10-K

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO
SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

þ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2006

or

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

Commission File Number: 000-51512

Cardiac Science Corporation

(Exact Name of Registrant as Specified in its Charter)

Delaware	94-3300396
(State or Other Jurisdiction of	(I.R.S. Employer
Incorporation or Organization)	Identification No.)
3303 Monte Villa Parkway, Bothell, WA	98021
(Address of Principal Executive Offices)	(Zip Code)

(425) 402-2000
(Registrant’s Telephone Number, Including Area Code)

Securities Registered Pursuant to Section 12(b) of the Act:

Title of each class	Name of each exchange on which registered
Common Stock, $0.001 par value	NASDAQ Global Market

Securities Registered Pursuant to Section 12(g) of the Act: None.

     Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No þ

     Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes o No þ

     Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

     Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o       Accelerated filer þ       Non-accelerated filer o

     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

     The aggregate market value of the voting and non-voting common stock held by non-affiliates of the registrant, based on the closing price of the registrant’s Common Stock on June 30, 2006 as reported on the Nasdaq National market, was approximately $23,672,485.

     The number of shares of the registrant’s Common Stock outstanding at March 1, 2007 was 22,621,680.

DOCUMENTS INCORPORATED BY REFERENCE

     The information required by Part III of this Report, to the extent not set forth herein, is incorporated herein by reference to the registrant’s definitive Proxy Statement relating to the registrant’s 2007 annual meeting of shareholders. Such definitive Proxy Statement or an amendment to this Report providing the information required by Part III of this Report shall be filed with the Securities and Exchange Commission within 120 days after the end of the fiscal year to which this Report relates.

CARDIAC SCIENCE CORPORATION

2006 FORM 10-K ANNUAL REPORT

TABLE OF CONTENTS

	Page
PART I
Item 1. Business		1
Item 1A. Risk Factors		17
Item 1B. Unresolved Staff Comments		25
Item 2. Properties		25
Item 3. Legal Proceedings		25
Item 4. Submission of Matters to a Vote of Security Holders		26
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities		27
Item 6. Selected Financial Data		28
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations		30
Item 7A. Quantitative and Qualitative Disclosures About Market Risk		41
Item 8. Financial Statements and Supplementary Data		42
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure		80
Item 9A Controls and Procedures		80
Item 9B Other Information		80
PART III
Item 10. Directors, Executive Officers and Corporate Governance		81
Item 11. Executive Compensation		81
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		81
Item 13. Certain Relationships and Related Transactions, and Director Independence		81
Item 14. Principal Accountant Fees and Services		81
PART IV
Item 15. Exhibits and Financial Statement Schedules		82
Signatures		83
EXHIBIT 10.8
EXHIBIT 10.33
EXHIBIT 10.36
EXHIBIT 10.37
EXHIBIT 10.38
EXHIBIT 10.39
EXHIBIT 10.40
EXHIBIT 10.42
EXHIBIT 10.44
EXHIBIT 10.59
EXHIBIT 10.60
EXHIBIT 21.1
EXHIBIT 23.1
EXHIBIT 31.1
EXHIBIT 31.2
EXHIBIT 32.1
EXHIBIT 32.2

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PART 1

     This Annual Report on Form 10-K contains forward-looking statements relating to Cardiac Science Corporation. Except for historical information, the following discussion contains forward-looking statements for purposes of the safe harbor provisions under the Private Securities Litigation Reform Act of 1995. The words “believe,” “expect,” “intend,” “anticipate,” ”will,” “may,” variations of such words, and similar expressions identify forward-looking statements, but their absence does not mean that the statement is not forward-looking. These forward-looking statements reflect management’s current expectations and involve risks and uncertainties. Our actual results could differ materially from results that may be anticipated by such forward-looking statements. The principal factors that could cause or contribute to such differences include, but are not limited to, those discussed in the section entitled “Risk Factors” and those discussed elsewhere in this report. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this report. We undertake no obligation to revise any forward-looking statements to reflect events or circumstances that may subsequently arise. Readers are urged to review and consider carefully the various disclosures made in this report and in our other filings made with the SEC that attempt to advise interested parties of the risks and factors that may affect our business, prospects and results of operations. The terms “the Company,” “us,” “we” and “our” refer to Cardiac Science Corporation and our majority-owned subsidiaries.

Item 1. Business

     Overview

     Cardiac Science Corporation was incorporated in Delaware on February 24, 2005 as CSQ Holding Company to effect the business combination of Quinton Cardiology Systems, Inc. (“Quinton”) and Cardiac Science, Inc. (“CSI”), which we refer to as the “merger transaction.” The merger transaction was consummated on September 1, 2005. In connection with the merger transaction, the outstanding shares of common stock of Quinton and CSI were cancelled and stockholders of Quinton and CSI were issued common stock of Cardiac Science Corporation in consideration of their shares of Quinton and CSI common stock.

     Stockholders of Quinton received 0.77184895 share of our common stock for each common share of Quinton held, representing approximately 48.8% of our total outstanding common stock as of the date of closing, and holders of CSI common stock received 0.10 share of our common stock for each common share of CSI held, which, together with 2,843,915 shares of our common stock issued to the holders of senior notes and related warrants of CSI in connection with the merger transaction, represented approximately 51.2% of our total outstanding common stock as of the date of closing. In addition, we assumed each outstanding option and other warrant to purchase common stock issued by Quinton and CSI.

     For accounting purposes, the merger transaction was treated as an acquisition by Quinton of CSI as of September 1, 2005. Since we are deemed to be the successor to Quinton for accounting purposes, our consolidated financial statements represent the historical statements of Quinton and include CSI’s results of operations since September 1, 2005. All share and per share data have been retroactively adjusted to reflect the conversion of Quinton shares into Cardiac Science Corporation shares at the exchange ratio set forth in the merger agreement.

     We develop, manufacture and market a family of advanced diagnostic and therapeutic cardiology devices and systems, including automated external defibrillators (“AEDs”), electrocardiographs, stress test systems, Holter monitoring systems, hospital defibrillators, cardiac rehabilitation telemetry systems, patient monitor defibrillators and cardiology data management systems. We also sell a variety of related products and consumables and provide a comprehensive portfolio of training, maintenance and support services. We market our products under the Burdick, Powerheart and Quinton brand names.

     Industry Background

     The American Heart Association (“AHA”) reports that there are over 64 million patients in the U.S. with active or developing heart disease. Heart disease is believed to be the leading cause of death in the U.S. In recent years, it has been estimated that as many as 450,000 people in the United States alone die each year from sudden cardiac arrest (“SCA”), or what is commonly referred to as a massive heart attack. The AHA also estimates the direct cost of treating heart disease and stroke at over $400 billion annually.

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     Our Markets

     We provide a family of advanced cardiac monitoring and defibrillation products and services. We characterize the systems used by healthcare providers to diagnose, monitor and manage heart disease as the “cardiac monitoring” market. We characterize the devices used to automatically or manually resuscitate victims of cardiac arrest as the “defibrillation” market.

     Based on industry reports and management estimates, we believe that combined 2006 sales in the markets in which we compete were over $2 billion, and will approach or exceed $3 billion during the next five years. We believe the worldwide market for cardiac monitoring systems is at least $1 billion and is growing at over 3% annually, with a portion of that market, cardiology management systems, growing at over 10% annually. We believe the worldwide market for AEDs currently exceeds $300 million and will more than double over the next five years. We believe the worldwide market for manual (or traditional) external defibrillators is currently over $700 million and is growing at approximately 5% annually.

     Cardiac Monitoring Market

     What is Cardiac Monitoring?

     Cardiac monitoring systems are crucial to cardiovascular care. Clinicians use cardiac monitoring systems to assess the presence and severity of cardiac disease and to evaluate the efficacy of treatments such as drugs, interventions, operations, and device implants. Effective delivery of cardiovascular care requires that the entire process of recording, storing, analyzing, retrieving and distributing cardiology data be as rapid and cost effective as possible.

     How is Cardiac Monitoring Performed?

     The core of cardiac monitoring is the electrocardiogram, or ECG waveform, a representation of the electrical activity of the heart. Clinicians use ECG waveform recordings and analyses to assess the presence and severity of cardiac disease and to monitor the efficacy of treatments such as drugs, interventions, operations and device implants.

     What are the Challenges Related to Cardiac Monitoring?

     Despite the technological and clinical advances in cardiology, healthcare providers face significant challenges in delivering consistent and high quality cardiovascular care. Healthcare reform continues to place increasing pressure on providers to treat more patients faster. Increasingly, healthcare is moving outside of the hospital setting into physician offices and other outpatient facilities. In addition, the need to control costs, increase efficiencies and manage data has introduced new factors into the decision making process for technology utilization.

     The changing healthcare environment has resulted in a number of emerging critical needs. These include creating systems and services tailored to the clinician workflow, developing products that are intuitive and easy to use, using proven communication standards for connectivity, and improving the management of healthcare delivery resources and utilizing emerging technologies from multiple vendors, within a security structure that meets Health Insurance Portability and Accountability Act of 1996 (“HIPAA”) requirements.

     Defibrillation Market

     What is Defibrillation?

     Defibrillation systems enable the detection and identification of life-threatening arrhythmias which can lead to death from SCA and, when appropriate, the delivery of electrical current to the heart to restore a normal heartbeat. Sophisticated algorithms within defibrillators filter noise and artifact from a patient’s electrocardiogram signal to enable correct identification of heart rhythms that are life-threatening (i.e. shockable), or non-life-threatening (i.e. not shockable).

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     How is Defibrillation Performed?

     A normal electrocardiogram consists of wave forms that are referred to as P-QRS-T waves. QRS wave complexes correspond with a person’s heart rate. In the case of the chaotic and disorganized rhythm, which can lead to SCA, these QRS complexes are absent or indistinguishable. If the heart rhythm is considered shockable, and it persists, then a shock will be indicated. Further analysis classifies a shockable rhythm as requiring a synchronous shock, or an asynchronous shock, depending on the type of arrhythmia. A defibrillator detects the need for a shock and delivers the current if needed.

     What Are the Challenges Related to Defibrillation?

     Death from SCA occurs without warning or immediately after the onset of symptoms. The AHA estimates that 50% of SCA victims have no prior indication of heart disease—their first symptom is SCA. For those with a known history of cardiac disease, the chance of sudden cardiac death is four to six times greater than that of the general population.

     The main challenge for victims of SCA is that survival is directly linked to the amount of time between the onset of SCA and receiving a defibrillation shock. For every minute that goes by without a defibrillation shock, a victim’s chance of survival is reduced by approximately 10%. Of the estimated 450,000 annual deaths from SCA in the United States, approximately two thirds occur outside a hospital. Although almost 60% of SCA incidents outside the hospital are witnessed, 95% of these victims do not survive, according to the AHA.

     In hospital and pre-hospital (e.g. ambulance) settings, trained professionals typically deploy manual or semi-automatic defibrillators to treat SCA victims. These standard defibrillators require operation or supervision by highly skilled medical personnel to analyze and interpret the patient’s electrocardiogram and to manually deliver a shock using handheld paddles.

     During the last several years, there has been increasing awareness that AEDs save lives and can be safely used by lay people. Communities that strategically place AEDs in public buildings, arenas, airports and emergency vehicles have been able to reduce response times and, therefore, improve survival rates for SCA dramatically. Communities with these public access defibrillation (“PAD”) programs have reported community survival rates approaching 50 percent. In some venues, such as casinos and corporate workplaces, when the first shock is often delivered within 3-5 minutes, reported survival rates have ranged even higher.

     The introduction and adoption of numerous AED-related bills at the federal level and in state governments in the past several years has facilitated growth in new and existing markets for AEDs. During the last several years, these initiatives have resulted in certain protections from civil liability arising from emergency use of AEDs, funding programs for PAD program implementation and the mandatory deployment of AEDs in some settings. In addition, the AHA has publicly encouraged widespread deployment of AEDs in the workplaces, communities and homes.

