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<SEC-DOCUMENT>0001000096-03-000152.txt : 20030331
<SEC-HEADER>0001000096-03-000152.hdr.sgml : 20030331
<ACCEPTANCE-DATETIME>20030331114404
ACCESSION NUMBER:		0001000096-03-000152
CONFORMED SUBMISSION TYPE:	10KSB
PUBLIC DOCUMENT COUNT:		7
CONFORMED PERIOD OF REPORT:	20021231
FILED AS OF DATE:		20030331

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			INTEGRATED SURGICAL SYSTEMS INC
		CENTRAL INDEX KEY:			0000894871
		STANDARD INDUSTRIAL CLASSIFICATION:	SURGICAL & MEDICAL INSTRUMENTS & APPARATUS [3841]
		IRS NUMBER:				680232575
		STATE OF INCORPORATION:			DE
		FISCAL YEAR END:			1231

	FILING VALUES:
		FORM TYPE:		10KSB
		SEC ACT:		1934 Act
		SEC FILE NUMBER:	001-12471
		FILM NUMBER:		03628069

	BUSINESS ADDRESS:	
		STREET 1:		1850 RESEARCH PARK DR
		CITY:			DAVIS
		STATE:			CA
		ZIP:			95616-4884
		BUSINESS PHONE:		5307922600

	MAIL ADDRESS:	
		STREET 1:		1850 RESEARCH PARK
		CITY:			DAVIS
		STATE:			CA
		ZIP:			95616-4884
</SEC-HEADER>
<DOCUMENT>
<TYPE>10KSB
<SEQUENCE>1
<FILENAME>iss123102.txt
<DESCRIPTION>FORM 10-KSB  (12-31-2002)
<TEXT>

================================================================================

                     U.S. SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                               -------------------

                                   FORM 10-KSB

     [X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                               ACT OF 1934

                  For the fiscal year ended December 31, 2002

     [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                                  ACT OF 1934
             For the transition period from __________ to __________

                         Commission file number 1-12471

                        INTEGRATED SURGICAL SYSTEMS, INC.
                        ---------------------------------
                 (Name of small business issuer in its charter)

             Delaware                                            68-0232575
             --------                                            ----------
  (State or other jurisdiction                                (I.R.S. Employer
of incorporation or organization)                            Identification No.)

     1850 Research Park Drive, Davis, CA                          95616-4884
     -----------------------------------                          ----------
(Address of Principal Executive Offices)                          (Zip Code)

                                 (530) 792-2600
                                 --------------
                           (Issuer's telephone number)

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

           Securities registered pursuant to Section 12(g) of the Act:

                                                    Name of Each Exchange on
     Title of each Class                         Which Each Class is Registered
     -------------------                         ------------------------------

Common Stock, $.01 Par Value                                  None
Common Stock Purchase Warrants                                None

Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the past 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 no disclosure will be contained,
to the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [ ]

       State issuer's revenues for its most recent fiscal year: $5,162,854

The aggregate market value of the voting and non-voting common equity held by
non-affiliates computed by reference to the closing price of the common stock on
March 13, 2003 was $1,259,354

     As of March 13, 2003, the issuer had 41,978,469 shares of common stock,
                          $.01 par value, outstanding.

                       DOCUMENTS INDORPORATED BY REFERENCE
                                      None.

================================================================================


<PAGE>


================================================================================

                        Integrated Surgical Systems, Inc.
                                   Form 10-KSB
                   For the fiscal year ended December 31, 2002

                                Table of Contents


Part I.                                                                     Page
         Item 1.  Description of Business                                    1
         Item 2.  Description of Properties                                  5
         Item 3.  Legal Proceedings                                          5
         Item 4.  Submission of Matters to a Vote of Security Holders        5
Part II.
         Item 5.  Market for Common Equity and Related Stockholder Matters   6
         Item 6.  Management's Discussion and Analysis                       7
         Item 7.  Financial Statements                                       16
         Item 8.  Changes In and Disagreements With Accountants
                    on Accounting and Financial Disclosure                   16
Part III.
         Item 9.  Directors, Executive Officers, Promoters and
                    Control Persons; Compliance With Section
                    16(a) of the Exchange Act                                17
        Item 10.  Executive Compensation                                     18
        Item 11.  Security Ownership of Certain Beneficial
                    Owners and Management                                    20
        Item 12.  Certain Relationships and Related Transactions             21
        Item 13.  Controls and Procedures                                    22
        Item 14.  Exhibits and Reports on Form 8-K                           22

Signatures                                                                   26










================================================================================



<PAGE>



                                     Part I


Item 1. Description of Business

Integrated Surgical Systems, Inc. ("the Company") designs, manufactures, sells
and services image-directed, computer-controlled robotic software and hardware
products for use in orthopaedic and neurosurgical procedures. The Company was
incorporated in Delaware in 1990.

Orthopaedic Applications

The Company's principal orthopaedic product, the ROBODOC(R) Surgical Assistant
System ("ROBODOC"), integrates the ORTHODOC(R) Presurgical Planner ("ORTHODOC")
with a computer-controlled robot for use in joint replacement surgeries. The
surgeon uses ORTHODOC, a computer workstation with the Company's proprietary
software, for preoperative surgical planning. ORTHODOC converts a computerized
tomography ("CT") scan of the patient's joint into a three-dimensional bone
image. The surgeon selects a prosthesis from the ORTHODOC prosthesis library of
software, and manipulates the three-dimensional prosthesis models against the
bone image. The Company offers software for several lines of prostheses in its
software library. Implant manufacturers contract with the Company for the
development of prosthesis software. After the surgeon selects the optimal
prosthesis, ORTHODOC creates a surgical plan, which is then transferred to the
surgical robot. The surgical plan guides the robot as it mills the bone in the
operating room. Both hip and knee replacement surgeries involve removing a
portion of the bone at the joint and replacing it with a prosthesis. For hip
replacement surgery, a cavity is milled by the robot into which the selected
prosthesis is inserted. In knee replacement surgery, ROBODOC mills both the
upper and lower leg bone ends for precise and accurate prosthesis placement.

Neurosurgical Applications

The Company entered the neurosurgical equipment sector with the acquisition of
Innovative Medical Machines International, S.A., of Lyon, France, in September
1997. This wholly-owned subsidiary, now Integrated Surgical Systems, S.A.,
designs, manufactures, sells and services the NeuroMate(TM) System
("NeuroMate"), which consists of a computer-controlled robotic arm, head
stabilizer, presurgical planning workstation and the proprietary software.

NeuroMate's proprietary robotic arm and control system are designed to position
and precisely hold critical tools during stereotactic brain surgery. The brain
remains largely unexposed in stereotactic neurosurgery, and the surgeon works
without requiring direct visualization of the brain itself. This minimally
invasive surgery is made possible by NeuroMate's spatial coordinate system.
During presurgical planning, the patient's CT, magnetic resonance or other
images are correlated to the patient's physical characteristics. During surgery,
the NeuroMate's robotic arm guides the surgeon, through small holes in the
skull, to the pre-selected sites in the brain.

Specialized Product Development

The Company develops specialized operating software for several implant
manufacturing companies. These implant manufacturers contract with the Company
for the development of particular lines of new prosthesis software to be used
with the ROBODOC system.

Marketing, Sales and Distribution

ROBODOC cannot be marketed in the United States until it has been cleared by the
U.S. Food and Drug Administration (See "Government Regulation"). The Company
markets the ROBODOC System to orthopaedic and trauma surgeons and hospitals in


                                      -1-

<PAGE>

Europe through direct sales and through distributors in Japan, Korea and India.
NeuroMate is marketed in Europe through direct sales and through distributors in
Japan and Korea.

The Company also promotes the ROBODOC system and NeuroMate system through
presentations at trade shows, through advertisements in professional journals
and technical and clinical publications, and through direct mail campaigns.
Presentations to potential customers focus on the clinical benefit to the
patient and the potential financial and marketing benefit to hospitals and
surgeons.

Manufacturing

The Company's primary manufacturing process is the assembly of purchased
components, integration of the proprietary software, product testing, and
packaging. The Company's manufacturing facilities are located in Davis,
California and Lyon, France. The Company purchases substantially all of the
system components from outside vendors.

The surgical component of the ROBODOC consists of a customized robot arm
supplied by Sankyo Seiki of Japan, a robot base and a control cabinet. The
Company has entered into an agreement with Sankyo Seiki for the purchase and use
of its industrial products. Upon delivery and assembly, robot arms are tested
and devices such as the bone fixator, probes, cutter-bearing sleeves and tool
guides are attached to the robot.

ORTHODOC consists of a computer workstation and associated data peripherals
incorporating the Company's proprietary software. A computer board interface to
CT or x-ray scanner input modules is added to the workstation, as is the ROBODOC
transfer drive. The unit is configured for 100 to 240 AC volt operation.

NeuroMate consists of a robot arm, electronic control, and base, and is operated
by the Company's proprietary software. Audemars-Piguet supplies the customized
robot arm for NeuroMate.

Surgical supplies, including sterile drapes, bone screws and cutters, are
manufactured to the Company's specification by outside vendors and are inspected
upon receipt to ensure that these specifications are consistently met. The
Company purchases these items in quantity and distributes them to customers as
needed.

The Company's production facilities are subject to periodic inspection by the
FDA for compliance with Good Manufacturing Practices. The Company is also
subject to European manufacturing standards for the European sales, and has
secured the required ISO-9001 registration. All products are shipped bearing the
CE Mark, certifying that they meet the European Union's marketing requirement.

Research and Development

Since inception, the Company's engineering activities have focused on the
development of innovative image-directed computer-controlled robotic products
for surgical applications, along with specialized operating software and
hardware systems to support these products. The Company incurred research and
development expenses of approximately $2,515,000 during the year ending December
31, 2002, and $3,511,000 in the year ending December 31, 2001.

                                      -2-

<PAGE>


The Company received a $143,403 interest-free loan in 1997 from ANVAR, a French
agency established to aid research and development projects. The loan provided
funding for the first phase of the development of NeuroMate applications for
spinal surgery.

Competition

The principal competition for ROBODOC comes from manual surgery performed by
orthopaedic surgeons using surgical power tools and manual devices. These tools
and devices are manufactured by major orthopaedic companies, including:
Howmedica, Inc. and Osteonics, Inc. (divisions of Stryker Corporation); Zimmer,
Inc.; DePuy, Inc. (a subsidiary of Johnson & Johnson); and Biomet, Inc.

Navigational systems, offered by the major manufacturers of orthopaedic devices,
are an intermediate step between free-hand and robotic surgery. Navigational
systems use a tracking device affixed to the end of traditional cutting tools to
assist the surgeon in visualizing bone preparation for implant placement.

The principal competition for NeuroMate comes from manufacturers of frame-based
and frameless stereotactic systems, some of which are also referred to as
navigators. Approximately twenty navigator models have been introduced,
including those by Radionics, Sofamor Danek, and Ohio Medical Surgical Products,
all located in the U.S.; Elekta, located in Sweden; and Brain Lab of Germany.

URS GmbH, a German medical robotics company purchased the Caspar orthopaedic
robotic line from Orto Maquet in June 2001. The Caspar product had competed with
the ROBODOC until December 2002, when URS GmbH ceased operations.

Warranty and Service

The Company's customers purchase warranty coverage (parts and labor) as well as
surgical disposables through annual service and maintenance agreements.

The Company's technical staff trains medical professionals in the use of the
products and provides field service. Technical support is also provided by the
Company's engineering department.

Patents and Proprietary Rights

The Company relies on a combination of patent, trade secret, copyright and
trademark laws and contractual restrictions to establish and protect proprietary
rights in the products and to maintain a competitive position.

ROBODOC and ORTHODOC are registered trademarks of the Company. The Company has
been issued five U.S. patents, has four patents pending, and has filed
additional patent applications covering various aspects of the technology in
Europe and in the United States. U.S. issued patents include:

     o    Computer aided system for revision total hip replacement surgery;

     o    Computer system and method for finish cutting bone cavities;

     o    Computer system and method for positioning a surgical robot;

     o    Computer system and method for cavity generation for surgical planning
          and initial placement of a bone prosthesis; and

     o    Computer system and method for performing image directed robotic
          orthopaedic procedures without a fiducial reference system.

                                      -3-

<PAGE>


Significant portions of ORTHODOC and ROBODOC software are protected by
copyrights. IBM has granted the Company a royalty-free license for the
underlying software code for ROBODOC. In addition, IBM has agreed not to assert
infringement claims against the Company with respect to an IBM patent relating
to robotic medical technology, to the extent that this technology is used in the
products. The Company has registered the marks ROBODOC and ORTHODOC.

Government Regulation

The medical devices the Company manufactures and markets are subject to
extensive regulation by the U.S. Food and Drug Administration ("FDA") and by
foreign and state governments.

The ROBODOC and NeuroMate Systems are approved for use in Europe and carry the
European Union's CE Mark. Both the ORTHODOC and NeuroMate systems are also
cleared by the FDA for marketing in the United States and NeuroMate has been
approved for use by the Japanese regulatory agency, the Ministry of Health,
Labor and Welfare ("MHLW"). While ROBODOC has not yet been approved for use by
the MHLW, Japanese hospitals and surgeons are able to purchase and use the
systems while approval is pending. The Company has completed clinical trials in
Japan and submitted a petition for approval in 2002. Although no assurance can
be offered, the Company believes the approval can be reasonably expected in
2004. However, there can be no assurance that the determination will be
favorable, or that any determination will not include unfavorable limitations or
restrictions.

U.S. clinical trials designed to secure FDA clearance to market the ROBODOC
System in the U.S. began in December 2000. It calls for performing pinless hip
(latest version) replacement surgeries on 188 subjects. Upon completion, the
Company will submit the application to the FDA for clearance to market in the
United States. 42% of the expected 188 patients in the study have undergone
surgeries. The Company recently added a third clinical study site in the city of
Buffalo, N.Y., and with this addition, it anticipates the completion of clinical
trials by the fourth quarter of 2003, although no assurances can be given.

Products manufactured or distributed pursuant to FDA clearances or approvals are
subject to pervasive and continuing regulation by the FDA, including quality
system requirements, documentation and reporting of adverse experiences with the
use of the device. Device manufacturers are required to register their
facilities and list their devices with the FDA and with certain state agencies
and are subject to periodic compliance inspections by the FDA and others.

Labeling and promotion activities are subject to scrutiny by the FDA and, in
certain instances, by the Federal Trade Commission. The Company is also subject
to a variety of state laws and regulations in those states or localities where
the products are or will be marketed. As is the case with other manufacturers,
the Company is subject to numerous federal, state and local laws relating to
such matters as safe working conditions, manufacturing practices, environmental
protection, fire hazard control and disposal of hazardous or potentially
hazardous substances.

Although the Company has not been cleared to market the ROBODOC System in the
U.S., the Company is permitted to export the system provided certain
requirements are met. Products approved for use by European Union member
countries, Australia, Canada, Israel, Japan, Korea, New Zealand, Switzerland and
South Africa do not require FDA export approval. FDA export approval, when it is
required, is granted when certain requirements are met including documentation
demonstrating that the product is approved for import into the country to which
it is to be exported and, in some instances, safety data from animal or human
studies.

                                      -4-

<PAGE>


The introduction of the products in foreign markets has subjected the Company,
and will continue to subject the Company, to foreign regulatory clearances that
vary from country to country. Many countries also impose product standards,
packaging requirements, labeling requirements and import restrictions on medical
devices. In addition, each country has its own tariff regulations, duties and
tax requirements.

ROBODOC satisfies international electromedical standard IEC 601-1 and the
protection requirements of the Electromagnetic Compatibility Directive
(89/336/EEC). The Company has also received ISO 9001 registration, EN 46001
certification, and ED Directive 93/42/eec Annex II, Article 3 approval. Meeting
these standards and requirements, and receiving these certifications and
approvals, allows the Company to apply the CE Mark to its products. ROBODOC and
NeuroMate also satisfy the relevant provisions of the Medical Device Directive
for Class IIb Medical Devices.

Product Liability

The Company maintains product liability insurance against product liability
claims in the amount of $10 million per occurrence and $10 million in the
aggregate. The Company has experienced no liability claims to date.

Employees

On December 31, 2002, the Company had a total of 46 employees: 30 in
engineering, 6 in manufacturing and 10 in sales, general and administration.
None of the employees are covered by a collective bargaining agreement and the
Company believes that the relationship with its employees is satisfactory.

Item 2. Description of Property

The Company's executive offices and principal production facilities, which
comprise a total of approximately 30,500 square feet of space, is located in
Davis, California. The Company occupies the facility in Davis under a lease that
expires in June 2005. The lease provided for rent of approximately $33,000 per
month in 2002 (plus real estate taxes and assessments, utilities and
maintenance) and is subject to adjustment in subsequent years for cumulative
increases in the cost of living index, not to exceed 4% per year.

The Company also leases a facility in Lyon, France for its operations in Europe
under a renewable operating lease with terms that include three-year
non-cancelable periods that expire in 2007. The lease provides for rent of
approximately $7,000 per month. The Company believes that these facilities are
sufficient for its current and short-term future requirements.

Item 3. Legal Proceedings

The Company has from time to time been notified of various claims incidental to
the business which are not the subject of pending litigation. While the results
of claims cannot be predicted with certainty, the Company believes that the
final outcome of all such matters will not have a materially adverse effect on
the consolidated financial position, results of operations or cash flows.

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

The annual meeting of stockholders was held on January 14, 2003. At the meeting,
stockholders voted upon the following matters:

     1. Election of Directors


                                                             AUTHORITY
            NOMINEE                    FOR                   WITHHELD
            -------                    ---                   -----------
       Ramesh C. Trivedi           27,118,232                 731,038
       Falah Al-Kadi               27,249,100                 600,170
       Jack W. Moorman             27,302,030                 547,240

                                      -5-

<PAGE>


     2.   Ratification of appointment of Ernst & Young LLP as independent
          auditors for the year ending December 31, 2002.

                    FOR                 AGAINST               ABSTAIN
                    ---                 -------               -------
                 27,291,194             245,926               312,150


                                    Part II.

Item 5. Market for Common Equity and Related Stockholder Matters

The Company's common stock is quoted on the OTC Bulletin Board (OTCBB Symbol:
RDOC.OB). On February 14, 2001, the Company's common stock was delisted from the
Nasdaq SmallCap Market because the common stock failed to maintain a minimum bid
price of $1.00 per share as required under Nasdaq rules. The common stock was
delisted by EASDAQ on March 2, 2001, and by the Pacific Exchange on April 17,
2001 for a failure to satisfy a similar minimum bid price requirement.

Set forth below are the high and low bid prices for the Company's common stock
furnished by the OTC Bulletin Board for each quarter within the last two fiscal
years of the Company. These quotations reflect inter-dealer prices, without
retail mark-up, mark-down or commission and may not represent actual
transactions.

