##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549



---



FORM 10-Q

(Mark One)

|       |  |                                                                                        
|------ |  | ---------------------------------------------------------------------------------------
|(XBOX) |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2002

OR

|      |  |                                                                                         
|----- |  | ----------------------------------------------------------------------------------------
|(BOX) |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________to__________

Commission File Number      000-49755

QUINTON CARDIOLOGY SYSTEMS, INC.(Exact name of registrant as specified in its charter)

|                                    |  |                                             
|----------------------------------- |  | --------------------------------------------
|California
(State of Incorporation) |  | 94-3300396
(IRS Employer Identification No.)

3303 Monte Villa Parkway
Bothell, Washington 98021
(Address of principal executive offices)

(425) 402-2000
(Registrants telephone number)

Indicated by checkü 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.

YesþNoo

As of November 8, 2002, 11,989,688 shares of the issuers common stock were
outstanding.

1



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TABLE OF CONTENTS



|                               |                                                                                               |  |  |  |  |  |  | 
|------------------------------ | --------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I  FINANCIAL INFORMATION
|                               | Item 1. Unaudited Financial Statements                                                       
|                               | Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
|                               | Item 3. Quantitative and Qualitative Disclosures About Market Risk                           
|                               | Item 4. Controls and Procedures                                                              
|PART II  OTHER INFORMATION   
|                               | Item 1. Legal Proceedings                                                                    
|                               | Item 2. Changes in Securities and Use of Proceeds                                            
|                               | Item 5. Other Information                                                                    
|                               | Item 6. Exhibits and Reports on Form 8-K                                                     
|SIGNATURE                     
|CERTIFICATION                 
|EXHIBIT 99.1                  
|EXHIBIT 99.2                  



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##### Table of Contents



TABLE OF CONTENTS

|                               |  |         |  |                                                                                       |  |   
|------------------------------ |  | ------- |  | ------------------------------------------------------------------------------------- |  | --
|PART I - FINANCIAL INFORMATION |  | 3      
|                              
|                               |  | Item 1. |  | Unaudited Financial Statements                                                        |  | 3 
|                              
|                               |  | Item 2. |  | Managements Discussion and Analysis of
Financial Condition and Results of Operations |  | 10
|                              
|                               |  | Item 3. |  | Quantitative and Qualitative Disclosures About Market Risk                            |  | 19
|                              
|                               |  | Item 4. |  | Controls and Procedures                                                               |  | 19
|                              
|PART II - OTHER INFORMATION    |  | 20     
|                              
|                               |  | Item 1. |  | Legal Proceedings                                                                     |  | 20
|                              
|                               |  | Item 2. |  | Changes in Securities and Use of Proceeds                                             |  | 20
|                              
|                               |  | Item 5. |  | Other Information                                                                     |  | 21
|                              
|                               |  | Item 6. |  | Exhibits and Reports on Form 8-K                                                      |  | 21
|                              
|SIGNATURE                      |  | 22     
|                              
|CERTIFICATION                  |  | 23     

2



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##### Table of Contents






PART I  FINANCIAL INFORMATION




Item 1. Unaudited Financial Statements

QUINTON CARDIOLOGY SYSTEMS, INC.
AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)

|                                                         |                                                                                                                                                                            |                                      |                                            |         |        |              |       |               |   |        |  | 
|-------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------ | ------------------------------------------ | ------- | ------ | ------------ | ----- | ------------- | - | ------ |  | 
|                                                         |                                                                                                                                                                            |                                      |                                            |         |        | December 31, |       | September 30,
|                                                         |                                                                                                                                                                            |                                      |                                            |         |        | 2001         |       | 2002         
|                                                         |                                                                                                                                                                            |                                      |                                            |         |        |              |       |              
|ASSETS                                                   |                                                                                                                                                                            |                                      |                                            |         |        |              |       |              
|Current Assets:                                          |                                                                                                                                                                            |                                      |                                            |         |        |              |       |              
|                                                         | Cash and cash equivalents                                                                                                                                                  |                                      | $                                          | 218     |        |              | $     | 23,431        |  
|                                                         | Accounts receivable, net of allowance for doubtful accounts                                                                                                                |                                      |                                            | 6,123   |        |              |       | 5,563         |  
|                                                         | Inventories                                                                                                                                                                |                                      |                                            | 6,161   |        |              |       | 6,158         |  
|                                                         | Prepaid expenses and other current assets                                                                                                                                  |                                      |                                            | 626     |        |              |       | 633           |  
|                                                         |                                                                                                                                                                            |                                      |                                            |         |        |              |       |              
|                                                         |                                                                                                                                                                            |                                      | Total current assets                       |         |        | 13,128       |       |               |   | 35,785 | 
|Machinery and equipment, net of accumulated depreciation |                                                                                                                                                                            |                                      | 3,165                                      |         |        |              | 3,036 |              
|Patents, net of accumulated amortization                 |                                                                                                                                                                            |                                      | 173                                        |         |        |              | 81    |              
|Investment in unconsolidated entity                      |                                                                                                                                                                            |                                      | 1,000                                      |         |        |              | 1,000 |              
|                                                         |                                                                                                                                                                            |                                      |                                            |         |        |              |       |              
|                                                         |                                                                                                                                                                            |                                      | Total assets                               |         | $      | 17,466       |       |               | $ | 39,902 | 
|                                                         |                                                                                                                                                                            |                                      |                                            |         |        |              |       |              
|LIABILITIES AND SHAREHOLDERS EQUITY                     |                                                                                                                                                                            |                                      |                                            |         |        |              |       |              
|Current Liabilities:                                     |                                                                                                                                                                            |                                      |                                            |         |        |              |       |              
|                                                         | Line of credit                                                                                                                                                             |                                      | $                                          | 4,471   |        |              | $     |              |  
|                                                         | Accounts payable                                                                                                                                                           |                                      |                                            | 4,029   |        |              |       | 4,292         |  
|                                                         | Accrued liabilities                                                                                                                                                        |                                      |                                            | 2,548   |        |              |       | 3,396         |  
|                                                         | Warranty liability                                                                                                                                                         |                                      |                                            | 1,269   |        |              |       | 1,040         |  
|                                                         | Deferred revenue                                                                                                                                                           |                                      |                                            | 3,556   |        |              |       | 4,145         |  
|                                                         | Putable warrants                                                                                                                                                           |                                      |                                            | 705     |        |              |       | 253           |  
|                                                         |                                                                                                                                                                            |                                      |                                            |         |        |              |       |              
|                                                         |                                                                                                                                                                            |                                      | Total current liabilities                  |         |        | 16,578       |       |               |   | 13,126 | 
|Sublease liability, net of current portion               |                                                                                                                                                                            |                                      | 831                                        |         |        |              | 208   |              
|                                                         |                                                                                                                                                                            |                                      |                                            |         |        |              |       |              
|                                                         |                                                                                                                                                                            |                                      | Total liabilities                          |         |        | 17,409       |       |               |   | 13,334 | 
|                                                         |                                                                                                                                                                            |                                      |                                            |         |        |              |       |              
|Shareholders Equity:                                    |                                                                                                                                                                            |                                      |                                            |         |        |              |       |              
|                                                         | Preferred stock (50,000,000 shares authorized):                                                                                                                            |                                      |                                            |         |        |              |       |               |  
|                                                         |                                                                                                                                                                            | Series A convertible preferred stock |                                            |         | 12,230 |              |       |               |  |       
|                                                         |                                                                                                                                                                            | Series B convertible preferred stock |                                            |         | 865    |              |       |               |  |       
|                                                         | Common stock (100,000,000 shares authorized), no par
value, 677,275 and 11,968,435 shares issued and
outstanding at December 31, 2001 and September 30,
2002, respectively |                                      |                                            | 3,490   |        |              |       | 44,957        |  
|                                                         | Deferred stock-based compensation                                                                                                                                          |                                      |                                            | (287    | )      |              |       | (198          | )
|                                                         | Accumulated deficit                                                                                                                                                        |                                      |                                            | (16,241 | )      |              |       | (18,191       | )
|                                                         |                                                                                                                                                                            |                                      |                                            |         |        |              |       |              
|                                                         |                                                                                                                                                                            |                                      | Total shareholders equity                 |         |        | 57           |       |               |   | 26,568 | 
|                                                         |                                                                                                                                                                            |                                      |                                            |         |        |              |       |              
|                                                         |                                                                                                                                                                            |                                      | Total liabilities and shareholders equity |         | $      | 17,466       |       |               | $ | 39,902 | 
|                                                         |                                                                                                                                                                            |                                      |                                            |         |        |              |       |              

The accompanying notes are an integral part of these unaudited condensed consolidated balance sheets.

