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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, 2007
 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
    
    (I.R.S. EmployerIncorporation or Organization)
    
    Identification No.)3303 Monte Villa Parkway, Bothell, WA
    
    98021(Address of Principal Executive Offices)
    
    (Zip Code)
 (425) 402-2000  (Registrants Telephone Number, Including Area Code)
 Securities Registered Pursuant to Section 12(b) of the Act:
 Title of each class
    
    Name of each exchange on which registeredCommon Stock, $0.001 par value
    
    NASDAQ Global Market
 Securities Registered Pursuant to Section 12(g) of the Act: None.
  o þ
 o þ
 þ o
 o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do
not check if a smaller reporting company)
 o þ
   DOCUMENTS INCORPORATED BY REFERENCE




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##### 



CARDIAC SCIENCE CORPORATION
 2007 FORM 10-K ANNUAL REPORT
  
 TABLE OF CONTENTS
 PagePART IItem 1. Business
    
    
    1Item 1A. Risk Factors
    
    
    17Item 1B. Unresolved Staff Comments
    
    
    25Item 2. Properties
    
    
    25Item 3. Legal Proceedings
    
    
    25Item 4. Submission of Matters to a Vote of Security Holders
    
    
    25PART IIItem 5. Market for
Registrants Common Equity, Related Stockholder Matters and
Issuer Purchases of Equity Securities
    
    
    26Item 6. Selected Financial Data
    
    
    28Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    30Item 7A. Quantitative and Qualitative Disclosures About Market Risk
    
    
    40Item 8. Financial Statements and Supplementary Data
    
    
    41Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    78Item 9A. Controls and Procedures
    
    
    78Item 9B. Other Information
    
    
    78PART IIIItem 10. Directors, Executive Officers and Corporate Governance
    
    
    79Item 11. Executive Compensation
    
    
    79Item 12. Security
Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
    
    
    79Item 13. Certain Relationships and Related Transactions, and Director Independence
    
    
    79Item 14. Principal Accountant Fees and Services
    
    
    79PART IVItem 15. Exhibits and Financial Statement Schedules
    
    
    80Signatures
    
    
    81EXHIBIT 21.1EXHIBIT 23.1EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1EXHIBIT 32.2
  i




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PART I
 This Annual Report on Form 10-K contains forward-looking statements relating to Cardiac
Science Corporation. Except for historical information, the following discussion contains
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, will,
may, 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 disclose and describe 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
  Our Markets
   1




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##### Table of Contents



Cardiac Monitoring Market
 What is Cardiac Monitoring?
  How is Cardiac Monitoring Performed?
  What are the Challenges Related to Cardiac Monitoring?
   Defibrillation Market
 What is Defibrillation?
  How is Defibrillation Performed?
   2




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What Are the Challenges Related to Defibrillation?
       Our Products and Services
   Cardiac Monitoring Products
  3




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Resting ECG systems
  Cardiac stress testing systems
  Holter monitoring systems
  Cardiac rehabilitation telemetry systems
  Cardiology data management systems (informatics)
  Related products and supplies
 TM
 Services
  4




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Advantages of our cardiac monitoring products:
  Ease of use.
 Effective data capture.
 Improved diagnostic speed and accuracy.
 Wireless and network compatibility.
  Flexible open technology for integration with EMR, HIS and other systems.
 Defibrillation Products
 TM
  5




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Public Access AEDs
   Professional AEDs
  Traditional Defibrillators
   Defibrillation Supplies and Accessories
  Services
  Advantages of our defibrillation products:
  Dependability. ®
 6




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Arrhythmia Detection.
 Variable Escalating Biphasic Defibrillation Energy. ®
 Ease of Use.
 Flexibility.
 Rugged design.
 Growth Strategy
  Exploit under-penetrated and emerging market segments
   7




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Create opportunities through innovation
  Broaden our distribution
    Leverage our services capabilities
  Pursue strategic mergers and acquisitions
  Business Advantages
  Cardiology focus.
 8




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Industry leading brands.
 Commitment to innovation.
 Leading market positions.
 Global distribution and service network .
 Our Organization
 Sales and Marketing
    9




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Customer Service and Support
   Research and Development
   Technology
  10




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Manufacturing and Supply
    Our Competition
  Product
    
    CompetitorsAEDs
    
    Philips, Medtronic, Zoll Medical, Welch AllynResting ECG systems
    
    General Electric, Philips, Schiller, Welch AllynCardiac stress testing systems
    
    General Electric, Philips, Welch AllynHolter monitoring systems
    
    SpaceLabs, General Electric, Philips, MidmarkCardiac rehabilitation telemetry systems
    
    Life Sensing Instruments, Scott CareCardiology data management systems
    
    General Electric, PhilipsTraditional (non-AED) defibrillators
    
    Zoll, Medtronic, Philips
  
    
    quality, accuracy, and reliability;
    
    reputation of the provider;
    
    relative ease of use;
    
    depth and breadth of features;
    
    quality of customer support;
    
    capability to assist in deployment and training;
    
    frequency of updates;
    
    flexibility to integrate products with other devices and systems from multiple
vendors;
 11




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
    
    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;
    
    product sales, distribution, and servicing; and
    
    post-market surveillance.
 FDAs Pre-market Clearance and Approval Requirements.
 12




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5 10(k) Clearance Process.
  Pre-market Approval Process.
   Clinical Trials.
 13




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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
    
    Post-market surveillance including Medical Device Reporting (MDR), 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;
    
    revocation of 510(k) clearance or pre-market approvals previously granted; and
    
    criminal penalties.
 International Regulation.
  14




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Intellectual Property
    Customers
  Employees
  15




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Foreign Operations
  Available Information
 www.sec.gov
 16




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Item 1A. Risk Factors
 Our business is subject to intense competition, which may reduce the demand for our products.
  
    
    greater financial and technical resources;
    
    greater variety of products;
    
    greater product pricing, discounting and bundling flexibility;
    
    patent portfolios that may present an obstacle to our conduct of business;
    
    stronger brand recognition and marketing resources; and
    
    larger distribution and sales networks.
  We may be unable to increase sales of our cardiac monitoring products and services, which could
cause our stock price to decrease.
  We may be required to implement a costly product recall.
  We rely significantly on our distributors and strategic selling alliances to generate sales of our
products; if we do not maintain our relationships with these parties or they fail to successfully
distribute our products, our sales and operating results will likely suffer.
  Our stock price is volatile, and you may not be able to sell your shares for a profit.
  17




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
    
    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;
    
    general market conditions: and
    
    timing of major competitors return to AED market.
  We may be unable to maintain profitability, which could result in a decline in our stock price
  We are subject to many laws and governmental regulations and any adverse regulatory action may
materially adversely affect our business operations and financial results.
  
    
    take a significant amount of time;
    
    require the expenditure of substantial resources;
    
    involve stringent clinical and pre-clinical testing;
    
    involve modifications, repairs or replacements of our products; and
    
    result in limitations on the proposed uses of our products.
   18




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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;
    
    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;
    
    seasonality in the sales of our products;
    
    the impact of longer buying cycles; and
    
    the impact of employee turnover.
  If we are unsuccessful in developing and commercializing new versions of our products, our
operating results will suffer.
  
    
    accurately assess customer needs;
    
    develop products that are functional and easy to use;
    
    quickly and cost-effectively obtain regulatory clearance or approval;
    
    price competitively;
    
    manufacture and deliver on time;
    
    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
 19




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
    
    anticipate and compete effectively with our competitors efforts.
  Interruption or cancellation of supply, and our inability to secure alternative suppliers on a
timely basis, would likely harm our ability to ship products to our customers, decrease our
revenues and increase our costs.
  Inadequate levels of reimbursement from governmental or other third-party payers for procedures
using our products may cause revenues to decrease.
   Quality problems with our processes, goods and services could harm our reputation for producing
high quality products and erode our competitive advantage.
  If we do not maintain or grow revenues from our support services or consumables, our operating and
financial results may be negatively impacted.
  20




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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 or cancellations in shipments and loss
of revenues;
    
    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.
  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.
  Our international business is subject to risks that could adversely affect our profitability and
operating results.
  
    
    changes in foreign medical reimbursement programs and policies;
    
    changes in foreign regulatory requirements;
    
    local product preferences and product requirements;
    
    longer-term receivables than are typical in the U.S.;
    
    fluctuations in foreign currency exchange rates;
    
    less protection of intellectual property in some countries outside of the U.S.;
 21




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
    
    trade protection measures and import and export licensing requirements;
    
    work force instability;
    
    political and economic instability; and
    
    complex tax and cash management issues.
 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.
  Warranty and product liability
claims could adversely impact our earnings and reputation.
  Failure to adequately protect our intellectual property rights may cause our expenses to increase
and our business to suffer.
   Our technology may become obsolete, which would negatively impact our ability to sell our products.
  22




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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.
  We may need additional capital to continue our acquisition growth strategy.
  Our research and development efforts rely upon acquisitions, investments and alliances, and we
cannot guarantee that any previous or future acquisitions, investments or alliances will be
successful.
  23




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Future issuances of our common stock could dilute existing stockholders and cause our stock price
to decline.
  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.
  24




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Item 1B. Unresolved Staff Comments
  
 Item 2. Properties
    
 Item 3.
Legal Proceedings
  
 Item 4. Submission of Matters to a Vote of Security Holders
  25




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PART II
 
 Item 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
   Stock PriceHigh
    
    LowFiscal 2007First Quarter
    
    $
    9.64
    
    
    $
    7.40Second Quarter
    
    
    11.45
    
    
    
    8.93Third Quarter
    
    
    11.50
    
    
    
    8.55Fourth Quarter
    
    
    10.75
    
    
    