                                                    Common Stock
                                                     (RDOC.OB)
                                                ----------------------
              Fiscal Year Ended 2002            High            Low
              ----------------------            ----            ---

              First Quarter                     $0.160          $0.060
              Second Quarter                    $0.105          $0.040
              Third Quarter                     $0.065          $0.025
              Fourth Quarter                    $0.060          $0.025

              Fiscal Year Ended 2001
              ----------------------

              First Quarter                     $0.438          $0.156
              Second Quarter                    $0.180          $0.085
              Third Quarter                     $0.110          $0.055
              Fourth Quarter                    $0.190          $0.040

As of March 13, 2003 there were 221 holders of record of the common stock.

                                      -6-

<PAGE>


Recent Sale of Unregistered Securities

During the fourth quarter of 2002, the Company issued a total of 3,078,000
shares of common stock to an accredited investor upon conversion of preferred
stock. The issuance and sale of these shares were exempt from the registration
requirements of the Securities Act under Sections 3(a)(9) and 4 (2).

In January 2003, the Company granted to each of Jack W. Moorman and Paul Pankow,
directors of the Company, a 10-year option to purchase an aggregate of 100,000
shares of common stock of the Company at an exercise price of $0.035 per share,
of which 25,000 shares became exercisable on January 28, 2003 and the remaining
75,000 shares shall become exercisable over a period of 48 months commencing on
February 21, 2003, at a rate of 1,562.50 shares per month. The options were
granted pursuant to the Company's 2000 Long-Term Performance Plan.

In February 2003, the Company granted options to its employees to purchase an
aggregate of 910,100 shares of the Company's common stock, exercisable
commencing on February 28, 2004 and expiring on February 27, 2013. Included in
the foregoing grant of options for an aggregate of 910,100 shares, were the
grant of options to purchase 300,000, 125,000 and 80,000 shares of common stock
of the Company to Ramesh C. Trivedi, the president and chief executive officer
of the Company, Leland Witherspoon, vice president of engineering of the Company
and Charles J. Novak, chief financial officer of the Company, respectively. The
purchase price of these options is $0.025 per share, the closing price of the
Company's common stock on February 28, 2003. The options were granted pursuant
to the Company's 1995 Stock Plan, 1998 Stock Option Plan and 2000 Long-Term
Performance Plan.

Equity Compensation Plans

The following table provides information as of the fiscal year ended December
31, 2002 with respect to our compensation plans (including individual
compensation arrangements).

<TABLE>
<CAPTION>

                                     EQUITY COMPENSATION PLAN INFORMATION TABLE

                                         (a)                           (b)                        (c)

Plan Category                   Number of securities to be   Weighted-average exercise    Number of securities
                                issued upon exercise of      price of outstanding         remaining available for
                                outstanding options,         options, warrants and        future issuance under
                                warrants and rights          rights                       equity compensation plans
                                                                                          (excluding securities
                                                                                          reflected in column (a))
<S>                                <C>                          <C>                         <C>

Equity compensation plans
approved by security
holders (1)                          1,608,971 (2)                    $ 1.28                     1,122,607

Equity compensation plans not
approved by security holders           100,000 (3)                    $0.055                        ----




Total                                1,708,971                        $ 1.21                     1,122,607
</TABLE>


(1)  Includes the Company's 1991, 1995 and 1998 Stock Option Plans and its 2000
     Long-Term Performance Plan.

(2)  Does not include options to purchase an aggregate of 910,100 shares of
     common stock of the Company, granted to employees of the Company in
     February 2003.

(3)  100,000 warrants for consulting services.

Item 6. Management's Discussion and Analysis

The following discussion and analysis relates to the consolidated operations of
the Company and should be read in conjunction with the consolidated financial
statements of the Company, including the notes thereto, appearing elsewhere in
this report.

Results of Operations (2002 vs. 2001)

Revenue of $5.2 million for the year ended December 31, 2002, was down 43% when
compared to $9.1 million for the year ended December 31, 2001. While revenue
decreased, expenses were reduced, yielding a 2002 net loss of $2.8 million
compared to a 2001 net loss of $3.4 million.

                                      -7-

<PAGE>


The Company shipped six ROBODOC systems and one NeuroMate system in 2002. Only
two of these ROBODOC systems, one under an operating lease, and the NeuroMate
system were recognized as revenue during 2002 as compared to eight systems being
recognized as revenue during 2001, which resulted in a decrease in revenues of
$4.2 million. The other four ROBODOC systems shipped in 2002 are reported as
unearned income and will be recognized as revenue upon the completion of
training and installation of the equipment at the end user site except when the
sales contract requires formal customer acceptance. The Company modestly grew
its systems parts and services revenue without the benefit of growth of the
installed base when comparing the year ended December 31, 2002 to 2001. Product
development revenue increased by $175,000, or 21% when comparing the year 2002
to 2001, with two large contracts being completed in late 2002. The gross margin
improved from 57% in 2001 to 65% in 2002 due to the change in product mix
favoring the stronger margins of product development revenue over the lower
margins realized in system sales.

Selling, general and administrative expenses were 15% lower in 2002 than 2001 as
the result of personnel reduction and a continuing focus on cost control.
Research and development expense for 2002 when compared to the same expense in
2001, decreased 28% due to reduced personnel and lower fixed costs. Other
expense, net includes a $201,000 gain and a $150,000 loss on foreign currency
exchange in 2002 and 2001, respectively, primarily related to intercompany
amounts owed by and to the Company's wholly-owned subsidiaries. Other income,
net for 2002 included approximately $64,000 of sublease income related to the
Davis, California location.

During the fourth quarter of 2001, the Company discovered clerical errors which
arose in 2001 relating to the elimination of certain intercompany sales by its
wholly-owned French subsidiary. In 2001, the Company recorded a fourth quarter
adjustment to reduce net revenue by approximately $516,000 and to reduce cost of
revenue by an equivalent amount. This adjustment related to an equivalent amount
of net revenue and cost of revenue for the first three quarters of 2001 of
approximately $299,000, $150,000 and $67,000, respectively. The impact of this
adjustment had no effect on previously reported gross margin, operating loss,
net loss or net loss per share for the 2001 interim periods or the fourth
quarter of 2001.

Liquidity

The reports of the Company's independent auditors on the 2002 and 2001
consolidated financial statements included explanatory paragraphs stating that
there is substantial doubt with respect to the Company's ability to continue
operating as a going concern. The Company believes that it has a viable plan to
address these issues and enable it to continue to operate through the end of
2003. This plan includes increasing sales of the products in existing markets,
increasing sales of system upgrades, and reducing operating expenses as
necessary. Although the Company believes that the plan will be realized, there
is no assurance that the Company will be successful. In the event that the
Company is unsuccessful, it is possible that the Company will cease operations
or seek bankruptcy protection. The consolidated financial statements do not
include any adjustments to reflect the uncertainties related to the
recoverability and classification of assets or the amounts and classification of
liabilities that may result from an inability on the Company's part to continue
as a going concern.

Through December 31, 2002, the Company has been funded through operations and
sales of equity securities (see, however, "Capital Resources"). At December 31,
2002, the "quick ratio" (cash and accounts receivable divided by current
liabilities), a conservative liquidity measure designed to predict the Company's
ability to pay bills, was only .23. It has been difficult for the Company to
meet financial obligations, including payroll, as they come due, and the Company
expects this situation to continue through 2003.

                                      -8-

<PAGE>


Net cash used in operating activities was $972,000 for the year ended December
31, 2002. This primarily resulted from the loss from continuing operations of
$2,818,000 plus an increase in the accounts receivable balance of $678,000
offset by a decrease in inventory of $373,000, an increase of $320,000 in
accounts payable and an increase in unearned income of $1,303,000. The increase
in accounts receivable, decrease in inventory and increase in unearned income
were a result of limited sales of the ROBODOC and NeuroMate systems during the
year. The increase in accounts payable is directly related to lack of cash
resulting in delayed vendor payments. The Company expects to derive most of the
cash required to support operations through sales of the ROBODOC System.
Continued conversion of the inventory balance into cash, as well as collection
of the account receivables, is critical to the Company's survival in 2003.

The Company has the following contractual obligations and commercial commitments
at December 31, 2002:
<TABLE>
<CAPTION>
                                                      Less                        More
                                                      Than                        Than
                                       Total         1 year       1-3 years      3 years
                                       -----         ------       ---------      -------

<S>                                   <C>            <C>           <C>             <C>
Facility operating leases             $1,158,000     $487,000      $671,000        $0
Equipment operating leases                37,000       37,000            0
Research grant                           103,000

</TABLE>

The Company will require substantial funds for further product development,
future clinical trials, regulatory approvals, and the marketing of the products.
The Company's future capital requirements will depend upon the progress of the
research and development programs; the time and costs involved in securing
regulatory approvals; the cost of filing, defending and enforcing the
intellectual property rights; and competing technology and market developments.
Future expenditures for product development and clinical trials are
discretionary and, accordingly, can be adjusted, as can certain selling, general
and administrative expenses, based on the availability of cash.

The financial statements of Integrated Surgical Systems, S.A. ("ISS-SA"), the
wholly-owned French subsidiary for the year ended December 31, 2002 have net
assets of less than 50% of ISS-SA's capital stock. This equity deficit is
considered to be a sign of bankruptcy under French law. Unless this situation is
remedied, a third party or the French courts could petition for correction or
the dissolution of ISS-SA. The Company plans to correct this equity deficiency
by converting a portion of ISS-SA's intercompany payables into equity of ISS-SA.

At December 31, 2002, the Company had amounts due to the executive officers of
the Company of approximately $383,000, in the aggregate, in the form of an
interest bearing advance, deferred salaries and unreimbursed travel expenses.
Approximately $89,000, $223,000 and $53,000 are included in accrued payroll and
related expense, accounts payable and accrued liabilities, respectively, due to
Ramesh C. Trivedi, president and chief executive officer of the Company,
approximately $15,000 included in accrued payroll and related expense due to
Leland Witherspoon, vice president of engineering of the Company, and
approximately $3,000 included in accrued payroll and related expense due to
Charles J. Novak, chief financial officer of the Company.

Capital Resources

On March 13, 2003 there were 42.0 million shares of the Company's common stock
outstanding, trading in the over-the-counter market at $0.030 a share, giving
the Company a market capitalization of $1.3 million. In the first quarter of
2001, the Company's common stock and warrants were delisted by the Nasdaq
because the stock did not maintain the market's minimum bid price of $1.00 per
share. Securities traded at less than $5.00 and not traded on a national

                                      -9-

<PAGE>


securities exchange or quoted on the Nasdaq are called penny stocks. The
Securities and Exchange Commission rules require brokers to provide information
to purchasers of penny stocks, and these disclosure requirements and the
requirement that brokers must make a special written determination that the
penny stock is a suitable investment for the purchaser and receive the
purchaser's written agreement to the transaction in advance may have the effect
of reducing trading activity in the common stock and make it more difficult for
investors to sell.

The Company has received net proceeds of $696,000 through the equity line of
credit since it was consummated in April 2000 through December 31, 2002, and has
$11.3 million in additional credit on which to draw. However, the terms of the
agreement provide that the Company may not take advantage of the line of credit
if the contemplated transaction results in the lender's ownership of more than
4.9% of the common stock. At December 31, 2002, the Company had 41,978,469
shares of common stock outstanding. A theoretical purchase of 4.9% of the shares
on that date, the maximum available under the line, would have provided net
proceeds of $62,000.

At December 31, 2002, the Company had 250 shares of convertible preferred stock
outstanding. Each share of preferred stock has a stated value of $1,000 and is
convertible into common stock at a conversion price equal to 80% of the lowest
sale price of the common stock over the five trading days preceding the date of
conversion. Because there is no minimum conversion price, there is no limit on
the number of shares of common stock that holders of preferred stock may acquire
upon conversion. These shares acquired at a 20% discount from the market price,
may then be sold at market price realizing a profit on the difference.

The holders of the preferred stock could also engage in short sales of the
common stock after delivering a conversion notice to the Company, which could
contribute to a decline in the market price of the Company's common stock and
give them the opportunity to profit from that decrease by covering their short
position with the converted shares acquired at a 20% discount to the prevailing
market price. This activity, or the possibility of such activity, could
exacerbate any decline or impede any increase in the market price of the
Company's common stock.

The Company does not expect, therefore, that it will be able to raise
significant funds through the sale of equity securities in 2003.

Critical Accounting Policies and Estimates

The Company's discussion and analysis of the financial condition and results of
operations are based upon the financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States.
The preparation of these consolidated financial statements requires the Company
to make estimates and judgments that affect the reported amounts of assets,
liabilities, revenue and expenses, and related disclosure of contingent assets
and liabilities. On an on-going basis, the Company evaluates the estimates,
including those related to bad debts, inventories, impairment of assets,
warranties, contingencies and litigation. The Company bases these estimates on
historical experience and on other assumptions believed to be reasonable under
the circumstances, the results of which form the basis for making judgments
about the carrying values of assets and liabilities that are not readily
apparent from other sources. Actual results may differ from these estimates
under different assumptions or conditions.

                                      -10-

<PAGE>


The Company believes the following critical accounting policies affect the
Company's more significant judgments and estimates used in the preparation of
the consolidated financial statements:

     The Company recognizes revenue from sales of its products upon the
     completion of equipment installation and training at the end-user's site,
     except when the sales contract requires formal customer acceptance.
     Equipment sales with contractual customer acceptance provisions are
     recognized as revenue upon written notification of customer acceptance,
     which generally occurs after the completion of installation and training.
     Furthermore, due to business customs in Japan and the interpretation of
     Japanese law, all equipment sales to Japan are recognized after customer
     acceptance, which generally occurs after the completion of installation and
     training. Revenue related to maintenance and service contracts is
     recognized ratably over the duration of the contracts.

     The Company maintains allowances for doubtful accounts for estimated losses
     resulting from the inability of the Company's customers to make required
     payments. If the financial condition of the customers were to deteriorate,
     resulting in an impairment of their ability to make payments, additional
     allowances may be required.

     Where the Company's products are not covered by separate service
     agreements, the Company reserves against the estimated cost of product
     warranties at the time revenue is recognized. The warranty obligation is
     affected by product failure rates, material usage and service delivery
     costs incurred in correcting a product failure. Should actual product
     failure rates, material usage or service delivery costs differ from these
     estimates, revisions to the estimated warranty liability would be required.

     The Company writes down the inventory for estimated obsolescence or
     unmarketable inventory equal to the difference between the cost of
     inventory and the estimated market value based upon assumptions about
     future demand and market conditions. If actual market conditions are less
     favorable than those the Company projected, additional inventory
     write-downs may be required.

     Property, plant and equipment are amortized over their useful lives. Useful
     lives are based on estimates of the period that the assets will generate
     revenue. Property and equipment are reviewed for impairment whenever events
     or changes in circumstances indicate that the carrying amount of an asset
     may not be recoverable.

Recent Accounting Pronouncements

In June 2001, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and Other
Intangible Assets." Under statement SFAS 142, goodwill and indefinite lived
intangible assets are no longer amortized but are reviewed annually, or more
frequently if impairment indicators arise, for impairment. Intangible assets
whose lives are not indefinite are amortized over their useful lives, and
reviewed for impairment in accordance with SFAS No. 144. "Accounting for the
Impairment or Disposal of Long-Lives Assets." The adoption of SFAS No. 142 on
January 1, 2002 did not have an impact on the Company's consolidated financial
position, cash flows or results of operations.

In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations," which addresses financial accounting and reporting for obligations
associated with the retirement of tangible long-lived assets and associated

                                      -11-

<PAGE>


asset retirement costs. The new rules apply to legal obligations associated with
the retirement of long-lived assets that result from the acquisition,
construction, development and (or) normal operation of a long-lived asset. The
Company will adopt SFAS No. 143 on January 1, 2003, and does not expect that the
adoption will have any adverse impact on the consolidated financial position,
cash flows or results of operations.

In August 2001, FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets." SFAS No. 144, which supersedes SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of," provides a single accounting model for long-lived assets to be
disposed of. Although retaining many of the fundamental recognition and
measurement provisions of SFAS No. 121, SFAS No. 144 significantly changes the
criteria that would have to be met to classify an asset as held-for-sale. The
distinction is important because assets held-for-sale are stated at the lower of
their fair values or carrying amounts and depreciation is no longer recognized.
The adoption of SFAS No. 144 effective January 1, 2002, did not have an impact
on the Company's consolidated financial position, cash flows or results of
operations.

In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities" ("SFAS 146"), which addresses accounting for
restructuring, discontinued operations, plant closing, or other exit or disposal
activity. SFAS 146 requires companies to recognize costs associated with exit or
disposal activities when they are incurred rather that at the date of a
commitment to an exit or disposal plan. SFAS 146 is to be applied prospectively
to exit or disposal activities initiated after December 31, 2002. The adoption
of SFAS 146 is not expected to have a material impact on the Company's
consolidated financial position, cash flows or results of operations.

In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation-Transition and Disclosure" ("SFAS 148"). SFAS 148 amends SFAS No.
123. "Accounting for Stock-Based Compensation" and provides alternative methods
of transition for a voluntary change to the fair value based method of
accounting for stock-based employee compensation. SFAS 148 also amends the
disclosure requirements of SFAS 123 to require more prominent and frequent
disclosure requirements in financial statements about the effects of stock-based
compensation. The transition guidance and annual disclosure provisions of SFAS
148 are effective for financial statements issued for fiscal years ending after
December 15, 2002. The interim disclosure provisions are effective for financial
reports containing financial statements for interim periods beginning after
December 15, 2002. The adoption of SFAS 148 did not have a material impact on
the Company's consolidated financial position, cash flows or results of
operations.

In November 2002, the FASB issued Interpretation Number 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others" ("FIN 45"). This interpretation elaborates
on the disclosures to be made by a guarantor in its interim and annual financial
statements about its obligations under certain guarantees that it has issued. It
also clarifies that a guarantor is required to recognize, at the inception of a
guarantee, a liability for the fair value of the obligation undertaken in
issuing the guarantee. The disclosure requirements of FIN 45 are effective for
interim and annual periods ending after December 15, 2002 and the Company has
adopted those requirements for the financial statements included in this Form
10-KSB. The initial recognition and initial measurement requirements of FIN 45
are effective prospectively for guarantees issued or modified after December 31,
2002. The Company is assessing, but at this point does not believe the adoption
of the recognition and initial measurement requirements of FIN 45 will have a
material impact on the consolidated financial position, cash flows or results of
operations.

