<PAGE>
 
                      SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C.  20549

                                   FORM 10-Q
(Mark One)
 
[x]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
     ACT OF 1934 

For the quarterly period ended September 30, 1996
                               ------------------
 
                                      OR
 
[_]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
     EXCHANGE ACT OF 1934
 
                        Commission file number 0-19567
                                               -------

                               CARDIAC SCIENCE, INC.
            ------------------------------------------------------- 
            (Exact name of registrant as specified in its charter)


         DELAWARE                                       33-0465681
--------------------------------------------------------------------------------
     (State or other jurisdiction of                 (I.R.S.Employer
     incorporation or organization)                 Identification No.)


           8 HAMMOND DRIVE, SUITE 111, IRVINE, CALIFORNIA      92718
--------------------------------------------------------------------------------
       (Address of principal executive offices)              (Zip code)

Registrant's telephone number, including area code: (714) 587-0357

                                Not Applicable
--------------------------------------------------------------------------------
        (Former name, former address and former fiscal year, if changed
                              since last report)
                                        

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
                                                  Yes X    No
                                                     ---      ---
The number of shares of the Common Stock of the registrant outstanding as of
November 8, 1996 was 37,321,177.
<PAGE>
 
                             CARDIAC SCIENCE, INC.

                              INDEX TO FORM 10-Q

                        PART I.  FINANCIAL INFORMATION
                        ------------------------------
<TABLE> 
<CAPTION> 
                                                                        PAGE NO.
                                                                        --------
Item 1. Financial Statements:
 
        
<S>                                                                         <C>
        Balance Sheets
           September 30, 1996 (Unaudited) and
           December 31, 1995........................................        3
 
        Statements of Operations (Unaudited)
           Three and Nine Months Ended September 30, 1996
           and 1995 and period from May 20, 1991
           (inception) to September 30, 1996........................        4
 
        Statement of Stockholders' Equity (Deficiency) (Unaudited)
           May 20, 1991 (inception) to September 30, 1996...........        5
 
        Statements of Cash Flows (Unaudited)
           Nine Months Ended September 30, 1996 and
           1995 and period from May 20, 1991 (inception) to
           September 30, 1996.......................................        6
 
        Notes to Unaudited Financial Statements                             7
 
Item 2. Management's Discussion and Analysis of Financial Condition
           and Results of Operations................................       10
 

                          PART II.  OTHER INFORMATION
                          ---------------------------
 
Item 1. Legal Proceedings...........................................       13
 
Item 2. Changes in Securities.......................................       13
 
Item 3. Defaults Upon Senior Securities.............................       13
 
Item 4. Submission of Matters to a Vote of Security Holders.........       13
 
Item 5. Other Information...........................................       13
 
Item 6. Exhibits and Reports on Form 8-K............................       13
 
Signatures                                                                 14
</TABLE>
<PAGE>
 
                             CARDIAC SCIENCE, INC.
                         (A development stage company)

                                 BALANCE SHEET
                                 -------------


<TABLE> 
<CAPTION> 


                                                                 September 30,   December 31,
                                                                    1996            1995
                                                                 -------------   ------------
                                                                  (Unaudited)

                                 ASSETS
                                 ------
<S>                                                              <C>             <C>
Current assets:
 Cash and cash equivalents....................................   $     600,184   $  1,177,806
 Prepaid expenses.............................................           9,877         11,220
                                                                 -------------   ------------
   Total current assets.......................................         610,061      1,189,026
Equipment, at cost............................................          70,286         70,286
 Less accumulated depreciation................................         (42,414)       (32,809)
                                                                 -------------   ------------
 Equipment, net...............................................          27,872         37,477
Other assets..................................................           4,012          4,012
                                                                 -------------   ------------
                                                                 $     641,945   $  1,230,515
                                                                 =============   ============
 