     In addition to “time to shock”, there are a number of technical challenges in delivering current to the heart in external defibrillation. Impedance is the primary difficulty. Tissue such as skin, fat, muscle and bone, surround the heart and impede the flow of energy delivered by a defibrillator. Impedance varies from person to person and in order to optimize energy delivery, adjustments must be made for an individual’s impedance. Also, in cases of cardiac arrest a person’s anatomy, disease condition and metabolic state of the heart, a minimum current is required to defibrillate the heart and establish normal rhythm. This minimum current is defined as the defibrillation threshold. Failure to exceed a patient’s defibrillation threshold means failure to defibrillate a patient’s heart. Finally, to provide effective defibrillation, the cell membranes of the heart must be fully depolarized to minimize the likelihood of re-fibrillation and provide an optimal environment to defibrillate the heart. During the delivery of any defibrillation shock, the cell membranes of the heart are charged, until the cells depolarize. This allows normal electrical pathways to reestablish control and produce a coordinated rhythm. If any residual charge remains on the cells (i.e., they do not fully depolarize), re-fibrillation may occur.

     Our Products and Services

     We address our markets through a broad range of advanced cardiac monitoring and defibrillation products and services. In recent years, we have introduced new versions of products or upgraded capabilities in most of our product lines, and we are currently developing additional new versions of products in many of these product lines.

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     See Note 3 to our Consolidated Financial Statements included elsewhere in this report for a list of product lines contributing revenues of 10% or more in each of the last three fiscal years.

     Cardiac Monitoring Products

     Our cardiac monitoring products deliver reliable, cost effective solutions for cardiologists and other healthcare providers worldwide in multiple settings. Our products are easy to use, with simple, intuitive user interfaces. Many of our products are built on a Microsoft Windows-based software architecture designed to integrate critical data capture, provide enterprise level access to data, and scale to meet the requirements of a variety of cardiovascular care environments.

     Our principal cardiac monitoring products include:

     Electrocardiographs

     We offer a variety of electrocardiographs that allow physicians to record and analyze patient ECG waveforms at rest to assess the presence of cardiac disease. These products are offered at various price points and configurations, and cover the spectrum of market needs, ranging from low-cost units targeting physicians’ offices to fully featured units that are designed for the most rigorous clinical and hospital settings.

     Cardiac stress testing systems

     Our integrated stress testing systems allow cardiologists and other healthcare providers to monitor and analyze the performance of the heart under stress. Our stress systems record a patient’s heart rate, heart rhythm, blood pressure, and other vital signs during induced stress. Our treadmills, specifically designed for cardiac monitoring procedures, provide precise and replicable levels of exertion. Our systems provide real time analysis, charting, and reporting, all of which enable cardiologists and other healthcare providers to diagnose patients’ heart disease more accurately and efficiently.

     Holter monitoring systems

     Our integrated “Holter”, or long-term ambulatory ECG, monitoring products and systems record and assess the performance of a patient’s heart during various activities over extended periods of time. The Holter recorder, which is typically worn for a period of 24 hours, records the patient’s heart rate, heart rhythm, and ECG waveform data. Our Holter offering includes multiple diagnostic capabilities.

     Cardiac rehabilitation telemetry systems

     Our integrated Q-Tel telemetry devices, database products and treadmills monitor the patient’s heart rate, heart rhythm, and ECG waveform data during rehabilitation exercises. Our rehabilitation database provides real time clinical data and trend analysis to enable cardiologists and other healthcare providers to track and assess improvements in cardiovascular function.

     Cardiology data management systems

     We provide cardiology data management systems that automate the processing, storage, retrieval and editing of electrocardiograms and other patient data. Our open architecture strategy provides customers with the flexibility to integrate with an increasing number of devices and data management systems while retaining their current equipment.

     Related products and supplies

     Cardiac monitoring products often require lead wires and electrodes to be attached to the patient to retrieve and process patient ECGs, as well as thermal chart paper to generate reports. We sell these items, including our Quik-Prep electrodes, and provide an array of other complementary cardiology related products, such as blood pressure monitors and spirometers.

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     Services

     We provide a comprehensive portfolio of training, maintenance and other services to both medical and non-medical customers. As a complement to all of our products, our services organization provides installation, repair, maintenance and technical services, as well as hardware and software upgrades to our installed base of products. We provide call center access 24 hours per day, seven days per week, depot repair and on site maintenance and repair through our extensive field service organization.

     Advantages of our cardiac monitoring products:

     We believe our cardiac monitoring products provide our customers with solutions for overcoming many of the challenges they face, including the following key benefits.

     Ease of use. Our products feature intuitive user interfaces that are designed with significant input from clinicians and technologists. Many of our products automate the data collection functions, use standard computer components and require minimal configuration. We generally design our interfaces to conform to the particular clinical procedure rather than adapting the procedure to the device, and users can customize the interface to meet their unique requirements. We believe this functionality enhances clinical success by allowing the user to concentrate on the patient and procedure. In addition, we believe the ease of use features of our products enable our customers to use our systems with significantly lower training requirements and higher productivity than competing products that do not offer customizable user interfaces.

     Network compatibility. Many of our products are designed to support a clinical network environment, enabling cardiologists to assimilate, collate and interpret data and disseminate results to facilitate diagnosis, monitoring and patient management. These products collect data that may be stored in a local or network server database. Many of our products also connect to larger enterprise networks that allow data to be shared with other users, both within the facility and remotely via secure networks.

     To facilitate these connections, we have chosen to implement commonly used formats and protocols. These formats, such as portable document format (“PDF”) and extensible markup language (“XML”) enable the storage and dissemination of clinical information.

     Effective data capture. Many of our products automate and assist in the collection, interpretation and retrieval of data and can effectively display, for side-by-side comparison, the results of tests performed over an extended period. These products improve clinical productivity and throughput, which is the number of reimbursable procedures completed per hour of system use. For our customers, greater throughput translates into greater return on investment from our products.

     Improved diagnostic speed and accuracy. As a result of easy to use controls, effective data capture, and computer assisted diagnosis, we believe our products allow for improved diagnostic accuracy. The availability of historical results for comparison allows for a greater understanding of changes in a patient’s physical condition. In addition, we believe that by enabling the review and assessment of test results remotely, our systems can greatly speed the time of diagnosis.

     Open technology architecture. Our Microsoft Windows-based technology adheres to established standards for image, waveform, data and report generation and dissemination, enabling healthcare providers to share data across a private network or via the Internet. This Windows-based technology platform was designed to support data integration activities with other third-party clinical systems. We believe this technology will permit our customers to easily integrate our products and systems with their existing infrastructure, and scale to meet the needs of larger healthcare organizations.

     Defibrillation Products

     We design our defibrillation products using advanced technology in order to deliver superior performance, reliability, flexibility and ease of use. All of our defibrillation products incorporate our proprietary RHYTHMx technology. This platform technology is designed to detect and discriminate life-threatening arrhythmias. Our Self-

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Tracking Active Response (“STAR”) Biphasic technology is designed to optimize the delivery of a potentially life-saving electric shock to victims of SCA.

     We have integrated our core technology, along with other proprietary technology into our AEDs and in-hospital defibrillation product lines. We also market our proprietary disposable defibrillator electrode pads and a variety of accessories, including long-life batteries, carry cases, wall cabinets and other related items. In addition, we also license certain components of our core technology to third-parties for integration into other products.

     We offer both AEDs and traditional (“Non-AED”) defibrillation products and services.

     Automated External Defibrillation Products

     AEDs are deployed in numerous settings, including educational institutions, federal, state and local municipal agencies, fire and police departments, ambulances, railroads, airports, airlines, military bases, hospitals, nursing homes, health clubs, physician and dental offices, and leading corporations. Our AEDs have also been chosen by many local governments and municipalities for use in community based PAD programs in cities such as London, England, San Diego, California, Miami, Florida, Minneapolis, Minnesota and St. Louis, Missouri.

     We currently manufacture AEDs which comply with the latest CPR and defibrillation protocols established by the AHA in November 2005. In addition, we are currently providing software to customers allowing them to upgrade many of their AEDs to comply with these guidelines.

     Our principal AED products include:

     Powerheart® AED G3 PRO

     The Powerheart AED G3 PRO is a technologically advanced AED designed for use by sophisticated users of lifesaving equipment, such as hospital personnel, medical professionals and emergency medical technicians. This product displays the victim’s heart rhythm on a built-in high resolution color ECG display and gives professional users the option of delivering defibrillation shocks either semi-automatically or manually during the emergency treatment of victims of sudden cardiac arrest. Other advanced features include continuous cardiac monitoring capability via an ECG patient cable, multiple rescue data storage, clear and comprehensive voice prompts, infrared data transfer and optional rechargeable battery.

     Powerheart AED G3 Automatic

     The Powerheart AED G3 Automatic is a fully-automatic AED designed specifically for public places and corporate workplace settings. A rescuer need only listen to its detailed voice instructions explaining how to attach the device to the heart attack victim to potentially save a life. There are no buttons to push or additional actions required, since this product analyzes the patient’s condition to detect a life-threatening heart rhythm and, if appropriate, automatically delivers a potentially life-saving defibrillation shock to restore the heart to a normal rhythm.

     Powerheart AED G3

     In addition to the features of the Powerheart AED G3 Automatic, the Powerheart AED G3 includes an option for semi-automatic delivery of shocks and is used in a multitude of settings. The rescuer listens to the Powerheart AED G3s voice instructions explaining how to attach the device to the heart attack victim and, if a life-threatening heart rhythm is detected, the rescuer is instructed to press the shock button to deliver potentially life-saving defibrillation shock to restore the heart to a normal rhythm.

     Powerheart AED G3 Plus Automatic

     The Powerheart AED G3 Plus Automatic is a fully-automatic AED, designed specifically for public places and corporate workplace settings. A rescuer needs only listen to its extensive voice instructions designed to direct a minimally trained user through cardiopulmonary resuscitation (“CPR”) and AED use to potentially save a life. There are no buttons to push or additional actions required, since it analyzes the patient’s condition to detect a life-

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threatening heart rhythm and, if appropriate, automatically delivers a potentially life-saving defibrillation shock to restore the heart to a normal rhythm.

     Powerheart AED G3 Plus

     In addition to the features of the Powerheart AED G3, The Powerheart AED G3 Plus provides extensive voice prompts designed to direct a minimally trained user through CPR and AED use. This includes detailed rescue code voice prompts and metronome guidance for CPR compressions.

     Traditional Defibrillation Products

     Traditional defibrillators are typically positioned in the hospital at locations such as critical care and cardiac care units, emergency and operating rooms, electrophysiology labs, medical transport environments and alternate care facilities.

     Our traditional defibrillation products include:

     Powerheart ECD

     We intend to substantially expand our presence in the hospital defibrillation market with the Powerheart ECD, a traditional hospital “crash cart” defibrillator. The product is designed for use in hospital settings by skilled medical personnel and incorporates our proprietary technology. The ECD, which received 510(k) clearance in early 2006, will be sold exclusively through GE Healthcare, a division of General Electric (“GE”). GE intends to market this product in North America as the Cardiac Science Powerheart ECD, and in the rest of the world under the GE brand name as the Responder 2000.

     Defibrillation Supplies and Accessories

     We provide an extensive line of supplies and accessories to support our customers’ defibrillation programs. These include replacement electrodes and batteries, training devices, wall cabinets, carrying cases and more.

     Services

     We provide a full range of AED training, maintenance and support services. Our services include training in the use of AEDs and related training in CPR. We deliver these AED/CPR training services in the field through a U.S. field staff of over 150 part time employees. We also provide medical direction and information management necessary for AED users to be in compliance with various state laws and regulations.