3



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##### Table of Contents



QUINTON CARDIOLOGY SYSTEMS, INC.
AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share amounts)

|                                                                             |                                |                                                                        |                              |   |                    |        |                   |    |       |        |         |     |        |        |           |     |        |        |  
|---------------------------------------------------------------------------- | ------------------------------ | ---------------------------------------------------------------------- | ---------------------------- | - | ------------------ | ------ | ----------------- | -- | ----- | ------ | ------- | --- | ------ | ------ | --------- | --- | ------ | ------ | -
|                                                                             |                                |                                                                        |                              |   | Three Months Ended |        | Nine Months Ended
|                                                                             |                                |                                                                        |                              |   | September 30,      |        | September 30,    
|                                                                             |                                |                                                                        |                              |   |                    |        |                  
|                                                                             |                                |                                                                        |                              |   | 2001               |        | 2002              |    | 2001  |        | 2002   
|                                                                             |                                |                                                                        |                              |   |                    |        |                   |    |       |        |        
|Revenues:                                                                    |                                |                                                                        |                              |   |                    |        |                   |    |       |        |         |     |        |        |           |    
|                                                                             |                                | Systems                                                                |                              | $ | 8,623              |        |                   | $  | 9,380 |        |         | $   | 25,576 |        |           | $   | 26,609 |       
|                                                                             |                                | Service                                                                |                              |   | 2,207              |        |                   |    | 2,275 |        |         |     | 6,815  |        |           |     | 6,694  |       
|                                                                             |                                |                                                                        |                              |   |                    |        |                   |    |       |        |         |     |        |        |           |    
|                                                                             |                                |                                                                        | Total revenues               |   |                    | 10,830 |                   |    |       | 11,655 |         |     |        | 32,391 |           |     |        | 33,303 |  
|                                                                             |                                |                                                                        |                              |   |                    |        |                   |    |       |        |         |     |        |        |           |    
|Cost of Revenues:                                                            |                                |                                                                        |                              |   |                    |        |                   |    |       |        |         |     |        |        |           |    
|                                                                             |                                | Systems                                                                |                              |   | 5,234              |        |                   |    | 5,959 |        |         |     | 16,135 |        |           |     | 16,701 |       
|                                                                             |                                | Service                                                                |                              |   | 1,115              |        |                   |    | 1,109 |        |         |     | 3,749  |        |           |     | 3,485  |       
|                                                                             |                                |                                                                        |                              |   |                    |        |                   |    |       |        |         |     |        |        |           |    
|                                                                             |                                |                                                                        | Total cost of revenues       |   |                    | 6,349  |                   |    |       | 7,068  |         |     |        | 19,884 |           |     |        | 20,186 |  
|                                                                             |                                |                                                                        |                              |   |                    |        |                   |    |       |        |         |     |        |        |           |    
|                                                                             |                                |                                                                        | Gross profit                 |   |                    | 4,481  |                   |    |       | 4,587  |         |     |        | 12,507 |           |     |        | 13,117 |  
|                                                                             |                                |                                                                        |                              |   |                    |        |                   |    |       |        |         |     |        |        |           |    
|Operating Expenses:                                                          |                                |                                                                        |                              |   |                    |        |                   |    |       |        |         |     |        |        |           |    
|                                                                             |                                | Research and development                                               |                              |   | 1,206              |        |                   |    | 1,205 |        |         |     | 4,212  |        |           |     | 3,892  |       
|                                                                             |                                | Sales and marketing                                                    |                              |   | 2,381              |        |                   |    | 2,460 |        |         |     | 7,145  |        |           |     | 7,379  |       
|                                                                             |                                | General and administrative, excluding
stock-based compensation expense |                              |   | 1,151              |        |                   |    | 1,434 |        |         |     | 3,648  |        |           |     | 4,023  |       
|                                                                             |                                | Stock-based compensation                                               |                              |   | 577                |        |                   |    | 23    |        |         |     | 1,028  |        |           |     | 93     |       
|                                                                             |                                |                                                                        |                              |   |                    |        |                   |    |       |        |         |     |        |        |           |    
|                                                                             |                                |                                                                        | Total operating expenses     |   |                    | 5,315  |                   |    |       | 5,122  |         |     |        | 16,033 |           |     |        | 15,387 |  
|                                                                             |                                |                                                                        |                              |   |                    |        |                   |    |       |        |         |     |        |        |           |    
|                                                                             |                                |                                                                        | Operating loss               |   |                    | (834   | )                 |    |       | (535   | )       |     |        | (3,526 | )         |     |        | (2,270 | )
|                                                                             |                                |                                                                        |                              |   |                    |        |                   |    |       |        |         |     |        |        |           |    
|Other Income (Expense):                                                      |                                |                                                                        |                              |   |                    |        |                   |    |       |        |         |     |        |        |           |    
|                                                                             |                                | Interest income                                                        |                              |   |                   |        |                   |    | 97    |        |         |     |       |        |           |     | 143    |       
|                                                                             |                                | Interest expense                                                       |                              |   | (93                | )      |                   |    |      |        |         |     | (276   | )      |           |     | (102   | )     
|                                                                             |                                | Non-cash interest income (expense),
Putable warrants                   |                              |   | (186               | )      |                   |    | 161   |        |         |     | (248   | )      |           |     | 294    |       
|                                                                             |                                | Other income (expense), net                                            |                              |   | 23                 |        |                   |    | (2    | )      |         |     | 47     |        |           |     | 1      |       
|                                                                             |                                |                                                                        |                              |   |                    |        |                   |    |       |        |         |     |        |        |           |    
|                                                                             |                                |                                                                        | Total other income (expense) |   |                    | (256   | )                 |    |       | 256    |         |     |        | (477   | )         |     |        | 336    |  
|                                                                             |                                |                                                                        |                              |   |                    |        |                   |    |       |        |         |     |        |        |           |    
|Loss before income taxes                                                     |                                |                                                                        | (1,090                       | ) |                    |        | (279              | )  |       |        | (4,003  | )   |        |        | (1,934    | )  
|                                                                             | Income tax benefit (provision) |                                                                        |                              |  |                    |        |                   | (2 | )     |        |         | 197 |        |        |           | (16 | )     
|                                                                             |                                |                                                                        |                              |   |                    |        |                   |    |       |        |         |     |        |        |           |    
|                                                                             |                                | Net loss                                                               |                              | $ | (1,090             | )      |                   | $  | (281  | )      |         | $   | (3,806 | )      |           | $   | (1,950 | )     
|                                                                             |                                |                                                                        |                              |   |                    |        |                   |    |       |        |         |     |        |        |           |    
|Basic and diluted net loss per share                                         |                                | $                                                                      | (1.72                        | ) |                    | $      | (0.02             | )  |       | $      | (6.14   | )   |        | $      | (0.30     | )  
|                                                                             |                                |                                                                        |                              |   |                    |        |                   |    |       |        |         |     |        |        |           |    
|Weighted average shares used to compute
basic and diluted net loss per share |                                |                                                                        | 632,471                      |   |                    |        | 11,951,569        |    |       |        | 619,553 |     |        |        | 6,512,247 |    
|                                                                             |                                |                                                                        |                              |   |                    |        |                   |    |       |        |         |     |        |        |           |    

The accompanying notes are an integral part of these unaudited condensed consolidated statements.

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##### Table of Contents



QUINTON CARDIOLOGY SYSTEMS, INC.
AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