In January 2003, the FASB issued Interpretation Number 46, "Consolidation of
Variable Interest Entities" ("FIN 46"). This interpretation clarifies the
application of Accounting Research Bulletin No. 51, "Consolidated Financial

                                      -12-

<PAGE>


Statements", to certain entities in which equity investors do not have the
characteristics of a controlling financial interest or do not have sufficient
equity at risk for the entity to finance its activities without additional
subordinated financial support from other parties. FIN 46 applies immediately to
variable interest entities created after January 31, 2003, and to variable
interest entities in which an enterprise obtains an interest after that date. It
applies to the first fiscal year or interim period beginning after June 15,
2003, to variable interest entities in which an enterprise holds a variable
interest that it acquired before February 1, 2003. The Company does not believe
the adoption of FIN 46 will have a material impact on the consolidated financial
position, cash flows or results of operations.

In November 2002, the EITF reached a consensus on Issue 00-21,
"Multiple-Deliverable Revenue Arrangements" ("EITF 00-21"). EITF 00-21 addresses
how to account for arrangements that may involve the delivery or performance of
multiple products, services, and/or rights to use assets. The consensus mandates
how to identify whether goods or services or both that are to be delivered
separately in a bundled sales arrangement should be accounted for separately
because they are "separate units of accounting." The guidance can affect the
timing of revenue recognition for such arrangements, even though it does not
change rules governing the timing or pattern of revenue recognition of
individual items accounted for separately. The final consensus will be
applicable to agreements entered into in fiscal years beginning after June 15,
2003, with early adoption permitted. Additionally, companies will be permitted
to apply the consensus guidance to all existing arrangements as the cumulative
effect of a change in accounting principle in accordance with APB Opinion No.
20, "Accounting Changes." The Company is assessing, but at this point does not
believe the adoption of EITF 00-21 will have a material impact on the Company's
consolidated financial position, cash flows or results of operations.

Risk Factors and Cautionary Statement Regarding Forward-Looking Information

The Company cautions that this Form 10-KSB contains "forward-looking
statements," within the meaning of the Private Securities Litigation Reform Act
of 1995, that involve risks and uncertainties. The Company's plans, strategies,
objectives, expectations and intentions are subject to change at any time at the
discretion of management and the board of directors. The plans and results of
operations will be affected by the Company's ability to manage any growth and
working capital and the ability to finance future operations, none of which is
assured. In addition, the risk factors that follow may affect the actual results
and may cause actual results to differ materially from those expressed in or
implied by any forward-looking statement. These risk factors are not an
exhaustive list. Additional factors are discussed from time to time in the
Company's filings with the Securities and Exchange Commission. The Company
undertakes no obligation to update such factors in the future.

The reports of the Company's independent auditors on the 2002 and 2001
consolidated financial statements included explanatory paragraphs stating that
there is substantial doubt with respect to the Company's ability to continue as
a going concern. The Company believes that it has a viable plan to address these
issues and enable the Company to continue through the end of 2003. This plan
includes increasing sales of the products in existing markets, increasing sales
of system upgrades, and reducing operating expenses as necessary. Although the
Company believes that the plan will be realized, there is no assurance that it
will be successful. In the event that the Company is unsuccessful, it is
possible that it will cease operations or seek bankruptcy protection. The
consolidated financial statements do not include any adjustments to reflect the
uncertainties related to the recoverability and classification of assets or the
amounts and classification of liabilities that may result from an inability on
the Company's part to continue as a going concern.

                                      -13-

<PAGE>


Prior to the three month period ended December 31, 2002, the Company has not had
an operating profit, nor net income. The financial results for the quarter ended
December 31, 2002 reports the first quarterly operating profit in the history of
the Company. Although the Company reported an operating loss for the year 2002
of $2,818,000, this loss is considerably less than each of the prior six years
since the Company's Initial Public Offering in November 1996. There can be no
assurance that the Company will be able to maintain operating income in future
periods, or revenue levels from the sale of products to sustain this
profitability.

The Company's future financial performance will depend almost entirely on sales
of the ROBODOC System. The Company expects to derive most of its near-term
revenue from sales of the ROBODOC System. Having recognized revenue on two
systems in 2002 and eight systems in 2001, the Company must develop an effective
sales and marketing organization and expend sufficient funds to inform potential
customers of the distinctive characteristics and advantages of using the system
instead of traditional surgical tools and procedures.

Because the ROBODOC System employs innovative technology rather than an
improvement of existing technology, and because it represents a substantial
capital expenditure, the Company expects to encounter resistance to change,
which it must overcome if the system is to achieve significant market
acceptance.

Furthermore, the Company's ability to market the ROBODOC System in the U.S. is
dependent upon clearance by the FDA. The Company can give no assurance that it
will receive FDA clearance, or that the ROBODOC System will achieve the market
acceptance in the U.S. and foreign markets to generate sufficient revenue to
secure profitability.

The Company is dependent on foreign sales. Most of the sales have been to
customers in Germany and Japan. Until such time, if ever, as the Company
receives clearance from the FDA to market the ROBODOC System in the U.S., it
will continue to be subject to the risks of foreign sales. These risks include
economic or political instability, shipping delays, fluctuations in foreign
currency exchange rates, changes in regulatory requirements, customs duties and
export quotas and other trade restrictions. Any of these risks could have a
material adverse effect on the business. To date, payment for substantially all
systems has been fixed in U.S. dollars. However, future customers may not be
willing to make payment for the products in U.S. dollars. If the U.S. dollar
strengthens substantially against the foreign currency of a country in which the
Company sells the products, the cost of purchasing the products in U.S. dollars
would increase and may inhibit purchases of the products by customers in that
country. The Company is unable to predict the nature of future changes in
foreign currency markets or the effect, if any, they may have on the Company.


The Company's ability to maintain operations in foreign countries will depend on
whether it can continue to comply with any minimum capitalization criteria
required in such countries, and given the lack of adequate liquidity, there is
no assurance that the Company will be able to comply with such requirements in
the future. In the event that the Company cannot meet the minimum capital
requirements to operate in foreign countries, it may be required to cease
operations in those countries.

The Company's quarterly revenue and results of operations may fluctuate and may
not be indicative of expected revenue and results of operations for the full
year. The level of revenue and results of operations fluctuate with the number
of ROBODOC Systems sold. The number and timing of the systems sold may cause
revenue and earnings to vary significantly on a quarterly basis and a quarter's
results may not be indicative of revenue and earnings for the full year.

The Company may not be able to secure the regulatory approvals needed to expand
the sales of the products to new foreign markets. The introduction of the
products in foreign markets has subjected and will continue to subject the
Company to foreign regulatory approvals. These approvals may be unpredictable

                                      -14-

<PAGE>


and uncertain and may impose substantial additional costs and burdens. Many
countries also impose product standards, packaging requirements, labeling
requirements and import restrictions on medical devices. The Company can give no
assurance that any of the products will receive further approvals.

The Company needs, but has not yet secured, clearance from the FDA to market the
ROBODOC System in the U.S. In December 2000, the Company began U.S. clinical
trials designed to demonstrate that the ROBODOC System is safe and effective for
its intended use as an alternative to other surgical power tools and manual
devices used in hip replacement surgery. The trials anticipate the completion of
hip replacement surgeries in 188 subjects performed at three or four clinical
trial sites. The Company has established three sites, Sutter General Hospital in
Sacramento, California, the University of Arkansas in Little Rock, Arkansas and
Buffalo General Hospital in Buffalo, New York. As of December 31, 2002, 42% of
the mandated total surgeries have been performed.

The Company can provide no assurance that, at the completion of the clinical
trials, the FDA will grant clearance to market the system in the U.S. and that
such clearance will not include unfavorable limitations or restrictions.

Even after receipt of any FDA clearance to market, the Company expects that the
FDA will consider any new ROBODOC surgical applications to be new indications
for use, which generally require FDA clearance prior to marketing. The FDA may
require additional approvals before allowing the Company to incorporate new
imaging modalities (such as ultrasound and MRI) or other different technologies
in the ROBODOC System. The FDA will likely require new clinical data to support
new indications and may require new clinical data for clearance of enhanced
technological characteristics.

The Company may not be able to comply with quality system and other FDA
reporting and inspection requirements. Assuming that the Company secures the
necessary FDA clearances for the products, in order to maintain these clearances
the Company must, among other things, register its establishment and list the
devices with the FDA and with certain state agencies, the Company must maintain
extensive records, report any adverse experiences on the use of the products and
submit to periodic inspections by the FDA and state agencies, The Food, Drug and
Cosmetic Act also requires devices to be manufactured in accordance with the
quality system regulation, which sets forth good manufacturing practices
requirements with respect to manufacturing and quality assurance activities.

Noncompliance with FDA requirements can result in fines, injunctions, civil
penalties, recall or seizure of products, total or partial suspension of
production, failure of the government to grant pre-market clearance or
pre-market approval for devices, withdrawal of marketing clearances or
approvals, and criminal prosecution. The FDA also has the authority to request
repair, replacement or refund of the cost of any device the Company manufactures
or distributes.

The manufacture and sale of medical products exposes the Company to the risk of
significant damages from product liability claims. The Company maintains product
liability insurance against product liability claims in the amount of $10
million per occurrence and $10 million in the aggregate. Although the Company
has not experienced any product liability claims to date, a successful claim in
excess of the Company's insurance coverage could have a materially adverse
effect on the business, financial condition and results of operations of the
Company.

The Company has produced a limited number of commercial ROBODOC Systems and may
not be able to manufacture the systems at a cost or in such quantity as will be
necessary for profitable operation. Manufacturers often encounter difficulties


                                      -15-

<PAGE>


in scaling up for manufacturing new products, including problems involving
product yields, quality control and assurance, component and service
availability, adequacy of control policies and procedures, lack of qualified
personnel, compliance with FDA regulations, and the need for further FDA
approval of new manufacturing processes and facilities. The Company can give no
assurance that production yields, costs or quality will not be adversely
affected as the Company seeks to increase production, and any such adverse
effect could have a material adverse effect on the business, financial condition
and results of operations.

The Company is dependent on the suppliers of robots. Although the Company has
multiple sources for most of the components, parts and assemblies used in the
systems, the Company is dependent on Sankyo Seiki MFG.CO., LTD of Japan for the
robot arm of the ROBODOC System and has entered into an agreement with Sankyo
for the purchase and use of Sankyo industrial products, and Audemars-Piguet of
Switzerland for the supply of the customized NeuroMate robot. Although the
Company believes it can secure a robot arm for either system from other
suppliers, the Company can give no assurance that delays resulting from the
engineering effort to adapt alternative components would not have a material
adverse effect on the business, financial condition and results of operations.

The Company depends heavily on the principal members of the management team and
on the engineers. The Company's growth and future success will depend in large
part on the continued contributions of the key technical and senior management
personnel. Dr. Ramesh Trivedi, the Company's President and Chief Executive
Officer, Charles J. Novak, the Company's Chief Financial Officer and Leland
Witherspoon, the Company's Vice President, Engineering, are employed pursuant to
employment agreements terminable by the Company or by such officer at any time.
None of the executives or technical personnel, other than Dr. Trivedi, Mr. Novak
and Mr. Witherspoon are employed pursuant to an employment agreement. The loss
of the services of Dr. Trivedi, Mr. Novak, Mr. Witherspoon or other senior
management or key technical personnel could have a material adverse effect on
the business, financial condition, cash flows and results of the Company's
operations.

The Company's success may depend, in part, on its ability to defend its
intellectual property. The Company has secured patent and other proprietary
right protection for the technologies and relies on trade secrets, proprietary
know-how and continuing technological innovation to develop the products. Any
defense of the intellectual property could be costly and require significant
time and the attention of the management and technical personnel.

Purchases of the Company's shares are subject to the SEC's penny stock rules.
Securities traded at less than $5.00 and not traded on a national securities
exchange or quoted on the Nasdaq are called penny stocks. The Securities and
Exchange Commission rules require brokers to provide information to purchasers
of penny stocks, and these disclosure requirements and the requirement that
brokers must make a special written determination that the penny stock is a
suitable investment for the purchaser and receive the purchaser's written
agreement to the transaction in advance may have the effect of reducing trading
activity in the common stock and make it more difficult for investors to sell.

Item 7. Financial Statements

The financial statements follow Item 14 of this report.

Item 8. Changes in and disagreements with accountants on accounting and
        financial disclosure

The Company did not have any changes in or disagreements with the accountants on
accounting and financial disclosure.

                                      -16-

<PAGE>


                                    Part III

Item 9. Directors, Executive Officers and Control Persons; Compliance with
        Section 16(A) of the Exchange Act

The Company's executive officers and directors are listed below:

    Name                    Age    Position with the Company
    ----                    ---    -------------------------

    Ramesh C. Trivedi       63     President, Chief Executive Officer, Director
    Charles J. Novak        55     Chief Financial Officer, Treasurer, Secretary
    Leland Witherspoon      50     Vice President
    Falah Al-Kadi           52     Chairman of the Board of Directors
    Jack W. Moorman         55     Director
    Paul A.H. Pankow        72     Director

Ramesh C. Trivedi has been president, chief executive officer and a director of
Integrated Surgical Systems since 1995. Prior to that time, Dr. Trivedi was a
principal of California Biomedical Consultants, an international consulting
firm, and he served as the president and chief executive officer of DigiRad
Corporation, a medical imaging company. Dr. Trivedi received his Ph.D. in
chemical engineering from Lehigh University, and holds an MBA from Pepperdine
University.

Charles J. Novak has been the chief financial officer since joining Integrated
Surgical Systems in July 2002. From September 2001 to December 2001, Mr. Novak
was the vice president of finance and administration and CFO for Realty Plus
Online, a real estate software transaction system company. From January 2001 to
September 2001, he was the vice president of finance and administration and CFO
for WebRaiser Technologies, Inc., an integration and professional services firm.
From February 1999 to January 2001, Mr. Novak was the director of operations for
MRI Sierra International Group, Inc., an executive search firm. From September
1995 to February 1999, he was the assistant corporate controller for USCS
International, Inc., a supplier of customer management software and open billing
solutions. Prior to that, Mr. Novak served in executive management positions for
Describe, Inc. and HealthTek, Inc. and he served in various management positions
with the Hewlett-Packard Company. Mr. Novak earned his BS in Accounting from
Lewis University in Lockport, Illinois.

Leland Witherspoon has been vice president of engineering since joining ISS in
1997. From 1992 to 1997, Mr. Witherspoon was director of product research and
development for Biomedicals, Inc., a developer and manufacturer of
cardiopulmonary and cardiovascular products. Prior to that time, he served in
various technical and management positions for Pfizer/Shiley, Xerox Medical
Systems and IBM. Mr. Witherspoon received his Bachelor of Science from
Rensselaer Polytechnic Institute.

Falah Al-Kadi has been chairman of the board of directors since January 2000 and
a director since December 1999. Mr. Al-Kadi is vice chairman of International
Licensing Holding sal ("ILTAG"), a position he has held since 1994. ILTAG is a
Lebanese holding company registered under Commercial Registration no. 855.

Jack W. Moorman has been a director of the Company since October 2002. Since
August 2002, Mr. Moorman has been president and chief executive officer of
Microbar Inc., a capital equipment manufacturer of advanced chemical management
systems, and acted as interim president of Microbar Inc., from December 2001 to
August 2002. From December 2000 to December 2001, Mr. Moorman was a
self-employed start-up consultant to various companies. From July 1999 to
December 2000, Mr. Moorman served as President of Vivant Medical Incorporated,

                                      -17-

<PAGE>


an early stage venture capital funded medical device company, which merged with
MCT Medical Inc., a liver tumor ablation medical device company founded by Mr.
Moorman in November 1998. From June 1999 to July 1999, Mr. Moorman provided
business and consulting services to the Company. From December 1997 to July
1999, Mr. Moorman was self employed as a business and technical consultant in
parallel with MCT Medical Inc. Mr. Moorman received his BS in Ceramic
Engineering from the University of Illinois and his MS in Management from
Stanford Graduate School of Business.

Paul A. H. Pankow has been a director of the Company since January 2002. Mr.
Pankow previously served as a director of the Company from May 1995 through
December 1999. Since March 1995, Mr. Pankow has been president of PAP
Consulting, a business and technical consulting firm. From September 1959 to
February 1995, he held various positions with 3M Corporation, most recently as a
vice president of its Imaging Systems Division, staff vice president of Digital
Imaging Application Center and staff vice president of special programs. He
currently serves as a member of several private boards. Mr. Pankow received his
B.S. in mechanical engineering and business administration from the University
of Minnesota.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers, directors and persons who own more than ten percent of a registered
class of the Company's equity securities within specified time periods to file
certain reports of ownership and changes in ownership with the Securities and
Exchange Commission. Officers, directors and ten- percent stockholders are
required by regulation to furnish the Company with copies of all Section 16(a)
forms they file. Based solely on a review of copies of the reports the Company
received and written representations from persons concerning the necessity to
file these reports, the Company is not aware of any failure to file reports or
report transactions in a timely manner during the fiscal year ended December 31,
2002, except that (i) Mr. Trivedi has not filed reports on Form 4 or 5 with
respect to options granted to him; (ii) Mr. Novak filed late a statement of
change in beneficial ownership on Form 4 with respect to the options granted to
him; and (iii) Mr. Al-Kadi has not filed an initial report of beneficial
ownership on Form 3 upon being appointed a director of the Company, nor has he
filed reports on Form 4 or on Form 5 with respect to options granted to him.

Item 10. Executive Compensation

The following table sets forth for the fiscal years ended December 31, 2002,
2001 and 2000, the compensation awarded to, earned by or paid to the Company's
Chief Executive Officer and each of the other executive officers whose total
salary and bonus exceeded $100,000 for the year ended December 31, 2002
(collectively, the "Named Executive Officers").

                                      -18-

<PAGE>
<TABLE>
<CAPTION>



                                          Summary Compensation Table
                                                                                           Long-Term
                                                   Annual Compensation                    Compensation
                                                   -------------------                    ------------

                                                                                           Securities
              Name and                                       Cash                          Underlying
         Principal Position        Year      Salary          Bonus        Other (1)         Options
         ------------------        ----      ------          -----        ---------         -------

<S>                                 <C>     <C>                <C>        <C>                      <C>
     Ramesh C. Trivedi              2002    $302,215           $0         $16,752                  0
     President and Chief            2001     301,434            0          17,214                  0
     Executive Officer              2000     302,215            0          29,003            240,000
     --------------------------------------------------------------------------------------------
     Leland Witherspoon             2002     142,600            0               0                  0
     Vice President,                2001     141,335            0               0                  0
     Engineering                    2000     141,400            0               0             30,000
</TABLE>


(1)  Represents expense allowances paid under the terms of Dr. Trivedi's
     employment agreement.

