<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-QSB
(Mark One)

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

For the quarterly period ended                SEPTEMBER 30, 1998
                               -------------------------------------------

                                      OR

[    ]   TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT


                         Commission file number 0-19567

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


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


1176 MAIN STREET, SUITE C, IRVINE, CALIFORNIA                            92614
-------------------------------------------------------------------------------
(Address of principal executive offices)

Issuer's telephone number, including area code:                 (949)  587-0357


Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. 
Yes X   No
   ---     ---

The number of shares of the Common Stock of the registrant outstanding as of
November 6, 1998 was 5,704,560.


<PAGE>


                              CARDIAC SCIENCE, INC.

                              INDEX TO FORM 10-QSB

                          PART I. FINANCIAL INFORMATION

<TABLE>
<CAPTION>
                                                                                               PAGE NO.
                                                                                               --------
<S>         <C>                                                                                <C>
Item 1.     Financial Statements:

            Consolidated Condensed Balance Sheets as of September 30, 1998 (Unaudited)
              and December 31, 1997                                                                 3

            Consolidated Condensed Statements of Operations (Unaudited) for the
              Three and Nine months ended September 30, 1998 and 1997                               4

            Consolidated Condensed Statements of Cash Flows (Unaudited) for the
              Nine months ended September 30, 1998 and 1997                                         5

            Consolidated Condensed Notes to Financial Statements (Unaudited)                        6

Item 2.     Management's Discussion and Analysis or Plan of Operation                               9

                           PART II. OTHER INFORMATION

Item 1.     Legal Proceedings                                                                      13

Item 2.     Changes in Securities and Use of Proceeds                                              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>
                                                                              2

<PAGE>


Item 1.  FINANCIAL STATEMENTS

                              CARDIAC SCIENCE, INC.

                      CONSOLIDATED CONDENSED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                    (Unaudited)
                                                                                   September 30,           December 31,
                                                                                        1998                   1997
                                                                                  -----------------      ------------------
<S>                                                                              <C>                     <C>
                                     ASSETS

Current Assets:
  Cash and cash equivalents                                                      $         153,688       $         561,351
  Trade accounts receivable-net of allowances of $8,000 and $16,028,
    respectively                                                                           131,781                 216,162
  Inventory                                                                                184,609                 209,413
  Prepaid expenses                                                                          17,061                  99,267
                                                                                ------------------      ------------------
     Total current assets                                                                  487,139               1,086,193


Equipment, net                                                                             117,504                  85,927
Intangible assets, net of amortization of $98,569 and $49,285, respectively                558,568                 607,853
Other assets                                                                                 4,012                   4,012
                                                                                 ------------------     ------------------
                                                                                 $       1,167,223       $       1,783,985
                                                                                 ------------------     ------------------
                                                                                 ------------------     ------------------


                 LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

Current liabilities:
  Current portion of capital lease obligation                                    $           3,285       $             ---
  Bank line of credit                                                                      175,000                     ---
  Accounts payable and accrued expenses                                                  1,665,289               1,016,323
  Notes payable                                                                            141,787                  70,233
                                                                                ------------------      ------------------
    Total current liabilities                                                            1,985,361               1,086,556
                                                                                ------------------      ------------------

Long term portion of capital lease obligation                                               17,440                     ---
                                                                                ------------------      ------------------

Stockholders' Equity (Deficit):
  Preferred Stock - $.001 par value; 1,000,000 shares authorized, none
    issued or outstanding                                                                      ---                     ---

  Common stock - $ 0.001 par value; 20,000,000 shares authorized, 5,674,560
    issued and outstanding at September 30, 1998 and 4,974,560 at
    December 31, 1997                                                                        5,675                   4,975

   Common stock subscribed                                                                 200,000
  Additional paid-in capital                                                             8,336,246               7,472,107
  Accumulated deficit                                                                   (9,377,499)             (6,779,653)
                                                                                ------------------      ------------------
      Total stockholders' equity (deficit)                                                (835,578)                697,429
                                                                                ------------------      ------------------
                                                                                 $       1,167,223       $       1,783,985
                                                                                ------------------      ------------------
                                                                                ------------------      ------------------

</TABLE>

    The accompanying notes are an integral part of the financial statements.

                                                                               3


<PAGE>


                              CARDIAC SCIENCE, INC.