                        LIABILITIES AND STOCKHOLDERS' EQUITY
                        ------------------------------------
 
Current liabilities:
 Accounts payable............................................    $     111,710   $    164,447
 Accrued interest............................................              --          13,402
 Accrued expenses............................................            4,216          4,216
 Accrued payroll.............................................           65,499         37,615
                                                                 -------------   ------------
         Total current liabilities...........................          181,425        219,680
 Note payable to related party...............................              --         102,000
Stockholders' equity:
  Preferred stock, $.001 par value; 1,000,000 shares authorized,    
  none issued or outstanding at September 30, 1996 or 1995
 Common stock - $.001 par value:
  Authorized shares - 40,000,000
    Issued and outstanding shares 37,321,177
     in September 30, 1996 and 31,953,677 in December 31, 1995          37,273         31,905
    Common stock subscribed - 1,666,667 in September 30, 1996
     and 6,186,667 in 1995...................................          250,000        924,134
  Additional paid-in capital.................................        4,918,975      4,115,906  
  Deficit accumulated during the development stage...........       (4,745,728)    (4,163,110)
                                                                 -------------   ------------
       Total stockholders' equity............................          460,520        908,835
                                                                 -------------   ------------
                                                                 $     641,945   $  1,230,515
                                                                 =============   ============
</TABLE>
                            See accompanying notes.

                                       3
<PAGE>
 
                             CARDIAC SCIENCE, INC.
                         (A development stage company)


                           STATEMENTS OF OPERATIONS
                                  (unaudited)


<TABLE>
<CAPTION>
 
 
                                                                                                                   MAY 20, 1991
                                                           THREE MONTHS ENDED            NINE MONTHS ENDED        (INCEPTION) TO
                                                      SEPT. 30,       SEPT. 30,      SEPT. 30,      SEPT. 30,        SEPT. 30,
                                                        1996            1995           1996           1995            1996
                                                    ------------    ------------   ------------   ------------   ------------
<S>                                                 <C>             <C>            <C>            <C>            <C>
 
Costs and expenses:
Research and development......................      $     97,860    $    150,553   $    319,928   $    381,911   $  1,887,933
General and administrative....................            74,526         121,550        293,990        356,845      2,553,293
Interest expense..............................               --              --             --           2,040        192,514
Interest income...............................            (8,248)        (21,148)       (32,097)       (65,931)      (138,549)
                                                    ------------    ------------   -------------  ------------   ------------
Total costs and expenses......................           164,138         250,955       (581,821)       674,865      4,495,191
Income taxes..................................               414             --             797          2,220          5,537
                                                    ------------    ------------   ------------   ------------   ------------
Loss before extraordinary expense.............          (164,552)       (250,955)      (582,618)      (677,085)    (4,500,728)
 
Extraordinary expense from
    extinguishment of debt....................               --              --             --             --         245,000
                                                    ------------    ------------   ------------   ------------   ------------
Net loss......................................      $   (164,552)   $   (250,955)  $   (582,618)  $   (677,085)  $ (4,745,728)
                                                    ============    ============   ============   ============   ============
Loss per share................................      $       (.00)   $       (.01)  $       (.02)  $       (.02)
                                                    ============    ============   ============   ============
 
Number of shares used in the computation of
loss per share................................        38,987,844      38,080,344     38,727,843     38,004,788
                                                    ============    ============   ============   ============
 
</TABLE>



                            See accompanying notes.

                                       4

<PAGE>
 
                             CARDIAC SCIENCE, INC.
                         (A development stage company)
                STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIENCY)
                May 20, 1991 (inception) to September 30, 1996
<TABLE>
<CAPTION>
 
                                    COMMON STOCK    COMMON STOCK SUBSCRIBED      
                                  ---------------  -------------------------     ADDITIONAL    
                                  NUMBER OF              NUMBER OF                 PAID-IN   ACCUMULATED    UNEARNED
                                   SHARES      AMOUNT      SHARES      AMOUNT      CAPITAL     DEFICIT    COMPENSATION     TOTAL
                                 ----------  ----------  ----------  ----------  ----------  -----------  ------------  ----------
<S>                              <C>         <C>         <C>         <C>         <C>         <C>          <C>           <C>
Issuance of common stock for
  cash on May 20, 1991........    6,927,448  $    6,927         --   $       --  $    4,073  $       --   $        --   $   11,000
Net loss......................          --          --          --           --         --      (244,247)          --     (244,247)
                                 ----------  ----------  ----------  ----------- ----------  -----------  ------------  ----------
 
