##### Table of Contents









UNITED STATES SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549


Form 10-K


FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO


SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934


|   |  |                                                                                             
|-- |  | --------------------------------------------------------------------------------------------
|þ  |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934    
|  
|   |  | For the fiscal year ended December 31, 2005                                                 
|  
|or
|  
|o  |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 000-51512


Cardiac Science Corporation


(Exact Name of Registrant as Specified in its Charter)


|                                                                              |  |                                         
|----------------------------------------------------------------------------- |  | ----------------------------------------
|Delaware                                                                      |  | 94-3300396                              
|(State or Other Jurisdiction of
    Incorporation or Organization)            |  | (I.R.S. Employer
    Identification No.)
|                                                                             
|3303 Monte Villa Parkway, Bothell, WA(Address of Principal Executive Offices) |  | 98021(Zip Code)                         

(425) 402-2000


(Registrants Telephone Number, Including Area Code)


Securities Registered Pursuant to Section 12(b) of the
Act: None.


Securities Registered Pursuant to Section 12(g) of the
Act: Common Stock, $0.001 par value.


o þ


o þ


þ o


S-K 10-K 10-K. þ


12b-2


o þ o


12b-2 o þ








DOCUMENTS INCORPORATED BY REFERENCE












---



##### 










CARDIAC SCIENCE CORPORATION


2005 FORM 10-K
ANNUAL REPORT


TABLE OF CONTENTS


|             |  |                                                                                                                      |  |      |    | 
|------------ |  | -------------------------------------------------------------------------------------------------------------------- |  | ---- | -- | 
|             |  |                                                                                                                      |  | Page
|             |  |                                                                                                                      |  |     
|PART I      
|Item 1.      |  | Business                                                                                                             |  |      | 1  | 
|Item 1A.     |  | Risk Factors                                                                                                         |  |      | 18 | 
|Item 1B.     |  | Unresolved Staff Comments                                                                                            |  |      | 28 | 
|Item 2.      |  | Properties                                                                                                           |  |      | 28 | 
|Item 3.      |  | Legal Proceedings                                                                                                    |  |      | 28 | 
|Item 4.      |  | Submission of Matters to a Vote of Security
    Holders                                                              |  |      | 30 | 
|PART II     
|Item 5.      |  | Market for Registrants Common Equity,
    Related Stockholder Matters and Issuer Purchases of Equity
    Securities |  |      | 30 | 
|Item 6.      |  | Selected Financial Data                                                                                              |  |      | 31 | 
|Item 7.      |  | Managements Discussion and Analysis
    of Financial Condition and Results of Operations                            |  |      | 33 | 
|Item 7A.     |  | Quantitative and Qualitative Disclosures
    About Market Risk                                                       |  |      | 47 | 
|Item 8.      |  | Financial Statements and Supplementary
    Data                                                                      |  |      | 48 | 
|Item 9.      |  | Changes in and Disagreements With
    Accountants on Accounting and Financial Disclosure                             |  |      | 93 | 
|Item 9A.     |  | Controls and Procedures                                                                                              |  |      | 93 | 
|Item 9B.     |  | Other Information                                                                                                    |  |      | 93 | 
|PART III    
|Item 10.     |  | Directors and Executive Officers of the
    Registrant                                                               |  |      | 93 | 
|Item 11.     |  | Executive Compensation                                                                                               |  |      | 93 | 
|Item 12.     |  | Security Ownership of Certain Beneficial
    Owners and Management and Related Stockholder Matters                   |  |      | 94 | 
|Item 13.     |  | Certain Relationships and Related
    Transactions                                                                   |  |      | 94 | 
|Item 14.     |  | Principal Accountant Fees and Services                                                                               |  |      | 94 | 
|PART IV     
|Item 15.     |  | Exhibits and Financial Statement
    Schedules                                                                       |  |      | 94 | 
|Signatures   |  |                                                                                                                      |  |      | 95 | 
|EXHIBIT 21.1
|EXHIBIT 23.1
|EXHIBIT 31.1
|EXHIBIT 31.2
|EXHIBIT 32.1
|EXHIBIT 32.2



i



---



##### Table of Contents






PART 1


This Annual Report on
Form 10-K contains
forward-looking statements relating to Cardiac Science
Corporation. These are forward-looking statements for purposes
of the safe harbor provisions under the Private Securities
Litigation Reform Act of 1995. The words believe,
expect, intend, anticipate,
variations of such words, and similar expressions identify
forward-looking statements, but their absence does not mean that
the statement is not forward-looking. Actual results may vary
significantly from the results expressed or implied in these
statements. These forward-looking statements reflect
managements current expectations and involve risks and
uncertainties. Our actual results could differ materially from
results that may be anticipated by such forward-looking
statements. The principal factors that could cause or contribute
to such differences include, but are not limited to, those
discussed in the section entitled Risk Factors and
those discussed elsewhere in this report. Readers are cautioned
not to place undue reliance on these forward-looking statements,
which speak only as of the date of this report. We undertake no
obligation to revise any forward-looking statements to reflect
events or circumstances that may subsequently arise. Readers are
urged to review and consider carefully the various disclosures
made in this report and in our other filings made with the SEC
that attempt to advise interested parties of the risks and
factors that may affect our business, prospects and results of
operations. The terms the Company, us,
we and our refer to Cardiac Science
Corporation and our majority-owned subsidiaries.







|        |         
|------- | --------
|Item 1. | Business

Overview






Industry Background




1



---



##### Table of Contents





Our Markets






Cardiac Monitoring Market


What is Cardiac Monitoring?




How is Cardiac Monitoring Performed?




What are the Challenges Related to Cardiac Monitoring?






2



---



##### Table of Contents



Defibrillation Market


What is Defibrillation?




How is Defibrillation Performed?




What Are the Challenges Related to Defibrillation?














3



---



##### Table of Contents





Our Products and Services




Cardiac Monitoring Products








| |                    
| | -------------------
| | Electrocardiographs





| |                               
| | ------------------------------
| | Cardiac stress testing systems





| |                          
| | -------------------------
| | Holter monitoring systems





| |                                         
| | ----------------------------------------
| | Cardiac rehabilitation telemetry systems



4



---



##### Table of Contents







| |                                   
| | ----------------------------------
| | Cardiology data management systems





| |                              
| | -----------------------------
| | Related products and supplies



Advantages of our cardiac monitoring products:




Ease of use.


Network compatibility.




Effective data capture.


Improved diagnostic speed and accuracy.


Open technology architecture.


5



---



##### Table of Contents





Defibrillation Products








Automated External Defibrillation Products






Powerheart G-3 PRO




Powerheart G-3 Automatic




Powerheart G-3




6



---



##### Table of Contents



Traditional Defibrillation Products






Powerheart CRM


state-of




Powerheart ECD




Advantages of our defibrillation products:




Arrhythmia detection.


Variable Escalating Biphasic Defibrillation energy.


Ease of Use.


Reliability. (TM)


7



---



##### Table of Contents





Flexibility.


Rugged design.


Services






Growth Strategy






| |                                                          
| | ---------------------------------------------------------
| | Exploit under-penetrated and emerging market
    segments







| |                                        
| | ---------------------------------------
| | Create opportunities through innovation



8



---



##### Table of Contents







| |                         
| | ------------------------
| | Broaden our distribution









| |                                   
| | ----------------------------------
| | Leverage our services capabilities





| |                                          
| | -----------------------------------------
| | Pursue strategic mergers and acquisitions





Business Advantages




Cardiology focus.


Commitment to innovation.


9



---



##### Table of Contents





Industry leading brands.


Leading market positions.


Global distribution and service network.


Our Organization


Sales and Marketing










10



---



##### Table of Contents













Customer Service and Support






Research and Development






Technology




11



---



##### Table of Contents









Manufacturing and Supply










Our Competition




|                                         |  |                                                                              
|---------------------------------------- |  | -----------------------------------------------------------------------------
|Product                                  |  | Competitors                                                                  
|                                         |  |                                                                              
|AEDs                                     |  | Philips, Medtronic, Zoll Medical, Welch Allyn                                
|Electrocardiographs                      |  | General Electric, Philips, Schiller                                          
|Cardiac stress testing systems           |  | General Electric, Philips, Welch Allyn                                       
|Holter monitoring systems                |  | Del Mar Reynolds, General Electric, Philips, Midmark, ACS,
    Forest Medical
|Cardiac rehabilitation telemetry systems |  | Life Sensing Instruments, Scott Care                                         
|Cardiology data management systems       |  | General Electric, Philips                                                    
|Traditional (non-AED) defibrillators     |  | Zoll, Medtronic, Philips                                                     





| |   |                                    
| | - | -----------------------------------
| |  | quality, accuracy, and reliability;
|
| |  | reputation of the provider;        

12



---



##### Table of Contents





| |   |                                                                                            
| | - | -------------------------------------------------------------------------------------------
| |  | relative ease of use;                                                                      
|
| |  | depth and breadth of features;                                                             
|
| |  | quality of customer support;                                                               
|
| |  | frequency of updates;                                                                      
|
| |  | capability to assist in deployment and training;                                           
|
| |  | flexibility to integrate products with other devices and systems
    from multiple vendors;
|
| |  | availability of third-party reimbursement;                                                 
|
| |  | conformity to standards of care; and                                                       
|
| |  | price.                                                                                     



Third-Party Reimbursement






Government Regulation






| |   |                                             
| | - | --------------------------------------------
| |  | product design and development;             
|
| |  | product testing;                            
|
| |  | product manufacturing;                      
|
| |  | product labeling and packaging;             
|
| |  | product handling, storage, and installation;
|
| |  | Pre-market clearance or approval;           
|
| |  | advertising and promotion; and              
|
| |  | product sales, distribution, and servicing. 

13



---



##### Table of Contents



FDAs Pre-market Clearance and Approval
Requirements.


510(k) Clearance Process.




Pre-market Approval Process.




14



---



##### Table of Contents







Clinical Trials.


Pervasive and continuing FDA regulation.




| |   |                                                                                                                                                                                                                                                                                                       
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Quality System regulation, which requires manufacturers to
    follow design, testing, control, documentation and other quality
    assurance procedures during the manufacturing process;                                                                                                            
|
| |  | Establishment Registration, which requires establishments
    involved in the production and distribution of medical devices,
    intended for commercial distribution in the U.S. to register
    with the FDA;                                                                                      
|
| |  | Medical Device Listing, which requires manufacturers to list the
    devices they have in commercial distribution with the FDA;                                                                                                                                                                       
|
| |  | Labeling regulations, which prohibit misbranded
    devices from entering the market, as well as prohibit the
    promotion of products for unapproved or off-label
    uses and impose other restrictions on labeling; and                                                                       
|
| |  | Medical Device Reporting regulations, which require that
    manufacturers report to the FDA if their device may have caused
    or contributed to a death or serious injury or malfunctioned in
    a way that would likely cause or contribute to a death or
    serious injury if it were to recur.





| |   |                                                                                              
| | - | ---------------------------------------------------------------------------------------------
| |  | fines, injunctions, and civil penalties;                                                     
|
| |  | mandatory recall or seizure of our products;                                                 
|
| |  | administrative detention or banning of our products;                                         
|
| |  | operating restrictions, partial suspension or total shutdown of
    production;              
|
| |  | refusing our request for 510(k) clearance or pre-market approval
    of new product versions;

15



---



##### Table of Contents





| |   |                                                                                   
| | - | ----------------------------------------------------------------------------------
| |  | revocation of 510(k) clearance or pre-market approvals
    previously granted; and
|
| |  | criminal penalties.                                                               

International Regulation.






Intellectual Property




16



---



##### Table of Contents









Employees




Foreign Operations




Available Information


10-K, 10-Q, 8-K


17



---



##### Table of Contents








|         |             
|-------- | ------------
|Item 1A. | Risk Factors



| |                                 
| | --------------------------------
| | Our stock price may be volatile.





| |   |                                                                                                                                                                             
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | actual or anticipated variations in quarterly operating results;                                                                                                            
|
| |  | changes in financial estimates or recommendations by securities
    analysts;                                                                                               
|
| |  | conditions or trends in medical devices and diagnostic
    cardiology products markets;                                                                                     
|
| |  | announcements by us or our competitors of significant customer
    wins or losses, gains or losses of distributors, technological
    innovations, new products or services;
|
| |  | announcements by us or our competitors of significant
    acquisitions, strategic partnerships, joint ventures or capital
    commitments;                                  
|
| |  | additions or departures of key personnel;                                                                                                                                   
|
| |  | sales of a large number of shares of our common stock;                                                                                                                      
|
| |  | adverse litigation;                                                                                                                                                         
|
| |  | unfavorable legislative or regulatory decisions; and                                                                                                                        
|
| |  | general market conditions.                                                                                                                                                  





| |                                                                                                                                   
| | ----------------------------------------------------------------------------------------------------------------------------------
| | The unpredictability of our quarterly revenues and
    operating results may cause the trading price of our stock to
    decrease.





| |   |                                                                                                                      
| | - | ---------------------------------------------------------------------------------------------------------------------
| |  | the impact of acquisitions, divestitures, strategic alliances,
    and other significant corporate events;           
|
| |  | changes in our ability to obtain products and product components
    that are manufactured for us by third parties;  
|
| |  | delays in the development or commercial introduction of new
    versions of products;                                
|
| |  | the ability to attain and maintain production volumes and
    quality levels for our products and product components;
|
| |  | effects of domestic and foreign economic conditions on our
    industry and/or customers;                            
|
| |  | changes in the demand for our products;                                                                              
|
| |  | varying sales cycles that can take up to a year or more;                                                             
|
| |  | changes in the mix of products we sell, which could affect our
    revenue levels as well as our gross margins;      
|
| |  | unpredictable budgeting cycles of our customers;                                                                     
|
| |  | delays in obtaining regulatory clearance for new versions of our
    products;                                       
|
| |  | increased product and price competition;                                                                             

18



---



##### Table of Contents





| |   |                                                                                                                    
| | - | -------------------------------------------------------------------------------------------------------------------
| |  | the impact of regulatory changes on the availability of
    third-party reimbursement to customers of our products;
|
| |  | the loss of key personnel;                                                                                         
|
| |  | the loss of key distributors or distribution companies; and                                                        
|
| |  | seasonality in the sales of our products.                                                                          



period-to




| |                                                                                                                                    
| | -----------------------------------------------------------------------------------------------------------------------------------
| | Failure to successfully develop and commercialize new
    versions of our products would cause our operating results to
    suffer.





| |   |                                                                                                                       
| | - | ----------------------------------------------------------------------------------------------------------------------
| |  | accurately assess customer needs;                                                                                     
|
| |  | develop products that are easy to use;                                                                                
|
| |  | minimize the time required to obtain, as well as the costs of,
    required regulatory clearance or approval;         
|
| |  | price competitively;                                                                                                  
|
| |  | manufacture and deliver on time;                                                                                      
|
| |  | accurately predict and control costs associated with
    manufacturing, installation, warranty and maintenance;       
|
| |  | manage customer acceptance and payment;                                                                               
|
| |  | limit demands by our customers for retrofits;                                                                         
|
| |  | access new interface standards needed for product connectivity;                                                       
|
| |  | anticipate and meet demands of our international customers for
    products featuring local language capabilities; and
|
| |  | anticipate and compete effectively with our competitors
    efforts.                                                 



19



---



##### Table of Contents





| |                                                                                                                                                                                                                 
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If we fail to maintain our relationships with our
    distribution or strategic partners or such organizations fail to
    successfully distribute our products, our sales and operating
    results may suffer.









| |                                                                                                                                                                                                                                                                                                                               
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If suppliers discontinue production of purchased
    components of our products, and we are unable to secure
    alternative sources for these components on a timely basis, our
    ability to ship products to our customers may be adversely
    affected, our revenues may decline and costs may increase as a
    result.





| |                                                                                                                                                           
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------
| | Inadequate levels of reimbursement from governmental or
    other third-party payers for procedures using our products may
    cause revenues to decrease.





| |                                                                                                                                                                                                                                                                      
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If we fail to obtain or maintain applicable regulatory
    clearances or approvals for our products, or if clearances or
    approvals are delayed, we will be unable to commercially
    distribute and market our products in the U.S. and other
    jurisdictions.





| |                                                                                                  
| | -------------------------------------------------------------------------------------------------
| | Our business is subject to intense competition, which may
    reduce the demand for our products.



20



---



##### Table of Contents







| |   |                                                                               
| | - | ------------------------------------------------------------------------------
| |  | greater financial and other resources;                                        
|
| |  | greater variety of products;                                                  
|
| |  | greater pricing flexibility;                                                  
|
| |  | more extensive technical capabilities;                                        
|
| |  | patent portfolios that may present an obstacle to our conduct of
    business;
|
| |  | stronger name recognition; and                                                
|
| |  | larger distribution networks.                                                 





| |                                                                                                                                                         
| | --------------------------------------------------------------------------------------------------------------------------------------------------------
| | If we do not maintain or grow revenues from our support
    services or consumables, our operating and financial results may
    be negatively impacted.





| |                                                                                                                                                                                                                                 
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our lack of customer purchase contracts and our limited
    order backlog make it difficult to predict sales and plan
    manufacturing requirements, which can lead to lower revenues,
    higher expenses and reduced margins.





| |   |                                                                                                                                                                                                                                                                 
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | if we overestimate our requirements we may be obligated to
    purchase more components or third-party products than is
    required;                                                                                                                           
|
| |  | if we underestimate our requirements, our third-party
    manufacturers and suppliers may have an inadequate product or
    product component inventory, which could interrupt manufacturing
    of our products and result in delays in shipments and revenues;

21



---



##### Table of Contents





| |   |                                                                                                                                                
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------
| |  | we may also experience shortages of product components from time
    to time, which also could delay the manufacturing of our
    products; and
|
| |  | over or under production can lead to higher expense, lower than
    anticipated revenues, and reduced margins.                                 



| |                                                                                                                                                                                                                         
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If market conditions cause us to reduce the selling price
    of our products, or our market share is negatively affected by
    the activities of our competitors, our margins and operating
    results will decrease.





| |   |                                                                                
| | - | -------------------------------------------------------------------------------
| |  | lengthening of buying or selling cycles;                                       
|
| |  | the introduction of competing products;                                        
|
| |  | price reductions by our competitors;                                           
|
| |  | development of more effective products by our competitors;                     
|
| |  | hospital budgetary constraints; and                                            
|
| |  | changes in the reimbursement policies of government and
    third-party payers.





| |                                                                                                                                                                               
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We are dependent upon licensed and purchased technology
    for some of our products, and we may not be able to renew these
    licenses or purchase agreements in the future.





| |                                                                               
| | ------------------------------------------------------------------------------
| | We are exposed to numerous risks associated with
    international operations.





| |   |                                                                                                 
| | - | ------------------------------------------------------------------------------------------------
| |  | political instability;                                                                          
|
| |  | economic instability and recessions;                                                            
|
| |  | exposure to currency fluctuations;                                                              
|
| |  | less favorable third-party reimbursement policies;                                              
|
| |  | longer payment cycles;                                                                          
|
| |  | difficulties of administering foreign operations generally;                                     
|
| |  | reduced protection for intellectual property rights;                                            
|
| |  | increased risk of exposure to terrorist activities;                                             
|
| |  | potentially adverse tax consequences; and                                                       
|
| |  | obligations to comply with a wide variety of foreign laws and
    other regulatory requirements.

22



---



##### Table of Contents







| |                                                                                                                                                           
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------
| | Charges to earnings resulting from the application of the
    purchase method of accounting may adversely affect the market
    value of our common stock.





| |                                                                                                                                                       
| | ------------------------------------------------------------------------------------------------------------------------------------------------------
| | If we are unable to retain our executive officers and hire
    and retain other key personnel, we may not be able to sustain or
    grow our business.





| |                                                                                                                                                                            
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Undetected product errors or defects could result in
    increased warranty costs, loss of revenues, product recalls,
    delayed market acceptance, and claims against us.





| |   |                                               
| | - | ----------------------------------------------
| |  | failure to achieve market acceptance;         
|
| |  | loss of customers, revenues, and market share;
|
| |  | diversion of development resources;           
|
| |  | increased service and warranty costs;         
|
| |  | legal actions by its customers; and           
|
| |  | increased insurance costs.                    





| |                                                                                             
| | --------------------------------------------------------------------------------------------
| | We may face product liability claims, which could cause
    our operating results to suffer.



23



---



##### Table of Contents





| |                                                                                                        
| | -------------------------------------------------------------------------------------------------------
| | Our technology may become obsolete, which could negatively
    impact our ability to sell our products.





| |                                                                                                             
| | ------------------------------------------------------------------------------------------------------------
| | Failure to adequately protect our intellectual property
    rights will likely cause our business to suffer.





| |   |                                                                                                                       
| | - | ----------------------------------------------------------------------------------------------------------------------
| |  | additional patents may not be issued to us;                                                                           
|
| |  | the scope of any existing or future patents may not exclude
    competitors or provide us with competitive advantages;
|
| |  | any of our patents may not be held valid and enforceable if
    challenged; or                                        
|
| |  | others may claim rights in or ownership to our patents and other
    proprietary rights.                              





| |                                                                                                                                                                                         
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our predecessors have been, and in the future we may be,
    involved in claims alleging infringement of intellectual
    property rights, which could be costly and time
    consuming.



