##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended June 30, 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
  Delaware
    
    94-3300396(State of Incorporation)
    
    (IRS Employer Identification No.)
 3303 Monte Villa Parkway
Bothell, Washington 98021
 (425) 402-2000
 (Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)
 þ o
  o þ o
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##### Table of Contents



TABLE OF CONTENTS
 PagePART I - FINANCIAL INFORMATIONItem 1.
    
    Financial Statements (unaudited)
    
    
    3Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    14Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    24Item 4.
    
    Controls and Procedures
    
    
    24PART II - OTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    
    25Item 1A.
    
    Risk Factors
    
    
    25Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    25Item 3.
    
    Defaults Upon Senior Securities
    
    
    25Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    25Item 5.
    
    Other Information
    
    
    25Item 6.
    
    Exhibits
    
    
    25SIGNATURE
    
    
    
    
    26EXHIBIT 10.68EXHIBIT 10.69EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1EXHIBIT 32.2
 Page 2 of  26




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##### Table of Contents



PART I  FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 CARDIAC SCIENCE CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
 June 30,
    
    
    December 31,(In thousands)
    
    2007
    
    
    2006ASSETSCurrent Assets:Cash and cash equivalents
    
    $
    13,821
    
    
    $
    9,819Short-term investments
    
    
    395
    
    
    
    547Accounts receivable, net of allowance for doubtful accounts of $612 and
$907, respectively
    
    
    27,331
    
    
    
    26,971Inventories
    
    
    20,190
    
    
    
    17,617Deferred income taxes, net
    
    
    3,813
    
    
    
    3,902Prepaid expenses and other current assets
    
    
    3,138
    
    
    
    2,121Total current assets
    
    
    68,688
    
    
    
    60,977Other assets
    
    
    208
    
    
    
    209Machinery and equipment, net of accumulated depreciation and amortization of
$11,680 and $10,245, respectively
    
    
    5,287
    
    
    
    5,956Deferred income taxes, net
    
    
    38,573
    
    
    
    40,525Intangible assets, net of accumulated amortization of $7,936 and $6,111,
respectively
    
    
    37,044
    
    
    
    31,869Investment in unconsolidated entities
    
    
    738
    
    
    
    496Goodwill
    
    
    107,613
    
    
    
    107,613Total assets
    
    $
    258,151
    
    
    $
    247,645LIABILITIES AND SHAREHOLDERS EQUITYCurrent Liabilities:Accounts payable
    
    $
    14,316
    
    
    $
    11,761Accrued liabilities
    
    
    10,907
    
    
    
    9,890Warranty liability
    
    
    2,905
    
    
    
    2,532Deferred revenue
    
    
    7,706
    
    
    
    7,111Total current liabilities
    
    
    35,834
    
    
    
    31,294Other liabilities
    
    
    366
    
    
    
    679Total liabilities
    
    
    36,200
    
    
    
    31,973Minority interest
    
    
    37
    
    
    
    75Commitments and contingenciesShareholders Equity:Preferred stock (10,000,000 shares authorized), $0.001 par value, no
shares
issued or outstanding as of June 30, 2007 and December 31, 2006,
respectively
    
    
    
    
    
    
    Common stock (65,000,000 shares authorized), $0.001 par value,
22,709,390
and 22,598,014 shares issued and outstanding at June 30, 2007 and
December 31, 2006, respectively
    
    
    223,013
    
    
    
    221,213Accumulated other comprehensive income
    
    
    173
    
    
    
    20Accumulated deficit
    
    
    (1,272
    )
    
    
    (5,636
    )Total shareholders equity
    
    
    221,914
    
    
    
    215,597Total liabilities and shareholders equity
    
    $
    258,151
    
    
    $
    247,645
  Page 3 of  26




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CARDIAC SCIENCE CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,(In thousands, except share and per share data)
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006Revenues:Products
    
    $
    40,787
    
    
    $
    35,007
    
    
    $
    78,478
    
    
    $
    69,576Service
    
    
    4,102
    
    
    
    4,214
    
    
    
    8,081
    
    
    