                 CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                       Three months ended                        Nine months ended
                                                ----------------------------------       ---------------------------------
                                                September 30,        September 30,       September 30,       September 30,
                                                     1998                1997                 1998                1997
                                               -----------------    ----------------    -----------------   -----------------
<S>                                            <C>                  <C>                 <C>                 <C>
Sales                                            $      318,940       $     380,050      $     1,121,296      $      789,048
Cost of sales                                           211,569             238,088              728,582             447,535
                                               -----------------    ----------------    -----------------   -----------------

Gross profit                                            107,371             141,962              392,714             341,513

Operating expenses:
   Research and development                             437,889             127,663            1,435,079             257,591
   Selling expenses                                     154,325             100,059              509,135             215,252
   General and administrative                           312,353             279,080            1,029,176             671,839
                                               -----------------    ----------------    -----------------   -----------------

Loss from operations                                   (797,196)           (364,840)          (2,580,676)           (803,169)

Interest (expense) net                                   (5,645)             (1,545)             (14,771)             (2,663)
                                               -----------------    ----------------    -----------------   -----------------

Loss before provision for income taxes                 (802,841)           (366,385)          (2,595,447)           (805,832)
Provision for income taxes                                  ---                 695                2,400                 800
                                               -----------------    ----------------    -----------------   -----------------
Net loss                                        $      (802,841)      $    (367,080)     $    (2,597,847)      $    (806,632)
                                               -----------------    ----------------    -----------------  -----------------
                                               -----------------    ----------------    -----------------  -----------------

Basic and diluted loss per share                $         (0.14)             $(0.10)     $         (0.49)      $       (0.23)
                                               -----------------    ----------------    -----------------  -----------------
                                               -----------------    ----------------    -----------------  -----------------

Number of shares used in the computation of
loss per share                                        5,651,353           3,821,300            5,276,117           3,558,261
                                               -----------------    ----------------    -----------------  -----------------
                                               -----------------    ----------------    ----------------- - -----------------

</TABLE>


    The accompanying notes are an integral part of the financial statements.


                                                                             4

<PAGE>


                              CARDIAC SCIENCE, INC.

                 CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
                                   (Unaudited)
<TABLE>
<CAPTION>
                                                                                Nine months          Nine months
                                                                                   ended                ended
                                                                               September 30,        September 30,
                                                                                   1998                  1997
                                                                              ----------------      ---------------
<S>                                                                           <C>                   <C>
Cash flows from operating activities:                                     

Net loss for the period                                                       $    (2,597,847)      $     (806,632)
                                                                          
Adjustments to reconcile net loss to net Cash used in operating activities:
            Depreciation and amortization                                              71,053               31,923
            Expenses paid with common stock                                            50,000                  ---
            Changes in operating assets and liabilities:                  
             Trade receivables                                                         84,381             (115,217)
             Inventory                                                                 24,804              (75,230)
             Prepaid expenses                                                          82,206              (42,733)
             Accounts payable and accrued expenses                                    568,966               60,626
                                                                              ----------------      ---------------
Net cash used in operating activities                                              (1,716,437)            (947,263)
                                                                              ----------------      ---------------
                                                                          
Cash from (used) by investing activities:                                 
            Cash acquired in Diagnostic Monitoring acquisition                            ---               43,223
            Purchase of equipment                                                     (32,620)             (24,069)
                                                                              ----------------      ---------------
            Net cash from (used) provided by investing activities                     (32,620)              19,154
                                                                              ----------------      ---------------
                                                                          
Cash provided by financing activities:                                    
            Payments of note payable to stockholder                                   (28,446)                 ---
            Proceeds from line of credit                                              175,000               23,221
            Proceeds from note payable                                                100,000                  ---
            Proceeds from exercise of warrants                                          2,000                  ---
            Proceeds from issuance of and subscription for common stock
                                                                                    1,200,000            1,289,362
            Costs of equity subscriptions                                            (107,160)                 ---
                                                                              ----------------      ---------------
            Net cash provided by financing activities                               1,341,394            1,312,583
                                                                              ----------------      ---------------
                                                                          
            Net increase (decrease) in cash and cash equivalents                     (407,663)             384,474
            Cash and Cash equivalents at beginning of period                          561,351              413,311
                                                                              ----------------      ---------------
                                                                          
            Cash and cash equivalents at end of period                        $       153,688       $      797,785
                                                                              ----------------      ---------------
                                                                              ----------------      ---------------
</TABLE>

     The accompanying notes are an integral part of the financial statements


                                                                             5


<PAGE>


                              CARDIAC SCIENCE, INC.

