agreement. In connection with this agreement, the Company
received a $517,000 prepayment in December 1998 for research and development to
be pursued by the Company. During 1998, $110,000 of this amount was expended by
the Company and included in net sales. The remaining prepaid portion of $407,000
as of December 31, 1998 has been included in deferred revenue from related
parties, current, on the consolidated balance sheet. The Research Agreement
terminates upon expiration or termination of the 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 Research Agreement in the territory covered by the
Distribution Agreement.

13. Income Taxes

At December 31, 1998, the Company had a net operating loss carryforward of
approximately $148,000,000 for United States Federal income tax purposes which
expires in varying amounts through 2018. The Company also has unused research
and development tax credits of approximately $1,314,000 for United States
Federal income tax purposes which expire in varying amounts through 2018.
Additionally, the Company has unused Canadian investment tax credits of
approximately $3,663,000 which expire in varying amounts through 2007. The
timing and manner in which the operating loss carryforwards and credits may be
utilized in any year by the Company will be limited by Internal Revenue Code
Section 382.

The Company accounts for income taxes in accordance with the provisions of SFAS
No. 109. SFAS No. 109 requires recognition of deferred tax liabilities and
assets for the expected future tax consequences of events that have been
included in the financial statements or tax returns. Under this method, deferred
tax liabilities and assets are determined based on the difference between the
financial statement and tax bases of assets and liabilities using enacted tax
rates in effect for the year in which the differences are expected to reverse.
The Company provides a valuation allowance against the net deferred tax assets
due to the uncertainty of realization. The increase in the valuation allowance
for the years ended December 31, 1998 and 1997 was approximately $7,905,000 and
$7,980,000, respectively.

39
<PAGE> 42

i-STAT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Temporary differences and carryforwards which give rise to the deferred tax
assets and liabilities at December 31, 1998 and 1997 are as follows:

<TABLE>
<CAPTION>
1998 1997
Deferred Tax Deferred Tax
In thousands of dollars Assets (Liabilities) Assets (Liabilities)
- ---------------------------------------------------------------------------------------
<S> <C> <C>
Net Operating Loss--U.S .................... $ 50,332 $ 47,322
Net Operating Loss--Canada ................. 2,279 1,554
Net Operating Loss--Province (Can) ......... 1,656 1,298
State Taxes ................................ 8,503 8,057
Deferred Revenue ........................... 1,886 36
Tax Credits--U.S ........................... 1,314 1,188
Tax Credits--Canada ........................ 3,663 2,697
Intangibles ................................ (425) (373)
Depreciation--U.S .......................... 346 363
Depreciation--Canada ....................... 233 353
Depreciation--Province (Can) ............... 459 189
Other ...................................... 1,641 1,298
------------------------------
71,887 63,982
------------------------------
Valuation Allowance--U.S ................... (55,094) (49,833)
Valuation Allowance--Canada ................ (6,175) (4,605)
Valuation Allowance--Province (Can) ........ (2,115) (1,487)
Valuation Allowance--State ................. (8,503) (8,057)
------------------------------
Total Net Deferred Taxes ................... $ -- $ --
==============================
</TABLE>

14. Savings and Investment Retirement Plan

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

15. Supplementary Statement of Operations Information

Maintenance and repairs expense for the years ended December 31, 1998, 1997 and
1996 was approximately $865,000, $757,000 and $723,000, respectively.

16. Commitments and Contingencies

40
<PAGE> 43

i-STAT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

The Company is a defendant in a class action complaint entitled Susan Kaufman,
on behalf of herself and all others similarly situated, Plaintiff, v. i-STAT
Corporation, William P. Moffitt, Lionel M. Sterling, Imants R. Lauks and
Matthias Plum, Jr. The class action was brought by Susan Kaufman on her behalf
and on behalf of all purchasers of the Company's Common Stock between May 9,
1995 and March 19, 1996. The complaint, which was filed in the Superior Court of
New Jersey in Mercer County on June 19, 1996, alleges New Jersey common law
fraud and negligent misrepresentation, and is predicated on a "fraud on the
market" theory in connection with certain sales of i-STAT stock by the Company's
chief executive officer, chief technology officer and two outside directors
during a nine-month period. The plaintiffs seek unspecified compensatory
damages, interest and payment of all costs and expenses incurred in connection
with the class action. The Company believes the complaint is without merit and,
on April 28, 1998, the Court entered summary judgment in favor of all the
defendants. The plaintiffs have appealed and appellate argument was held on
March 8, 1999. The appellate court's opinion will be issued in due course.
Should the plaintiffs prevail in this matter, it could have a material impact on
the financial position, results of operations and cash flows of the Company.

17. Consolidation of Operations

In January 1998, the Company decided to consolidate all its cartridge assembly
operations in its manufacturing facility in Ontario, Canada. In order to
facilitate this move, the Company has relocated its cartridge assembly operation
from Plainsboro, New Jersey to its manufacturing facility in Ontario, Canada.
The relocation of cartridge assembly commenced in June 1998, with the transfer
of one assembly line to Canada, and the Company expects to complete the
relocation by April 1999. As a result of this consolidation of operations, 66
employees in the cartridge assembly operations were notified during the first
quarter of 1998 that their employment would be terminated. The Company's lease
for its instrument operations, engineering, customer support, selected research
and development, marketing and administrative facility in Princeton, New Jersey,
expired in September 1998. The Company relocated these activities to a 37,474
square foot leased facility in East Windsor, New Jersey. The product
distribution operations formerly located in the Company's Plainsboro, New Jersey
facility were relocated to the Company's East Windsor, New Jersey facility in
early 1999. The charge to earnings in 1998 for these relocations, including
severance and retention payments to affected employees, the physical move of
equipment, rent and utilities on the unoccupied Plainsboro facility until that
lease expired in February 1999, and miscellaneous costs was approximately $1.1
million. The charge to earnings in 1998 comprises approximately $1.0 million for
severance and retention payments, and approximately $0.1 million for lease costs
in respect to the unoccupied Plainsboro facility and other expenses associated
with the move to the East Windsor facility. At December 31, 1998, approximately
$ 236,000 remained in accrued liabilities in respect of consolidation expenses,
and are expected to be paid during the first half of 1999. An additional charge
to earnings of approximately $0.1 million is anticipated in 1999. Retention
payments are charged to expense over the retention period.

41
<PAGE> 44

i-STAT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

18. Geographic Segment Data

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

<TABLE>
<CAPTION>
In thousands of dollars Year Ended December 31,
- ---------------------------------------------------------------------------
1998 1997 1996
<S> <C> <C> <C>
Net Sales:
Domestic........................... $ 29,270 $ 25,300 $ 20,878
Canada............................. 344 245 286
Japan.............................. 3,794 7,929 7,492
Other International................ 5,693 4,366 1,674
---------------------------------------
Total.............................. $ 39,101 $ 37,840 $ 30,330
=======================================
</TABLE>

<TABLE>
<CAPTION>
In thousands of dollars Year Ended December 31,
- ---------------------------------------------------------------------------
1998 1997 1996
<S> <C> <C> <C>
Long Lived Assets:
Domestic........................... $ 8,533 $ 8,038 $ 8,055
Canada............................. 6,522 6,310 5,723
---------------------------------------
Total.............................. $ 15,055 $ 14,348 $ 13,778
=======================================
</TABLE>

In 1998, approximately $ 4,515,000 of the Company's net sales were to Abbott
Laboratories. Net sales to FUSO during 1997 and 1996 were approximately
$7,929,000 and $ 7,492,000, respectively. These amounts represent more than 10%
of the consolidated net sales for each year.

19. Quarterly Financial Information (unaudited)

<TABLE>
<CAPTION>
1998
First Second Third Fourth
In thousands of dollars, except share and per share data Quarter Quarter Quarter Quarter
- ------------------------------------------------------------------------------------------------------------------------------------

<S> <C> <C> <C> <C>
Net sales............................................ $ 8,786 $ 10,454 $ 9,268 $ 10,593
Gross profit......................................... $ 1,096 $ 2,023 $ 2,189 $ 3,129
Net loss............................................. ($6,127) ($4,721) ($4,552) ($2,995)
Basic and diluted net loss per share................. ($0.40) ($0.31) ($0.28) ($0.17)
Weighted average shares used in
computing basic and diluted net loss per share.... 15,355,804 15,369,324 16,051,784 17,426,595

<CAPTION>
1997
First Second Third Fourth
In thousands of dollars, except share and per share data Quarter Quarter Quarter Quarter
- ------------------------------------------------------------------------------------------------------------------------------------

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

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

42
<PAGE> 45

REPORT OF INDEPENDENT ACCOUNTANTS
FINANCIAL STATEMENT SCHEDULE

To the Board of Directors of i-STAT Corporation:

Our audits of the consolidated financial statements referred to in our report
dated January 25, 1999 appearing in this Annual Report on Form 10-K also
included an audit of the Financial Statement Schedule listed in Item 14(a) of
this Form 10-K. In our opinion , this Financial Statement Schedule presents
fairly, in all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements.