    8,760Total revenues
    
    
    44,889
    
    
    
    39,221
    
    
    
    86,559
    
    
    
    78,336Cost of Revenues:Products
    
    
    19,949
    
    
    
    17,511
    
    
    
    38,786
    
    
    
    35,191Service
    
    
    3,174
    
    
    
    3,120
    
    
    
    6,127
    
    
    
    6,162Total cost of revenues
    
    
    23,123
    
    
    
    20,631
    
    
    
    44,913
    
    
    
    41,353Gross profit
    
    
    21,766
    
    
    
    18,590
    
    
    
    41,646
    
    
    
    36,983Operating Expenses:Research and development
    
    
    3,090
    
    
    
    2,875
    
    
    
    6,072
    
    
    
    5,845Sales and marketing
    
    
    11,445
    
    
    
    9,914
    
    
    
    22,553
    
    
    
    19,297General and administrative
    
    
    4,933
    
    
    
    4,662
    
    
    
    9,445
    
    
    
    9,754Litigation and related expenses
    
    
    2,029
    
    
    
    1,254
    
    
    
    3,717
    
    
    
    1,973Licensing income and litigation settlement
    
    
    (6,000
    )
    
    
    
    
    
    
    (6,000
    )
    
    
    Total operating expenses
    
    
    15,497
    
    
    
    18,705
    
    
    
    35,787
    
    
    
    36,869Operating income (loss)
    
    
    6,269
    
    
    
    (115
    )
    
    
    5,859
    
    
    
    114Other Income (Expense):Interest income (expense), net
    
    
    74
    
    
    
    (5
    )
    
    
    96
    
    
    
    (55
    )Other income, net
    
    
    327
    
    
    
    274
    
    
    
    452
    
    
    
    505Total other income
    
    
    401
    
    
    
    269
    
    
    
    548
    
    
    
    450Income before income tax expense
and minority interest
    
    
    6,670
    
    
    
    154
    
    
    
    6,407
    
    
    
    564Income tax expense
    
    
    (2,155
    )
    
    
    (49
    )
    
    
    (2,080
    )
    
    
    (208
    )Income before minority interest
    
    
    4,515
    
    
    
    105
    
    
    
    4,327
    
    
    
    356Minority interest
    
    
    15
    
    
    
    13
    
    
    
    37
    
    
    
    26Net income
    
    $
    4,530
    
    
    $
    118
    
    
    $
    4,364
    
    
    $
    382Net income per share  basic
    
    $
    0.20
    
    
    $
    0.01
    
    
    $
    0.19
    
    
    $
    0.02Net income per share  diluted
    
    $
    0.19
    
    
    $
    0.01
    
    
    $
    0.19
    
    
    $
    0.02Weighted average shares outstanding  basic
    
    
    22,689,932
    
    
    
    22,486,564
    
    
    
    22,651,053
    
    
    
    22,458,843Weighted average shares outstanding  diluted
    
    
    23,283,471
    
    
    
    22,522,902
    
    
    
    23,187,206
    
    
    
    22,565,413
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CARDIAC SCIENCE CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,(In thousands)
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006Operating Activities:Net income
    
    $
    4,530
    
    
    $
    118
    
    
    $
    4,364
    
    
    $
    382Adjustments to reconcile net income to net cash
provided by operating activities:Licensing income and litigation settlement
    
    
    (6,000
    )
    
    
    
    
    
    
    (6,000
    )
    
    
    Depreciation and amortization
    
    
    1,706
    
    
    
    1,543
    
    
    
    3,312
    
    
    
    3,100Deferred income taxes
    
    
    2,027
    
    
    
    49
    
    
    
    1,952
    
    
    
    112Stock-based compensation
    
    
    562
    
    
    
    567
    
    
    
    1,175
    
    
    
    1,016Minority interest
    
    
    (16
    )
    
    
    (13
    )
    
    
    (38
    )
    
    
    (26
    )Loss on disposal of equipment
    
    
    1
    
    
    
    
    
    
    
    4
    
    
    