        CONSOLIDATED CONDENSED NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
                               SEPTEMBER 30, 1998

1.       ORGANIZATION AND CAPITALIZATION OF THE COMPANY

         Cardiac Science, Inc. (the "Company") was incorporated on May 20, 
1991 to develop, manufacture and market a line 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 Products are designed to continuously 
monitor, quickly detect and then automatically, through transmission of 
electrical energy charges to the patient's heart, terminate the ventricular 
tachyarrhythmia (dangerously fast heart rate) and/or ventricular fibrillation 
(quivering of the heart following tachyarrhythmia, which usually results in 
death). Moreover, the Products will not require the presence of a human 
operator to activate the device and deliver the defibrillator charge, as is 
the case with existing defibrillators used in hospitals.

2.       BASIS OF PRESENTATION AND CONTINUED EXISTENCE

         Until the acquisition of Innovative Physician Services, Inc. d/b/a 
Diagnostic Monitoring ("Diagnostic Monitoring") on April 11, 1997 (see Note 
4), the Company was a development stage company engaged in the development of 
the Products for the treatment of arrhythmias that lead to cardiac arrest. 
Diagnostic Monitoring develops, manufactures and distributes cardiac devices 
and supplies, primarily PC-based Ambulatory ECG ("Holter") systems and Holter 
recorders on a worldwide basis.

         While the acquisition of Diagnostic Monitoring provides the Company 
with a revenue base, additional capital is needed to fulfill the Company's 
marketing, research and product development goals. From May 20, 1991 
(inception) through September 30, 1998, the Company incurred losses of 
$9,377,499. 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 to attain profitable 
operations is dependent upon 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.

3.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         The consolidated financial statements include the accounts of the 
Company and of its wholly-owned subsidiary, Diagnostic Monitoring. All 
inter-company accounts and transactions have been eliminated in consolidation.

         In the opinion of the Company's management, the accompanying 
consolidated condensed unaudited financial statements include all adjustments 
(which consist only of normal recurring adjustments) necessary for a fair 
presentation of its financial position at September 30, 1998 and results of 
operations and cash flows for the periods presented. Although the Company 
believes that the disclosures in these financial statements are adequate to 
make the information presented not misleading, certain information and 
disclosures normally


                                                                             6

<PAGE>


included in financial statements prepared in accordance with generally 
accepted accounting principles have been condensed or omitted and should be 
read in conjunction with the Company's audited financial statements included 
in the Company's 1997 Annual Report on Form 10-KSB. Results of operations for 
the nine months ended September 30, 1998 are not necessarily indicative of 
results for the full year.

4.       ACQUISITION OF DIAGNOSTIC MONITORING

         On April 11, 1997, the Company acquired Diagnostic Monitoring for 
500 shares (5,714.285 pre-split) of the Company's Series A Convertible 
Preferred Stock (the "Preferred Stock") plus a non-interest bearing 
promissory note (the "Note") in the principal amount of $100,000, payable in 
eighteen (18) equal consecutive monthly installments commencing upon the 
earlier of April 9, 1999 or the completion of an equity financing by the 
Company of not less than $2,000,000 of gross proceeds. Each share of 
Preferred Stock was entitled to 1,000 votes per share was convertible into 
1,000 shares of the Company's common stock, at any time, and from time to 
time, at the holder's option, without the payment of any additional 
consideration, and was automatically convertible into 1,000 shares of common 
stock (subject to adjustment for any reverse stock split, etc.) upon there 
being a sufficient number of authorized but unissued shares of common stock 
to allow such conversion. There were no dividend rights on the Preferred 
Stock. On September 8, 1997, the Company effectuated a one-for-11.42857413 
reverse stock split and the shares of Preferred Stock automatically converted 
into 500,000 shares of common stock.

         The total purchase price for Diagnostic Monitoring was $682,975, the 
fair market value of the Preferred Stock issued and the Note. The fair market 
value of the Preferred Stock issued was estimated based on the trading value 
of the common stock less a 30% discount to take into consideration the lack 
of the ability to trade and other features of the Preferred Stock. The fair 
market value of the Note represents the discounted value (at 11.25%) of the 
Note over 20 months.

         The transaction was accounted for under the purchase method of 
accounting and the purchase price was allocated to the fair market value of 
the assets acquired and liabilities assumed. The intangible assets resulting 
from the purchase price allocation is being amortized over 10 years using the 
straight-line method.