|                                                  |                                                                                                                                                                                        |                                                      |                                            |                                          |     |                    |        |                   |      |      |      |        |       |       |        |        |      |      |        |  
|------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------- | ------------------------------------------ | ---------------------------------------- | --- | ------------------ | ------ | ----------------- | ---- | ---- | ---- | ------ | ----- | ----- | ------ | ------ | ---- | ---- | ------ | -
|                                                  |                                                                                                                                                                                        |                                                      |                                            |                                          |     | Three Months Ended |        | Nine Months Ended
|                                                  |                                                                                                                                                                                        |                                                      |                                            |                                          |     | September 30,      |        | September 30,    
|                                                  |                                                                                                                                                                                        |                                                      |                                            |                                          |     |                    |        |                  
|                                                  |                                                                                                                                                                                        |                                                      |                                            |                                          |     | 2001               |        | 2002              |      | 2001 |      | 2002  
|                                                  |                                                                                                                                                                                        |                                                      |                                            |                                          |     |                    |        |                   |      |      |      |       
|Operating Activities:                             |                                                                                                                                                                                        |                                                      |                                            |                                          |     |                    |        |                   |      |      |      |        |       |       |        |       
|                                                  | Net loss                                                                                                                                                                               |                                                      | $                                          | (1,090                                   | )   |                    | $      | (281              | )    |      | $    | (3,806 | )     |       | $      | (1,950 | )   
|                                                  | Adjustments to reconcile net loss to net cash from
operating activities                                                                                                               |                                                      |                                            |                                          |     |                    |        |                   |      |      |      |        |       |       |        |        |     
|                                                  |                                                                                                                                                                                        | Depreciation and amortization                        |                                            |                                          | 283 |                    |        |                   | 308  |      |      |        | 861   |       |        |        | 891  |     
|                                                  |                                                                                                                                                                                        | Loss on sale of equipment                            |                                            |                                          | 7   |                    |        |                   | 5    |      |      |        | 49    |       |        |        | 14   |     
|                                                  |                                                                                                                                                                                        | Amortization of deferred stock compensation          |                                            |                                          | 577 |                    |        |                   | 23   |      |      |        | 1,028 |       |        |        | 93   |     
|                                                  |                                                                                                                                                                                        | Non-cash interest expense (income), putable
warrants |                                            |                                          | 186 |                    |        |                   | (161 | )    |      |        | 248   |       |        |        | (294 | )   
|                                                  |                                                                                                                                                                                        | Non-cash other income                                |                                            |                                          | (30 | )                  |        |                   |     |      |      |        | (30   | )     |        |        |     |     
|                                                  |                                                                                                                                                                                        | Changes in operating assets and liabilities:         |                                            |                                          |     |                    |        |                   |      |      |      |        |       |       |        |        |      |     
|                                                  |                                                                                                                                                                                        |                                                      | Accounts receivable                        |                                          |     | 543                |        |                   |      | 608  |      |        |       | 1,396 |        |        |      | 560  |       
|                                                  |                                                                                                                                                                                        |                                                      | Inventories                                |                                          |     | 17                 |        |                   |      | (752 | )    |        |       | 440   |        |        |      | 3    |       
|                                                  |                                                                                                                                                                                        |                                                      | Prepaid expenses and other assets          |                                          |     | 274                |        |                   |      | 82   |      |        |       | 74    |        |        |      | (7   | )     
|                                                  |                                                                                                                                                                                        |                                                      | Income taxes receivable                    |                                          |     |                   |        |                   |      |     |      |        |       | 1,209 |        |        |      |     |       
|                                                  |                                                                                                                                                                                        |                                                      | Accounts payable                           |                                          |     | 215                |        |                   |      | 91   |      |        |       | 521   |        |        |      | 228  |       
|                                                  |                                                                                                                                                                                        |                                                      | Accrued liabilities and sublease liability |                                          |     | (270               | )      |                   |      | 65   |      |        |       | (45   | )      |        |      | 225  |       
|                                                  |                                                                                                                                                                                        |                                                      | Warranty liability                         |                                          |     | (126               | )      |                   |      | (57  | )    |        |       | (372  | )      |        |      | (229 | )     
|                                                  |                                                                                                                                                                                        |                                                      | Deferred revenue                           |                                          |     | (45                | )      |                   |      | 306  |      |        |       | (291  | )      |        |      | 589  |       
|                                                  |                                                                                                                                                                                        |                                                      |                                            |                                          |     |                    |        |                   |      |      |      |        |       |       |        |       
|                                                  |                                                                                                                                                                                        |                                                      |                                            | Net cash flows from operating activities |     |                    | 541    |                   |      |      | 237  |        |       |       | 1,282  |        |      |      | 123    |  
|                                                  |                                                                                                                                                                                        |                                                      |                                            |                                          |     |                    |        |                   |      |      |      |        |       |       |        |       
|Investing Activities:                             |                                                                                                                                                                                        |                                                      |                                            |                                          |     |                    |        |                   |      |      |      |        |       |       |        |       
|                                                  | Purchases of machinery and equipment                                                                                                                                                   |                                                      |                                            | (21                                      | )   |                    |        | (286              | )    |      |      | (192   | )     |       |        | (684   | )   
|                                                  |                                                                                                                                                                                        |                                                      |                                            |                                          |     |                    |        |                   |      |      |      |        |       |       |        |       
|                                                  |                                                                                                                                                                                        |                                                      |                                            | Net cash flows from investing activities |     |                    | (21    | )                 |      |      | (286 | )      |       |       | (192   | )      |      |      | (684   | )
|                                                  |                                                                                                                                                                                        |                                                      |                                            |                                          |     |                    |        |                   |      |      |      |        |       |       |        |       
|Financing Activities:                             |                                                                                                                                                                                        |                                                      |                                            |                                          |     |                    |        |                   |      |      |      |        |       |       |        |       
|                                                  | Repayments of borrowings on the bank line of credit, net                                                                                                                               |                                                      |                                            | (517                                     | )   |                    |        |                  |      |      |      | (1,119 | )     |       |        | (4,471 | )   
|                                                  | Proceeds from (costs of) issuance of common stock, net
of issuance costs of $772 for the three months ended
September 30, 2002 and $3,981 for the nine months ended
September 30, 2002 |                                                      |                                            |                                         |     |                    |        | (630              | )    |      |      |       |       |       |        | 28,361 |     
|                                                  | Redemption of putable warrants                                                                                                                                                         |                                                      |                                            |                                         |     |                    |        | (158              | )    |      |      |       |       |       |        | (158   | )   
|                                                  | Proceeds from exercise of stock options                                                                                                                                                |                                                      |                                            |                                         |     |                    |        | 3                 |      |      |      | 5      |       |       |        | 42     |     
|                                                  | Repurchase of shares in connection with termination                                                                                                                                    |                                                      |                                            |                                         |     |                    |        |                  |      |      |      | (94    | )     |       |        |       |     
|                                                  |                                                                                                                                                                                        |                                                      |                                            |                                          |     |                    |        |                   |      |      |      |        |       |       |        |       
|                                                  |                                                                                                                                                                                        |                                                      |                                            | Net cash flows from financing activities |     |                    | (517   | )                 |      |      | (785 | )      |       |       | (1,208 | )      |      |      | 23,774 |  
|                                                  |                                                                                                                                                                                        |                                                      |                                            |                                          |     |                    |        |                   |      |      |      |        |       |       |        |       
|Net change in cash and cash equivalents           |                                                                                                                                                                                        |                                                      | 3                                          |                                          |     |                    | (834   | )                 |      |      | (118 | )      |       |       | 23,213 |       
|Cash and cash equivalents, beginning of period    |                                                                                                                                                                                        |                                                      | 302                                        |                                          |     |                    | 24,265 |                   |      |      | 423  |        |       |       | 218    |       
|                                                  |                                                                                                                                                                                        |                                                      |                                            |                                          |     |                    |        |                   |      |      |      |        |       |       |        |       
|Cash and cash equivalents, end of period          |                                                                                                                                                                                        | $                                                    | 305                                        |                                          |     | $                  | 23,431 |                   |      | $    | 305  |        |       | $     | 23,431 |       
|                                                  |                                                                                                                                                                                        |                                                      |                                            |                                          |     |                    |        |                   |      |      |      |        |       |       |        |       
|Supplemental disclosure of cash flow information: |                                                                                                                                                                                        |                                                      |                                            |                                          |     |                    |        |                   |      |      |      |        |       |       |        |       
|                                                  | Cash paid for interest                                                                                                                                                                 |                                                      | $                                          | 94                                       |     |                    | $      |                  |      |      | $    | 311    |       |       | $      | 131    |     
|                                                  |                                                                                                                                                                                        |                                                      |                                            |                                          |     |                    |        |                   |      |      |      |        |       |       |        |       

The accompanying notes are an integral part of these unaudited condensed consolidated statements.

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QUINTON CARDIOLOGY SYSTEMS, INC.
AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. Organization and Description of Business

Quinton Cardiology Systems, Inc. (Quinton) is a California
corporation. Quinton and its subsidiaries are referred to herein as the
Company. The Company develops, manufactures, markets and services a family
of diagnostic cardiology systems used in the diagnosis, treatment and
rehabilitation of patients with heart disease.

2. Summary of Significant Accounting Policies

Basis of Presentation

The condensed financial statements present the Company on a
consolidated basis. All significant intercompany accounts and transactions
have been eliminated. The condensed balance sheet dated September 30, 2002,
the condensed statements of operations for the three and nine-month periods
ended September 30, 2001 and 2002 and the condensed statements of cash flows
for the three and nine-month periods ended September 30, 2001 and 2002 have
been prepared by the Company and are unaudited. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with accounting principles generally accepted in the United
States of America have been omitted pursuant to the rules and regulations of
the Securities and Exchange Commission. The notes to the audited
consolidated financial statements included in the Companys registration
statement dated February 22, 2002, as amended, on Form S-1 under the
Securities Act of 1933 (Registration No. 333-83272) for the fiscal year
ended December 31, 2001 provide a summary of significant accounting policies
and additional financial information that should be read in conjunction with
this report. These condensed financial statements should be read in
conjunction with the audited financial statements for the fiscal year ended
December 31, 2001 and the notes thereto. In the opinion of management, all
adjustments, consisting only of normal recurring adjustments, necessary to
present fairly the financial position of the Company for the interim
periods, have been made. The results of operations for such interim periods
are not necessarily indicative of the results for the full year or any
future period. All share information in these financial statements gives
effect to a 1 for 2.2 reverse stock split, which was effected in April 2002.