Employment Agreements

Dr. Ramesh Trivedi serves as President and Chief Executive Officer of the
Company pursuant to an employment agreement with the Company dated December 8,
1995, as amended on March 31, 1998, terminable at will by either party. Pursuant
to such employment agreement, Dr. Trivedi is to receive a base salary of $23,320
per month and incentive compensation. Pursuant to such employment agreement, Dr.
Trivedi received a 10-year option to purchase an aggregate of 100,000 shares of
common stock of the Company at a purchase price of $4.75 per share, the closing
price of the Company's common stock on February 19, 1998, exercisable as
follows: (i) 28,125 exercisable immediately and (ii) the remaining 71,875 shares
exercisable over a period of 48 months commencing on February 19, 1998. Dr.
Trivedi's employment with the Company is for no specified period and constitutes
at-will employment. However, it is provided in the employment agreement that in
the event (i) that Dr. Trivedi is terminated by the Company for reasons other
than for Cause (as defined in his employment agreement), he will be entitled to
receive severance pay of his base salary for a period of 18 months from the date
of termination; and (ii) the vesting of his option as indicated above will
accelerate and become immediately exercisable at the time of termination.

On February 14, 2003, the Company entered into substantially similar employment
agreements with Charles J. Novak and Leland Witherspoon (individually, the
"Executive") to serve as Chief Financial Officer and Vice President,
Engineering, respectively, of the Company. The employment agreements provide for
an annual base salary of $10,000 and $11,883.34 per month to Mr. Novak and Mr.
Witherspoon, respectively, and such incentive compensation as shall be
determined from time to time by the Board of Directors of the Company. The
Executives' employment with the Company is for no specified period and
constitutes at-will employment. However, it is provided in each of the
employment agreements that in the event (i) that the Executive is terminated by
the Company for reasons other than for Cause (as defined in his employment
agreement), the Executive will be entitled to receive severance pay of his base
salary for a period of three months from the date of termination; and (ii) of
any consolidation or merger of the Company with or into another entity, or the
sale of all or substantially all of the assets of the Company to another entity,
the Executive is unable to reach a reasonable agreement of employment with such
entity, he will be entitled to receive severance pay of his base salary for a
period of six months from the date of termination, provided, however, the
Executive agrees to make reasonable efforts to assist such entity in its
transition for a reasonable period of time.

                                      -19-

<PAGE>


Stock Options

There were no grants of stock options under any of the Company stock option
plans to the Named Executive Officers during the fiscal year ended December 31,
2002.

The following table summarizes, for each of the Named Executive Officers, the
total number of unexercised options held at December 31, 2002, and the aggregate
dollar value of in-the-money, unexercised options, held at December 31, 2002.
The value of the unexercised in-the-money options at December 31, 2002, is the
difference between their exercise or base price and the value of the underlying
common stock on December 31, 2002. The closing sale price of the common stock on
December 31, 2002 was $0.040 per share.

<TABLE>
<CAPTION>


               Aggregated Option Exercises in the Last Fiscal Year and Fiscal Year End Option Values

                                 Shares Acquired
                                 Upon Exercise           Number of Securities             Value of Unexercised
                                  of Options                  Underlying                      In-The-Money
                                 During Fiscal            Unexercised Options                  Options at
                                     2002                at December 31, 2002               December 31, 2002
                                     ----                --------------------               -----------------
                                          Value
Name                         Number     Realized     Exercisable    Unexercisable     Exercisable    Unexercisable
- ----                         ------     --------     -----------    -------------     -----------    -------------

<S>                              <C>                      <C>                <C>           <C>             <C>
Ramesh C. Trivedi                0          -             665,002            82,415        0               0
Leland Witherspoon               0          -              66,875             8,125        0               0


Item 11. Security Ownership of Certain Beneficial  Owners and Management

The following table sets forth certain information concerning the beneficial
ownership of the Company's common stock as of March 13, 2003 by (i) each person
known by the Company to be the owner of more than 5% of the outstanding common
stock, (ii) each director, (iii) each executive officer named in the Summary
Compensation Table above and (iv) all directors and officers as a group.

                                                                                    Percentage of
                                                             Amount and Nature      Common Stock
                                                                of Beneficial       Beneficially
                Name                                            Ownership (1)         Owned (2)
                ----                                            -------------         ---------

International Business Machines Corporation (3)               2,248,900    (4)           5.09%
ILTAG International Licensing Holding S.A.L. (9)              3,461,198    (5)           7.87%
Ramesh C. Trivedi (6)                                           704,361    (7)           1.65%
Leland Witherspoon (6)                                           80,859    (8)               *
Falah Al-Kadi (9)                                             3,515,886   (10)           7.98%
Jack W. Moorman (11)                                             31,250   (12)               *
Paul A.H. Pankow (6)                                             31,250   (12)               *
All directors and officers as a group (6 persons)             4,363,606                  9.73%

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

</TABLE>

*        Less than one percent.

(1)  Unless otherwise indicated, each person has sole investment and voting
     power with respect to the shares indicated, subject to community property
     laws, where applicable. Includes any securities that such person has the
     right to acquire within 60 days pursuant to options, warrants, conversion
     privileges or other rights.

(2)  Based on 41,978,469 shares of common stock outstanding as of March 13,
     2003.

(3)  Address is Old Orchard Road, Armonk, N.Y. 10504

                                      -20-

<PAGE>


(4)  Includes warrants to purchase 2,206,479 shares of common stock at an
     exercise price of $0.01 per share.
(5)  Includes warrants to purchase 2,000,000 shares of common stock at an
     exercise price of $1.027 per share.
(6)  Address is c/o Integrated Surgical Systems, Inc., 1850 Research Park Drive,
     Davis, California 95616.
(7)  Includes 690,361 shares that Dr. Trivedi may acquire upon exercise of stock
     options exercisable within 60 days - 316,907 shares at an exercise price of
     $0.07 per share, 120,000 shares at an exercise price of $3.00 per share,
     247,244 shares at an exercise price of $1.81 per share, and 6,210 shares at
     an exercise price of $0.10 per share. Does not include options to purchase
     57,056 shares at an exercise price of $1.81 per share and 300,000 shares at
     an exercise price of $0.025 per share, none of which are currently
     exercisable.
(8)  Includes 69,375 shares that Mr. Witherspoon may acquire upon exercise of
     stock options exercisable within 60 days - 45,000 shares at an exercise
     price of $3.00 per share and 24,375 shares at an exercise price of $1.81
     per share. Does not include options to purchase 5,625 shares at an exercise
     price of $1.81 per share and 125,000 shares at an exercise price of $0.025
     per share, none of which are currently exercisable.
(9)  Address is c/o Dogmoch Group of Companies, Adnan Al Hakim St., Assaf Bldg.,
     P.O. Box 135660, Beirut, Lebanon .
(10) Includes 1,461,198 shares and warrants to purchase 2,000,000 shares of the
     Company's common stock, all of which are owned by ILTAG, an affiliate of
     Dogmoch, of which Mr. Al-Kadi is Vice-Chairman, and 54,688 shares that Mr.
     Al-Kadi may acquire upon exercise of stock options exercisable within 60
     days at an exercise price of $0.06 per share. Does not include options to
     purchase 45,312 shares at an exercise price of $0.060 per share, none of
     which are currently exercisable.
(11) Address is c/o Microbar Inc. 1252 Orleans Drive, Sunnyvale, California
     94089.
(12) Includes 31,250 shares that may be acquired upon exercise of stock options
     exercisable within 60 days at an exercise price of $0.035 per share. Does
     not include options to purchase 68,750 shares at an exercise price of
     $0.035 per share, none of which are currently exercisable.

Item 12. Certain Relationships and Related Transactions

During the fiscal year ended December 31, 2001, Ramesh Trivedi, president and
chief executive officer of the Company, on five separate occasions, advanced to
the Company, in the aggregate, $477,000 in order for the Company to meet its
payroll obligations. Each of these advances was non-interest bearing and was
repaid within one to five days.

At December 31, 2001, the Company had amounts due to Ramesh Trivedi, president
and chief executive officer, of approximately $193,000: $50,000 of this amount
related to salary deferred in the fourth quarter of 2001, included in accrued
payroll and related expense, and $143,000 related to unreimbursed travel
expenses, included in accounts payable.

At December 31, 2002, the Company had amounts due to the executive officers of
the Company of approximately $383,000 in the aggregate, in the form of an
interest bearing advance, deferred salaries and unreimbursed travel expenses.
Approximately $89,000, $223,000 and $53,000 are included in accrued payroll and
related expense, accounts payable and accrued liabilities, respectively, due to
Ramesh C. Trivedi, president and chief executive officer of the Company,
approximately $15,000 are included in accrued payroll and related expenses due
to Leland Witherspoon, vice president of engineering of the Company, and
approximately $3,000 are included in accrued payroll and related expense due to
Charles J. Novak, chief financial officer of the Company.

See also "Item 5 - Market for Common Equity and Related Stockholder Matters -
Recent Sale of Unregistered Securities" and "Item 10 - Executive Compensation -
Employment Agreements."

                                      -21-

<PAGE>


Item 13. Controls and Procedures

Within the 90 days prior to the filing of this report, the Company's management,
including the Company's Chief Executive Officer and Chief Financial Officer,
evaluated the effectiveness of the design of the Company's disclosure controls
and procedures, as defined in Rules 13a-14(c) and 15d-14(c) under the Securities
Exchange Act of 1934. Based on that evaluation, the Chief Executive Officer and
the Chief Financial Officer concluded that the Company's disclosure controls and
procedures were effective, in all material respects, to ensure that the
information required to be disclosed in the reports the Company files and
submits under the Exchange Act is recorded, processed, summarized and reported
as and when required.

There have been no significant changes (including corrective actions with
regards to significant deficiencies and material weaknesses) in the Company's
internal controls or in other factors subsequent to the date the Company carried
out its evaluation that could significantly affect these controls.

<TABLE>
<CAPTION>

Item 14. Exhibits and Reports on Form 8-K

Exhibit     Description
- -------     -----------

<S>         <C>
3.1         Composite of Restated Certificate of Incorporation of the Registrant, as amended. *
3.2         By-laws of the Registrant, as amended. (1)
3.3         Certificate of Designations for Series F Convertible Preferred Stock. (4)
3.4         Certificate of Designations for Series G Convertible Preferred Stock. (11)
3.5         Certificate of Designations for Series H Convertible Preferred Stock. (12)
4.1         Form of warrant issued to the underwriters for the Registrant's initial public offering in November
            1996. (2)
4.2         Form of Warrant Agreement relating to the Registrant's Redeemable Common Stock Purchase Warrants. (2)
4.3         Specimen Common Stock Certificate. (2)
4.4         Specimen Warrant Certificate (included as Exhibit A to Exhibit 4.2 herein). (2)
4.5         1998 Stock Option Plan. (5)
4.6         Employee Stock Purchase Plan. (5)
4.7         Common Stock Purchase Warrant issued by the Registrant to  International  Business  Machines  Corporation
            ("IBM"), dated February 6, 1991, as amended (included as Exhibit J to Exhibit 10.5 herein). (2)
4.8         Stockholders'  Agreement  between  the  Founders of the  Registrant  and IBM,  dated  February 6, 1991 as
            amended. (2)
4.9         Common Stock  Purchase  Warrant  issued by the  Registrant to IBM,  dated  December 21, 1995 (included as
            Exhibit I to Exhibit 10.5 herein). (2)
4.10        Series D  Preferred  Stock  Purchase  Warrant  issued by the  Company to IBM,  dated  December  21,  1995
            (included as Exhibit H to Exhibit 10.5 herein). (2)
4.11        Warrant issued by the Registrant to Sutter Health, Sutter Health
            Venture Partners ("Sutter Health VP") and Keystone Financial
            Corporation ("Keystone"), dated December 21, 1995 (included as
            Exhibits K, L and M, respectively, to Exhibit 10.5 herein). (2)

                                      -22-

<PAGE>


4.12        Registration  Rights Agreement among the Registrant,  IBM, John N, Kapoor Trust ("Kapoor"),  EJ Financial
            Investments V, L.P. ("EJ Financial"),  Keystone, Sutter Health and Sutter Health VP, dated as of December
            21, 1995 (included as Exhibit G to Exhibit 10.5 herein). (2)
4.13        1995 Stock Option Plan, as amended. (2)
4.14        Series D Preferred  Stock  Purchase  Warrant  issued by the  Registrant to IBM,  dated  February 29, 1996
            (together with the warrant referred to in Exhibit 4.10, the "Series D Warrants"). (2)
4.15        Letter Agreement between the Registrant and IBM dated October 29,
            1997, amending the Series D Preferred Stock and Warrant Purchase
            Agreement among the Registrant, IBM and EJ Financial, dated December
            21, 1995. (6)
4.16        Form of warrant issued to CA IB Investmentbank  Aktiengesellschaft  and Value Management & Research GmbH. (6)
4.17        Form of warrant issued to purchasers of Series A Convertible Preferred Stock. (7)
4.18        Form of warrant issued to purchasers of Series B Convertible Preferred Stock. (8)
4.19        Form of warrant issued to purchasers of Series C Convertible Preferred Stock. (3)
4.20        Form of warrant issued to purchasers of Series D Convertible Preferred Stock. (3)
4.21        Form of warrant issued to purchasers of Series E Convertible Preferred Stock. (9)
4.22        Form of warrant issued to purchasers of Series F Convertible Preferred Stock. (4)
4.23        Form of warrant issued to purchasers of Series G Convertible Preferred Stock. (11)
4.24        Form of warrant issued to purchasers of Series H Convertible Preferred Stock. (12)
4.25        Form of Registration Rights Agreement for Series A Convertible Preferred Stock financing. (7)
4.26        Form of Registration Rights Agreement for Series B Convertible Preferred Stock financing. (8)
4.27        Form of Registration Rights Agreement for Series C Convertible Preferred Stock financing. (3)
4.28        Form of Registration Rights Agreement for Series D Convertible Preferred Stock financing. (3)
4.29        Form of Registration Rights Agreement for Series E Convertible Preferred Stock financing. (9)
4.30        Form of Registration Rights Agreement for Series F Convertible Preferred Stock financing. (4)
4.31        Form of Registration Rights Agreement for Series G Convertible Preferred Stock financing. (11)
4.32        Form of Registration Rights Agreement for Series H Convertible Preferred Stock financing. (12)
4.33        Form of warrant dated December 14, 1999 issued to ILTAG  International  Licensing  Holding S.A.L.,  Bernd
            Herrmann and Urs Wettstein. (10)
4.34        Form of Registration  Rights Agreement dated December 14, 1999 among the Registrant,  ILTAG International
            Licensing Holding S.A.L., Bernd Herrmann and Urs Wettstein. (10)
4.35        Registration Rights Agreement for the purchasers of Stock under the
            Equity Line of Credit Agreement (included as Exhibit C to Exhibit 10.26).
4.36        Form of warrant issued under the Equity Line of Credit Agreement (included as Exhibit D to Exhibit 10.26).
4.37        2000 Stock Award Plan
4.38        2000 Long Term Performance Plan.
10.1        Loan and Warrant Purchase Agreement between the Registrant and IBM, dated as of February 6, 1991. (2)
10.2        License Agreement between the Registrant and IBM, dated February 4, 1991. (2)
10.3        Series B Preferred Stock Purchase Agreement among the Registrant, Sutter Health and Kapoor, dated as of
            April 10, 1992. (2)
10.4        Series C Preferred Stock Purchase Agreement among the Registrant, Sutter Health and Keystone, dated as
            of November 13, 1992, as amended December 13, 1995. (2)
10.5        Series D Preferred Stock and Warrant Purchase Agreement among the  Registrant, IBM and EJ Financial,
            dated December 21, 1995. (2)
10.6        Investors  Agreement among the Registrant, IBM, Wendy Shelton-Paul Trust, William Bargar, Brent
            Mittelstadt, Peter Kazanzides, Kapoor, Sutter Health, Sutter Health VP, and EJ Financial, dated as of
            December 21, 1995. (2)

                                      -23-

<PAGE>


10.7        Employment Agreement between the Registrant and Ramesh Trivedi, dated December 8, 1995. (2)
10.8        License Agreement between the Registrant and IBM, dated February 4, 1991. (2)
10.9        Stock  Purchase  Agreement  dated as of September 5, 1997 between the  Registrant  and the holders of the
            outstanding capital stock of Innovative Medical Machines International, S.A. (6)
10.10       Registration  Rights Agreement dated September 5, 1997 by and among the Registrant and the holders of the
            outstanding capital stock of Innovative Medical Machines International, S.A. (6)
10.11       Preferred Stock Purchase Agreement for Series A Convertible Preferred Stock. (7)
10.12       Preferred Stock Purchase Agreement for Series B Convertible Preferred Stock. (8)
10.13       Preferred Stock Purchase Agreement for Series C Convertible Preferred Stock. (3)
10.14       Preferred Stock Purchase Agreement for Series D Convertible Preferred Stock. (3)
10.15       Preferred Stock Purchase Agreement for Series E Convertible Preferred Stock. (9)
10.16       Preferred Stock Purchase Agreement for Series F Convertible Preferred Stock. (4)
10.17       Preferred Stock Purchase Agreement for Series G Convertible Preferred Stock. (11)
10.18       Preferred Stock Purchase Agreement for Series H Convertible Preferred Stock. (12)
10.19       Stock and Warrant Purchase Agreement dated as of October 1, 1999 among the Registrant, ILTAG
            International Licensing Holding S.A.L., Bernd Herrmann and Urs Wettstein. (10)
10.20       Distribution Agreement dated November 12, 1999 between the Registrant and Spark 1st Vision GmbH & Co. KG. (14)
10.21       Mutual Termination Agreement dated May 9, 2000 between the Registrant and Spark 1st Vision GmbH & Co. KG. (14)
10.22       Personal Undertaking dated May 30, 2000 by ILTAG International Licensing Holding S.A.L. towards the
            Registrant. (14)
10.23       Personal Undertaking dated May 21, 2000 of Urs Wettstein. (14)
10.24       Personal Undertaking dated May 16, 2000 of Bernd Herrmann. (14)
10.25       Private Equity Line of Credit Agreement dated September 15, 2000 with Triton West Group, Inc. (14)
10.26       Escrow Agreement dated September 15, 2000 for the Equity Line of Credit Agreement (included as Exhibit A
            to Exhibit 10.26). (14)
10.27       Letter  Agreement dated October 6, 2000 amending the Private Equity Line of Credit Agreement dated
            September 15, 2000. (14)
10.28       Addendum One dated March 31, 1998 to Employment  Agreement between Registrant and Ramesh Trivedi dated
            December 8, 1995. *
10.29       Employment Agreement between Integrated Surgical Systems, Inc. and Charles J. Novak. *
10.30       Employment Agreement between Integrated Surgical Systems, Inc. and Leland Witherspoon. *
23.1        Consent of Ernst & Young LLP, Independent Auditors *
99.1        Certifications under Section 906 of the Sarbanes-Oxley Act of 2002 *


- --------------------------------------------------------------------------------------------------------------------------
* File Herewith
</TABLE>

(1)   Incorporated by reference to the Registrant's Registration Statement on
      Form SB-2 (Registration No. 333-48040) declared effective on October 31,
      2000.
(2)   Incorporated by reference to the Registrant's Registration Statement on
      Form SB-2 (Registration No. 333-9207), declared effective on November 20,
      1996.
(3)   Incorporated by reference to the Registrant's Registration Statement on
      Form S-3 (Registration No. 333-83067), declared effective on October 14,
      1999.
(4)   Incorporated by reference to the Registrant's Registration Statement on
      Form S-3 (Registration No. 333-30422), declared effective on February 22,
      2000.
(5)   Incorporated by reference to the Registrant's Annual Report on Form 10-
      KSB for the fiscal year ended December 31, 1997. (6) Incorporated by
      reference to the Registrant's Registration Statement on Form SB-2
      (Registration No. 333-31481), declared effective on November 14, 1997.