     Advantages of our defibrillation products:

     We believe that our defibrillation products offer the following competitive advantages:

     Arrhythmia Detection. Our patented RHYTHMx software algorithm technology allows for the accurate detection and discrimination of life-threatening ventricular tachyarrhythmias and can also be used to treat patients with supraventricular arrhythmias. RHYTHMx filters noise and artifact from a patient’s electrocardiogram signal without compromising sensitivity or specificity. RHYTHMx technology has been clinically validated by leading researchers in numerous clinical studies and received FDA clearance in 1998. In these studies RHYTHMx demonstrated 100% sensitivity (correct identification of shockable rhythms) and 99.4% specificity (the ability to identify and not shock non-lethal rhythms).

     Variable Escalating Biphasic Defibrillation Energy. Our patented STAR® Biphasic waveform technology instantly determines a patient’s impedance, defibrillation threshold and cellular response characteristics in order to optimize and adjust the magnitude of the defibrillation shock based on a patient’s unique size and weight. STAR Biphasic also facilities the escalation of energy if subsequent shocks are necessary. We believe this feature reduces the total of shocks required to convert patients to a normal rhythm. In addition to the use of STAR Biphasic waveform technology in our defibrillator devices, we also license this technology to selected partners.

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     Ease of Use. Time is critical during cardiac defibrillation. Our defibrillators are recognized as having industrial designs and user interfaces that facilitate ease of use. This uncompromising commitment to ease of use allows a wide variety of users in a multitude of medical and public access environments to successfully operate our devices. Our AEDs have one button or no button operation and provide clear, concise voice prompts that provide detailed instructions to guide the user through the rescue process.

     Reliability. Our patented RescueReady™ technology provides automatic daily self-tests of all critical system components including batteries and pre-connected disposable electrode pads, to ensure our defibrillators are working properly. Our AEDs, which may be deployed in environments for months or years without being used, automatically simulate a full and complete energy discharge to ensure operability. If a fault is detected during self-testing, our devices alert users via visual and audible alarms.

     Flexibility. Our various defibrillators allow for fully-automatic, semi-automatic or manual delivery of defibrillation therapy. Operators can easily customize their device settings to suit their particular requirements. Our most popular AED offers patented fully-automatic delivery of shocks, which differentiates it from competitive devices.

     Rugged design. Durability and low cost of ownership are key features of our defibrillators. Designed for the most rugged applications our devices can withstand the demands of daily use by hospitals as well as deployments in military settings, fire trucks, police vehicles and ambulances.

     Growth Strategy

     Our growth strategy is to: (1) exploit under-penetrated and emerging market segments; (2) create opportunities through innovation; (3) broaden our distribution; (4) leverage our services capabilities; and (5) pursue strategic mergers or acquisitions.

     Exploit under-penetrated and emerging market segments

     Despite our relatively broad product line, we do not currently have offerings for a number of segments and sub-segments within our core markets. We intend to address many of these areas in the future, which would include offering suitable products at both higher and lower price points within these markets. Based on industry reports and management estimates, we also believe the global market for AEDs is significantly under-penetrated. We intend to focus our global AED selling efforts in the corporate workplace, government, school, first responder and medical markets. We believe that, by continuing to focus the efforts of our direct sales force and distribution partners on these markets, we can increase our AED sales.

     In addition, we believe that a consumer market for home or personal use of AEDs is emerging. We plan to submit a consumer version of our AED to the FDA for 510(k) clearance. If approved, this product would be available for sale to consumers without a prescription from a physician. We believe that we will be able to effectively sell our AEDs in this emerging market through a variety of other innovative approaches, including the Internet.

     Create opportunities through innovation

     We have made significant investment in research and development over the last several years, and we expect to continue to make significant investment in this area. By continuing to innovate, we believe that we will be able to attract new customers and sell replacement products, product upgrades, consumables and services to our existing customers. We intend to focus our research and development activities on new technologies, new clinical applications and other enhancements to our products that will make them easier to use, less expensive and provide better technical, clinical or connectivity functionality. In addition, we expect to continue to localize our products, with languages and other relevant features, to expand our sales internationally.

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     Broaden our distribution

     We sell our AEDs in the U.S. market principally through a direct sales force, complementing this with the use of select third party distributors. We believe we can increase our sales of AEDs in the U.S. market by increasing our use of third party distributors.

     We also believe that we can increase sales of both cardiac monitoring and defibrillation products outside of the United States by continuing to develop and improve our international distribution network, as well as leveraging our direct sales presence in the United Kingdom.

     We expect to continue to enter into selling alliances, where appropriate, with industry players whose distribution capabilities can be effectively utilized, such as our agreements with Nihon Kohden in Japan to distribute certain cardiac monitoring and defibrillator products, and with GE globally to distribute certain defibrillator products. We believe our existing arrangements have even greater potential than demonstrated to date, and we expect to see increased sales from these, particularly in the near term.

     Leverage our services capabilities

     We believe our focused repair, call center and field service capabilities distinguish us from our competitors in cardiac monitoring. In addition, we believe our extensive capabilities to provide training, medical direction and information management relating to the deployment and maintenance of AEDs allows us to provide a unique, single source, turnkey solution to our customers. These capabilities offer the potential for additional revenue as part of new product selling efforts, as well as independently through billable, training, maintenance activities and service contracts.

     Pursue strategic mergers and acquisitions

     Our growth strategy contemplates mergers and other acquisitions of businesses, product lines, assets or technologies that are complementary to our business or offer us other strategic benefits, such as enhanced clinical or technological value, expanded geographical reach, and additional sales or research and development capabilities. We plan to expand our product lines, leverage the capabilities of our existing sales force and increase sales of our existing and new product lines by selectively acquiring those companies, or assets of companies, with strong differentiated technologies or complementary product lines. In addition to acquisitions of distinct product lines or smaller companies, we may pursue growth through merger with companies of more significant size. We believe the fragmentation of many areas of the cardiology industry offers an excellent opportunity for growth through selective acquisitions. We also believe our brand, distribution capabilities, and the proven acquisition and integration experience of our management team, put us in a position to take advantage of these opportunities.

     Business Advantages

     We believe our business has several advantages, including:

     Cardiology focus. Both our management and research and development teams have significant experience in cardiology products, which enables rapid innovation and commercialization of products and services. In addition, our sales and service organizations possess substantial domain knowledge, which gives us the ability to introduce new products quickly.

     Commitment to innovation. We have invested a significant percentage of our revenues over the last several years on research and development efforts. Our research and development efforts have contributed to the release of new versions of products in most of our major product categories in recent years. We believe many of our products represent the leading technology in many of the principal markets we serve. We have also been recognized for our product innovation by various industry organizations.

     Industry leading brands. We believe Burdick, Powerheart and Quinton, the three principal brands under which we market our products, are highly respected names in the field of cardiology. Burdick has been an innovator in medical devices since 1913 and in cardiology since 1949. Our Powerheart AEDs are feature rich and known for their sophisticated but easy to use technology. Wayne Quinton developed the first treadmill designed for cardiac stress testing in 1953. Since 1966, the Quinton name has been highly regarded for its quality, reliable advanced cardiology

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products. We believe we have enjoyed strong brand recognition for all of our products and that we are known for a high level of service, which drives strong relationships with our customers.

     Leading market positions. We believe that we have a leading position in several domestic and international market segments in both cardiac monitoring and defibrillation. In AEDs, we have a substantial presence in U.S. corporate and government workplaces, as well as internationally in the United Kingdom and Japan. In cardiac monitoring, we have a large installed base of stress test systems and rehabilitation telemetry systems and a significant presence in Holter monitors, electrocardiographs, and cardiology data management systems. We estimate that our installed base exceeds 200,000 monitoring units worldwide. Our installed base presents an excellent target market for future sales of products, systems, software upgrades and related service and consumables.

     Global distribution and service network. We believe that our comprehensive global distribution network focused on cardiology products and services distinguishes us from our competitors. Our sales organizations possess extensive experience and expertise in advanced cardiology products. In addition, our service organizations enhance customer satisfaction and retention, and also support our sales efforts with cross-selling capabilities. We believe our global distribution and service network has the ability to support the sale of additional new products, whether developed internally or acquired.

     Our Organization

     Sales and Marketing

     We have structured our sales organization into four primary channels: (1) our U.S. acute care sales force, which sells cardiac monitoring products and services directly to hospitals; (2) our U.S. primary care sales force, which supports a network of independent distributors in selling both cardiac monitoring and defibrillation products to primary care physicians and cardiologists; (3) our U.S. public access sales force, which consists of an integrated network of direct sales representatives and third party distributors who work together to optimize our sales of AEDs domestically; and (4) our international sales team, which consists of a direct sales force in the United Kingdom, together with a network of over 100 international distributors that provide sales and service relating to all of our products in approximately 90 countries.

     Our U.S. acute care sales team principally sells cardiac monitoring products to hospitals and each sales representative is responsible for a region and a sales quota for that region. Our sales efforts in the acute care market increasingly target system sales opportunities. Our sales efforts have historically promoted stand-alone product sales and were most successful in small and midsize hospitals, and rehabilitation clinics. We believe improvements in our technology and changes in customer needs make our products attractive to larger hospitals and physician practices, as well.

     Our U.S. primary care sales force principally sells cardiac monitoring and defibrillation products outside the hospital. Each of our sales specialists within this channel is responsible for a specific geographic territory and has a sales quota in supporting our independent distributor network in making sales to primary care physicians, cardiology offices and all other alternate care facilities in that territory. We provide our distributors with discounts and promotional marketing support, based on a variety of factors including the annual volume of orders.

     Our U.S. public access sales force sells our defibrillation products, primarily AEDs, and training services to corporate and government workplace markets, as well as through school, military and first responder (police/fire) markets. Our sales representatives in this channel are responsible for territories that are defined by a combination of geographic and market segment characteristics. Each sales representative, selling directly and working with distributors in their territories, is responsible for a sales quota in that territory.

     Internationally, we sell both our cardiac monitoring and defibrillation products primarily through country specific distributors, except in the U.K. where we have a direct sales operation, and in Japan, where we have an OEM relationship with Nihon Kohden. Our international distribution network is managed by a team of employees and agents living abroad.

     In addition to these sales channels, we have distribution arrangements with various partners such as GE, which will sell our AEDs and in-hospital defibrillation products in the North American hospital market and in all

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international markets. In North America, the products will be branded as Cardiac Science, while outside of North America, the products will be sold by GE under its own brand.

     We support all of our sales efforts with a variety of targeted marketing activities, including direct mail, telemarketing, publications, trade shows, training and other promotional activities.

     We do not have significant sales backlog. At both December 31, 2005 and 2006, our total sales backlog represented less than 60 days of anticipated sales volume.

     Customer Service and Support

     We believe that our comprehensive training and services capabilities differentiate us from our competitors. Our extensive capabilities to provide AED and CPR training, medical direction and information management relating to the deployment and maintenance of AEDs allows us to provide a unique, single source, turnkey AED solution to our customers. In addition, we believe our focused, dedicated cardiology customer and field service capabilities distinguish us from our competitors in competing for advanced cardiac monitoring product sales.

     Our large installed base facilitates the sale of service contracts and post–warranty support and presents a cross-selling opportunity for products that are complementary to our customers’ existing installations. In international markets our distributors provide support and other services.

     Research and Development

     We believe that strong product development capabilities are essential to our strategy of enhancing, developing, and incorporating improved functionality into our products and maintaining the competitiveness of our products in our core markets. We believe our team of experienced engineers is on the leading edge of software and other technologies in our core markets. Our research and development process is dependent on assessment of customer needs, identification and evaluation of new technologies, and monitoring market acceptance and demand. We have a structured process for undertaking product development projects that involves functional groups at all levels within our company. This process is designed to provide a framework for defining and addressing the steps, tasks, and activities required to bring product concepts and development projects to market.