Initial Public Offering

In May 2002, the Company consummated a public offering of its common
stock as more fully described in its prospectus dated May 6, 2002 filed with
the Securities and Exchange Commission. In the offering, the Company sold
4,000,000 shares of common stock at a price of $7.00 per share. In June
2002, the underwriters of the offering exercised their over-allotment option
to purchase an additional 600,000 shares at $7.00 per share. Proceeds from
the offering, including the over-allotment shares, were approximately $28.2
million, net of underwriting discounts and offering expenses. As a result
of the consummation of the offering, all of the convertible preferred stock
outstanding prior to the closing was automatically converted into an
aggregate of 6,639,347 shares of common stock.

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Weighted Average Common Shares

The following table sets forth the computation of basic and diluted
weighted average common shares outstanding for the three and nine-month
periods ended September 30, 2001 and 2002:

|                                        |                                                     |  |                    |         |                   |  |      |            |      |  |  |          |   |  |  |           |  
|--------------------------------------- | --------------------------------------------------- |  | ------------------ | ------- | ----------------- |  | ---- | ---------- | ---- |  |  | -------- | - |  |  | --------- | -
|                                        |                                                     |  | Three months ended |         | Nine months ended
|                                        |                                                     |  | September 30,      |         | September 30,    
|                                        |                                                     |  |                    |         |                  
|                                        |                                                     |  | 2001               |         | 2002              |  | 2001 |            | 2002
|                                        |                                                     |  |                    |         |                   |  |      |            |     
|Shares (denominator basic and diluted): |                                                     |  |                    |         |                   |  |      |            |      |  |  |          |   |  |  |          
|                                        | Weighted average common shares
outstanding          |  |                    | 676,523 |                   |  |      | 11,953,912 |      |  |  | 732,837  |   |  |  | 6,523,151 |  
|                                        | Less: weighted average shares subject
to repurchase |  |                    | (44,052 | )                 |  |      | (2,343     | )    |  |  | (113,284 | ) |  |  | (10,904   | )
|                                        |                                                     |  |                    |         |                   |  |      |            |      |  |  |          |   |  |  |          
|                                        | Denominator for basic and diluted
calculation       |  |                    | 632,471 |                   |  |      | 11,951,569 |      |  |  | 619,553  |   |  |  | 6,512,247 |  
|                                        |                                                     |  |                    |         |                   |  |      |            |      |  |  |          |   |  |  |          

As of September 30, 2001 and 2002, 7,955,377 and 1,556,901,
respectively, shares of common stock subject to repurchase, stock options,
warrants and common stock issuable upon conversion of outstanding preferred
stock were excluded from the computation of diluted loss per share, as their
impact was antidilutive.

Use of Estimates

The preparation of financial statements and related disclosures in
conformity with accounting principles generally accepted in the United
States of America requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, the disclosure of
contingent assets and liabilities at the date of the financial statements
and revenues and expenses during the periods reported. These estimates
include but are not limited to estimates affecting revenues and estimates
assessing the collectability of accounts receivable, the saleability and
recoverability of inventory, the adequacy of warranty liabilities, the
realizability of investments, the realization of deferred tax assets, the
fair value of putable warrants and the useful lives of tangible and
intangible assets. The market for the Companys products is characterized by
intense competition, rapid technological development and frequent new
product introductions, all of which could affect the future realizability of
the Companys assets. The Company reviews estimates and assumptions
periodically, and the effects of revisions are reflected in the consolidated
financial statements in the period they are determined to be necessary.
Actual results could differ from these estimates.

Recent Accounting Pronouncements

In August 2001, the FASB issued SFAS No. 143, Accounting for Asset
Retirement Obligations, which provides the accounting requirements for
retirement obligations associated with tangible long-lived assets. SFAS 143
requires entities to record the fair value of a liability for an asset
retirement obligation in the period in which it is incurred. SFAS 143 is
effective for the Companys 2003 fiscal year, and early adoption is
permitted. The adoption of SFAS 143 is not expected to have a material
impact on the Companys consolidated results of operations or financial
position.

In April 2002, the FASB issued SFAS No. 145, Rescission of FASB
Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and
Technical Corrections. Among other things, this statement rescinds FASB
Statements No. 4, Reporting Gains and Losses from Extinguishment of Debt
which required all gains and losses from the early extinguishment of debt to
be aggregated and, if material, classified as an extraordinary item, net of
the related income tax effect. As a result, the criteria in APB Opinion No.
30, Reporting the Results of Operations  Reporting the Effects of Disposal
of a Segment of a Business, and Extraordinary, Unusual and Infrequently
Occurring Events and Transactions, will now be

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used to classify those gains and losses. The statement was effective
upon issuance in April 2002 for prospective transactions. The adoption of
this statement did not have a material impact on the Companys financial
position or results of operations.

In June 2002, the FASB issued SFAS No. 146, Accounting for Costs
Associated with Exit or Disposal Activities. This statement addresses
financial accounting and reporting for costs associated with exit or
disposal activities and nullifies Emerging Issues Task Force (EITF) Issue
No. 94-3, Liability Recognition for Certain Employee Termination Benefits
and Other Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring). This statement requires that a liability for a cost
associated with an exit or disposal activity should be recognized at fair
value when the liability is incurred. SFAS 146 is effective for the
Companys 2003 fiscal year, and early adoption is permitted. The adoption of
SFAS 146 is not expected to have a material impact on the Companys
consolidated results of operations or financial position.

3. Inventories

Inventories are stated at the lower of weighted-average cost or market
and are comprised of the following as of December 31, 2001 and September 30,
2002 (amounts in thousands):

|                 |                   |   |              |       |               |   |       |       | 
|---------------- | ----------------- | - | ------------ | ----- | ------------- | - | ----- | ----- | 
|                 |                   |   | December 31, |       | September 30,
|                 |                   |   | 2001         |       | 2002         
|                 |                   |   |              |       |              
|Raw materials    |                   | $ | 2,037        |       |               | $ | 2,626 |      
|Work in progress |                   |   | 574          |       |               |   | 786   |      
|Finished goods   |                   |   | 3,550        |       |               |   | 2,746 |      
|                 |                   |   |              |       |               |   |       |      
|                 | Total inventories |   | $            | 6,161 |               |   | $     | 6,158 | 
|                 |                   |   |              |       |               |   |       |      

4. Borrowings

Borrowings under the Companys bank line of credit were limited to the
lesser of $7,500,000 or an amount based on eligible accounts receivable and
eligible inventories. Substantially all of the Companys assets were
collateral for the line of credit. This line of credit carried an interest
rate at the banks prime rate plus 2.0% (which was 6.75% at December 31,
2001). On May 10, 2002, the Company repaid the balance of the credit line
with proceeds from the initial public offering. The line of credit expired
on June 5, 2002 and was not renewed.

5. Putable Warrants

In connection with a loan in 1998, the Company issued warrants to
purchase 123,536 shares of Series A convertible preferred stock with an
exercise price of $0.01 per share that were immediately exercisable. Upon
completion of our initial public offering, the conversion rights associated
with the Companys Series A convertible preferred stock resulted in the
warrants being exercisable for 63,092 shares of common stock at an exercise
price equal to $0.02 per share (taking into account the 1 for 2.2 reverse
stock split effected in April 2002). At the holders option, the Company is
required to make a cash payment to the holder equal to the fair market value
of the shares issuable upon conversion of the warrants. On July 22, 2002, a
holder of 21,632 putable warrants exercised a put option for cash when the
fair market value of the shares was approximately $158,000. As of September
30, 2002, the fair value of the remaining outstanding putable warrants was
approximately $253,000. Changes in the fair value of this liability are
recorded in the statements of operations as non-cash interest income
(expense), putable warrants.

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6. Income Taxes

The benefit from (provision for) income taxes is as follows (amounts in
thousands):

|         |         |                           |   |                            |   |                           |   |      |    |      |   |     |     |  |   |     |     |  
|-------- | ------- | ------------------------- | - | -------------------------- | - | ------------------------- | - | ---- | -- | ---- | - | --- | --- |  | - | --- | --- | -
|         |         |                           |   | For the three months ended |   | For the nine months ended
|         |         |                           |   | September 30,              |   | September 30,            
|         |         |                           |   |                            |   |                          
|         |         |                           |   | 2001                       |   | 2002                      |   | 2001 |    | 2002
|         |         |                           |   |                            |   |                           |   |      |    |     
|Current: |         |                           |   |                            |   |                           |   |      |    |      |   |     |     |  |   |    
|         | Federal |                           | $ |                           |   |                           | $ |     |    |      | $ | 211 |     |  | $ |    |    
|         | State   |                           |   |                           |   |                           |   | (2   | )  |      |   | (14 | )   |  |   | (16 | )  
|         |         |                           |   |                            |   |                           |   |      |    |      |   |     |     |  |   |    
|         |         | Total benefit (provision) |   | $                          |  |                           |   | $    | (2 | )    |   | $   | 197 |  |   | $   | (16 | )
|         |         |                           |   |                            |   |                           |   |      |    |      |   |     |     |  |   |    

During the nine-month period ended September 30, 2001, the Company
recognized a tax benefit for additional amounts refunded from the payment of
taxes on the sale of the Companys fitness business in 1999 through the
ability to carry back tax losses generated subsequent to the sale. During
2000, the Company recorded an estimated income tax receivable of $1,209,000
related to the refund of tax payments made on the sale of the fitness
business. During the nine-month period ended September 30, 2001, the
Company received a tax refund of $1,420,000 and recorded a corresponding tax
benefit of $211,000.