24



---



##### Table of Contents









| |                                                                                                                                                           
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our reliance on a principal manufacturing facility may
    impair our ability to respond to natural disasters or other
    unforeseen catastrophic events.





| |                                                                                                                                
| | -------------------------------------------------------------------------------------------------------------------------------
| | We may make future acquisitions, which involve numerous
    risks that could impact our business and results of
    operations.





| |   |                                                                                                                                                               
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | difficulties in integrating the operations, technologies, and
    products of the acquired companies;                                                         
|
| |  | the risk of diverting managements attention from normal
    daily operations of the business;                                                                
|
| |  | potential difficulties in completing projects associated with
    in-process research and development;                                                        
|
| |  | risks of entering markets in which we have no or limited direct
    prior experience and where competitors in such markets have
    stronger market positions;
|
| |  | initial dependence on unfamiliar supply chains or relatively
    small supply partners;                                                                       
|
| |  | insufficient revenues to offset increased expenses associated
    with acquisitions;                                                                          
|
| |  | the risk that acquired lines of business may reduce or replace
    the sales of existing products; and                                                        
|
| |  | the potential loss of key employees of the acquired companies.                                                                                                



25



---



##### Table of Contents





| |                                                                                
| | -------------------------------------------------------------------------------
| | We may need additional capital to continue our acquisition
    growth strategy.





| |                                                                                                                                        
| | ---------------------------------------------------------------------------------------------------------------------------------------
| | If we fail to successfully enter into strategic alliances
    to generate growth, our operating results may be negatively
    affected.





| |                                                                                 
| | --------------------------------------------------------------------------------
| | Future issuances of our common stock could cause our stock
    price to decline.





| |                                                                                                                                                 
| | ------------------------------------------------------------------------------------------------------------------------------------------------
| | Compliance with changing regulation of corporate
    governance, public disclosure and accounting matters may result
    in additional expenses.





| |                                                                                                                                                            
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------
| | Future changes in the accounting treatment for employee
    stock options may cause adverse fluctuations and affect our
    reported results of operations.



26



---



##### Table of Contents







| |                                                                                                                                     
| | ------------------------------------------------------------------------------------------------------------------------------------
| | Our charter documents and Delaware law contain provisions
    that could make it more difficult for a third party to acquire
    us.





| |                                                                                                     
| | ----------------------------------------------------------------------------------------------------
| | Utilization of our deferred tax assets may be limited and
    is dependent on future taxable income.









| |                                                                                   
| | ----------------------------------------------------------------------------------
| | Our future financial results could be adversely impacted
    by asset impairments.



27



---



##### Table of Contents










|         |                          
|-------- | -------------------------
|Item 1B. | Unresolved Staff Comments








|        |           
|------- | ----------
|Item 2. | Properties












|        |                  
|------- | -----------------
|Item 3. | Legal Proceedings





28



---



##### Table of Contents









| |   |                                                                                   
| | - | ----------------------------------------------------------------------------------
| |  | Deborah Silver v. Cardiac Science, Inc.,
    et al., Case No. 1138-N;             
|
| |  | Lisa A. Weber v. Cardiac Science, Inc., et al.
    Case No. 1140-N;               
|
| |  | Suan Investments, Inc. v. Raymond W. Cohen,
    et al., Case No. 1148-N;          
|
| |  | David Shaev, et al. v. Cardiac Science, Inc.,
    et al., Case No. 1153-N;        
|
| |  | Irvin M. Chase, et al., v. Cardiac Science,
    Inc., et al., Case No. 1159-N; and
|
| |  | James Stellato v. Cardiac Science, Inc.,
    et al., Case No. 1162-N.             





| |   |                                                                              
| | - | -----------------------------------------------------------------------------
| |  | Albert Rosenfeld v. Cardiac Science, Inc.,
    et al. Case No. 05CC00057; and
|
| |  | Jerrold Schaffer v. Cardiac Science, Inc.,
    et al., Case No. 05CC00059.   

Oppenheim Pramerica Asset
Management v. Cardiac Science, Inc. et al.








29



---



##### Table of Contents












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






PART II







|        |                                                                                                                     
|------- | --------------------------------------------------------------------------------------------------------------------
|Item 5. | Market for Registrants Common Equity, Related
    Stockholder Matters and Issuer Purchases of Equity
    Securities





|            |                |             |   |       |     |  |   |       | 
|----------- | -------------- | ----------- | - | ----- | --- |  | - | ----- | 
|            |                | Stock Price |  
|            |                |             |  
|            |                | High        |   |       | Low | 
|            |                |             |   |       |     | 
|Fiscal 2004 |                |             |   |       |     |  |   |      
|            | First Quarter  |             | $ | 15.86 |     |  | $ | 10.20 | 
|            | Second Quarter |             |   | 19.17 |     |  |   | 12.04 | 
|            | Third Quarter  |             |   | 13.10 |     |  |   | 8.81  | 
|            | Fourth Quarter |             |   | 14.24 |     |  |   | 11.06 | 
|Fiscal 2005 |                |             |   |       |     |  |   |      
|            | First Quarter  |             | $ | 14.45 |     |  | $ | 10.07 | 
|            | Second Quarter |             |   | 11.02 |     |  |   | 9.00  | 
|            | Third Quarter  |             |   | 13.28 |     |  |   | 9.91  | 
|            | Fourth Quarter |             |   | 10.75 |     |  |   | 8.00  | 



30



---



##### Table of Contents








|        |                        
|------- | -----------------------
|Item 6. | Selected Financial Data



|                                                                                                                      |                                                                 |                                                 |                         |        |        |        |           |        |        |        |           |        |        |        |            |        |        |        |            |        |        |        |  
|--------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------- | ----------------------------------------------- | ----------------------- | ------ | ------ | ------ | --------- | ------ | ------ | ------ | --------- | ------ | ------ | ------ | ---------- | ------ | ------ | ------ | ---------- | ------ | ------ | ------ | -
|                                                                                                                      |                                                                 | Year Ended December 31,                         |                        
|                                                                                                                      |                                                                 |                                                 |                        
|                                                                                                                      |                                                                 | 2001                                            |                         |        | 2002   |        |           | 2003   |        |        | 2004      |        |        | 2005   |           
|                                                                                                                      |                                                                 |                                                 |                         |        |        |        |           |        |        |        |           |        |        |        |           
|                                                                                                                      |                                                                 | (In thousands, except share and per share data) |                        
|Consolidated Statement of Operations Data(1):                                                                         |                                                                 |                                                 |                         |        |        |        |           |        |        |        |           |        |        |        |            |        |        |        |            |       
|Revenues                                                                                                              |                                                                 | $                                               | 42,874                  |        |        | $      | 46,496    |        |        | $      | 84,396    |        |        | $      | 89,603     |        |        | $      | 106,650    |       
|Cost of revenues                                                                                                      |                                                                 |                                                 | 26,020                  |        |        |        | 27,883    |        |        |        | 51,131    |        |        |        | 50,302     |        |        |        | 59,794     |       
|                                                                                                                      |                                                                 |                                                 |                         |        |        |        |           |        |        |        |           |        |        |        |           
|                                                                                                                      |                                                                 |                                                 | Gross profit            |        |        | 16,854 |           |        |        | 18,613 |           |        |        | 33,265 |            |        |        | 39,301 |            |        |        | 46,856 |  
|                                                                                                                      |                                                                 |                                                 |                         |        |        |        |           |        |        |        |           |        |        |        |           
|Operating Expenses:                                                                                                   |                                                                 |                                                 |                         |        |        |        |           |        |        |        |           |        |        |        |            |        |        |        |            |       
|                                                                                                                      | Research and development                                        |                                                 |                         | 5,459  |        |        |           | 5,126  |        |        |           | 8,086  |        |        |            | 7,397  |        |        |            | 9,353  |       
|                                                                                                                      | Write off acquired in-process research and development          |                                                 |                         |       |        |        |           |       |        |        |           | 1,290  |        |        |            |       |        |        |            |       |       
|                                                                                                                      | Sales and marketing                                             |                                                 |                         | 9,210  |        |        |           | 9,974  |        |        |           | 17,669 |        |        |            | 18,378 |        |        |            | 24,957 |       
|                                                                                                                      | General and administrative (excluding stock-based compensation) |                                                 |                         | 4,913  |        |        |           | 5,273  |        |        |           | 7,669  |        |        |            | 8,275  |        |        |            | 15,068 |       
|                                                                                                                      | Stock-based compensation(2)                                     |                                                 |                         | 2,664  |        |        |           | 111    |        |        |           | 74     |        |        |            | 73     |        |        |            | 58     |       
|                                                                                                                      |                                                                 |                                                 |                         |        |        |        |           |        |        |        |           |        |        |        |           
|                                                                                                                      |                                                                 | Total operating expenses                        |                         |        | 22,246 |        |           |        | 20,484 |        |           |        | 34,788 |        |            |        | 34,123 |        |            |        | 49,436 |       
|                                                                                                                      |                                                                 |                                                 |                         |        |        |        |           |        |        |        |           |        |        |        |           
|                                                                                                                      |                                                                 |                                                 | Operating income (loss) |        |        | (5,392 | )         |        |        | (1,871 | )         |        |        | (1,523 | )          |        |        | 5,178  |            |        |        | (2,580 | )
|                                                                                                                      |                                                                 |                                                 |                         |        |        |        |           |        |        |        |           |        |        |        |           
|Other Income (Expense):                                                                                               |                                                                 |                                                 |                         |        |        |        |           |        |        |        |           |        |        |        |            |        |        |        |            |       
|                                                                                                                      | Interest income (expense), net                                  |                                                 |                         | (939   | )      |        |           | 330    |        |        |           | (212   | )      |        |            | (70    | )      |        |            | 325    |       
|                                                                                                                      | Write-off note receivable and accrued interest                  |                                                 |                         | (1,106 | )      |        |           |       |        |        |           |       |        |        |            |       |        |        |            |       |       
|                                                                                                                      | Other income (expense), net                                     |                                                 |                         | 74     |        |        |           | (6     | )      |        |           | (11    | )      |        |            | 1,031  |        |        |            | (487   | )     
|                                                                                                                      |                                                                 |                                                 |                         |        |        |        |           |        |        |        |           |        |        |        |           
|                                                                                                                      |                                                                 | Total other income (expense)                    |                         |        | (1,971 | )      |           |        | 324    |        |           |        | (223   | )      |            |        | 961    |        |            |        | (162   | )     
|                                                                                                                      |                                                                 |                                                 |                         |        |        |        |           |        |        |        |           |        |        |        |           
|Income (loss) from continuing operations before income taxes and
    minority interest in loss of consolidated entity |                                                                 |                                                 | (7,363                  | )      |        |        | (1,547    | )      |        |        | (1,746    | )      |        |        | 6,139      |        |        |        | (2,742     | )     
|                                                                                                                      | Income tax benefit (provision)                                  |                                                 |                         | 205    |        |        |           | 192    |        |        |           | (62    | )      |        |            | 8,890  |        |        |            | 1,473  |       
|                                                                                                                      |                                                                 |                                                 |                         |        |        |        |           |        |        |        |           |        |        |        |           
|Income (loss) from continuing operations before minority
    interest in loss of consolidated entity                  |                                                                 |                                                 | (7,158                  | )      |        |        | (1,355    | )      |        |        | (1,808    | )      |        |        | 15,029     |        |        |        | (1,269     | )     
|Minority interest in loss of consolidated entity                                                                      |                                                                 |                                                 |                        |        |        |        |          |        |        |        | 25        |        |        |        | 39         |        |        |        | 31         |       
|                                                                                                                      |                                                                 |                                                 |                         |        |        |        |           |        |        |        |           |        |        |        |           
|Income (loss) from continuing operations                                                                              |                                                                 |                                                 | (7,158                  | )      |        |        | (1,355    | )      |        |        | (1,783    | )      |        |        | 15,068     |        |        |        | (1,238     | )     
|Discontinued operations:                                                                                              |                                                                 |                                                 |                         |        |        |        |           |        |        |        |           |        |        |        |            |        |        |        |            |       
|                                                                                                                      | Loss on sale, net                                               |                                                 |                         | (831   | )      |        |           |       |        |        |           |       |        |        |            |       |        |        |            |       |       
|                                                                                                                      |                                                                 |                                                 |                         |        |        |        |           |        |        |        |           |        |        |        |           
|                                                                                                                      | Net income (loss)                                               |                                                 | $                       | (7,989 | )      |        | $         | (1,355 | )      |        | $         | (1,783 | )      |        | $          | 15,068 |        |        | $          | (1,238 | )     
|                                                                                                                      |                                                                 |                                                 |                         |        |        |        |           |        |        |        |           |        |        |        |           
|Basic income (loss) from continuing operations per share(3)                                                           |                                                                 | $                                               | (14.73                  | )      |        | $      | (0.22     | )      |        | $      | (0.19     | )      |        | $      | 1.47       |        |        | $      | (0.08      | )     
|                                                                                                                      |                                                                 |                                                 |                         |        |        |        |           |        |        |        |           |        |        |        |           
|Diluted income (loss) from continuing operations per share(3)                                                         |                                                                 | $                                               | (14.73                  | )      |        | $      | (0.22     | )      |        | $      | (0.19     | )      |        | $      | 1.39       |        |        | $      | (0.08      | )     
|                                                                                                                      |                                                                 |                                                 |                         |        |        |        |           |        |        |        |           |        |        |        |           
|Shares used in computing basic income (loss) from continuing
    operations per share(3)                              |                                                                 |                                                 | 485,992                 |        |        |        | 6,088,081 |        |        |        | 9,376,205 |        |        |        | 10,236,838 |        |        |        | 14,695,261 |       
|Shares used in computing diluted income (loss) from continuing
    operations per share(3)                            |                                                                 |                                                 | 485,992                 |        |        |        | 6,088,081 |        |        |        | 9,376,205 |        |        |        | 10,814,680 |        |        |        | 14,695,261 |       

31



---



##### Table of Contents



|                                           |                                                |                                                 |   |      |      |  |   |        |   |  |      |         |   |      |   |        |   |  |   |         |  
|------------------------------------------ | ---------------------------------------------- | ----------------------------------------------- | - | ---- | ---- |  | - | ------ | - |  | ---- | ------- | - | ---- | - | ------ | - |  | - | ------- | -
|                                           |                                                | Year Ended December 31,                         |  
|                                           |                                                |                                                 |  
|                                           |                                                | 2001                                            |   |      | 2002 |  |   | 2003   |   |  | 2004 |         |   | 2005 |  
|                                           |                                                |                                                 |   |      |      |  |   |        |   |  |      |         |   |      |  
|                                           |                                                | (In thousands, except share and per share data) |  
|Consolidated Statement of Cash Flows Data: |                                                |                                                 |   |      |      |  |   |        |   |  |      |         |   |      |   |        |   |  |   |        
|                                           | Cash flows from (used in) operating activities |                                                 | $ | 719  |      |  | $ | (1,369 | ) |  | $    | 173     |   |      | $ | 6,259  |   |  | $ | (850    | )
|                                           |                                                |                                                 |   |      |      |  |   |        |   |  |      |         |   |      |  
|                                           | Cash flows used in investing activities        |                                                 | $ | (280 | )    |  | $ | (3,369 | ) |  | $    | (19,597 | ) |      | $ | (41    | ) |  | $ | (18,053 | )
|                                           |                                                |                                                 |   |      |      |  |   |        |   |  |      |         |   |      |  
|                                           | Cash flows from (used in) financing activities |                                                 | $ | (644 | )    |  | $ | 23,902 |   |  | $    | 227     |   |      | $ | 15,499 |   |  | $ | 547     |  
|                                           |                                                |                                                 |   |      |      |  |   |        |   |  |      |         |   |      |  

|                                 |                            |                |   |        |      |  |   |        |  |  |      |        |  |      |   |        |  |  |   |         | 
|-------------------------------- | -------------------------- | -------------- | - | ------ | ---- |  | - | ------ |  |  | ---- | ------ |  | ---- | - | ------ |  |  | - | ------- | 
|                                 |                            | December 31,   |  
|                                 |                            |                |  
|                                 |                            | 2001           |   |        | 2002 |  |   | 2003   |  |  | 2004 |        |  | 2005 |  
|                                 |                            |                |   |        |      |  |   |        |  |  |      |        |  |      |  
|                                 |                            | (In thousands) |  
|Consolidated Balance Sheet Data: |                            |                |   |        |      |  |   |        |  |  |      |        |  |      |   |        |  |  |   |        
|                                 | Cash and cash equivalents  |                | $ | 218    |      |  | $ | 19,382 |  |  | $    | 185    |  |      | $ | 21,902 |  |  | $ | 3,546   | 
|                                 | Total assets               |                |   | 17,466 |      |  |   | 42,050 |  |  |      | 48,317 |  |      |   | 77,175 |  |  |   | 248,557 | 
|                                 | Current liabilities        |                |   | 16,578 |      |  |   | 14,378 |  |  |      | 20,807 |  |      |   | 18,682 |  |  |   | 33,832  | 
|                                 | Long-term liabilities      |                |   | 831    |      |  |   | 363    |  |  |      | 1,180  |  |      |   |       |  |  |   | 1,806   | 
|                                 | Total shareholders equity |                | $ | 57     |      |  | $ | 27,309 |  |  | $    | 26,132 |  |      | $ | 58,334 |  |  | $ | 212,791 | 






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The acquisition of Burdick, Inc. in January 2003 and the
    business combination of Quinton and CSI in September 2005
    materially affect the comparability of information contained in
    this table (See Note 2 to the Consolidated Financial
    Statements).                                                                                                                                                                                                      
|   
|(2) | Stock-based compensation charges, though reported separately in
    the statement of operations, are attributed to general and
    administrative expenses.                                                                                                                                                                                                                                                                                                               
|   
|(3) | Shares prior to September 1, 2005 have been retroactively
    adjusted to reflect the conversion of Quinton shares into
    Cardiac Science Corporation shares at a ratio of 0.77184895
    Cardiac Science Corporation shares for each Quinton share. See
    Note 1 to the consolidated financial statements for a
    reconciliation of the denominators used in computing basic and
    diluted loss per share from continuing operations for 2003, 2004
    and 2005.

32



---



##### Table of Contents








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

You should read the following discussion and analysis in
conjunction with our consolidated financial statements and
related notes included elsewhere in this report. Except for
historical information, the following discussion contains
forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. All statements other
than statements of historical fact, including future results of
operations or financial position, made in this Annual Report on
Form 10-K are
forward looking. The words believe,
expect, intend, anticipate,
variations of such words, and similar expressions identify
forward-looking statements, but their absence does not mean that
the statement is not forward-looking. These forward-looking
statements reflect managements current expectations and
involve risks and uncertainties. Our actual results could differ
materially from results that may be anticipated by such
forward-looking statements. The principal factors that could
cause or contribute to such differences include, but are not
limited to, those discussed in the section entitled Risk
Factors and those discussed elsewhere in this report.
Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date of
this report. We undertake no obligation to revise any
forward-looking statements to reflect events or circumstances
that may subsequently arise. Readers are urged to review and
consider carefully the various disclosures made in this report
and in our other filings made with the SEC that attempt to
advise interested parties of the risks and factors that may
affect our business, prospects and results of operations.


Business Overview










33



---



##### Table of Contents



Critical Accounting
Estimates and Policies






| |                              
| | -----------------------------
| | Critical Accounting Estimates

and


Purchase Price Allocations.






Accounts Receivable.


Inventories.


34



---



##### Table of Contents





Goodwill.




Intangible Assets.






Valuation of Long-Lived Assets.


35



---



##### Table of Contents





Warranty.


Deferred Tax Assets and Income Taxes.


Litigation and Other Contingencies.


Restructuring Costs.


Software Revenue Recognition. 97-2


Sales Returns.


Investment in Unconsolidated Entity.


36



---



##### Table of Contents







| |                             
| | ----------------------------
| | Critical Accounting Policies

Segment Reporting.


Revenue Recognition.










37



---



##### Table of Contents



00-21




Accounting for Stock-Based Compensation.