     Our research and development expenses were $11.7 million in 2006, $9.4 million in 2005 and $7.4 million in 2004. This represents approximately 8.1% of our revenues over that three-year period. From 2004 to 2006, our research and development efforts focused on enhancing and expanding the proven capabilities of our existing product lines, introducing new versions of our products and reducing costs relating to our existing products.

     Technology

     Our engineering teams have specific expertise in ECG algorithms, signal processing, artifact filtering, electrical systems, software development, high voltage waveforms and data management. Software algorithms for analyzing the electrical activity of the heart are the basis for both our cardiac monitoring and our defibrillation product lines. Almost all of our products include hardware components that connect to the patient and digitize ECG waveform signals.

     In our cardiac monitoring systems we generally use object-oriented design based on Microsoft technologies to create the software. We develop our systems’ user interfaces for many of our products using Microsoft tools. Many of our systems have been designed for network operation and many of our software modules have also been developed as objects that can be reused in our other products as needed. In addition, we have designed many of our cardiac monitoring systems to meet emerging industry standards, from reports rendered in PDF or XML format, to the use of Health Level 7 and Serial Communication Protocol format for communications and ECG waveform data.

     All of our defibrillation products incorporate our proprietary RHYTHMx technology. This platform technology is designed to detect and discriminate life-threatening arrhythmias. Our STAR Biphasic technology is designed to optimize the delivery of a potentially life-saving electric shock to victims of SCA. We have integrated our core technology, along with other proprietary technology, into both our AED and our hospital defibrillation product lines. We license certain components of our core technology to third-parties for integration into other products.

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     Manufacturing and Supply

     Our manufacturing process consists primarily of assembly and testing of AEDs, electrocardiographs, stress test systems, Holter monitoring systems, rehabilitation telemetry systems, medical treadmills, electrodes, and various other products. During 2006, we performed these manufacturing activities at our Deerfield, Wisconsin facility and, to a lesser extent, at the facilities of our majority owned joint venture operation in Shanghai, China.

     We also rely upon other third-party suppliers to provide us with various materials used in the production and assembly of our devices and systems. We have long-standing supply relationships for essentially all our outsourced product components. We purchase a portion of our products from third parties on an original equipment manufacturer (OEM) basis.

     We maintain a comprehensive quality assurance and quality control program that includes documentation of all material specifications, operating procedures, equipment maintenance and quality control methods. Our quality systems are based on and in compliance with the requirements of ISO 13485:2003 and the applicable U.S. laws and regulations governing medical device manufacturers.

     Our Competition

     The following chart indicates the most significant competitors for each of our major product lines:

Product	Competitors
AEDs	Philips, Medtronic, Zoll Medical, Welch Allyn
Electrocardiolographs	General Electric, Philips, Schiller, Welch Allyn
Cardiac stress testing systems	General Electric, Philips, Welch Allyn
Holter monitoring systems	SpaceLabs, General Electric, Philips, Midmark
Cardiac Rehabilitation telemetry systems	Life Sensing Intruments, Scott Care
Cardiology data management systems	General Electric, Philips
Traditional (non-AED) defibrillators	Zoll, Medtronic, Philips

     We believe that, depending on the products and situation, our customers consider some or all of the following factors in determining which products to purchase:

• quality, accuracy, and reliability;

• reputation of the provider;

• relative ease of use;

• depth and breadth of features;

• quality of customer support;

• frequency of updates;

• capability to assist in deployment and training;

• flexibility to integrate products with other devices and systems from multiple vendors;

• availability of third-party reimbursement;

• conformity to standards of care; and

• price.

     We believe our products compete favorably on these factors, as applicable. We also believe that our service capabilities distinguish us and provide us with a competitive advantage over some of our competitors. However, products and services offered by some of our competitors offer features that may compete favorably on these factors as well. The market for our products and services is highly competitive and we expect competition to intensify. Many of our competitors enjoy substantial advantages, including greater resources that can be devoted to the development, promotion and sale of their products. In addition, many of our competitors may have more established sales channels, deeper product development experience or greater name recognition.

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     Third-Party Reimbursement

     In the U.S., as well as in foreign countries, government-funded or private insurance programs, commonly known as third-party payers, pay a significant portion of the cost of a patient’s medical expenses. A uniform policy of reimbursement does not exist among all these payers. We believe that reimbursement is an important factor in the success of many medical devices.

     All U.S. and foreign third-party reimbursement programs, whether government funded or commercially insured, are developing increasingly sophisticated methods of controlling healthcare costs through prospective reimbursement and capitation programs, group purchasing, redesign of benefits, second opinions required prior to major surgery, careful review of bills, encouraging healthier lifestyles and exploring more cost-effective methods of delivering healthcare. These types of programs can potentially limit the amount which healthcare providers may be willing to pay for medical devices.

     Government Regulation

     Our products are medical devices subject to extensive regulation by the U.S. Food and Drug Administration (“FDA”), and other regulatory agencies. FDA regulations govern, among other things, the following activities that we perform and will continue to perform in connection with medical devices:

• product design and development;

• product testing;

• product manufacturing;

• product labeling and packaging;

• product handling, storage, and installation;

• pre-market clearance or approval;

• advertising and promotion; and

• product sales, distribution, and servicing.

     FDA’s Pre-market Clearance and Approval Requirements. Unless an exemption applies, each medical device we seek to commercially distribute in the U.S. must first receive 510(k) clearance or pre-market approval from the FDA. The FDA classifies all medical devices into one of three classes. Devices deemed to pose lower risk are placed in either class I or II, which requires the manufacturer to submit to the FDA a 510(k) pre-market notification, requesting clearance of the device for commercial distribution in the U.S. Some low risk devices are exempted from this requirement. Devices deemed by the FDA to pose the greatest risk, such as life sustaining, life-supporting or implantable devices, or devices deemed not substantially equivalent to a previously 510(k) cleared device are placed in class III requiring pre-market approval. In rare cases, as with our AEDs, the devices are classified as Class III and still cleared under the 510(k) pre-market notification process. Class III devices which can be marketed with a pre-market notification 510(k) are those that are post-amendment (i.e., introduced to the U.S. market after May 28, 1976), Class III devices which are substantially equivalent to pre-amendment (i.e., introduced to the U.S. market before May 28, 1976) Class III devices and for which the regulation calling for the pre-market approval application has not been published in 21 CFR.

     510(k) Clearance Process. The 510(k) clearance process is the process applicable to our current products. To obtain 510(k) clearance, we must submit a pre-market notification to the FDA demonstrating that the proposed device is substantially equivalent to a previously cleared 510(k) device, a device that was in commercial distribution before May 28, 1976 for which the FDA has not yet called for the submission of pre-market approval applications, or is a device that has been reclassified from class III to either class II or I. In rare cases, as described in the prior paragraph, Class III devices including our AEDs are cleared through the 510(k) process. The FDA’s 510(k) clearance process usually takes at least three months from the date the application is submitted and filed with the FDA, but it can take significantly longer.

     After a device receives 510(k) clearance, any modification that could significantly affect its safety or effectiveness, or that would constitute a major change in its intended use, will require a new 510(k) clearance or could require pre-market approval. The FDA requires each manufacturer to make this determination initially, but the FDA can review any such decision and can disagree with a manufacturer’s determination. If the FDA disagrees with a manufacturer’s determination, the FDA can require the manufacturer to cease marketing and/or recall the modified device until 510(k) clearance or pre-market approval is obtained. We have modified aspects of some of our devices since receiving regulatory clearance. Some of those modifications we believe are not significant, and therefore, new

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510(k) clearances or pre-market approvals are not required. Other modifications we believe are significant and we have obtained new 510(k) clearances from the FDA for these modifications. In the future, we may make additional modifications to our products after they have received FDA clearance or approval, and in appropriate circumstances, determine that new clearance or approval is unnecessary. However, the FDA may disagree with our determination and if the FDA requires us to seek 510(k) clearance or pre-market approval for any modifications to a previously cleared product, we may be required to cease marketing or recall the modified device until we obtain the required clearance or approval. Under these circumstances, we may also be subject to significant regulatory fines or other penalties.

     Pre-market Approval Process. A pre-market approval application must be submitted if the medical device is in class III (although the FDA has the discretion to continue to allow certain pre-amendment class III devices to use the 510(k) process) or cannot be cleared through the 510(k) process. A pre-market approval application must be supported by, among other things, extensive technical, preclinical, clinical trials, manufacturing and labeling data to demonstrate to the FDA’s satisfaction the safety and effectiveness of the device.

     After a pre-market approval application is submitted and filed, the FDA begins an in-depth review of the submitted information, which typically takes between one and three years, but may take significantly longer. During this review period, the FDA may request additional information or clarification of information already provided. Also during the review period, an advisory panel of experts from outside the FDA will usually be convened to review and evaluate the application and provide recommendations to the FDA as to the approvability of the device. In addition, the FDA will conduct a pre-approval inspection of the manufacturing facility to ensure compliance with Quality System regulation. New pre-market approval applications or pre-market approval application supplements are required for significant modifications to the manufacturing process, labeling and design of a device that is approved through the pre-market approval process. Pre-market approval supplements often require submission of the same type of information as a pre-market approval application, except that the supplement is limited to information needed to support any changes from the device covered by the original pre-market approval application, and may not require as extensive clinical data or the convening of an advisory panel.

     As described previously, certain of our devices have been classified as class III pre-amendment devices. These devices include our AED product line. Although we currently have 510(k) clearance for these devices, the FDA has the discretion at any time to request pre-market approval applications from us and all manufacturers of similar devices. If the FDA calls for pre-market approval applications, we will be required to submit and obtain approvals for such devices within a specified period of time. If we fail to do so, we will not be allowed to continue marketing these products.

     Clinical Trials. A clinical trial is almost always required to support a pre-market approval application and is sometimes required for a 510(k) pre-market notification. Clinical trials generally require submission of an application for an investigational device exemption (“IDE”) to the FDA. The IDE application must be supported by appropriate data, such as animal and laboratory testing results, showing that it is safe to test the device in humans and that the investigational protocol is scientifically sound. The IDE application must be approved in advance by the FDA for a specified number of patients, unless the product is deemed a non-significant risk device and eligible for more abbreviated investigational device exemption requirements. Clinical trials for a significant risk device may begin once the investigational device exemption application is approved by the FDA as well as the appropriate institutional review boards at the clinical trial sites, and the informed consent of the patients participating in the clinical trial is obtained.

     Pervasive and continuing FDA regulation. After a medical device is placed on the market, numerous FDA regulatory requirements apply, including, but not limited to the following:

• Quality System regulation, which requires manufacturers to follow design, testing, control, documentation and other quality assurance procedures during the manufacturing process;

• Establishment Registration, which requires establishments involved in the production and distribution of medical devices, intended for commercial distribution in the U.S. to register with the FDA;

• Medical Device Listing, which requires manufacturers to list the devices they have in commercial distribution with the FDA;

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• Labeling regulations, which prohibit “misbranded” devices from entering the market, as well as prohibit the promotion of products for unapproved or “off-label” uses and impose other restrictions on labeling; and

• Medical Device Reporting regulations, which require that manufacturers report to the FDA if their device may have caused or contributed to a death or serious injury or malfunctioned in a way that would likely cause or contribute to a death or serious injury if it were to recur.

     Failure to comply with applicable regulatory requirements can result in enforcement action by the FDA, which may include one or more of the following sanctions:

• fines, injunctions, and civil penalties;

• mandatory recall or seizure of our products;

• administrative detention or banning of our products;

• operating restrictions, partial suspension or total shutdown of production;

• refusing our request for 510(k) clearance or pre-market approval of new product versions;

• revocation of 510(k) clearance or pre-market approvals previously granted; and

• criminal penalties.