PricewaterhouseCoopers LLP
Florham Park, New Jersey
January 25, 1999

43
<PAGE> 46

SCHEDULE II

i-STAT CORPORATION
VALUATION AND QUALIFYING ACCOUNTS

<TABLE>
<CAPTION>
Balance at Charged to Charged to Balance at
Beginning Costs and Other end of
In thousands of dollars of Period Expenses Accounts Deductions Period
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
For the year ended December 31, 1998:
Reserve for Doubtful Accounts.................. $ 109 $ 103 -- ($22)* $ 190
================================================================

For the year ended December 31, 1997:
Reserve for Doubtful Accounts.................. $ 195 $ 53 -- ($139)* $ 109
================================================================

For the year ended December 31, 1996:
Reserve for Doubtful Accounts.................. $ 110 $ 144 -- ($59)* $ 195
================================================================

For the year ended December 31, 1998:
Tax Valuation Reserve.......................... $ 63,982 $ 7,905 -- -- $ 71,887
================================================================

For the year ended December 31, 1997:
Tax Valuation Reserve.......................... $ 56,002 $ 7,980 -- -- $ 63,982
================================================================

For the year ended December 31, 1996:
Tax Valuation Reserve.......................... $ 52,565 $ 3,437 -- -- $ 56,002
================================================================
</TABLE>

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

44
<PAGE> 47

Signatures

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized, in New Jersey on the 30th
day of March, 1999.

i-STAT CORPORATION

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

POWERS OF ATTORNEY

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

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

Signature Title Date

/s/ William P. Moffitt President, Chief Executive Officer March 30, 1999
- ----------------------- and Director
William P. Moffitt (Principal Executive Officer)

/s/ Roger J. Mason Vice President of Finance, March 30, 1999
- ----------------------- Treasurer and Chief Financial
Roger J. Mason Officer (Principal
Financial and Accounting Officer)

/s/ J. Robert Buchanan Director March 30, 1999
- -----------------------
J. Robert Buchanan

/s/ Stephen D. Chubb Director March 30, 1999
- -----------------------
Stephen D. Chubb

/s/ Richard Hodgson Director March 30, 1999
- -----------------------
Richard Hodgson

/s/ Imants R. Lauks Director March 30, 1999
- -----------------------
Imants R. Lauks

/s/ Lionel N. Sterling Director March 30, 1999
- -----------------------
Lionel N. Sterling

45
<PAGE> 48

Exhibit No. Description

(10.48) Form of Director Non-Statutory Stock Option Agreement

(10.49) Lease Agreement dated August 27, 1998, between Urigold Holdings
Ltd. and the Registrant

(23) Consent of PricewaterhouseCoopers LLP, Independent Accountants

(27) Financial Data Schedule

<PAGE> 1
U.S. Resident (Non-employee Director)

i-STAT CORPORATION

STOCK OPTION AGREEMENT
NON-STATUTORY

1. Grant of Option. i-STAT Corporation, a Delaware corporation (the
"Company"), hereby grants to ______________ (the "Director"), an option (the
"Option"), pursuant to the Company's 1998 Stock Option Plan (the "Plan"), to
purchase up to an aggregate of __________ shares (the "Shares") of Common Stock,
U.S. $.15 par value ("Common Stock"), of the Company at a price of U.S. $____
per Share (the "Exercise Price"), purchasable as set forth in and subject to the
terms and conditions of this Agreement and the Plan.

2. Exercise of Option and Provisions for Termination.

(a) Exercisability of Option. The Option shall be exercisable over a three
year period with respect to the following percentages of the number of Shares
originally underlying such option (i) 50% after the first anniversary of the
date of grant ("Date of Grant") set forth on the signature page hereof; and (ii)
an additional 25% after each of the second and third anniversaries of the Date
of Grant. The periods of time following the Director's cessation of service,
death or disability, during which the option remains exercisable as provided in
subsections (e) and (f) below, shall not be included for purposes of determining
the exercisability of the option under this subsection (a).

(b) Expiration Date. Except as otherwise provided in this Agreement, the
Option may not be exercised after the date (hereinafter the "Expiration Date")
that is the tenth anniversary of the Date of Grant.

(c) Exercise Procedure. Subject to the conditions set forth in this
Agreement, the Option shall be exercised by the Director's delivery of written
notice of exercise to the chief financial officer of the Company, specifying the
number of Shares to be purchased and the aggregate Exercise Price to be paid
therefor and accompanied by payment in full in accordance with Section 3. Such
exercise shall be effective upon receipt by the chief financial officer of the
Company of such written notice together with the required payment. The Director
may purchase less than the total number of Shares covered hereby, provided that
no partial exercise of the Option may be for any fractional Share or for less
than ten whole Shares.

-1-

<PAGE> 2

(d) Continuous Service Required. Except as otherwise provided in this
Section 2, the Option may not be exercised unless the Director, at the time he
or she exercises the Option, is, and has been at all times since the Date of
Grant of the Option, a director of one or more of the Company, a Parent
Corporation or a Subsidiary (as such terms are defined in the Plan).

(e) Termination of Service. If the Director ceases to serve as a director
of the Company, a Parent Corporation or Subsidiary for any reason other than
death or disability or removal, as provided in subsection (g) below, the right
to exercise the Option shall terminate three months after such cessation (but in
no event after the Expiration Date).

(f) Exercise Period Upon Death or Disability. If the Director dies or
becomes disabled (within the meaning of Section 22(e)(3) of the Internal Revenue
Code of 1986, as amended) prior the Expiration Date, while he or she is a
director of the Company, a Parent Corporation or a Subsidiary, or if the
Director dies within three months after the Director ceases to be a director of
any of the foregoing entities (other than as the result of removal as specified
in subsections (g) below), the Option shall be exercisable, within the period of
one year following the date of death or disability of the Director (but in no
event after the Expiration Date), by the Director, the Director's legal
representative (in the event of legal incapacity) or by the person to whom the
Option is transferred by will or the laws of descent and distribution. Except as
otherwise indicated by the context, the term "Director", as used in this
Agreement, shall be deemed to include the estate of the Director, or any person
who acquires the right to exercise the Option by bequest or inheritance or
otherwise by reason of the death of the Director.

(g) Removal. If the Director, prior to the Expiration Date, ceases to serve
as a director with the Company, a Parent Corporation or a Subsidiary because he
or she is removed from office, the right to exercise the Option shall terminate
immediately upon such cessation of service as a director.

3. Payment of Exercise Price. Payment of the aggregate Exercise Price for
Shares purchased upon exercise of the Option shall be made by delivery to the
Company of (i) cash or a check to the order of the Company, (ii) Common Stock or
(iii) options to purchase Common Stock, in each case in an amount equal to the
aggregate Exercise Price of such Shares. For purposes of the preceding sentence,
(x) Common Stock shall be valued at its fair market value as determined by (a)
the Company's Board of Directors, if each member is a "disinterested member," as
defined in the Plan or (b) the recommendation's of a committee of two or more
directors each of whom is disinterested, and (y) options to purchase Common
Stock shall be valued at the excess of the fair

-2-

<PAGE> 3

market value of the shares subject to the options, as determined by (a) the
Company's Board of Directors, if each member is a "disinterested member," as
defined in the Plan, or (b) the recommendations of a committee of two or more
directors, each of whom is disinterested, over the exercise price of such
options.

4. Delivery of Shares. The Company shall, upon payment of the aggregate
Exercise Price for the number of Shares purchased and paid for, make prompt
delivery of such Shares to the Director, provided that if any law or regulation
requires the Company to take any action with respect to such Shares before the
issuance thereof, then the date of delivery of such Shares shall be extended for
the period necessary to complete such action. No Shares shall be issued and
delivered upon exercise of the Option unless and until, in the opinion of
counsel for the Company, any applicable registration requirements of the
Securities Act of 1933, as amended (the "Securities Act"), any applicable
listing requirements of any national securities exchange on which stock of the
same class is then listed, and any other requirements of law or of any
regulatory bodies having jurisdiction over such issuance and delivery, shall
have been fully complied with.