Balance at December 31, 1991.     6,927,448       6,927         --           --       4,073     (244,247)          --     (233,247)
Cancellation of common stock
 at $.0016 per share..........      (29,761)        (30)        --           --         (17)         --            --          (47)
Issuance of common stock for
 cash at $.03 per share.......       70,000          70         --           --       2,030          --            --        2,100
Issuance of common stock
 in lieu of payment of
 interest  payable at $.15 
 per share....................      144,493         145         --           --      21,529          --            --       21,674
Issuance of common stock for
 services
    at $.38 per share.........       60,000          60         --           --      22,740          --            --       22,800
Issuance of common stock for
 services at $.4375 per share.       50,479          50         --           --      22,033          --            --       22,083
Issuance of common stock for
 services at $.898 per share..       50,000          50         --           --      44,872          --            --       44,922
Issuance of common stock for
 services at $2.156 per share.        6,611           7         --           --      14,248          --            --       14,255
Common stock issuable.........          --          --          --           --     831,000          --                    831,000
Net loss......................          --          --          --           --         --      (773,894)          --     (773,894)
                                 ----------  ----------  ----------  ----------- ----------  -----------  ------------  ----------
 
Balance at December 31, 1992..    7,279,270       7,279         --           --     962,508   (1,018,141)          --     (48,354)
Issuance of common stock in
 lieu of payment of interest
 payable at $.40 per share....      129,473         129         --           --      51,660          --            --       51,789
Issuance of common stock for
 cash at $.40 per share.......    3,000,000       3,000         --           --     130,889          --            --      133,889
Issuance of common stock for
 services at $.40 per share...       72,699          73         --           --      29,007          --            --       29,080
Common stock warrants
 exercised at $.40 per share..      625,000         625         --           --     249,375          --            --      250,000
Common stock options
 exercised at $.03 per share..        6,667           7         --           --         193          --            --          200
Cancellation of common stock
 at $.0016 per share..........       (6,298)         (6)        --           --          (4)         --            --          (10)
Net loss......................          --          --          --           --         --    (1,471,076)          --   (1,471,076)
                                 ----------  ----------  ----------  ----------- ----------  -----------  ------------  ----------
 
Balance at December 31, 1993..   11,106,811      11,107         --           --   1,423,628   (2,489,217)          --   (1,054,482)
Common stock warrants
 exercised at $.15 per share, 
 net..........................          --          --    4,386,667      654,134        --           --            --      654,134
Common stock subscribed for
 debt forgiveness at $.15 per
 share........................          --          --    1,800,000      270,000        --           --            --      270,000
Issuance of common stock
 for cash at $.15 per
 share, net...................   20,000,000      20,000         --          --    2,185,000          --            --    2,205,000
Issuance of common stock in
 lieu of payment of interest
 payable at $.15 per share....      370,866         370         --          --       55,226          --            --       55,596
Issuance of common stock for
 services at $.40 per
 share........................      100,000         100         --          --       39,900          --            --       40,000
Common stock warrants
 exercised at $.40 per
 share........................      200,000         200         --          --       79,800          --            --       80,000
Warrants issued at $.001 per
 share for future services              --          --          --          --      149,000          --       (149,000)        -- 
Warrants issued at $.001 per
 share for debt
 extinguishment...............          --          --          --          --      150,000          --            --      150,000
Amortization of unearned
 compensation.................          --          --          --          --          --           --         45,154      45,154
Net loss......................          --          --          --          --          --      (733,397)          --     (733,397)
                                 ----------  ----------  ----------  ----------- ----------  -----------  ------------  ----------
 
Balance at December 31, 1994..   31,777,677      31,777   6,186,667      924,134  4,082,554   (3,222,614)     (103,846)  1,712,005
Issuance of common stock in
 lieu of payment of royalties 
 at $.50 per share............       60,000          60         --           --      29,940           --           --       30,000
Common stock options
 exercised....................      116,000          68         --           --       3,412           --           --        3,480
Amortization of unearned
 compensation.................          --          --          --           --         --            --       103,846     103,846
Net loss......................          --          --          --           --         --      (940,496)          --     (940,496)
                                 ----------  ----------  ----------  ----------- ----------  -----------  ------------  ----------
 
Balance at December 31, 1995..   31,953,677      31,905   6,186,667      924,134  4,115,906   (4,163,110)          --      908,835
Common stock options
 exercised....................      130,000         131         --           --       3,770          --            --        3,901 
    ---          3,901
Warrants exercised............      717,500         717         --           --     129,685          --            --      130,402
Subscribed shares issued......    4,520,000       4,520  (4,520,000)    (674,134)   669,614          --            --          --
Net loss......................          --          --          --           --         --      (582,618)          --     (582,618)
                                 ----------  ----------  ----------  ----------- ----------  -----------  ------------  ----------
 
Balance at September 30, 1996    37,321,177  $   37,273   1,666,667  $   250,000 $4,918,975  $(4,745,728) $        --   $  460,520
                                 ==========  ==========  ==========  =========== ==========  ===========  ============  ==========
 
</TABLE>
                            See accompanying notes.