5.   PRIVATE PLACEMENTS

         Through September 30, 1998, the Company sold an aggregate of 600,000 
shares of its common stock, of which 100,000 shares remained subscribed for 
at September 30, 1998. Theses shares were sold at $2.00 per share to foreign 
investors in offshore transactions pursuant to Regulation S promulgated under 
the Securities Act of 1933, as amended. In connection with such transactions, 
the Company is obligated to pay a finder's fee equal to 8.8 percent of the 
gross proceeds of the sale, payable in cash or common stock of which $40,000 
had been paid at September 30, 1998 and $80,000 was included in accrued 
expenses.

         In October 1998 the Company completed a private placement of 500,000 
shares of common stock and three-year warrants to purchase 125,000 shares of 
common stock at $2.50 per share, for an aggregate purchase price of $1 
million to a foreign investor in an offshore transaction pursuant to 
Regulation S promulgated under the Securities Act of 1933, as amended. In 
connection with the offering, the Corporation is obligated to pay a finder a 
fee equal to ten percent of the gross proceeds of the sale, payable in cash 
or Common Stock, and three-year warrants to purchase 50,000 shares of Common 
Stock at $2.20 per share. The investor has agreed to make an additional 
investment of $1.5 million, under similar terms, upon the completion of a 
strategic partnering agreement.



                                                                             7
<PAGE>

6.   STATEMENT OF FINANCIAL STANDARDS ADOPTED

         In June 1997, the FASB issued SFAS No. 131, "Disclosures About 
Segments of an Enterprise and Related Information". The Company has adopted 
the provisions of SFAS No. 131 with respect to its wholly-owned subsidiary 
Diagnostic Monitoring, which was acquired April 11, 1997 (Note 4).

         All revenues reported for the nine month period ending September 30, 
1998, were derived from Diagnostic Monitoring. Net profit for this segment 
for the nine month period ended September 30, 1998 was approximately $42,000. 
Prior to the acquisition, all items of income and expense were derived from 
the operations of Cardiac Science, Inc. and therefore prior periods have not 
been restated to reflect segment data.

7.    YEAR 2000 ISSUE

         In the next fifteen months, many companies will face a potentially 
serious information systems (computer) problem because many software 
applications and operational programs written in the past may not properly 
recognize calendar dates beginning in the Year 2000. This problem could force 
computers to either shut down or provide incorrect information and could 
result in an inability to process transactions or engage in normal business 
activities. Based on a recent assessment the Company believes that the 
software utilized by the Company will not be impacted by the Year 2000 Issue. 
The Company believes that its existing information systems equipment, 
primarily composed of personal computers, will be minimally impacted by the 
Year 2000 Issue, as the Company intends to replace those systems which may be 
affected by this problem by the end of 1999 due to technological 
obsolescence. In addition, the Company's initial products, the Powerheart(R) 
AECD(R), and its AECD Tachyarrhythmia Detection Software(TM) are not expected 
to encounter any problems with the Year 2000 issue. The Company is in the 
process of responding to initial customer inquiries, and intends to initiate 
communications with its vendors regarding the Year 2000 Issue in the fourth 
quarter of 1998. If the Company determines a particular vendor will be 
impacted by this problem, the Company may attempt to identify additional or 
replacement vendors, which could delay accessibility of the products and/or 
services provided by such vendors. Such a delay or failure to identify an 
additional or replacement vendor could have a material adverse effect on the 
Company's business, operating results and financial condition.


                                                                             8
<PAGE>




Item 2.     MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

GENERAL

         The following discussion should be read in conjunction with the 
consolidated financial statements of the Company and notes thereto set forth 
elsewhere in this Quarterly Report on Form 10-QSB.

         The Company is engaged in the development of software-driven 
non-invasive fully automatic defibrillator devices for the treatment of 
tachyarrhythmias that lead to cardiac arrest. The Company commenced 
operations in May 1991. Until its acquisition of Diagnostic Monitoring in 
April 1997, its operations have consisted primarily of research and 
development activities and clinical FDA testing.