    7.35Fiscal 2006First Quarter
    
    
    11.20
    
    
    
    8.98Second Quarter
    
    
    10.08
    
    
    
    7.55Third Quarter
    
    
    8.59
    
    
    
    6.71Fourth Quarter
    
    
    8.84
    
    
    
    7.19
  Performance Comparison Graph
  26




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27




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Item 6. Selected Financial Data
  Year Ended December 31,2007
    
    
    2006
    
    
    2005
    
    
    2004
    
    
    2003(in thousands, except share and per share data)Consolidated Statement of Operations Data (1):Revenues
    
    $
    182,131
    
    
    $
    155,429
    
    
    $
    106,650
    
    
    $
    89,603
    
    
    $
    84,396Cost of revenues
    
    
    93,715
    
    
    
    82,195
    
    
    
    59,794
    
    
    
    50,302
    
    
    
    51,131Gross profit
    
    
    88,416
    
    
    
    73,234
    
    
    
    46,856
    
    
    
    39,301
    
    
    
    33,265Operating Expenses:Research and development
    
    
    13,020
    
    
    
    11,733
    
    
    
    9,353
    
    
    
    7,397
    
    
    
    8,086Write-off acquired in-process research and
development
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,290Sales and marketing
    
    
    46,195
    
    
    
    39,960
    
    
    
    24,957
    
    
    
    18,378
    
    
    
    17,669General and administrative
    
    
    19,176
    
    
    
    19,072
    
    
    
    14,233
    
    
    
    8,348
    
    
    
    7,743Litigation and related expenses
    
    
    3,808
    
    
    
    3,855
    
    
    
    893
    
    
    
    
    
    
    
    Licensing income and litigation settlement
    
    
    (6,000
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total operating expenses
    
    
    76,199
    
    
    
    74,620
    
    
    
    49,436
    
    
    
    34,123
    
    
    
    34,788Operating income (loss)
    
    
    12,217
    
    
    
    (1,386
    )
    
    
    (2,580
    )
    
    
    5,178
    
    
    
    (1,523
    )Other Income (Expense):Interest income (expense), net
    
    
    402
    
    
    
    (16
    )
    
    
    325
    
    
    
    (70
    )
    
    
    (212
    )Other income (expense), net
    
    
    799
    
    
    
    782
    
    
    
    (487
    )
    
    
    1,031
    
    
    
    (11
    )Total other income (expense)
    
    
    1,201
    
    
    
    766
    
    
    
    (162
    )
    
    
    961
    
    
    
    (223
    )Income (loss) before income tax benefit
(expense)
and minority interests
    
    
    13,418
    
    
    
    (620
    )
    
    
    (2,742
    )
    
    
    6,139
    
    
    
    (1,746
    )Income tax benefit (expense)
    
    
    (4,924
    )
    
    
    615
    
    
    
    1,473
    
    
    
    8,890
    
    
    
    (62
    )Income (loss) before minority interests
    
    
    8,494
    
    
    
    (5
    )
    
    
    (1,269
    )
    
    
    15,029
    
    
    
    (1,808
    )Minority interests
    
    
    (4
    )
    
    
    54
    
    
    
    31
    
    
    
    39
    
    
    
    25Net income (loss)
    
    $
    8,490
    
    
    $
    49
    
    
    $
    (1,238
    )
    
    $
    15,068
    
    
    $
    (1,783
    )Basic income (loss) per share (2)
    
    $
    0.37
    
    
    $
    0.00
    
    
    $
    (0.08
    )
    
    $
    1.47
    
    
    $
    (0.19
    )Diluted income (loss) per share (2)
    
    $
    0.37
    
    
    $
    0.00
    
    
    $
    (0.08
    )
    
    $
    1.39
    
    
    $
    (0.19
    )Shares used in computing basic income (loss)
per share (2)
    
    
    22,697,113
    
    
    
    22,502,040
    
    
    
    14,695,261
    
    
    
    10,236,838
    
    
    
    9,376,205Shares used in computing diluted income (loss)
per share (2)
    
    
    23,197,911
    
    
    
    22,555,326
    
    
    
    14,695,261
    
    
    
    10,814,680
    
    
    
    9,376,205Consolidated Statement of Cash Flows Data:Cash flows provided by (used in) operating
activities
    
    $
    13,348
    
    
    $
    8,764
    
    
    $
    (850
    )
    
    $
    6,259
    
    
    $
    173Cash flows used in investing activities
    
    $
    (3,788
    )
    
    $
    (3,307
    )
    
    $
    (18,053
    )
    
    $
    (41
    )
    
    $
    (19,597
    )Cash flows provided by financing activities
    
    $
    780
    
    
    $
    816
    
    
    $
    547
    
    
    $
    15,499
    
    
    $
    227
 28




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Year Ended December 31,2007
    
    2006
    
    2005
    
    2004
    
    2003(in thousands)Consolidated Balance Sheet Data:Cash and cash equivalents
    
    $
    20,159
    
    
    $
    9,819
    
    
    $
    3,546
    
    
    $
    21,902
    
    
    $
    185Total assets
    
    
    262,671
    
    
    
    247,645
    
    
    
    248,557
    
    
    
    77,175
    
    
    
    48,317Current liabilities
    
    
    35,219
    
    
    
    31,294
    
    
    
    33,832
    
    
    
    18,682
    
    
    
    20,807Long-term liabilities
    
    
    54
    
    
    
    679
    
    
    
    1,806
    
    
    
    
    
    
    
    1,180Total shareholders equity
    
    
    227,271
    
    
    
    215,597
    
    
    
    212,791
    
    
    
    58,334
    
    
    
    26,132
 
 (1)
    
    The business combination of Quinton and CSI in
September 2005 materially affects the
comparability of information contained in this table (See Item 8, Note 2 to the Consolidated
Financial Statements).(2)
    
    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 Item 8, Note 1 to the Consolidated
Financial Statements for a reconciliation of the denominators used in computing basic and
diluted loss per share for 2007, 2006 and 2005. 29




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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
safe harbor provisions under 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, will, may, 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 due to various uncertainties. The principal
factors that could cause or contribute to such differences include, but are not limited to, the
factors 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 disclose and describe 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.
 Business Overview
 ® ® ® ®
    Critical Accounting Estimates and Policies
  30




---



##### Table of Contents



and
 Deferred Tax Assets and Income Taxes treatment
 Stock-based Compensation.
 Goodwill.
   Intangible Assets.
 31




---



##### Table of Contents



Valuation of Long-Lived Assets.
 Inventories.
 Warranty.
 Licensing Income and Litigation Settlement.
 Software Revenue Recognition.
 32




---



##### Table of Contents



Revenue Recognition.
     Recent Accounting Pronouncements
      33




---



##### Table of Contents



Results of Operations
 Overview of 2007 Results
  
    
    Posted record revenue of $182.1 million, representing 17% growth over 2006
    
    Restructured the US cardiac monitoring sales team to take advantage of revenue
opportunities in that market
    
    Released a new hospital defibrillator in the fourth quarter, marking the beginning of a
long-term strategic selling alliance with GE Medical to distribute these products worldwide
    
    Introduced new and updated products, including a new cardiac rehabilitation system, an
updated electrocardiograph platform, increased connectivity options for stress systems and
new non-English language versions of a number of products
    
    Announced the creation of Nevada Project Heartbeat, the first statewide public access
defibrillation program in the U.S.
    
    Renewed its partnership with San Diego Project Heartbeat, where we remain the preferred
AED supplier for their leading-edge public access defibrillation program
    
    Expanded global AED distribution, particularly in North America, and achieved
significant market share increases
    
    Received the Award for Global Excellence in ECG Monitoring from Frost and Sullivan
    
    Settled three intellectual property-related lawsuits, eliminating substantial expense,
uncertainty and management distraction, and
    
    Attained record profit and operating cash flow
 Looking Forward
    34




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##### Table of Contents



Revenues
   Year Ended
    
    
    
    
    
    
    Year Ended
    
    
    
    
    
    
    Year EndedDecember 31,
    
    
    % Change
    
    
    December 31,
    
    
    % Change
    
    
    December 31,(dollars in thousands)
    
    2007
    
    
    2006 to 2007
    
    
    2006
    
    
    2005 to 2006
    
    
    2005Defibrillation products
    
    $
    97,382
    
    
    
    44.5
    %
    
    $
    67,414
    
    
    
    251.4
    %
    
    $
    19,182% of revenue
    
    
    53.5
    %
    
    
    
    
    
    
    43.4
    %
    
    
    
    
    
    
    18.0
    %Cardiac monitoring products
    
    
    68,624
    
    
    
    (3.4
    %)
    
    
    71,016
    
    
    
    (4.4
    %)
    
    
    74,278% of revenue
    
    
    37.7
    %
    
    
    
    
    
    
    45.7
    %
    
    
    
    
    
    
    69.6
    %Service
    
    
    16,125
    
    
    
    (5.1
    %)
    
    
    16,999
    
    
    
    28.9
    %
    
    
    13,190% of revenue
    
    
    8.9
    %
    
    
    
    
    
    
    10.9
    %
    
    
    
    
    
    
    12.4
    %Total revenues
    
    $
    182,131
    
    
    
    17.2
    %
    
    $
    155,429
    
    
    
    45.7
    %
    
    $
    106,650
 Year Ended December 31, 2007 Compared to Year Ended December 31, 2006
    Year Ended December 31, 2006 Compared to Year Ended December 31, 2005
    35




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##### Table of Contents



Gross Profit
   Year ended
    
    
    
    
    
    
    Year ended
    
    
    
    
    