                                      -24-

<PAGE>


(7)   Incorporated by reference to the Registrant's Registration Statement on
      Form S-3 (Registration No. 333-66133), declared effective on January 14,
      1999.
(8)   Incorporated by reference to the Registrant's Quarterly Report on Form
      10-QSB for the fiscal quarter ended March 31, 1999. (9) Incorporated by
      reference to the Registrant's Quarterly Report on Form 10-QSB for the
      fiscal quarter ended June 30, 1999. (10) Incorporated by reference to the
      Registrant's proxy statement dated October 5, 1999. (11) Incorporated by
      reference to the Registrant's Registration Statement on Form S-3
      (Registration No. 333-40710), declared effective on July 28, 2000.
(12)  Incorporated by reference to the Registrant's Registration Statement on
      Form S-3 (Registration No. 333-45706), declared effective on September 28,
      2000.
(13)  Incorporated by reference to the Registrant's Annual Report on Form 10-KSB
      for the fiscal year ended December 31, 1999.




                                      -25-
<PAGE>



                                   Signatures

In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934,
the Registrant has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.

                                      Integrated Surgical Systems, Inc.


                           By: /s/ RAMESH C. TRIVEDI
                               -------------------------------------------------
                                   Ramesh C. Trivedi, President
                                   (Principal Executive Officer)


                            By: /s/ CHARLES J. NOVAK
                                ------------------------------------------------
                                    Charles J. Novak
                                    (Principal Financial and Accounting Officer)
Dated: March 27, 2003

In accordance with the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the Registrant on March 27,
2003 in the capacities indicated.


        Signature                                  Title
        ---------                                  -----



/s/ RAMESH C. TRIVEDI          Chief Executive Officer, President and a Director
- ------------------------       (Principal Executive Officer)
Ramesh C. Trivedi


/s/ CHARLES J. NOVAK           Chief Financial Officer
- ------------------------       (Principal Financial and Accounting Officer)
Charles J. Novak


/s/ FALAH AL-KADI              Chairman of the Board
- ------------------------
Falah Al-Kadi


/s/ JACK W. MOORMAN            Director
- ------------------------
Jack W. Moorman


/s/ PAUL A.H. PANKOW           Director
- ------------------------
Paul A.H. Pankow


                                      -26-

<PAGE>


     I, Ramesh C. Trivedi, certify that:

     1. I have reviewed this annual report on Form 10-KSB of Integrated Surgical
Systems, Inc.;

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

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

     4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

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

          (b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing date of
this annual report (the "Evaluation Date"); and

          (c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;

     5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):

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

          (b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and

     6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.





Date: March 27, 2003                        By: /s/   RAMESH C. TRIVEDI
                                                --------------------------------
                                                      Ramesh C. Trivedi
                                                      Chief Executive Officer

                                      -27-

<PAGE>


     I, Charles J. Novak, certify that:

     1. I have reviewed this annual report on Form 10-KSB of Integrated Surgical
Systems, Inc.;

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

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

     4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

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

          (b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing date of
this annual report (the "Evaluation Date"); and

          (c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;

     5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):

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

          (b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and

     6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.




Date: March 27, 2003                        By: /s/   CHARLES J. NOVAK
                                                --------------------------------
                                                      Charles J. Novak
                                                      Chief Financial Officer


                                      -28-
<PAGE>





                        Integrated Surgical Systems, Inc.

                   Index to Consolidated Financial Statements




                                                                          PAGE
                                                                          ----

Report of Ernst & Young LLP, Independent Auditors                          F-2

Consolidated Balance Sheet at December 31, 2002                            F-3

Consolidated Statements of Operations for the years
   ended December 31, 2002 and 2001                                        F-4

Consolidated Statements of Convertible Preferred
   Stock and Stockholders' Equity (Deficit)                                F-5
   for the years ended December 31, 2002 and 2001

Consolidated Statements of Cash Flows for
   the years ended December 31, 2002 and 2001                              F-6

Notes to Consolidated Financial Statements                                 F-7


















                                      F-1

<PAGE>


                REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS



The Board of Directors and Stockholders
Integrated Surgical Systems, Inc.

We have audited the accompanying consolidated balance sheet of Integrated
Surgical Systems, Inc. as of December 31, 2002, and the related consolidated
statements of operations, convertible preferred stock and stockholders' equity
(deficit), and cash flows for the years ended December 31, 2002 and 2001. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

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

In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Integrated Surgical Systems, Inc. at December 31, 2002, and the consolidated
results of its operations and its cash flows for the years ended December 31,
2002 and 2001 in conformity with accounting principles generally accepted in the
United States.

The accompanying financial statements have been prepared assuming that
Integrated Surgical Systems, Inc. will continue as a going concern. As more
fully described in Note 1, the Company has incurred recurring operating losses,
has a working capital deficit of $3,448,642 and an accumulated deficit of
$64,480,990 as of December 31, 2002. These conditions raise substantial doubt
about the Company's ability to continue as a going concern. Management's plans
in regard to these matters are also described in Note 1. The financial
statements do not include any adjustments to reflect the uncertainties related
to the recoverability and classification of assets or the amounts and
classification of liabilities that may result from the outcome of this
uncertainty.


                                                               ERNST & YOUNG LLP

Sacramento, California
March 14, 2003





                                      F-2
<PAGE>



                        Integrated Surgical Systems, Inc.

                           Consolidated Balance Sheet
                                December 31, 2002



Assets
Current assets:
     Cash                                                          $     82,069
     Accounts receivable less allowance for
      doubtful accounts of $265,584                                   1,514,093
     Inventory                                                        1,702,708
     Other current assets                                               287,941
                                                                   ------------

Total current assets                                                  3,586,811

Property and equipment, net                                             167,493
Leased equipment, net                                                   194,596
Other assets                                                             10,603
                                                                   ------------
                                                                   $  3,959,503
                                                                   ============


Liabilities and stockholders' equity (deficit)
Current liabilities:
     Accounts payable                                              $  2,230,863
     Accrued payroll and related expense                                568,957
     Accrued liabilities                                                288,413
     Unearned income                                                  3,565,868
     Other current liabilities                                          381,352
                                                                   ------------

Total current liabilities                                             7,035,453

Note payable                                                            103,085
Commitments and contingencies (Notes 1, 8 and 9)

Convertible preferred stock, $0.01 par value,
     1,000,000 shares authorized;
     250 shares issued and outstanding
     ($250,496 aggregate liquidation value)                             250,496

Stockholders' equity (deficit):
     Common stock, $0.01 par value,
         100,000,000 shares authorized;
         41,978,469 shares issued and outstanding                       419,785
     Additional paid-in capital                                      61,849,581
     Accumulated other comprehensive loss                            (1,217,907)
     Accumulated deficit                                            (64,480,990)
                                                                   ------------
Total stockholders' equity (deficit)                                 (3,429,531)
                                                                   ------------
                                                                   $  3,959,503
                                                                   ============


See accompanying notes.


                                      F-3


<PAGE>
<TABLE>
<CAPTION>

                                     Integrated Surgical Systems, Inc.

                                  Consolidated Statements of Operations



                                                                          Years ended December 31,
                                                                   ------------------------------------
                                                                       2002                     2001
                                                                   ------------            ------------

<S>                                                                <C>                     <C>
Net revenue                                                        $  5,162,854            $  9,136,223
Cost of revenue                                                       1,787,620               3,897,189
                                                                   ------------            ------------
                                                                      3,375,234               5,239,034

Operating expenses:
     Selling, general and administrative                              3,467,727               4,084,897
     Research and development                                         2,514,694               3,510,568
     Amortization of intangibles                                        497,858                 839,040
                                                                   ------------            ------------
                                                                      6,480,279               8,434,505
                                                                   ------------            ------------

Operating loss                                                       (3,105,045)             (3,195,471)

Other income (expense):
     Foreign currency exchange gain (loss)                              200,596                (149,552)
     Other, net                                                          86,702                  31,018
                                                                   ------------            ------------
Net loss before preferred stock accretion and dividend               (2,817,747)             (3,314,005)

Preferred stock accretion                                                  --                   (41,143)
                                                                   ------------            ------------
Net loss to common stockholders                                    $ (2,817,747)           $ (3,355,148)
                                                                   ============            ============

                                                                   ------------            ------------
Basic and diluted net loss per common share                        $      (0.07)           $      (0.09)
                                                                   ============            ============
Shares used in computing basic and diluted net loss per share        38,647,454              35,927,994
                                                                   ============            ============



See accompanying notes.


                                                 F-4
<PAGE>



                                                           Integrated Surgical Systems, Inc.

                       Consolidated Statements of Convertible Preferred Stock and Stockholders' Equity (Deficit)


                                                        Convertible Preferred Stock                   Stockholders' Equity (Deficit)
                                             ----------------------------------------------------     ------------------------------


                                                                         Additional                          Common Stock
                                                                          Paid-in                      ------------------------
                                              Shares       Amount         Capital          Total         Shares         Amount
                                             -----------------------    --------------------------     ------------------------

Balance at December 31, 2000                    1,089    $        11    $   974,455    $   974,466     23,207,676   $   232,077
   Preferred stock accretion                     --             --           41,143         41,143           --            --
   Conversions of preferred
     stock                                       (777)            (8)      (703,545)      (703,553)    10,020,850       100,209
   Shares issued in
     equity-line financings                      --             --             --             --        4,563,027        45,630
   Stock compensation, employees                 --             --             --             --          314,832         3,148
   Stock compensation,
     non-employees                               --             --             --             --          200,000         2,000
   Comprehensive loss:
     Net loss                                    --             --             --             --             --            --
     Foreign currency
     translation adjustments                     --             --             --             --             --            --
   Comprehensive loss                            --             --             --             --             --            --
                                               ---------------------    --------------------------     ------------------------
Balance at December 31, 2001                      312              3        312,053        312,056     38,306,385       383,064
   Conversions of preferred
     stock                                        (62)            (1)       (61,559)       (61,560)     3,078,000        30,780
   Stock compensation,
     non-employees                               --             --             --             --          594,084         5,941
   Comprehensive loss:
     Net loss                                    --             --             --             --             --            --
     Foreign currency
       translation adjustments                   --             --             --             --             --            --
   Comprehensive loss                            --             --             --             --             --            --
                                               ---------------------    --------------------------     ------------------------
Balance at December 31, 2002                      250    $         2    $   250,494    $   250,496     41,978,469   $   419,785
                                               =====================    ==========================     ========================


                                                                   F-5






<PAGE>


                                           Integrated Surgical Systems, Inc.

                Consolidated Staements of Convertible Preferred Stock and Stockholders' Equity (Deficit)

                                                                    Stockholders' Equity (Deficit)
                                           -----------------------------------------------------------------------------
                                                                Accumulated
                                            Additional             Other                                     Total
                                              Paid-in          Comprehensive        Accumulated          Stockholders'
                                              Captial              Loss               Deficit           Equity (Deficit)
                                           -----------------------------------------------------------------------------


Balance at December 31, 2000               $ 60,550,929        $   (536,413)        $(58,308,095)        $  1,938,498
   Preferred stock accretion                       --                  --                (41,143)             (41,143)
   Conversions of preferred
     stock                                      603,344                --                   --                703,553
   Shares issued in
     equity-line financings                     586,370                --                   --                632,000
   Stock compensation, employees                 31,141                --                   --                 34,289
   Stock compensation,
     non-employees                               22,000                --                   --                 24,000
   Comprehensive loss:
     Net loss                                      --                  --             (3,314,005)          (3,314,005)
     Foreign currency
     translation adjustments                       --              (752,024)                --               (752,024)
                                                                                                         ------------
   Comprehensive loss                              --                  --                   --             (4,066,029)
                                           --------------------------------------------------------------------------
Balance at December 31, 2001                 61,793,784          (1,288,437)         (61,663,243)            (774,832)
   Conversions of preferred
     stock                                       30,780                --                   --                 61,560
   Stock compensation,
     non-employees                               25,017                --                   --                 30,958
    Comprehensive loss:
     Net loss                                      --                  --             (2,817,747)          (2,817,747)
     Foreign currency
       translation adjustments                     --                70,530                 --                 70,530
                                                                                                         ------------
   Comprehensive loss                              --                  --                   --             (2,747,217)
                                           --------------------------------------------------------------------------
 Balance at December 31, 2002              $ 61,849,581        $ (1,217,907)        $(64,480,990)        $ (3,429,531)
                                           ===========================================================================








See accompanying notes.


                                      F-5 (continued)
<PAGE>


                                  Integrated Surgical Systems, Inc.

                                Consolidated Statements of Cash Flows
                                     Increase (Decrease) in Cash


                                                                            Years ended December 31,
                                                                     ------------------------------------
                                                                         2002                     2001
                                                                     -----------              -----------
Cash flows from operating activities:
Net loss                                                             $(2,817,747)             $(3,314,005)
Adjustments to reconcile net loss to net
 cash used in operating activities:
    Depreciation                                                         208,285                  403,914
    Provision for losses on accounts receivable                         (181,358)                 (64,779)
    Amortization of intangible assets                                    497,858                  839,040
    Stock compensation, non-employees                                     30,958                   58,289
    Changes in operating assets and liabilities:
       Accounts receivable                                              (678,069)                 365,768
       Inventory                                                         372,545                1,745,033
       Other current assets                                              (40,796)                  92,312
       Accounts payable                                                  319,781                  307,310
       Accrued payroll and related expenses                               82,508                  (73,048)
       Accrued liabilities                                                56,933                 (140,834)
       Unearned income                                                 1,303,397                 (273,159)
       Other current liabilities                                        (126,678)                (183,090)
                                                                     -----------              -----------
Net cash (used) in operating activities                                 (972,383)                (237,249)

Cash flows from investing activities:
Principal payments received on sales-type lease                           45,545                   58,553
Purchases of property and equipment                                      (13,676)                 (17,245)
Disposal of property and equipment                                           738                     --
                                                                     -----------              -----------
Net cash provided by investing activities                                 32,607                   41,308

Cash flows from financing activities:
Payments on notes payable                                                   --                   (248,438)
Payments on bank loan                                                       --                    (41,336)
Net proceeds from issuance of note payable                                  --                    200,000
Proceeds from sale of common stock and warrants                             --                    632,000
Proceeds from officers advances, deferred salaries and
   unreimbursed travel expenses                                          260,591                  670,000
Payments on officers advances, deferred salaries and
   unreimbursed travel expenses                                          (70,592)                (477,000)
                                                                     -----------              -----------
Net cash provided by financing activities                                189,999                  735,226

Effect of exchange rate changes on cash                                   31,472                  (15,233)
                                                                     -----------              -----------
Net increase (decrease) in cash                                         (718,305)                 524,052
Cash at beginning of year                                                800,374                  276,322
                                                                     -----------              -----------
Cash at end of year                                                  $    82,069              $   800,374
                                                                     ===========              ===========


Supplemental disclosure of cash flow information:
    Cash paid for interest                                           $      --                $       192

Supplemental disclosure of non-cash activity:
Supplemental disclosure of non-cash financing activities:
       Preferred stock accretion and dividend                        $      --                $    41,143
       Conversion of preferred stock                                 $    61,560              $   703,553



See accompanying notes.


                                                    F-6

</TABLE>

<PAGE>




                        Integrated Surgical Systems, Inc.

                   Notes to Consolidated Financial Statements
                                December 31, 2002

1. Description of Business and Basis of Presentation

Integrated Surgical Systems, Inc. designs, manufactures, sells and services
image-directed, computer-controlled robotic products for use in orthopaedic and
neurosurgical procedures. The Company was incorporated in Delaware in 1990.

In 1997, the Company acquired a French company, Innovative Medical Machines
International, S.A. ("ISS-SA"). ISS-SA, a wholly-owned subsidiary, manufactures
and services neurosurgical products world-wide and distributes and services the
orthopaedic products in Europe.

The Company has recurring operating losses, a working capital deficit of
$3,448,642 and an accumulated deficit of $64,480,990 at December 31, 2002. The
report of independent auditors on the Company's December 31, 2002 consolidated
financial statements includes an explanatory paragraph indicating there is
substantial doubt about the Company's ability to continue as a going concern.
The Company believes that it has a viable plan to address these issues and
enable the Company to continue operating through the end of 2003. This plan
includes increasing product sales in existing markets, increasing sales of
system upgrades, and reducing operating expenses as necessary. Although the
Company believes that the plan will be realized, there is no assurance that the
Company will be successful. In the event that the Company is unsuccessful, it is
possible that it will cease operations or seek bankruptcy protection. The
consolidated financial statements do not include any adjustments to reflect the
uncertainties related to the recoverability and classification of assets or the
amounts and classification of liabilities that may result from an inability on
the Company's part to continue as a going concern.

2. Significant Accounting Policies

Revenue Recognition

The Company recognizes revenue upon completion of training and installation of
the equipment at the end-user's site, except when the sales contract requires
formal customer acceptance. Equipment sales with contractual customer acceptance
provisions are recognized as revenue upon written notification of customer
acceptance, which generally occurs after the completion of training and
installation. Furthermore, due to business customs in Japan and the Company's
interpretation of Japanese law, all equipment sales to Japan are recognized
after customer acceptance, which generally occurs after the completion of
training and installation. Revenue related to maintenance and service contracts
is recognized ratably over the duration of the contracts.

The Company develops specialized operating software for several implant
manufacturing companies. These implant manufacturers contract with the Company
for the development of particular lines of new prosthesis software to be used
with the ROBODOC system. These contracts are accounted for under the provisions
of SOP 81-1, "Accounting for Performance of Construction-Type and Certain
Production-Type Contracts," using the completed contract and units-of-delivery
method of accounting. Product development revenue is recognized when development
is complete under the terms of the contract, the software has performed
satisfactorily in a field test, and the customer has accepted the product.
Losses on contracts are accrued in the period that such losses are determined.