Results of Operations




| |                         
| | ------------------------
| | Overview of 2005 Results







| |   |                                                                                                                                                                                                                                                                                     
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | We successfully completed a significant merger between Quinton
    and CSI and completed substantially all integration activities
    on schedule and as planned.                                                                                                                   
|
| |  | We laid the groundwork for future growth by consolidating all of
    our administrative and customer service functions in Washington
    State and consolidating all of our U.S. manufacturing into
    a single location in Wisconsin.                                             
|
| |  | We released updates to our product lines in a number of key
    areas, including a web-enabled version of our Pyramis cardiology
    management system.                                                                                                                             
|
| |  | We obtained approval from the Japanese Ministry of Health for a
    biphasic private-labeled version of our Powerheart G-3 and,
    consequently, were able to regain sales momentum for our AED
    products in Japan, through Nihon Kohden, our distribution
    partner in Japan.
|
| |  | We brought on board several new executives in an effort to
    continue building a strong team that will enable our future
    growth.                                                                                                                                              

38



---



##### Table of Contents





| |                
| | ---------------
| | Looking Forward







| |         
| | --------
| | Revenues







|                            |              |              |        |      |              |  |            |              |  |   |              |            |   |              |       |    |  |   |         |      |  
|--------------------------- | ------------ | ------------ | ------ | ---- | ------------ |  | ---------- | ------------ |  | - | ------------ | ---------- | - | ------------ | ----- | -- |  | - | ------- | ---- | -
|                            |              | Year Ended   |        |      |              |  | Year Ended |              |  |   |              | Year Ended |  
|                            |              | December 31, |        |      | % Change     |  |            | December 31, |  |   | % Change     |            |   | December 31, |      
|                            |              | 2003         |        |      | 2003 to 2004 |  |            | 2004         |  |   | 2004 to 2005 |            |   | 2005         |      
|                            |              |              |        |      |              |  |            |              |  |   |              |            |   |              |      
|Cardiac monitoring products |              | $            | 71,557 |      |              |  | 8.1        | %            |  | $ | 77,373       |            |   |              | (4.0  | )% |  | $ | 74,278  |     
|                            | % of revenue |              |        | 84.8 | %            |  |            |              |  |   |              | 86.4       | % |              |       |    |  |   |         | 69.6 | %
|Defibrillation products     |              |              |       |      |              |  |           |              |  |   |             |            |   |              | 100.0 | %  |  |   | 19,182  |     
|                            | % of revenue |              |        |     |              |  |            |              |  |   |              |           |   |              |       |    |  |   |         | 18.0 | %
|Service                     |              |              | 12,839 |      |              |  | (4.7       | )%           |  |   | 12,230       |            |   |              | 7.8   | %  |  |   | 13,190  |     
|                            | % of revenue |              |        | 15.2 | %            |  |            |              |  |   |              | 13.6       | % |              |       |    |  |   |         | 12.4 | %
|                            |              |              |        |      |              |  |            |              |  |   |              |            |   |              |      
|Total revenues              |              | $            | 84,396 |      |              |  | 6.2        | %            |  | $ | 89,603       |            |   |              | 19.0  | %  |  | $ | 106,650 |     
|                            |              |              |        |      |              |  |            |              |  |   |              |            |   |              |      



| |                                                                      
| | ---------------------------------------------------------------------
| | Comparison of Years Ended December 31, 2005 and
    December 31, 2004



39



---



##### Table of Contents









| |                                                                      
| | ---------------------------------------------------------------------
| | Comparison of Years Ended December 31, 2004 and
    December 31, 2003









| |             
| | ------------
| | Gross Profit





|                   |                       |              |        |      |              |  |            |              |  |   |              |            |   |              |      |    |  |   |        |      |  
|------------------ | --------------------- | ------------ | ------ | ---- | ------------ |  | ---------- | ------------ |  | - | ------------ | ---------- | - | ------------ | ---- | -- |  | - | ------ | ---- | -
|                   |                       | Year Ended   |        |      |              |  | Year Ended |              |  |   |              | Year Ended |  
|                   |                       | December 31, |        |      | % Change     |  |            | December 31, |  |   | % Change     |            |   | December 31, |     
|                   |                       | 2003         |        |      | 2003 to 2004 |  |            | 2004         |  |   | 2004 to 2005 |            |   | 2005         |     
|                   |                       |              |        |      |              |  |            |              |  |   |              |            |   |              |     
|Products           |                       | $            | 27,602 |      |              |  | 25.0       | %            |  | $ | 34,511       |            |   |              | 22.5 | %  |  | $ | 42,265 |     
|                   | % of products revenue |              |        | 38.6 | %            |  |            |              |  |   |              | 44.6       | % |              |      |    |  |   |        | 45.2 | %
|Service            |                       |              | 5,663  |      |              |  | (15.4      | )%           |  |   | 4,790        |            |   |              | (4.2 | )% |  |   | 4,591  |     
|                   | % of service          |              |        | 44.1 | %            |  |            |              |  |   |              | 39.2       | % |              |      |    |  |   |        | 34.8 | %
|                   |                       |              |        |      |              |  |            |              |  |   |              |            |   |              |     
|Total gross profit |                       | $            | 33,265 |      |              |  | 18.1       | %            |  | $ | 39,301       |            |   |              | 19.2 | %  |  | $ | 46,856 |     
|                   |                       |              |        |      |              |  |            |              |  |   |              |            |   |              |     
|                   | % of total revenue    |              |        | 39.4 | %            |  |            |              |  |   |              | 43.9       | % |              |      |    |  |   |        | 43.9 | %

40



---



##### Table of Contents





| |                                                                      
| | ---------------------------------------------------------------------
| | Comparison of Years Ended December 31, 2005 and
    December 31, 2004









| |                                                                      
| | ---------------------------------------------------------------------
| | Comparison of Years Ended December 31, 2004 and
    December 31, 2003





41



---



##### Table of Contents









| |                   
| | ------------------
| | Operating Expenses











|                                                          |                    |                |        |      |              |  |            |              |  |   |              |            |   |              |       |    |  |   |        |      |  
|--------------------------------------------------------- | ------------------ | -------------- | ------ | ---- | ------------ |  | ---------- | ------------ |  | - | ------------ | ---------- | - | ------------ | ----- | -- |  | - | ------ | ---- | -
|                                                          |                    | Year Ended     |        |      |              |  | Year Ended |              |  |   |              | Year Ended |  
|                                                          |                    | December 31,   |        |      | % Change     |  |            | December 31, |  |   | % Change     |            |   | December 31, |      
|                                                          |                    | 2003           |        |      | 2003 to 2004 |  |            | 2004         |  |   | 2004 to 2005 |            |   | 2005         |      
|                                                          |                    |                |        |      |              |  |            |              |  |   |              |            |   |              |      
|                                                          |                    | (In thousands) |       
|Research and development                                  |                    | $              | 8,086  |      |              |  | (8.5       | )%           |  | $ | 7,397        |            |   |              | 26.4  | %  |  | $ | 9,353  |     
|                                                          | % of total revenue |                |        | 9.6  | %            |  |            |              |  |   |              | 8.3        | % |              |       |    |  |   |        | 8.8  | %
|Write off of acquired in-process research and development |                    |                | 1,290  |      |              |  | (100.0     | )%           |  |   |             |            |   |              |      |    |  |   |       |     
|                                                          | % of total revenue |                |        | 1.5  | %            |  |            |              |  |   |              |           |   |              |       |    |  |   |        |     |  
|Sales and marketing                                       |                    |                | 17,669 |      |              |  | 4.0        | %            |  |   | 18,378       |            |   |              | 35.8  | %  |  |   | 24,957 |     
|                                                          | % of total revenue |                |        | 20.9 | %            |  |            |              |  |   |              | 20.5       | % |              |       |    |  |   |        | 23.4 | %
|General and administrative                                |                    |                | 7,669  |      |              |  | 7.9        | %            |  |   | 8,275        |            |   |              | 82.1  | %  |  |   | 15,068 |     
|                                                          | % of total revenue |                |        | 9.1  | %            |  |            |              |  |   |              | 9.2        | % |              |       |    |  |   |        | 14.1 | %
|Stock-based compensation                                  |                    |                | 74     |      |              |  | (1.4       | )%           |  |   | 73           |            |   |              | (20.5 | )% |  |   | 58     |     
|                                                          | % of total revenue |                |        | 0.1  | %            |  |            |              |  |   |              | 0.1        | % |              |       |    |  |   |        | 0.1  | %
|                                                          |                    |                |        |      |              |  |            |              |  |   |              |            |   |              |      
|Total operating expenses                                  |                    | $              | 34,788 |      |              |  | (1.9       | )%           |  | $ | 34,123       |            |   |              | 44.9  | %  |  | $ | 49,436 |     
|                                                          |                    |                |        |      |              |  |            |              |  |   |              |            |   |              |      
|                                                          | % of total revenue |                |        | 41.2 | %            |  |            |              |  |   |              | 38.1       | % |              |       |    |  |   |        | 46.4 | %



| |                                  
| | ---------------------------------
| | Research and Development Expenses



42



---



##### Table of Contents







| |                                                                       
| | ----------------------------------------------------------------------
| | Write off of Acquired in-Process Research and Development
    Expenses





| |                             
| | ----------------------------
| | Sales and Marketing Expenses







| |                                    
| | -----------------------------------
| | General and Administrative Expenses





43



---



##### Table of Contents





| |                         
| | ------------------------
| | Stock-Based Compensation







| |                       
| | ----------------------
| | Other Income (Expense)







| |                             
| | ----------------------------
| | Income Tax Benefit (Expense)

|                             |  |              |        |   |              |   |       |              |  |   |        |   
|---------------------------- |  | ------------ | ------ | - | ------------ | - | ----- | ------------ |  | - | ------ | --
|                             |  | Year Ended   |        |   | Year Ended   |   |       | Year Ended   | 
|                             |  | December 31, |        |   | December 31, |   |       | December 31, | 
|                             |  | 2003         |        |   | 2004         |   |       | 2005         | 
|                             |  |              |        |   |              |   |       |              | 
|Income (loss) before taxes   |  | $            | (1,746 | ) |              | $ | 6,139 |              |  | $ | (2,742 | ) 
|Income tax benefit (expense) |  |              | (62    | ) |              |   | 8,890 |              |  |   | 1,473  |   
|Effective tax rate           |  |              | 3.6    | % |              |   | 144.8 | %            |  |   | (53.7  | )%



44



---



##### Table of Contents









Liquidity and Capital Resources












45



---



##### Table of Contents







| |                        
| | -----------------------
| | Contractual Obligations



|                        |                      |                                    |   |           |        |  |   |           |        |  |           |       |       |         |   |     |     |  |   |   |   | 
|----------------------- | -------------------- | ---------------------------------- | - | --------- | ------ |  | - | --------- | ------ |  | --------- | ----- | ----- | ------- | - | --- | --- |  | - | - | - | 
|                        |                      |                                    |   | Less than |        |  |   |           |        |  | After    
|                        |                      | Total                              |   |           | 1 year |  |   | 1-3 Years |        |  | 3-5 Years |       |       | 5 Years
|                        |                      |                                    |   |           |        |  |   |           |        |  |           |       |       |        
|Contractual Obligations |                      |                                    |   |           |        |  |   |           |        |  |           |       |       |         |   |     |     |  |   |  
|                        | Operating leases     |                                    | $ | 8,366     |        |  | $ | 3,154     |        |  | $         | 4,901 |       |         | $ | 311 |     |  | $ |  |  
|                        | Purchase obligations |                                    |   | 20,597    |        |  |   | 20,597    |        |  |           |      |       |         |   |    |     |  |   |  |  
|                        |                      |                                    |   |           |        |  |   |           |        |  |           |       |       |         |  
|                        |                      | Total contractual cash obligations |   | $         | 28,963 |  |   | $         | 23,751 |  |           | $     | 4,901 |         |   | $   | 311 |  |   | $ |  | 
|                        |                      |                                    |   |           |        |  |   |           |        |  |           |       |       |         |  



|                             |                |                              |   |           |        |  |   |           |     |  |           |    |         |  |   |   |   |  |   |   |   | 
|---------------------------- | -------------- | ---------------------------- | - | --------- | ------ |  | - | --------- | --- |  | --------- | -- | ------- |  | - | - | - |  | - | - | - | 
|                             |                |                              |   | Less than |        |  |   |           |     |  | After    
|                             |                | Total                        |   |           | 1 Year |  |   | 1-3 Years |     |  | 3-5 Years |    | 5 Years
|                             |                |                              |   |           |        |  |   |           |     |  |           |    |        
|Other Commercial Commitments |                |                              |   |           |        |  |   |           |     |  |           |    |         |  |   |   |   |  |   |  
|                             | Line of credit |                              | $ | 238       |        |  | $ | 144       |     |  | $         | 94 |         |  | $ |  |   |  | $ |  |  
|                             | Guarantees     |                              |   | 418       |        |  |   | 418       |     |  |           |   |         |  |   |  |   |  |   |  |  
|                             |                |                              |   |           |        |  |   |           |     |  |           |    |         |  |  
|                             |                | Total commercial commitments |   | $         | 656    |  |   | $         | 562 |  |           | $  | 94      |  |   | $ |  |  |   | $ |  | 
|                             |                |                              |   |           |        |  |   |           |     |  |           |    |         |  |  







46



---



##### Table of Contents





| |                       
| | ----------------------
| | Public Equity Offering





| |                                            
| | -------------------------------------------
| | Sale of Hemodynamic Monitoring Product Line










|         |                                                               
|-------- | --------------------------------------------------------------
|Item 7A. | Quantitative and Qualitative Disclosures About Market
    Risk



47



---



##### Table of Contents








|        |                                            
|------- | -------------------------------------------
|Item 8. | Financial Statements and Supplementary Data

CARDIAC SCIENCE CORPORATION


AND SUBSIDIARIES


INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


|                                                                                               |  |   
|---------------------------------------------------------------------------------------------- |  | --
|Managements Report on Internal
    Control Over Financial Reporting                           |  | 49
|Report of Independent Registered Public
    Accounting Firm                                    |  | 50
|Report of Independent Registered Public
    Accounting Firm                                    |  | 51
|Consolidated Balance Sheets                                                                    |  | 52
|Consolidated Statements of Operations                                                          |  | 53
|Consolidated Statements of Changes in
    Shareholders Equity and Comprehensive Income (Loss) |  | 54
|Consolidated Statements of Cash Flows                                                          |  | 55
|Notes to Consolidated Financial
    Statements                                                 |  | 56
|Report of Independent Registered Public
    Accounting Firm                                    |  | 91
|Schedule II  Valuation and
    Qualifying Accounts                                            |  | 92

48



---



##### Table of Contents






MANAGEMENTS REPORT ON INTERNAL CONTROL OVER FINANCIAL
REPORTING


13a-15(f). Internal Control  Integrated Framework




49



---



##### Table of Contents






REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM






Managements Report on Internal Control
Over Financial Reporting Internal Control  Integrated Framework








Internal Control  Integrated Framework Internal Control  Integrated Framework






| |                 
| | ----------------
| | /s/     KPMG LLP





50



---



##### Table of Contents






REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM












Internal Control 
Integrated Framework




| |                 
| | ----------------
| | /s/     KPMG LLP





51



---



##### Table of Contents



CARDIAC SCIENCE CORPORATION AND SUBSIDIARIES





CONSOLIDATED BALANCE SHEETS


|                                                                                                                 |                                                                                                                                                                                |                                            |       |        |        |  |         |         |         | 
|---------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ------------------------------------------ | ----- | ------ | ------ |  | ------- | ------- | ------- | 
|                                                                                                                 |                                                                                                                                                                                | December 31,                               |      
|                                                                                                                 |                                                                                                                                                                                |                                            |      
|                                                                                                                 |                                                                                                                                                                                | 2004                                       |       |        | 2005   | 
|                                                                                                                 |                                                                                                                                                                                |                                            |       |        |        | 
|                                                                                                                 |                                                                                                                                                                                | (In thousands,                             |      
|                                                                                                                 |                                                                                                                                                                                | except share and                           |      
|                                                                                                                 |                                                                                                                                                                                | per share data)                            |      
|ASSETS                                                                                                          
|Current Assets:                                                                                                  |                                                                                                                                                                                |                                            |       |        |        |  |         |        
|                                                                                                                 | Cash and cash equivalents                                                                                                                                                      |                                            | $     | 21,902 |        |  | $       | 3,546   |        
|                                                                                                                 | Marketable equity securities                                                                                                                                                   |                                            |       | 646    |        |  |         |        |        
|                                                                                                                 | Accounts receivable, net of allowance for doubtful accounts of
    $655 and $3,455, respectively                                                                               |                                            |       | 13,649 |        |  |         | 25,738  |        
|                                                                                                                 | Inventories                                                                                                                                                                    |                                            |       | 11,047 |        |  |         | 22,052  |        
|                                                                                                                 | Deferred income taxes                                                                                                                                                          |                                            |       | 5,542  |        |  |         | 12,115  |        
|                                                                                                                 | Prepaid expenses and other current assets                                                                                                                                      |                                            |       | 790    |        |  |         | 2,511   |        
|                                                                                                                 |                                                                                                                                                                                |                                            |       |        |        | 
|                                                                                                                 |                                                                                                                                                                                | Total current assets                       |       |        | 53,576 |  |         |         | 65,962  | 
|Other assets                                                                                                     |                                                                                                                                                                                |                                            |      |        |        |  | 100     |        
|Machinery and equipment, net of accumulated depreciation and
    amortization of $5,976 and $7,565, respectively |                                                                                                                                                                                |                                            | 4,314 |        |        |  | 7,631   |        
|Deferred income taxes                                                                                            |                                                                                                                                                                                |                                            | 3,594 |        |        |  | 27,849  |        
|Intangible assets, net                                                                                           |                                                                                                                                                                                |                                            | 5,619 |        |        |  | 35,338  |        
|Investment in unconsolidated entities                                                                            |                                                                                                                                                                                |                                            | 1,000 |        |        |  | 462     |        
|Goodwill                                                                                                         |                                                                                                                                                                                |                                            | 9,072 |        |        |  | 111,215 |        
|                                                                                                                 |                                                                                                                                                                                |                                            |       |        |        | 
|                                                                                                                 |                                                                                                                                                                                | Total assets                               |       | $      | 77,175 |  |         | $       | 248,557 | 
|                                                                                                                 |                                                                                                                                                                                |                                            |       |        |        | 
|                                                                                                                
|LIABILITIES AND SHAREHOLDERS EQUITY                                                                            
|Current Liabilities:                                                                                             |                                                                                                                                                                                |                                            |       |        |        |  |         |        
|                                                                                                                 | Accounts payable                                                                                                                                                               |                                            | $     | 5,615  |        |  | $       | 11,642  |        
|                                                                                                                 | Accrued liabilities                                                                                                                                                            |                                            |       | 6,220  |        |  |         | 11,918  |        
|                                                                                                                 | Warranty liability                                                                                                                                                             |                                            |       | 2,093  |        |  |         | 2,348   |        
|                                                                                                                 | Deferred revenue                                                                                                                                                               |                                            |       | 4,754  |        |  |         | 7,924   |        
|                                                                                                                 |                                                                                                                                                                                |                                            |       |        |        | 
|                                                                                                                 |                                                                                                                                                                                | Total current liabilities                  |       |        | 18,682 |  |         |         | 33,832  | 
|Other liabilities                                                                                                |                                                                                                                                                                                |                                            |      |        |        |  | 1,806   |        
|                                                                                                                 |                                                                                                                                                                                |                                            |       |        |        | 
|                                                                                                                 |                                                                                                                                                                                | Total liabilities                          |       |        | 18,682 |  |         |         | 35,638  | 
|                                                                                                                 |                                                                                                                                                                                |                                            |       |        |        | 
|Minority interest in consolidated entity                                                                         |                                                                                                                                                                                |                                            | 159   |        |        |  | 128     |        
|Shareholders Equity:                                                                                            |                                                                                                                                                                                |                                            |       |        |        |  |         |        
|                                                                                                                 | Preferred stock (10,000,000 shares authorized),
    $0.001 par value, no shares issued or outstanding as of
    December 31, 2004 and 2005                                     |                                            |       |       |        |  |         |        |        
|                                                                                                                 | Common stock (65,000,000 shares authorized),
    $0.001 par value, 10,850,031 and 22,410,344 shares
    issued and outstanding at December 31, 2004 and 2005,
    respectively |                                            |       | 62,656 |        |  |         | 218,335 |        
|                                                                                                                 | Deferred stock-based compensation                                                                                                                                              |                                            |       | (33    | )      |  |         |        |        
|                                                                                                                 | Accumulated other comprehensive income                                                                                                                                         |                                            |       | 22     |        |  |         | 5       |        
|                                                                                                                 | Accumulated deficit                                                                                                                                                            |                                            |       | (4,311 | )      |  |         | (5,549  | )      
|                                                                                                                 |                                                                                                                                                                                |                                            |       |        |        | 
|                                                                                                                 |                                                                                                                                                                                | Total shareholders equity                 |       |        | 58,334 |  |         |         | 212,791 | 
|                                                                                                                 |                                                                                                                                                                                |                                            |       |        |        | 
|                                                                                                                 |                                                                                                                                                                                | Total liabilities and shareholders equity |       | $      | 77,175 |  |         | $       | 248,557 | 
|                                                                                                                 |                                                                                                                                                                                |                                            |       |        |        | 