    Changes in operating assets and liabilities, net of
business acquired:Accounts receivable, net
    
    
    (102
    )
    
    
    864
    
    
    
    (360
    )
    
    
    898Inventories
    
    
    (1,934
    )
    
    
    (280
    )
    
    
    (2,541
    )
    
    
    1,774Prepaid expenses and other assets
    
    
    (432
    )
    
    
    370
    
    
    
    (1,016
    )
    
    
    986Accounts payable
    
    
    372
    
    
    
    760
    
    
    
    2,547
    
    
    
    878Accrued liabilities
    
    
    1,904
    
    
    
    (751
    )
    
    
    1,266
    
    
    
    (2,348
    )Warranty liability
    
    
    297
    
    
    
    52
    
    
    
    373
    
    
    
    63Deferred revenue
    
    
    460
    
    
    
    (104
    )
    
    
    595
    
    
    
    (91
    )Net cash flows provided by operating activities
    
    
    3,375
    
    
    
    3,175
    
    
    
    5,633
    
    
    
    6,744Investing Activities:Purchases of short-term investments
    
    
    (395
    )
    
    
    
    
    
    
    (544
    )
    
    
    Maturities of short-term investments
    
    
    149
    
    
    
    
    
    
    
    696
    
    
    
    Purchase of patents as part of litigation settlement
    
    
    (1,000
    )
    
    
    
    
    
    
    (1,000
    )
    
    
    Purchases of machinery and equipment
    
    
    (494
    )
    
    
    (400
    )
    
    
    (822
    )
    
    
    (796
    )Payments related to the purchase of Cardiac Science, Inc.
    
    
    (292
    )
    
    
    (441
    )
    
    
    (562
    )
    
    
    (1,214
    )Net cash flows used in investing activities
    
    
    (2,032
    )
    
    
    (841
    )
    
    
    (2,232
    )
    
    
    (2,010
    )Financing Activities:Proceeds from exercise of stock options and issuance of
shares under employee purchase plan
    
    
    387
    
    
    
    243
    
    
    
    601
    
    
    
    466Net cash flows provided by financing activities
    
    
    387
    
    
    
    243
    
    
    
    601
    
    
    
    466Net change in cash and cash equivalents
    
    
    1,730
    
    
    
    2,577
    
    
    
    4,002
    
    
    
    5,200Cash and cash equivalents, beginning of period
    
    
    12,091
    
    
    
    6,169
    
    
    
    9,819
    
    
    
    3,546Cash and cash equivalents, end of period
    
    $
    13,821
    
    
    $
    8,746
    
    
    $
    13,821
    
    
    $
    8,746
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CARDIAC SCIENCE CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 1. Summary of Significant Accounting Policies
 Organization and Description of Business
   Basis of Presentation
  Use of Estimates
  Net Income Per Share
  Page 6 of  26




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Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,(in thousands, except share data)
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006Numerator:Net income
    
    $
    4,530
    
    
    $
    118
    
    
    $
    4,364
    
    
    $
    382Denominator:Weighted average shares for basic calculation
    
    
    22,689,932
    
    
    
    22,486,564
    
    
    
    22,651,053
    
    
    
    22,458,843Incremental shares from employee stock options and ESPP
    
    
    593,539
    
    
    
    36,338
    
    
    
    536,153
    
    
    
    106,570Weighted average shares for diluted calculation
    
    
    23,283,471
    
    
    
    22,522,902
    
    
    
    23,187,206
    
    
    
    22,565,413
  Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2007
    
    2006
    
    2007
    
    2006Antidilutive shares issuable upon exercise of stock options
    
    
    2,531,423
    
    
    
    2,306,074
    
    
    
    2,860,630
    
    
    
    2,113,709Antidilutive shares issuable upon exercise of warrants
    
    
    328,609
    
    
    
    330,909
    
    
    
    329,609
    
    
    
    330,909Antidilutive shares related to non-vested stock awards and ESPP
    
    
    165,156
    
    
    
    
    
    
    
    216,743
    
    
    
    Total
    
    
    3,025,188
    
    
    
    2,636,983
    
    
    