A valuation allowance has been recorded for the Companys net balance
of the Companys deferred tax assets, including net operating loss
carryforwards, as a result of uncertainties regarding realization of the net
asset. The tax benefit recorded in the nine-month period ended September
30, 2001 resulted from reduction of the valuation allowance as a result of
the refund.

7. Contingencies

Legal Matters

In July 1998, the Company signed an Original Equipment Manufacturer and
Distributor Agreement with Zymed, Incorporated (Zymed), a related party.
This agreement provided for the purchase of certain Holter monitoring
systems, and appointed the Company exclusive distributor of such products in
the United States and Canada for a period of five years. In the third
quarter of 2000 the Company received a notice of termination of this
agreement from Zymed based on the alleged inability of the parties to agree
on pricing and volume requirements as set forth in the agreement. This
notice of termination provided for a 180-day notice period that expired in
February 2001.

The Company has disputed this notice of termination, and has filed suit
in the State of Washington principally citing a claim for breach of
contract. The Company is seeking monetary damages and other remedies
available under the law. The products supplied under this agreement
represented a significant portion of the Companys revenues, approximately
12.0% in 2000 and 3.0% in 2001. The Company has made a significant effort to
mitigate the impact of this termination by entering into contracts with
other suppliers. The Company has incurred, and may continue to incur,
significant legal expenses related to the litigation of this dispute, which
may or may not be recoverable. A trial date for this matter was set for
September 18, 2002, but has been rescheduled for January 6, 2003.

The Company is a defendant in various other legal matters arising in
the normal course of business. Management does not expect the ultimate
resolution of these other matters to have a material effect on the Companys
financial position, results of operations or cash flows.

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8. Subsequent Event

In October 2002, the Company acquired the medical treadmill
manufacturing line and related technology rights and assets from its
previous supplier of the treadmills. Consideration for this purchase
included $1,000,000 in cash and approximately $900,000 in notes payable over
two years.




Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations

You should read the following discussion and analysis in conjunction
with our unaudited condensed consolidated financial statements and related
notes included elsewhere in this report. Except for historical information,
the following discussion contains forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995. All
statements other than statements of historical fact, including future
results of operations or financial position, made in this Quarterly Report
on Form 10-Q, are forward looking. We use words such as anticipate,
believe, expect, future, intend and similar expressions to identify forward
looking statements. These forward-looking statements reflect managements
current expectations and involve risks and uncertainties. Our actual
results could differ materially from results that may be anticipated by such
forward-looking statements. The principal factors that could cause or
contribute to such differences include, but are not limited to, those
discussed in the section entitled Certain Factors That May Affect Future
Results below, those discussed elsewhere in this report and those discussed
in our registration statement on Form S-1 (Registration No. 333-83272) filed
on February 22, 2002, as amended. Readers are cautioned not to place undue
reliance on these forward-looking statements, which speak only as of the
date of this report. We undertake no obligation to revise any
forward-looking statements to reflect events or circumstances that may
subsequently arise. Readers are urged to review and consider carefully the
various disclosures made in this report and in our other filings made with
the SEC that attempt to advise interested parties of the risks and factors
that may affect our business, prospects and results of operations.

Critical Accounting Estimates

The discussion and analysis of our financial condition and results of
operations is based upon our unaudited condensed consolidated financial
statements which have been prepared in accordance with accounting principles
generally accepted in the United States for interim financial statements.
The preparation of these financial statements requires us to make estimates
and judgments that affect the reported amounts of assets, liabilities,
revenues and expenses, and related disclosure of contingent assets and
liabilities. On an on-going basis, we evaluate our estimates including those
affecting revenues, the allowance for doubtful accounts, the salability and
recoverability of inventory, warranty liabilities, the carrying value of our
investments, the useful lives of tangible and intangible assets, income
taxes, putable warrants and contingencies. We base our estimates on
historical experience and on various other assumptions that we believe to be
reasonable under the circumstances, the results of which form our basis for
making judgments about the carrying values of assets and liabilities that
are not readily apparent from other sources. Actual results may differ from
these estimates under different assumptions or conditions.

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Results of Operations

Three and Nine Month Periods Ended September 30, 2002 Compared to the Three
and Nine Month Periods Ended September 30, 2001

Revenues

Revenues for the three-month period ended September 30, 2002 increased
by $825,000, or 7.6%, to $11,655,000 from $10,830,000 for the comparable
period in 2001. Systems revenue increased by $757,000, or 8.8%, to
$9,380,000 for the three-month period ended September 30, 2002 from
$8,623,000 for the comparable period in 2001. Our telemetry system sales
for the three-month period ended September 30, 2002 increased by $971,000 as
compared to the same period in 2001 due to the release of our new
rehabilitation telemetry product in May 2002. This increase in telemetry
sales was offset partially by a decrease in our sales of cardiac
catheterization management and Holter monitoring systems. Service revenues
increased by $68,000, or 3.0%, to $2,275,000 for the three-month period
ended September 30, 2002 from $2,207,000 as compared to the same period in
2001.

Revenues for the nine-month period ended September 30, 2002 increased
by $912,000, or 2.8 %, to $33,303,000 from $32,391,000 for the comparable
period in 2001. Systems revenue increased by approximately $1,033,000, or
4.0%, to $26,609,000 for the nine-month period ended September 30, 2002 from
$25,576,000 for the comparable period in 2001. Stress system revenues
increased by $1,408,000 for the nine-month period ended September 30, 2002
as compared to the same period in 2001. This increase was due primarily to
continued market acceptance of our new stress product following its
introduction in April 2001. In addition, we introduced the Q-Tel RMS system
in May 2002, which resulted in an increase in our rehabilitation telemetry
revenues of $1,441,000 for the nine-month period ended September 30, 2002 as
compared to the same period in 2001. The increase in stress and
rehabilitation telemetry revenues was offset partially by decreases in sales
of our cardiac catheterization management systems and Holter monitoring
systems. Our cardiac catheterization management system sales decreased by
$764,000 for the nine-month period ended September 30, 2002 as compared to
the same period in 2001. We believe this decrease was due to the
anticipated release of our next generation cardiac catheterization
management product, which is scheduled for release in early 2003. Our
Holter systems sales decreased by $886,000 for the nine-month period ended
September 30, 2002 as compared to the same period in 2001. This decrease
was caused by an interruption in Holter component supplies when we
transitioned to a new supplier in mid-2001. Service revenues decreased by
$121,000, or 1.8%, to $6,694,000 for the nine-month period ended September
30, 2002 from $6,815,000 for the comparable period in 2001. This decrease
was primarily the result of reduced volume of spare parts sales and labor
repair services driven, in part, by the replacement by some of our customers
of aging equipment with newer models partially offset by an increase in
equipment maintenance contract sales.

Gross Profit

Gross profit for the three-month period ended September 30, 2002
increased by $106,000, or 2.4%, to $4,587,000 from $4,481,000 for the
comparable period in 2001. Overall gross margin percentage for the
three-month period ended September 30, 2002 decreased to 39.4% from 41.4%
for the comparable period in 2001. Approximately one-half of this margin
percentage decline was attributable to trade-in allowances provided to
certain customers as they upgraded to our new Q-Tel RMS system. Other
factors affecting gross margins included fluctuations in product mix and
some cost increases. Gross profit from systems, in terms of dollars,
increased by $32,000, or 0.9%, to $3,421,000 for the three-month period
ended September 30, 2002 from $3,389,000 for the comparable period in 2001.
Gross profit from service increased $74,000, or 6.8%, to $1,166,000 for the
three-month period ended September 30, 2002 from $1,092,000 for the
comparable period in 2001.

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Gross profit for the nine-month period ended September 30, 2002
increased by $610,000, or 4.9%, to $13,117,000 from $12,507,000 for the
comparable period in 2001. Overall gross margin percentage for the
nine-month period ended September 30, 2002 increased to 39.4% from 38.6% for
the comparable period in 2001. Gross profit from systems increased by
$467,000, or 4.9%, to $9,908,000 for the nine-month period ended September
30, 2002 from $9,441,000 for the comparable period in 2001. Gross profit
from service increased by $143,000, or 4.7%, to $3,209,000 for the
nine-month period ended September 30, 2002 from $3,066,000 for the
comparable period in 2001. Our improvement in gross margin has been driven
primarily by our continued emphasis on cost reductions.