52



---



##### Table of Contents



CARDIAC SCIENCE CORPORATION AND SUBSIDIARIES





CONSOLIDATED STATEMENTS OF OPERATIONS


|                                                                                           |                                                                |                                                 |        |           |        |   |        |            |        |  |        |            |         |  
|------------------------------------------------------------------------------------------ | -------------------------------------------------------------- | ----------------------------------------------- | ------ | --------- | ------ | - | ------ | ---------- | ------ |  | ------ | ---------- | ------- | -
|                                                                                           |                                                                | Year Ended December 31,                         |       
|                                                                                           |                                                                |                                                 |       
|                                                                                           |                                                                | 2003                                            |        |           | 2004   |   |        | 2005       |       
|                                                                                           |                                                                |                                                 |        |           |        |   |        |            |       
|                                                                                           |                                                                | (In thousands, except share and per share data) |       
|Revenues:                                                                                  |                                                                |                                                 |        |           |        |   |        |            |        |  |        |           
|                                                                                           | Products                                                       |                                                 | $      | 71,557    |        |   | $      | 77,373     |        |  | $      | 93,460     |        
|                                                                                           | Service                                                        |                                                 |        | 12,839    |        |   |        | 12,230     |        |  |        | 13,190     |        
|                                                                                           |                                                                |                                                 |        |           |        |   |        |            |       
|                                                                                           |                                                                | Total revenues                                  |        |           | 84,396 |   |        |            | 89,603 |  |        |            | 106,650 |  
|                                                                                           |                                                                |                                                 |        |           |        |   |        |            |       
|Cost of Revenues:                                                                          |                                                                |                                                 |        |           |        |   |        |            |        |  |        |           
|                                                                                           | Products                                                       |                                                 |        | 43,955    |        |   |        | 42,862     |        |  |        | 51,195     |        
|                                                                                           | Service                                                        |                                                 |        | 7,176     |        |   |        | 7,440      |        |  |        | 8,599      |        
|                                                                                           |                                                                |                                                 |        |           |        |   |        |            |       
|                                                                                           |                                                                | Total cost of revenues                          |        |           | 51,131 |   |        |            | 50,302 |  |        |            | 59,794  |  
|                                                                                           |                                                                |                                                 |        |           |        |   |        |            |       
|                                                                                           |                                                                | Gross profit                                    |        |           | 33,265 |   |        |            | 39,301 |  |        |            | 46,856  |  
|                                                                                           |                                                                |                                                 |        |           |        |   |        |            |       
|Operating Expenses:                                                                        |                                                                |                                                 |        |           |        |   |        |            |        |  |        |           
|                                                                                           | Research and development                                       |                                                 |        | 8,086     |        |   |        | 7,397      |        |  |        | 9,353      |        
|                                                                                           | Write off acquired in-process research and development         |                                                 |        | 1,290     |        |   |        |           |        |  |        |           |        
|                                                                                           | Sales and marketing                                            |                                                 |        | 17,669    |        |   |        | 18,378     |        |  |        | 24,957     |        
|                                                                                           | General and administrative, excluding stock-based compensation |                                                 |        | 7,669     |        |   |        | 8,275      |        |  |        | 15,068     |        
|                                                                                           | Stock-based compensation                                       |                                                 |        | 74        |        |   |        | 73         |        |  |        | 58         |        
|                                                                                           |                                                                |                                                 |        |           |        |   |        |            |       
|                                                                                           |                                                                | Total operating expenses                        |        |           | 34,788 |   |        |            | 34,123 |  |        |            | 49,436  |  
|                                                                                           |                                                                |                                                 |        |           |        |   |        |            |       
|                                                                                           |                                                                | Operating income (loss)                         |        |           | (1,523 | ) |        |            | 5,178  |  |        |            | (2,580  | )
|                                                                                           |                                                                |                                                 |        |           |        |   |        |            |       
|Other Income (Expense):                                                                    |                                                                |                                                 |        |           |        |   |        |            |        |  |        |           
|                                                                                           | Interest income                                                |                                                 |        | 45        |        |   |        | 162        |        |  |        | 455        |        
|                                                                                           | Interest expense                                               |                                                 |        | (257      | )      |   |        | (232       | )      |  |        | (130       | )      
|                                                                                           | Other income (expense), net                                    |                                                 |        | (11       | )      |   |        | 1,031      |        |  |        | (487       | )      
|                                                                                           |                                                                |                                                 |        |           |        |   |        |            |       
|                                                                                           |                                                                | Total other income (expense)                    |        |           | (223   | ) |        |            | 961    |  |        |            | (162    | )
|                                                                                           |                                                                |                                                 |        |           |        |   |        |            |       
|Income (loss) before income taxes and minority interest in loss
    of consolidated entity |                                                                |                                                 | (1,746 | )         |        |   | 6,139  |            |        |  | (2,742 | )         
|                                                                                           | Income tax benefit (expense)                                   |                                                 |        | (62       | )      |   |        | 8,890      |        |  |        | 1,473      |        
|                                                                                           |                                                                |                                                 |        |           |        |   |        |            |       
|Income (loss) before minority interest in loss of consolidated
    entity                  |                                                                |                                                 | (1,808 | )         |        |   | 15,029 |            |        |  | (1,269 | )         
|                                                                                           | Minority interest in loss of consolidated entity               |                                                 |        | 25        |        |   |        | 39         |        |  |        | 31         |        
|                                                                                           |                                                                |                                                 |        |           |        |   |        |            |       
|                                                                                           | Net income (loss)                                              |                                                 | $      | (1,783    | )      |   | $      | 15,068     |        |  | $      | (1,238     | )      
|                                                                                           |                                                                |                                                 |        |           |        |   |        |            |       
|                                                                                           | Net income (loss) per share  basic                            |                                                 | $      | (0.19     | )      |   | $      | 1.47       |        |  | $      | (0.08      | )      
|                                                                                           | Net income (loss) per share  diluted                          |                                                 | $      | (0.19     | )      |   | $      | 1.39       |        |  | $      | (0.08      | )      
|                                                                                           | Weighted average shares outstanding  basic                    |                                                 |        | 9,376,205 |        |   |        | 10,236,838 |        |  |        | 14,695,261 |        
|                                                                                           | Weighted average shares outstanding  diluted                  |                                                 |        | 9,376,205 |        |   |        | 10,814,680 |        |  |        | 14,695,261 |        



53



---



##### Table of Contents



CARDIAC SCIENCE CORPORATION AND SUBSIDIARIES





CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY AND


COMPREHENSIVE INCOME (LOSS)


|                           |                                                                                            |                                                                                                   |         |         |             |             |            |               |   |   |             |    |   |         |    |   |       |   |         |   |        |   |         |         |        |  
|-------------------------- | ------------------------------------------------------------------------------------------ | ------------------------------------------------------------------------------------------------- | ------- | ------- | ----------- | ----------- | ---------- | ------------- | - | - | ----------- | -- | - | ------- | -- | - | ----- | - | ------- | - | ------ | - | ------- | ------- | ------ | -
|                           |                                                                                            |                                                                                                   |         |         |             | Accumulated |            |               |   |   |            
|                           |                                                                                            | Common Stock                                                                                      |         |         | Deferred    |             |            | Other         |   |   |             |    |  
|                           |                                                                                            |                                                                                                   |         |         | Stock-based |             |            | Comprehensive |   |   | Accumulated |    |   |        
|                           |                                                                                            | Amount                                                                                            |         |         | Shares      |             |            | Compensation  |   |   | Income      |    |   | Deficit |    |   | Total |  
|                           |                                                                                            |                                                                                                   |         |         |             |             |            |               |   |   |             |    |   |         |    |   |       |  
|                           |                                                                                            | (In thousands, except share data)                                                                 |        
|Balance, December 31, 2002 |                                                                                            | $                                                                                                 | 45,085  |         |             |             | 9,300,113  |               |   | $ | (180        | )  |   | $       |   |   |       | $ | (17,596 | ) |        | $ | 27,309  |        
|                           | Issuance of common stock upon exercise of stock options                                    |                                                                                                   |         | 81      |             |             |            | 63,201        |   |   |             |   |   |         |    |  |       |   |         |  |        |   |         | 81      |       
|                           | Amortization of deferred stock compensation                                                |                                                                                                   |         |         |             |             |            |              |   |   |             | 74 |   |         |    |  |       |   |         |  |        |   |         | 74      |       
|                           | Proceeds from issuance of stock under employee stock purchase
    plan                     |                                                                                                   |         | 451     |             |             |            | 64,747        |   |   |             |   |   |         |    |  |       |   |         |  |        |   |         | 451     |       
|                           | Comprehensive loss:                                                                        |                                                                                                   |         |         |             |             |            |               |   |   |             |    |   |         |    |   |       |   |         |   |        |   |         |         |       
|                           |                                                                                            | Net loss                                                                                          |         |         |            |             |            |               |  |   |             |    |  |         |    |   |      |   |         |   | (1,783 | ) |         |         | (1,783 | )
|                           | Total comprehensive loss                                                                   |                                                                                                   |         |         |             |             |            |               |   |   |             |    |   |         |    |   |       |   |         |   |        |   |         | (1,783  | )     
|                           |                                                                                            |                                                                                                   |         |         |             |             |            |               |   |   |             |    |   |         |    |   |       |  
|Balance, December 31, 2003 |                                                                                            |                                                                                                   | 45,617  |         |             |             | 9,428,061  |               |   |   | (106        | )  |   |         |   |   |       |   | (19,379 | ) |        |   | 26,132  |        
|                           | Issuance of common stock upon exercise of stock options                                    |                                                                                                   |         | 359     |             |             |            | 121,422       |   |   |             |   |   |         |    |  |       |   |         |  |        |   |         | 359     |       
|                           | Amortization of deferred stock compensation                                                |                                                                                                   |         |        |             |             |            |              |   |   |             | 73 |   |         |    |  |       |   |         |  |        |   |         | 73      |       
|                           | Proceeds from issuance of common stock, net of issuance costs                              |                                                                                                   |         | 15,451  |             |             |            | 1,239,571     |   |   |             |   |   |         |    |  |       |   |         |  |        |   |         | 15,451  |       
|                           | Proceeds from issuance of stock under employee stock purchase
    plan                     |                                                                                                   |         | 531     |             |             |            | 60,977        |   |   |             |   |   |         |    |  |       |   |         |  |        |   |         | 531     |       
|                           | Tax benefit recognized for stock options                                                   |                                                                                                   |         | 698     |             |             |            |              |   |   |             |   |   |         |    |  |       |   |         |  |        |   |         | 698     |       
|                           | Comprehensive income:                                                                      |                                                                                                   |         |         |             |             |            |               |   |   |             |    |   |         |    |   |       |   |         |   |        |   |         |         |       
|                           |                                                                                            | Net income                                                                                        |         |         |            |             |            |               |  |   |             |    |  |         |    |   |      |   |         |   | 15,068 |   |         |         | 15,068 |  
|                           |                                                                                            | Unrealized gain on available-for-sale securities, net of income
    tax effect of $14             |         |         |            |             |            |               |  |   |             |    |  |         |    |   | 22    |   |         |   |       |   |         |         | 22     |  
|                           | Total comprehensive income                                                                 |                                                                                                   |         |         |             |             |            |               |   |   |             |    |   |         |    |   |       |   |         |   |        |   |         | 15,090  |       
|                           |                                                                                            |                                                                                                   |         |         |             |             |            |               |   |   |             |    |   |         |    |   |       |  
|Balance, December 31, 2004 |                                                                                            |                                                                                                   | 62,656  |         |             |             | 10,850,031 |               |   |   | (33         | )  |   |         | 22 |   |       |   | (4,311  | ) |        |   | 58,334  |        
|                           | Issuance of common stock in connection with the merger with CSI,
    net of issuance costs |                                                                                                   |         | 154,885 |             |             |            | 11,467,753    |   |   |             |   |   |         |    |  |       |   |         |  |        |   |         | 154,885 |       
|                           | Issuance of common stock upon exercise of stock options                                    |                                                                                                   |         | 181     |             |             |            | 33,146        |   |   |             |   |   |         |    |  |       |   |         |  |        |   |         | 181     |       
|                           | Amortization of deferred stock compensation                                                |                                                                                                   |         |        |             |             |            |              |   |   |             | 33 |   |         |    |  |       |   |         |  |        |   |         | 33      |       
|                           | Proceeds from issuance of stock under employee stock purchase
    plan                     |                                                                                                   |         | 538     |             |             |            | 59,387        |   |   |             |   |   |         |    |  |       |   |         |  |        |   |         | 538     |       
|                           | Stock awards                                                                               |                                                                                                   |         | 25      |             |             |            | 463           |   |   |             |   |   |         |    |  |       |   |         |  |        |   |         | 25      |       
|                           | Tax benefit recognized for stock options                                                   |                                                                                                   |         | 50      |             |             |            |              |   |   |             |   |   |         |    |  |       |   |         |  |        |   |         | 50      |       
|                           | Fractional shares refunded in stock split                                                  |                                                                                                   |         |        |             |             |            | (436          | ) |   |             |   |   |         |    |  |       |   |         |  |        |   |         |        |       
|                           | Comprehensive loss:                                                                        |                                                                                                   |         |         |             |             |            |               |   |   |             |    |   |         |    |   |       |   |         |   |        |   |         |         |       
|                           |                                                                                            | Net loss                                                                                          |         |         |            |             |            |               |  |   |             |    |  |         |    |   |      |   |         |   | (1,238 | ) |         |         | (1,238 | )
|                           |                                                                                            | Unrealized loss on available-for-sale securities, net of income
    tax effect of $8              |         |         |            |             |            |               |  |   |             |    |  |         |    |   | (13   | ) |         |   |       |   |         |         | (13    | )
|                           |                                                                                            | Reclassification adjustment for gain recognized in net income,
    net of income tax effect of $6 |         |         |            |             |            |               |  |   |             |    |  |         |    |   | (9    | ) |         |   |       |   |         |         | (9     | )
|                           |                                                                                            | Foreign currency translation adjustments                                                          |         |         |            |             |            |               |  |   |             |    |  |         |    |   | 5     |   |         |   |       |   |         |         | 5      |  
|                           | Total comprehensive loss                                                                   |                                                                                                   |         |         |             |             |            |               |   |   |             |    |   |         |    |   |       |   |         |   |        |   |         | (1,255  | )     
|                           |                                                                                            |                                                                                                   |         |         |             |             |            |               |   |   |             |    |   |         |    |   |       |  
|Balance, December 31, 2005 |                                                                                            | $                                                                                                 | 218,335 |         |             |             | 22,410,344 |               |   | $ |            |    |   | $       | 5  |   |       | $ | (5,549  | ) |        | $ | 212,791 |        
|                           |                                                                                            |                                                                                                   |         |         |             |             |            |               |   |   |             |    |   |         |    |   |       |  



54



---



##### Table of Contents



CARDIAC SCIENCE CORPORATION AND SUBSIDIARIES





CONSOLIDATED STATEMENTS OF CASH FLOWS


|                                                                            |                                                                                                                  |                                                                                                         |                                                                                                 |                                                    |       |        |         |        |        |        |         |         |        |         |         |  
|--------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------- | -------------------------------------------------- | ----- | ------ | ------- | ------ | ------ | ------ | ------- | ------- | ------ | ------- | ------- | -
|                                                                            |                                                                                                                  | Year Ended December 31,                                                                                 |                                                                                                
|                                                                            |                                                                                                                  |                                                                                                         |                                                                                                
|                                                                            |                                                                                                                  | 2003                                                                                                    |                                                                                                 |                                                    | 2004  |        |         | 2005   |       
|                                                                            |                                                                                                                  |                                                                                                         |                                                                                                 |                                                    |       |        |         |        |       
|                                                                            |                                                                                                                  | (In thousands)                                                                                          |                                                                                                
|Operating Activities:                                                       |                                                                                                                  |                                                                                                         |                                                                                                 |                                                    |       |        |         |        |        |        |         |        
|                                                                            | Net income (loss)                                                                                                |                                                                                                         | $                                                                                               | (1,783                                             | )     |        | $       | 15,068 |        |        | $       | (1,238  | )     
|                                                                            | Adjustments to reconcile net income (loss) to net cash from
    (used in) operating activities:                  |                                                                                                         |                                                                                                 |                                                    |       |        |         |        |        |        |         |         |       
|                                                                            |                                                                                                                  | Depreciation and amortization                                                                           |                                                                                                 |                                                    | 1,858 |        |         |        | 1,574  |        |         |         | 3,212  |        
|                                                                            |                                                                                                                  | Loss on disposal of machinery and equipment                                                             |                                                                                                 |                                                    | 365   |        |         |        | 20     |        |         |         | 6      |        
|                                                                            |                                                                                                                  | Stock-based compensation                                                                                |                                                                                                 |                                                    | 74    |        |         |        | 73     |        |         |         | 58     |        
|                                                                            |                                                                                                                  | Gain on marketable equity securities                                                                    |                                                                                                 |                                                    |      |        |         |        | (610   | )      |         |         | (15    | )      
|                                                                            |                                                                                                                  | Write off of purchased in-process research and development                                              |                                                                                                 |                                                    | 1,290 |        |         |        |       |        |         |         |       |        
|                                                                            |                                                                                                                  | Minority interest in loss of consolidated entity                                                        |                                                                                                 |                                                    | (25   | )      |         |        | (39    | )      |         |         | (31    | )      
|                                                                            |                                                                                                                  | Deferred income taxes                                                                                   |                                                                                                 |                                                    | 24    |        |         |        | (9,014 | )      |         |         | (1,565 | )      
|                                                                            |                                                                                                                  | Interest income, putable warrants                                                                       |                                                                                                 |                                                    | (32   | )      |         |        |       |        |         |         |       |        
|                                                                            |                                                                                                                  | Gain on sale of hemodynamic monitoring business                                                         |                                                                                                 |                                                    |      |        |         |        | (633   | )      |         |         |       |        
|                                                                            |                                                                                                                  | Loss on disposal of technology                                                                          |                                                                                                 |                                                    |      |        |         |        |       |        |         |         | 270    |        
|                                                                            |                                                                                                                  | Loss in value of investment in unconsolidated entity                                                    |                                                                                                 |                                                    |      |        |         |        |       |        |         |         | 916    |        
|                                                                            |                                                                                                                  | Changes in operating assets and liabilities, net of business
    acquired and product line disposed of: |                                                                                                 |                                                    |       |        |         |        |        |        |         |         |        |        
|                                                                            |                                                                                                                  |                                                                                                         | Accounts receivable                                                                             |                                                    |       | (1,298 | )       |        |        | (1,169 | )       |         |        | (5,034  | )      
|                                                                            |                                                                                                                  |                                                                                                         | Inventories                                                                                     |                                                    |       | 1,543  |         |        |        | 775    |         |         |        | 2,334   |        
|                                                                            |                                                                                                                  |                                                                                                         | Prepaid expenses and other assets                                                               |                                                    |       | 227    |         |        |        | (51    | )       |         |        | (118    | )      
|                                                                            |                                                                                                                  |                                                                                                         | Accounts payable                                                                                |                                                    |       | (1,318 | )       |        |        | (568   | )       |         |        | (2,742  | )      
|                                                                            |                                                                                                                  |                                                                                                         | Accrued liabilities                                                                             |                                                    |       | (504   | )       |        |        | 332    |         |         |        | 1,055   |        
|                                                                            |                                                                                                                  |                                                                                                         | Warranty liability                                                                              |                                                    |       | (46    | )       |        |        | 49     |         |         |        | (208    | )      
|                                                                            |                                                                                                                  |                                                                                                         | Deferred revenue                                                                                |                                                    |       | (202   | )       |        |        | 452    |         |         |        | 2,250   |        
|                                                                            |                                                                                                                  |                                                                                                         |                                                                                                 |                                                    |       |        |         |        |       
|                                                                            |                                                                                                                  |                                                                                                         |                                                                                                 | Net cash flows from (used in) operating activities |       |        | 173     |        |        |        | 6,259   |         |        |         | (850    | )
|                                                                            |                                                                                                                  |                                                                                                         |                                                                                                 |                                                    |       |        |         |        |       
|Investing Activities:                                                       |                                                                                                                  |                                                                                                         |                                                                                                 |                                                    |       |        |         |        |        |        |         |        
|                                                                            | Purchases of machinery and equipment                                                                             |                                                                                                         |                                                                                                 | (1,345                                             | )     |        |         | (666   | )      |        |         | (1,187  | )     
|                                                                            | Purchase of Cardiac Science, Inc., net of cash acquired                                                          |                                                                                                         |                                                                                                 |                                                   |       |        |         |       |        |        |         | (17,491 | )     
|                                                                            | Proceeds from sale marketable equity securities                                                                  |                                                                                                         |                                                                                                 |                                                   |       |        |         |       |        |        |         | 625     |       
|                                                                            | Purchase of technology                                                                                           |                                                                                                         |                                                                                                 |                                                   |       |        |         | (125   | )      |        |         |        |       
|                                                                            | Proceeds from collection of a note receivable in connection with
    sale of hemodynamic monitoring product line |                                                                                                         |                                                                                                 |                                                   |       |        |         | 750    |        |        |         |        |       
|                                                                            | Purchase of Burdick, Inc., net of cash acquired                                                                  |                                                                                                         |                                                                                                 | (19,385                                            | )     |        |         |       |        |        |         |        |       
|                                                                            | Proceeds from sale of hemodynamic monitoring product line                                                        |                                                                                                         |                                                                                                 | 1,000                                              |       |        |         |       |        |        |         |        |       
|                                                                            | Proceeds from sales of machinery and equipment                                                                   |                                                                                                         |                                                                                                 | 133                                                |       |        |         |       |        |        |         |        |       
|                                                                            |                                                                                                                  |                                                                                                         |                                                                                                 |                                                    |       |        |         |        |       
|                                                                            |                                                                                                                  |                                                                                                         |                                                                                                 | Net cash flows used in investing activities        |       |        | (19,597 | )      |        |        | (41     | )       |        |         | (18,053 | )
|                                                                            |                                                                                                                  |                                                                                                         |                                                                                                 |                                                    |       |        |         |        |       
|Financing Activities:                                                       |                                                                                                                  |                                                                                                         |                                                                                                 |                                                    |       |        |         |        |        |        |         |        
|                                                                            | Borrowings (repayments) on bank line of credit, net                                                              |                                                                                                         |                                                                                                 | 354                                                |       |        |         | (354   | )      |        |         |        |       
|                                                                            | Proceeds from issuance of common stock, net of issuance costs                                                    |                                                                                                         |                                                                                                 |                                                   |       |        |         | 15,451 |        |        |         | (172    | )     
|                                                                            | Payment of note payable in connection with purchase of technology                                                |                                                                                                         |                                                                                                 |                                                   |       |        |         | (125   | )      |        |         |        |       
|                                                                            | Payments of long term debt                                                                                       |                                                                                                         |                                                                                                 | (363                                               | )     |        |         | (363   | )      |        |         |        |       
|                                                                            | Redemption of putable warrants                                                                                   |                                                                                                         |                                                                                                 | (296                                               | )     |        |         |       |        |        |         |        |       
|                                                                            | Proceeds from exercise of stock options and issuance of shares
    under employee stock purchase plan            |                                                                                                         |                                                                                                 | 532                                                |       |        |         | 890    |        |        |         | 719     |       
|                                                                            |                                                                                                                  |                                                                                                         |                                                                                                 |                                                    |       |        |         |        |       
|                                                                            |                                                                                                                  |                                                                                                         |                                                                                                 | Net cash flows from financing activities           |       |        | 227     |        |        |        | 15,499  |         |        |         | 547     |  
|                                                                            |                                                                                                                  |                                                                                                         |                                                                                                 |                                                    |       |        |         |        |       
|Net change in cash and cash equivalents                                     |                                                                                                                  |                                                                                                         | (19,197                                                                                         | )                                                  |       |        | 21,717  |        |        |        | (18,356 | )      
|Cash and cash equivalents, beginning of year                                |                                                                                                                  |                                                                                                         | 19,382                                                                                          |                                                    |       |        | 185     |        |        |        | 21,902  |        
|                                                                            |                                                                                                                  |                                                                                                         |                                                                                                 |                                                    |       |        |         |        |       
|Cash and cash equivalents, end of year                                      |                                                                                                                  | $                                                                                                       | 185                                                                                             |                                                    |       | $      | 21,902  |        |        | $      | 3,546   |        
|                                                                            |                                                                                                                  |                                                                                                         |                                                                                                 |                                                    |       |        |         |        |       
|Supplemental disclosures of cash flow information:                          |                                                                                                                  |                                                                                                         |                                                                                                 |                                                    |       |        |         |        |        |        |         |        
|                                                                            |                                                                                                                  |                                                                                                         | Cash paid (refunds received) for income taxes                                                   |                                                    | $     | (206   | )       |        | $      | 150    |         |         | $      | 251     |        
|                                                                            |                                                                                                                  |                                                                                                         | Cash paid for interest                                                                          |                                                    |       | 264    |         |        |        | 117    |         |         |        | 34      |        
|Supplemental disclosures of noncash investing and financing
    activities: |                                                                                                                  |                                                                                                         |                                                                                                 |                                                    |       |        |         |        |        |        |         |        
|                                                                            |                                                                                                                  |                                                                                                         | Note issued in connection with purchase of technology                                           |                                                    | $     |       |         |        | $      | 125    |         |         | $      |        |        
|                                                                            |                                                                                                                  |                                                                                                         | Note receivable recorded in connection with the sale of
    hemodynamic monitoring product line |                                                    |       | 728    |         |        |        |       |         |         |        |        |        
|                                                                            |                                                                                                                  |                                                                                                         | Shares issued in connection with merger with Cardiac Science,
    Inc.                          |                                                    |       |       |         |        |        |       |         |         |        | 155,057 |        