     International Regulation. International sales of medical devices are subject to foreign government regulations, which vary substantially from country to country. The time required to obtain approval by a foreign country may be longer or shorter than that required for FDA approval, and the requirements may differ significantly.

     The European Union has adopted legislation, in the form of directives to be implemented in each member state, concerning the regulation of medical devices within the European Union. The directives include, among others, the Medical Device Directive that establishes standards for regulating the design, manufacture, clinical trials, labeling, and vigilance reporting for medical devices. Under the European Union Medical Device Directive, medical devices are classified into four classes, I, IIa, IIb, and III, with class I being the lowest risk and class III being the highest risk. Under the Medical Device Directive, a competent authority is nominated by the government of each member state to monitor and ensure compliance with the Directive. The competent authority of each member state then designates a notified body to oversee the conformity assessment procedures set forth in the Directive, whereby manufacturers demonstrate that their devices comply with the requirements of the Directive and are entitled to bear the CE mark. CE is an abbreviation for Conformité Européene (or European Conformity) and the CE mark, when placed on a product, indicates compliance with the requirements of the applicable directive. Medical devices properly bearing the CE mark may be commercially distributed throughout the European Union. We have received CE certification from the British Standards Institute for conformity with the European Union Medical Device Directive allowing us to CE mark our product lines. This quality system has been developed by the International Organization for Standardization to ensure that companies are aware of the standards of quality to which their products will be held worldwide. While no additional pre-market approvals in individual European Union countries are required prior to marketing of a device bearing the CE mark, practical complications with respect to marketing introduction may occur. For example, differences among countries have arisen with regard to labeling requirements. Failure to maintain the CE mark will preclude us from selling our products in the European Union. We may not be successful in maintaining certification requirements necessary for distribution of our products in the European Union.

     Under the Canadian Medical Devices Regulations, all medical devices are classified into four classes, class I being the lowest risk class and class IV being the highest risk. Class I devices include among others, devices that make only non-invasive contact with the patient. Classes II, III and IV include devices of increasingly higher risk as determined by such factors as degree of invasiveness and the potential consequences to the patient if the device fails or malfunctions. Our current products sold in Canada generally fall into classes II and III. All class II, III and IV medical devices must have a valid Medical Device License issued by the Therapeutic Products Directorate of Health Canada before they may be sold in Canada (class I devices do not require such a license). We have obtained applicable Medical Device Licenses for many of our products. Failure to maintain required Medical Device Licenses in Canada or to meet other requirements of the Canadian Medical Devices Regulations (such as quality system standards and labeling requirements) for our products will preclude us from selling our products in Canada. We may

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not be successful in continuing to meet the medical device licensing requirements necessary for distribution of our products in Canada.

     Intellectual Property

     We believe that our intellectual property assets, including trademarks, patents, trade secrets and proprietary technology, are extremely valuable and constitute a cornerstone of our business. As of December 31, 2006, we held 110 U.S. and foreign patents, which expire at various times between 2009 and 2024. We also have over 15 patent applications pending before U.S. and foreign governmental bodies. We believe that our patents and proprietary technology provide us with a competitive advantage over our competitors. We intend to continue to aggressively defend our inventions and also look for opportunities to license our technology to generate royalty income.

     Our wide range of patents and patent applications cover much of the technology found in our defibrillation products, including our RescueReady technology, which features one button operation, pre-connected disposable therapy electrode pads and self-test capabilities. Other patents relating to our defibrillation products include our proprietary RHYTHMx arrhythmia detection software technology, our STAR Biphasic defibrillation waveform technology and our disposable therapy electrode pads. Our patents also protect many features of our cardiac monitoring products, including filters for ECG signals, monitoring electrodes and methods of interfacing the monitoring electrodes to a patient, and devices and methods for obtaining, analyzing, and presenting certain physiological data. We also have perpetual rights to certain patented technology relating to our medical treadmills. In addition, we have registered or applied to register certain trademarks with domestic and certain foreign trademark authorities.

     Our business also depends in part on licenses to use third parties’ software in our product offerings. We believe that the agreements we have in place with these third parties generally provide for such software at fair market value and that, if any such agreements expire or terminate, we would be able to obtain alternative software at comparable prices.

     Employees

     As of December 31, 2006, we had 551 full time employees plus 5 contract employees, whose positions we expect to become full time during 2007. This combined total of 556 full time positions includes 76 in research and development, 164 in sales and marketing, 69 in technical and support services, 147 in manufacturing and supplies operations, 21 in regulatory affairs and 79 in finance and administration. These employee totals include 23 employees in our majority owned Shanghai-Quinton joint venture. In addition, we had approximately 141 part-time employees, most of whom provide training to our customers on an as-needed basis. None of our employees are represented by a labor union, except in China, where substantially all employees are represented by a labor union. We have not experienced any work stoppages and consider our relations with our employees to be good.

     Foreign Operations

     Sales to customers located outside the United States were approximately $37.9 million, $14.2 million and $5.9 million for the years ended December 31, 2006, 2005 and 2004, respectively. Additional information is provided in Item 8, Note 3 to the Consolidated Financial Statements, “Segment Reporting.”

     Available Information

     We maintain an Internet site at http://www.cardiacscience.com. We make available free of charge on or through our Internet site, our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. We will voluntarily provide electronic or paper copies of our filings free of charge upon request. Our web site and the information contained therein or connected thereto are not incorporated by reference into this report.

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Item 1A. Risk Factors

Our stock price is volatile, and you may not be able to sell your shares for a profit.

     The trading price of our common stock is volatile. Our common stock price could be subject to fluctuations in response to a number of factors, including:

• actual or anticipated variations in quarterly operating results;

• changes in financial estimates or recommendations by securities analysts;

• conditions or trends in medical devices and diagnostic cardiology products markets;

• announcements by us or our competitors of significant customer wins or losses, gains or losses of distributors, technological innovations, new products or services;

• announcements by us or our competitors of significant acquisitions, strategic partnerships, joint ventures or capital commitments;

• additions or departures of key personnel;

• sales of a large number of shares of our common stock;

• adverse litigation;

• unfavorable legislative or regulatory decisions; and

• general market conditions.

     In the past, companies that have experienced volatility in the market price of their stock have been the target of securities class action litigation. We may become the target of this type of litigation in the future. Securities litigation against us could result in substantial costs and divert management attention, which could seriously harm our business.

We may be unable to maintain profitability, which could result in a decline in our stock price

     We had net income of $49,000 in 2006 and a net loss of $1,238,000 in 2005. Although we expect to remain profitable in 2007, our ability to generate net income will depend on our ability to increase our revenues and contain our expenses. In order to generate additional revenues, we will need to continue developing and offering competitive products and services, maintain our network of distributors and expand our customer base. Also, we will need to contain costs associated with integrating our merged operations, investing in product development and marketing, and protecting our intellectual property. We may be unable to accomplish some or any of these goals because of the risks identified in this report or for unforeseen reasons. If we are unable to maintain profitability in the future, our stock price could decline.

We may be unable to increase sales of our cardiac monitoring products and services, which could cause our stock price to decrease.

     Cardiac monitoring products and services are generally a mature and stable market, and sales of our products and services in this market fell 4% in 2006 from 2005 on a pro forma basis. Our ability to revitalize this line of products depends on our restructuring efforts, the development and commercialization of competitive new product and service offerings, and our success in increasing sales and gaining market share from our competitors. If we are unsuccessful in these efforts, our sales revenues from this line of products and services may decrease, our financial results may suffer, and our stock price may decline.

We are subject to many laws and governmental regulations and any adverse regulatory action may materially adversely affect our business operations and financial results.

     Our medical devices are subject to regulation by numerous government agencies, including the U.S. FDA and comparable foreign agencies. To varying degrees, each of these agencies requires us to comply with laws and regulations governing the development, testing, manufacturing, labeling, marketing and distribution of our medical devices. We cannot guarantee that we will be able to obtain marketing clearance from the FDA for our new products, or enhancements or modifications to existing products, and if we do, such approval may:

• take a significant amount of time;

• require the expenditure of substantial resources;

• involve stringent clinical and pre-clinical testing;

• involve modifications, repairs or replacements of our products; and

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• result in limitations on the proposed uses of our products.

     Both before and after a product is commercially released, we have ongoing responsibilities under FDA regulations. If the FDA were to conclude that we are not in compliance with applicable laws or regulations, or that any of our medical devices are ineffective or pose an unreasonable health risk, the FDA could ban such medical devices, detain or seize adulterated or misbranded medical devices, order a recall, repair, replacement, or refund of such devices and require us to notify health professionals and others that the devices present unreasonable risks of substantial harm to the public health. The FDA may also impose operating restrictions, enjoin and restrain certain violations of applicable law pertaining to medical devices and assess civil or criminal penalties against our officers, employees, or us. The FDA may also recommend prosecution to the Department of Justice. Any adverse regulatory action, depending on its magnitude, may restrict us from effectively marketing and selling our products.

     Foreign governmental regulations have become increasingly stringent, and we may become subject to more rigorous regulation by foreign governmental authorities in the future. Penalties for a company’s noncompliance with foreign governmental regulation could be severe, including revocation or suspension of a company’s business license and criminal sanctions. Any domestic or foreign governmental law or regulation imposed in the future may have a material adverse effect on us.

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

     The quarterly revenues and operating results of Quinton and CSI have varied in the past and our quarterly revenues and operating results 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 may include:

• the impact of acquisitions, divestitures, strategic alliances, and other significant corporate events;

• changes in our ability to obtain products and product components that are manufactured for us by third parties;

• delays in the development or commercial introduction of new versions of products;

• the ability to attain and maintain production volumes and quality levels for our products and product components;

• effects of domestic and foreign economic conditions on our industry and/or customers;

• changes in the demand for our products;

• varying sales cycles that can take up to a year or more;

• changes in the mix of products we sell, which could affect our revenue levels as well as our gross margins;

• unpredictable budgeting cycles of our customers;

• delays in obtaining regulatory clearance for new versions of our products;

• increased product and price competition;

• the impact of regulatory changes on the availability of third-party reimbursement to customers of our products;

• the loss of key personnel;

• the loss of key distributors or distribution companies;

• seasonality in the sales of our products;

• the impact of pending litigation and related expenses;

• the impact of longer buying cycles; and

• the impact of employee turnover.

     Historically, both Quinton’s and CSI’s quarterly financial results were often impacted by the receipt of a large number of customer orders in the last weeks of a quarter. If these orders are delayed to the following quarter or canceled, our sales could fall short of our targets and our stock price could decline. Due to the factors summarized above, we believe that period-to-period comparisons of our operating results are not a good indication of future performance and should not be relied upon to predict future operating results.

If we are unsuccessful in developing and commercializing new versions of our products, our operating results will suffer.

     To be successful, we must develop and commercialize new versions of our products for both domestic and international markets. Our products must keep pace with rapid industry change, comply with rapidly evolving

18

industry standards and government regulations and compete effectively with new product introductions of our competitors. Because our products are technologically complex, developing new products requires extensive design, development and testing at the technological, product and manufacturing stages. To successfully develop and commercialize new versions of our products, we need to:

• accurately assess customer needs;

• develop products that are functional and easy to use;

• quickly and cost-effectively obtain regulatory clearance or approval;

• price competitively;

• manufacture and deliver on time;

• control costs associated with manufacturing, installation, warranty and maintenance;

• manage customer acceptance and payment;

• limit demands by our customers for retrofits;

• access new interface standards needed for product connectivity;

• anticipate and meet demands of our international customers for products featuring local language capabilities; and

• anticipate and compete effectively with our competitors’ efforts.

     Our failure to accomplish any of these items, or others involved in developing and commercializing new products, could delay or prevent the release of new products. These difficulties and delays could cause our development expenses to increase and harm our financial and operating results.

We rely primarily on our distributors to generate sales of our products; if we do not maintain our relationships with distributors or they fail to successfully distribute our products, our sales and operating results will likely suffer.