                                       5
<PAGE>
 
                             CARDIAC SCIENCE, INC.
                         (A development stage company)

                           STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
                                                                                              PERIOD FROM
                                                        NINE MONTHS        NINE MONTHS        MAY 20, 1991
                                                           ENDED              ENDED          (INCEPTION) TO
                                                        SEPTEMBER 30,      SEPTEMBER 30,      SEPTEMBER 30,
                                                           1996                1995               1996       
                                                        -------------      -------------      -------------
<S>                                                     <C>                <C>                <C>        
Cash flows from operating activities:
 Net loss............................................   $    (582,618)     $    (677,085)     $  (4,745,728)   
Adjustments to reconcile net loss to net
 cash provided by (used in) operating activities:
 Depreciation........................................           9,605              9,870             42,414
 Accounts payable converted to notes payable
  to related parties.................................             --                 --             305,371    
 Amortization of unearned compensation
  from issuance of warrants..........................             --             103,846            149,000
  Non-cash extraordinary charge......................             --                 --             245,000 
  Changes in operating assets and liabilities:
  Prepaid expenses and other current assets..........           1,343             (6,174)            (9,877)
  Accounts Payable...................................         (52,737)           (23,380)           287,242
  Accrued payroll....................................          27,884             14,628             65,499
  Accrued interest...................................             --              (2,404)           142,461
  Accured expenses...................................             --                 --               4,216
Other, net...........................................             --                 --              (4,012)
                                                        -------------      -------------      -------------
Net cash used in operating activities................        (596,523)          (580,472)        (3,518,414)


Cash flows from investing activities - purchase
of equipment.........................................             --              (9,253)           (70,286)
                                                        -------------      -------------      -------------
Cash flows from financing activities:
  Proceeds from notes payable to related parties.....             --                 --             450,000  
  Payment of notes payable to related parties........             --                 --            (450,000)
  Proceeds of advance from related party.............             --                 --              10,600
  Payment of advance from related party..............             --                 --             (10,600)
  Proceeds from issuance of Common Stock.............          18,901              3,480          4,188,884
                                                        -------------      -------------      -------------
 
 Net cash provided by financing activities...........          18,901              3,480          4,188,884
                                                        -------------      -------------      -------------
 
Net increase (decrease) in cash and equivalents......        (577,622)          (586,472)           600,184
Cash and equivalents at beginning of period..........       1,177,806          1,950,641                  0
                                                        -------------      -------------      -------------
Cash and equivalents at end of period................   $     600,184      $   1,364,169      $     600,184
                                                        =============      =============      =============
Supplemental cash flow disclosures:
 Cash paid during the period for:
  Income taxes.......................................   $         797      $       2,220      $       5,354
  Interest...........................................   $         --       $       4,444      $      44,851
 
Supplemental schedule of  noncash investing
  and financing activities:
   Accounts payable and accrued interest paid
   by issuance of Common Stock......................    $      13,402      $         --       $     519,564
</TABLE>
                            See accompanying notes.




                                       6
<PAGE>
 
                             CARDIAC SCIENCE, INC.
                         (A development stage company)