                                      F-7

<PAGE>


                        Integrated Surgical Systems, Inc.

             Notes to Consolidated Financial Statements (continued)

The Company recognizes revenue from leasing activities in accordance with SFAS
No. 13, "Accounting for Leases." Accordingly, leases that transfer substantially
all the benefits and risks of ownership are accounted for as sales-type leases.
All other leases are accounted for as operating leases. Under the sales-type
method, profit is recognized at lease inception by recording revenue and cost.
Revenue consists of the present value of the future minimum lease payments
discounted at the rate implicit in the lease. Cost consists of the equipment's
book value. The present value of the estimated value of the equipment at lease
termination (the residual value), which is generally not material, and the
present value of the future minimum lease payments are recorded as assets. In
each period, interest income is recognized as a percentage return on asset
carrying values. The Company is the lessor of equipment under operating leases
expiring in various years. The cost of equipment subject to these leases is
recorded as leased equipment and is depreciated on a straight-line basis over
the estimated service life of the equipment. Operating lease revenue is
recognized as earned over the term of the underlying lease.

Consolidation

The consolidated financial statements include the accounts of Integrated
Surgical Systems, Inc. and the wholly-owned subsidiaries. All significant
intercompany balances and transactions have been eliminated in consolidation.

Foreign Currency Translation

The financial position and results of the Company's foreign subsidiaries are
measured in euros. Balance sheet accounts are translated into dollars at the
year-end exchange rate and statement of operations amounts are translated at the
average exchange rate for the period. The resulting translation adjustments are
recorded in the other comprehensive income section of stockholders' equity
(deficit). The Company's foreign currency transactions are usually recorded and
settled in the same foreign currency, without foreign exchange transaction gains
or losses. Foreign exchange transaction gains or losses are, however, recognized
when translating inter-company receivables and payables.

Research and Development

Research and development costs are expensed as incurred. Software development
costs incurred subsequent to the determination of the product's technological
feasibility and prior to the product's general release to customers are not
material to the Company's financial position or results of operations, and have
been charged to research and development expense in the accompanying
consolidated statements of operations. The direct cost, primarily labor, of
product development contracts is deferred until the development revenue is
recognized.

Grants received from third parties for research and development activities are
recorded as reductions of research and development expense over the term of the
agreement as the related activities are conducted.

                                      F-8

<PAGE>



                        Integrated Surgical Systems, Inc.

             Notes to Consolidated Financial Statements (continued)


Concentration of Credit Risk

The Company sells the products to companies in the healthcare industry, most of
which are located in foreign countries. The Company requires a down payment when
an order is received, with a progress payment upon shipment, and final payment
upon completion of training and installation. The Company believes that adequate
provisions for uncollectable accounts receivable has been made in the
accompanying consolidated financial statements.

The Company maintains substantially all of the Company's cash at three financial
institutions.

Financial Statement Estimates

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

Cash

Cash includes cash deposited in bank checking accounts.

Fair Values of Financial Instruments

Active markets do not exist for the Company's financial instruments (long-term
lease receivables and note payable) that are subject to the fair value
disclosure requirements of Statement of Financial Accounting Standards ("SFAS")
No. 107. There are no quoted market prices for these assets and liabilities.
Accordingly, the Company does not estimate the fair values of these financial
instruments due to the limited information available and the significance of the
cost to obtain independent appraisals for this purpose.

Property and Equipment

Property and equipment are stated at cost. Depreciation is calculated using the
straight-line method over estimated useful lives of 3 to 5 years or the lease
term, whichever is shorter.

Operating Leases

The Company leases certain of the Company's systems to customers under
cancelable operating leases. The typical lease period is 5 years and certain of
the leases contain purchase options. The cost of systems under operating leases
at December 31, 2002 was $663,941 and the related accumulated amortization
thereon was $469,345.

Inventory

Inventory is recorded at the lower of cost (first-in, first-out method) or
market and consists of materials and supplies used in the manufacture and
service support of the ROBODOC(R) and NeuroMate(R) Systems.

                                      F-9

<PAGE>


                        Integrated Surgical Systems, Inc.

             Notes to Consolidated Financial Statements (continued)

Inventory consisted of the following at December 31, 2002:

          Raw materials                                        $  227,298
          Work-in-process                                         428,944
          Finished goods                                          844,315
          Deferred product development contract costs             202,151
                                                               ----------
                                                               $1,702,708
                                                               ==========

Warranty

The Company offers a one-year warranty for parts and labor on all ROBODOC and
NeuroMate systems commencing upon the completion of training and installation
except when the sales contract requires formal customer acceptance. In most
cases, the Company's customers purchase a service contract, which includes
warranty coverage (parts and labor) as well as surgical disposables. Where the
Company's products are not covered by separate service agreements, it provides
for the estimated cost of product warranties at the time revenue is recognized.
The warranty obligation is affected by product failure rates, material usage and
service delivery costs incurred in correcting a product failure. Should actual
product failure rates, material usage or service delivery costs differ from
these estimates, revisions to the estimated warranty liability would be
required. The Company periodically assesses the adequacy of its recorded
warranty liabilities and adjusts the amounts as necessary. During the year ended
December 31, 2002, the Company recognized revenue for three systems all of which
had service contract arrangements.

Changes in the Company's product liability for service contracts and warranties
during the period are as follows:

December 31, 2001 balance                                           $   715,000
Service contracts and warranties issued during the period             2,143,000
Settlements made during the period                                      (62,000)
Changes in liability for pre-existing service
contracts and warranties during the period,
including expirations                                                (2,130,000)
                                                                    -----------
December 31, 2002 balance                                           $   666,000
                                                                    ===========


Stock-Based Compensation

As permitted under the provisions of SFAS No. 123 "Accounting for Stock-Based
Compensation," the Company has elected to account for stock-based compensation
using the intrinsic value method prescribed by Accounting Principles Board
("APB") Opinion No. 25, "Accounting for Stock Issued to Employees." Under the
intrinsic value method, compensation cost is the excess, if any, of the quoted
market price or fair value of the stock at the grant date or other measurement
date over the amount an employee must pay to acquire the stock.

Pro forma information regarding net income (loss) and earnings (loss) per share
is required by SFAS No. 123, which also requires that the information be
determined as if the Company had accounted for the employee stock options
granted subsequent to December 31, 1994 under the fair value method of that
statement. The fair value for these options was estimated at the date of grant

                                      F-10

<PAGE>


                        Integrated Surgical Systems, Inc.

             Notes to Consolidated Financial Statements (continued)


using the Black-Scholes option pricing model with the following weighted-average
assumptions for 2002 and 2001, respectively: risk-free interest rates of 3.5%
and 3.0%; dividend yield of 0%; volatility factors of the expected market price
of the common stock of 0.955 and 1.010; and an expected life of the option of 4
years.

The weighted average grant date fair value of these options was $0.04 in 2002
and $0.05 in 2001. No options with option prices less than the fair market value
of the Company's stock on the date of grant were granted to employees in 2002 or
2001.

The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different from those of traded options and because changes in the subjective
input assumptions can materially affect the fair value estimate, it is the
Company's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of the employee stock options. For purposes of
pro forma disclosures, the estimated fair value of the options is amortized to
expense over the vesting period.
<TABLE>
<CAPTION>


                                                                        Year Ended December 31,
                                                                    2002                     2001
                                                                -----------               -----------
<S>                                                             <C>                       <C>
Net loss, as reported                                           $(2,817,747)              $(3,355,148)
Add:  stock-based employee compensation
          included in reported net loss                                --                      34,289
Less: stock-based employee compensation
          expense, determined under fair
          value method for all awards                               (62,946)                 (367,563)
                                                                -----------               -----------
Pro forma net loss                                              $(2,880,693)              $(3,688,422)
                                                                ===========               ===========

Loss per share:
    Basic and diluted net loss per share                        $     (0.07)              $     (0.09)
                                                                ===========               ===========
    Pro forma basic and diluted net loss per share              $     (0.07)              $     (0.10)
                                                                ===========               ===========
</TABLE>


Income Taxes

The liability method is used to account for income taxes. Under this method,
deferred income tax assets and liabilities are determined based on differences
between the financial reporting and tax bases of assets and liabilities and are
measured using the enacted tax rates and laws that are scheduled to be in effect
when the differences are expected to reverse.

Significant Relationships and Foreign Sales

Three major foreign customers of the Company accounted for 16%, 13% and 11% of
the Company's revenue during the year ended December 31, 2002, and these same
three customers accounted for 39%, 0% and 0%, respectively for the year ended
December 31, 2001. A significant ROBODOC System component, the custom-built

                                      F-11

<PAGE>



                        Integrated Surgical Systems, Inc.

             Notes to Consolidated Financial Statements (continued)


robot arm, is manufactured by a single Japanese company. A French company is the
sole supplier of the custom-built robot arm for the NeuroMate System. Any
significant component supply delay or interruption could require the Company to
search for new sources of supply, if available, and could have a material
adverse effect on the financial condition, results of operations, or cash flows.

Foreign revenue, substantially all from Western European countries, Japan and
Korea was approximately $4,885,000 and $8,013,000 for the years ended December
31, 2002 and December 31, 2001, respectively.

Recent Accounting Pronouncements

In June 2001, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and Other
Intangible Assets." Under statement SFAS 142, goodwill and indefinite lived
intangible assets are no longer amortized but are reviewed annually, or more
frequently if impairment indicators arise, for impairment. Intangible assets
whose lives are not indefinite are amortized over their useful lives, and
reviewed for impairment in accordance with SFAS No. 144. "Accounting for the
Impairment or Disposal of Long-Lives Assets." The adoption of SFAS No. 142 on
January 1, 2002 did not have an impact on the Company's consolidated financial
position, cash flows or results of operations.

In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations," which addresses financial accounting and reporting for obligations
associated with the retirement of tangible long-lived assets and associated
asset retirement costs. The new rules apply to legal obligations associated with
the retirement of long-lived assets that result from the acquisition,
construction, development and (or) normal operation of a long-lived asset. The
Company will adopt SFAS No. 143 on January 1, 2003, and does not expect that the
adoption will have any impact on the consolidated financial position or results
of operations.

In August 2001, FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets." SFAS No. 144, which supersedes SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of, provides a single accounting model for long-lived assets to be
disposed of. Although retaining many of the fundamental recognition and
measurement provisions of SFAS No. 121, SFAS No. 144 significantly changes the
criteria that would have to be met to classify an asset as held-for-sale. The
distinction is important because assets held-for-sale are stated at the lower of
their fair values or carrying amounts and depreciation is no longer recognized.
The adoption of SFAS No. 144 effective January 1, 2002, and did not have an
impact on the consolidated financial position or results of operations.

In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities" ("SFAS 146"), which addresses accounting for
restructuring, discontinued operations, plant closing, or other exit or disposal
activity. SFAS 146 requires companies to recognize costs associated with exit or
disposal activities when they are incurred rather that at the date of a
commitment to an exit or disposal plan. SFAS 146 is to be applied prospectively
to exit or disposal activities initiated after December 31, 2002. The adoption
of SFAS 146 is not expected to have a material impact on the Company's
consolidated financial position, cash flows or results of operations.

                                      F-12

<PAGE>


                        Integrated Surgical Systems, Inc.

             Notes to Consolidated Financial Statements (continued)


In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation-Transition and Disclosure" ("SFAS 148"). SFAS 148 amends SFAS No.
123. "Accounting for Stock-Based Compensation" and provides alternative methods
of transition for a voluntary change to the fair value based method of
accounting for stock-based employee compensation. SFAS 148 also amends the
disclosure requirements of SFAS 123 to require more prominent and frequent
disclosure requirements in financial statements about the effects of stock-based
compensation. The transition guidance and annual disclosure provisions of SFAS
148 are effective for financial statements issued for fiscal years ending after
December 15, 2002. The interim disclosure provisions are effective for financial
reports containing financial statements for interim periods beginning after
December 15, 2002. The adoption of SFAS 148 did not have a material impact on
the Company's consolidated financial position, cash flows or results of
operations.

In November 2002, the FASB issued Interpretation Number 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others" ("FIN 45"). This interpretation elaborates
on the disclosures to be made by a guarantor in its interim and annual financial
statements about its obligations under certain guarantees that it has issued. It
also clarifies that a guarantor is required to recognize, at the inception of a
guarantee, a liability for the fair value of the obligation undertaken in
issuing the guarantee. The disclosure requirements of FIN 45 are effective for
interim and annual periods ending after December 15, 2002 and the Company has
adopted those requirements for the financial statements included in this Form
10-KSB. The initial recognition and initial measurement requirements of FIN 45
are effective prospectively for guarantees issued or modified after December 31,
2002. The Company is assessing, but at this point does not believe the adoption
of the recognition and initial measurement requirements of FIN 45 will have a
material impact on the consolidated financial position, cash flows or results of
operations.

In January 2003, the FASB issued Interpretation Number 46, "Consolidation of
Variable Interest Entities" ("FIN 46"). This interpretation clarifies the
application of Accounting Research Bulletin No. 51, "Consolidated Financial
Statements", to certain entities in which equity investors do not have the
characteristics of a controlling financial interest or do not have sufficient
equity at risk for the entity to finance its activities without additional
subordinated financial support from other parties. FIN 46 applies immediately to
variable interest entities created after January 31, 2003, and to variable
interest entities in which an enterprise obtains an interest after that date. It
applies to the first fiscal year or interim period beginning after June 15,
2003, to variable interest entities in which an enterprise holds a variable
interest that it acquired before February 1, 2003. The Company does not believe
the adoption of FIN 46 will have a material impact on the consolidated financial
position, cash flows or results of operations.

In November 2002, the EITF reached a consensus on Issue 00-21,
"Multiple-Deliverable Revenue Arrangements" ("EITF 00-21"). EITF 00-21 addresses
how to account for arrangements that may involve the delivery or performance of
multiple products, services, and/or rights to use assets. The consensus mandates
how to identify whether goods or services or both that are to be delivered
separately in a bundled sales arrangement should be accounted for separately
because they are "separate units of accounting." The guidance can affect the
timing of revenue recognition for such arrangements, even though it does not
change rules governing the timing or pattern of revenue recognition of
individual items accounted for separately. The final consensus will be
applicable to agreements entered into in fiscal years beginning after June 15,
2003, with early adoption permitted. Additionally, companies will be permitted
to apply the consensus guidance to all existing arrangements as the cumulative
effect of a change in accounting principle in accordance with APB Opinion No.
20, "Accounting Changes." The Company is assessing, but at this point does not
believe the adoption of EITF 00-21 will have a material impact on the Company's
consolidated financial position, cash flows or results of operations.

                                      F-13

<PAGE>



                        Integrated Surgical Systems, Inc.

             Notes to Consolidated Financial Statements (continued)


Reclassifications

Certain amounts reported in prior years consolidated financial statements have
been reclassified to conform with the 2002 presentation.

3. Property and Equipment

Property and equipment consists of the following at December 31, 2002:

    Computer hardware and purchased software               $  746,469
    Machinery and equipment                                 1,091,328
    ROBODOC and NeuroMate System equipment                    741,889
    Furniture and fixtures                                    326,520
    Leasehold improvements                                     49,022
                                                           ----------
                                                            2,955,228

    Less accumulated depreciation                           2,787,735
                                                           ----------
                                                           $  167,493
                                                           ==========

4. Note Payable

The Company has an interest free loan from a grant organization for the
development of a new neurological system with an outstanding balance of $103,085
at December 31, 2002. In the event of failure of the project, the Company will
have to repay approximately $43,000 of the loan. If the Company sells either a
license for the related technology, the prototype developed, or articles
manufactured specifically for the research project, 50% of the revenue must be
paid to the grant organization in the subsequent year, up to the balance of the
loan amount outstanding. No such sales were recorded in the year ended December
31, 2002 and as a result, the loan balance was not reduced during the year.

5. Stockholders' Equity

Common Stock

At December 31, 2002 the Company has reserved a total of 18,579,301 shares of
common stock for future issuance pursuant to Series G Convertible Preferred
Stock, warrants and options outstanding.

The Company established an Employee Stock Purchase Plan in 1998. The plan
provides all eligible employees an opportunity to acquire an ownership interest
in Integrated Surgical Systems, Inc. on a payroll deduction or other
compensation basis at a 15% discount. The plan is intended to qualify as an
employee stock purchase plan under Section 423 of the Internal Revenue Code. The
plan covers an aggregate of 300,000 shares of the Company's common stock. At
December 31, 2002, no offerings have been made to employees.

Equity Line of Credit

In April 2000, the Company entered into a three year, $12,000,000 Private Equity
Line of Credit Agreement ("the Line") with Triton West Group, Inc. ("Triton").
Under the terms of the agreement, the Company may sell shares of common stock to
Triton at a price equal to 85% of the lowest bid price during the nine trading
days commencing two trading days prior to the delivery of a put notice to
Triton. The number and dollar amount of shares that may be purchased on each
closing date is based upon a formula that varies with the market price and
trading volume of the common stock. Activity under the Line from its inception
through December 31, 2002 was:

                                      F-14

<PAGE>



                        Integrated Surgical Systems, Inc.

             Notes to Consolidated Financial Statements (continued)



             Date of Put             Shares Issued         Net Proceeds
        ---------------------------------------------------------------

        November 2, 2000                 287,353           $    64,000
        January 22, 2001                 806,723               143,000
        January 23, 2001               1,344,538               243,000
        February 9, 2001                 882,353               143,000
        March 30, 2001                   745,099                50,000
        April 19, 2001                   784,314                53,000

Warrants

The following table summarizes information about warrants outstanding at
December 31, 2002 and 2001:

<TABLE>
<CAPTION>


                                                                                                             Outstanding at
                                               Issue        Expiration                      Exercise            December 31,
                Warrants issued                 Year           Date          Issued          Range           2002           2001
                ---------------                 ----           ----          ------          -----           ----           ----

<S>                                             <C>              <C>        <C>                 <C>        <C>           <C>
Pursuant to stock purchase agreement (2)        1997    December 2006       2,274,066           $0.01      2,206,479     2,206,479
As units in the initial public offering (2)     1996    November 2002       1,567,000           $6.00              -     1,567,000
To public offering underwriters (2)             1996    November 2002         491,750     $6.00-$8.25              -       491,750
To acquisition consultants (2),(3)              1997    September 2003         75,000     $2.00-$7.50         75,000        75,000
To public offering underwriters (2)             1997    November 2003         150,000           $8.34        150,000       150,000
With Series B preferred stock (1)               1999      March 2003           12,500           $2.75         12,500        12,500
With Series C preferred stock (1)               1999      June 2003             9,375           $2.15          9,375         9,375
With Series D preferred stock (1)               1999      June 2003            25,000           $3.41         25,000        25,000
With Series E preferred stock (1)               1999      July 2003            37,500           $4.39         37,500        37,500
With Series F preferred stock (1)               2000    February 2004         125,000           $2.38        125,000       125,000
With Series G preferred stock (1)               2000       May 2004            63,000           $1.88         63,000        63,000
With Series H preferred stock (1)               2000     August 2004          650,000     $0.50-$1.02        650,000       650,000
Pursuant to stock purchase agreement            1999    December 2003      11,700,000           $1.03      4,000,000     4,000,000
In connection with equity financing (4)         2000    September 2004         35,000           $0.86         35,000        35,000
In connection with services (5)                 2002       May 2007           100,000           $0.06        100,000             -
                                                                          -----------                      -----------------------
                                                                           17,315,191                      7,488,854     9,447,604
                                                                          ===========                      =======================
</TABLE>

Unless otherwise stated in (1) below, the warrants are exercisable when granted
and expire between 2003 and 2007.
- -------------------------------------
(1)  Warrants are exercisable when vested, generally within one year of issue.
(2)  Number of common shares and exercise price are subject to dilution
     adjustment.
(3)  Aggregate estimated fair value of $93,885, based on Black-Scholes option
     valuation model.
(4)  Aggregate estimated fair value of $14,350, based on Black-Scholes option
     valuation model.
(5)  Aggregate estimated fair value of $4,000, based on Black-Scholes option
     valuation model.