5. Non-transferability of Option. Except as provided in subsection (f) of
Section 2 or as otherwise agreed to by the Board of Directors or a committee
thereof, the Option is personal and no rights granted hereunder may be
transferred, assigned, pledged or hypothecated in any way (whether by operation
of law or otherwise) nor shall any such rights be subject to execution,
attachment or similar process. Upon any attempt to transfer, assign, pledge,
hypothecate or otherwise dispose of the Option or of such rights contrary to the
provisions hereof, or upon the levy of any attachment or similar process upon
the Option or such rights, the Option and such rights shall, at the election of
the Company, become null and void.

6. Rights as a Shareholder. The Director shall have no rights as a
Shareholder with respect to any Shares which may be purchased by exercise of the
Option unless and until a certificate representing such Shares is duly issued
and delivered to the Director. No adjustment shall be made for dividends or
other rights for which the record date is prior to the date such stock
certificate is issued except as provided for in Section 7 or 8 of this
Agreement.

7. Recapitalization. In the event that the outstanding shares of Common
Stock of the Company are changed into or exchanged for a different number or
kind of shares or other securities of the Company by reason of any
recapitalization, reclassification, stock split, stock dividend, combination or
subdivision, appropriate adjustment shall be made in the number and kind of
Shares to which the Option shall be exercisable. Such adjustment to the Option
shall be made without change in the total

-3-

<PAGE> 4

price applicable to the unexercised portion of the Option, and a corresponding
adjustment in the Exercise Price per Share shall be made. No such adjustment
shall be made if, in the opinion of counsel to the Company, stockholder approval
thereof is required to be obtained in order to preserve for optionees under the
Plan the benefits available pursuant to Rule 16b-3 under the Securities Exchange
Act of 1934, as amended, or any similar or successor rule thereto.

8. Reorganization or Change in Control of the Company.

(a) Reorganization. In case (i) the Company is merged or consolidated with
another corporation and the Company is not the surviving corporation, (ii) all
or substantially all of the assets or more than 50% of the outstanding voting
stock of the Company is acquired by any other corporation, or (iii) of a
reorganization or liquidation of the Company prior to the Expiration Date, the
Board of Directors of the Company, or the board of directors of any corporation
assuming the obligations of the Company, shall, as to the Option, either (x)
make appropriate provision for the protection of the Option by the substitution
on an equitable basis of appropriate stock of the Company, or of the merged,
consolidated or otherwise reorganized corporation which will be issuable in
respect of the shares of Common Stock of the Company, provided that no
additional benefits shall be conferred upon the Director as a result of such
substitution, and the excess of the aggregate fair market value of the Shares
subject to the Option immediately after such substitution over the purchase
price thereof is not more than the excess of the aggregate fair market value of
the Shares subject to the Option immediately before such substitution over the
purchase price thereof, or (y) upon written notice to the Director, provide that
the Option must be exercised within a specified number of days of the date of
such notice or it will be terminated. In any such case, the Board of Directors
may, in its discretion, accelerate the exercise dates of the Option; provided,
however, that paragraph (b) below shall govern acceleration of the Option with
respect to the events described in clauses (i), (ii) and (iii) of such
paragraph.

(b) Change in Control. In case, prior to the Expiration Date, of (i) any
consolidation or merger involving the Company, if the shareholders of the
Company immediately before such merger or consolidation do not own, directly or
indirectly, immediately following such merger or consolidation, more than fifty
percent (50%) of the combined voting power of the outstanding voting securities
of the corporation resulting from such merger or consolidation in substantially
the same proportion as their ownership of the shares of Common Stock immediately
before such merger or consolidation; (ii) any sale, lease, license, exchange or
other transfer (in one transaction or a series of related transactions) of all,
or substantially all, of the business and/or assets of the Company or assets
representing over 50% of the operating revenue of the Company; or (iii) any
person

-4-

<PAGE> 5

(as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act
of 1934, as amended (the "Exchange Act")) who is not, on April 21, 1995, a
controlling person (as defined in Rule 405 under the Securities Act of 1933, as
amended) (a "Controlling Person") of the Company shall become (x) the beneficial
owner (within the meaning of Rule 13d-3 under the Exchange Act) of over 50% of
the Company's outstanding Common Stock or the combined voting power of the
Company's then outstanding voting securities entitled to vote generally or (y) a
Controlling Person of the Company, the Option , regardless of the date of grant,
shall immediately become exercisable with respect to 100% of the Common Stock
subject to the Option.

9. Withholding Taxes. The Company's obligation to deliver Shares upon the
exercise of the Option shall be subject to the Director's satisfaction of all
applicable federal, state and local income and other tax withholding
requirements.

10. Acknowledgement and Legend.

(a) The Director acknowledges and agrees that (i) because of his position
with the Company, the Director may be deemed to be an "affiliate" thereof (as
such term is defined in Rule 144 promulgated under the Securities Act); (ii) the
resale by an affiliate of the Company of the Shares acquired upon any exercise
of the Option is restricted by law, notwithstanding any registration of the
Shares on Form S-8 (or similar successor form) promulgated under the Securities
Act; (iii) any resale of the Shares by an affiliate of the Company pursuant to
said Rule 144 would be subject to the volume limitations contained in paragraph
(e) thereof; and (iv) the Director will not sell such Shares in violation of
Rule 144(e) or any other rule or regulation under the Securities Act.

(b) Legend on Stock Certificates. So long as the Director remains an
affiliate of the Company, all stock certificates representing Shares issued to
the Director upon exercise of the Option shall have affixed thereto a legend
substantially in the following form, in addition to any other legends required
by applicable state law:

"The Shares of stock represented by this certificate are subject to
the volume limitations of Rule 144(e) promulgated under the Securities
Act of 1933, as amended."

By making payment upon exercise of the Option, the Director shall be deemed
to have reaffirmed, as of the date of such payment, the representations made in
this Section 10.

-5-

<PAGE> 6

11. Miscellaneous.

(a) This Agreement and any instruments delivered pursuant to this Agreement
shall be construed, interpreted and governed in accordance with the laws of the
State of New Jersey, without regard to the conflicts of law rules thereof.

(b) This Agreement shall extend to, be binding upon and inure to the
benefit of the Director, his legal representatives, his heirs, successors and
assigns (subject, however, to the limitations set forth herein with respect to
the assignment of the Option or rights herein) and upon the Company, its
successors and assigns regardless of any change in the business structure of the
Company, be it through spinoff, merger, sale of stock, sale of assets or any
other transaction and shall be construed in a manner that is consistent with the
provisions of the Plan.

(c) This Agreement contains the entire agreement of the parties with
respect to the subject matter hereof. No waiver, modification or change of any
provision of this Agreement shall be valid unless in writing and signed by both
parties.

(d) The waiver of any breach of any duty, term or condition of this
Agreement shall not be deemed to constitute a waiver of any preceding or
succeeding breach of the same or any other duty, term or condition of this
Agreement.

(e) All notices pursuant to this Agreement shall be in writing and shall be
sent by prepaid certified mail, return receipt requested, addressed to the
parties hereto at the addresses set forth beneath their names below or to such
other addresses as may hereafter be specified by like notice in writing by
either of the parties and shall be deemed given three days after mailing in
accordance with the foregoing.

(f) This Agreement may be executed in counterparts, each of which shall be
deemed an original but all of which shall together constitute one and the same
Agreement.

Date of Grant: i-STAT CORPORATION

By:
- ----------------------- ---------------------------
Name:
Title:

104 Windsor Center Drive
East Windsor, New Jersey 08520

-6-

<PAGE> 7

DIRECTOR'S ACCEPTANCE

The undersigned hereby accepts the foregoing Agreement and agrees to the
terms and conditions thereof. The undersigned hereby acknowledges receipt of a
copy of the Company's 1998 Stock Option Plan.

DIRECTOR

----------------

-7-

<PAGE> 8

DIRECTOR'S ACCEPTANCE

The undersigned hereby accepts the foregoing Agreement and agrees to the
terms and conditions thereof. The undersigned hereby acknowledges receipt of a
copy of the Company's 1998 Stock Option Plan.