                    NOTES TO UNAUDITED FINANCIAL STATEMENTS
                               September 30, 1996

A. ORGANIZATION AND OPERATIONS OF THE COMPANY

   Cardiac Science, Inc. (the Company) was incorporated on May 20, 1991 to
develop, manufacture and market a family of non-invasive (non-surgical)
Automatic External Cardioverter Defibrillator ("AECD") devices (the "Products")
                                                ----                 --------  
to treat persons suffering from or at high risk of life threatening arrhythmias.
The Company's Products will be designed to continuously monitor, quickly detect
and then automatically, through transmission of electrical energy charges to the
patient's heart, terminate the onset of ventricular tachyarrhythmia (dangerously
fast heart rate) and/or ventricular fibrillation (quivering of the heart
following tacharrhythmia which usually results in death).  Among the
cardioverter/defibrillator devices under development by the Company will be
ambulatory (mobile) AECD devices similar in function to the Implantable
Cardioverter Defibrillator ("ICD") devices that are either currently approved
                             ---                                             
for sale by the U.S. Food and Drug Administration (the "FDA") or are undergoing
                                                        ---                    
clinical trials.  However, the Company's planned AECD Products will not require
surgery to implant the devices.  Moreover, the Company's Products will not
require the presence of a human operator to activate the device and deliver the
defibrillator charge, as is the case in other existing devices.

B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

   Basis of Presentation and Continued Existence
   ---------------------------------------------

   The Company is in the development stage.  From May 20, 1991 (inception)
through September 30, 1996 the Company has not generated any operating revenues
and has incurred losses of $4,745,728.  Recovery of the Company's assets is
dependent upon future events, the outcome of which is indeterminable.
Additionally, successful completion of the Company's development program and its
transition, ultimately, to attaining profitable operations is dependent upon
obtaining additional financing adequate to fulfill its research and development
activities, and achieving a level of revenues adequate to support the Company's
cost structure.  The Company is currently attempting to identify other sources
of financing.  There can be no assurance that the Company will be successful in
these areas.

   In September 1994, the Company completed a private placement offering (the
"Private Placement) of 20,000,000 shares of Common Stock at $.15 per share for
gross proceeds of $3,000,000.  Proceeds of $2,205,000, net of issuance costs of
$795,000, were used to reduce trade payables and to provide working capital to
resume operations which had temporarily ceased.
 

                                       7
<PAGE>
 
     In connection with the Private Placement, Medstone International, Inc.
exercised warrants to purchase 2,720,000 shares of the Company's Common Stock.
The proceeds of $408,000 were used to pay down a portion of the notes payable to
Medstone.  The due date for the remaining principal balance of $102,000 was
extended to April 1, 1996.  The expiration date for the remaining warrants was
changed to March 31, 1996.  In addition, Medstone subscribed for 1,800,000
shares of the Company's Common Stock and the Company issued a ten year warrant
to purchase 1,000,000 shares at $.001 per share in exchange for unsecured
obligations of approximately $175,000.  The difference between the value of the
stock and warrant issued, $270,000 and $150,000, respectively, and the
extinguished debt of $175,000 or $245,000 was treated as an extraordinary
expense.  The 2,720,000 shares underlying the warrants and the 1,800,000 shares
for debt forgiveness were not issued at the time of the Private Placement in
accordance with an agreement between the Company and Medstone.  Consequently the
amounts relating to these shares had been shown as common stock subscribed.  As
of January 22, 1996 all shares have been issued.

     In connection with the Private Placement, Technology Funding, Inc., a
principal stockholder of the Company, exercised warrants to purchase 1,666,667
shares of the Company's Common Stock.  The proceeds were used by the Company to
repay the note payable to Technology Funding of $250,000.  The shares underlying
the warrants will not be issued until the Company completes its proposed
recapitalization. Consequently, the amounts relating to these shares are shown
as Common Stock subscribed.

     In connection with the Private Placement, ten year warrants to purchase
11,000,000 shares of the Common Stock at $.001 per share were issued to the
following: 6,000,000 shares to the placement agent, 3,000,000 shares to legal
counsel of the Company, 1,000,000 shares to a financial advisor to the Company,
and 1,000,000 shares to directors of the Company.

     Also in connection with the Private Placement, ten year stock options to
purchase 1,250,000 shares at $.15 per share were granted to an officer of the
Company.

     In April 1996, Medstone exercised warrants to purchase 680,000 shares of
the Company's Common Stock.  These warrants had been issued in connection with
the original loan agreements dated April 28, 1992, a portion of which had been
exercised at the time of the September 1994 Private Placement.  Proceeds of
$102,000 were used to pay down the remainder of the note payable to Medstone.

C.   Per share information

     Net loss per share as presented in the accompanying statements of
operations is computed based on the weighted average number of common shares
outstanding and subscribed. Shares issuable upon exercise of outstanding stock
options and warrants are not included since the effects would be anti-dilutive.