    3,406,982
    
    
    
    2,444,618
 Accounting
for Licensing Income and Litigation Settlement
  Litigation
and Related Expenses
    Customer and Vendor Concentrations
  Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,Customer
    
    2007
    
    2006
    
    2007
    
    2006Customer 1
    
    
    *
    
    
    
    14
    %
    
    
    10
    %
    
    
    12
    %Customer 2
    
    
    *
    
    
    
    *
    
    
    
    *
    
    
    
    10
    %
 
 *
    
    Did not exceed 10%. Page 7 of  26




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Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,Vendor
    
    2007
    
    2006
    
    2007
    
    2006Vendor 1
    
    
    14
    %
    
    
    11
    %
    
    
    12
    %
    
    
    *Vendor 2
    
    
    *
    
    
    
    14
    %
    
    
    *
    
    
    
    14
    %
 
 *
    
    Did not exceed 10%.  Taxes Collected from Customers and Remitted to Governmental Authorities
  Reclassifications
  Recent Accounting Pronouncements
   2. Merger Transaction with Cardiac Science, Inc.
   3. Segment Reporting
  Page 8 of  26




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Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,(in thousands)
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006Cardiac monitoring products
    
    $
    16,704
    
    
    $
    17,727
    
    
    $
    33,356
    
    
    $
    37,576Defibrillation products
    
    
    24,083
    
    
    
    17,280
    
    
    
    45,122
    
    
    
    32,000Service
    
    
    4,102
    
    
    
    4,214
    
    
    
    8,081
    
    
    
    8,760Total
    
    $
    44,889
    
    
    $
    39,221
    
    
    $
    86,559
    
    
    $
    78,336
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,(in thousands)
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006Domestic
    
    $
    35,143
    
    
    $
    29,247
    
    
    $
    66,591
    
    
    $
    59,600Foreign
    
    
    9,746
    
    
    
    9,974
    
    
    
    19,968
    
    
    
    18,736Total
    
    $
    44,889
    
    
    $
    39,221
    
    
    $
    86,559
    
    
    $
    78,336
  4. Restructuring Costs
    Balance at
    
    
    
    
    
    
    Balance atDecember 31,
    
    
    Cash
    
    
    June 30,(in thousands)
    
    2006
    
    
    Expenditures
    
    
    2007Vacated facilities
    
    $
    1,384
    
    
    $
    (373
    )
    
    $
    1,011Employee severance and
retention costs
    
    
    266
    
    
    
    (189
    )
    
    
    77Total
    
    $
    1,650
    
    
    $
    (562
    )
    
    $
    1,088
 Page 9 of  26




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5. Inventories
  June 30,
    
    
    December 31,(in thousands)
    
    2007
    
    
    2006Raw materials
    
    $
    14,832
    
    
    $
    13,887Finished goods
    
    
    5,358
    
    
    
    3,730Total inventories
    
    $
    20,190
    
    
    $
    17,617
 6. 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
    
    
    
    (3,172
    )
    
    
    5,478Cardiac Science developed technology
    
    8 years
    
    
    11,330
    
    
    
    (2,596
    )
    
    
    8,734Burdick distributor relationships
    
    10 years
    
    
    1,400
    
    
    
    (630
    )
    
    
    770Burdick developed technology
    
    7 years
    
    
    860
    
    
    
    (553
    )
    
    
    307Patents and patent applications
    
    5-10 years
    
    
    960
    
    
    
    (895
    )
    
    
    65Patent rights
    
    13 years
    
    
    7,000
    
    
    
    (90
    )
    
    
    6,910Total intangible assets subject to amortization
    
    
    
    
    30,200
    
    
    
    (7,936
    )
    
    
    22,264Total
    
    
    
    $
    44,980
    
    
    $
    (7,936
    )
    
    $
    37,044
   2007
    
    $
    3,8162008
    
    
    3,9572009
    
    
    3,9572010
    
    
    3,2582011
    
    
    2,105Thereafter
    
    
    6,995
 7. Credit Facility
   Page 10 of  26




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8. Warranty Liability
  Six months ended(in thousands)
    