         The Company has successfully developed proprietary detection and 
discrimination software, Automatic External Cardioverter Defibrillator 
("AECD-Registered Mark-") Tachyarrhythmia Detection Software-TM-, designed to 
continuously monitor and treat persons suffering from, or at high risk of, 
life-threatening arhythmias (abnormal rhythms of the heart) such as 
ventricular tachycardia (dangerously rapid heart rate) and ventricular 
fibrillation (quivering of the heart) that lead to cardiac arrest. The 
proprietary software is proven in clinical trials to detect life-threatening 
tachyarrhythmias with 100% sensitivity and with specificity approaching zero 
false positives. The AECD Tachyarrhythmia Detection Software-TM- received 
510(k) clearance from the United States Food and Drug Administration in 
August 1998 to allow it to be marketed in the U.S.

         Using its proprietary tachyarrhythmia software technology platform, 
Cardiac Science developed the Powerheart-Registered Mark- AECD-Registered 
Mark-, a non-invasive bedside defibrillator used to continuously monitor 
hospitalized cardiac patients for life-threatening tachyarrhythmias and 
automatically deliver electrical (defibrillation) shock(s) within seconds, 
without human intervention, should a patient suffer cardiac arrest. The 
Powerheart-Registered Mark- AECD-Registered Mark- represents a significant 
advancement in detection and defibrillator technology and the ability to 
effectively manage life-threatening arrhythmias in a hospital environment. 
Drawing on the technologies that have made "hands-off" defibrillation and 
implantable defibrillation possible and fusing this with advanced monitoring 
capabilities, the Powerheart introduces the unique ability to provide 
continuous monitoring and automatic therapy. The Powerheart received 510(k) 
clearance from the United States Food and Drug Administration in October 1997 
to allow it to begin marketing in the U.S. The Company is in the process of 
completing the commercial version of the Powerheart-Registered Mark- and 
expects to begin production of the device in early 1999.

         The Company anticipates embedding its proprietary software in 
numerous medical devices, including portable AED's (e.g. Public Access 
Defibrillators-"PAD"), standard "crash-cart" defibrillators, ambulatory 
AECD-Registered Mark- devices, as well as bedside patient monitoring systems.

         The Company's primary objective is to pioneer the commercialization 
of AECD-Registered Mark- devices that obviate the need for human intervention 
to successfully treat arrhythmias that lead to cardiac arrest. The Company 
believes the AECD-Registered Mark- Products are ideally suited for 
hospitalized and non-hospitalized patients temporarily at risk (periods 
ranging from days to months) of suffering cardiac arrest. Through its 
investment in clinical research, the Company believes it has established 
competitive functional and technological advantages in the development of 
AECD-Registered Mark- devices. The Company has been issued one patent, and 
has one additional patent under exclusive license relating to its 
AECD-Registered Mark- technology.

         In September 1997 the Company began work to complete development and 
begin production of the Powerheart-Registered Mark- commercial model. Upon 
completion of the commercial model, of which there can be no 

                                                                             9

<PAGE>

assurance, the Company plans to sell the Powerheart-Registered Mark- through 
a strategic U.S. distribution partner and overseas through its existing 
network of international distributors.

         Diagnostic Monitoring develops, manufactures and distributes cardiac 
devices and supplies, primarily PC-based Ambulatory ECG ("Holter") systems 
and Holter recorders, on a worldwide basis. Sales are made through qualified 
domestic and international distributors, pursuant to strategic distribution 
agreements, and managed by Diagnostic Monitoring employees on a 
country-by-country basis. Distribution is currently in place with market 
coverage in over 40 countries worldwide. In the United States, products are 
sold directly by Diagnostic Monitoring to hospitals, physicians, and medical 
centers at prices that reflect market conditions. Diagnostic Monitoring's 
products are primarily made in the United States. Certain products and 
components are subcontracted and manufactured to Diagnostic Monitoring's 
specifications.

         RESULTS OF OPERATIONS

         For the three and nine months ended September 30, 1998, the Company 
had revenues of $318,940 and $1,121,296, and a net loss of $802,481 or 
$(0.14) per share and $2,597,847 or $(0.49) per share, respectively, compared 
to revenues of $380,050 and $789,048 and a net loss of $367,080 or $(0.10) 
per share and $806,632 or $(0.23) per share, respectively, for the three and 
nine months ended September 30, 1997.