DIRECTOR

-----------------------
Stephen D. Chubb

-8-

<PAGE> 1
THIS INDENTURE made this 27th day of August 1998

IN PURSUANCE OF THE SHORT FORMS OF LEASES ACT

BETWEEN:
Urigold Holdings Ltd.

hereinafter called the "Landlord"

OF THE FIRST PART

- and -

I-STAT Canada Ltd.

hereinafter called the "Tenant"

OF THE SECOND PART

SECTION I - DEFINITIONS

1.01 "Architect"

Is one qualified to practice in Ontario named by the Landlord; and whose
certificate or opinion provided for herein shall be final and binding on
all parties hereto.

1.02 "Common Area"

Means all that part of the Property not leased to Tenant of the Property
and includes parking areas; equipment and installations provided or
designated by the Landlord for the use of the Tenant, its employees,
customers and others in common with similar rights granted by the Landlord.

1.03 "Proportionate Share"

<PAGE> 2

Means a fraction the numerator of which is the Rentable area of the Leased
Premises and the denominator is the Rentable area of the Building.

1.04 "Rentable Area Of The Leased Premises"

Means the area (which may be expressed in square feet) of the Leased
Premises measured from the centre line of all walls separating the Leased
Premises from adjacent premises and from the exterior face of all outside
walls.

1.05 "Rentable Area Of The Building"

Means the total rentable area of the building according to the latest BOMA
Standard.

1.06 "Property"

Means the particular land and all building, structures, facilities and
improvements by the municipality as realty in which the leased Premises are
situated and form part and more particularly described in the drawing
attached hereto.

SECTION II - PERIOD OF LEASE

2.01 LEASED PREMISES

In consideration of the rents, covenants and agreements hereinafter
reserved and contained on the part of the Tenant to be observed and
performed, the Landlord leases and demises to the Tenant, and the Tenant
rents from the Landlord, those certain premises which consist of
approximately 8,000 square feet (7,400 square feet plus 8.19% for common
areas), herein called the "Leased Premises", at 430 Hazeldean Road, Kanata,
Ontario as outlined in red on the Floor Plan, attached herewith.

2.02 TERM

The term of the Lease shall be for a period of five (5) years, eleven (11)
months and twenty-three (23) days,

<PAGE> 3

commencing on the 9th day of March l998 and terminating on the 28th day of
February 2004.

SECTION III - RENT

3.01 BASIC RENT

The Tenant agrees to pay to the Landlord at such place designated by the
Landlord, without prior demand or deduction or set-off, as annual basic
rent the annual sum of - refer to payment schedule - payable in equal
monthly installments of - refer to payment schedule - each in advance on
the first day of each calendar month throughout the term by post-dated
cheques on an annual basis.

3.02 SERVICE RENT

The Tenant shall also pay as service rent all money or charges required to
be paid by the Tenant under the Lease as referred to in this section in the
amount $1,966.67 per month (8,000 square feet @ $2.95 annually), GST extra.
To be adjusted on a yearly basis.

3.03 (1) INTENT NET LEASE

The Tenant agrees it is intended this Lease shall be a completely
triple net lease for the Landlord, that the Landlord shall not be
responsible during the term for any costs, charges or expenses
whatsoever arising from or relating to the Property, except payments
made in connection with any mortgage affecting the Property, and
except as otherwise specified. The Tenant shall pay Proportionate
Share of costs and expenses of any kind relating to the Property
which, without limiting the generality of the foregoing, shall
include:

(2) (a) Real Property Taxes.

(b) The cost of insuring the Property for fire, public liability and
property damage.
(c) Landscaping, cleaning, snow removal and
(d) Lighting for signs and for common areas.
(e) Depreciation or cost of fixtures and equipment which by their
nature, require periodic or substantial replacement.
(f) All utilities. - See note below

<PAGE> 4

(g) A Management Fee of fifteen percent (15%) reckoned on the total
of the Service Rental for management by the Landlord.

NOTE: The tenant will install accurate electrical meters to meter its
electrical consumption and will pay monthly to the landlord for its entire
electrical consumption at the same rate as the landlord is paying to Kanata
Hydro plus, the administration fee.

Until the above meters are operational the additional service rent will be
at the rate of $3.85 per sq. ft. Once the meters are operational and being
monitored the rate will be $2.95 per sq. ft. excluding the charge for
hydro.

3.04 ANNUAL ESTIMATE

For the first twelve months from the date hereof, the amounts paid by the
tenant as Service Rent shall be estimated by the landlord. The tenant
agrees to pay such amount in monthly installments in advance together with
Basic Rent.

Within 60 days from the end of the first fiscal year, the landlord shall
prepare and deliver to the tenant a Statement for the previous year setting
out in reasonable detail, the amount of all costs, charges or expenses
comprising the Service Rent. If the aggregate monthly instalments of
Service Rent actually paid by the tenant, differ from the amounts set out
in the Statement, the tenant shall pay or the landlord shall refund the
difference ( as the case may be) without interest within 30 days after
delivery of said Statement. Such Statement shall be certified to be correct
by the landlord.

3.04 A

If landlord and tenant disagree on the accuracy of the Service Rent as set
forth in the Statement, the tenant shall nevertheless make payment in
accordance with any notice given by landlord, but the disagreement shall
immediately be referred by the landlord for prompt decision by a mutually
acceptable public accountant, architect, insurance broker or other
professional consultant who shall be deemed to be acting as an expert and
not as an arbitrator, and a determination signed by the selected expert,
shall be final and binding on both landlord and tenant. Any adjustment
required to any previous payment made by the tenant or landlord by reason
of

4
<PAGE> 5

any such decision shall be made within 14 days thereof, and the party
required to make payment under such adjustment shall bear all costs of the
expert making the decision, except where the payment represents 5% or less
of the Service rent that were the subject of the disagreement, in which
case the tenant shall bear all such costs.

3.04 B

Neither party may claim a readjustment in respect of Service rent for a
fiscal year if based upon any error or complication or allocation except by
notice delivered to the other party within 12 months after the date of
delivery of the Statement.

3.05 POST DATED CHEQUES

The Tenant shall within five (5) days of the execution hereof and the
estimate in 3.03 hereof give to the Landlord post-dated cheques for the
first twelve (12) months and shall, one (1) month before each anniversary
date, give twelve (12) post-dated cheques for the ensuing months to the end
of the term.

3.06 INTEREST ON ARREARS, N.S.F. CHEQUES

Rental, if not paid within five (5) days of the due date shall bear
interest at the rate of two percent (2%) per month, with each month or part
thereof being calculated as one month. Any cheque returned because of
non-sufficient funds by a Bank shall be promptly honoured together with an
administration charge of Twenty-Five Dollars ($25.00).

SECTION IV - TENANT'S DIRECT PAYMENTS

4.01 TAXES

The Tenant shall pay all taxes, rates and assessment and other charges that
may be levied, rated or assessed against or in respect of all inventory
improvements, equipment and facilities of or against the Tenant on or in
relation to the leased Premises.

4.02 TAXES - INDEMNITY BY CROWN

If the Tenant is the Crown or an entity not liable for taxes or charges
arising from its occupancy of the Leased

<PAGE> 6

Premises, the Tenant undertakes that it will compensate and indemnify the
Landlord for the payment of such taxes or charges the Landlord may be
obliged directly or indirectly to meet.

4.03 UTILITIES

The Tenant shall be responsible for all charges for heat, water,
electricity, and any other utility used or consumed in the Leased Premises.
In no event shall the Landlord be liable for interruption or failure in the
supply of these utilities to the Leased Premises. In the event there shall
be no separate meter for the Leased Premises and the Landlord received on
bill for any of the above charges, without specific reference to the Leased
Premises, the Tenant shall pay its fair allocated share of such charges.

4.04 HEATING AND HYDRO

The Landlord shall provide heating and hydro equipment to the demised
premises. The Tenant shall be permitted to pull electrical service to the
demised premises for his exclusive use, the size of the service to be
determined by mutual agreement by both parties. The Tenant shall pay to the
Landlord his share of the electrical consumption, to be determined by
installation of a sub-meter.

SECTION V - PARKING AND USE OF COMMON AREAS

5.01 CONTROL BY THE LANDLORD

All Common Area and facilities from time to time provided by the Landlord,
including parking areas, driveways, entrances and exits and other
facilities furnished by the Landlord as the Property, shall be subject to
the control and management of Landlord, who shall have the right from time
to time to establish and enforce rules and regulations with respect to
same.