    June 30, 2007Warranty liability, beginning of the period
    
    $
    2,532Charged to product cost of revenues
    
    
    1,523Warranty expenditures
    
    
    (1,150
    )Warranty liability, end of the period
    
    $
    2,905
 9. Stock-Based Compensation Plans
   Three months ended
    
    Six months endedJune 30,
    
    June 30,2007
    
    2006
    
    2007
    
    2006Stock options plans:*Volatility
    
    
    
    
    
    
    
    
    
    
    49.6
    %
    
    
    56.0
    %Expected term (years)
    
    
    
    
    
    
    
    
    
    
    6.25
    
    
    
    6.25Risk-free interest rate
    
    
    
    
    
    
    
    
    
    
    4.8
    %
    
    
    4.6
    %Expected dividend yield
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Fair value of options granted
    
    $
    
    
    
    $
    
    
    
    $
    5.06
    
    
    $
    6.49Employee stock purchase plan:Volatility
    
    
    37.0
    %
    
    
    34.0
    %
    
    
    37.0
    %
    
    
    34.0
    %Expected term (years)
    
    
    0.5
    
    
    
    0.5
    
    
    
    0.5
    
    
    
    0.5Risk-free interest rate
    
    
    4.5
    %
    
    
    4.4
    %
    
    
    4.5
    %
    
    
    4.4
    %Expected dividend yield
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Fair value of employee stock purchase rights
    
    $
    2.14
    
    
    $
    2.37
    
    
    $
    2.14
    
    
    $
    2.37Non-vested stock:**Fair value of non-vested stock awards granted
    
    $
    
    
    
    $
    9.62
    
    
    $
    9.07
    
    
    $
    9.98
 
 *
    
    Stock options were not issued in the three months ended June 30, 2007 and
2006.**
    
    Non-vested stock were not issued in the three months ended June 30, 2007.  Outstanding shares - 2002 Plan
    
    
    2,073,517Outstanding shares - 1997 Plan
    
    
    975,955Stock options available for grant
    
    
    946,047Outstanding non-vested stock awards
    
    
    187,724Employee stock purchase plan shares available for issuance
    
    
    701,237Total common shares reserved for future issuance
    
    
    4,884,480
 Page 11 of  26




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##### Table of Contents



2002 Plan 
  SharesSubject toOptionsOutstanding, December 31, 2006
    
    
    2,180,550Granted
    
    
    32,500Exercised
    
    
    (25,540
    )Cancelled
    
    
    (22,629
    )Outstanding, March 31, 2007
    
    
    2,164,881Granted
    
    
    Exercised
    
    
    (40,450
    )Cancelled
    
    
    (50,914
    )Outstanding, June 30, 2007
    
    
    2,073,517Exercisable, June 30, 2007
    
    
    1,571,754
 1997 Plan 
  SharesSubject toOptionsOutstanding, December 31, 2006
    
    
    1,159,505Cancelled
    
    
    (134,550
    )Outstanding, March 31, 2007
    
    
    1,024,955Cancelled
    
    
    (49,000
    )Outstanding, June 30, 2007
    
    
    975,955Exercisable, June 30, 2007
    
    
    923,455
 Non-vested Stock Awards 
 Page 12 of  26




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##### Table of Contents



SharesNon-vested balance, December 31, 2006
    
    
    159,409Granted
    
    
    41,450Vested
    
    
    (3,601
    )Cancelled
    
    
    (3,086
    )Non-vested balance, March 31, 2007
    
    
    194,172Granted
    
    
    Vested
    
    
    Cancelled
    
    
    (6,448
    )Non-vested balance, June 30, 2007
    
    
    187,724
 Employee Stock Purchase Plan 
  10. Comprehensive Income
  Three months ended
    
    
    Six months endedJune 30,
    
    
    June 30,(in thousands)
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006Net income
    
    $
    4,530
    
    
    $
    118
    
    
    $
    4,364
    
    
    $
    382Other comprehensive income (loss), net of
related tax effects of $(114), $2,
$(89) and $5 respectively
    