                                      F-15

<PAGE>


                        Integrated Surgical Systems, Inc.

             Notes to Consolidated Financial Statements (continued)


Preferred Stock

The Company's Articles of Incorporation authorize 1,000,000 shares of
undesignated preferred stock. Preferred stock may be issued from time to time in
one or more series. The Board of Directors is authorized to determine the
rights, preferences, privileges, and restrictions granted to and imposed upon
any wholly unissued series of preferred stock and designation of any such series
without any vote or action by the Company's stockholders.

Convertible Preferred Stock

The Company's convertible preferred stock is classified as mezzanine financing,
outside of permanent equity, due to its liquidation rights upon a change in
control, as this condition is not solely within the Company's control. Given the
liquidation rights of the Company's convertible preferred stock, these
securities have been accounted for as if they were redeemable preferred stock.
As such, the redemption value of the convertible preferred stock is its
liquidation preference, and the carrying value of the convertible preferred
stock is adjusted to its redemption amount at each balance sheet date through
corresponding debits and credits to accumulated deficit and convertible
preferred stock respectively.

Since September 1998, the Company has received aggregate net proceeds of
$14,084,995 from the sale of eight series of convertible preferred stock.
Information concerning these convertible preferred stock financings is set forth
below:

                                             Shares                Net
   Series       Date of Sale                  Sold              Proceeds
  -------------------------------------------------------------------------

     A      September 10, 1998                3,520       $      3,300,447
     B      March 26, 1999                    1,000                916,918
     C      June 10, 1999                       750                658,190
     D      June 30, 1999                     2,000              1,861,549
     E      July 30, 1999                     3,000              2,819,484
     F      February 8, 2000                  2,000              1,850,861
     G      May 30, 2000                      1,800              1,610,555
     H      August 17, 2000                   1,200              1,066,991

Each series of convertible preferred stock has a stated value of $1,000 per
share and is convertible into common stock at conversion prices equal to 80% or
85% of the lowest sale price of the common stock on its listed market over the
five trading days preceding the date of conversion subject to a maximum
conversion price. The number of shares of common stock that may be acquired upon
conversion is determined by dividing the stated value of the number of shares of
convertible preferred stock to be converted by the conversion price. At December
31, 2002, 250 shares of Series G convertible preferred stock were outstanding.
No other shares of preferred stock were outstanding. The number of shares of
common stock issued upon conversion and the average actual conversion price for
each series of convertible preferred stock converted into shares of common stock
at December 31, 2002 was as follows:

                                      F-16

<PAGE>


                        Integrated Surgical Systems, Inc.

             Notes to Consolidated Financial Statements (continued)


            Series             Common Shares                        Price
           --------------------------------------------------------------
              A                   2,867,135                          $2.23
              B                     459,831                          $2.17
              C                     563,497                          $1.33
              D                   1,605,203                          $1.25
              E                   1,490,101                          $1.22
              F                   2,143,242                          $0.93
              G                   6,998,858                          $0.22
              H                  10,921,902                          $0.11

The value assigned to the beneficial conversion feature is based upon the
difference between the maximum conversion price and the quoted market price of
the common stock on the date the convertible preferred stock was sold (the
"Discount"). The Discount has been accreted using the straight-line method over
the conversion period. The following table sets forth the value assigned to the
beneficial conversion feature and its accretion for each series of convertible
preferred stock.


  Series           Value            2002 Accretion       2001 Accretion
- ------------------------------   ---------------------------------------

     A         $       616,000     $              -     $              -
     B                 176,471                    -                    -
     C                 143,793                    -                    -
     D                 352,941                    -                    -
     E                 529,559                    -                    -
     F               2,652,140                    -                    -
     G                 428,529                    -               32,914
     H                 300,147                    -                8,229
             -----------------    --------------------------------------
               $     5,199,580     $              -     $         41,143
             =================    ======================================

No series of convertible preferred stock entitles holders to dividends or voting
rights, unless required by law or with respect to certain matters relating to a
particular series of convertible preferred stock.

Stock Option and Long-Term Performance Plans

The Company has elected to follow Accounting Principles Board Opinion No. 25
"Accounting for Stock Issued to Employees" and related Interpretations in
accounting for the employee stock options because, as discussed below, the
alternative fair value accounting provided for under FASB Statement No. 123,
"Accounting for Stock-Based Compensation," requires use of option valuation
models that were not developed for use in valuing employee stock options.

The Company has established various stock option plans in which the officers,
employees, directors, and consultants may participate. Options granted under the
plans may be incentive stock options or non-statutory stock options and
generally have a term of ten years from the date of the grant. The exercise
price of incentive stock options granted under the plans may not be less than
100% of the fair market value of the common stock on the date of the grant. The
exercise price of non-statutory stock options granted under the plans may not be
less than 85% of the fair market value of the common stock on the date of the

                                      F-17

<PAGE>



                        Integrated Surgical Systems, Inc.

             Notes to Consolidated Financial Statements (continued)


grant. For a person who, at the time of the grant, owns stock representing 10%
of the voting power of all classes of the Company's stock, the exercise price of
the incentive stock options or the non-statutory stock options granted under the
plans may not be less than 110% of the fair market value of the common stock on
the date of the grant.

In 2000 the Company established a long-term performance plan, the 2000 Long-Term
Performance Plan (the "2000 Plan"). The 2000 Plan provides for stock awards of
up to 1,000,000 shares. The 2000 Plan permits the grant of any form of award,
including, but not limited to stock options, stock appreciation rights, stock,
and cash awards, whether granted singly, in combination or in tandem. Stock
options are granted at an exercise price of not less than 100% of fair market
value (as defined in the 2000 Plan) on the date of grant and it is expected that
options and stock appreciation rights, will typically be granted for periods of
10 years or less. The 2000 Plan also permits the grant of other awards in stock
or denominated in units of stock, which may be subject to restrictions or
transfer and/or forfeiture provisions.

The Company also has a 2000 Stock Award Program under which up to 500,000 shares
of common stock may be granted to employees and consultants, but not to officers
and directors. 3,376,624 shares of common stock have been reserved at December
31, 2002, for issuance under the stock option plans, the 2000 Plan and the 2000
Stock Award program.

The following table summarizes activity under the plans for the years ended
December 31, 2002 and 2001:
<TABLE>
<CAPTION>

                                                                                               Weighted
                                                                             Number            Average
                                                                            of Shares       Exercise Price
                                                                          ---------------------------------

<S>                                                                            <C>               <C>
Outstanding at December 31, 2000 (at $.07 to $8.63 per share)                  1,771,637         $1.89
     Granted (at $0.06 to $0.19 per share)                                       315,700         $0.07
     Cancelled (at $0.06 to $6.13 per share)                                   (384,320)         $2.02
     Exercised                                                                          -         -
                                                                         ----------------
Outstanding at December 31, 2001 (at $.03 to $8.63 per share)                  1,703,017         $1.52
     Granted (at $0.03 to $0.08 per share)                                       303,490         $0.05
     Cancelled (at $0.06 to $8.63 per share)                                   (397,536)         $1.38
     Exercised                                                                          -            -
                                                                         ----------------
Outstanding at December 31, 2002 (at $.03 to $8.50 per share)                  1,608,971         $1.28
                                                                         ================


The weighted average exercise price of options granted in 2002 and 2001 with
option prices equal to the fair market value of the stock on the grant date was
$0.05 and $0.07, respectively.

The following table summarizes information related to options outstanding and
options exercisable at December 31, 2002:

                                      F-18

<PAGE>



                       Integrated Surgical Systems, Inc.

             Notes to Consolidated Financial Statements (continued)


                                                                  Weighted
                                                                  Average                             Weighted
                                                                 Remaining                             Average
     Exercise            Options        Weighted Average        Contractual         Options           Exercise
       Price          Outstanding       Exercise Price        Life (in Years)      Exercisable          Price
  -------------------------------------------------------------------------------------------------------------

   $0.00 -$ .99           825,394            $0.06                   6.5               470,290          $0.07
    1.00 - 1.99           457,800            $1.81                   7.1               334,232          $1.81
    2.00 - 2.99            20,000            $2.65                   6.7                12,500          $2.68
    3.00 - 3.99           243,500            $3.11                   5.8               238,313          $3.10
    4.00 - 5.99            33,277            $5.06                   3.8                33,277          $5.06
    6.00 - 8.50            29,000            $6.97                   4.6                29,000          $6.97
                     ------------                                                  -----------
                        1,608,971            $1.28                   6.4             1,117,612          $1.59
                     ============                                                  ===========
</TABLE>

6. Income Taxes

Deferred taxes result from temporary differences in the recognition of certain
revenue and expense items for income tax and financial reporting purposes. The
significant components of the Company's deferred taxes as of December 31, 2002
and 2001 are as follows:
                                                       2002           2001
                                                  ----------------------------
       Deferred tax assets:
           Net operating loss carryover           $ 14,269,000    $ 10,098,000
           Research and development credit           1,927,000       1,792,000
           Research and development                    345,000         465,000
           Accrued product retrofit costs               83,000          83,000
           Inventory                                   220,000         159,000
           Depreciation                                257,000         346,000
           Stock compensation                          289,000         289,000
           Loss on investment                          126,000         126,000
           Deferred income                           1,091,000         661,000
           Other                                       166,000         196,000
                                                  ------------- ---------------
                                                    18,773,000      14,215,000
       Less valuation allowance                    (18,773,000)    (14,215,000)
                                                  ----------------------------
       Net deferred taxes                         $         -     $          -
                                                  ============--==============

The Company expects the carryforward amounts will not be used prior to the
expiration of the carryforward periods. The principal reasons for the difference
between the effective income tax rate and the federal statutory income tax rate
as of December 31, 2002 and 2001 are as follows:


                                                       2002             2001
                                                   ----------------------------

  Federal benefit expected at statutory rates      $  (958,039)   $  (1,136,054)
  Domestic net operating loss
   with no current benefit                             752,824        1,524,624
  Net effect of foreign operations                     199,989        (393,468)
  Other taxes                                                -               -
  Other non-deductible items                             5,226           4,898
                                                   ---------------------------
                                                   $         -    $          -
                                                   ===========================

                                      F-19

<PAGE>



                       Integrated Surgical Systems, Inc.

             Notes to Consolidated Financial Statements (continued)


As a result of stock sales through December 31, 1995, a change of ownership (as
defined in Section 382 of the Internal Revenue Code of 1986, as amended) has
occurred. As a result of this change, the federal and state net operating loss
carryforwards will be subject to a total annual limitation in the amount of
approximately $400,000. Subsequent to this change of ownership an additional
change in ownership may have occurred. As a result, the net operating loss
carryforwards may be further limited.

The Company had at December 31, 2002 a net operating loss carryover of
approximately $40,544,000 for federal income tax purposes which expires between
2005 and 2022, a net operating loss carryforward of approximately $8,150,000 for
state income tax purposes which expires between 2004 and 2012, and a net
operating loss carryforward of approximately $1,541,000, for foreign income tax
purposes of which approximately $347,000 expires between 2003 and 2007. The
Company had at December 31, 2002 research and development credit carryovers of
approximately $1,256,000 and $1,017,000 for federal and state income tax
purposes, respectively.

The Company paid $800 for income and franchise taxes during each of the two
years ended December 31, 2002 and 2001. The valuation allowance increased by
$4,558,000 in 2002 and $2,180,000 in 2001.

7. Net Loss Per Share Information

At December 31, 2002, outstanding options to purchase 1,608,971 shares of common
stock (with exercise prices ranging from $0.03 to $8.50), 7,488,854 outstanding
warrants to purchase 8,024,044 shares of common stock (with exercise prices from
$0.01 to $8.34), and 8,946,286 shares of common stock issuable upon conversion
of Series G Preferred Stock could potentially dilute basic earnings per share in
the future and have not been included in the computation of diluted net loss per
share because to do so would have been antidilutive for the periods presented.
The exercise price and the ultimate number of shares of common stock issuable
upon conversion of the warrants are subject to adjustments based upon the
occurrence of certain future events.

8. Commitments

The Company leases its U.S. facility under a non-cancelable operating lease
expiring in June 2005. The lease provided for rent of approximately $33,000 per
month during 2002 (plus real estate taxes and assessments, utilities and
maintenance) and is subject to adjustment in subsequent years for cumulative
increases in the cost of living index, not to exceed 4% per year. The Company
entered into a sublease of approximately 5,000 square feet of its U.S. facility
to a third party from April 2002 through December 2002 for approximately $7,000
per month, which has been included in other, net in the consolidated statements
of operations. The Company leases its European facility under a renewable
operating lease with terms that include three year non-cancelable periods that
expire in 2007. The lease provides for rent of approximately $7,000 per month.

Future payments under non-cancelable facility operating leases are approximately
as follows:

                        2003                $      486,723
                        2004                       494,783
                        2005                       176,474
                        2006                             -
                        2007                             -
                                            --------------
                                            $    1,157,980
                                            ==============

                                      F-20

<PAGE>




                       Integrated Surgical Systems, Inc.

             Notes to Consolidated Financial Statements (continued)


Aggregate rental expense under these leases amounted to $476,000 and $456,000
during the years ended December 31, 2002 and 2001, respectively.

Future minimum payments under non-cancelable equipment operating leases are
approximately as follows:

                        2003                $       36,645
                        2004                             -
                        2005                             -
                        2006                             -
                        2007                             -
                                            --------------
                                            $       36,645
                                            ==============


Rental expense associated with these leases during the years ended December 31,
2002 and 2001 was approximately $37,000 and $35,000 respectively.

9. Contingencies

The Company has from time to time been notified of various claims incidental to
the business which are not the subject of pending litigation. While the results
of claims cannot be predicted with certainty, the Company believes that the
final outcome of all such matters will not have a materially adverse effect on
the consolidated financial position, results of operations, or cash flows.

10. Related Party Transactions

During the year ended December 31, 2001 certain of the Company's officers, on
five occasions, advanced to the Company, in the aggregate, $477,000 in order for
the Company to meet its payroll obligations. Each of these advances was
non-interest bearing and was repaid within one to five days.

At December 31, 2001, the Company had amounts due to its chief executive officer
of approximately $193,000: $50,000 of this amount related to salary deferred in
the fourth quarter of 2001, included in accrued payroll and related expense, and
$143,000 related to unreimbursed travel expenses, included in accounts payable.

At December 31, 2002, the Company had amounts due to the executive officers of
the Company of approximately $383,000: $107,000 of this amount related to
deferred salary, which has been included in accrued payroll and related
expenses, $223,000 related to unreimbursed travel expenses, which has been
included in accounts payable and the Company's chief executive officer advanced
to the Company $53,000 in order for the Company to meet its payroll obligations,
which has been included in accrued liabilities.

                                      F-21

<PAGE>




                       Integrated Surgical Systems, Inc.

             Notes to Consolidated Financial Statements (continued)


11. Unaudited Interim Financial Information

During the fourth quarter of 2001, the Company discovered clerical errors which
arose in 2001 relating to the elimination of certain intercompany sales by its
wholly-owned French subsidiary. In 2001, the Company recorded a fourth quarter
adjustment to reduce net revenue by approximately $516,000 and to reduce cost of
revenue by an equivalent amount. This adjustment related to an equivalent amount
of net revenue and cost of revenue for the first three quarters of 2001 of
approximately $299,000, $150,000 and $67,000, respectively. The impact of this
adjustment had no effect on previously reported gross margin, operating loss,
net loss or net loss per share for the 2001 interim periods or the fourth
quarter of 2001.










                                      F-22

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-3.1
<SEQUENCE>3
<FILENAME>integrated31.txt
<DESCRIPTION>COMPOSITE OF RESTATED CERTIFICATE
<TEXT>


                                                                     EXHIBIT 3.1
                                                                     -----------


                                  COMPOSITE OF
                      RESTATED CERTIFICATE OF INCORPORATION
                                       OF
                        INTEGRATED SURGICAL SYSTEMS, INC.
                                   AS AMENDED


     The undersigned, Ramesh C. Trivedi, being the Chief Executive Officer and
President of Integrated Surgical Systems, Inc., a corporation organized and
existing under the laws of the State of Delaware, hereby certifies that:

     1. The name of the corporation is Integrated Surgical Systems, Inc. (the
Corporation").

     2. The address of the Corporation's registered office in the State of
Delaware is Corporation Trust center, 1209 Orange Street, in the City of
Wilmington, County of New Castle, 19801. The name of the registered agent at
such address is The Corporation Trust Company.

     3. The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of Delaware.

     4. The total number of shares of capital stock that the Corporation shall
have authority to issue is 101,000,000, of which 1,000,000 shares shall be
preferred stock, $0.01 par value per share (the "Preferred Stock"), and
100,000,000 shares shall be common stock, $0.01 par value per share (the "Common
Stock").