         Revenues generated for all periods are attributable to the sale of 
products by the Company's subsidiary, Diagnostic Monitoring. Gross profit on 
sales for the period ending September 30, 1998 was 35%. Sales of Diagnostic 
Monitoring's Windows 95-Registered Mark- compatible Holter software and 
systems, Holter Recorder products, and related Holter supplies represented 
77% of the Company's total revenue. Sales of Spirometers accounted for 4%, 
PC-based Electrocardiographs accounted for 4% and Ambulatory Blood Pressure 
products accounted for 7%. Export sales of Diagnostic Monitoring's products 
to international countries represented 85% of the Company's revenue, with the 
balance of sales coming from within the United States.

         The increased loss for the quarter and year to date period ended 
September 30, 1998 is primarily attributable to increased operating costs 
offset by gross margins from the sale of products by the Company's subsidiary.

         Research and development expenses increased to $437,889 and 
$1,435,079, respectively, for the three and nine months ended September 30, 
1998, from $127,663 and $257,591, respectively, for three and nine months 
ended September 30, 1997. This increase was due to engineering and 
pre-production costs associated with the commercialization of the Company's 
initial AECD-Registered Mark- product, the Powerheart-Registered Mark-. 
Included in the engineering costs related to the commercialization of the 
Powerheart-Registered Mark- was a credit of approximately $200,000 resulting 
from the settlement of a dispute with a vendor in the quarter ending 
September 30, 1998.

         Selling expenses increased to $154,325 and $509,135, respectively, 
for the three and nine months ended September 30, 1998, from $100,059 and 
$215,252, respectively, for three and nine months ended September 30, 1997. 
The increase was due to marketing efforts for the Holter Product line 
(acquired in 1997) and pre-marketing expense for the Powerheart-Registered 
Mark-.

         General and administrative expenses increased to $312,353 and 
$1,029,176, respectively, for three and nine months ended September 30, 1998, 
from $279,080 and $671,839 for the three and nine months ended September 30, 
1997. The increase was a result of expenditures incurred to support both the 
Holter Product line (acquired in 1997) and infrastructure necessary to 
commercialize the Powerheart-Registered Mark- and begin initial preparations 
for market release. Expenses, which increased in 1998 as compared to 1997, 
included 

                                                                            10

<PAGE>

amortization of intangible assets, personnel costs and related fringes, 
insurance premiums for both product liability and directors and officers 
insurance, and professional fees.

         Interest expense, net, increased to $5,645 and $14,771 for the three 
month and year to date period ended September 30, 1998 as compared to $1,545 
and $2,663, respectively, for the same periods in the prior year, due to the 
debt incurred in the acquisition of Diagnostic Monitoring and borrowings on 
the bank line of credit in 1998.

LIQUIDITY AND CAPITAL RESOURCES

         At September 30, 1998, the Company had cash and cash equivalents of 
$153,688 and a working capital deficit of $1,494,937 as compared to cash and 
cash equivalents of $561,351 and negative working capital of $363 at December 
31, 1997. From inception, the Company's sources of funding for operations 
were derived from equity placements aggregating approximately $8,700,000. The 
Company has incurred losses of $9,377,499 since inception and expects to 
incur substantial additional operating losses as a result of expenditures 
related to the marketing, research and product development activities, 
completion and initiation of clinical trials for current and future products 
and costs associated with the development of a commercial model and 
pre-production costs for the Powerheart(R) product. The timing and amounts of 
these expenditures will depend upon many factors, some of which are beyond 
the Company's control, such as the results of clinical trials, the 
requirements for and time required to obtain approval of 510(k) applications 
or other regulatory approvals, the progress of the Company's research and 
development programs, and market acceptance of the Company's products.

         The Company's cash resources are minimal and the Company has 
borrowed $175,000 from a bank on a revolving line of credit secured by all of 
the Company's assets. In obtaining the line of credit, the Company covenanted 
to maintain a minimum liquidity ratio and a minimum stated net worth. For 
each of the months during the period of June 30 through September 30, 1998, 
the Company was not in compliance with one or both of these requirements. The 
bank, however, has agreed to forbear exercising its remedies for such period 
with the condition that the Company repay an amount of $25,000 for each month 
that it is not in compliance with the stated covenants. Once the Company is 
in compliance with the covenants it can then draw against the line of credit. 
Unless and until the Company is able to raise additional equity capital, the 
Company does not anticipate being in compliance with the minimum stated net 
worth requirement and will be required to seek the bank's waiver or 
forbearance in exercising its remedies for those periods in which the Company 
is not in compliance. There can be no assurance that such waivers or 
forbearances will be granted.