    
    194
    
    
    
    (21
    )
    
    
    153
    
    
    
    (7
    )Total comprehensive income
    
    $
    4,724
    
    
    $
    97
    
    
    $
    4,517
    
    
    $
    375
 11. Commitments and Contingencies
     Page 13 of  26




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##### Table of Contents



Note 12. Income Taxes
    
 Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 This Quarterly Report on Form 10-Q contains forward-looking statements relating to Cardiac
Science Corporation. Except for historical information, the following discussion contains
forward-looking statements within the meaning of the Private Securities Litigation Reform Act of
1995. All statements other than statements of historical fact, including future results of
operations or financial position, made in this Quarterly Report on Form 10-Q 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, those listed above and the other factors discussed in the section entitled Risk
Factors in Part 1  Item 1A of our Annual Report on Form 10-K for the year ended December 31,
2006 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.
  Business Overview
  Page 14 of  26




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Critical Accounting Estimates and Policies




Critical Accounting Estimates


and


Stock-based Compensation.


Purchase Price Allocations.


Page 15 of  26




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##### Table of Contents



Accounts Receivable.
 Inventories.
 Goodwill.
  Intangible Assets.
   Valuation of Long-Lived Assets.
 Warranty.
 Page 16 of  26




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##### Table of Contents



Deferred Tax Assets and Income Taxes
 Litigation and Other Contingencies.
 Licensing Income and Litigation Settlement.
 Software Revenue Recognition.
 Sales Returns.
 Critical Accounting Policies
 Revenue Recognition.
  Page 17 of  26




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##### Table of Contents



Accounting for Stock-Based Compensation.
  Results of Operations
  Page 18 of  26




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##### Table of Contents



Highlights of Results for the Three and Six Months Ended June 30, 2007
 
    
    We generated revenue of $44.9 million, an increase of approximately 14.5% over the three
month period ended June 30, 2006, which included overall AED growth of 39% and domestic AED
growth of 83%.
    
    We resolved all significant legal matters.
    
    We generated diluted earnings per share of $0.19, including $0.12 net benefit related to
licensing income from litigation settlement.
    
    We generated cash from operations of $3.4 million, despite significant spending on
litigation.
 Looking Forward
    Revenues
   Three Months
    
    
    
    
    
    
    Three MonthsEnded
    
    
    % Change
    
    
    Ended
    
    
    Six Months Ended
    
    
    % Change
    
    
    Six Months Ended(dollars in thousands)
    
    June 30, 2007
    
    
    2006 to 2007
    
    
    June 30, 2006
    
    
    June 30, 2007
    
    
    2006 to 2007
    
    
    June 30, 2006Defibrillation products
    
    $
    24,083
    
    
    
    39.4
    %
    
    $
    17,280
    
    
    $
    45,122
    
    
    
    41.0
    %
    
    $
    32,000% of revenue
    
    
    53.7
    %
    
    
    
    
    
    
    44.1
    %
    
    
    52.2
    %
    
    
    
    
    
    
    40.8
    %Cardiac monitoring products
    
    
    16,704
    
    
    
    (5.8
    %)
    
    
    17,727
    
    
    
    33,356
    
    
    
    (11.2
    %)
    
    
    37,576% of revenue
    
    
    37.2
    %
    
    
    
    
    
    
    45.2
    %
    
    
    38.5
    %
    
    
    
    
    
    
    48.0
    %Service
    
    
    4,102
    
    
    
    (2.7
    %)
    
    
    4,214
    
    
    
    8,081
    
    
    
    (7.8
    %)
    
    
    8,760% of revenue
    
    
    9.1
    %
    
    
    
    
    
    
    10.7
    %
    
    
    9.3
    %
    
    
    
    
    
    
    11.2
    %Total revenues
    
    $
    44,889
    
    
    
    14.5
    %
    
    $
    39,221
    
    
    $
    86,559
    
    
    