55



---



##### Table of Contents



CARDIAC SCIENCE CORPORATION AND SUBSIDIARIES





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS




|   |                                           
|-- | ------------------------------------------
|1. | Summary of Significant Accounting Policies



| |                                         
| | ----------------------------------------
| | Organization and Description of Business







| |                      
| | ---------------------
| | Basis of Presentation





| |                 
| | ----------------
| | Use of Estimates



56



---



##### Table of Contents



CARDIAC SCIENCE CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)






| |                 
| | ----------------
| | Cash Equivalents





| |                             
| | ----------------------------
| | Marketable Equity Securities

held-to




| |                    
| | -------------------
| | Accounts Receivable





| |            
| | -----------
| | Inventories





| |                        
| | -----------------------
| | Machinery and Equipment





| |                  
| | -----------------
| | Intangible Assets



57



---



##### Table of Contents



CARDIAC SCIENCE CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)










| |         
| | --------
| | Goodwill







| |                  
| | -----------------
| | Long-Lived Assets



58



---



##### Table of Contents



CARDIAC SCIENCE CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)






| |                    
| | -------------------
| | Purchase Accounting





| |             
| | ------------
| | Income Taxes





| |                    
| | -------------------
| | Revenue Recognition

00-21,






59



---



##### Table of Contents



CARDIAC SCIENCE CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)










00-21






60



---



##### Table of Contents



CARDIAC SCIENCE CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)








| |                           
| | --------------------------
| | Software Development Costs





| |             
| | ------------
| | Export Sales





| |                             
| | ----------------------------
| | Foreign Currency Translation







| |                  
| | -----------------
| | Advertising Costs





| |         
| | --------
| | Warranty





61



---



##### Table of Contents



CARDIAC SCIENCE CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)






| |                               
| | ------------------------------
| | Research and Development Costs





| |                     
| | --------------------
| | Comprehensive Income





| |                                                            
| | -----------------------------------------------------------
| | Financial Instruments and Concentrations of Credit
    Risk







| |                                        
| | ---------------------------------------
| | Accounting for Stock-Based Compensation



62



---



##### Table of Contents



CARDIAC SCIENCE CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)




|                                                                                                                                                                         |  |      |        |   |      |   |        |      |  |   |        |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ---- | ------ | - | ---- | - | ------ | ---- |  | - | ------ | -
|                                                                                                                                                                         |  | 2003 |        |   | 2004 |   |        | 2005 | 
|                                                                                                                                                                         |  |      |        |   |      |   |        |      | 
|Net income (loss)  as reported                                                                                                                                          |  | $    | (1,783 | ) |      | $ | 15,068 |      |  | $ | (1,238 | )
|Add back: Stock-based employee compensation expense included in
    reported income (loss), net of related tax effects                                                   |  |      | 74     |   |      |   | 73     |      |  |   | 58     |  
|Deduct: Total stock-based employee compensation expense
    determined under fair value based method for all awards, net of
    related tax effects of $0, $376 and $926 |  |      | (1,286 | ) |      |   | (1,737 | )    |  |   | (3,673 | )
|                                                                                                                                                                         |  |      |        |   |      |   |        |      | 
|Net income (loss)  pro forma                                                                                                                                            |  | $    | (2,995 | ) |      | $ | 13,404 |      |  | $ | (4,853 | )
|                                                                                                                                                                         |  |      |        |   |      |   |        |      | 
|Net income (loss) per share, basic  as reported                                                                                                                         |  | $    | (0.19  | ) |      | $ | 1.47   |      |  | $ | (0.08  | )
|Net income (loss) per share, basic  pro forma                                                                                                                           |  | $    | (0.32  | ) |      | $ | 1.31   |      |  | $ | (0.33  | )
|Net income (loss) per share, diluted  as reported                                                                                                                       |  | $    | (0.19  | ) |      | $ | 1.39   |      |  | $ | (0.08  | )
|Net income (loss) per share, diluted  pro forma                                                                                                                         |  | $    | (0.32  | ) |      | $ | 1.28   |      |  | $ | (0.33  | )



|                                                          |                                                          |      |           |           |      |  |            |            |  |  |            |            | 
|--------------------------------------------------------- | -------------------------------------------------------- | ---- | --------- | --------- | ---- |  | ---------- | ---------- |  |  | ---------- | ---------- | 
|                                                          |                                                          | 2003 |           |           | 2004 |  |            | 2005       | 
|                                                          |                                                          |      |           |           |      |  |            |            | 
|Denominator:                                              |                                                          |      |           |           |      |  |            |            |  |  |            |           
|                                                          | Weighted average shares outstanding                      |      |           | 9,376,205 |      |  |            | 10,236,838 |  |  |            | 14,695,261 | 
|                                                          | Pro forma incremental shares from employee stock options |      |           |          |      |  |            | 274,621    |  |  |            |           | 
|                                                          |                                                          |      |           |           |      |  |            |            | 
|Pro forma weighted average shares for diluted calculation |                                                          |      | 9,376,205 |           |      |  | 10,511,459 |            |  |  | 14,695,261 |           
|                                                          |                                                          |      |           |           |      |  |            |            | 



|                                         |  |  |  |  |  |      |  |  |  |   |      |  
|---------------------------------------- |  |  |  |  |  | ---- |  |  |  | - | ---- | -
|1997 Plan (from date of merger with CSI) |  |  |  |  |  | 2005 | 
|                                         |  |  |  |  |  |      | 
|Volatility                               |  |  |  |  |  |      |  |  |  |   | 59.0 | %
|Risk-free interest rate                  |  |  |  |  |  |      |  |  |  |   | 4.5  | %
|Expected lives (years)                   |  |  |  |  |  |      |  |  |  |   | 6.25 |  
|Expected dividend yield                  |  |  |  |  |  |      |  |  |  |   |     |  
|Fair value of options granted            |  |  |  |  |  |      |  |  |  | $ | 5.45 |  

|                              |  |      |      |   |      |   |      |      |  |   |      |  
|----------------------------- |  | ---- | ---- | - | ---- | - | ---- | ---- |  | - | ---- | -
|2002 Plan                     |  | 2003 |      |   | 2004 |   |      | 2005 | 
|                              |  |      |      |   |      |   |      |      | 
|Volatility                    |  |      | 85.0 | % |      |   | 70.0 | %    |  |   | 59.4 | %
|Risk-free interest rate       |  |      | 3.5  | % |      |   | 3.8  | %    |  |   | 4.5  | %
|Expected lives (years)        |  |      | 7.0  |   |      |   | 7.0  |      |  |   | 6.25 |  
|Expected dividend yield       |  |      |     |   |      |   |     |      |  |   |     |  
|Fair value of options granted |  | $    | 6.58 |   |      | $ | 8.29 |      |  | $ | 5.76 |  

63



---



##### Table of Contents



CARDIAC SCIENCE CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)


|                                             |  |      |      |   |      |   |      |      |  |   |      |  
|-------------------------------------------- |  | ---- | ---- | - | ---- | - | ---- | ---- |  | - | ---- | -
|ESPP Plan                                    |  | 2003 |      |   | 2004 |   |      | 2005 | 
|                                             |  |      |      |   |      |   |      |      | 
|Volatility                                   |  |      | 85.0 | % |      |   | 70.0 | %    |  |   | 64.6 | %
|Risk-free interest rate                      |  |      | 2.0  | % |      |   | 2.0  | %    |  |   | 2.7  | %
|Expected lives (years)                       |  |      | 0.75 |   |      |   | 0.5  |      |  |   | 0.5  |  
|Expected dividend yield                      |  |      |     |   |      |   |     |      |  |   |     |  
|Fair value of employee stock purchase rights |  | $    | 2.50 |   |      | $ | 3.29 |      |  | $ | 4.44 |  



| |                            
| | ---------------------------
| | Net Income (Loss) Per Share





|                                                |                                                |      |           |           |      |  |            |            |  |  |            |            |  
|----------------------------------------------- | ---------------------------------------------- | ---- | --------- | --------- | ---- |  | ---------- | ---------- |  |  | ---------- | ---------- | -
|                                                |                                                | 2003 |           |           | 2004 |  |            | 2005       | 
|                                                |                                                |      |           |           |      |  |            |            | 
|Numerator:                                      |                                                |      |           |           |      |  |            |            |  |  |            |           
|                                                | Net income (loss)                              |      | $         | (1,783    | )    |  | $          | 15,068     |  |  | $          | (1,238     | )
|                                                |                                                |      |           |           |      |  |            |            | 
|Denominator:                                    |                                                |      |           |           |      |  |            |            |  |  |            |           
|                                                | Weighted average shares outstanding            |      |           | 9,376,205 |      |  |            | 10,236,838 |  |  |            | 14,695,261 |  
|                                                | Incremental shares from employee stock options |      |           |          |      |  |            | 577,842    |  |  |            |           |  
|                                                |                                                |      |           |           |      |  |            |            | 
|Weighted average shares for diluted calculation |                                                |      | 9,376,205 |           |      |  | 10,814,680 |            |  |  | 14,695,261 |           
|                                                |                                                |      |           |           |      |  |            |            | 





| |               
| | --------------
| | Concentrations



|         |  |      |    |   |      |  |     |      |  |  |     |  
|-------- |  | ---- | -- | - | ---- |  | --- | ---- |  |  | --- | -
|         |  | 2003 |    |   | 2004 |  |     | 2005 | 
|         |  |      |    |   |      |  |     |      | 
|Vendor 1 |  |      | 12 | % |      |  | 18  | %    |  |  | 17  | %
|Vendor 2 |  |      | 10 | % |      |  | <10 | %    |  |  | <10 | %





64



---



##### Table of Contents



CARDIAC SCIENCE CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)




| |                  
| | -----------------
| | Segment Reporting









|                            |  |      |        |  |      |   |        |      |  |   |         | 
|--------------------------- |  | ---- | ------ |  | ---- | - | ------ | ---- |  | - | ------- | 
|                            |  | 2003 |        |  | 2004 |   |        | 2005 | 
|                            |  |      |        |  |      |   |        |      | 
|Cardiac monitoring products |  | $    | 71,557 |  |      | $ | 77,373 |      |  | $ | 74,278  | 
|Defibrillation products     |  |      |       |  |      |   |       |      |  |   | 19,182  | 
|Service                     |  |      | 12,839 |  |      |   | 12,230 |      |  |   | 13,190  | 
|                            |  |      |        |  |      |   |        |      | 
|Total                       |  | $    | 84,396 |  |      | $ | 89,603 |      |  | $ | 106,650 | 
|                            |  |      |        |  |      |   |        |      | 



|         |  |      |        |  |      |   |        |      |  |   |         | 
|-------- |  | ---- | ------ |  | ---- | - | ------ | ---- |  | - | ------- | 
|         |  | 2003 |        |  | 2004 |   |        | 2005 | 
|         |  |      |        |  |      |   |        |      | 
|Domestic |  | $    | 77,909 |  |      | $ | 83,696 |      |  | $ | 92,409  | 
|Foreign  |  |      | 6,487  |  |      |   | 5,907  |      |  |   | 14,241  | 
|         |  |      |        |  |      |   |        |      | 
|Total    |  | $    | 84,396 |  |      | $ | 89,603 |      |  | $ | 106,650 | 
|         |  |      |        |  |      |   |        |      | 





| |                                 
| | --------------------------------
| | Recent Accounting Pronouncements



65



---



##### Table of Contents



CARDIAC SCIENCE CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)
















66



---



##### Table of Contents



CARDIAC SCIENCE CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)






|   |             
|-- | ------------
|2. | Acquisitions

Merger Transaction with
Cardiac Science, Inc.












67



---



##### Table of Contents



CARDIAC SCIENCE CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)






| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 11,467,753 shares of common stock valued at approximately
    $146,911,000 issued to CSI stockholders and senior note holders.
    The fair value of common stock issued is based on a per share
    value of $12.81, which is equal to Quintons average
    closing price per share as reported on The Nasdaq National
    Market for the trading-day period two days before and after
    February 28, 2005, the announcement date, adjusted by the
    Quinton exchange ratio.
|
| |  | Cash payment of $20,000,000 to the CSI senior note holders.                                                                                                                                                                                                                                                                                                                                                                                                                       
|
| |  | 1,229,881 vested options to purchase shares of common stock
    issued to CSI option holders, valued at $7,402,000 calculated
    using the Black-Scholes option-pricing model.                                                                                                                                                                                                                                                                                                   
|
| |  | 330,909 exercisable warrants to purchase shares of common stock
    issued to certain CSI warrant holders, valued at $1,320,000
    calculated using the Black-Scholes option-pricing model.                                                                                                                                                                                                                                                                                      
|
| |  | $3,198,000 in accrued liabilities related to estimated exit and
    severance costs.                                                                                                                                                                                                                                                                                                                                                                                              
|
| |  | $2,244,000 in estimated transaction related costs of the
    acquirer.                                                                                                                                                                                                                                                                                                                                                                                                            



|                    |       |                |         |         | 
|------------------- | ----- | -------------- | ------- | ------- | 
|                    |       | (In thousands) |        
|Cash                |       | $              | 20,000  |        
|Shares              |       |                | 146,911 |        
|Options             |       |                | 7,402   |        
|Warrants            |       |                | 1,320   |        
|Accrued liabilities |       |                | 3,198   |        
|Transaction costs   |       |                | 2,244   |        
|                    |       |                |        
|                    | Total |                | $       | 181,075 | 
|                    |       |                |        

68



---



##### Table of Contents



CARDIAC SCIENCE CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)




|                                                            |                       |            |         |         | 
|----------------------------------------------------------- | --------------------- | ---------- | ------- | ------- | 
|                                                            |                       | (In 000s) |        
|Cash and cash equivalents                                   |                       | $          | 6,295   |        
|Accounts receivable, net of allowance for doubtful accounts |                       |            | 7,054   |        
|Inventories                                                 |                       |            | 13,339  |        
|Net deferred tax assets, current                            |                       |            | 7,699   |        
|Prepaid expenses and other current assets                   |                       |            | 1,413   |        
|Machinery and equipment                                     |                       |            | 3,979   |        
|Net deferred tax assets, non-current                        |                       |            | 21,500  |        
|Other long term assets                                      |                       |            | 661     |        
|Intangible assets                                           |                       |            | 31,360  |        
|Goodwill                                                    |                       |            | 102,592 |        
|                                                            |                       |            |        
|                                                            | Total assets acquired |            |         | 195,892 | 
|Liabilities assumed                                         |                       |            | (14,817 | )      
|                                                            |                       |            |        
|                                                            | Net assets acquired   |            | $       | 181,075 | 
|                                                            |                       |            |        







69



---



##### Table of Contents



CARDIAC SCIENCE CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)










|                                  |  |                         |         |  |      |   |         |  
|--------------------------------- |  | ----------------------- | ------- |  | ---- | - | ------- | -
|                                  |  | Year Ended December 31, |        
|                                  |  |                         |        
|                                  |  | 2004                    |         |  | 2005 |  
|                                  |  |                         |         |  |      |  
|Revenues                          |  | $                       | 157,612 |  |      | $ | 141,941 |  
|Net income (loss)                 |  | $                       | 3,847   |  |      | $ | (61,502 | )
|Basic net income (loss) per share |  | $                       | 0.18    |  |      | $ | (2.75   | )

write-up




Acquisition of Burdick,
Inc.