                                       8
<PAGE>
 
D.    Income Taxes

    The Company has elected to adopt Financial Accounting Standards Board
Statement No. 109.  The implementation had no material impact on the Company's
financial position or results of operations.

E.    Note payable

    At March 31, 1996 the Company had a note payable to Medstone in the
principal amount of $102,000.  On April 1, 1996, Medstone exercised its warrants
to purchase 680,000 shares of the Company's Common Stock at $.15 per share.  The
gross proceeds of $102,000 were used to pay off the outstanding balance of the
note payable to Medstone, which then released its lien on the Company's assets.

                                       9
<PAGE>
 
ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS.

RESULTS OF OPERATIONS
---------------------

    For the three and nine months ended September 30, 1996, the Company had no
revenues and a net loss of $164,552 and $582,618, respectively, compared to no
operating revenues and a net loss of $250,955 and $677,085, respectively, for
the three and nine months ended September 30, 1995. The lower net losses
reflects a reduced research expenditure level as the Company prepares for a new
FDA filing.  It is anticipated that the Company will continue to incur losses in
coming periods.

    Research and development expenses decreased to $97,860 and $319,928,
respectively, for the three and nine months ended September 30, 1996, from
$150,553 and $581,911, respectively, for the three and nine months ended
September 30, 1995, respectively, due to lower development expenditures as the
Company narrows its product focus.

    General and administrative expenses decreased to $74,526 and $293,990,
respectively, for the three and nine months ended September 30, 1996, compared
to $121,550 and $356,845, respectively, for the three and nine months ended
September 30, 1995, due to lower administration activity.

    Interest expense decreased to $0 and $0, respectively, for the three and
nine months ended September 30, 1996, compared to $0 and $2,040, respectively,
for the three months and nine ended September 30, 1995, as the Company no longer
has debt and had negotiated a suspension of interest expense from Medstone for
past considerations.  The remaining indebtedness was repaid in April 1996.

    Interest income decreased to $8,248 and $32,097, respectively, for the three
and nine months ended September 30, 1996, from $21,148 and $65,931,
respectively, for the three and nine months ended September 30, 1995, due to the
decrease in investable cash as a result of expenditures for continuation of
operations.



LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
 
    At September 30, 1996, the Company had cash and cash equivalents and working
capital of $600,184 and $428,636, respectively, as compared to cash and cash
equivalents and working capital of $1,177,806 and $969,346 at December 31, 1995,
respectively.

    The Company received cash contributions of $11,000 upon its initial share
issuances to its founding shareholders in May 1991.  During the period June 1991
through December 31, 1993, the

                                       10
<PAGE>
 
Company received loans in the aggregate principal amounts of $510,000 and
$250,000 from Medstone International, Inc. and Technology Funding, Inc.,
(principal shareholders of the Company), respectively.  These loans were
evidenced by promissory notes (the "Medstone Note" and the "Technology Funding
Note"), which accrued interest at a rate of 8% per annum, payable quarterly, and
which were secured by all of the Company's assets and were scheduled to mature
on the earlier of April 1, 1995 or the closing of an initial public offering of
the Company's Common Stock pursuant to an effective registration statement under
the Securities Act of 1933.  In connection with such borrowings, the Company
issued to Medstone warrants to purchase 3,399,998 shares of Common Stock, (the
"Medstone Warrants") for an aggregate exercise price of $510,000, and to
Technology Funding warrants to purchase 1,666,667 shares of Common Stock (the
"Technology Funding Warrants") for an aggregate exercise price of $250,000.

    In January 1993, in conjunction with a private placement, the Company issued
3,000,000 shares, and warrants to purchase 3,000,000 shares of common stock, for
an aggregate net proceeds of approximately $965,000.  The proceeds from the
private placement funded the Company's operations through October 1993.  As of
December 31, 1995, a total of 825,000 warrants issued in the private placement
had been exercised for gross proceeds of $330,000.  From January 1996 through
June 30, 1996 an additional 37,500 warrants were exercised for gross proceeds of
$15,000 and the remaining 2,137,500 warrants expired.

    In February 1994, the Company substantially curtailed operations due to lack
of funds, and, in May 1994, unable to locate an immediate source for a working
capital infusion, the Company temporarily ceased all activities except in
connection with obtaining financing.