    10.5
    %
    
    $
    78,336
 Page 19 of  26




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##### Table of Contents



Three Months Ended June 30, 2007 Compared to the Three Months Ended June 30, 2006
    Six Months Ended June 30, 2007 Compared to the Six Months Ended June 30, 2006
    Gross Profit
  Page 20 of  26




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Three Months Ended
    
    
    % Change
    
    
    Three Months Ended
    
    
    Six Months Ended
    
    
    % Change
    
    
    Six Months Ended(dollars in thousands)
    
    June 30, 2007
    
    
    2006 to 2007
    
    
    June 30, 2006
    
    
    June 30, 2007
    
    
    2006 to 2007
    
    
    June 30, 2006Products
    
    $
    20,838
    
    
    
    19.1
    %
    
    $
    17,496
    
    
    $
    39,692
    
    
    
    15.4
    %
    
    $
    34,385% of products revenue
    
    
    51.1
    %
    
    
    
    
    
    
    50.0
    %
    
    
    50.6
    %
    
    
    
    
    
    
    49.4
    %Service
    
    
    928
    
    
    
    (15.2
    %)
    
    
    1,094
    
    
    
    1,954
    
    
    
    (24.8
    %)
    
    
    2,598% of service revenue
    
    
    22.6
    %
    
    
    
    
    
    
    26.0
    %
    
    
    24.2
    %
    
    
    
    
    
    
    29.7
    %Total gross profit
    
    $
    21,766
    
    
    
    17.1
    %
    
    $
    18,590
    
    
    $
    41,646
    
    
    
    12.6
    %
    
    $
    36,983% of total revenue
    
    
    48.5
    %
    
    
    
    
    
    
    47.4
    %
    
    
    48.1
    %
    
    
    
    
    
    
    47.2
    %
 Three Months Ended June 30, 2007 Compared to the Three Months Ended June 30, 2006
   Six Months Ended June 30, 2007 Compared to the Six Months Ended June 30, 2006
   Operating Expenses
      Page 21 of  26




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Three Months
    
    
    
    
    
    
    Three Months
    
    
    Six Months
    
    
    
    
    
    
    Six MonthsEnded
    
    
    % Change
    
    
    Ended
    
    
    Ended
    
    
    % Change
    
    
    Ended(dollars in thousands)
    
    June 30, 2007
    
    
    2006 to 2007
    
    
    June 30, 2006
    
    
    June 30, 2007
    
    
    2006 to 2007
    
    
    June 30, 2006Research and development (including stock-based
compensation expense of $81, $89, $160 and
$166)
    
    $
    3,090
    
    
    
    7.5
    %
    
    $
    2,875
    
    
    $
    6,072
    
    
    
    3.9
    %
    
    $
    5,845% of total revenue
    
    
    6.9
    %
    
    
    
    
    
    
    7.3
    %
    
    
    7.0
    %
    
    
    
    
    
    
    7.5
    %Sales and marketing (including stock-based
compensation expense of $195, $215, $429 and
$372)
    
    
    11,445
    
    
    
    15.4
    %
    
    
    9,914
    
    
    
    22,553
    
    
    
    16.9
    %
    
    
    19,297% of total revenue
    
    
    25.5
    %
    
    
    
    
    
    
    25.3
    %
    
    
    26.1
    %
    
    
    
    
    
    
    24.6
    %General and administrative (including
stock-based compensation expense of $210, $175,
$426 and $331)
    
    
    4,933
    
    
    
    5.8
    %
    
    
    4,662
    
    
    
    9,445
    
    
    
    (3.2
    %)
    
    
    9,754% of total revenue
    
    
    11.0
    %
    
    
    
    
    
    
    11.9
    %
    
    
    10.9
    %
    
    
    
    
    
    
    12.5
    %Litigation and related expenses
    
    
    2,029
    
    
    
    61.8
    %
    
    
    1,254
    
    
    
    3,717
    
    
    
    88.4
    %
    
    
    1,973% of total revenue
    
    
    4.5
    %
    
    
    
    
    
    
    3.2
    %
    
    
    4.3
    %
    
    
    
    
    
    
    2.5
    %Licensing income and litigation settlement
    
    
    (6,000
    )
    
    
    n/m
    
    
    