    
    Year endedDecember 31,
    
    
    % Change
    
    
    December 31,
    
    
    % Change
    
    
    December 31,(dollars in thousands)
    
    2007
    
    
    2006 to 2007
    
    
    2006
    
    
    2005 to 2006
    
    
    2005Defibrillation products
    
    $
    52,664
    
    
    
    45.5
    %
    
    $
    36,183
    
    
    
    431.5
    %
    
    $
    6,808% of defibrillation products revenue
    
    
    54.1
    %
    
    
    
    
    
    
    53.7
    %
    
    
    
    
    
    
    35.5
    %Cardiac monitoring products
    
    
    32,000
    
    
    
    (1.2
    %)
    
    
    32,390
    
    
    
    (8.6
    %)
    
    
    35,457% of cardiac monitoring products revenue
    
    
    46.6
    %
    
    
    
    
    
    
    45.6
    %
    
    
    
    
    
    
    47.7
    %Service
    
    
    3,752
    
    
    
    (19.5
    %)
    
    
    4,661
    
    
    
    1.5
    %
    
    
    4,591% of service revenue
    
    
    23.3
    %
    
    
    
    
    
    
    27.4
    %
    
    
    
    
    
    
    34.8
    %Total gross profit
    
    $
    88,416
    
    
    
    20.7
    %
    
    $
    73,234
    
    
    
    56.3
    %
    
    $
    46,856% of total revenue
    
    
    48.5
    %
    
    
    
    
    
    
    47.1
    %
    
    
    
    
    
    
    43.9
    %
 Year Ended December 31, 2007 Compared to Year Ended December 31, 2006
   Year Ended December 31, 2006 Compared to Year Ended December 31, 2005
   Operating Expenses
   36




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##### Table of Contents



Year Ended
    
    
    
    
    
    
    Year Ended
    
    
    
    
    
    
    Year EndedDecember 31,
    
    
    % Change
    
    
    December 31,
    
    
    % Change
    
    
    December 31,(dollars in thousands)
    
    2007
    
    
    2006 to 2007
    
    
    2006
    
    
    2005 to 2006
    
    
    2005Research and development (including stock-based
compensation expense of $299, $321 and $0)
    
    $
    13,020
    
    
    
    11.0
    %
    
    $
    11,733
    
    
    
    25.4
    %
    
    $
    9,353% of total revenue
    
    
    7.1
    %
    
    
    
    
    
    
    7.5
    %
    
    
    
    
    
    
    8.8
    %Sales and marketing (including stock-based
compensation expense of $795, $723 and $0)
    
    
    46,195
    
    
    
    15.6
    %
    
    
    39,960
    
    
    
    60.1
    %
    
    
    24,957% of total revenue
    
    
    25.4
    %
    
    
    
    
    
    
    25.7
    %
    
    
    
    
    
    
    23.4
    %General and administrative (including stock-based
compensation expense of $807, $650 and $58)
    
    
    19,176
    
    
    
    0.5
    %
    
    
    19,072
    
    
    
    34.0
    %
    
    
    14,233% of total revenue
    
    
    10.5
    %
    
    
    
    
    
    
    12.3
    %
    
    
    
    
    
    
    13.3
    %Litigation and related expenses
    
    
    3,808
    
    
    
    (1.2
    %)
    
    
    3,855
    
    
    
    331.7
    %
    
    
    893% of total revenue
    
    
    2.1
    %
    
    
    
    
    
    
    2.5
    %
    
    
    
    
    
    
    0.8
    %Licensing income and litigation settlement
    
    
    (6,000
    )
    
    
    n/m
    
    
    
    
    
    
    
    0.0
    %
    
    
    % of total revenue
    
    
    (3.3
    %)
    
    
    
    
    
    
    0.0
    %
    
    
    
    
    
    
    0.0
    %Total operating expenses
    
    $
    76,199
    
    
    
    2.1
    %
    
    $
    74,620
    
    
    
    50.9
    %
    
    $
    49,436% of total revenue
    
    
    41.8
    %
    
    
    
    
    
    
    48.0
    %
    
    
    
    
    
    
    46.4
    %
 Year Ended December 31, 2007 Compared to Year Ended December 31, 2006
    37




---



##### Table of Contents



Year Ended December 31, 2006 Compared to Year Ended December 31, 2005
    Other Income and Expense
    Income Taxes
  38




---



##### Table of Contents



Liquidity and Capital Resources
  Year Ended
    
    
    
    
    
    
    Year Ended
    
    
    
    
    
    
    Year EndedDecember 31,
    
    
    % Change
    
    
    December 31,
    
    
    % Change
    
    
    December 31,(dollars in thousands)
    
    2007
    
    
    2006 to 2007
    
    
    2006
    
    
    2005 to 2006
    
    
    2005Cash flow provided by (used in) operating activities
    
    $
    13,348
    
    
    
    52.3
    %
    
    $
    8,764
    
    
    
    1131.1
    %
    
    $
    (850
    )Cash flow used in investing activities
    
    
    (3,788
    )
    
    
    (14.5
    %)
    
    
    (3,307
    )
    
    
    81.7
    %
    
    
    (18,053
    )Cash flow provided by financing activities
    
    
    780
    
    
    
    (4.4
    %)
    
    
    816
    
    
    
    49.2
    %
    
    
    547Total change in cash
    
    $
    10,340
    
    
    
    64.8
    %
    
    $
    6,273
    
    
    
    134.2
    %
    
    $
    (18,356
    )
       39




---



##### Table of Contents



Contractual Obligations
  Less than
    
    
    1-3
    
    
    3-5
    
    
    AfterContractual Obligations
    
    Total
    
    
    1 year
    
    
    years
    
    
    years
    
    
    5 yearsOperating leases
    
    $
    7,196
    
    
    $
    2,685
    
    
    $
    1,892
    
    
    $
    1,539
    
    
    $
    1,080Purchase obligations
    
    
    47,409
    
    
    
    47,409
    
    
    
    
    
    
    
    
    
    
    
    Total contractual obligations
    
    $
    54,605
    
    
    $
    50,094
    
    
    $
    1,892
    
    
    $
    1,539
    
    
    $
    1,080
   
 Item 7A. Quantitative and Qualitative Disclosures About Market Risk
  40




---



##### 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 ReportingReport of Independent Registered Public Accounting FirmConsolidated Balance SheetsConsolidated Statements of OperationsConsolidated Statements of Shareholders Equity and Comprehensive Income (Loss)Consolidated Statements of Cash FlowsNotes to Consolidated Financial StatementsSchedule II  Valuation and Qualifying Accounts
 41




---



##### Table of Contents



MANAGEMENTS REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
 Internal Control  Integrated
Framework
  42




---



##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
 Internal Control  Integrated Framework
    Internal
Control  Integrated Framework
 43




---



##### Table of Contents



Share-Based Payment
  
 44




---



##### Table of Contents



CARDIAC SCIENCE CORPORATION AND SUBSIDIARIES
 
 CONSOLIDATED BALANCE SHEETS
 December 31,(In thousands)
    
    2007
    
    
    2006ASSETSCurrent Assets:Cash and cash equivalents
    
    $
    20,159
    
    
    $
    9,819Short-term investments
    
    
    350
    
    
    
    547Accounts receivable, net of allowance for doubtful accounts of $500 and
$907, respectively
    
    
    29,439
    
    
    
    26,971Inventories
    
    
    21,794
    
    
    
    17,617Deferred income taxes, net
    
    
    9,558
    
    
    
    3,902Prepaid expenses and other current assets
    
    
    2,509
    
    
    
    2,121Total current assets
    
    
    83,809
    
    
    
    60,977Other assets
    
    
    125
    
    
    
    209Machinery and equipment, net of accumulated depreciation
of $13,065 and $10,245, respectively
    
    
    5,056
    
    
    
    5,956Deferred income taxes, net
    
    
    30,288
    
    
    
    40,525Intangible assets, net of accumulated amortization of $9,927 and $6,111,
respectively
    
    
    35,053
    
    
    
    31,869Investments in unconsolidated entities
    
    
    727
    
    
    
    496Goodwill
    
    
    107,613
    
    
    
    107,613Total assets
    
    $
    262,671
    
    
    $
    247,645LIABILITIES AND SHAREHOLDERS EQUITYCurrent Liabilities:Accounts payable
    
    $
    12,792
    
    
    $
    11,761Accrued liabilities
    
    
    11,075
    
    
    
    9,890Warranty liability
    
    
    3,211
    
    
    
    2,532Deferred revenue
    
    
    8,141
    
    
    
    7,111Total current liabilities
    
    
    35,219
    
    
    
    31,294Other liabilities
    
    
    54
    
    
    
    679Total liabilities
    
    
    35,273
    
    
    
    31,973Minority interests
    
    
    127
    
    
    
    75Commitments and contingenciesShareholders Equity:Preferred stock (10,000,000 shares authorized), $0.001 par value, no shares
issued or outstanding as of December 31, 2007 and 2006, respectively
    
    
    
    
    
    
    Common stock (65,000,000 shares authorized), $0.001 par value, 22,781,648
and 22,598,014 shares issued and outstanding at December 31, 2007 and
2006, respectively
    
    
    224,250
    
    
    
    221,213Accumulated other comprehensive income
    
    
    167
    
    
    
    20Retained earnings (deficit)
    
    
    2,854
    
    
    
    (5,636
    )Total shareholders equity
    
    
    227,271
    
    
    
    215,597Total liabilities and shareholders equity
    
    $
    262,671
    
    
    $
    247,645
  45




---



##### Table of Contents



CARDIAC SCIENCE CORPORATION AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 Year Ended December 31,(In thousands, except share and per share data)
    