Operating Expenses

Research and development expenses for the three-month period ended
September 30, 2002, in terms of dollars, remained relatively flat as
compared to the same period in 2001. As a percentage of revenues, research
and development expenses decreased to 10.3% for the three-month period ended
September 30, 2002 from 11.1% for the comparable period in 2001.

Research and development expenses for the nine-month period ended
September 30, 2002 decreased by $320,000, or 7.6%, to $3,892,000 from
$4,212,000 for the comparable period in 2001. As a percentage of revenues,
research and development expenses decreased to 11.7% for the nine-month
period ended September 30, 2002 from 13.0% for the comparable period in
2001. The decrease, in terms of dollars, resulted primarily from a decrease
in our use of outside engineering services.

Sales and marketing expenses for the three-month period ended September
30, 2002 increased by $79,000, or 3.3%, to $2,460,000 from $2,381,000 for
the comparable period in 2001. This increase was primarily due to increased
costs associated with increased sales. As a percentage of revenues, sales
and marketing expenses decreased to 21.1% for the three-month period ended
September 30, 2002 from 22.0% for the comparable period in 2001.

Sales and marketing expenses for the nine-month period ended September
30, 2002 increased by $234,000, or 3.3%, to $7,379,000 from $7,145,000 for
the comparable period in 2001. As a percentage of revenues, sales and
marketing expenses increased to 22.2% for the nine-month period ended
September 30, 2002 from 22.1% for the comparable period in 2001. The
increase, in terms of both dollars and as a percentage of revenues, reflects
the effects of increases in our sales and marketing staffing for the full
nine-month period ended September 30, 2002 compared to the comparable period
in 2001 when staffing increases were in effect during only the last four
months of the period. The increases in staffing were related to our recent
introduction of new products into the market.

General and administrative expenses, excluding stock-based
compensation, for the three-month period ended September 30, 2002 increased
by $283,000, or 24.6%, to $1,434,000 from $1,151,000 for the comparable
period in 2001. As a percentage of revenues, general and administrative
expenses, excluding stock-based compensation, for the three-month period
ended September 30, 2002 increased to 12.3% from 10.6% for the comparable
period in 2001. The increase in terms of both dollars and as a percentage
of revenues was caused primarily by an expected increase in professional
fees, insurance and other costs associated with supporting our public
company status.

General and administrative expenses, excluding stock-based
compensation, for the nine-month period ended September 30, 2002 increased
by $375,000, or 10.3%, to $4,023,000 from $3,648,000 for the comparable
period in 2001. As a percentage of revenues, general and administrative
expenses, excluding stock-based compensation, for the nine-month period
ended September 30, 2002 increased to 12.1% from 11.3% for the comparable
period in 2001. The increase in general and administrative expenses,
excluding stock-based compensation, in terms of both dollars and as a
percentage of revenues was caused partially by increased legal expenses of
approximately $355,000 associated with litigation against a former supplier
and

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partially by increased professional fees, insurance and other costs of
approximately $200,000 associated with supporting our public company status.
This increase was offset partially by our one-time collection of a business
and occupation tax refund of $220,000.

Stock-based compensation expense for the three-month period ended
September 30, 2002 decreased by $554,000 to $23,000 from $577,000 for the
comparable period in 2001. Stock-based compensation expense for the
nine-month period ended September 30, 2002 decreased by $935,000 to $93,000
from $1,028,000 for the comparable period in 2001. The charges in 2001
relate primarily to variable compensation expenses recorded on issued stock
options issued to an officer of the Company who was not an employee. We
expect to record stock-based compensation expense in the fourth quarter of
2002 at levels similar to the amounts recorded in the first, second and
third quarters of 2002. The current year stock-based compensation expense
relates to the intrinsic value of stock options granted in 2001.

Operating Loss

Operating loss for the three-month period ended September 30, 2002
decreased by $299,000, or 35.9%, to $535,000 from $834,000 for the
comparable period in 2001. The decrease in operating loss was due primarily
to an increase in gross profit of $106,000 and by a decrease in operating
expenses of $193,000. The factors that affected gross profit and operating
expenses are explained above.

Operating loss for the nine-month period ended September 30, 2002
decreased by $1,256,000, or 35.6%, to $2,270,000 from $3,526,000 for the
comparable period in 2001. The decrease in operating loss was due primarily
to an increase in gross profit of $610,000 and by a decrease in operating
expenses of $646,000. The factors that affected gross profit and operating
expenses are explained above.

Other Income and Expense

Total other income for the three-month period ended September 30, 2002
increased by $512,000 to reflect income of $256,000 as compared to expense
of $256,000 for the comparable period in 2001. This increase was partially
due to reduced interest expense of $93,000 on outstanding borrowings under
our bank line of credit that we repaid in May 2002 and interest income of
$97,000 on our short-term investments. The increase in other income was
also partially the result of recording non-cash interest income on putable
warrants of $161,000 during the three-month period ended September 30, 2002
as compared to recording non-cash interest expense on putable warrants of
$186,000 for the same period in 2001.

Total other income for the nine-month period ended September 30, 2002
increased by $813,000 to reflect income of $336,000 as compared to expense
of $477,000 for the comparable period in 2001. This increase was partially
due to reduced interest expense of $174,000 on outstanding borrowings under
our bank line of credit that we repaid in May 2002 and interest income of
$143,000 on our short-term investments. The increase in other income was
also partially the result of recording non-cash interest income on putable
warrants of $294,000 during the nine-month period ended September 30, 2002
as compared to recording non-cash interest expense on putable warrants of
$248,000 for the same period in 2001.

Income Tax Benefit

For the nine-month period ended September 30, 2001, we recorded an
income tax benefit of $197,000. The tax benefit resulted primarily from an
additional refund of $211,000 in taxes paid on the sale of our fitness
business in 1999 and our ability to carry back tax losses generated
subsequent to the sale. For the nine-month period ended September 30, 2002,
we had no such income tax benefit.

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Liquidity and Capital Resources

For the three-month period ended September 30, 2002, we generated cash
from operating activities of $237,000. This cash flow resulted primarily
from a decrease in accounts receivable of $608,000, an increase in accounts
payable of $91,000 and an increase in deferred revenue of $306,000, offset
by an operating loss excluding non-cash income and expenses of $106,000 and
an increase in inventories of $752,000.

For the nine-month period ended September 30, 2002, we generated cash
of $123,000 in operating activities. This cash flow resulted primarily from
a $1,246,000 loss excluding non-cash income and expenses, which was offset
by a reduction in working capital of $1,369,000. The reduction in working
capital was primarily due to a decrease in accounts receivable of
approximately $560,000, increases in payables and accrued liabilities of
approximately $453,000, a decrease in warranty liabilities of $229,000, and
an increase in deferred revenues of $589,000. For the comparable nine-month
period ended September 30, 2001, we generated cash of $1,282,000, which was
primarily due to an income tax refund of approximately $1,420,000.
Excluding the impact of the tax refund, we used cash in operating activities
of $138,000 for the nine-month period ended September 30, 2001.

Net cash used in investing activities was $21,000 and $286,000 for
capital expenditures for the three-month periods ended September 30, 2001
and 2002, respectively. Our capital expenditures increased primarily as a
result of payments for the purchase and conversion of an enterprise resource
planning system.

Net cash used in investing activities was $192,000 and $684,000 for
capital expenditures for the nine-month periods ended September 30, 2001 and
2002, respectively. Our capital expenditures increased primarily because of
our purchases of an enterprise resource planning system and our new
telephone system. We expect our capital expenditures will be approximately
$250,000 during the fourth quarter of 2002 to continue funding the purchase
of our enterprise resource planning system.

Net cash used for financing activities for the three-month period ended
September 30, 2002 of $785,000 resulted primarily from payments of $772,000
of offering expenses related to our recent initial public offering and to a
cash payment of $158,000 to a holder of putable warrants that exercised put
options partially offset by proceeds of $142,000 received from the purchase
of common stock under our employee stock purchase plan. Net cash used for
financing activities of $517,000 for the comparable three-month period ended
September 30, 2001 was due primarily to net repayments on our bank
borrowings.

Net cash from financing activities for the nine-month period ended
September 30, 2002 of $23,774,000 was due primarily from proceeds of
$28,219,000, net of offering expenses, received from our initial public
offering and from proceeds of $142,000 received from the purchase of common
stock under our employee stock purchase plan.. The proceeds were offset by
net repayments of $4,471,000 in bank borrowings on our line of credit and by
a cash payment of $158,000 to a holder of putable warrants that exercised a
put option. Net cash used for financing activities of $1,208,000 for the
comparable nine-month period ended September 30, 2001 was due primarily to
net repayments of $1,119,000 on our bank borrowings.