    
    
    
    
    (6,000
    )
    
    
    n/m
    
    
    
    % of total revenue
    
    
    (13.4
    %)
    
    
    
    
    
    
    0.0
    %
    
    
    (6.9
    %)
    
    
    
    
    
    
    0.0
    %Total operating expenses
    
    $
    15,497
    
    
    
    (17.2
    %)
    
    $
    18,705
    
    
    $
    35,787
    
    
    
    (2.9
    %)
    
    $
    36,869% of total revenue
    
    
    34.5
    %
    
    
    
    
    
    
    47.7
    %
    
    
    41.3
    %
    
    
    
    
    
    
    47.1
    %
 Three Months Ended June 30, 2007 Compared to the Three Months Ended June 30, 2006
      Six Months Ended June 30, 2007 Compared to the Six Months Ended June 30, 2006
    Page 22 of  26




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##### Table of Contents



Other Income and Expense
  Income Taxes
  Liquidity and Capital Resources
  Three Months
    
    
    
    
    
    
    Three Months
    
    
    Six Months
    
    
    
    
    
    
    Six MonthsEnded
    
    
    % Change
    
    
    Ended
    
    
    Ended
    
    
    % Change
    
    
    Ended(dollars in thousands)
    
    June 30, 2007
    
    
    2006 to 2007
    
    
    June 30, 2006
    
    
    June 30, 2007
    
    
    2006 to 2007
    
    
    June 30, 2006Cash flow provided by operating activities
    
    $
    3,375
    
    
    
    6.3
    %
    
    $
    3,175
    
    
    $
    5,633
    
    
    
    (16.5
    %)
    
    $
    6,744Cash flow used in investing activities
    
    
    (2,032
    )
    
    
    (141.6
    %)
    
    
    (841
    )
    
    
    (2,232
    )
    
    
    (11.0
    %)
    
    
    (2,010
    )Cash flow provided by financing activities
    
    
    387
    
    
    
    59.3
    %
    
    
    243
    
    
    
    601
    
    
    
    29.0
    %
    
    
    466Total change in cash
    
    $
    1,730
    
    
    
    (32.9
    %)
    
    $
    2,577
    
    
    $
    4,002
    
    
    
    (23.0
    %)
    
    $
    5,200
      Page 23 of  26




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##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures About Market Risk
  
 Item 4. Controls and Procedures
   Page 24 of  26




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##### Table of Contents



PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  
 Item 3. Defaults Upon Senior Securities
  
 Item 4. Submission of Matters to a Vote of Security Holders
   For
    
    WithheldJue-Hsien Chern. Ph.D
    
    
    17,319,976
    
    
    
    391,906Raymond W. Cohen
    
    
    17,199,886
    
    
    
    511,996Ruediger Naumann-Etienne , Ph.D
    
    
    17,418,843
    
    
    
    293,039
  
 Item 5. Other Information
  
 Item 6. Exhibits
 No.
    
    Description10.68
    
    Settlement Agreement by and between
Cardiac Science Corporation, Koninklijke Philips Electronics N.V. and
Philips Electronics North America Corporation, dated April 24, 2007
(certain exhibits have been omitted and will be provided to the
Securities and Exchange Commission upon request).10.69
    *
    Cross-License Agreement by and
between Cardiac Science Corporation, Koninklijke Philips Electronics
N.V. and Philips Electronics North America Corporation, dated April
24, 2007
(certain exhibits have been omitted and will be provided to the
Securities and Exchange Commission upon request).31.1
    
    Certification of Chief Executive Officer pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002.31.2
    
    Certification of Chief Financial Officer pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002.32.1
    
    Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.32.2
    
    Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
 
 *
 Portions of
this exhibit are omitted and were filed separated 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. Page 25 of  26




---



##### Table of Contents



SIGNATURE
  CARDIAC SCIENCE CORPORATIONBy:
    /s/ Michael K. MatysikMichael K. MatysikSenior Vice President and Chief Financial Officer
(Principal Financial Officer)Date: August 9, 2007 Page 26 of  26