70



---



##### Table of Contents



CARDIAC SCIENCE CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)










|                                                            |                       |   |        |        | 
|----------------------------------------------------------- | --------------------- | - | ------ | ------ | 
|Cash and cash equivalents                                   |                       | $ | 386    |       
|Accounts receivable, net of allowance for doubtful accounts |                       |   | 3,798  |       
|Inventories                                                 |                       |   | 6,771  |       
|Prepaid expenses and other current assets                   |                       |   | 184    |       
|Machinery and equipment                                     |                       |   | 2,104  |       
|In-process research and development                         |                       |   | 1,290  |       
|Intangible assets                                           |                       |   | 5,660  |       
|Goodwill                                                    |                       |   | 9,027  |       
|                                                            |                       |   |       
|                                                            | Total assets acquired |   |        | 29,220 | 
|Current liabilities                                         |                       |   | (6,961 | )     
|Deferred income taxes                                       |                       |   | (1,156 | )     
|                                                            |                       |   |       
|                                                            | Net assets acquired   |   | $      | 21,103 | 
|                                                            |                       |   |       







71



---



##### Table of Contents



CARDIAC SCIENCE CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)














Minority Interest




72



---



##### Table of Contents



CARDIAC SCIENCE CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)


3.     Restructuring liability


Restructuring Costs
Associated with CSI Merger














|                                       |  |              |   |             |  |   |           |  |      |              |            |              |      |   |        |   |  |   |       | 
|-------------------------------------- |  | ------------ | - | ----------- |  | - | --------- |  | ---- | ------------ | ---------- | ------------ | ---- | - | ------ | - |  | - | ----- | 
|                                       |  |              |   | Accrued as  |  |   |           |  |      |              |           
|                                       |  | Balance at   |   | Part of the |  |   |           |  |      |              | Balance at |             
|                                       |  | December 31, |   | Merger      |  |   |           |  | Cash |              |            | December 31, |     
|                                       |  | 2004         |   | Transaction |  |   | Additions |  |      | Expenditures |            |              | 2005 |  
|                                       |  |              |   |             |  |   |           |  |      |              |            |              |      |  
|Vacated facilities                     |  | $            |  |             |  | $ | 2,709     |  |      | $            | 56         |              |      | $ | (514   | ) |  | $ | 2,251 | 
|Employee severance and retention costs |  |              |  |             |  |   | 1,702     |  |      |              | 1,589      |              |      |   | (1,478 | ) |  |   | 1,813 | 

Consolidation of
Manufacturing Operations






|                                                                    |                                                                                                              |   |     |        |  
|------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------ | - | --- | ------ | -
|Manufacturing consolidation liabilities as of December 31,
    2002 |                                                                                                              | $ |    |       
|                                                                    | Severance, employee transition and other consolidation related
    costs charged to systems cost of revenues |   |     | 1,304  |  
|                                                                    | Severance and other employee transition costs charged to service
    cost of revenues                        |   |     | 114    |  
|                                                                    | Costs paid                                                                                                   |   |     | (1,094 | )
|                                                                    |                                                                                                              |   |    
|Manufacturing consolidation liabilities as of December 31,
    2003 |                                                                                                              |   | 324 |       
|                                                                    | Costs paid                                                                                                   |   |     | (324   | )
|                                                                    |                                                                                                              |   |    
|Manufacturing consolidation liabilities as of December 31,
    2004 |                                                                                                              | $ |    |       
|                                                                    |                                                                                                              |   |    

73



---



##### Table of Contents



CARDIAC SCIENCE CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)


4.     Sale of Hemodynamic
Monitoring Product Line






5.     Marketable Equity
Securities




6.     Inventories




|                  |  |      |        |  |      |   |        | 
|----------------- |  | ---- | ------ |  | ---- | - | ------ | 
|                  |  | 2004 |        |  | 2005 |  
|                  |  |      |        |  |      |  
|Raw materials     |  | $    | 7,879  |  |      | $ | 18,746 | 
|Finished goods    |  |      | 3,168  |  |      |   | 3,306  | 
|                  |  |      |        |  |      |  
|Total inventories |  | $    | 11,047 |  |      | $ | 22,052 | 
|                  |  |      |        |  |      |  

7.     Machinery and Equipment




|                                                |          |             |               |  |      |   |        |        |  |   |        |        | 
|----------------------------------------------- | -------- | ----------- | ------------- |  | ---- | - | ------ | ------ |  | - | ------ | ------ | 
|                                                |          | Depreciable |               |  |      |   |       
|                                                |          | Lives       |               |  | 2004 |   |        | 2005   | 
|                                                |          |             |               |  |      |   |        |        | 
|Equipment                                       |          |             | (2-14  years) |  |      | $ | 8,173  |        |  | $ | 11,487 |       
|Furniture and fixtures                          |          |             | (2-13  years) |  |      |   | 984    |        |  |   | 2,053  |       
|Leasehold improvements                          |          |             | (2- 7  years) |  |      |   | 1,133  |        |  |   | 1,656  |       
|                                                |          |             |               |  |      |   |        |        | 
|                                                | Subtotal |             |               |  |      |   |        | 10,290 |  |   |        | 15,196 | 
|Less: Accumulated depreciation and amortization |          |             |               |  |      |   | (5,976 | )      |  |   | (7,565 | )     
|                                                |          |             |               |  |      |   |        |        | 
|Net machinery and equipment                     |          |             |               |  |      | $ | 4,314  |        |  | $ | 7,631  |       
|                                                |          |             |               |  |      |   |        |        | 



74



---



##### Table of Contents



CARDIAC SCIENCE CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)


8.     Intangible Assets




|                                               |  |             |            |  |      |              |        |            |  |   |        |   |  |   |        | 
|---------------------------------------------- |  | ----------- | ---------- |  | ---- | ------------ | ------ | ---------- |  | - | ------ | - |  | - | ------ | 
|                                               |  |             |            |  |      | Accumulated  |        |            | 
|                                               |  |             |            |  |      | Amortization |        |            | 
|                                               |  | Useful Life |            |  | Cost |              |        | (in 000s) |  |   | Net    |  
|                                               |  |             |            |  |      |              |        |            |  |   |        |  
|Intangible assets not subject to amortization: |  |             |            |  |      |              |        |            |  |   |        |   |  |   |        | 
|Burdick trade name                             |  |             |            |  |      | $            | 3,400  |            |  | $ |       |   |  | $ | 3,400  | 
|Cardiac Science trade name                     |  |             |            |  |      |              | 11,380 |            |  |   |       |   |  |   | 11,380 | 
|Intangible assets subject to amortization:     |  |             |            |  |      |              |        |            |  |   |        |   |  |   |        | 
|Cardiac Science customer relationships         |  |             | 5 years    |  |      |              | 8,650  |            |  |   | (577   | ) |  |   | 8,073  | 
|Cardiac Science developed technology           |  |             | 8 years    |  |      |              | 11,330 |            |  |   | (472   | ) |  |   | 10,858 | 
|Burdick distributor relationships              |  |             | 10 years   |  |      |              | 1,400  |            |  |   | (420   | ) |  |   | 980    | 
|Burdick developed technology                   |  |             | 7 years    |  |      |              | 860    |            |  |   | (369   | ) |  |   | 491    | 
|Patents and patent applications                |  |             | 5-10 years |  |      |              | 960    |            |  |   | (804   | ) |  |   | 156    | 
|                                               |  |             |            |  |      |              |        |            |  |   |        |  
|                                               |  |             |            |  |      | $            | 37,980 |            |  | $ | (2,642 | ) |  | $ | 35,338 | 
|                                               |  |             |            |  |      |              |        |            |  |   |        |  





|           |  |   |       | 
|---------- |  | - | ----- | 
|2006       |  | $ | 3,469 | 
|2007       |  | $ | 3,457 | 
|2008       |  | $ | 3,419 | 
|2009       |  | $ | 3,419 | 
|2010       |  | $ | 2,720 | 
|Thereafter |  | $ | 4,074 | 

9.     Investment in Unconsolidated
Entities






|                                            |  |      |       |  |      |   |     | 
|------------------------------------------- |  | ---- | ----- |  | ---- | - | --- | 
|                                            |  | 2004 |       |  | 2005 |  
|                                            |  |      |       |  |      |  
|ScImage                                     |  | $    | 1,000 |  |      | $ | 84  | 
|Biotel                                      |  |      |      |  |      |   | 370 | 
|Other                                       |  |      |      |  |      |   | 8   | 
|                                            |  |      |       |  |      |  
|Total investment in unconsolidated entities |  | $    | 1,000 |  |      | $ | 462 | 
|                                            |  |      |       |  |      |  

ScImage




75



---



##### Table of Contents



CARDIAC SCIENCE CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)




Biotel, Inc.




10.     Goodwill












|    |                                 
|--- | --------------------------------
|11. | Accrued Liabilities and Warranty



|                                  |  |      |       |  |      |   |        | 
|--------------------------------- |  | ---- | ----- |  | ---- | - | ------ | 
|                                  |  | 2004 |       |  | 2005 |  
|                                  |  |      |       |  |      |  
|Accrued compensation and benefits |  | $    | 3,578 |  |      | $ | 5,329  | 
|Other accrued liabilities         |  |      | 2,642 |  |      |   | 6,589  | 
|                                  |  |      |       |  |      |  
|Total accrued liabilities         |  | $    | 6,220 |  |      | $ | 11,918 | 
|                                  |  |      |       |  |      |  



|                             |  |           |       |          |             |  |            |          |  |  |            |  |  |        |        |   |  |  |       | 
|---------------------------- |  | --------- | ----- | -------- | ----------- |  | ---------- | -------- |  |  | ---------- |  |  | ------ | ------ | - |  |  | ----- | 
|                             |  |           |       | Increase |             |  | Charged to |          |  |  |            | 
|                             |  | Beginning |       |          | through     |  |            | Cost of  |  |  | Applied to |  |  | End of |       
|                             |  | of Period |       |          | Acquisition |  |            | Revenues |  |  | Liability  |  |  | Period |       
|                             |  |           |       |          |             |  |            |          |  |  |            |  |  |        |       
|Year Ended December 31, 2003 |  |           | 1,089 |          |             |  | 1,016      |          |  |  | 1,384      |  |  |        | (1,430 | ) |  |  | 2,059 | 
|Year Ended December 31, 2004 |  |           | 2,059 |          |             |  |           |          |  |  | 1,291      |  |  |        | (1,257 | ) |  |  | 2,093 | 
|Year Ended December 31, 2005 |  |           | 2,093 |          |             |  | 479        |          |  |  | 1,611      |  |  |        | (1,835 | ) |  |  | 2,348 | 



|    |           
|--- | ----------
|12. | Borrowings



76



---



##### Table of Contents



CARDIAC SCIENCE CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)








|    |             
|--- | ------------
|13. | Income Taxes



|         |                                    |                         |   |    |      |  |   |        |   |  |   |        |  
|-------- | ---------------------------------- | ----------------------- | - | -- | ---- |  | - | ------ | - |  | - | ------ | -
|         |                                    | Year Ended December 31, |  
|         |                                    |                         |  
|         |                                    | 2003                    |   |    | 2004 |  |   | 2005   |  
|         |                                    |                         |   |    |      |  |   |        |  
|Current  |                                    |                         |   |    |      |  |   |        |   |  |   |       
|         | Federal                            |                         | $ |   |      |  | $ | 77     |   |  | $ |       |  
|         | State                              |                         |   | 38 |      |  |   | 47     |   |  |   | 73     |  
|         | Foreign                            |                         |   |   |      |  |   |       |   |  |   | 19     |  
|         |                                    |                         |   |    |      |  |   |        |  
|         | Total current provision (benefit)  |                         |   | 38 |      |  |   | 124    |   |  |   | 92     |  
|         |                                    |                         |   |    |      |  |   |        |  
|Deferred |                                    |                         |   |    |      |  |   |        |   |  |   |       
|         | Federal                            |                         |   | 21 |      |  |   | (8,472 | ) |  |   | (1,388 | )
|         | State                              |                         |   | 3  |      |  |   | (542   | ) |  |   | (177   | )
|         |                                    |                         |   |    |      |  |   |        |  
|         | Total deferred provision (benefit) |                         |   | 24 |      |  |   | (9,014 | ) |  |   | (1,565 | )
|         |                                    |                         |   |    |      |  |   |        |  
|         | Total provision (benefit)          |                         | $ | 62 |      |  | $ | (8,890 | ) |  | $ | (1,473 | )
|         |                                    |                         |   |    |      |  |   |        |  



|                                                                   |  |                         |       |    |      |  |        |      |  |  |       |   
|------------------------------------------------------------------ |  | ----------------------- | ----- | -- | ---- |  | ------ | ---- |  |  | ----- | --
|                                                                   |  | Year Ended December 31, |      
|                                                                   |  |                         |      
|                                                                   |  | 2003                    |       |    | 2004 |  |        | 2005 | 
|                                                                   |  |                         |       |    |      |  |        |      | 
|Federal income tax provision (benefit) at U.S. statutory
    rates |  |                         | (34.0 | )% |      |  | 34.0   | %    |  |  | (34.0 | )%
|Permanent Differences                                              |  |                         | 3.7   | %  |      |  | 1.6    | %    |  |  | 4.2   | % 
|Research and development credits                                   |  |                         | (25.3 | )% |      |  | (6.5   | )%   |  |  | (23.4 | )%
|State income taxes, net of federal benefit                         |  |                         | 1.3   | %  |      |  | 0.5    | %    |  |  | (0.5  | )%
|Exclusion for extraterritorial income                              |  |                         |      |    |      |  | (0.8   | )%   |  |  |      |   
|Change in deferred tax valuation allowance                         |  |                         | 57.9  | %  |      |  | (173.6 | )%   |  |  |      |   
|                                                                   |  |                         |       |    |      |  |        |      | 
|Provision (benefit) for income taxes                               |  |                         | 3.6   | %  |      |  | (144.8 | )%   |  |  | (53.7 | )%
|                                                                   |  |                         |       |    |      |  |        |      | 



77



---



##### Table of Contents



CARDIAC SCIENCE CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)










|                          |                                                                  |                           |       |        |        |   |        |         |        | 
|------------------------- | ---------------------------------------------------------------- | ------------------------- | ----- | ------ | ------ | - | ------ | ------- | ------ | 
|                          |                                                                  | 2004                      |       |        | 2005   |  
|                          |                                                                  |                           |       |        |        |  
|Deferred tax assets:      |                                                                  |                           |       |        |        |   |        |        
|                          | Net operating loss carryforwards                                 |                           | $     | 3,334  |        |   | $      | 38,427  |       
|                          | Stock-based compensation                                         |                           |       | 1,218  |        |   |        | 1,172   |       
|                          | Research and experimentation and alternative minimum tax credits |                           |       | 2,889  |        |   |        | 4,510   |       
|                          | Inventory basis difference                                       |                           |       | 1,492  |        |   |        | 1,555   |       
|                          | Warranty liability                                               |                           |       | 795    |        |   |        | 889     |       
|                          | Deferred Revenue/ Gain/ Loss                                     |                           |       | 480    |        |   |        | 2,096   |       
|                          | Accrued compensation/ Severance/ Relocation                      |                           |       | 648    |        |   |        | 1,671   |       
|                          | Other Assets                                                     |                           |       |       |        |   |        | 1,188   |       
|                          | Other                                                            |                           |       | 903    |        |   |        | 1,531   |       
|                          |                                                                  |                           |       |        |        |  
|                          |                                                                  | Gross deferred tax assets |       | $      | 11,759 |   |        | $       | 53,039 | 
|                          |                                                                  |                           |       |        |        |  
|                          |                                                                  | Valuation Allowance       |       |        |       |   |        |         |       | 
|Deferred tax liabilities: |                                                                  |                           |       |        |        |   |        |        
|                          | Depreciation/ Amortization                                       |                           |       | (520   | )      |   |        | (82     | )     
|                          | Burdick intangible assets                                        |                           |       | (659   | )      |   |        | (559    | )     
|                          | Burdick trade name intangible asset                              |                           |       | (1,156 | )      |   |        | (1,156  | )     
|                          | Cardiac Science intangible assets                                |                           |       |       |        |   |        | (7,005  | )     
|                          | Cardiac Science tradename                                        |                           |       |       |        |   |        | (4,211  | )     
|                          | Other income  marketable equity securities                      |                           |       | (245   | )      |   |        |        |       
|                          | Goodwill from treadmill line acquisition                         |                           |       | (43    | )      |   |        | (62     | )     
|                          |                                                                  |                           |       |        |        |  
|                          | Gross deferred tax liabilities                                   |                           |       | (2,623 | )      |   |        | (13,075 | )     
|                          |                                                                  |                           |       |        |        |  
|Net deferred tax asset    |                                                                  | $                         | 9,136 |        |        | $ | 39,964 |        
|                          |                                                                  |                           |       |        |        |  

78



---



##### Table of Contents



CARDIAC SCIENCE CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)








|        |  |                         |        |   |      |   |       |      |  |   |        |  
|------- |  | ----------------------- | ------ | - | ---- | - | ----- | ---- |  | - | ------ | -
|        |  | Year Ended December 31, |       
|        |  |                         |       
|        |  | 2003                    |        |   | 2004 |   |       | 2005 | 
|        |  |                         |        |   |      |   |       |      | 
|U.S.    |  | $                       | (1,717 | ) |      | $ | 6,237 |      |  | $ | (2,679 | )
|Foreign |  |                         | (29    | ) |      |   | (98   | )    |  |   | (63    | )
|        |  |                         |        |   |      |   |       |      | 
|Total   |  | $                       | (1,746 | ) |      | $ | 6,139 |      |  | $ | (2,742 | )
|        |  |                         |        |   |      |   |       |      | 

non-U.S.




|    |                              
|--- | -----------------------------
|14. | Commitments and Contingencies



| |                  
| | -----------------
| | Lease Commitments



79



---



##### Table of Contents



CARDIAC SCIENCE CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)




|           |  |           |       |                 |                |   |       | 
|---------- |  | --------- | ----- | --------------- | -------------- | - | ----- | 
|           |  |           |       | Net of Sublease |               
|           |  | Operating |       |                 | Operating      |  
|           |  | Leases    |       |                 | Leases, Income |  
|           |  |           |       |                 |                |  
|Year:      |  |           |       |                 |                |   |       | 
|2006       |  | $         | 3,154 |                 |                | $ | 2,412 | 
|2007       |  |           | 2,774 |                 |                |   | 2,513 | 
|2008       |  |           | 2,127 |                 |                |   | 1,931 | 
|2009       |  |           | 311   |                 |                |   | 295   | 
|2010       |  |           |      |                 |                |   |      | 
|Thereafter |  |           |      |                 |                |   |      | 
|           |  |           |       |                 |                |  
|Total      |  | $         | 8,366 |                 |                | $ | 7,151 | 
|           |  |           |       |                 |                |  





| |                  
| | -----------------
| | Other Commitments





| |                           
| | --------------------------
| | Guarantees and Indemnities





| |                       
| | ----------------------
| | Performance Guarantees





| |                        
| | -----------------------
| | Distribution Agreements



80



---



##### Table of Contents



CARDIAC SCIENCE CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)








| |                  
| | -----------------
| | Legal Proceedings







81



---



##### Table of Contents



CARDIAC SCIENCE CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)






| |   |                                                                                   
| | - | ----------------------------------------------------------------------------------
| |  | Deborah Silver v. Cardiac Science, Inc.,
    et al., Case No. 1138-N;             
|
| |  | Lisa A. Weber v. Cardiac Science, Inc., et al.
    Case No. 1140-N;               
|
| |  | Suan Investments, Inc. v. Raymond W. Cohen,
    et al., Case No. 1148-N;          
|
| |  | David Shaev, et al. v. Cardiac Science, Inc.,
    et al., Case No. 1153-N;        
|
| |  | Irvin M. Chase, et al., v. Cardiac Science,
    Inc., et al., Case No. 1159-N; and
|
| |  | James Stellato v. Cardiac Science, Inc.,
    et al., Case No. 1162-N.             





| |   |                                                                              
| | - | -----------------------------------------------------------------------------
| |  | Albert Rosenfeld v. Cardiac Science, Inc.,
    et al. Case No. 05CC00057; and
|
| |  | Jerrold Schaffer v. Cardiac Science, Inc.,
    et al., Case No. 05CC00059.   