     In the U.S. and abroad, we sell many of our products principally through distributors and other third party organizations. One of these distribution organizations accounted for 10.7% of the Company’s revenues in 2006. Generally, we have little or no control over our distributors, and in many cases our distributor contracts are short-term or may be terminated on little or no notice. If any of our key distributor agreements are cancelled or if we are unable to renew them as they expire, or if our distributors fail to develop relationships with important target customers, our sales and operating results may suffer materially.

Interruption or cancellation of supply, and our inability to secure alternative suppliers on a timely basis, would likely harm our ability to ship products to our customers, decrease our revenues and increase our costs.

     If our suppliers reduce, delay or discontinue production of component parts for our products, we will be forced to seek replacement parts from alternative sources. We purchase many of the components and raw materials used in manufacturing our products from numerous suppliers in various countries. Generally we have been able to obtain adequate supplies of such raw materials and components. In some cases, for reasons of quality assurance, cost effectiveness or availability, we procure certain components and raw materials only from a sole supplier. While we work closely with our suppliers to try to ensure continuity of supply while maintaining high quality and reliability, we cannot guarantee that our supplies will be uninterrupted. In addition, due to the stringent regulations and requirements of the U.S. FDA regarding the manufacture of our products, we may not be able to quickly establish additional or replacement sources for certain components or materials. A reduction or interruption in supply, and an inability to develop alternative sources for such supply, could result in significant delays or cancellations of product shipments and the need to modify our products to utilize available components. This could result in reduced revenues, higher costs or both.

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

     Healthcare costs have risen significantly over the past decade. Federal, state and local governments have adopted a number of healthcare policies intended to curb rising healthcare costs. There have been and may continue to be proposals by legislators, regulators and third-party payers to keep these costs down. Certain proposals, if passed, could impose limitations on the prices we will be able to charge for our products, or the amounts of reimbursement available for our products from governmental agencies or third-party payers. These limitations could have a material adverse effect on our financial position and results of operations.

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     In the U.S., healthcare providers that purchase certain of our products often rely on governmental and other third-party payers, such as federal Medicare, state Medicaid, and private health insurance plans, to pay for all or a portion of the cost of the procedures that utilize those products. The availability of this reimbursement affects customers’ decisions to purchase capital equipment. Denial of coverage or reductions in levels of reimbursement for procedures performed using our products by governmental or other third-party payers would cause our revenues to decrease.

Our business is subject to intense competition, which may reduce the demand for our products.

     The diagnostic cardiology systems market and the AED market are highly competitive, and we expect competition to intensify in the future. Some of our competitors are larger companies, such as General Electric Company, Medtronic Emergency Response Systems, a unit of Medtronic, Inc., and Philips Medical Systems, a unit of Koninklijke Philips Electronics N.V., who may have:

• greater financial and technical resources;

• greater variety of products;

• greater product pricing, discounting and bundling flexibility;

• patent portfolios that may present an obstacle to our conduct of business;

• stronger brand recognition and marketing resources; and

• larger distribution and sales networks.

     In addition, the timing of the introduction of competing products into the market could affect the market acceptance and market share of our products. If we are unable to develop competitive products that obtain market acceptance, our revenues and financial results may suffer.

Quality problems with our processes, goods and services could harm our reputation for producing high quality products and erode our competitive advantage.

     Quality is extremely important to us and our customers due to the serious and costly consequences of product failure. Our quality certifications are critical to the marketing success of our goods and services. If we fail to meet these standards our reputation could be damaged, we could lose customers and our revenue could decline. Aside from specific customer standards, our success depends generally on our ability to manufacture to exact tolerances precision engineered components, subassemblies and finished devices from multiple materials. If our components fail to meet these standards or fail to adapt to evolving standards, our reputation as a manufacturer of high quality components will be harmed, our competitive advantage could be damaged, and we could lose customers and market share.

If we do not maintain or grow revenues from our support services or consumables, our operating and financial results may be negatively impacted.

     A significant portion of our revenues is generated from post-sale support services we provide for our products and from the sale of ancillary cardiology products and consumables related to our products, such as patented electrodes, pads, cables, leads, and thermal chart paper. As hospitals expand their in-house capabilities to service diagnostic equipment and systems, they may be able to service our products without additional support from us. In addition, our customers may express an increasing preference for ancillary cardiology products and consumables that are manufactured or provided by other vendors. Any of these events could result in a decline in our revenues and adversely affect our financial and operating results.

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.

     Our customers typically order products on a purchase order basis, and we do not generally have long-term purchase contracts. 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;

20

• if we underestimate our requirements, our third-party manufacturers and suppliers may have an inadequate product or product component inventory, which could interrupt manufacturing of our products and result in delays or cancellations in shipments and loss of revenues;

• we may also experience shortages of product components from time to time, which also could delay the manufacturing of our products; and

• over or under production can lead to higher expense, lower than anticipated revenues, and reduced margins.

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

     The selling price of our products and our market share are subject to market conditions. Major shifts in industry market share have occurred in connection with product problems, physician advisories and safety alerts, reflecting the importance of product quality in the medical device industry. Many healthcare industry companies, including medical device companies, are consolidating to create new companies with greater market power. As the healthcare industry consolidates, competition to provide goods and services to industry participants will become more intense. These industry participants may try to use their market power to negotiate price concessions or reductions for medical devices that incorporate components produced by us. We may experience decreasing prices for the goods and services we offer due to pricing pressure experienced by our customers from managed care organizations and other third-party payers; increased market power of our customers as the medical device industry consolidates; and increased competition among medical engineering and manufacturing services providers. If the prices for our goods and services decrease and we are unable to reduce our expenses, we may lose market share and our results of operations will be adversely affected.

We are dependent upon licensed and purchased technology for some of our products, and we may not be able to renew these licenses or purchase agreements in the future.

     We license and purchase technology from third parties for features in some of our products. We anticipate that we will need to license and purchase additional technology to remain competitive. We may not be able to renew existing licenses and purchase agreements or to license and purchase other technologies on commercially reasonable terms or at all. If we are unable to renew existing licenses and purchase agreements or to license or purchase new technologies, we may not be able to offer competitive products, which could negatively impact our revenues.

Our international business is subject to risks that could adversely affect our profitability and operating results.

     Our international operations, which accounted for 24% of our revenues in 2006, are accompanied by certain financial and other risks. We intend to continue to pursue growth opportunities in sales internationally, which could expose us to greater risks associated with international sales and operations. Our international operations are, and will continue to be, subject to a number of risks and potential costs, including:

• changes in foreign medical reimbursement programs and policies;

• changes in foreign regulatory requirements;

• local product preferences and product requirements;

• longer-term receivables than are typical in the U.S.;

• fluctuations in foreign currency exchange rates;

• less protection of intellectual property in some countries outside of the U.S.;

• trade protection measures and import and export licensing requirements;

• work force instability;

• political and economic instability; and

• complex tax and cash management issues.

If we are unable to retain our executive officers and hire and retain other key personnel, we may not be able to sustain or grow our business.

     Our success is dependent in large part on the continued employment and performance of key executive, managerial, sales and technical personnel and our ability to attract and retain additional highly qualified personnel. We compete for key personnel with other companies, academic institutions, government entities and other organizations. Our ability to maintain and expand our business may be impaired if we are unable to retain our key

21

personnel, hire or retain other qualified personnel in the future, or if our key personnel decide to join a competitor or otherwise compete with us.

Warranty and product liability claims could adversely impact our earnings and reputation.

     The manufacturing, marketing and sale of medical devices exposes us to the risk of warranty claims, product liability claims or product recalls. We are from time to time subject to warranty claims with regard to product performance, which expose us to unexpected repair and replacement costs. In addition, component failures, manufacturing flaws, design defects or inadequate disclosure of product-related risks or product-related information with respect products we manufacture or sell could result in an unsafe condition or injury to, or death of, a patient. The occurrence of such a problem could result in product liability claims, product recalls or a safety alert relating to one or more of our products. Although we maintain product liability insurance, the coverage may not be adequate or may not be available at affordable rates. Warranty claims, product liability claims or product recalls in the future, regardless of their ultimate outcome, could have a material adverse effect on our business and reputation and on our ability to attract and retain customers for our products.

Failure to adequately protect our intellectual property rights may cause our expenses to increase and our business to suffer.

     Our success depends in part on obtaining, maintaining, and enforcing our patents, trademarks and other proprietary rights, and our ability to avoid infringing the proprietary rights of others. We take precautionary steps to protect our technological advantages and intellectual property rights and rely in part on patent, trade secret, copyright, know-how, and trademark laws, license agreements and contractual provisions to establish our intellectual property rights and protect our products. We require our new employees, consultants, and corporate partners to execute confidentiality agreements at the commencement of their employment or consulting relationship with us. However, these agreements may be breached or, in the event of unauthorized use or disclosure, they may not provide adequate remedies. While we intend to defend against any threats to our intellectual property, there can be no assurance that these patents, trade secrets or other agreements will adequately protect our intellectual property.

     In addition, the validity and breadth of claims covered in medical technology patents involve complex legal and factual questions and are often highly uncertain. There can also be no assurance that pending patent applications owned by us will result in patents issuing to us, that patents issued to or licensed by us in the past or in the future will not be challenged or circumvented by competitors or that such patents will be found to be valid or sufficiently broad to protect our technology or to provide us with any competitive advantage. Third parties could also obtain patents that may require us to negotiate licenses to conduct our business, and there can be no assurance that the required licenses would be available on reasonable terms or at all. In some cases, we rely upon trade secrets instead of patents to protect our proprietary technology. Others may independently develop or otherwise acquire substantially equivalent know-how, or gain access to and disclose our proprietary technology. If we are not able to adequately protect our intellectual property and other proprietary rights, our product offerings may lose their competitive edge, which would negatively impact our revenues.

Adverse outcomes in our patent or other litigation could result in monetary payments and royalties, decreased sales of our products and loss of proprietary rights.

     There is extensive patent litigation in the medical device industry. Patent litigation can result in significant damage awards and injunctions that could prevent our manufacture and sale of affected products or require us to pay significant royalties in order to continue to manufacture or sell affected products. Third parties may claim that products developed and sold by us infringe on their patents and other intellectual property rights. Identifying third-party patent rights can be particularly difficult because, in the U.S., patent applications are sometimes maintained in secrecy for months after filing or even until they issue. Some companies in the medical device industry have used intellectual property infringement litigation to gain a competitive advantage. In the event a competitor were to challenge patents or licenses held by us, or assert that products developed and sold by us infringe its rights, we could incur substantial litigation costs, be forced to make expensive changes to product designs, license rights in order to continue manufacturing and selling our products, or pay substantial damages.

     We are involved in a number of contractual and intellectual property infringement actions. For example, we are a party to three lawsuits that are currently scheduled for trial in mid-2007. The outcome of these trials is inherently unpredictable. An adverse result in any litigation could result in our payment of significant money damages and/or royalty payments, negatively impact our ability to sell current or future products or prohibit us from enforcing our

22

patent and proprietary rights against others, which would generally have a material adverse impact on our consolidated earnings, financial condition, or cash flows.

Our technology may become obsolete, which would negatively impact our ability to sell our products.

     The medical equipment and healthcare industries are characterized by extensive research and rapid technological change. The development by others of new or improved products, processes, or technologies may make our products obsolete or less competitive. Accordingly, we plan to devote continued resources, to the extent available, to further develop and enhance existing products and to develop new products. If these efforts are not successful, we may not be able to meet our financial goals and our stock price may suffer.

Our reliance on a principal manufacturing facility may impair our ability to respond to natural disasters or other unforeseen catastrophic events.