Wherever possible, the Landlord shall provide 30 days written notice of any
changes to existing Rules and Regulation. Tenant shall be entitled to
reasonable notice in writing of any breach thereof and be allowed a
reasonable time to correct same.

<PAGE> 7

Tenant shall have 24 hour access to general building service area for the
purpose of emergency service. Routine maintenance to be carried out during
general building business hours.

SECTION VI - USE OF LEASED PREMISES

6.01 TYPE OF BUSINESS

The Tenant shall use the Leased Premises solely for the manufacture of
Micro-electric products, warehousing thereof and other related uses
permitted by the local zoning and for no other purpose. If any additional
insurance is required as a result of the use the Tenant shall bear said
cost.

SECTION VII - MAINTENANCE AND SURRENDER

7.01 MAINTENANCE BY THE TENANT

The Tenant shall at all times keep the Leased Premises including entrances,
glass partitions, doors, fixtures, plumbing and heating and electrical
equipment in good order and repair and acknowledges same to be in good
order and repair at the commencement of term.

7.02 MAINTENANCE BY THE LANDLORD

If the Tenant neglects or refuses to make repairs or reasonably required
after five (5) days notice in writing by the Landlord, the Landlord may
make such repairs and charges same as rent, together with fifteen percent
(15%) for overhead cost.

7.03 REPAIR ON NOTICE - SURRENDER OF PREMISES

In addition to the obligations in this section, the Tenant shall effect all
repairs according to notice from the Landlord, and at the expiration of the
tenancy, the Tenant shall surrender the Leased Premises (together with all
keys) in the same condition as it was upon taking possession, reasonable
wear and tear excepted. Any plumbing facilities, partitions, installations
or additions affixed by nails,

<PAGE> 8

adhesives, bolts, screws or the like shall not be removed, but the Landlord
may require removal of same by the Tenant and the Leased Premises restored
to the condition it was in at the commencement of the tenancy. Nothing,
however, shall prevent the Tenant removing motors, mechanical tools or such
equipment and subsequently making good any damages to the Leased Premises
resulting from such removal.

SECTION VIII - INDEMNITY AND INSURANCE

8.01 INDEMNIFICATION OF LANDLORD

Unless caused by the wrongful act or omission of the Landlord or another
person for whose wrongful acts or omissions the Landlord is responsible in
law, the Tenant shall indemnify the Landlord and save it harmless from and
against any and all claims, actions, damages, liability, expenses, legal
fees and costs in connection with loss of life, personal injury or loss of
or damage to property arising from any occurrence on the Leased Premises or
the occupancy or use of the Leased Premises or occasioned wholly or in part
by an act or omission of the Tenant, its officers, employees, customers,
agents, contractors, invitees, licensees, or by anyone permitted by the
Tenant to be on the Leased Premises.

8.02 PLATE GLASS

The Tenant shall replace, at its own expense, any and all plate and other
glass damaged or broken from any cause whatsoever in the Leaded Premises.
The Tenant may insure or the Landlord may insure at the Tenant's cost, all
plate and other glass in the Leased Premises.

8.03 INCREASE IN INSURANCE PREMIUMS

The Tenant will indemnify the Landlord for any increase in insurance
premiums caused by the Tenant's specific use of the Leased Premises.

8.04 INSURANCE ON LEASEHOLD IMPROVEMENTS

The Tenant shall take out and keep in force throughout the Term all risks
direct damage insurance upon its Leasehold Improvements, trade fixtures,
goods and chattels to the full replacement value.

8.05 COMPREHENSIVE GENERAL LIABILITY INSURANCE

<PAGE> 9

The Tenant shall take out and keep in force throughout the Term
comprehensive general liability insurance in respect of the Leased Premises
against claims for personal and bodily injury, death or property damage or
loss arising out of all operations of the Tenant and subtenants,
concessionaires, licensees and other persons conducting business on or from
the Leased Premises, indemnifying and protecting the Landlord and the
Tenant in an amount determined from time to time by the Landlord acting
reasonably but not less than Two million dollars ($2,000,000.00) for each
occurrence.

8.06 TENANT'S LEGAL LIABILITY INSURANCE

The Tenant shall take out and keep in force throughout the Term an all risk
form of Tenant's legal liability insurance to a limit of not less than
fifty dollars ($50.00) per square foot of Rentable Area of the Leased
Premises, including loss of use thereof.

8.07 OTHER INSURANCE

The Tenant shall take out and keep in force throughout the Term other
insurance in amounts and upon terms reasonably required from time to time
by the Landlord or its mortgages.

8.08 DESCRIPTION OF INSURANCE

All policies of insurance to be taken out by the Tenant will be with
insurers reasonably acceptable to the Landlord and in form reasonably
satisfactory to the Landlord and shall exclude the exercise of an claim of
the insurer or insurers, whether by subrogation or otherwise, against the
Landlord and against those for whom the Landlord is in law responsible.
Each such policy shall name the Landlord as an additional insured as it's
interests may appear and shall contain a waiver in favour of the Landlord
and any mortgages of any breach or violation of any warranties,
representations, declarations or conditions contained in the policies. All
such insurance shall be primary insurance and shall not call into
contribution any insurance carried by the Landlord or any mortgages. All
policies of comprehensive general liability insurance shall contain a
severability of interest and a cross-liability provision protecting the
Landlord and those persons for whose acts or omissions the Landlord is in
law responsible

<PAGE> 10

against claims by the Tenant as if the Landlord and those persons were
separately insured. All policies of insurance will contain a clause that
the insurer will not cancel or change or fail to renew the insurance
without first giving the Landlord thirty (30) days prior written notice
prior to cancellation or expiry, and the Tenant shall obtain an undertaking
from all insurers to that effect. The Tenant shall cause to be delivered to
the Landlord a certified copy or certificate of any such policy and of each
renewal of any such policy. If the Tenant fails to take out of keep in
force any policy of insurance the Landlord may do so and pay the premium,
and in that event the Tenant will pay to the Landlord, on demand, the
amount so paid as premium plus fifteen percent (15%) for administrative
overhead.

8.09 LANDLORD'S INSURANCE

The Landlord will take out and keep in force throughout the Term on a
replacement cost basis all risks direct damage insurance on the Building
which may exclude the improvements upon which the Tenant is obliged to take
out insurance under section 8.04, with responsible insurance companies and
in an amount such as would be carried by a prudent owner. The insurance
policy shall contain a waiver of subrogation against the Tenant only with
respect to loss of or damage to property claims.

8.10 CANCELLATION OF INSURANCE

If an insurance policy upon part or all of the Building is cancelled or
threatened by the insurer to be cancelled, or the coverage thereunder
reduced or threatened to be reduced by the insurer because of anything done
or kept on the Leased Premises or any use to which they may be put, whether
or not the Landlord has previously consented to such doing, keeping, or use
of the leased premises, and if the Tenant fails to remedy the condition
giving rise to cancellation, threatened cancellation, reduction, or
threatened reduction of coverage within five (5) working days after notice
by the Landlord, the Landlord may either;

a) re-enter the Leased Premises in accordance with section 14.01, or

b) enter the Leaded Premises and remedy the condition giving rise to the
cancellation or reduction or threatened

<PAGE> 11

cancellation or reduction, and the Tenant shall pay to the Landlord
the cost thereof on demand, and the Landlord will not be liable for
damage or injury caused to property of the Tenant or others located on
the Leased Premises as a result of the entry.

8.11 LOSS AND DAMAGE

Unless caused by the wrongful act or omission of the Landlord or another
person for whose wrongful acts or omissions the Landlord is responsible in
law, the Landlord is not liable for death or injury to the Tenant, however
caused, or for the loss of or damage to the property of the Tenant or for
business losses of the Tenant, however caused. Without limiting the
generality of the foregoing, the Landlord is not liable for death, injury,
loss or damage of or to persons or property resulting from fire, smoke,
explosion, falling plaster, steam, gas, electricity, water, rain or snow or
leaks from any part of the Leased Premises or from the pipes, appliances or
plumbing works or from the roof, street or sub- surface or from any other
place or by dampness or by other cause of any king, unless caused by the
wrongful act or omission of the Landlord or another person for whom the
Landlord is responsible in law.