         In September 1998 the Company obtained a non-interest bearing loan 
of $100,000 repayable in 90 days. In consideration for this loan, the Company 
issued three year warrants to purchase 50,000 shares of common stock at a 
price of $2.00. No amounts have been assigned to these warrants due to 
immateriality.

         As explained in Note 5 to the financial statements, in October 1998 
the Company completed a private placement of 500,000 shares of common stock 
and three-year warrants to purchase 125,000 shares of common stock at $2.50 
per share, for an aggregate purchase price of $1 million and the investor has 
agreed to make an additional investment of $1.5 million under similar terms 
upon the Company achieving near term milestones. There can be no assurance 
that such milestones will be achieved. No amounts have been assigned to these 
warrants due to immateriality.

                                                                            11

<PAGE>

         The Company anticipates that its current cash balance combined with 
the realization of the $1 million in October 1998 and an additional $1.5 
million upon achievement of near term milestones, will be sufficient to meet 
the Company's cash requirements for at least the next six months. Given the 
current sales volume and applications of cash, the Company expects that 
further capital additions will be necessary to sustain growth until the 
Company becomes cash positive. In this respect, the Company is considering a 
number of alternatives, including additional equity financings and corporate 
partnerships. There can be no assurance that any such transactions will be 
available at terms acceptable to the Company or that any financing 
transaction will not be dilutive to current stockholders or that the Company 
will have sufficient working capital to fund future operations.

FORWARD LOOKING STATEMENTS

         The Company desires to take advantage of certain provisions of the 
Private Securities Litigation Reform Act of 1995 that provide a "safe harbor" 
for forward looking statements made by or on behalf of the Company. Except 
for the historical information contained herein, the matters discussed herein 
are forward looking statements. The forward looking statements contained in 
this Quarterly Report on Form 10-QSB are subject to various risks, 
uncertainties and other factors that could cause actual results to differ 
materially from the results anticipated in such forward looking statements. 
Included among the important risks, uncertainties and other factors are those 
hereinafter discussed, the accuracy of which is necessarily subject to risks 
and uncertainties.

         Few of the forward looking statements in this Quarterly Report on 
Form 10-QSB deal with matters that are within the unilateral control of the 
Company. There is substantial regulation of the manufacture and sale of 
medical products, including many of the Company's products, by governmental 
agencies in the United States and foreign countries. These government 
agencies often have considerable discretion in determining whether and when 
to approve the marketing of the Company's products that have not yet received 
such approval.

         The availability of equity and debt financing to the Company is 
affected by, among other things, domestic and world economic conditions and 
the competition for funds. Rising interest rates might affect the feasibility 
of debt financing that is offered. Potential investors and lenders will be 
influenced by their evaluations of the Company and its products and 
comparisons with alternative investment opportunities.

         Many of the Company's competitors have greater financial resources 
and technical capabilities than the Company, which may enable such 
competitors to design and produce superior products or to market their 
products in a manner that achieves commercial success even in the face of 
technical superiority on the part of the Company's products.

         The Company's patents may not offer effective protection against 
competitors. Competitors may be able to design around the Company's patents 
or employ technologies not covered by such patents. In addition, the 
Company's patents may be challenged, and even if such patents are upheld, the 
diversion of financial and human resources associated with patent litigation 
could adversely affect the Company. The Company may be found to be violating 
the patents of others and forced to obtain a license under such patents or 
modify the design of its products.

         Rapid technological developments are expected to continue in the 
industries in which the Company competes. The Company may not be able to 
develop, manufacture and market products which meet changing user 
requirements or which successfully anticipate or respond to technological 
changes in a cost-effective and timely manner.

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<PAGE>


                              CARDIAC SCIENCE, INC.

                           PART II. OTHER INFORMATION

Item 1.      Legal Proceedings

             None.

Item 2.      Changes in Securities and Use of Proceeds

             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)    None.
             b)   The Company filed a report on Form 8-K dated August 10,
                  1998 with the Commission relating to sale of equity
                  securities pursuant to Regulation S promulgated under the
                  Securities Act of 1933, as amended.

                                                                            13

<PAGE>



                                   SIGNATURES


         In accordance with the requirements of the Exchange Act, the 
registrant caused this report to be signed on its behalf by the undersigned, 
hereunto duly authorized.



                                                      CARDIAC SCIENCE, INC.







           Date: November 10, 1998                   /s/  Brett L. Scott
                 -------------------                  -------------------
                                                     Brett L. Scott
                                                     Chief Financial Officer


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