    2007
    
    
    2006
    
    
    2005Revenues:Products
    
    $
    166,006
    
    
    $
    138,430
    
    
    $
    93,460Service
    
    
    16,125
    
    
    
    16,999
    
    
    
    13,190Total revenues
    
    
    182,131
    
    
    
    155,429
    
    
    
    106,650Cost of Revenues:Products
    
    
    81,342
    
    
    
    69,857
    
    
    
    51,195Service
    
    
    12,373
    
    
    
    12,338
    
    
    
    8,599Total cost of revenues
    
    
    93,715
    
    
    
    82,195
    
    
    
    59,794Gross profit
    
    
    88,416
    
    
    
    73,234
    
    
    
    46,856Operating Expenses:Research and development
    
    
    13,020
    
    
    
    11,733
    
    
    
    9,353Sales and marketing
    
    
    46,195
    
    
    
    39,960
    
    
    
    24,957General and administrative
    
    
    19,176
    
    
    
    19,072
    
    
    
    14,233Litigation and related expenses
    
    
    3,808
    
    
    
    3,855
    
    
    
    893Licensing income and litigation settlement
    
    
    (6,000
    )
    
    
    
    
    
    
    Total operating expenses
    
    
    76,199
    
    
    
    74,620
    
    
    
    49,436Operating income (loss)
    
    
    12,217
    
    
    
    (1,386
    )
    
    
    (2,580
    )Other Income (Expense):Interest income
    
    
    479
    
    
    
    242
    
    
    
    455Interest expense
    
    
    (77
    )
    
    
    (258
    )
    
    
    (130
    )Other income (expense), net
    
    
    799
    
    
    
    782
    
    
    
    (487
    )Total other income (expense)
    
    
    1,201
    
    
    
    766
    
    
    
    (162
    )Income (loss) before income tax benefit (expense)
and minority interests
    
    
    13,418
    
    
    
    (620
    )
    
    
    (2,742
    )Income tax benefit (expense)
    
    
    (4,924
    )
    
    
    615
    
    
    
    1,473Income (loss) before minority interests
    
    
    8,494
    
    
    
    (5
    )
    
    
    (1,269
    )Minority interests
    
    
    (4
    )
    
    
    54
    
    
    
    31Net income (loss)
    
    $
    8,490
    
    
    $
    49
    
    
    $
    (1,238
    )Net income (loss) per share  basic
    
    $
    0.37
    
    
    $
    0.00
    
    
    $
    (0.08
    )Net income (loss) per share  diluted
    
    $
    0.37
    
    
    $
    0.00
    
    
    $
    (0.08
    )Weighted average shares outstanding  basic
    
    
    22,697,113
    
    
    
    22,502,040
    
    
    
    14,695,261Weighted average shares outstanding  diluted
    
    
    23,197,911
    
    
    
    22,555,326
    
    
    
    14,695,261
  46




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##### Table of Contents



CARDIAC SCIENCE CORPORATION AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY AND COMPREHENSIVE INCOME (LOSS)
 AccumulatedDeferred
    
    
    Other
    
    
    RetainedCommon Stock
    
    
    Stock-based
    
    
    Comprehensive
    
    
    EarningsAmount
    
    
    Shares
    
    
    Compensation
    
    
    Income
    
    
    (Deficit)
    
    
    Total(in thousands, except share amounts)Balance, December 31, 2004
    
    $
    62,656
    
    
    
    10,850,031
    
    
    $
    (33
    )
    
    $
    22
    
    
    $
    (4,311
    )
    
    $
    58,334Issuance of common stock in connection with
the merger of CSI, net of issuance costs
    
    
    154,885
    
    
    
    11,467,753
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    154,885Issuance of common stock upon
exercise of stock options
    
    
    181
    
    
    
    33,146
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    181Amortization of deferred stock compensation
    
    
    
    
    
    
    
    
    
    
    33
    
    
    
    
    
    
    
    
    
    
    
    33Proceeds from issuance of stock under
employee stock purchase plan
    
    
    538
    
    
    
    59,387
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    538Stock awards
    
    
    25
    
    
    
    463
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    25Tax benefit recognized for stock options
    
    
    50
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    50Fractional shares refunded in stock split
    
    
    
    
    
    
    (436
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Comprehensive income: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, net
of income tax effect of $2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5
    
    
    
    
    
    
    
    5Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,255
    )Balance, December 31, 2005
    
    
    218,335
    
    
    
    22,410,344
    
    
    
    
    
    
    
    5
    
    
    
    (5,549
    )
    
    
    212,791Cumulative effect of adjustment resulting from
the adoption of SAB No. 108, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (136
    )
    
    
    (136
    )Issuance of common stock upon
exercise of stock options
    
    
    232
    
    
    
    79,012
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    232Stock-based compensation
    
    
    2,062
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,062Proceeds from issuance of stock under
employee stock purchase plan
    
    
    665
    
    
    
    92,199
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    665Stock awards
    
    
    
    
    
    
    23,516
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Minimum tax withholding on stock awards
    
    
    (81
    )
    
    
    (7,057
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (81
    )Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    49
    
    
    
    49Unrealized gain on available-for-sale securities,
net of income tax effect of $12
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    20
    
    
    
    
    
    
    
    20Foreign currency translation adjustments, net
of income tax effect of $2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5
    )
    
    
    
    
    
    
    (5
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    64Balance, December 31, 2006
    
    
    221,213
    
    
    
    22,598,014
    
    
    
    
    
    
    
    20
    
    
    
    (5,636
    )
    
    
    215,597Issuance of common stock upon
exercise of stock options
    
    
    368
    
    
    
    73,693
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    368Stock-based compensation
    
    
    2,257
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,257Proceeds from issuance of stock under
employee stock purchase plan
    
    
    553
    
    
    
    80,078
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    553Stock awards
    
    
    
    
    
    
    43,927
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Minimum tax withholding on stock awards
    
    
    (141
    )
    
    
    (14,064
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (141
    )Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,490
    
    
    
    8,490Unrealized gain on available-for-sale securities,
net of income tax effect of $87
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    147
    
    
    
    
    
    
    
    147Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,637Balance, December 31, 2007
    
    $
    224,250
    
    
    
    22,781,648
    
    
    $
    
    
    
    $
    167
    
    
    $
    2,854
    
    
    $
    227,271
  47




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##### Table of Contents



CARDIAC SCIENCE CORPORATION AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 Year Ended December 31,(In thousands)
    
    2007
    
    
    2006
    
    
    2005Operating Activities:Net income (loss)
    
    $
    8,490
    
    
    $
    49
    
    
    $
    (1,238
    )Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:Licensing income and litigation settlement
    
    
    (6,000
    )
    
    
    
    
    
    
    Depreciation and amortization
    
    
    6,746
    
    
    
    6,261
    
    
    
    3,212Deferred income taxes
    
    
    4,494
    
    
    
    (781
    )
    
    
    (1,565
    )Stock-based compensation
    
    
    2,233
    
    
    
    2,028
    
    
    
    58Minority interest
    
    
    55
    
    
    
    (54
    )
    
    
    (31
    )Gain on sale of marketable equity securities
    
    
    
    
    
    
    
    
    
    
    (15
    )(Gain) loss on disposal of machinery and equipment
    
    
    (16
    )
    
    
    58
    
    
    
    6Loss on disposal of technology
    
    
    
    
    
    
    
    
    
    
    270Loss in value of investment in unconsolidated entity
    
    
    
    
    
    
    
    
    
    
    916Changes in operating assets and liabilities, net of
business acquired:Accounts receivable, net
    
    
    (2,468
    )
    
    
    (1,189
    )
    
    
    (5,034
    )Inventories
    
    
    (4,153
    )
    
    
    2,956
    
    
    
    2,334Prepaid expenses and other assets
    
    
    (304
    )
    
    
    1,189
    
    
    
    (118
    )Accounts payable
    
    
    1,031
    
    
    
    411
    
    
    
    (2,742
    )Accrued liabilities
    
    
    1,531
    
    
    
    (1,604
    )
    
    
    1,055Warranty liability
    
    
    679
    
    
    
    (95
    )
    
    
    (208
    )Deferred revenue
    
    
    1,030
    
    
    
    (465
    )
    
    
    2,250Net cash flows provided by (used in) operating activities
    
    
    13,348
    
    
    
    8,764
    
    
    
    (850
    )Investing Activities:Purchases of short-term investments
    
    
    (1,240
    )
    
    
    (839
    )
    
    
    Maturities of short-term investments
    
    
    1,437
    
    
    
    292
    
    
    
    Purchase of patents as part of litigation settlement
    
    
    (1,000
    )
    
    
    
    
    
    
    Purchases of machinery and equipment
    
    
    (2,014
    )
    
    
    (1,249
    )
    
    
    (1,187
    )Payments related to the purchase of Cardiac Science, Inc.
    
    
    (971
    )
    
    
    (1,749
    )
    
    
    (17,491
    )Proceeds from sales of marketable equity securities
    
    
    
    
    
    
    
    
    
    
    625Proceeds from collection of note
    
    
    
    
    
    
    238
    
    
    
    Net cash flows used in investing activities
    
    
    (3,788
    )
    
    
    (3,307
    )
    
    
    (18,053
    )Financing Activities:Proceeds from issuance of stock, net of issuance costs
    
    
    
    
    
    
    
    
    
    
    (172
    )Proceeds from exercise of stock options and issuance of
shares under employee stock purchase plan
    
    
    921
    
    
    
    897
    
    
    
    719Minimum tax withholding on stock awards
    
    
    (141
    )
    
    
    (81
    )
    
    
    Net cash flows provided by financing activities
    
    
    780
    
    
    
    816
    
    
    
    547Net change in cash and cash equivalents
    
    
    10,340
    
    
    
    6,273
    
    
    
    (18,356
    )Cash and cash equivalents, beginning of period
    
    
    9,819
    
    
    
    3,546
    
    
    
    21,902Cash and cash equivalents, end of period
    
    $
    20,159
    
    
    $
    9,819
    
    
    $
    3,546Supplemental disclosures of cash flow information:Cash paid for income taxes
    
    
    338
    
    
    $
    204
    
    
    $
    251Cash paid for interest
    
    
    25
    
    
    
    54
    
    
    
    34Supplemental disclosures of noncash investing and financing activities:Intangible assets acquired in licensing income and litigation settlement
    
    $
    6,000
    
    
    $
    
    
    
    $
    Shares issued in connection with purchase of Cardiac Science, Inc.
    