8.12 LIMITATION OF LIABILITY FOR NON-ENVIRONMENT OF OTHER LEASES, ETC.

The Landlord is not liable to the Tenant for the nonobservance or violation
by any other tenant of any rules and regulations or of such tenant's lease
or the non-enforcement as against other tenants of such rules and
regulations or any lease or any loss or damage arising out of such
nonobservance, violation or non-enforcement.

SECTION IX - ASSIGNMENT AND SUBLETTING

9.01 CONSENT REQUIRED

The Tenant will not assign this lease in whole or in part nor sublet all or
any part of the Leased Premises, nor mortgage or incumbered this lease or
the Leased Premises or any part thereof, nor suffer or permit the
occupation of all or any part thereof by others, without the prior written
consent of Landlord in each instance, which consent will not be arbitrarily
withheld but such assignment shall in no way

<PAGE> 12

affect the continuing liability of the Tenant or Guarantor of all terms
hereunder. Provided always, however, that no assignment in any event shall
be valid without the Tenant first offering the same to the Landlord, in
which case the Landlord may accept the offer of complete assignment as an
offer to surrender of the lease.

SECTION X - PAYMENTS - QUIET ENJOYMENT

10.01 TAXES

The Landlord agrees to pay all real property taxes which may be levied by
all municipal authorization and to recover the same as specified in this
lease.

10.02 FIRE INSURANCE

Landlord agrees to take out and to maintain in full force and effect
throughout the term of this lease fire insurance with extended coverage
endorsement to the amount the Landlord deems to be the value of the
buildings located on the property.

10.03 QUIET ENJOYMENT

Upon payment by the Tenant of the rent herein provided, and upon the
observance and performance of the covenants, terms and conditions on the
Tenant's part to be observed and performed, the Tenant shall peaceably and
quietly hold and enjoy the Leased Premises for the term hereby demised.

10.04 LOSS AND DAMAGE

The Landlord shall not be liable for death or injury or damage to the
property of the Tenant or of others which may occur on the Leased Premises,
nor for the loss of or damage to any property of the Tenant or of others by
theft or otherwise, or from any cause whatsoever. Without limiting the
generality of the foregoing, the Landlord shall not be liable for any
injury or damage to persons or property resulting from movement of vehicles
or from fire, explosion, steam, electricity, water, rain or snow or leaks
from any part of the Leased Premises or from the pipes, appliances or
plumbing works from the roof, street or sub-surface or from any other place
or by dampness or by any other cause.

<PAGE> 13

SECTION XI - ALTERATIONS AND RELOCATION

11.01 CHANGES AND ADDITIONS TO BUILDINGS

The Landlord reserves the right to make alterations or additions to and to
build additional stories on buildings on the property.

SECTION XII - DAMAGE AND DESTRUCTION

12.01 (a) LIMITED DAMAGE TO PREMISES

If all or part of the Premises are rendered untenantable by damage
from fire or other casualty which, in the reasonable opinion of the
Landlord's architect, can be substantially repaired under applicable
laws and governmental regulations within 120 days from the date of
such casualty (employing normal construction methods without overtime
or other premium), Landlord shall forthwith at its own expense repair
such damage other than damage to improvements, furniture, chattels or
trade fixtures which do not belong to Landlord.

12.01 (b) MAJOR DAMAGE TO PREMISES

If all or part of the Premises are rendered untenantable by damage
from fire or other casualty which, in the reasonable opinion of the
Landlord's architect, cannot be substantially repaired under
applicable laws and governmental regulations within 120 days from the
date of such casualty (employing normal construction methods without
overtime or other premium), then the Landlord may elect to terminate
this Lease as of the date of such casualty by written notice delivered
to the Tenant not more than 10 days after receipt of such Architect's
opinion, failing which Landlord shall forthwith at its own expense
repair such damage other than damage to improvements, furniture,
chattels or trade fixtures which do not belong to Landlord.

12.01 (c) ABATEMENT

If Landlord is required to repair damage to all or part of the
Premises under subparagraph 12.01 (a) or 12.01 (b)

<PAGE> 14

the Rent payable by Tenant hereunder shall be proportionately reduced
to the extent that the Premises are thereby rendered unusable by
Tenant in its business, from the date of such casualty until five days
after completion by Landlord of the repairs to the Premises (or the
part thereof rendered untenantable) of until Tenant again uses the
Premises ( or part thereof rendered untenantable) in its business,
whichever occurs first.

12.01 (d) MAJOR DAMAGE TO BUILDING

If all or a substantial part (whether or not including the Premises)
of the Building is rendered untenantable by damage from fire or other
casualty to such a material extent that in the reasonable opinion of
the Landlord the Building must be totally or partially demolished,
whether or not to be reconstructed in whole or in part, Landlord may
elect to terminate this Lease as of the date of such casualty (or on
the date of notice if the Premises are unaffected by such casualty) by
written notice delivered to Tenant not more than 60 days after the
date of such casualty.

12.01 (e) LIMITATION ON LANDLORD'S LIABILITY

Except as specifically provided in this paragraph 12.01, there shall
be no reduction of Rent and Landlord shall have no liability to Tenant
by reason of any injury to or interference with Tenant's business or
property arising from fire or other casualty, howsoever caused, or
from the making of any repair resulting therefrom in or to any portion
of the Building or the Premises, unless the injury is caused by
Landlord, its agents, servants or invitees.

SECTION XIII - EXPROPRIATION

13.01 TOTAL EXPROPRIATION OF LEASED PREMISES

If the Leased Premises is expropriated for any purpose, by any entity
empowered to do so, then the term of this lease shall cease and terminate,
but the right and claim of the Tenant shall in no way be abridged.

13.02 COMPENSATION

<PAGE> 15

The Tenant shall not be entitled to any part of the Landlord's
compensation, but nothing herein shall prevent the Tenant from making such
claim against the expropriating authority as the Tenant may see fit.

SECTION XIV - DEFAULT OF TENANT

14.01 RIGHT TO RE-ENTER

In the event of any failure of the Tenant to pay any rental due hereunder
within ten (10) days after the same shall be due, or any failure to perform
any other of the terms, conditions or covenants of this lease to be
observed or performed by the Tenant or if the Tenant or any Guarantor of
this lease shall become bankrupt or insolvent or file any proposal under
the Bankruptcy Act or similar legislation, or if a Receiver is appointed
for all or a portion of the Tenant's or Guarantor's property, or the Tenant
makes a sale in bulk, or if the Tenant shall abandon or commence to take
steps whereby the Landlord may reasonably assume the Tenant intends to
abandon the Leased Premises, or suffer this lease or any of it's assets to
be taken under any Writ of Execution, or if re-entry is permitted under any
other terms of this lease, then the Landlord, besides any other rights or
remedies it may have, shall have the immediate right of re-entry and may
remove all persons and property from the Leased Premises and such property
may be removed and stored in a public warehouse or elsewhere at the cost of
and for the account of the Tenant, all without service of notice or resort
to legal process and without being deemed guilty of trespass, or becoming
liable for any loss or damage which may be occasioned thereby.

14.02 RIGHT TO RE-LET, ACCELERATE RENT

Should the Landlord elect to re-enter, as herein provided, or should it
take possession pursuant to legal proceedings,or pursuant to any notice
provided for, it may either terminate this lease or it may from time to
time without terminating this lease make such reasonable alterations and
repairs it deems necessary in order to re-let the premises, and re-let said
premises or any part thereof for such term or terms, which may be for a
term extending beyond the term of this lease, and at such rental or rentals
and upon such other terms and conditions as the Landlord in it's sole
discretion may deem advisable; the

<PAGE> 16

costs of such re-letting shall include brokerage and solicitor's fees
chargeable hereunder. Nevertheless, the next three (3) months basic rent
and service rent on default shall accelerate and become immediately due and
payable.

14.03 DISTRESS

In case of removal by Tenant of the goods and chattels of the Tenant from
the Leased Premises, the Landlord may follow same to whatever place same
have been taken and shall be deemed to have the right to remove the same
and place them under distress and in so doing remove any locks or open any
doors for the same, the costs of any claim of damages arising therefrom
shall be payable by the Tenant. Distress may be made by the Landlord for
arrears of rental and in such event for the next three (3) months basic and
service rent, and upon ten (10) days written notice by the Landlord to the
Tenant.

14.04 NO ENCUMBRANCE SUPERIOR TO DISTRESS

The Tenant agrees, and notice is hereby given to all other persons that any
Debenture, Chattel Mortgage, Bill of Sale, Assignment or other instrument
which shall purport to give priority to any person on any chattel of the
Tenant brought on the Leased Premises shall be null and void against the
Landlord pursuing distress for rent against the Tenant.