82



---



##### Table of Contents



CARDIAC SCIENCE CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)






|    |                     
|--- | --------------------
|15. | Shareholders Equity



| |                
| | ---------------
| | Preferred Stock





| |             
| | ------------
| | Common Stock







83



---



##### Table of Contents



CARDIAC SCIENCE CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)




|                                |  |                 |         |  |                |   |       |            |  |  |      | 
|------------------------------- |  | --------------- | ------- |  | -------------- | - | ----- | ---------- |  |  | ---- | 
|                                |  | Warrants        |         |  |                |   |      
|                                |  | Outstanding and |         |  | Exercise Price |   |       | Expiration | 
|Grant Date                      |  | Exercisable     |         |  | per Share      |   |       | Date       | 
|                                |  |                 |         |  |                |   |       |            | 
|1997                            |  |                 | 7,500   |  |                | $ | 22.50 |            |  |  | 2007 | 
|2001                            |  |                 | 300     |  |                |   | 20.00 |            |  |  | 2006 | 
|2002                            |  |                 | 1,500   |  |                |   | 18.00 |            |  |  | 2007 | 
|2002                            |  |                 | 2,500   |  |                |   | 17.50 |            |  |  | 2012 | 
|2003                            |  |                 | 1,500   |  |                |   | 32.70 |            |  |  | 2008 | 
|2003                            |  |                 | 75,000  |  |                |   | 30.00 |            |  |  | 2007 | 
|2003                            |  |                 | 10,000  |  |                |   | 46.10 |            |  |  | 2008 | 
|2003                            |  |                 | 22,333  |  |                |   | 50.00 |            |  |  | 2008 | 
|2004                            |  |                 | 1,500   |  |                |   | 19.50 |            |  |  | 2009 | 
|2004                            |  |                 | 208,776 |  |                |   | 25.00 |            |  |  | 2009 | 
|                                |  |                 |         |  |                |   |       |            | 
|Total                           |  |                 | 330,909 |  |                |   |       |            |  |  |      | 
|                                |  |                 |         |  |                |   |       |            | 
|Weighted average exercise price |  |                 |         |  |                | $ | 28.32 |            |  |  |      | 



|    |                               
|--- | ------------------------------
|16. | Stock-Based Compensation Plans



|                                                           |  |  |           | 
|---------------------------------------------------------- |  |  | --------- | 
|Outstanding stock options  2002 Plan                      |  |  | 1,960,525 | 
|Outstanding stock options  1997 Plan                      |  |  | 1,274,748 | 
|Stock options available for grant                          |  |  | 60,406    | 
|Outstanding restricted stock grants                        |  |  | 104,350   | 
|Employee stock purchase plan shares available for issuance |  |  | 484,674   | 
|                                                           |  |  |          
|Total common shares reserved for future issuance           |  |  | 3,884,703 | 
|                                                           |  |  |          



| |                          
| | -------------------------
| | Stock Options  2002 Plan





84



---



##### Table of Contents



CARDIAC SCIENCE CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)






|                           |           |         |           |           |       |   |      |       | 
|-------------------------- | --------- | ------- | --------- | --------- | ----- | - | ---- | ----- | 
|                           |           |         |           | Weighted- |      
|                           |           |         |           | Average   |      
|                           |           |         |           | Exercise  |      
|                           |           | Options |           |           | Price |  
|                           |           |         |           |           |       |  
|Balance, December 31, 2002 |           |         | 1,118,659 |           |       | $ | 4.37 |      
|                           | Granted   |         |           | 399,393   |       |   |      | 8.52  | 
|                           | Exercised |         |           | (63,201   | )     |   |      | 1.27  | 
|                           | Canceled  |         |           | (38,456   | )     |   |      | 7.10  | 
|                           |           |         |           |           |       |  
|Balance, December 31, 2003 |           |         | 1,416,395 |           |       |   | 5.60 |      
|                           | Granted   |         |           | 409,890   |       |   |      | 12.02 | 
|                           | Exercised |         |           | (121,422  | )     |   |      | 2.94  | 
|                           | Canceled  |         |           | (51,796   | )     |   |      | 9.35  | 
|                           |           |         |           |           |       |  
|Balance, December 31, 2004 |           |         | 1,653,067 |           |       |   | 7.27 |      
|                           | Granted   |         |           | 376,312   |       |   |      | 9.51  | 
|                           | Exercised |         |           | (33,149   | )     |   |      | 5.46  | 
|                           | Canceled  |         |           | (35,705   | )     |   |      | 10,42 | 
|                           |           |         |           |           |       |  
|Balance, December 31, 2005 |           |         | 1,960,525 |           |       | $ | 7.67 |      
|                           |           |         |           |           |       |  



|                         |  |             |           |           |             |   |           |             |  |  |           |           |  |          |           |  |  |   |       | 
|------------------------ |  | ----------- | --------- | --------- | ----------- | - | --------- | ----------- |  |  | --------- | --------- |  | -------- | --------- |  |  | - | ----- | 
|                         |  | Outstanding |           |           |            
|                         |  |             |           |           | Exercisable |  
|                         |  |             |           | Weighted- |             |   |           |            
|                         |  |             |           | Weighted- |             |   | Average   |             |  |  |           | Weighted- | 
|                         |  |             |           | Average   |             |   | Remaining |             |  |  |           | Average   | 
|                         |  | Number of   |           |           | Exercise    |   |           | Contractual |  |  | Number of |           |  | Exercise |          
|Range of Exercise Prices |  | Options     |           |           | Price       |   |           | Life        |  |  | Options   |           |  | Price    |          
|                         |  |             |           |           |             |   |           |             |  |  |           |           |  |          |          
|$0.29                    |  |             | 70,550    |           |             | $ | 0.29      |             |  |  | 2.8 years |           |  |          | 70,550    |  |  | $ | 0.29  | 
|$1.14 - $2.42            |  |             | 6,139     |           |             |   | 1.31      |             |  |  | 3.4 years |           |  |          | 6,139     |  |  |   | 1.31  | 
|$2.85                    |  |             | 567,664   |           |             |   | 2.85      |             |  |  | 4.7 years |           |  |          | 567,664   |  |  |   | 2.85  | 
|$4.28                    |  |             | 13,095    |           |             |   | 4.28      |             |  |  | 5.9 years |           |  |          | 13,095    |  |  |   | 4.28  | 
|$7.00                    |  |             | 7,718     |           |             |   | 7.00      |             |  |  | 7.2 years |           |  |          | 7,718     |  |  |   | 7.00  | 
|$7.77 - $8.14            |  |             | 216,090   |           |             |   | 7.79      |             |  |  | 7.0 years |           |  |          | 155,392   |  |  |   | 7.79  | 
|$8.81 - $10.84           |  |             | 675,683   |           |             |   | 9.87      |             |  |  | 8.3 years |           |  |          | 618,510   |  |  |   | 9.82  | 
|$10.86 - $12.96          |  |             | 392,007   |           |             |   | 12.18     |             |  |  | 8.2 years |           |  |          | 164,594   |  |  |   | 12.08 | 
|$13.38                   |  |             | 11,579    |           |             |   | 13.38     |             |  |  | 8.5 years |           |  |          | 11,579    |  |  |   | 13.38 | 
|                         |  |             |           |           |             |   |           |             |  |  |           |           |  |          |          
|$0.29 - $13.38           |  |             | 1,960,525 |           |             | $ | 7.67      |             |  |  | 6.8 years |           |  |          | 1,615,241 |  |  | $ | 7.02  | 
|                         |  |             |           |           |             |   |           |             |  |  |           |           |  |          |          



85



---



##### Table of Contents



CARDIAC SCIENCE CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)






| |                          
| | -------------------------
| | Stock Options  1997 Plan









|                                   |           |         |           |           |       |   |       |       | 
|---------------------------------- | --------- | ------- | --------- | --------- | ----- | - | ----- | ----- | 
|                                   |           |         |           | Weighted- |      
|                                   |           |         |           | Average   |      
|                                   |           |         |           | Exercise  |      
|                                   |           | Options |           |           | Price |  
|                                   |           |         |           |           |       |  
|Acquired in connection with merger |           |         | 1,229,881 |           |       | $ | 26.84 |      
|                                   | Granted   |         |           | 75,000    |       |   |       | 9.05  | 
|                                   | Exercised |         |           |          |       |   |       |      | 
|                                   | Canceled  |         |           | (30,133   | )     |   |       | 23.72 | 
|                                   |           |         |           |           |       |  
|Balance, December 31, 2005         |           |         | 1,274,748 |           |       | $ | 25.04 |      

86



---



##### Table of Contents



CARDIAC SCIENCE CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)




|                         |  |             |           |           |             |   |           |             |  |  |           |           |  |          |           |  |  |   |       | 
|------------------------ |  | ----------- | --------- | --------- | ----------- | - | --------- | ----------- |  |  | --------- | --------- |  | -------- | --------- |  |  | - | ----- | 
|                         |  | Outstanding |           |           |            
|                         |  |             |           |           | Exercisable |  
|                         |  |             |           | Weighted- |             |   |           |            
|                         |  |             |           | Weighted- |             |   | Average   |             |  |  |           | Weighted- | 
|                         |  |             |           | Average   |             |   | Remaining |             |  |  |           | Average   | 
|                         |  | Number of   |           |           | Exercise    |   |           | Contractual |  |  | Number of |           |  | Exercise |          
|Range of Exercise Prices |  | Options     |           |           | Price       |   |           | Life        |  |  | Options   |           |  | Price    |          
|                         |  |             |           |           |             |   |           |             |  |  |           |           |  |          |          
|$9.05                    |  |             | 75,000    |           |             | $ | 9.05      |             |  |  | 9.7 years |           |  |          | 75,000    |  |  | $ | 9.05  | 
|$10.20 - $11.10          |  |             | 20,125    |           |             |   | 10.79     |             |  |  | 9.2 years |           |  |          | 20,125    |  |  |   | 10.79 | 
|$16.00 - $17.50          |  |             | 129,275   |           |             |   | 17.35     |             |  |  | 6.7 years |           |  |          | 129.275   |  |  |   | 17.35 | 
|$19.30 - $20.60          |  |             | 611,815   |           |             |   | 20.25     |             |  |  | 6.4 years |           |  |          | 611,815   |  |  |   | 20.25 | 
|$21.20 - $22.40          |  |             | 22,465    |           |             |   | 22.09     |             |  |  | 7.6 years |           |  |          | 22,465    |  |  |   | 22.09 | 
|$24.00 - $24.60          |  |             | 64,144    |           |             |   | 24.18     |             |  |  | 6.5 years |           |  |          | 64,144    |  |  |   | 24.18 | 
|$26.00 - $26.00          |  |             | 32,000    |           |             |   | 26.00     |             |  |  | 7.3 years |           |  |          | 32,000    |  |  |   | 26.00 | 
|$35.20 - $36.50          |  |             | 28,940    |           |             |   | 35.22     |             |  |  | 7.7 years |           |  |          | 28,940    |  |  |   | 35.22 | 
|$38.30 - $41.50          |  |             | 220,842   |           |             |   | 39.99     |             |  |  | 7.0 years |           |  |          | 220,842   |  |  |   | 39.99 | 
|$45.30 - $50.70          |  |             | 36,750    |           |             |   | 46.62     |             |  |  | 7.2 years |           |  |          | 36,750    |  |  |   | 46.62 | 
|$45.30 - $50.70          |  |             | 33,392    |           |             |   | 58.44     |             |  |  | 4.5 years |           |  |          | 33,392    |  |  |   | 58.44 | 
|                         |  |             |           |           |             |   |           |             |  |  |           |           |  |          |          
|$9.05 - $60.00           |  |             | 1,274,748 |           |             | $ | 25.04     |             |  |  | 6.8 years |           |  |          | 1,274,748 |  |  | $ | 25.04 | 
|                         |  |             |           |           |             |   |           |             |  |  |           |           |  |          |          





| |                        
| | -----------------------
| | Restricted Stock Awards







| |                             
| | ----------------------------
| | Employee Stock Purchase Plan



87



---



##### Table of Contents



CARDIAC SCIENCE CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)








|    |                       
|--- | ----------------------
|17. | Employee Benefit Plans







|    |                           
|--- | --------------------------
|18. | Related Party Transactions



| |                        
| | -----------------------
| | Philips/ Agilent/ Zymed







88



---



##### Table of Contents



CARDIAC SCIENCE CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)




|    |                                            
|--- | -------------------------------------------
|19. | Quarterly Results of Operations (Unaudited)



89



---



##### Table of Contents



CARDIAC SCIENCE CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)




|                                                                                   |                              |                                       |        |       |          |   |        |               |  |   |              |       |  |           |        |        |          |   |        |               |  |   |              |       |  |   |        |        |   |   |        |        |  
|---------------------------------------------------------------------------------- | ---------------------------- | ------------------------------------- | ------ | ----- | -------- | - | ------ | ------------- |  | - | ------------ | ----- |  | --------- | ------ | ------ | -------- | - | ------ | ------------- |  | - | ------------ | ----- |  | - | ------ | ------ | - | - | ------ | ------ | -
|                                                                                   |                              | March 31,                             |        |       | June 30, |   |        | September 30, |  |   | December 31, |       |  | March 31, |        |        | June 30, |   |        | September 30, |  |   | December 31, |      
|                                                                                   |                              | 2004                                  |        |       | 2004     |   |        | 2004          |  |   | 2004         |       |  | 2005      |        |        | 2005     |   |        | 2005          |  |   | 2005         |      
|                                                                                   |                              |                                       |        |       |          |   |        |               |  |   |              |       |  |           |        |        |          |   |        |               |  |   |              |      
|                                                                                   |                              | (In thousands, except for share data) |       
|Consolidated Statements of Operations Data:                                        |                              |                                       |        |       |          |   |        |               |  |   |              |       |  |           |        |        |          |   |        |               |  |   |              |       |  |   |        |        |   |   |        |       
|Revenues                                                                           |                              | $                                     | 21,652 |       |          | $ | 21,648 |               |  | $ | 22,498       |       |  | $         | 23,805 |        |          | $ | 21,330 |               |  | $ | 21,968       |       |  | $ | 27,446 |        |   | $ | 35,906 |       
|Cost of revenues                                                                   |                              |                                       | 12,200 |       |          |   | 12,424 |               |  |   | 12,598       |       |  |           | 13,080 |        |          |   | 11,564 |               |  |   | 12,093       |       |  |   | 15,168 |        |   |   | 20,969 |       
|                                                                                   |                              |                                       |        |       |          |   |        |               |  |   |              |       |  |           |        |        |          |   |        |               |  |   |              |      
|                                                                                   | Gross profit                 |                                       |        | 9,452 |          |   |        | 9,224         |  |   |              | 9,900 |  |           |        | 10,725 |          |   |        | 9,766         |  |   |              | 9,875 |  |   |        | 12,278 |   |   |        | 14,937 |  
|Operating Expenses:                                                                |                              |                                       |        |       |          |   |        |               |  |   |              |       |  |           |        |        |          |   |        |               |  |   |              |       |  |   |        |        |   |   |        |       
|Research and development                                                           |                              |                                       | 1,831  |       |          |   | 1,796  |               |  |   | 1,882        |       |  |           | 1,888  |        |          |   | 1,809  |               |  |   | 1,908        |       |  |   | 2,262  |        |   |   | 3,374  |       
|Sales and marketing                                                                |                              |                                       | 4,371  |       |          |   | 4,367  |               |  |   | 4,768        |       |  |           | 4,872  |        |          |   | 4,657  |               |  |   | 4,592        |       |  |   | 6,601  |        |   |   | 9,107  |       
|General and administrative (excluding stock-based compensation)                    |                              |                                       | 2,088  |       |          |   | 1,949  |               |  |   | 1,974        |       |  |           | 2,264  |        |          |   | 2,021  |               |  |   | 2,251        |       |  |   | 4,697  |        |   |   | 6,099  |       
|Stock-based compensation                                                           |                              |                                       | 18     |       |          |   | 18     |               |  |   | 18           |       |  |           | 19     |        |          |   | 24     |               |  |   | 15           |       |  |   |       |        |   |   | 19     |       
|                                                                                   |                              |                                       |        |       |          |   |        |               |  |   |              |       |  |           |        |        |          |   |        |               |  |   |              |      
|                                                                                   | Total operating expenses     |                                       |        | 8,308 |          |   |        | 8,130         |  |   |              | 8,642 |  |           |        | 9,043  |          |   |        | 8,511         |  |   |              | 8,766 |  |   |        | 13,560 |   |   |        | 18,599 |  
|                                                                                   |                              |                                       |        |       |          |   |        |               |  |   |              |       |  |           |        |        |          |   |        |               |  |   |              |      
|                                                                                   | Operating income (loss)      |                                       |        | 1,144 |          |   |        | 1,094         |  |   |              | 1,258 |  |           |        | 1,682  |          |   |        | 1,255         |  |   |              | 1,109 |  |   |        | (1,282 | ) |   |        | (3,662 | )
|Other Income (Expense):                                                            |                              |                                       |        |       |          |   |        |               |  |   |              |       |  |           |        |        |          |   |        |               |  |   |              |       |  |   |        |        |   |   |        |       
|Interest income (expense), net                                                     |                              |                                       | (41    | )     |          |   | (19    | )             |  |   | 38           |       |  |           | (48    | )      |          |   | 113    |               |  |   | 145          |       |  |   | 123    |        |   |   | (56    | )     
|Other income (expense), net                                                        |                              |                                       |       |       |          |   | 633    |               |  |   | 17           |       |  |           | 381    |        |          |   | 61     |               |  |   | 53           |       |  |   | 34     |        |   |   | (635   | )     
|                                                                                   |                              |                                       |        |       |          |   |        |               |  |   |              |       |  |           |        |        |          |   |        |               |  |   |              |      
|                                                                                   | Total other income (expense) |                                       |        | (41   | )        |   |        | 614           |  |   |              | 55    |  |           |        | 333    |          |   |        | 174           |  |   |              | 198   |  |   |        | 157    |   |   |        | (691   | )
|                                                                                   |                              |                                       |        |       |          |   |        |               |  |   |              |       |  |           |        |        |          |   |        |               |  |   |              |      
|Income (loss) before income taxes and minority interest in
    consolidated entity |                              |                                       | 1,103  |       |          |   | 1,708  |               |  |   | 1,313        |       |  |           | 2,015  |        |          |   | 1,429  |               |  |   | 1,307        |       |  |   | (1,125 | )      |   |   | (4,353 | )     
|Income tax benefit (provision)                                                     |                              |                                       | (35    | )     |          |   | (35    | )             |  |   |             |       |  |           | 8,960  |        |          |   | (470   | )             |  |   | (434         | )     |  |   | 558    |        |   |   | 1,819  |       
|                                                                                   |                              |                                       |        |       |          |   |        |               |  |   |              |       |  |           |        |        |          |   |        |               |  |   |              |      
|Income (loss) before minority interest in loss (income) of
    consolidated entity |                              |                                       | 1,068  |       |          |   | 1,673  |               |  |   | 1,313        |       |  |           | 10,975 |        |          |   | 959    |               |  |   | 873          |       |  |   | (567   | )      |   |   | (2,534 | )     
|Minority interest in loss (income) of consolidated entity                          |                              |                                       | 20     |       |          |   | 10     |               |  |   | 5            |       |  |           | 4      |        |          |   | 20     |               |  |   | 6            |       |  |   | (2     | )      |   |   | 7      |       
|                                                                                   |                              |                                       |        |       |          |   |        |               |  |   |              |       |  |           |        |        |          |   |        |               |  |   |              |      
|Net income (loss)                                                                  |                              | $                                     | 1,088  |       |          | $ | 1,683  |               |  | $ | 1,318        |       |  | $         | 10,979 |        |          | $ | 979    |               |  | $ | 879          |       |  | $ | (569   | )      |   | $ | (2,527 | )     
|                                                                                   |                              |                                       |        |       |          |   |        |               |  |   |              |       |  |           |        |        |          |   |        |               |  |   |              |      
|Net income (loss) per share  basic                                                |                              | $                                     | 0.12   |       |          | $ | 0.17   |               |  | $ | 0.12         |       |  | $         | 1.01   |        |          | $ | 0.09   |               |  | $ | 0.08         |       |  | $ | (0.04  | )      |   | $ | (0.11  | )     
|                                                                                   |                              |                                       |        |       |          |   |        |               |  |   |              |       |  |           |        |        |          |   |        |               |  |   |              |      
|Net income (loss) per share  diluted                                              |                              | $                                     | 0.10   |       |          | $ | 0.16   |               |  | $ | 0.12         |       |  | $         | 0.96   |        |          | $ | 0.09   |               |  | $ | 0.08         |       |  | $ | (0.04  | )      |   | $ | (0.11  | )     
|                                                                                   |                              |                                       |        |       |          |   |        |               |  |   |              |       |  |           |        |        |          |   |        |               |  |   |              |      

90



---



##### Table of Contents






REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM






10-K. 10-K.






| |                 
| | ----------------
| | /s/     KPMG LLP





91



---



##### Table of Contents






SCHEDULE II  VALUATION AND QUALIFYING
ACCOUNTS


(In Thousands)




|                             |  |           |     |          |             |   |          |             |  |   |           |  |        |        |     |  |  |   |       | 
|---------------------------- |  | --------- | --- | -------- | ----------- | - | -------- | ----------- |  | - | --------- |  | ------ | ------ | --- |  |  | - | ----- | 
|                             |  |           |     | Increase |             |   | Expenses |             |  |   |           | 
|                             |  | Beginning |     |          | Through     |   |          | and         |  |   |           |  | End of |       
|                             |  | of Period |     |          | Acquisition |   |          | Adjustments |  |   | Writeoffs |  |        | Period |    
|                             |  |           |     |          |             |   |          |             |  |   |           |  |        |        |    
|Year Ended December 31, 2003 |  | $         | 398 |          |             | $ | 234      |             |  | $ | 213       |  |        | $      | 182 |  |  | $ | 663   | 
|Year Ended December 31, 2004 |  | $         | 663 |          |             | $ |         |             |  | $ | 205       |  |        | $      | 213 |  |  | $ | 655   | 
|Year Ended December 31, 2005 |  | $         | 655 |          |             | $ | 2,597    |             |  | $ | 478       |  |        | $      | 275 |  |  | $ | 3,455 | 

92



---



##### Table of Contents








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








|         |                        
|-------- | -----------------------
|Item 9A. | Controls and Procedures

Conclusion Regarding the Effectiveness of Disclosure Controls
and Procedures


13a-15(e)


Managements Report on Internal Control Over Financial
Reporting






Changes in Internal Controls









|         |                  
|-------- | -----------------
|Item 9B. | Other Information






PART III







|         |                                                   
|-------- | --------------------------------------------------
|Item 10. | Directors and Executive Officers of the Registrant








|         |                       
|-------- | ----------------------
|Item 11. | Executive Compensation



93



---



##### Table of Contents








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








|         |                                               
|-------- | ----------------------------------------------
|Item 13. | Certain Relationships and Related Transactions








|         |                                        
|-------- | ---------------------------------------
|Item 14. | Principal Accountant Fees and Services.






PART IV







|         |                                           
|-------- | ------------------------------------------
|ITEM 15. | Exhibits and Financial Statement Schedules





| |                                                                                                                                                            
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------
| | (1) Consolidated Financial Statements: See Index to
    Financial Statements at Item 8 on page 48 of this
    report.                                      
|
| | (2) Financial Statement Schedule: See
    Schedule II  Valuation and Qualifying Accounts
    on page 89 of this report.                                   
|
| | (3) Exhibits are incorporated herein by reference or are
    filed with this report: See Index to Exhibits following the
    signature page of this report.