    
    
    
    
    
    
    
    
    
    155,057
  48




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##### 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
   49




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##### Table of Contents



CARDIAC SCIENCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Use of Estimates
  Cash Equivalents
  Short-term Investments
   Accounts Receivable
  Inventories
  Machinery and Equipment
  50




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##### Table of Contents



CARDIAC SCIENCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Intangible Assets
    Goodwill
   Valuation of Long-Lived Assets
  51




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##### Table of Contents



CARDIAC SCIENCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  Purchase Price Allocations
  Deferred Tax Assets and Income Taxes
  Litigation and Other Contingencies
  Restructuring Costs
  Revenue Recognition
   52




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##### Table of Contents



CARDIAC SCIENCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
          53




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##### Table of Contents



CARDIAC SCIENCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  Sales Returns
  Segment Reporting
  Export Sales
  Foreign Currency Translation
   Advertising Costs
  Warranty
   Research and Development Costs
  54




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##### Table of Contents



CARDIAC SCIENCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Comprehensive Income
   Financial Instruments and Concentrations of Credit Risk
   Stock-Based Compensation
    Net Income (Loss) Per Share
  55




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##### Table of Contents



CARDIAC SCIENCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
   Year ended December 31,(in thousands, except share data)
    
    2007
    
    
    2006
    
    
    2005Numerator:Net income (loss)
    
    $
    8,490
    
    
    $
    49
    
    
    $
    (1,238
    )Denominator:Weighted average shares for basic calculation
    
    
    22,697,113
    
    
    
    22,502,040
    
    
    
    14,695,261Incremental shares from employee stock options,
non-vested stock awards and ESPP
    
    
    500,798
    
    
    
    53,286
    
    
    
    Weighted average shares for diluted calculation
    
    
    23,197,911
    
    
    
    22,555,326
    
    
    
    14,695,261
  Year ended December 31,2007
    
    
    2006
    
    
    2005Antidilutive shares issuable upon exercise of stock options
    
    
    2,459,875
    
    
    
    2,296,587
    
    
    
    3,339,624Antidilutive shares issuable upon exercise of warrants
    
    
    288,984
    
    
    
    330,834
    
    
    
    330,909Antidilutive shares related to non-vested stock awards and ESPP
    
    
    194,904
    
    
    
    
    
    
    
    Total
    
    
    2,943,763
    
    
    
    2,627,421
    
    
    
    3,670,533
 Accounting for Licensing Income and Litigation Settlement
  Litigation and Related Expenses
   56




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##### Table of Contents



CARDIAC SCIENCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
   Customer and Vendor Concentrations
  Year ended December 31,Customer
    
    2007
    
    2006
    
    2005Customer 1
    
    
    11
    %
    
    
    11
    %
    
    
    *Customer 2
    
    
    *
    
    
    
    *
    
    
    
    13
    %
 
 *
    
    Did not exceed 10%.  Year ended December 31,Vendor
    
    2007
    
    2006
    
    2005Vendor 1
    
    
    16
    %
    
    
    12
    %
    
    
    *Vendor 2
    
    
    *
    
    
    
    10
    %
    
    
    17
    %
 
 *
    
    Did not exceed 10%.  Taxes Collected from Customers and Remitted to Governmental Authorities
  Reclassifications
  57




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##### Table of Contents



CARDIAC SCIENCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Recent Accounting Pronouncements
      2. Acquisition of Cardiac Science, Inc.
  58




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##### Table of Contents



CARDIAC SCIENCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    
    
    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 a five trading day period (two days before and
after February 28, 2005), the announcement date of the merger transaction, 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 Quinton.The following table summarizes total purchase consideration:
 (in thousands)Cash
    
    $
    20,000Shares
    
    
    146,911Options
    
    
    7,402Warrants
    
    
    1,320Accrued liabilities
    
    
    3,198Transaction costs
    
    
    2,244Total
    
    $
    181,075
 59




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##### Table of Contents



CARDIAC SCIENCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
   (in thousands)Cash and cash equivalents
    
    $
    6,295Accounts receivable, net of allowance for doubtful accounts
    
    
    7,098Inventories
    
    
    11,826Net deferred tax assets, current
    
    
    3,106Prepaid expenses and other current assets
    
    
    2,548Machinery and equipment
    
    
    3,979Net deferred tax assets, non-current
    
    
    29,725Other long-term assets
    
    
    661Intangible assets
    
    
    31,360Goodwill
    
    
    98,990Total assets acquired
    
    
    195,588Liabilities assumed
    
    
    (14,513
    )Net assets acquired
    
    $
    181,075
  Year ended(in thousands)
    
    December 31, 2006Goodwill, as reported December 31, 2005
    
    $
    102,592Increase in accounts receivable, net of allowance for doubtful accounts
    
    
    (44
    )Decrease in inventories
    
    
    1,513Decrease in net deferred tax assets, current
    
    
    4,593Increase in prepaid expenses and other current assets
    
    
    (1,135
    )Increase in net deferred tax assets, non-current
    
    
    (8,225
    )Decrease in liabilities assumed
    
    
    (304
    )Goodwill, end of period
    
    $
    98,990
     60




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##### Table of Contents



CARDIAC SCIENCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    3. Segment Reporting
     Year ended December 31,(in thousands)
    
    2007
    
    
    2006
    
    
    2005Defibrillation products
    
    $
    97,382
    
    
    $
    67,414
    
    
    $
    19,182Cardiac monitoring products
    
    
    68,624
    
    
    
    71,016
    
    
    
    74,278Service
    
    
    16,125
    
    
    
    16,999
    
    
    
    13,190Total
    
    $
    182,131
    
    
    $
    155,429
    
    
    $
    106,650
  Year ended December 31,(in thousands)
    
    2007
    
    
    2006
    
    
    2005Domestic
    
    $
    135,646
    
    
    $
    117,497
    
    
    $
    92,409Foreign
    
    
    46,485
    
    
    
    37,932
    
    
    
    14,241Total
    
    $
    182,131
    
    
    $
    155,429
    
    
    $
    106,650
   4. Restructuring costs
  61




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CARDIAC SCIENCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
     Balance at
    
    
    Accrued as Part
    
    
    
    
    
    
    
    
    
    
    Balance atDecember 31,
    
    
    of the Merger
    
    
    
    
    
    
    Cash
    
    
    December 31,(in thousands)
    
    2004
    
    
    Transaction
    
    
    Additions
    
    
    Expenditures
    
    
    2005Vacated facilities
    
    $
    
    
    
    $
    2,709
    
    
    $
    56
    
    
    $
    (514
    )
    
    $
    2,251Employee severance and retention costs
    
    
    
    
    
    
    1,702
    
    
    
    1,589
    
    
    
    (1,478
    )
    
    
    1,813Total
    
    $
    
    
    
    $
    4,411
    
    
    $
    1,645
    
    
    $
    (1,992
    )
    
    $
    4,064
 Balance at
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Balance atDecember 31,
    
    
    
    
    
    
    Cash
    
    
    
    
    
    
    December 31,(in thousands)
    
    2005
    
    
    Additions
    
    
    Expenditures
    
    
    Adjustments
    
    
    2006Vacated facilities
    
    $
    2,251
    
    
    $
    93
    
    
    $
    (808
    )
    
    $
    (152
    )
    
    $
    1,384Employee severance and retention costs
    
    
    1,813
    
    
    
    233
    
    
    
    (1,780
    )
    
    
    
    
    
    
    266Total
    
    $
    4,064
    
    
    $
    326
    
    
    $
    (2,588
    )
    
    $
    (152
    )
    
    $
    1,650
 Balance at
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Balance atDecember 31,
    
    
    
    
    
    
    Cash
    
    
    
    
    
    
    December 31,(in thousands)
    
    2006
    
    
    Additions
    
    
    Expenditures
    
    
    Adjustments
    
    
    2007Vacated facilities
    
    $
    1,384
    
    
    $
    
    
    
    $
    (705
    )
    
    $
    
    
    
    $
    679Employee severance and retention costs
    
    
    266
    
    
    
    
    
    
    
    (266
    )
    
    
    
    
    
    
    Total
    
    $
    1,650
    
    
    $
    
    
    
    $
    (971
    )
    
    $
    
    
    
    $
    679
 5. Inventories
  (in thousands)
    
    2007
    
    
    2006Raw materials
    
    $
    16,543
    
    
    $
    13,887Finished goods
    
    
    5,251
    
    
    
    3,730Total inventories
    
    $
    21,794
    
    
    $
    17,617
 62




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CARDIAC SCIENCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 6. Machinery and Equipment
  DepreciableLives
    
    2007
    
    
    2006Equipment
    
    (214 years)
    
    $
    13,786
    
    
    $
    12,533Furniture and fixtures
    
    (213 years)
    
    
    2,022
    
    
    
    1,950Leasehold improvements
    
    (110 years)
    
    
    2,313
    
    
    