We anticipate that proceeds from our initial public offering, together
with our future expected operating cash flow, will be sufficient to meet
operating expenses, working capital requirements, capital expenditures

14



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and other obligations for at least 12 months. We periodically evaluate
potential acquisitions of technology or businesses that complement or expand
our existing business or that may enable us to expand into new markets.
Future acquisitions may require additional debt, equity financing or both.
We may not be able to obtain any additional financing, or may not be able to
obtain additional financing on acceptable terms.

Medical Treadmill Manufacturing Line Acquisition

Subsequent to September 30, 2002, we announced the acquisition of the
medical treadmill manufacturing line and related assets and technology
rights from our previous supplier of these treadmills. Consideration for
the purchase included $1,000,000 in cash and approximately $900,000 in notes
payable over two years. Medical treadmills are an integral component of
cardiac stress testing systems and cardiac rehabilitation systems. This
acquisition will permit us to continue to develop the underlying technology
of the treadmills in concert with advances in its cardiac monitoring
systems. We also expect to pursue design changes that will provide updated
features, drive a reduction in per-unit costs and possibly result in an
array of medical treadmills at different price points. In connection with
the transaction, we will manufacture certain treadmills under an OEM
contract for two years, subject to certain terms and conditions. We expect
annual revenue from the OEM contract sales of these treadmills to be
approximately $1.5 million over the term of the contract, although revenue
in the fourth quarter of 2002 is expected to be relatively insignificant
under the OEM agreement.

Initial Public Offering

In May 2002, we consummated an initial public offering of our common
stock. In the offering, we sold 4,000,000 shares of our common stock at a
price of $7.00 per share. In addition, in June 2002, the underwriters of
the offering exercised their over-allotment option to purchase an additional
600,000 shares at $7.00 per share. Proceeds from the offering, including
the over-allotment shares, were approximately $28.2 million, net of
underwriting discounts and offering expenses. The principal purposes of the
offering were to obtain additional working capital and to establish a public
market for our common stock. In May 2002, we used approximately $4,500,000
of the offering proceeds to repay the outstanding balance under our line of
credit. In October 2002, we used $1,000,000 of the offering proceeds to pay
part of the purchase price for the treadmill business acquisition described
above. Although we currently have no specific plans for the application of
a significant portion of the remaining net proceeds, we expect to use the
remaining net proceeds from this offering:



| |  |  | To acquire complementary businesses, product lines, assets or technologies;
| | - |  | ---------------------------------------------------------------------------
|
| |  |  | To fund product research and development;                                  
|
| |  |  | To expand international sales efforts; and                                 
|
| |  |  | For working capital and other general corporate purposes.                  

We have significant discretion in the use of the net proceeds of the
offering, including with respect to net proceeds used to acquire
complementary businesses, product lines, assets or technologies.

Certain Factors that May Affect Future Results

In addition to the other information contained in this report, the
following risk factors could affect our actual results and could cause our
actual results to differ materially from those achieved in the past or
expressed in our forward-looking statements. Additional risks and
uncertainties not presently known to us or that we currently deem immaterial
also may impair our business operations.

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

Our quarterly revenues and operating results have varied in the past
and may continue to vary in the future due to a number of factors, many of
which are outside of our control. Factors contributing to these
fluctuations include:



| |  |  | changes in our ability to obtain products and product
components that are manufactured for us by third parties, such as
Holter monitors, as well as variations in prices of these products
and product components;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | increased expenses we may incur in connection with ongoing
litigation with a former supplier of our Holter monitor systems;                                                                                       
|
| |  |  | delays in the development or commercial introduction of new
versions of products and systems;                                                                                                                     
|
| |  |  | our ability to attain and maintain production volumes and
quality levels for our products and product components;                                                                                                 
|
| |  |  | the impact of acquisitions, divestitures and other significant corporate events;                                                                                                                                  
|
| |  |  | effects of domestic and foreign economic conditions on our industry and/or customers;                                                                                                                             
|
| |  |  | adoption of our system-oriented sales approach;                                                                                                                                                                   
|
| |  |  | changes in the demand for our products and systems;                                                                                                                                                               
|
| |  |  | varying sales cycles that can take up to a year or more;                                                                                                                                                          
|
| |  |  | changes in the mix of products and systems we sell;                                                                                                                                                               
|
| |  |  | unpredictable budgeting cycles of our customers;                                                                                                                                                                  
|
| |  |  | delays in obtaining regulatory clearance for new versions of our products and systems;                                                                                                                            
|
| |  |  | increased product and price competition;                                                                                                                                                                          
|
| |  |  | the impact of regulatory changes on the availability of
third-party reimbursement to customers of our products and systems;                                                                                       
|
| |  |  | the loss of key sales personnel or distributors; and                                                                                                                                                              
|
| |  |  | seasonality in the sales of our products and systems.                                                                                                                                                             

Due to the factors summarized above, we believe that period-to-period
comparisons of our operating results are not a good indication of our future
performance and should not be relied on to predict future operating results.
Also, it is possible that, in future periods, our operating results will
not meet the expectations of public market analysts or investors. In that
event, the price of our common stock may decrease.

Failure to keep pace with changes in the marketplace may cause us to lose
market share and our revenues may decrease.

The marketplace for diagnostic cardiology systems is characterized by
rapid change and technological innovation, requiring suppliers in the market
to regularly update product features and incorporate new technologies in
order to remain competitive. In developing and enhancing our products we
have made, and will continue to make, assumptions about which features,
technology standards and performance criteria will be attractive to, or
demanded by, our customers. If we implement features, standards and
performance criteria that are different from those required by our customers
or if our competitors introduce products and systems that better address
these needs, market acceptance of our offerings may suffer or may become
obsolete. In that event, our market share and revenues would likely
decrease.

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

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To be successful, we must develop and commercialize new versions of our
products. Our products are technologically complex and must keep pace with
rapid and significant technological change, comply with rapidly evolving
industry standards and government regulations, and compete effectively with
new product introductions of our competitors. Accordingly, many of our
products require significant planning, design, development and testing at
the technological, product and manufacturing process levels. Our success in
developing and commercializing new versions of our products is affected by
our ability to:



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

The rate of market acceptance of our current or future products and
systems using our recently introduced Microsoft Windows-based software
platform may impact our operating results. In addition, we may experience
design, manufacturing, marketing or other difficulties that could delay or
prevent our development, introduction or marketing of new versions of our
products. Such difficulties and delays could cause our development expenses
to increase and harm our operating results.

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

The selling price of our products and systems and the extent of our
market share are subject to market conditions. Market conditions that could
impact these aspects of our operations include:



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

If such conditions force us to sell our products and systems at lower
prices, or if we are unable to effectively develop and market competitive
products, our market share, margins and operating results will likely
decrease.

If we fail to successfully integrate acquired businesses, product lines,
assets or technologies, our operating results may suffer.

As part of our growth strategy, we intend to selectively acquire other
businesses, product lines, assets, or technologies. Successful execution of
our acquisition strategy depends upon our ability to identify, negotiate,
complete and integrate suitable acquisitions and, if necessary, to obtain
satisfactory debt or equity financing. If we acquire complementary
businesses or assets but fail to successfully integrate them, our financial
condition or results of operations may suffer.

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We may encounter unanticipated difficulties integrating the medical
treadmill manufacturing line that we acquired subsequent to September 30,
2002. These difficulties may include, but would not necessarily be limited
to, disruptions in supplies or increases in prices of components used in the
medical treadmills, an inability to retain key employees with knowledge and
experience relating to the production of medical treadmills and delays in
production timing, which may impact our ability to fulfill our obligations
under an OEM agreement to manufacture and sell treadmills to a third party.

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

We do not generally have long-term purchase contracts with customers
who order products on a purchase order basis. In limited circumstances,
customer orders may be cancelled, changed or delayed on short notice. Lack
of significant order backlog makes it difficult for us to forecast future
sales with certainty. Long and varying sales cycles with our customers make
it difficult to accurately forecast component and product requirements.
These factors expose us to a number of risks:



| |  |  | if we overestimate our requirements we may be obligated to
purchase more components or third-party products than is required;                                                                                                                       
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | if we underestimate our requirements, our third-party
manufacturers and suppliers may have an inadequate product or
product component inventory, which could interrupt manufacturing of
our products and result in delays in shipments and revenues;
|
| |  |  | we may also experience shortages of product components from
time to time, which also could delay the manufacturing of our
products; and                                                                                                             
|
| |  |  | over or under production can lead to higher expense, lower
than anticipated revenues, and reduced margins.                                                                                                                                          

If we do not develop or maintain successful relationships with international
distributors, our growth may be limited, sales of our products and systems
may decrease and our operating results may suffer.

Historically, we have generated approximately 10% of our revenues from
international sales and our growth strategy contemplates expanded efforts to
increase international sales. All of our international sales in recent
periods were attributable to third-party distributors, and our success in
expanding international sales in the future will depend on our ability to
develop and manage a network of international distributors and the
performance of our distributors. Because we do not generally have long-term
contracts with our distributors, our distribution relationships may be
terminated on little or no notice. If we lose any significant international
distributors, or if any of our distributors devote more effort to selling
competing products and systems, our international sales and operating
results may suffer and our growth may be limited. Consequently, our success
in expanding international sales may be limited if our distributors lack, or
are unable to develop, relationships with important target customers in
international markets.