          The Preferred Stock may be issued in one or more series, from time to
time, with each such series to have such designation, powers, preferences, and
relative, participating, optional or other special rights, and qualifications,
limitations or restrictions thereof, as shall be stated and expressed in the
resolution or resolutions providing for the issue of such series adopted by the
Board of Directors of the Corporation, subject to the limitations prescribed by
law and in accordance with the provisions hereof, the Board of Directors being
hereby expressly vested with authority to adopt any such resolution or
resolutions. The authority of the Board of Directors with respect to each such
series shall include, but not be limited to, the determination of fixing of the
following:

          (a) The distinctive designation and number of shares comprising such
     series, which number may (except where otherwise provided by the Board of
     Directors in creating such series) be increased or decreased (but not below
     the number of shares then outstanding) from time to time by like action of
     the Board of Directors;

                                       1

<PAGE>


          (b) The dividend rate of such series, the conditions and time upon
     which such dividends shall be payable, the relation which such dividends
     shall bear to the dividends payable on any other class or classes of stock
     or series thereof, or any other series of the same class, and whether such
     dividends shall be cumulative or non-cumulative;

               (1) The conditions upon which the shares of such series shall be
          subject to redemption by the Corporation and the times, prices and
          other terms and provisions upon which the shares of the series may be
          redeemed;

               (2) Whether or not the shares of the series shall be subject to
          the operation of a retirement or sinking fund to be applied to the
          purchase or redemption of such shares and, if such retirement or
          sinking fund be established, the annual amount thereof and the terms
          and provisions relative to the operation thereof;

               (3) Whether or not the shares of the series shall be convertible
          into or exchangeable for shares of any other class or classes, with or
          without par value, or of any other series of the same class, and, if
          provision is made for conversion or exchange, the times, prices,
          rates, adjustments, and other terms and conditions of such conversion
          or exchange;

               (4) Whether or not the shares of the series shall have voting
          rights, in addition to the voting rights provided by law, and, if so,
          the terms of such voting rights;

               (5) The rights of the shares of the series in the event of
          voluntary or involuntary liquidation, dissolution, or upon the
          distribution of assets of the Corporation; and

               (6) Any other powers, preferences and relative participating,
          optional or other special rights, and qualifications, limitations or
          restrictions thereof, of the shares of such series, as the Board of
          Directors may deem advisable and as shall not be inconsistent with the
          provisions of this Certificate of Incorporation.

     The holders of shares of the Preferred Stock of each series shall be
entitled to receive, when and as declared by the Board of Directors, out of
funds legally available for the payment of dividends, dividends (if any) at the
rates fixed by the Board of Directors for such series, and no more, before any
cash dividends shall be declared and paid, or set apart for payment, on the
Common Stock with respect to the same dividend period.

     The holders of shares of the Preferred Stock of each series shall be
entitled upon liquidation or dissolution or upon the distribution of the assets
of the Corporation to such preferences as provided in the resolution or
resolutions creating such series of Preferred Stock, and no more, before any
distribution of the assets of the Corporation shall be made to the holders of
shares of the Common Stock. Whenever the holders of shares of the Preferred
Stock shall have been paid the full amounts to which they shall be entitled, the
holders of shares of the Common Stock shall be entitled to share ratably in all
remaining assets of the Corporation."

                                       2

<PAGE>


     5. The Corporation is to have perpetual existence.

     6. In furtherance and not in limitation of the powers conferred by statute,
the Board of Directors is expressly authorized to make, alter, amend or repeal
the Bylaws of the Corporation.

     7. The number of directors which will constitute the whole Board of
Directors of the Corporation shall be specified in the Bylaws of the
Corporation.

     8. The election of directors need not be by written ballot unless the
Bylaws of the Corporation shall so provide.

     9. At the election of directors of the Corporation, each holder of stock or
of any class or classes or of a series or series thereof shall be entitled to as
many votes as shall equal the number of votes which (except for such provision
as to cumulative voting) he would be entitled to cast for the election of
directors with respect to his shares of stock multiplied by the number of
directors to be elected by him, and he may cast all of such votes for a single
director or may distribute them among the number to be voted for, or for any two
or more of them as he may see fit.

     10. Meeting of stockholders may be held within or without the State of
Delaware, as the Bylaws may provide. The books of the Corporation may be kept
(subject to any provisions contained in the statutes) outside the State of
Delaware at such place or places as may be designated from time to time by the
Board of Directors or in the Bylaws of the Corporation.

     11. To the fullest extent permitted by the Delaware General Corporation Law
as the same exists or as may hereafter be amended, a director of the Corporation
shall not be personally liable to the Corporation or its stockholders for
monetary damages for breach of fiduciary duty as a director. Neither any
amendment nor repeal of this Article, nor the adoption of any provision of this
Restated Certificate of Incorporation inconsistent with this Article, shall
eliminate or reduce the effect of this Article in respect of any matter
occurring, or any cause of action, suit or claim that, but for this Article,
would accrue or arise, prior to such amendment, repeal or adoption of an
inconsistent provision.

     12. Advance notice of new business and stockholder nomination for the
election of directors shall be given in the manner and to the extent provided in
the Bylaws of the Corporation.

     13. The Corporation reserves the right to amend, alter, change or repeal
any provision contained in this Restated Certificate of Incorporation, in the
manner now or hereafter prescribed by statute, and all rights conferred upon
stockholders herein are granted subject to this reservation.



</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.28
<SEQUENCE>4
<FILENAME>integrated1028.txt
<DESCRIPTION>ADDENDUM NUMBER ONE
<TEXT>
                                                                   EXHIBIT 10.28
                                                                   -------------

                               ADDENDUM NUMBER ONE
                                       TO
                                RAMESH C. TRIVEDI
                            EMPLOYMENT CONTRACT DATED
                                December 8, 1995


Pursuant to actions taken by the Compensation Committee of the Board of
Directors of Integrated Surgical Systems, Inc. on December 18, 1997 and in the
months thereafter concluding on March 12, 1998, the following adjustments are to
be made in Dr. Trivedi's agreement.

     1.   Base Salary is to be increased by 6% from $22,000 per month to $23,320
          per month effective December 1, 1997.

     2.   Incentive base for 1998 is increased from $80,000 to $100,000. The
          actual payout amount will be based on the achievement against the 1998
          business plan agreed to by the board, with the calculation algorithm
          similar to the one used in 1997, but to be determined in fact at a
          later date.

     3,   Stock options for 100,000 shares are issued to Dr. Trivedi with a
          grant price of $4.75, the price of the stock on February 19, 1998. Of
          the 100,000 shares, the amount of shares that shall be immediately
          vested shall be 28,125. The balance of the shares, 71,875 shall vest
          ratably over the 48 month period beginning February 19, 1998.

     4.   Severance pay is currently set at 12 months in the event of
          termination of employment. As of this amendment, severance pay upon
          termination will be 18 months of Dr. Trivedi's base pay.

This amendment is incorporated and becomes a part of the Employment Contract
dated December 8, 1995. All other terms and conditions, not modified by this
agreement remain the same.


/s/ Ramesh C. Trivedi
- ----------------------------------                   ---------------------------
Ramesh C. Trivedi, President & CEO                   James C. McGroddy, Chairman

Date:  March 31, 1998                                Date:
       ---------------------------                         ---------------------


</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.29
<SEQUENCE>5
<FILENAME>integrated1029.txt
<DESCRIPTION>EMPLOYMENT AGREEMENT (NOVAK)
<TEXT>


                                                                   EXHIBIT 10.29
                                                                   -------------

                        INTEGRATED SURGICAL SYSTEMS, INC.
                            1850 Research Park Drive
                             Davis, California 95616


                                February 14, 2003

Mr. Charles J. Novak
8163 Parus Way
Granite Bay, California 95746


Dear Chuck:

     In connection with your letter of employment dated July 15, 2002, a copy of
which is attached hereto, we are furnishing you with this letter agreement to
establish the terms and conditions of your employment with the Company as set
forth below.

     1. RESPONSIBILITIES. You shall serve as and perform the functions of Chief
Financial Officer of the Company and shall perform such other duties and
functions as may be assigned to you from time to time by the Company's Board of
Directors (the "Board of Directors") as are reasonable and customary to your
position. During your employment with the Company, you shall devote substantial
working time to the business of the Company.

     2. COMPENSATION. The Company shall pay you for your services hereunder, and
you shall accept, (i) a salary of $10,000 per month ("Base Salary") and (ii)
such incentive compensation as shall be determined from time to time by the
Board of Directors of the Company. Your Base Salary shall be paid in equal
installments on a basis consistent with the Company's payroll practices for
senior executives.

     3. BENEFITS. During your employment with the Company, you shall be entitled
to participate in any pension plan, group life insurance plan, health and
hospitalization insurance plan, and medical services plan and other similar
plans, now or hereafter existing, generally afforded by the Company to other
senior executives.

     4. EXPENSES. During your employment with the Company, the Company shall
reimburse you for all reasonable and necessary travel expenses and other
disbursements incurred by you on behalf of the Company in the performance of
your duties hereunder, assuming you have received prior approval by the Company
to the extent possible, consistent with the Company's practice for such travel
expenses and disbursements or written policy in effect with respect to the
reimbursement of expenses to senior executives of the Company. Such expenses
shall be reimbursed only upon presentation of paid receipts and/or original
invoices and such other information as shall be required for tax purposes.

<PAGE>


     5. CONFIDENTIAL INFORMATION. You recognize that you have and will continue
to have access to secret and confidential information regarding the Company and
its subsidiaries and affiliated companies, including but not limited to, all
trade secrets, proprietary information, formulae, budgets, projections, reports,
plans, proposals, financial information, customer and vendor lists, proposed
services, marketing plans, know how and other information, and strategies and
ideas, belonging to or relating to the business of the Company and its
subsidiaries and affiliated companies (the "Confidential Information"). You
acknowledge that such Confidential Information is of great value to the Company,
is the sole property of the Company, and has been and will be acquired by you in
confidence. In consideration of the obligations undertaken by the Company
herein, you shall not at any time, during or after your employment hereunder,
reveal, divulge or make known to others or use any such Confidential
Information. The provisions of this Section 5 shall survive your termination of
employment hereunder.

     6. TERM. Your employment with the Company is for no specified period and
constitutes at-will employment. As a result, you are free to resign at any time,
for any reason or for no reason. Similarly, the Company is free to conclude its
employment relationship with you at any time, with or without cause.

     7. SEVERANCE PAY

          (A) Termination In the event you are terminated by the Company for
reasons other than for Cause (as defined below), you will be entitled to receive
severance pay of your Base Salary for a period of three months from the date of
termination, payable in equal monthly installments.

          For purposes of this agreement, the term "Cause" shall mean (i) your
conviction (including a conviction on a nolo contendere plea) of a felony or
misdemeanor (other than minor traffic offenses); (ii) neglect or failure to
perform your duties as an employee of the Company in any material respect; (iii)
any grossly negligent act having the effect of injuring your reputation or the
reputation of business of the Company in any material respect; (iv) repeated
willful violations of lawful policies of the Company; or (v) any other
malfeasance, misfeasance or nonfeasance by you in any material respect relative
to or in connection with the performance of your duties as an employee of the
Company.

          (B) Business Transaction. In the event of any consolidation or merger
of the Company with or into another entity ("Entity"), or the sale of all or
substantially all of the assets of the Company to another Entity (a
Transaction"), you are unable to reach a reasonable agreement of employment with
the Entity, you shall be entitled to receive severance pay of your Base Salary
for a period of six months from the date of termination, payable in equal
monthly installments, provided, however, you agree to make reasonable efforts to
assist the Entity in its transition in connection with the Transaction for a
reasonable period of time.



                                       2

<PAGE>

     If you are in agreement with the foregoing, please sign and return to the
Company one copy of this letter agreement, which will constitute our agreement
with respect to the subject matter of this letter.


                                Integrated Surgical Systems, Inc.

                                By:   /s/ Ramesh C. Trivedi
                                      ----------------------------------------
                                          Ramesh C. Trivedi,
                                          Chief Executive Officer and President

 Accepted and Agreed this
 14th day of February, 2003.


 /s/ Charles J. Novak
- ---------------------
 Charles J. Novak






                                       3

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.30
<SEQUENCE>6
<FILENAME>integrated1030.txt
<DESCRIPTION>EMPLOYMENT AGREEMENT (WITHERSPOON)
<TEXT>


                                                                   EXHIBIT 10.30
                                                                   -------------

                        INTEGRATED SURGICAL SYSTEMS, INC.
                            1850 Research Park Drive
                             Davis, California 95616


                                February 14, 2003

Mr. Leland Witherspoon
3329 Marina Cove Circle
Elk Grove, California 95758


Dear Leland:

     In connection with your employment with the Company, we are furnishing you
with this letter agreement to establish the terms and conditions of your
employment with the Company as set forth below.

     1. RESPONSIBILITIES. You shall serve as and perform the functions of Vice
President, Engineering of the Company and shall perform such other duties and
functions as may be assigned to you from time to time by the Company's Board of
Directors (the "Board of Directors") as are reasonable and customary to your
position. During your employment with the Company, you shall devote substantial
working time to the business of the Company.

     2. COMPENSATION. The Company shall pay you for your services hereunder, and
you shall accept, (i) a salary of $11,883.34 per month ("Base Salary") and (ii)
such incentive compensation as shall be determined from time to time by the
Board of Directors of the Company. Your Base Salary shall be paid in equal
installments on a basis consistent with the Company's payroll practices for
senior executives.

     3. BENEFITS. During your employment with the Company, you shall be entitled
to participate in any pension plan, group life insurance plan, health and
hospitalization insurance plan, and medical services plan and other similar
plans, now or hereafter existing, generally afforded by the Company to other
senior executives.

     4. EXPENSES. During your employment with the Company, the Company shall
reimburse you for all reasonable and necessary travel expenses and other
disbursements incurred by you on behalf of the Company in the performance of
your duties hereunder, assuming you have received prior approval by the Company
to the extent possible, consistent with the Company's practice for such travel
expenses and disbursements or written policy in effect with respect to the
reimbursement of expenses to senior executives of the Company. Such expenses
shall be reimbursed only upon presentation of paid receipts and/or original
invoices and such other information as shall be required for tax purposes.

<PAGE>


     5. CONFIDENTIAL INFORMATION. You recognize that you have and will continue
to have access to secret and confidential information regarding the Company and
its subsidiaries and affiliated companies, including but not limited to, all
trade secrets, proprietary information, formulae, budgets, projections, reports,
plans, proposals, financial information, customer and vendor lists, proposed
services, marketing plans, know how and other information, and strategies and
ideas, belonging to or relating to the business of the Company and its
subsidiaries and affiliated companies (the "Confidential Information"). You
acknowledge that such Confidential Information is of great value to the Company,
is the sole property of the Company, and has been and will be acquired by you in
confidence. In consideration of the obligations undertaken by the Company
herein, you shall not at any time, during or after your employment hereunder,
reveal, divulge or make known to others or use any such Confidential
Information. The provisions of this Section 5 shall survive your termination of
employment hereunder.

     6. TERM. Your employment with the Company is for no specified period and
constitutes at-will employment. As a result, you are free to resign at any time,
for any reason or for no reason. Similarly, the Company is free to conclude its
employment relationship with you at any time, with or without cause.

     7. SEVERANCE PAY

          (A) Termination In the event you are terminated by the Company for
reasons other than for Cause (as defined below), you will be entitled to receive
severance pay of your Base Salary for a period of three months from the date of
termination, payable in equal monthly installments.

          For purposes of this agreement, the term "Cause" shall mean (i) your
conviction (including a conviction on a nolo contendere plea) of a felony or
misdemeanor (other than minor traffic offenses); (ii) neglect or failure to
perform your duties as an employee of the Company in any material respect; (iii)
any grossly negligent act having the effect of injuring your reputation or the
reputation of business of the Company in any material respect; (iv) repeated
willful violations of lawful policies of the Company; or (v) any other
malfeasance, misfeasance or nonfeasance by you in any material respect relative
to or in connection with the performance of your duties as an employee of the
Company.

          (B) Business Transaction. In the event of any consolidation or merger
of the Company with or into another entity ("Entity"), or the sale of all or
substantially all of the assets of the Company to another Entity (a
Transaction"), you are unable to reach a reasonable agreement of employment with
the Entity, you shall be entitled to receive severance pay of your Base Salary
for a period of six months from the date of termination, payable in equal
monthly installments, provided, however, you agree to make reasonable efforts to
assist the Entity in its transition in connection with the Transaction for a
reasonable period of time.

                                       2

<PAGE>




          If you are in agreement with the foregoing, please sign and return to
the Company one copy of this letter agreement, which will constitute our
agreement with respect to the subject matter of this letter.


                                    Integrated Surgical Systems, Inc.

                                    By:  Ramesh C. Trivedi
                                         Ramesh C. Trivedi,
                                         Chief Executive Officer and President

 Accepted and Agreed this
 14th day of February, 2003.


 /s/ Leland Witherspoon
 ----------------------
 Leland Witherspoon


                                       3

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-23.1
<SEQUENCE>7
<FILENAME>integrated231.txt
<DESCRIPTION>CONSENT
<TEXT>


                                                                    EXHIBIT 23.1






               CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

We consent to the incorporation by reference in the Registration Statements
(Form S-8 Nos. 333-44093, 333-70779, 333-53188, 333-53190) pertaining to the
1995 Stock Option Plan, As Amended, 1998 Stock Option Plan and Employee Stock
Purchase Plan, 2000 Stock Award Plan, and 2000 Long-Term Performance Plan of
Integrated Surgical Systems, Inc. of our report dated March 14, 2003, with
respect to the consolidated financial statements of Integrated Surgical Systems,
Inc. included in the Annual Report (Form 10-KSB) for the year ended December 31,
2002.



                                                 ERNST & YOUNG LLP


Sacramento, California
March 27, 2003

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.1
<SEQUENCE>8
<FILENAME>integrated991.txt
<DESCRIPTION>CERTIFICATIONS
<TEXT>



                                                                    EXHIBIT 99.1
                                                                    ------------



                CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
                             AS ADOPTED PURSUANT TO
                  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002



          I, Ramesh C. Trivedi, Chief Executive Officer and President Integrated
Surgical Systems, Inc. (the "Company"), certify, pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
that:

          (1) the Company's Annual Report on Form 10-KSB for the fiscal year
ended December 31, 2002, (the "Report") which this statement accompanies, fully
complies with the requirements of Section 13(a) or 15(d) of the Securities
Exchange Act of 1934; and

          (2) the information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of the
Company.



Dated: March 27, 2003                 /s/ Ramesh C. Trivedi
                                      ------------------------------------------
                                          Ramesh C. Trivedi
                                          Chief Executive Officer and President



                CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
                             AS ADOPTED PURSUANT TO
                  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002


          I, Charles J. Novak, Chief Financial Officer of Integrated Surgical
Systems, Inc.(the "Company"), certify, pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) the
Company's Annual Report on Form 10-KSB for the fiscal year ended December 31,
2002, 2002 (the "Report") which this statement accompanies, fully complies with
the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of
1934; and (2) the information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of the
Company.

Dated: March 27, 2003                         /s/ Charles J. Novak
                                              ----------------------------------
                                                  Charles J. Novak
                                                  Chief Financial Officer


S:\dlb\ISS\Form 10-K\2002\Exhibit 99.1.doc

</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
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