    1,718Subtotal
    
    
    
    
    18,121
    
    
    
    16,201Less: Accumulated depreciation and amortization
    
    
    
    
    (13,065
    )
    
    
    (10,245
    )Net machinery and equipment
    
    
    
    $
    5,056
    
    
    $
    5,956
  7. Intangible Assets
  AccumulatedUseful life
    
    Cost
    
    
    Amortization
    
    
    NetIntangible assets not subject to amortization:Burdick trade name
    
    
    
    $
    3,400
    
    
    $
    
    
    
    $
    3,400Cardiac Science trade name
    
    
    
    
    11,380
    
    
    
    
    
    
    
    11,380Total
intangible assets not subject to amortization
    
    
    
    
    14,780
    
    
    
    
    
    
    
    14,780Intangible assets subject to amortization:Cardiac Science customer relationships
    
    5 years
    
    
    8,650
    
    
    
    (4,037
    )
    
    
    4,613Cardiac Science developed technology
    
    8 years
    
    
    11,330
    
    
    
    (3,305
    )
    
    
    8,025Burdick distributor relationships
    
    10 years
    
    
    1,400
    
    
    
    (700
    )
    
    
    700Burdick developed technology
    
    7 years
    
    
    860
    
    
    
    (614
    )
    
    
    246Patents and patent applications
    
    510 years
    
    
    960
    
    
    
    (912
    )
    
    
    48Patent rights
    
    13 years
    
    
    7,000
    
    
    
    (359
    )
    
    
    6,641Total intangible assets subject to amortization
    
    
    
    
    30,200
    
    
    
    (9,927
    )
    
    
    20,273Total
    
    
    
    $
    44,980
    
    
    $
    (9,927
    )
    
    $
    35,053
   2008
    
    $
    3,9582009
    
    
    3,9582010
    
    
    3,2582011
    
    
    2,1042012
    
    
    2,102Thereafter
    
    
    4,893
 63




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CARDIAC SCIENCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 8. Investments in Unconsolidated Entities
   2007
    
    
    2006ScImage
    
    $
    84
    
    
    $
    84Biotel
    
    
    605
    
    
    
    370Other
    
    
    38
    
    
    
    42Total investment in unconsolidated entities
    
    $
    727
    
    
    $
    496
 ScImage
  Biotel, Inc.
  9. Goodwill
     10. Accrued Liabilities and Warranty
  2007
    
    
    2006Accrued compensation and benefits
    
    $
    5,713
    
    
    $
    5,019Other accrued liabilities
    
    
    5,362
    
    
    
    4,871Total accrued liabilities
    
    $
    11,075
    
    
    $
    9,890
 64




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CARDIAC SCIENCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  PurchaseaccountingadjustmentsCharged to
    
    to estimatedBeginning
    
    product cost
    
    fair value of
    
    Warranty
    
    End of(in thousands)
    
    of period
    
    of revenues
    
    acquired warranty
    
    Expenditures
    
    periodYear ended December 31, 2005
    
    $
    2,093
    
    
    $
    1,611
    
    
    $
    479
    
    
    $
    (1,835
    )
    
    $
    2,348Year ended December 31, 2006
    
    
    2,348
    
    
    
    2,042
    
    
    
    279
    
    
    
    (2,137
    )
    
    
    2,532Year ended December 31, 2007
    
    
    2,532
    
    
    
    2,986
    
    
    
    
    
    
    
    (2,307
    )
    
    
    3,211
 11. Credit Facility
  12. Income Taxes
  Year ended December 31,2007
    
    
    2006
    
    
    2005CurrentFederal
    
    $
    338
    
    
    $
    
    
    
    $
    State
    
    
    84
    
    
    
    
    
    
    
    73Foreign
    
    
    8
    
    
    
    166
    
    
    
    19Total current provision
    
    
    430
    
    
    
    166
    
    
    
    92DeferredFederal
    
    
    4,452
    
    
    
    (490
    )
    
    
    (1,388
    )State
    
    
    42
    
    
    
    (291
    )
    
    
    (177
    )Total deferred expense (benefit)
    
    
    4,494
    
    
    
    (781
    )
    
    
    (1,565
    )Total provision expense (benefit)
    
    $
    4,924
    
    
    $
    (615
    )
    
    $
    (1,473
    )
  Year ended December 31,2007
    
    2006
    
    2005Federal income tax provision (benefit) at
U.S. statutory rates
    
    
    34.0
    %
    
    
    (34.0
    %)
    
    
    (34.0
    %)Meals and entertainment
    
    
    1.3
    %
    
    
    23.2
    %
    
    
    3.5
    %Stock-based compensation
    
    
    2.1
    %
    
    
    44.3
    %
    
    
    Research and development credits
    
    
    (4.4
    %)
    
    
    (131.8
    %)
    
    
    (23.4
    %)State income taxes, net of federal benefit
    
    
    2.9
    %
    
    
    
    
    
    
    (0.5
    %)Other, net
    
    
    0.8
    %
    
    
    (0.9
    %)
    
    
    0.7
    %Provision (benefit) for income taxes
    
    
    36.7
    %
    
    
    (99.2
    %)
    
    
    (53.7
    %)
 65




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CARDIAC SCIENCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
      2007
    
    
    2006Deferred tax assets:Net operating loss carryforwards
    
    $
    35,041
    
    
    $
    42,471Stock-based compensation
    
    
    1,704
    
    
    
    1,516Research and experimentation and alternative minimum tax credits
    
    
    6,887
    
    
    
    5,754Inventory basis difference
    
    
    1,079
    
    
    
    1,197Warranty liability
    
    
    1,162
    
    
    
    936Deferred revenue/ gain/ loss
    
    
    913
    
    
    
    763Accrued compensation/ severance/ relocation
    
    
    632
    
    
    
    673Other assets
    
    
    1,450
    
    
    
    3,354Other
    
    
    988
    
    
    
    828Gross deferred tax assets
    
    
    49,856
    
    
    
    57,492Deferred tax liabilities:Burdick intangible assets
    
    
    (342
    )
    
    
    (447
    )Burdick trade name intangible asset
    
    
    (1,230
    )
    
    
    (1,257
    )Cardiac Science intangible assets
    
    
    (4,125
    )
    
    
    (7,063
    )Cardiac Science trade name
    
    
    (4,117
    )
    
    
    (4,207
    )Goodwill from treadmill line acquisition
    
    
    (97
    )
    
    
    (79
    )Marketable equity securities
    
    
    (99
    )
    
    
    (12
    )Gross deferred tax liabilities
    
    
    (10,010
    )
    
    
    (13,065
    )Net deferred tax assets
    
    $
    39,846
    
    
    $
    44,427
 66




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##### Table of Contents



CARDIAC SCIENCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  2007
    
    2006Current deferred tax assets
    
    $
    9,558
    
    
    $
    3,902Deferred tax assets, non-current
    
    
    30,288
    
    
    
    40,525Net deferred tax assets
    
    $
    39,846
    
    
    $
    44,427
  Year ended December 31,2007
    
    
    2006
    
    
    2005U.S.
    
    $
    12,866
    
    
    $
    (1,184
    )
    
    $
    (2,679
    )Foreign
    
    
    552
    
    
    
    564
    
    
    
    (63
    )Total
    
    $
    13,418
    
    
    $
    (620
    )
    
    $
    (2,742
    )
     13. Commitments and Contingencies
 Lease Commitments
  67




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##### Table of Contents



CARDIAC SCIENCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
   OperatingOperating
    
    
    Leases, Net ofLeases
    
    
    Sublease IncomeYear:2008
    
    $
    2,685
    
    
    $
    2,3522009
    
    
    1,101
    
    
    
    9082010
    
    
    791
    
    
    
    7752011
    
    
    763
    
    
    
    7632012
    
    
    776
    
    
    
    776Thereafter
    
    
    1,080
    
    
    
    1,080Total
    
    $
    7,196
    
    
    $
    6,654
  Other Commitments
  Guarantees and Indemnities
  Performance Guarantees
  Legal Proceedings
  14. Shareholders Equity
 Preferred Stock
  68




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##### Table of Contents



CARDIAC SCIENCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Common Stock
     WarrantsOutstanding and
    
    Exercise Price
    
    ExpirationGrant Date
    
    Exercisable
    
    per Share
    
    Date2002
    
    
    2,500
    
    
    
    17.50
    
    
    
    20122003
    
    
    1,500
    
    
    
    32.70
    
    
    
    20082003
    
    
    10,000
    
    
    
    46.10
    
    
    
    20082003
    
    
    22,333
    
    
    
    50.00
    
    
    
    20082004
    
    
    1,500
    
    
    
    19.50
    
    
    
    20092004
    
    
    208,776
    
    
    
    25.00
    
    
    
    2009Total
    
    
    246,609Weighted average exercise price
    
    
    
    
    
    $
    28.06
 15. Stock-Based Compensation Plans
    69




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CARDIAC SCIENCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
     Year endedDecember 31,(in thousands, except per share data)
    
    2005Net loss  as reported
    
    $
    (1,238
    )Add back: Stock-based employee compensation expense included in
reported loss, net of related tax effects
    
    
    58Deduct: Total stock-based employee compensation expense determined
under fair value based method for all awards, net of related tax effect of $926
    
    
    (3,673
    )Net loss  pro forma
    
    $
    (4,853
    )Net loss per share as reported  basic
    
    $
    (0.08
    )Net loss per share as reported  diluted
    
    $
    (0.08
    )Net loss per share pro forma  basic
    
    $
    (0.33
    )Net loss per share pro forma  diluted
    
    $
    (0.33
    )
 70




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CARDIAC SCIENCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  Year ended December 31,2007
    