     We have integrated the manufacturing operations of Quinton and CSI into a principal manufacturing facility, located in a single building in Deerfield, Wisconsin. Despite precautions taken by us, a natural disaster or other unanticipated catastrophic events at this building could significantly impair our ability to manufacture our products and operate our business. Our facility and certain manufacturing equipment located in that facility would be difficult to replace and could require substantial replacement lead-time. Catastrophic events may also destroy any inventory of product or components located in our facility. While we carry insurance for natural disasters and business interruption, the occurrence of such an event could result in losses that exceed the amount of this insurance coverage, which would impair our financial results.

We may make future acquisitions, which involve numerous risks that could impact our business and results of operations.

     As part of our growth strategy, we intend to selectively acquire other businesses, product lines, assets, or technologies, which are complementary to our product offerings. Successful execution of our acquisition strategy depends upon our ability to identify, negotiate, complete and integrate suitable acquisitions. Acquisitions involve numerous risks, including:

• difficulties in integrating the operations, technologies, and products of the acquired companies;

• the risk of diverting management’s attention from normal daily operations of the business;

• potential difficulties in completing projects associated with in-process research and development;

• risks of entering markets in which we have no or limited direct prior experience and where competitors in such markets have stronger market positions;

• initial dependence on unfamiliar supply chains or relatively small supply partners;

• insufficient revenues to offset increased expenses associated with acquisitions;

• the risk that acquired lines of business may reduce or replace the sales of existing products; and

• the potential loss of key employees of the acquired companies.

     Future acquisitions may not be successful and, if we are unable to effectively manage the risks described above, our business, operating results or financial condition may be negatively affected.

We may need additional capital to continue our acquisition growth strategy.

     Successful continued execution of our acquisition strategy may also depend upon our ability to obtain satisfactory debt or equity financing. We likely would require additional debt or equity financing to make any further significant acquisitions. Such financing may not be available on terms that are acceptable to us or at all. If we are required to incur additional indebtedness to fund acquisitions in the future, our cash flow may be negatively affected by additional debt servicing requirements and the terms of such indebtedness may impose covenants and restrictions that provide us less flexibility in how we operate our business. Fluctuations in our stock price may make it difficult to make acquisitions using our stock as consideration. Moreover, use of our stock to fund acquisitions may have a significant dilutive effect on existing shareholders.

Our research and development efforts rely upon acquisitions, investments and alliances, and we cannot guarantee that any previous or future acquisitions, investments or alliances will be successful.

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     A component of our growth strategy is to enter into strategic alliances in order to complement and expand our current product and service offerings and distribution. The rapid pace of technological development in the medical industry and the specialized expertise required in different areas of medicine make it difficult for one company alone to develop a broad portfolio of technological solutions. In addition to internally generated growth through our research and development efforts, historically we have relied, and expect to continue to rely, upon acquisitions, investments and alliances to provide us access to new technologies both in areas served by our existing businesses as well as in new areas. We may make future investments where we believe that we can stimulate the development of, or acquire, new technologies and products to further our strategic objectives and strengthen our existing businesses. Investments and alliances in and with medical technology companies are inherently risky, and we cannot guarantee that any of our previous or future acquisitions, investments or alliances will be successful or will not materially adversely affect our consolidated earnings, financial condition or cash flows.

Charges to earnings resulting from the application of the purchase method of accounting may adversely affect the market value of our common stock.

     In accordance with accounting principles generally accepted in the U.S., we accounted for the merger transaction using the purchase method of accounting. Under the purchase method of accounting, we preliminarily allocated the total estimated purchase price to CSI’s net tangible assets, and identifiable intangible assets based on their fair values as of the date of completion of the transaction, and recorded the excess of the purchase price over those fair values as goodwill. We will incur additional amortization expense over the estimated useful lives of certain of the identifiable intangible assets acquired in connection with the transaction. We have estimated such additional amortization expenses to be approximately $3.1 million per year over the next several years. To the extent the value of goodwill becomes impaired, we may be required to incur charges relating to the impairment of goodwill, and such charges may be material. Goodwill impairment charges would reduce our net income and earnings per share, which could negatively impact the market price of our common stock.

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

     As of December 31, 2006 we have reserved 4,688,445 shares of common stock for issuance upon the exercise of options that are either outstanding or may be granted under the Company’s stock-based compensation plans. The holders of these instruments may exercise them at a time when we would otherwise be able to obtain additional equity capital on terms more favorable to us. The exercise of these instruments and the sale of the common stock obtained upon exercise would have a dilutive effect on our stockholders and may have a material adverse effect on the market price of our common stock.

Our charter documents and Delaware law contain provisions that could make it more difficult for a third party to acquire us.

     Certain provisions of our certificate of incorporation and bylaws could make it harder for a third party to acquire us without the consent of our board of directors. Our certificate of incorporation authorizes the issuance of preferred stock with the designations, rights, and preferences as may be determined from time to time by our board of directors, without any further vote or action by our stockholders. In addition, our board of directors have staggered terms that make it difficult to remove all directors at once. Lastly, Section 203 of the Delaware General Corporation Law limits business combination transactions with interested stockholders that have not been previously approved by the issuer’s board of directors. Our board of directors could choose not to negotiate with an acquirer that it did not feel was in our strategic interest. If the acquirer was discouraged from offering to acquire us or prevented from successfully completing a hostile acquisition by the anti-takeover measures described above, our stockholders could lose the opportunity to sell their shares at a favorable price.

Utilization of our deferred tax assets may be limited and is dependent on future taxable income.

     In connection with the merger transaction, and at the end of 2004, deferred tax assets were recognized on our balance sheet. The deferred tax assets primarily represent the income tax benefit of net operating loss (NOL) and credit carryforwards of Quinton and CSI from prior periods. If we fail to generate profits in the foreseeable future, our deferred tax assets may not be fully utilized.

     We will evaluate our ability to utilize our net operating loss (“NOL”) and tax credit carryforwards in future periods and, in compliance with Statement of Financial Accounting Standards (‘SFAS”) No. 109, “Accounting for Income Taxes” (“SFAS 109”) record any resulting adjustments that may be required to deferred income tax expense.

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In addition, we will reduce the deferred income tax asset for the benefits of NOL and tax credit carryforwards actually used in future periods and will recognize and record federal and state income tax expense at statutory rates in future periods. If, in the future, we determine, based on our assessment of both positive and negative evidence and objective and subjective evidence, which takes into consideration our forecasted taxable income, that it is more likely than not that we will not realize all or a portion of the deferred tax assets, we will record a valuation allowance against deferred tax assets which would result in a charge to income tax expense.

     Additionally, deferred income tax adjustments recorded in connection with the merger transaction will differ from amounts initially recorded as management obtains all information that is has arranged to obtain and that is known to be available, and adjusts the allocation of purchase price, accordingly. Adjustments to deferred tax assets and liabilities resulting from management obtaining all information that it has arranged to obtain will require management to re-evaluate its assessment of the Company’s ability to realize the benefit of acquired deferred tax assets and may result in the recording of a deferred tax asset valuation allowance as part of its final purchase price allocation.

Our future financial results could be adversely impacted by asset impairments.

     SFAS No. 142, “Goodwill and Other Intangible Assets” (“SFAS 142”) requires us to not amortize goodwill and other intangible assets determined to have indefinite lives, and established a method of testing these assets for impairment on an annual or on an interim basis if certain events occur or circumstances change that would reduce the fair value of a reporting unit below its carrying value or if the fair value of intangible assets with indefinite lives falls below their carrying value. We also need to evaluate intangible assets determined to have finite lives for recoverability whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable. These events or circumstances could include a significant change in the business climate, legal factors, operating performance indicators, competition, sale or disposition of a significant portion of the business, or other factors such as a decline in our market value below its book value for an extended period of time. A significant decline in our stock price could require us to evaluate goodwill for impairment and intangible assets for recoverability during the quarter in which the decline occurred. In the case of intangible assets with indefinite lives, we will need to evaluate whether events or circumstances continue to support an indefinite useful life. We will need to evaluate the estimated lives of all intangible assets on an annual basis, including those with indefinite lives, to determine if events and circumstances continue to support an indefinite useful life or the remaining useful life, as applicable, or if a revision in the remaining period of amortization is required. The amount of any such annual or interim impairment charge could be significant, and could have a material adverse effect on our reported financial results for the period in which the charge is taken.

Item 1B. Unresolved Staff Comments

     None

Item 2. Properties

     We lease a facility in Bothell, Washington, which houses our corporate offices and certain of our research and development and customer support services, as well as the marketing, finance and administrative. This facility occupies approximately 38,000 square feet and is under lease through 2013.

     We also lease a facility in Deerfield, Wisconsin, which houses our manufacturing operations and certain of our research and development, customer support services, marketing, finance and administrative functions. This facility is approximately 100,000 square feet. The lease expires in 2008 with two five-year renewal options.

     We have other facilities under lease in Lake Forest, California, which houses certain of our research and development operations as well as international sales and marketing offices in Copenhagen, Denmark, Manchester, England, and Beijing, China.

Item 3. Legal Proceedings

     In February 2003, a patent infringement action was brought initially by CSI against Philips Medical Systems North America, Inc., Philips Electronics North America Corporation and Koninklijke Philips Electronics N.V. (“Philips”) in the United States District Court for the District of Minnesota. The suit alleges that certain of Philips’ automated external defibrillators infringe certain of the Company’s United States patents including, among others,

25

patents relating to pre-connected disposable defibrillation electrodes and daily self-testing of electrodes and batteries. In the same action, Philips counterclaimed, alleging that the Company’s automated external defibrillators infringe certain of Philips’ patents, including, among others, patents relating to self testing of automated external defibrillators. At this stage, the Company is unable to predict the outcome of this litigation and has not established an accrual for this matter because a loss is not determined to be probable. The Company intends to continue to defend this counter claim vigorously.

     In March 2004, William S. Parker brought suit against CSI for patent infringement in the United States District Court for the Eastern District of Michigan. The Parker patent generally covers the use of a synthesized voice to instruct a person to perform certain tasks. The Complaint alleges that certain of the Company’s AEDs infringe the patent. The patent is now expired. The Company has filed an Answer to the Complaint stating the patent is not infringed and is otherwise invalid and unenforceable. The patent was submitted for reexamination before the United States Patent and Trademark Office and emerged from reexamination in December 2005. In January 2006, the District Court issued an order lifting the stay in the litigation. Currently, the litigation is proceeding through discovery. At this stage, the Company is unable to predict the outcome of this litigation. The Company has not established an accrual for this matter because it has determined that a loss is not probable. The Company intends to defend against this suit vigorously.

     In March, 2006, the Institute of Applied Management and Law, Inc. (“IAML”) commenced an arbitration against CSI for alleged failure to perform on a marketing agreement. The Company believes that IAML’s interpretation of the agreement is unfounded and is contesting IAML’s claim. At this stage, the Company is unable to predict the outcome of this action. The Company has not established an accrual for this matter because it has determined a loss is not probable. The Company intends to defend against this claim vigorously.

     We are subject to other various legal proceedings arising in the normal course of business. In the opinion of management, the ultimate resolution of these proceedings is not expected to have a material effect on our consolidated financial position, results of operations or cash flows.

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

     At our Annual Meeting of Stockholders held on October 27, 2006, the following action was taken:

Election of Director for a three-year term expiring at the 2009 annual meeting:

	For		Withheld
Jeffrey F. O’Donnell, Sr.		20,844,846		203,245

     Current directors whose terms are continuing after the 2006 annual meeting are W. Robert Berg, Jue-Hsien Chern, Ph.D., Raymond W. Cohen, John R. Hinson, Ruediger Naumann-Etienne and Ray E. Newton, III.

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PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

     Our common stock is traded on the Nasdaq Global Market (symbol “CSCX”). The number of shareholders of record of our common stock at March 1, 2007, was 618.