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

Any errors or defects in our products discovered after commercial release could result in:



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

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

Significant changes in the healthcare systems in the U.S. or elsewhere
could have a significant impact on the demand for our products and services
as well as the way we conduct business. Federal, state and local
governments have adopted a number of healthcare policies intended to curb
rising healthcare costs. In the U.S., healthcare providers that purchase
our products and systems generally rely on governmental and other
third-party payors, such as federal Medicare, state Medicaid, and private
health insurance plans, to pay for all or a portion of the cost of
heart-monitoring procedures and consumable products utilized in those
procedures. The availability of such reimbursement affects our customers
decisions to purchase capital equipment. Denial of coverage or reductions
in levels of reimbursement for procedures performed using our products and
systems by governmental or other third-party payors would cause our revenues
to decrease. We are unable to predict whether federal, state or local
healthcare reform legislation or regulation affecting our business may be
proposed or enacted in the future, or what effect any such legislation or
regulation would have on our business.

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

Our products are medical devices that are subject to significant
regulation in the U.S. and in foreign countries where we do business. The
processes for obtaining regulatory approval can be lengthy and expensive,
and the results are unpredictable. If we are unable to obtain clearances or
approvals needed to market existing or new products, or obtain such
clearances or approvals in a timely fashion, it could adversely affect our
revenues and profitability.




Item 3. Quantitative and Qualitative Disclosures About Market Risk

We develop products in the U.S. and sell them worldwide. As a result,
our financial results could be affected by factors such as changes in
foreign currency exchange rates or weak economic conditions in foreign
markets. Since our revenues are currently priced in U.S. dollars and are
translated to local currency amounts, a strengthening of the dollar could
make our products less competitive in foreign markets. Interest income is
sensitive to changes in the general level of U.S. interest rates,
particularly since our investments are in short-term investments calculated
at variable rates.




Item 4. Controls and Procedures

We maintain disclosure controls and procedures designed to ensure that
information required to be disclosed in our filings under the Securities
Exchange Act of 1934 is recorded, processed, summarized and reported within
the time periods specified in the Securities and Exchange Commissions rules
and forms. Our chief executive officer and chief financial officer have
evaluated our disclosure controls and procedures within 90 days prior to the
filing of this quarterly report of Form 10-Q and have determined that such
disclosure controls and procedures are effective.

There have been no significant changes in our internal controls or in
other factors that could significantly affect internal controls subsequent
to the date of their evaluation.

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PART II  OTHER INFORMATION




Item 1. Legal Proceedings

As previously reported in our quarterly reports on Form 10-Q for the
periods ended March 31, 2002 and June 30, 2002, in July 1998, we signed an
Original Equipment Manufacturer and Distributor Agreement with Zymed,
Incorporated, now a subsidiary of Koninklijke Philips Electronics N.V. and
an affiliate of Philips Electronics North America Corporation. This
agreement provided for the purchase of certain Holter monitoring systems,
and appointed us the exclusive distributor of such products in the United
States and Canada for a period of five years. In the third quarter of 2000,
we received a notice of termination of this agreement from Zymed based on
the alleged inability of the parties to agree on pricing and volume
requirements as set forth in the agreement. This notice of termination
provided for a 180-day notice period that expired in February 2001.

We disputed this notice of termination and in November 2000 initiated a
lawsuit in the federal district court for the Western District of Washington
against Zymed. We also named Agilent Technologies, Inc. and The
Hewlett-Packard Company as defendants. We are seeking damages against the
defendants for harm to our business resulting from Zymeds termination of
our Holter monitoring systems distribution agreement in August 2000. We are
seeking monetary damages and other remedies available under the law. We
incurred significant costs in prosecuting this lawsuit in 2001 and in the
three months ended March 31, 2002. Expenses we incur in connection with this
lawsuit may increase in the future, particularly if it goes to trial or if
the trial is delayed or continued or any judgment rendered in the trial is
appealed. On April 8, 2002, the court entered an order denying defendants
motion to dismiss our breach of contract claim. A trial date was set for
September 18, 2002, but has been rescheduled for January 6, 2003.

Other than the lawsuit described above, we are not currently a party to
any material legal proceedings.




Item 2. Changes in Securities and Use of Proceeds

(d)  Use of Proceeds from Sale of Registered Securities

Our registration statement on Form S-1 under the Securities Act of 1933
(File No. 333-83272), relating to our initial public offering of common
stock, without par value, was declared effective by the Securities and
Exchange Commission on May 6, 2002. The offering was co-managed by Adams,
Harkness & Hill, Inc., WR Hambrecht+Co and Delafield Hambrecht, Inc.
Pursuant to the registration statement, we registered and sold an aggregate
of 4,600,000 shares of common stock, including the underwriters exercise of
their over-allotment option to purchase 600,000 shares, at $7.00 per share,
for an aggregate offering price of $32.2 million. In connection with the
offering we incurred total expenses of approximately $4.0 million, including
underwriting discounts and commissions of approximately $2.3 million. WR
Hambrecht+Co, which is a member of W.R.Hambrecht/QIC, LLC, our largest
shareholder, and of which our director, William R. Hambrecht, is a
significant shareholder, director and officer, received approximately
$348,000 as compensation for its underwriting services. Delafield
Hambrecht, Inc., of which our director, John D. Delafield, is a significant
shareholder, director and officer, received approximately $288,000 as
compensation for its underwriting services. The remaining expenses were all
direct or indirect payments to others and not payments to our directors,
officers (or their associates), affiliates or 10% shareholders. None of the
proceeds was used as payments to our director, officers (or their
associates), affiliates or 10% shareholders. In May 2002, we used
approximately $4.5 million of the net proceeds from the offering to repay
outstanding balances under our bank line of credit. In October 2002, we
used $1,000,000 of the net proceeds of the offering to pay part of the
purchase price for the acquisition of our treadmill manufacturing business.
We have invested the remaining proceeds from the offering in a variety of
investment grade, fixed income securities, including corporate bonds,
commercial paper and money market instruments.

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Item 5. Other Information

In October 2002, J.D. Delafield, a non-employee director, resigned from
our Board of Directors. Mr. Delafields resignation did not result from a
disagreement with us on any matter relating to our operations, policies or
practices.




Item 6. Exhibits and Reports on Form 8-K



| | (a) |  | Exhibits
| | --- |  | --------

|             |  |                                                                                                                        
|------------ |  | -----------------------------------------------------------------------------------------------------------------------
|Exhibit 99.1 |  | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|            
|Exhibit 99.2 |  | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.



| | (b) |  | Reports on Form 8-K for the quarter ended September 30, 2002
| | --- |  | ------------------------------------------------------------
|
| |     |  | None.                                                       

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SIGNATURE

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 thereunto duly authorized.

| |                                                                                                                   |                       
| | ----------------------------------------------------------------------------------------------------------------- | ----------------------
| | QUINTON CARDIOLOGY SYSTEMS,
INC.                                                                                 
|
| | By:                                                                                                               | /s/ Michael K. Matysik
| |                                                                                                                  
| | Michael K. Matysik
Senior Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)

Date: November 14, 2002

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CERTIFICATION

I, Ruediger Naumann-Etienne, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Quinton
Cardiology Systems, Inc.;

2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under
which such statements were made, not misleading with respect to the period
covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;

4. The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;

b) evaluated the effectiveness of the registrants disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
quarterly report (the Evaluation Date); and

c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;

5. The registrants other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrants auditors and the
audit committee of registrants board of directors (or persons performing
the equivalent function):

a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrants ability to record,
process, summarize and report financial data and have identified for the
registrants auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrants internal
controls; and

6. The registrants other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant deficiencies and
material weaknesses.

Date: November 14, 2002



| | /s/ Ruediger Naumann-Etienne
Ruediger Naumann-Etienne
Chairman of the Board and Chief Executive Officer
| | -------------------------------------------------------------------------------------------------------

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CERTIFICATION

I, Michael K. Matysik, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Quinton
Cardiology Systems, Inc.;

2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under
which such statements were made, not misleading with respect to the period
covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;

4. The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;

b) evaluated the effectiveness of the registrants disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
quarterly report (the Evaluation Date); and

c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;

5. The registrants other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrants auditors and the
audit committee of registrants board of directors (or persons performing
the equivalent function):

a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrants ability to record,
process, summarize and report financial data and have identified for the
registrants auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrants internal
controls; and

6. The registrants other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant deficiencies and
material weaknesses.

Date: November 14, 2002



| | /s/ Michael K. Matysik
Michael K. Matysik
Senior Vice President and Chief Financial Officer
| | -------------------------------------------------------------------------------------------

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