    2006
    
    2005Stock options plans:Volatility
    
    
    48.6%  50.9
    %
    
    
    52.6%  56.0
    %
    
    
    59.0%  62.0
    %Expected term (years)
    
    
    6.25
    
    
    
    6.25
    
    
    
    6.25Risk-free interest rate
    
    
    4.8
    %
    
    
    4.6
    %
    
    
    4.5
    %Expected dividend yield
    
    
    
    
    
    
    
    
    
    
    Fair value of options granted
    
    $
    5.31
    
    
    $
    4.99
    
    
    $
    5.71Employee stock purchase plan:Volatility
    
    
    37.0
    %
    
    
    34.0
    %
    
    
    64.6
    %Expected term (years)
    
    
    0.5
    
    
    
    0.5
    
    
    
    0.5Risk-free interest rate
    
    
    4.5
    %
    
    
    4.4
    %
    
    
    2.7
    %Expected dividend yield
    
    
    
    
    
    
    
    
    
    
    Fair value of employee stock purchase rights
    
    $
    2.14
    
    
    $
    2.37
    
    
    $
    4.44Non-vested stock:Fair value of non-vested stock awards granted
    
    $
    9.35
    
    
    $
    8.25
    
    
    $
    
   Stock
Option Plans
  71




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##### Table of Contents



CARDIAC SCIENCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    Outstanding
shares  2002 Plan
    
    
    2,054,342Outstanding shares  1997 Plan
    
    
    858,262Stock options available for grant
    
    
    636,235Outstanding restricted stock grants
    
    
    152,974Employee stock purchase plan shares available for issuance
    
    
    663,236Total common shares reserved for future issuance
    
    
    4,365,049
 2002 Plan 
   Shares
    
    
    Weighted Average
    
    
    Weighted Average
    
    
    Aggregate IntrinsicSubject to
    
    
    Exercise Price
    
    
    Remaining
    
    
    ValueOptions
    
    
    per Share
    
    
    Contractual Life
    
    
    (in thousands)Outstanding, December 31, 2006
    
    
    2,180,550
    
    
    $
    7.92Granted
    
    
    111,500
    
    
    
    9.73Exercised
    
    
    (73,568
    )
    
    
    4.99Forfeited
    
    
    (164,140
    )
    
    
    10.83Outstanding, December 31, 2007
    
    
    2,054,342
    
    
    $
    7.89
    
    
    5.9 years
    
    $
    3,046Exercisable, December 31, 2007
    
    
    1,659,277
    
    
    $
    7.61
    
    
    5.3 years
    
    $
    3,046
 1997 Plan 
 72




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##### Table of Contents



CARDIAC SCIENCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    Shares
    
    
    Weighted Average
    
    
    Weighted Average
    
    
    Aggregate IntrinsicSubject to
    
    
    Exercise Price
    
    
    Remaining
    
    
    ValueOptions
    
    
    per Share
    
    
    Contractual Life
    
    
    (in thousands)Outstanding, December 31, 2006
    
    
    1,159,505
    
    
    $
    24.50Exercised
    
    
    (125
    )
    
    
    10.20Forfeited or expired
    
    
    (301,118
    )
    
    
    25.63Outstanding, December 31, 2007
    
    
    858,262
    
    
    $
    24.11
    
    
    5.0 years
    
    $
    Exercisable, December 31, 2007
    
    
    818,887
    
    
    $
    24.86
    
    
    4.8 years
    
    $
    
 Non-vested Stock Awards 
   73




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##### Table of Contents



CARDIAC SCIENCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  Weighted AverageShares
    
    
    Grant-Date Fair ValueNon-vested balance, December 31, 2006
    
    
    159,409
    
    
    $
    8.70Granted
    
    
    63,625
    
    
    
    9.35Vested
    
    
    (43,927
    )
    
    
    8.81Forfeited
    
    
    (26,133
    )
    
    
    8.77Non-vested balance, December 31, 2007
    
    
    152,974
    
    
    $
    8.94
 Employee Stock Purchase Plan 
  16. Employee Benefit Plans
   17. SEC Staff Accounting Bulletin No. 108
  74




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##### Table of Contents



CARDIAC SCIENCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  Lease Accounting
  75




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##### Table of Contents



CARDIAC SCIENCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 18.  Quarterly Results of Operations (Unaudited)
   March 31,
    
    
    June 30,
    
    
    September 30,
    
    
    December 31,
    
    
    March 31,
    
    
    June 30,
    
    
    September 30,
    
    
    December 31,2006
    
    
    2006
    
    
    2006
    
    
    2006
    
    
    2007
    
    
    2007
    
    
    2007
    
    
    2007Consolidated Statements
of Operations Data:Revenues
    
    $
    39,115
    
    
    $
    39,221
    
    
    $
    38,116
    
    
    $
    38,977
    
    
    $
    41,670
    
    
    $
    44,889
    
    
    $
    45,144
    
    
    $
    50,428Cost of Revenues
    
    
    20,722
    
    
    
    20,631
    
    
    
    20,048
    
    
    
    20,794
    
    
    
    21,790
    
    
    
    23,123
    
    
    
    23,001
    
    
    
    25,801Gross profit
    
    
    18,393
    
    
    
    18,590
    
    
    
    18,068
    
    
    
    18,183
    
    
    
    19,880
    
    
    
    21,766
    
    
    
    22,143
    
    
    
    24,627Operating Expenses:Research and development
    
    
    2,970
    
    
    
    2,875
    
    
    
    2,792
    
    
    
    3,096
    
    
    
    2,982
    
    
    
    3,090
    
    
    
    3,391
    
    
    
    3,557Sales and marketing
    
    
    9,383
    
    
    
    9,914
    
    
    
    10,045
    
    
    
    10,618
    
    
    
    11,108
    
    
    
    11,445
    
    
    
    11,913
    
    
    
    11,729General and administrative
    
    
    5,092
    
    
    
    4,662
    
    
    
    4,606
    
    
    
    4,712
    
    
    
    4,512
    
    
    
    4,933
    
    
    
    4,462
    
    
    
    5,269Litigation and related expenses
    
    
    719
    
    
    
    1,254
    
    
    
    1,257
    
    
    
    625
    
    
    
    1,688
    
    
    
    2,029
    
    
    
    91
    
    
    
    Licensing income and litigation
settlement
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,000
    )
    
    
    
    
    
    
    Total operating expenses
    
    
    18,164
    
    
    
    18,705
    
    
    
    18,700
    
    
    
    19,051
    
    
    
    20,290
    
    
    
    15,497
    
    
    
    19,857
    
    
    
    20,555Operating income (loss)
    
    
    229
    
    
    
    (115
    )
    
    
    (632
    )
    
    
    (868
    )
    
    
    (410
    )
    
    
    6,269
    
    
    
    2,286
    
    
    
    4,072Other Income (Expense):Interest income (expense), net
    
    
    (50
    )
    
    
    (5
    )
    
    
    18
    
    
    
    21
    
    
    
    22
    
    
    
    74
    
    
    
    103
    
    
    
    203Other income (expense), net
    
    
    231
    
    
    
    274
    
    
    
    94
    
    
    
    183
    
    
    
    125
    
    
    
    327
    
    
    
    406
    
    
    
    (59
    )Total other income
    
    
    181
    
    
    
    269
    
    
    
    112
    
    
    
    204
    
    
    
    147
    
    
    
    401
    
    
    
    509
    
    
    
    144Income (loss) before income tax benefit
(expense) and minority interests
    
    
    410
    
    
    
    154
    
    
    
    (520
    )
    
    
    (664
    )
    
    
    (263
    )
    
    
    6,670
    
    
    
    2,795
    
    
    
    4,216Income tax benefit (expense)
    
    
    (159
    )
    
    
    (49
    )
    
    
    209
    
    
    
    614
    
    
    
    75
    
    
    
    (2,155
    )
    
    
    (1,023
    )
    
    
    (1,821
    )Income (loss) before minority interests
    
    
    251
    
    
    
    105
    
    
    
    (311
    )
    
    
    (50
    )
    
    
    (188
    )
    
    
    4,515
    
    
    
    1,772
    
    
    
    2,395Minority interests
    
    
    13
    
    
    
    13
    
    
    
    13
    
    
    
    15
    
    
    
    22
    
    
    
    15
    
    
    
    (13
    )
    
    
    (28
    )Net income (loss)
    
    $
    264
    
    
    $
    118
    
    
    $
    (298
    )
    
    $
    (35
    )
    
    $
    (166
    )
    
    $
    4,530
    
    
    $
    1,759
    
    
    $
    2,367Net income (loss) per share  basic
    
    $
    0.01
    
    
    $
    0.01
    
    
    $
    (0.01
    )
    
    $
    (0.00
    )
    
    $
    (0.01
    )
    
    $
    0.20
    
    
    $
    0.08
    
    
    $
    0.10Net income (loss) per share  diluted
    
    $
    0.01
    
    
    $
    0.01
    
    
    $
    (0.01
    )
    
    $
    (0.00
    )
    
    $
    (0.01
    )
    
    $
    0.19
    
    
    $
    0.08
    
    
    $
    0.10
 76




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##### Table of Contents



SCHEDULE IIVALUATION AND QUALIFYING ACCOUNTS
(In Thousands)
  Increase
    
    ExpensesBeginning
    
    Through
    
    and
    
    
    
    
    
    End of(in thousands)
    
    of Period
    
    Acquisition
    
    Adjustments
    
    Write-offs
    
    PeriodYear Ended December 31, 2007
    
    $
    907
    
    
    $
    
    
    
    $
    236
    
    
    $
    (643
    )
    
    $
    500Year Ended December 31, 2006
    
    
    3,455
    
    
    