94



---



##### Table of Contents






SIGNATURES






| |                            
| | ---------------------------
| | Cardiac Science Corporation



| |     |                       
| | --- | ----------------------
| | By: | /s/ Michael K. Matysik

| |                        
| | -----------------------
| |                        
| | Michael K. Matysik     
| | Chief Financial Officer





|                                                         |  |                                                                                                    |  |                |  | 
|-------------------------------------------------------- |  | -------------------------------------------------------------------------------------------------- |  | -------------- |  | 
|Signature                                                |  | Title                                                                                              |  | Date          
|                                                         |  |                                                                                                    |  |               
|                                                        
|/s/ John R. HinsonJohn R. Hinson                         |  | President, Chief Executive Officer and Director (Principal
    Executive Officer)                  |  | March 16, 2006
|                                                        
|/s/ Michael K. MatysikMichael K. Matysik                 |  | Senior Vice President and Chief Financial Officer (Principal
    Financial and Accounting Officer) |  | March 16, 2006
|                                                        
|/s/ Raymond W. CohenRaymond W. Cohen                     |  | Chairman of the Board                                                                              |  | March 16, 2006
|                                                        
|/s/ Ruediger
    Naumann-EtienneRuediger Naumann-Etienne |  | Vice-Chairman of the Board                                                                         |  | March 16, 2006
|                                                        
|/s/ Bruce J. BarclayBruce J. Barclay                     |  | Director                                                                                           |  | March 16, 2006
|                                                        
|/s/ W. Robert BergW. Robert Berg                         |  | Director                                                                                           |  | March 16, 2006
|                                                        
|/s/ Jue-Hsien ChernJue-Hsien Chern                       |  | Director                                                                                           |  | March 16, 2006
|                                                        
|/s/ Harvey N. GillisHarvey N. Gillis                     |  | Director                                                                                           |  | March 16, 2006
|                                                        
|/s/ Ray E.
    Newton IIIRay E. Newton III               |  | Director                                                                                           |  | March 16, 2006
|                                                        
|/s/ Jeffrey F.
    ODonnell Sr.Jeffrey F. ODonnell Sr. |  | Director                                                                                           |  | March 16, 2006

95



---



##### Table of Contents



|        |    |             |  |                                                                                                                                                                                                                                                                                                   
|------- | -- | ----------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |            
|Number  |    | Description
|        |    |            
|        | 2  | .1          |  | Agreement and Plan of Merger dated as of February 28, 2005,
    as amended on June 23, 2005, among Quinton Cardiology
    Systems, Inc., Cardiac Science, Inc., CSQ Holding Company,
    Rhythm Acquisition Corporation, and Heart Acquisition
    Corporation(1)                                 
|        | 2  | .2          |  | Stock Purchase Agreement dated December 23, 2002 by and
    among Spacelabs Medical, Inc., Spacelabs Burdick, Inc., Quinton
    Cardiology Systems, Inc. and Datex-Ohmeda, Inc.(3)                                                                                                                
|        | 3  | .1          |  | Amended and Restated Certificate of Incorporation(2)                                                                                                                                                                                                                                              
|        | 3  | .2          |  | Amended and Restated Bylaws(22)                                                                                                                                                                                                                                                                   
|        | 4  | .1          |  | Specimen Stock Certificate(2)                                                                                                                                                                                                                                                                     
|        | 4  | .2          |  | Common Stock and Warrant Purchase Agreement, dated July 20,
    2004, by and among Cardiac Science, Inc., Perseus Market
    Opportunity Fund, L.P., Winterset Master Fund, L.P., Mill River
    Master Fund, L.P., Massachusetts Mutual Life Insurance Company
    and Walter Villager(17)       
|        | 4  | .3          |  | Amended and Restated Registration Rights Agreement, dated
    July 20, 2004, by and among Cardiac Science, Inc., Perseus
    Market Opportunity Fund, L.P., Winterset Master Fund, L.P., Mill
    River Master Fund, L.P., Massachusetts Mutual Life Insurance
    Company and Walter Villager(17)
|        | 4  | .4          |  | Form of Warrant(17)                                                                                                                                                                                                                                                                               
|        | 4  | .5          |  | Form of Warrant issued to Perseus Acquisition/Recapitalization
    Fund, L.L.C., Perseus Market Opportunity Fund, L.P. and Cardiac
    Science Co-Investment, L.P.(22)                                                                                                                            
|        | 10 | .1          |  | Senior Note and Warrant Conversion Agreement dated as of
    February 28, 2005 among CSQ Holding Company, Cardiac
    Science, Inc. and the purchasers listed on the signature pages
    thereto(1)                                                                                               
|        | 10 | .2*         |  | Employment Agreement between Quinton Cardiology Systems, Inc.
    and John R. Hinson dated as of February 6, 2004(10)                                                                                                                                                                             
|        | 10 | .3          |  | Assumption and Amendment Agreement dated as of
    September 28, 2005 among Silicon Valley Bank, Cardiac
    Science Corporation, Quinton Cardiology, Inc. and Cardiac
    Science Operating Company(19)                                                                                          
|        | 10 | .4          |  | Lease Termination Agreement effective as of September 14,
    2005 between Cardiac Science, Inc. and Terrace Tower Orange
    County, LLC(20)                                                                                                                                                     
|        | 10 | .5*         |  | Quinton Cardiology Systems, Inc. 1998 Amended and Restated
    Equity Incentive Plan(4)                                                                                                                                                                                                           
|        | 10 | .6*         |  | Quinton Cardiology Systems, Inc. 2002 Stock Incentive Plan(4)                                                                                                                                                                                                                                     
|        | 10 | .7*         |  | Quinton Cardiology Systems, Inc. 2002 Employee Stock Purchase
    Plan(4)                                                                                                                                                                                                                         
|        | 10 | .8*         |  | Quinton Cardiology Systems, Inc. Stock Option Grant Program for
    Nonemployee Directors(5)                                                                                                                                                                                                      
|        | 10 | .9*         |  | Quinton Cardiology Systems, Inc. 2004 Management Incentive
    Plan(13)                                                                                                                                                                                                                           
|        | 10 | .10         |  | OEM Agreement between Quinton Inc. and Mortara Instrument, Inc.
    dated August 1, 2000(4)                                                                                                                                                                                                       
|        | 10 | .11         |  | OEM Agreement between Quinton Inc. and Mortara Instrument, Inc.
    dated October 17, 2000(4)                                                                                                                                                                                                     
|        | 10 | .12         |  | OEM Agreement between Quinton Inc. and Mortara Instrument, Inc.
    dated October 1, 2001(6)                                                                                                                                                                                                      
|        | 10 | .13         |  | Addendum No. 1 to the OEM Agreement between Mortara
    Instrument, Inc. and Quinton Inc. dated August 1, 2001(4)                                                                                                                                                                                 
|        | 10 | .14         |  | Loan and Security Agreement between Quinton Cardiology Systems,
    Inc. and Quinton Inc. and Silicon Valley Bank dated
    December 30, 2002(7)                                                                                                                                                  
|        | 10 | .15         |  | Amendment to Loan Documents between Quinton Cardiology Systems,
    Inc., Quinton Inc. and Burdick, Inc. and Silicon Valley Bank
    dated January 9, 2003(7)                                                                                                                                     
|        | 10 | .16         |  | Streamline Facility Agreement between Quinton Cardiology
    Systems, Inc. and Quinton Inc. and Silicon Valley Bank dated as
    of December 30, 2002(7)                                                                                                                                          
|        | 10 | .17         |  | Cross-Corporate Continuing Guaranty between Quinton Cardiology
    Systems, Inc. and Quinton Inc. and Silicon Valley Bank dated
    December 30, 2002(7)                                                                                                                                          
|        | 10 | .18         |  | Intellectual Property Security Agreement between Quinton
    Cardiology Systems, Inc. and Quinton Inc. and Silicon Valley
    Bank dated December 30, 2002(7)                                                                                                                                     



---



##### Table of Contents



|        |    |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                   
|------- | -- | ----------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |            
|Number  |    | Description
|        |    |            
|        | 10 | .19         |  | Assumption Agreement between Quinton Cardiology Systems, Inc.,
    Quinton Inc. and Burdick, Inc. and Silicon Valley Bank dated
    January 9, 2003(7)                                                                                                                                                                                                                                                                            
|        | 10 | .20         |  | Cross-Corporate Continuing Guaranty between Burdick Inc. and
    Silicon Valley Bank dated January 9, 2003(7)                                                                                                                                                                                                                                                                                                                     
|        | 10 | .21         |  | Intellectual Property Security Agreement between Burdick, Inc.
    and Silicon Valley Bank dated January 9, 2003(7)                                                                                                                                                                                                                                                                                                               
|        | 10 | .22         |  | Lease Agreement between Carl Ruedebusch LLC and Burdick, Inc.
    regarding premises at Deerfield Industrial Park in Deerfield,
    Wisconsin dated as of April 6, 1998(7)                                                                                                                                                                                                                                                        
|        | 10 | .23         |  | Lease Agreement between Quinton Cardiology Systems, Inc. and
    Hibbs/ Woodinville Associates, L.L.C. regarding premises at
    Bothell, Washington, dated August 29, 2003(8)                                                                                                                                                                                                                                                    
|        | 10 | .24*        |  | Form of Quinton Cardiology Systems, Inc. Stock Option Grant
    Notice and Stock Option Agreement (This exhibit represents other
    substantially identical documents that have been omitted because
    they are substantially identical to this document in all
    material respects and an Appendix attached to this exhibit sets
    forth material details by which the omitted documents differ
    from this exhibit.)(9)
|        | 10 | .25*        |  | Quinton Cardiology Systems, Inc. Stock Option Grant Notice and
    Stock Option Agreement between Quinton Cardiology Systems, Inc.
    and Atul Jhalani, dated as of October 23, 2003(9)                                                                                                                                                                                                                                          
|        | 10 | .26*        |  | Employment Agreement between Quinton Cardiology Systems, Inc.
    and Michael K. Matysik dated as of February 6, 2004(10)                                                                                                                                                                                                                                                                                                         
|        | 10 | .27*        |  | Employment Agreement between Quinton Cardiology Systems, Inc.
    and Darryl Lustig dated as of February 6, 2004(10)                                                                                                                                                                                                                                                                                                              
|        | 10 | .28*        |  | Quinton Cardiology Systems, Inc. Stock Option Grant Notice and
    Stock Option Agreement between Quinton Cardiology Systems, Inc.
    and Allan Criss, dated as of March 10, 2004(10)                                                                                                                                                                                                                                            
|        | 10 | .29         |  | Employment Agreement between Quinton Cardiology Systems, Inc.
    and Allan Criss dated as of March 1, 2004(11)                                                                                                                                                                                                                                                                                                                   
|        | 10 | .30         |  | Amendment to Loan Documents between Quinton Cardiology Systems,
    Inc., Quinton Cardiology, Inc. and Silicon Valley Bank dated
    December 30, 2004(12)                                                                                                                                                                                                                                                                        
|        | 10 | .31*        |  | Employment Agreement between Quinton Cardiology Systems, Inc.
    and Atul Jhalani dated as of February 6, 2004(13)                                                                                                                                                                                                                                                                                                               
|        | 10 | .32*        |  | Form of Stock Option Grant Notice and Stock Option Agreement for
    grants made pursuant to the Quinton Cardiology Systems, Inc.
    2002 Stock Incentive Plan(13)                                                                                                                                                                                                                                                               
|        | 10 | .33*        |  | Quinton Cardiology Systems, Inc. Senior Executives 
    Base Compensation Adjustments  2005 dated as of
    February 28, 2005(13)                                                                                                                                                                                                                                                                                               
|        | 10 | .34*        |  | Summary of Non-Employee Director Compensation(13)                                                                                                                                                                                                                                                                                                                                                                                 
|        | 10 | .35*        |  | Quinton Cardiology Systems, Inc. 2004 Sales Bonus Plan for
    Darryl Lustig, as amended on March 14, 2005(13)                                                                                                                                                                                                                                                                                                                    
|        | 10 | .36*        |  | Quinton Cardiology Systems, Inc. 2004 Sales Bonus Plan for Allan
    Criss, as amended on March 14, 2005(13)                                                                                                                                                                                                                                                                                                                      
|        | 10 | .37*        |  | Quinton Cardiology Systems, Inc. 2005 Sales Incentive Plan for
    Darryl Lustig(13)                                                                                                                                                                                                                                                                                                                                              
|        | 10 | .38*        |  | Quinton Cardiology Systems, Inc. 2005 Sales Incentive Plan for
    Allan Criss(13)                                                                                                                                                                                                                                                                                                                                                
|        | 10 | .39*        |  | Employment Agreement between Quinton Cardiology Systems, Inc.
    and Brian Lee dated as of February 6, 2004(13)                                                                                                                                                                                                                                                                                                                  
|        | 10 | .40*        |  | Employment Agreement between Quinton Cardiology Systems, Inc.
    and Feroze Motafram dated as of February 6, 2004(13)                                                                                                                                                                                                                                                                                                            
|        | 10 | .41*        |  | Quinton Cardiology Systems, Inc. Stock Option Grant Notice and
    Stock Option Agreement between Quinton Cardiology Systems, Inc.
    and Feroze Motafram dated as of July 23, 2003(13)                                                                                                                                                                                                                                          
|        | 10 | .42*        |  | Employment Agreement between Quinton Cardiology Systems, Inc.
    and David Hadley dated as of February 6, 2004(13)                                                                                                                                                                                                                                                                                                               
|        | 10 | .43*        |  | Cardiac Science, Inc. 1997 Stock Option/Stock Issuance Plan, as
    amended(14)                                                                                                                                                                                                                                                                                                                                                   
|        | 10 | .44*        |  | Employment Agreement between Cardiac Science, Inc. and Raymond
    Cohen, dated December 31, 2002(16)                                                                                                                                                                                                                                                                                                                             



---



##### Table of Contents



|        |    |             |  |                                                                                                                                                                                                   |      | 
|------- | -- | ----------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---- | 
|Exhibit |    |            
|Number  |    | Description
|        |    |            
|        | 10 | .45*        |  | Employment Agreement between Cardiac Science, Inc. and Kurt Lemvigh, dated December 1, 2001                                                                                                       | (16) | 
|        | 10 | .46         |  | Amendment, dated June 10, 2005, to the OEM Purchase Agreement dated July 29, 2003, as amended, between Cardiac Science, Inc. and GE Medical Systems Information Technologies, Inc.(18)           
|        | 10 | .47        |  | Amendment, dated June 10, 2005, to the OEM Purchase and Supply Agreement dated July 29, 2003, as amended, between Cardiac Science, Inc. and GE Medical Systems Information Technologies, Inc.(18)
|        | 10 | .48        |  | Exclusive Distribution Agreement for United States and Canadian Hospitals dated June 13, 2005, between Cardiac Science, Inc. and GE Medical Systems Information Technologies, Inc.(18)           
|        | 10 | .49*        |  | Employment Agreement between Cardiac Science, Inc. and Peter Foster, dated August 30, 2004(21)                                                                                                   
|        | 10 | .50*        |  | Employment Agreement effective September 1, 2005 between Cardiac Science Corporation and Raymond W. Cohen(21)                                                                                    
|        | 10 | .51*        |  | Letter Agreement dated as of November 9, 2005 between Cardiac Science Corporation and Ruediger Naumann-Etienne(21)                                                                               
|        | 10 | .52*        |  | Form of Indemnification Agreement(21)                                                                                                                                                            
|        | 10 | .53*        |  | Summary of Non-Employee Director Compensation(21)                                                                                                                                                
|        | 10 | .54*        |  | Cardiac Science Corporation 2006 Management Incentive Plan(21)                                                                                                                                   
|        | 10 | .55*        |  | Quinton Cardiology Systems, Inc. 2005 Management Incentive Plan(13)                                                                                                                              
|        | 21 | .1          |  | Subsidiaries                                                                                                                                                                                      |      | 
|        | 23 | .1          |  | Consent of Independent Registered Public Accounting Firm                                                                                                                                         
|        | 31 | .1          |  | Certification of Chief Executive Officer pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002.                                                                                           
|        | 31 | .2          |  | Certification of Chief Financial Officer pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002.                                                                                           
|        | 32 | .1          |  | Certification of Chief Executive Officer Pursuant to 18  U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                              
|        | 32 | .2          |  | Certification of Chief Financial Officer Pursuant to 18  U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                              






| |   |                                                                       
| | - | ----------------------------------------------------------------------
| | * | Indicates management contract or compensatory plan or
    arrangement.



| |   |                                                                                                                                                                                                                                                                         
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Portions of this exhibit are omitted and were filed separately
    with the Securities and Exchange Commission pursuant to Cardiac
    Science Inc.s application requesting confidential
    treatment under
    Rule 24b-2 of the
    Securities Exchange Act of 1934.



| |     |                                                                                                                                                                                              
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (1) | Incorporated by reference to the Registrants Amendment
    No. 3 to the Registration Statement on
    Form S-4/A (File
    No. 333-124514)
    filed on July 28, 2005.                      
|
| | (2) | Incorporated by reference to the Registrants Current
    Report on Form 8-K
    (File
    No. 000-51512)
    filed on September 1, 2005.                                                    
|
| | (3) | Incorporated by reference to Quinton Cardiology Systems,
    Inc.s Current Report on
    Form 8-K (File
    No. 000-49755)
    filed on January 17, 2003.                                   
|
| | (4) | Incorporated by reference to Quinton Cardiology Systems,
    Inc.s Registration Statement on
    Form S-1 (File
    No. 333-83272)
    filed on February 22, 2002.                          
|
| | (5) | Incorporated by reference to Quinton Cardiology Systems,
    Inc.s Amendment No. 1 to the Registration Statement
    on Form S-1/A
    (File
    No. 333-83272)
    filed on March 26, 2002.
|
| | (6) | Incorporated by reference to Quinton Cardiology Systems,
    Inc.s Amendment No. 3 to the Registration Statement
    on Form S-1/A
    (File
    No. 333-83272)
    filed on April 3, 2002. 
|
| | (7) | Incorporated by reference to Quinton Cardiology Systems,
    Inc.s Annual Report on
    Form 10-K for the
    year ended December 31, 2002 (File
    No. 000-49755).                        



---



##### Table of Contents





| |     |                                                                                                                                                                             
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (8) | Incorporated by reference to Quinton Cardiology Systems,
    Inc.s Quarterly Report on
    Form 10-Q for the
    quarter ended September 30, 2003 (File
    No. 000-49755).
|
| | (9) | Incorporated by reference to Quinton Cardiology Systems,
    Inc.s Annual Report on
    Form 10-K for the
    year ended December 31, 2003 (File
    No. 000-49755).       



|     |                                                                                                                                                                                       
|---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(10) | Incorporated by reference to Quinton Cardiology Systems,
    Inc.s Quarterly Report on
    Form 10-Q for the
    quarter ended March 31, 2004 (File
    No. 000-49755).              
|    
|(11) | Incorporated by reference to Quinton Cardiology Systems,
    Inc.s Quarterly Report on
    Form 10-Q for the
    quarter ended June 30, 2004 (File
    No. 000-49755).               
|    
|(12) | Incorporated by reference to Quinton Cardiology Systems,
    Inc.s Current Report on
    Form 8-K (File
    No. 000-49755)
    filed on January 5, 2005.                             
|    
|(13) | Incorporated by reference to Quinton Cardiology Systems,
    Inc.s Annual Report on
    Form 10-K for the
    year ended December 31, 2004 (File
    No. 000-49755).                 
|    
|(14) | Incorporated by reference to Cardiac Science, Inc.s
    Definitive Proxy Statement for the Annual Meeting of
    Stockholders (File
    No. 000-19567)
    held on September 9, 2002.
|    
|(15) | Incorporated by reference to Cardiac Science, Inc.s
    Current Report on
    Form 8-K (File
    No. 000-19567) filed on March 27, 2001.                                             
|    
|(16) | Incorporated by reference to Cardiac Science, Inc.s Annual
    Report on
    Form 10-K for the
    year ended December 31, 2002 (File No. 000-19567).                                
|    
|(17) | Incorporated by reference to Cardiac Science, Inc.s
    Current Report on
    Form 8-K (File
    No. 000-19567)
    filed on July 22, 2004.                                          
|    
|(18) | Incorporated by reference to Cardiac Science, Inc.s
    Quarterly Report on
    Form 10-Q for the
    quarter ended June 30, 2005 (File
    No. 000-19567).                          
|    
|(19) | Incorporated by reference to the Registrants Current
    Report on Form 8-K
    (File
    No. 000-51512)
    filed on September 30, 2005.                                            
|    
|(20) | Incorporated by reference to the Registrants Current
    Report on Form 8-K
    (File
    No. 000-51512)
    filed on October 3, 2005.                                               
|    
|(21) | Incorporated by reference to the Registrants Current
    Report on Form 8-K
    (File
    No. 000-51512)
    filed November 15, 2005.                                                
|    
|(22) | Incorporated by reference to the Registrants Current
    Report on Form 8-K
    (File
    No. 000-51512)
    filed February 27, 2006.