SECTION XV - ACCESS BY LANDLORD

15.01 RIGHT OF ENTRY

The Landlord or it's agents, shall have the right on providing reasonable
notice to the Tenant (except in an emergency, where no notice is required)
to enter the Leased Premises at reasonable times to examine same, and to
show it to prospective purchasers, lessees or mortgagees. The Landlord
shall have the right to place "for rent" signs on the Leased Premises two
(2) months prior to the termination of this lease.

SECTION XVI - RULES AND REGULATIONS

16.01 RULES AND REGULATIONS

<PAGE> 17

The Tenant agrees to comply with and observe rules and regulations adopted
and promulgated by the Landlord from made a part of this lease.

SECTION XVII - MISCELLANEOUS

17.01 NO TACIT RENEWAL

In the event the Tenant remains in possession of the Leased Premises after
the end of the term hereof and without the execution and delivery of a new
lease, there shall be not tacit renewal of this lease, and the Tenant shall
be deemed to be occupying the Leased Premises as a Tenant from month to
month, mutatis mutandis under terms hereunder but terminable by the
landlord or the tenant giving written notice to the other of at least 60
days.

17.02 GARBAGE AND REFUSE

Removal of garbage and refuse is the responsibility of the Tenant. The cost
of garbage and refuse collection is to be borne by the Tenant. The Tenant
shall not store goods or equipment outside the Leased Premises but if done,
the Landlord shall at the Tenant's cost remove same.

17.03 WAIVER-LEGAL COSTS

The waiver by the Landlord of any breach of a term covenant or condition
herein contained shall be deemed to be a waiver of such term, covenant or
condition only and any subsequent breach of the same or any other term,
covenant or condition herein contained shall not be deemed to be waived.
Any legal costs arising from breach of any covenant by the Tenant shall be
recoverable by the Landlord against the Tenant on a solicitor and client
basis.

17.04 ACCORD AND SATISFACTION

No payment by the Tenant or receipt by the Landlord of a lesser amount than
monthly rent herein stipulated shall be deemed to be other than on account
of the earliest stipulated rent.

17.05 ENTIRE AGREEMENT

<PAGE> 18

This lease sets forth all the covenants, promises, agreements, conditions
and understandings between the Landlord and the Tenant, and there are no
covenants, promises, agreements, conditions or understandings, either oral
or written, other than are herein set forth. Except as herein otherwise
provided, no subsequent alteration, amendment, change or addition to this
lease shall be binding upon the Landlord or the Tenant unless reduced to
writing and signed by both parties.

17.06 ARCHITECT

In the event of any change, alteration or addition to any or on the Leased
Premises or the placing or location of parking stalls, or of loading
facilities or the necessity of repair or upkeep by the Tenant, or placing
of lighting fixtures or traffic directions, the Landlord may obtain the
opinion of the Architect.

17.07 NOTICES

Any notice, demand, request or other instrument which may be required to be
given under this lease shall be in writing and delivered or sent by
registered mail postage prepaid;

(a) To the Landlord, or such other address as the Landlord may designate
by written notice as Urigold Holdings Ltd., 88A Jamie Avenue, Nepean,
Ontario, K2E 6T6.
(b) To the Tenant at 436 Hazeldean Road, Kanata, Ontario or at such other
address as the Tenant shall designate by written notice; which address
may be changed upon notice in writing. Any such notice, demand,
request or consent shall be conclusively deemed to have been given or
made on the day upon which such notice, demand, request or consent is
delivered, or, if mailed, then on the fifth (5th) business date
following the date of mailing.

17.08 REGISTRATION

The Tenant may at its cost register a notice of Lease Abstract at the
Registry office.

17.09 EXTERIOR SIGN

The Tenant may maintain an appropriate sign in a location and of size,
type, material, design and method of

<PAGE> 19

affixation as shall have the prior written approval of the Landlord,which
approval may not be arbitrarily or unreasonably withheld. In the event of
any violation hereof, the Landlord will be at liberty to remove same, the
cost (plus fifteen percent [15%] for an administration fee) to be born by
the Tenant.

17.10 LANDLORD TO INCLUDE REPRESENTATIVES

Whenever the word "Landlord" is used in the present lease, it shall be
deemed to include the Landlord or it's duly authorized representatives.

17.11 GOVERNING LAW - TITLE

This lease shall be construed and governed by the Laws of the Province of
Ontario.

17.12 RULES AND REGULATIONS

The rules and regulations attached hereto form part of this lease and may
be amended from time to time by the Landlord.

17.13 SPECIAL PROVISIONS

(a) Signage

It is also understood and agreed that any signage to be installed on
the building is regulated by the Landlord's standards, size and
location for approval.

(b) Option To Renew

i) The Landlord grants to the Tenant the option to renew this lease
for one renewal term for five years; provided that in order to
exercise its option for the renewal period the Tenant shall give
the Landlord notice thereof in writing not less than three (3)
months before the date of expiry of the term. The renewal
pursuant to this proviso shall be on the terms and conditions
contained in this lease except:

<PAGE> 20

A) there shall be no additional right of renewal, and

B) the rent payable by the Tenant in the renewal period shall
be comparable to the rent for similar lands and buildings
within the City of Kanata, prevailing at the beginning of
the renewal period.

ii) ARBITRATION OF RENT ON RENEWAL

If the Landlord and Tenant are unable to agree upon the rent for
the renewal term either of them may, at least two calendar months
before the expiration of the initial term appoint an arbitrator
and give notice of the appointment to the other. The other shall
within ten days nominate a second arbitrator and give notice
thereof to the other party and to the first appointed arbitrator.
If the other part fails to make the appointment, it shall be made
by a Judge of the Ontario Court (General Division) on the
application of the party which has appointed the first appointed
arbitrator. Within one month after the appointment of the second
arbitrator, the two arbitrators shall decide upon a proper sum as
rent for the Leased Premises for the renewal term.

(iii) THIRD ARBITRATOR

If the two arbitrators first appointed do not agree to fixing the
rent within the time above limited, they shall forthwith agree
upon a third arbitrator and the decision of the three arbitrators
or any two of them shall determine the rent for the Leased
Premises for the renewal term. If the two arbitrators first
appointed are unable to agree on a third arbitrator, his
appointment shall be made by a Judge of the Ontario Court
(General Division). If the decision of the arbitrators is delayed
beyond the commencement of the renewal term the Tenant shall
continue to pay rent as if the original term had not expired, and
when the rent for the renewal term is decided upon, the Landlord
shall refund the overpayments of rent (if any) and the Tenant
shall pay the deficiency in rent payments (if any.

<PAGE> 21

Provided that the Tenant is not in default of any of the
provisions of the Lease, then Tenant shall, have a first right of
refusal to lease that portion of the premises which immediately
adjoining the Leased Premises and shown in the approximate
location hatched in red on Schedule "C" hereof (the "Additional
Premises"). If the Landlord receives a bona fide offer to lease
(the "Offer") the Additional Premises which Landlord is willing
to accept, then Landlord shall forthwith deliver a true copy of
the Offer to Tenant and, on receipt thereof, Tenant shall have
seven (7) days within which to submit a written offer to lease as
contained in the Offer, and if Tenant does so, Landlord shall
lease the Additional Premises to Tenant, and Tenant shall
forthwith enter into a lease amending agreement prepared by
Landlord whereby the Additional Premises shall form a part of the
premises, and the terms of the Lease shall govern the Tenancy of
the Additional Premises, save as otherwise set forth in the
Offer. If the Tenant fails to submit a written offer to lease the
Additional Premises within the seven (7) day period in the manner
aforesaid, then Tenant shall be deemed to have waived its first
right of refusal hereby granted, and the Landlord shall be free
to lease the Additional Premises pursuant to the Offer, so long
as the Lease for the Additional Premises shall not have a term
which exceeds one (1) year and so long as the lease does not
contain an option to renew the Lease of the Additional Premises.
In the event that the Additional Premises are leased to a party
other than the Tenant, the Tenant shall enjoy the right of first
refusal on a yearly basis, at the time that the Lease for the
Additional Premises is up for renewal. In any event the Tenant
shall not have the right of first refusal to no more space than
that which is outlined on Schedule "C".

(d) Parking

The Tenant shall have the use of four (4) parking spaces and a
proportionate number according to any additional space
subsequently leased.