    
    
    
    
    216
    
    
    
    (2,764
    )
    
    
    907Year Ended December 31, 2005
    
    
    655
    
    
    
    2,597
    
    
    
    478
    
    
    
    (275
    )
    
    
    3,455
 77




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##### 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
  Managements Report on Internal Control Over Financial Reporting
   Changes in Internal Controls
  
 Item 9B. Other Information
  78




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##### Table of Contents



PART III
 
 Item 10. Directors, Executive Officers and Corporate Governance
  
 Item 11. Executive Compensation
  
 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
  
 Item 13. Certain Relationships and Related Transactions, and Director Independence
  
 Item 14. Principal Accountant Fees and Services.
  79




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##### Table of Contents



PART IV
 
 ITEM
15.  Exhibits And Financial Statement Schedules
        80




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##### Table of Contents



SIGNATURES
  Cardiac Science CorporationBy:
    /s/
Michael K. MatysikMichael K. MatysikChief Financial Officer   Signature
    
    Title
    
    Date/s/ JOHN R. HINSON
    
    President, Chief Executive Officer and
    
    March 17, 2008John R. Hinson
    
    Director
(Principal Executive Officer)/s/ MICHAEL K. MATYSIK
    
    Senior Vice President and Chief
    
    March 17, 2008Michael K. Matysik
    
    Financial
Officer (PrincipalFinancial Officer)/s/ DAPHNE TAYLOR
    
    Vice President, Corporate Controller
    
    March 17, 2008Daphne Taylor
    
    and Chief Accounting Officer
(Principal
Accounting Officer)/s/ RUEDIGER NAUMANN-ETIENNE
    
    Chairman of the Board
    
    March 17, 2008Ruediger Naumann-Etienne/s/ W. ROBERT BERG
    
    Director
    
    March 17, 2008W. Robert Berg/s/ JUE-HSIEN CHERN
    
    Director
    
    March 17, 2008Jue-Hsien Chern/s/ RAYMOND W. COHEN
    
    Director
    
    March 17, 2008Raymond W. Cohen/s/ TIMOTHY C. MICKELSON
    
    Director
    
    March 17, 2008Timothy C. Mickelson/s/ RAY E. NEWTON, III
    
    Director
    
    March 17, 2008Ray E. Newton, III/s/ JEFFREY F. ODONNELL, SR.
    
    Director
    
    March 17, 2008Jeffrey F. ODonnell, Sr.
 81




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##### Table of Contents



ExhibitNumber
    
    Description2.1
    
    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 (21)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
    
    Second Amended and Restated Registration Rights Agreement, dated as of February 28, 2005,
by and among Cardiac Science, Inc., and the investors listed on the signature pages
thereto (27)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. (18)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 (27)10.2 *
    
    Amended and Restated Employment Agreement dated as of September 20, 2006 between Cardiac
Science Corporation and John R. Hinson (26)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)10.5*
    
    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*
    
    Cardiac Science Corporation Stock Option Grant Program for Nonemployee Directors (28)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)
 82




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##### Table of Contents



ExhibitNumber
    
    Description10.18
    
    Intellectual Property Security Agreement between Quinton Cardiology Systems, Inc. and
Quinton Inc. and Silicon Valley Bank dated December 30, 2002 (7)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*
    
    Amended and Restated Employment Agreement dated as of September 20, 2006 between Cardiac
Science Corporation and Michael K. Matysik (26)10.27*
    
    Amended and Restated Employment Agreement dated as of September 20, 2006 between Cardiac
Science Corporation and Darryl Lustig (26)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)10.30
    
    Amendment to Loan Documents between Quinton Cardiology Systems, Inc., Quinton Cardiology,
Inc. and Silicon Valley Bank dated December 30, 2004 (12)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 (25)10.33*
    
    Cardiac Science Corporation Senior Executives  2007 Base Compensation (30)10.36++
    
    OEM Purchase and Supply Agreement between Cardiac Science, Inc. and GE Medical Systems
Information Technologies, Inc. dated July 29, 2003 (28)10.37++
    
    Addendum 1 dated as of March 24, 2004 to OEM Purchase and Supply Agreement between
Cardiac Science, Inc. and GE Medical Systems Information Technologies, Inc. dated
July 29, 2003 (28)10.38
    
    Amendment One dated August 10, 2004 to OEM Purchase and Supply Agreement between Cardiac
Science, Inc. and GE Medical Systems Information Technologies, Inc. dated July 29, 2003
(28)10.39
    
    Second Amendment dated February 14, 2005 to OEM Purchase and Supply Agreement between
Cardiac Science, Inc. and GE Medical Systems Information Technologies, Inc. dated
July 29, 2003 (28)10.40++
    
    OEM Purchase Agreement between Cardiac Science, Inc. and GE Medical Systems Information
Technologies, Inc. dated July 29, 2003 (28)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
    
    Amendment One dated August 10, 2004 to OEM Purchase Agreement between Cardiac Science,
Inc. and GE Medical Systems Information Technologies, Inc. dated July 29, 2003 (28)
 83




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##### Table of Contents



ExhibitNumber
    
    Description10.43*
    
    Cardiac Science, Inc. 1997 Stock Option/Stock Issuance Plan, as amended (14)10.44
    
    Second Amendment dated February 14, 2005 to OEM Purchase Agreement between Cardiac
Science, Inc. and GE Medical Systems Information Technologies, Inc. dated July 29, 2003
(28)10.45*
    
    Amended and Restated Employment Agreement dated as of September 20, 2006 between Cardiac
Science Corporation and Kurt Lemvigh (26)10.46
    
    Third 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+
    
    Third 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)10.50*
    
    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 Management Incentive Plan (MIP)  2007 (29)1056*
    
    Severance and Release Agreement dated as of April 26, 2006 between Cardiac Science
Corporation and Peter Foster (23)10.57*
    
    Form of 1997 Stock Option/Stock Issuance Plan Grant Notice and Option Agreement (24)10.58*
    
    2007 Compensation Incentive Plan for Darryl Lustig (29)10.59++
    
    Fourth Amendment dated October 25, 2006 to OEM Purchase Agreement between Cardiac Science
Corporation and GE Medical Systems Information Technologies, Inc. dated July 29, 2003
(28)10.60*
    
    Form of Cardiac Science Corporation Stock Option Grant Notice under 2002 Stock Incentive
Plan for Non-Employee Directors (28)10.61*
    
    Amended and Restated Employment Agreement dated as of September 20, 2006 between Cardiac
Science Corporation and Garry Norris (30)10.62*
    
    2007 Compensation Incentive Plan for Kurt Lemvigh (29)10.63++
    
    OEM Supply and Purchase Agreement between Cardiac Science, Inc. and Nihon Kohden
Corporation dated March 1, 2002 (30)10.64++
    
    Amendment No. 1 to OEM Supply and Purchase Agreement dated March 16, 2005 between Cardiac
Science, Inc. and Nihon Kohden Corporation (30)10.65
    
    Settlement Agreement by and between Cardiac Science Corporation, Koninklijke Philips
Electronics N.V. and Philips Electronics North America Corporation, dated April 24, 2007
(31)10.66++
    
    Cross-License Agreement by and between Cardiac Science Corporation, Koninklijke Philips
Electronics N.V. and Philips Electronics North America Corporation, dated April 24, 2007
(31)10.67
    
    First Amendment dated as of September 5, 2007 to Exclusivity Agreement by and between
Cardiac Science Corporation and GE Medical Systems Information Technologies, Inc. dated
June 10, 2005 (32)
 84




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##### Table of Contents



ExhibitNumber
    
    Description10.68++
    
    Fifth Amendment dated September 7, 2007 to OEM Purchase Agreement between Cardiac Science
Corporation and GE Medical Systems Information Technologies, Inc. dated July 29, 2003
(32)21.1
    
    Subsidiaries23.1
    
    Consent of Independent Registered Public Accounting Firm31.1
    
    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, as amended.++
    
    Portions of this exhibit are omitted and were filed separately with
the Securities and Exchange Commission pursuant to Cardiac Science
Corporations application requesting confidential treatment under
Rule 24b-2 of the Securities Exchange Act of 1934, as amended.(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).(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. 85




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##### Table of Contents



(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.(23)
    
    Incorporated by reference to the Registrants Current Report on Form 8-K (File No. 000-51512)
filed May 2, 2006.(24)
    
    Incorporated by reference to the Registrants Quarterly Report on Form 10-Q for the quarter
ended March 31, 2006 (File No. 000-51512).(25)
    
    Incorporated by reference to the Registrants Quarterly Report on Form 10-Q for the quarter
ended June 30, 2006 (File No. 000-51512).(26)
    
    Incorporated by reference to the Registrants Current Report on Form 8-K (File No. 000-51512)
filed September 22, 2006.(27)
    
    Incorporated by reference to Registrants Registration Statement on Form S-4 (File No.
333-124514) filed on May 2, 2005.(28)
    
    Incorporated by reference to Registrants Annual Report on Form 10-K for the year ended
December 31, 2006 (File No. 000-51512).(29)
    
    Incorporated by reference to the Registrants Current Report on Form 8-K (File No. 000-51512)
filed March 19, 2007.(30)
    
    Incorporated by reference to the Registrants Quarterly Report on Form 10-Q for the quarter
ended March 31, 2007 (File No. 000-51512).(31)
    
    Incorporated by reference to the Registrants Quarterly Report on Form 10-Q for the quarter
ended June 30, 2007 (File No. 000-51512).(32)
    
    Incorporated by reference to the Registrants Quarterly Report on Form 10-Q for the quarter
ended September 30, 2007 (File No. 000-51512). 86