    In September 1994, the Company completed a private placement (the "Private
Placement"), issuing 20,000,000 shares of Common Stock at $.15 per share for
gross proceeds of $3,000,000.  Net proceeds were approximately $2,205,000, after
payment of commissions and expenses to A.R. Baron & Co., Inc., who acted as
placement agent, and legal and other expenses related to the Private Placement.
Shortly thereafter, the Company leased new premises, rehired certain of its
employees and resumed its research and development activities.

    In connection with the Private Placement and concurrently with the closing
thereof, (i) Medstone exercised the Medstone Warrants to the extent of 2,720,000
shares, (ii) the Company utilized the proceeds therefrom ($408,000) to pay an
equivalent portion of the $510,000 Medstone Note, (iii) the due date for the
remaining principal balance on the Medstone Note ($102,000) was extended to
April 1, 1996, (iv) Medstone retained its current lien on the assets of the
Company until the balance of the Medstone Note was paid, (v) the expiration date
for the remaining Medstone Warrants to purchase 680,000 shares of Common Stock
was changed to March 31, 1996, and (vi) all outstanding unsecured obligations
owing by the Company to Medstone (approximately $175,000) were satisfied by
Medstone subscribing for 1,800,000 shares of Common Stock and the Company
agreeing to issue a ten year warrant to purchase 1,000,000 shares of Common
Stock at $.001 per share.  In April 1995, per an oral agreement between the
Company and Medstone, interest expense on the note was suspended due to prior
consideration paid during the renegotiation of the unsecured debt in 1994.  The
2,720,000 shares underlying the warrants and the 1,800,000 shares for debt

                                       11
<PAGE>
 
forgiveness were not issued in 1994 in accordance with an agreement between the
Company and Medstone, but as of January 22, 1996 all shares have been issued. In
addition, concurrently with the closing of the Private Placement, (i) Technology
Funding exercised all of the 1,666,667 Technology Funding Warrants and (ii) the
Company utilized the proceeds therefrom ($250,000) to pay the $250,000
Technology Funding Note.  The shares underlying the warrants will not be issued
until the Company completes its proposed recapitalization.  Consequently, the
amounts relating to these shares are shown as Common Stock subscribed.
 
    Also in connection with the Private Placement, the Company entered into
agreements with each of Breslow & Walker, counsel of the Company, Howard Cooper,
former Chairman, and Fran Daniels, a financial consultant, to forego receipt of
outstanding payables aggregating $126,000 until the earlier of the next public
offering of the Company or March 19, 1996.  The Company paid Howard Cooper the
outstanding payable of $30,000 in April 1996.  The other two parties have
verbally agreed to accept payment of the remaining $96,000 in payables after the
completion of the next financing.

    The Company anticipates that its current cash balance will be sufficient to
meet the Company's cash requirements for at least the next 12 months, after
which the Company will need additional financing.  In this connection, the
Company is seeking to find an underwriter or placement agent to conduct an
equity financing in the form of a private placement or public offering of its
securities.  However, there can be no assurance that any such financing can be
consummated or that the Company will be able to obtain alternative financing.
In the event the Company is unable to obtain any such financing, the Company
will be unable to complete the development of its Products or to continue as a
going concern.

                                       12
<PAGE>
 
                             CARDIAC SCIENCE, INC.



                          PART II.  OTHER INFORMATION

Item 1.  Legal Proceedings
         -----------------

         None.

Item 2.  Changes in Securities
         ---------------------

         None.

Item 3.  Defaults upon Senior Securities
         -------------------------------

         None.

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

         None.

Item 5.  Other Information
         -----------------

         None.

Item 6.  Exhibits and Reports on Form 8-K
         --------------------------------

         a) Exhibit 11 - Computation of Per Share Information.
            Exhibit 27 - Financial Data Schedule.         
         b) There were no reports on Form 8-K filed with the Commission during
               the quarter ended September 30, 1996.

                                       13
<PAGE>
 
                                   SIGNATURES


  Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.



                            CARDIAC SCIENCE, INC.
                            ---------------------
                            A Delaware Corporation


 



Date: November 13, 1996     /s/ PRABODH MATHUR
                            ------------------------------------------
                            Prabodh Mathur
                            Acting President and Vice President,
                            Research and Development
                            (Principal financial and
                            accounting officer)

                                       14