(e) Common Loading and Hallway

The Tenant, throughout the Term of the Lease and any subsequent
renewals, shall have the use in common with

<PAGE> 22

the other tenants of the building, both loading docks and the
loading hallway.

(f) Registration of Lease

Tenant will not register or permit the registration on its behalf
of this lease or an assignment of this lease in this form in any
land registry office. If either party wishes to register a
document for the purpose of giving notice of this lease or of an
assignment of this lease then upon request of that party, both
parties will join in the execution of a short form or notice of
this lease ("short form"). Landlord or its solicitors will
prepare the short form and all other related documentation
required for registration at Tenant's expense, but containing no
more information than is permitted under this section. The short
form will provide for and require Landlord's consent to the
registration of the document and will contain no more than the
following information concerning the lease: a description of the
parties, the Premises, the Commencement Date, the expiration date
of the Term and any renewal or extension rights. The short form
will not identify space in respect of which Tenant has rights of
expansion but the definition of "Premises" in the short form may
contain the following phrase: "including such additional space as
may be taken up from time to time pursuant to the lease". Tenant
will be responsible for payment of all costs, expenses and fees
necessary for the registration of filing of the application to
register the short form or of any assignment of the lease and
Tenant will complete all necessary affidavits required for
registration purposes.

IN WITNESS WHEREOF the parties hereto have executed this Indenture in the
presence of:

Urigold Holdings Ltd.

- ----------------------- ---------------------------
Witness Per: Mr. U. Goldberg, P. Eng.

<PAGE> 23

I-STAT Canada Ltd.

- ----------------------- ---------------------------
Witness Per:

REGULATIONS

1) No means of ingress to or egress from the Premises or the Building shall be
obstructed.

2) The doors, windows of the Premises which reflect or admit light into any
part of the Building shall not be covered or otherwise obstructed and no
shades, screens, blinds or awnings shall be put up, on or overt any door or
window except such as shall be provided by the Landlord or approved by it
in writing.

3) The Landlord reserves the right to limit the weight and to prescribe the
position in the Premises of all metal safes, furniture, equipment and
machinery and stock of merchandise. No such articles which while being
moved might damage the Building shall be brought onto or removed from or
relocated in the Premises except at such hours and in such manner and
subject to such conditions and precautions as the Landlord may prescribe.
Any damage thereby occasioned by the Tenant or any person subject to the
Tenant shall be made good at the expense of the Tenant.

4) Water closets and plumbing fixtures shall be used only for the purposes for
which they provided.

5) All garbage must be properly wrapped and placed in proper sanitary
receptacles and no garbage receptacle therefor shall be placed outside the
premises except at such hours as the Landlord or the Municipal Authorities
may prescribe. The Tenant shall be responsible for disposal of all it's
garbage from the Land and Building.

<PAGE> 24

6) Nor wires or pipes shall be introduced into the Building and no spikes, nor
screws or nails shall be put into the walls or woodwork of the Building
without the prior consent of the Landlord and no telephone, telegraph or
alarm system shall be installed in the Premises unless and until the method
of installation has been approved in writing by the Landlord.

7) No animal or bird shall be kept on the Premises or brought into the
Building.

8) No one shall use the Premises as a sleeping apartment.

9) Windows and doors must not be left open so as to admit rain or snow or so
as to interfere with the heating of the Building.

10) No radio or television aerial or antenna shall be affixed to any part of
the Building without the written consent of the Landlord which consent may
be arbitrarily withheld or if given may be withdrawn at any time for any
reason.

11) No musical instruments, record player or radio or television receiving set
with loud speaker(s) shall be played or used in the Building during the
daytime hours so as to constitute a nuisance or annoyance to other
occupants of the Building.

12) If the Tenant replaces any lock placed on any door with a lock of Medco
design or any other high security design whatever, it shall on or before
the expiry of this lease replace that new lock with a lock equal in quality
and comparable in design to the lock originally installed on the Premises.
Upon the expiration or prior termination of this lease, the Tenant shall
surrender all keys of the Premises or the Building and shall reimburse the
Landlord for the cost of replacing any such keys which the Tenant fails to
surrender.

13) All wheeled vehicles used within the Building shall be equipped with rubber
wheels and be constructed so as not to damage the Building or it's fabrics.

SCHEDULE "A"

1) It is understood and agreed that the rental rate is computed on a triple
net basis and the Tenant shall pay it's proportionate share of all
operating expenses pertaining to

<PAGE> 25

the premises which shall include but not be limited to: heat, municipal
taxes, snow removal, garbage removal, water and insurance. Hydro is to be
separately metered to the premises. All in accordance with Lessor standard
lease.

2) The Tenant may make such alterations which the Tenant deems necessary to
any part of the Premises and may install any fixtures, articles and
improvements on the Premises and the term, any of the fixtures, articles
and improvements affixed or brought up to the Premises, doing no damage by
such removal or making good any damage so cause, all subject to the
Landlord's approval.

All additions & alterations must be in strict accordance with prevailing
bylaws rules and regulations including fire, codes and any rules and
regulations of municipalities or entities having jurisdiction. The
additions and alterations are to be at the tenant's sole expense and are
all subject to the Landlord's approval. Such approval will not be
unreasonably with held.

3) The Tenant shall not assign the Lease, nor sub-let or part with or share
the occupation, controls or possession of the Leased Premises or any part
thereof without the prior written consent of the Landlord and such consent
shall not be unreasonable withheld where in the Landlord's judgement the
proposed assignee or Sub-Tenant has satisfactory financial standing,
business history and reputation in the community.

SCHEDULE "B"

The Landlord shall undertake the following leasehold improvements, at his
expense, prior to the date set for occupancy;

1) Install a drywall fire rated demising wall as detailed on Schedule "C".

2) Install double steel doors approximately 8' x 8', off the common loading
hallway as indicated on the attached Schedule "C".

<PAGE> 26

3) Remove the entire mezzanine detailed on Schedule "C" and provide the
warehouse lights to the Tenant for his use as required.

4) Adjust the common loading dock height to 48 inches.

5) The washroom facilities currently in the warehouse space shall be expanded
to provide both male and female facilities, should the Tenant expand as
provided for in Clause 17.13(c) of this Agreement to the point that the new
demising wall abuts the existing washrooms, these washrooms shall become
exclusive use washrooms for the Tenant.

6) The Tenant throughout the term of the Lease and any subsequent renewals,
shall have the use of the shelving sections which are presently installed
in its leased premises.

PAYMENT SCHEDULE

Year One & Two - March 9, 1998 to February 28, 2000 $44,400.00 per annum.

In equal monthly installments of $3,700.00 plus applicable service rent of
$2,285.00, GST extra in advance on the first day of each month throughout the
term by post dated cheques on an annual basis (service rent per month will be
adjusted yearly to reflect actual expenses).

Year Three & Four - March 1, 2000 to February 28, 2002 $46,250.00 per annum.

In equal monthly installments of $3,854.17 plus applicable service rent and GST
in advance on the first day of each month throughout the term by post dated
cheques on an annual basis (service rent per month will be adjusted yearly to
reflect actual expenses).

Year Five & Six - March 1, 2002 to February 28, 2004 $48,100.00 per annum.

In equal monthly installments of $4,008.33 plus applicable service rent and GST
in advance on the first day of each month throughout the term by post dated
cheques on an annual basis (service rent per month will be adjusted yearly to
reflect actual expenses).

<PAGE> 27

It is hereby acknowledged that the Tenant has paid Metro Suburban Realty Ltd.
the sum of $11,811.02 towards basic rent, service rent and GST for the first two
(2) months of the term.

<PAGE> 1

CONSENT OF INDEPENDENT ACCOUNTANTS

We consent to the incorporation by reference in the registration statements of
i-STAT Corporation on Form S-8/S-3 (File No. 33-48889), Form S-8 (File Nos.
33-67456, 33-86152 and 33-96114), Form S-3 (File No. 33-92796) and Form S-8
(File No. 33-65357), on our audits of the consolidated financial statements and
financial statement schedule of i-STAT Corporation as of December 31, 1998 and
1997, and for the years ended December 31, 1998, 1997 and 1996, which report is
included in this Annual Report on Form 10-K. We also consent to the reference to
our firm under the caption "Selected Consolidated Financial Data".

PricewaterhouseCoopers LLP
Florham Park, New Jersey
March 30, 1999

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