     Quarterly high and low bid quotations for our common stock as quoted on the Nasdaq Stock Market for the periods indicated are set forth in the table below. The high and low bid quotations for the first three quarters of fiscal 2005 are Quinton Cardiology Systems, Inc. (“Quinton”) prices that have been retroactively adjusted to reflect the conversion of Quinton shares into Cardiac Science Corporation shares at a ratio of 0.77184895 Cardiac Science Corporation shares for each Quinton share.

	Stock Price
	High		Low
Fiscal 2006
First Quarter	$	11.20	$	8.98
Second Quarter		10.08		7.55
Third Quarter		8.59		6.71
Fourth Quarter		8.84		7.19
Fiscal 2005
First Quarter		14.45		10.07
Second Quarter		11.02		9.00
Third Quarter		13.28		9.91
Fourth Quarter		10.75		8.00

     We have never declared or paid any cash dividends on our common stock. We currently anticipate that we will retain any future earnings for use in the expansion and operations of our business and do not anticipate paying cash dividends in the foreseeable future.

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Item 6. Selected Financial Data

     The following selected consolidated financial data should be read in conjunction with the consolidated financial statements and the notes thereto and the information contained herein in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Historical results are not necessarily indicative of future results. Our company is the result of the combination of Quinton Cardiology Systems, Inc. (“Quinton”) and Cardiac Science, Inc. (“CSI”) pursuant to a merger transaction that was completed on September 1, 2005. Since we are deemed to be the successor to Quinton for accounting purposes, our selected consolidated financial data in the table below represents the historical financial data of Quinton and includes CSI’s results of operations since September 1, 2005.

	Year Ended December 31,
	2006			2005			2004			2003			2002
	(in thousands, except share and per share data)
Consolidated Statement of Operations Data (1):
Revenues	$	155,429		$	106,650		$	89,603		$	84,396		$	46,496
Cost of revenues		82,195			59,794			50,302			51,131			27,883
Gross profit		73,234			46,856			39,301			33,265			18,613
Operating Expenses:
Research and development		11,733			9,353			7,397			8,086			5,126
Write-off acquired in-process research and development		—			—			—			1,290			—
Sales and marketing		39,960			24,957			18,378			17,669			9,974
General and administrative		22,927			15,126			8,348			7,743			5,384
Total operating expenses		74,620			49,436			34,123			34,788			20,484
Operating income (loss)		(1,386	)		(2,580	)		5,178			(1,523	)		(1,871	)
Other Income (Expense):
Interest income (expense), net		(16	)		325			(70	)		(212	)		330
Other income (expense), net		782			(487	)		1,031			(11	)		(6	)
Total other income (expense)		766			(162	)		961			(223	)		324
Income (loss) before income tax benefit (expense) and minority interest		(620	)		(2,742	)		6,139			(1,746	)		(1,547	)
Income tax benefit (expense)		615			1,473			8,890			(62	)		192
Income (loss) before minority interest		(5	)		(1,269	)		15,029			(1,808	)		(1,355	)
Minority interest		54			31			39			25			—
Net income (loss)	$	49		$	(1,238	)	$	15,068		$	(1,783	)	$	(1,355	)
Basic income (loss) per share (2)	$	0.00		$	(0.08	)	$	1.47		$	(0.19	)	$	(0.22	)
Diluted income (loss) per share (2)	$	0.00		$	(0.08	)	$	1.39		$	(0.19	)	$	(0.22	)
Shares used in computing basic income (loss) per share (2)		22,502,040			14,695,261			10,236,838			9,376,205			6,088,081
Shares used in computing diluted income (loss) per share (2)		22,555,326			14,695,261			10,814,680			9,376,205			6,088,081
Consolidated Statement of Cash Flows Data:
Cash flows provided by (used in) operating activities	$	8,683		$	(850	)	$	6,259		$	173		$	(1,369	)
Cash flows used in investing activities	$	(3,307	)	$	(18,053	)	$	(41	)	$	(19,597	)	$	(3,369	)
Cash flows provided by financing activities	$	897		$	547		$	15,499		$	227		$	23,902

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	Year Ended December 31,
	2006		2005		2004		2003		2002
	(in thousands)
Consolidated Balance Sheet Data:
Cash and cash equivalents	$	9,819	$	3,546	$	21,902	$	185	$	19,382
Total assets		247,645		248,557		77,175		48,317		42,050
Current liabilities		31,294		33,832		18,682		20,807		14,378
Long-term liabilities		679		1,806		—		1,180		363
Total shareholders’ equity		215,597		212,791		58,334		26,132		27,309

(1)

The acquisition of Burdick, Inc. in January 2003 and the business combination of Quinton and CSI in September 2005 materially affect the comparability of information contained in this table (See Item 8, Note 2 to the Consolidated Financial Statements).

(2)

Shares prior to September 1, 2005 have been retroactively adjusted to reflect the conversion of Quinton shares into Cardiac Science Corporation shares at a ratio of 0.77184895 Cardiac Science Corporation shares for each Quinton share. See Item 8, Note 1 to the Consolidated Financial Statements for a reconciliation of the denominators used in computing basic and diluted loss per share for 2006, 2005 and 2004.

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

     You should read the following discussion and analysis in conjunction with our consolidated financial statements and related notes included elsewhere in this report. Except for historical information, the following discussion contains forward-looking statements for purposes of the safe harbor provisions under the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact, including future results of operations or financial position, made in this Annual Report on Form 10-K are forward looking. The words “believe,” “expect,” “intend,” “anticipate,” “will,” “may,” variations of such words, and similar expressions identify forward-looking statements, but their absence does not mean that the statement is not forward-looking. These forward-looking statements reflect management’s current expectations and involve risks and uncertainties. Our actual results could differ materially from results that may be anticipated by such forward-looking statements. The principal factors that could cause or contribute to such differences include, but are not limited to, those discussed in the section entitled “Risk Factors” and those discussed elsewhere in this report. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this report. We undertake no obligation to revise any forward-looking statements to reflect events or circumstances that may subsequently arise. Readers are urged to review and consider carefully the various disclosures made in this report and in our other filings made with the SEC that attempt to advise interested parties of the risks and factors that may affect our business, prospects and results of operations. The terms “the Company,” “us,” “we” and “our” refer to Cardiac Science Corporation and our majority-owned subsidiaries.

Business Overview

     Cardiac Science Corporation was incorporated in Delaware on February 24, 2005 as CSQ Holding Company to effect the business combination of Quinton Cardiology Systems, Inc. (“Quinton”) and Cardiac Science, Inc. (“CSI”), which we refer to as the “merger transaction.” The merger transaction was consummated on September 1, 2005. In connection with the merger transaction, the outstanding shares of common stock of Quinton and CSI were cancelled and stockholders of Quinton and CSI were issued common stock of Cardiac Science Corporation in consideration of their shares of Quinton and CSI common stock.

     Stockholders of Quinton received 0.77184895 share of our common stock for each common share of Quinton held, representing approximately 48.8% of our total outstanding common stock as of the date of closing, and holders of CSI common stock received 0.10 share of our common stock for each common share of CSI held, which, together with 2,843,915 shares of our common stock issued to the holders of senior notes and related warrants of CSI in connection with the merger transaction, represented approximately 51.2% of our total outstanding common stock as of the date of closing. In addition, we assumed each outstanding option and other warrant to purchase common stock issued by Quinton and CSI.

     For accounting purposes, the merger transaction was treated as an acquisition by Quinton of CSI as of September 1, 2005. Since we are deemed to be the successor to Quinton for accounting purposes, our consolidated financial statements represent the historical statements of Quinton and include CSI’s results of operations since September 1, 2005. All share and per share data have been retroactively adjusted to reflect the conversion of Quinton shares into Cardiac Science Corporation shares at the exchange ratio set forth in the merger agreement.

     We develop, manufacture and market a family of advanced diagnostic and therapeutic cardiology devices and systems, including automated external defibrillators (“AEDs”), electrocardiographs, stress test systems, Holter monitoring systems, hospital defibrillators, cardiac rehabilitation telemetry systems, patient monitor defibrillators and cardiology data management systems. We also sell a variety of related products and consumables and provide a comprehensive portfolio of training, maintenance and support services. We market our products under the Burdick, Powerheart and Quinton brand names.

Critical Accounting Estimates and Policies

     To prepare financial statements that conform with accounting principles generally accepted in the United States of America, we must select and apply accounting policies and make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We base our accounting 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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Critical Accounting Estimates

     There are certain critical accounting estimates that we believe require significant judgment in the preparation of our consolidated financial statements. We consider an accounting estimate to be critical if it requires us to make assumptions because information was not available at the time or it included matters that were highly uncertain at the time we were making the estimate, and changes in the estimate or different estimates that we reasonably could have selected would have had a material impact on our financial condition or results of operations.

     Stock-based Compensation. As of January 1, 2006, we account for stock-based compensation in accordance with Financial Accounting Standards Board (“FASB”) Statement No. 123(R), “Share-Based Payment” (“SFAS 123R”). Under the fair value recognition provisions of this statement, share-based compensation cost is measured at the grant date based on the value of the award and is recognized as expense over the vesting period. Determining the fair value of share-based awards at the grant date requires judgment, including estimating future volatility, expected term and the amount of share-based awards that are expected to be forfeited. If actual results differ significantly from these estimates, stock-based compensation expense and our results of operations could be materially impacted.

     Purchase Price Allocations. In connection with the merger transaction in September 2005, we have allocated the purchase price plus transaction costs and the fair value of liabilities assumed to the estimated fair values of CSI assets acquired. The purchase price allocation estimates were made based on our estimates of fair values. Had these estimates been different, reported amounts allocated to assets and liabilities and results of operations subsequent to the acquisitions could be materially impacted.

     Under the purchase method of accounting, the total estimated purchase price is allocated to the tangible and identifiable intangible assets acquired and liabilities assumed in connection with the merger transaction, based on their fair values as of the closing date. The excess of purchase price over the tangible and identifiable intangible assets acquired net of liabilities assumed is allocated to goodwill. Valuation specialists have conducted valuations in order to assist management in determining the fair values of the identifiable intangible and certain tangible assets acquired. The work performed by valuation specialists has been considered in management’s estimates of fair values. The initial allocations of purchase cost were recorded at fair value based upon the best information available to management and were finalized by September 1, 2006 with the exception of income taxes.

     Accounts Receivable. Accounts receivable represent a significant portion of our assets. We must make estimates of the collectability of accounts receivable. We analyze historical write-offs, changes in our internal credit policies and customer concentrations when evaluating the adequacy of our allowance for doubtful accounts. Different estimates regarding the collectability of accounts receivable may have a material impact on the timing and amount of reported bad debt expense and on the carrying value of accounts receivable.

     Inventories. Inventories represent a significant portion of our assets. We value inventories at the lower of cost, on an average cost basis, or market. We regularly perform a detailed analysis of our inventories to determine whether adjustments are necessary to reduce inventory values to estimated net realizable value. We consider various factors in making this determination, including the salability of individual items or classes of items, recent sales history and predicted trends, industry market conditions and general economic conditions. Different estimates regarding the net realizable value of inventories could have a material impact on our reported net inventory and cost of sales, and thus could have a material impact on the financial statements as a whole.

     Goodwill. Goodwill represents the excess of cost over the estimated fair value of net assets acquired in connection with acquisitions of our medical treadmill product line, Burdick and CSI. We test goodwill for impairment on an annual basis, and between annual tests in certain circumstances, for each reporting unit identified for purposes of accounting for goodwill. A reporting unit represents a portion of our business for which we regularly review certain discrete financial information and operational results. We have determined that we have two reporting units, consisting of our general cardiology products, which include our product service business, and the Shanghai-Quinton joint venture, both of which operate in the cardiology market and have similar economic and operating characteristics.

     Application of the goodwill impairment test requires judgment, including the identification of reporting units, assigning assets and liabilities to reporting units, assigning goodwill to reporting units, and determining the fair value of each reporting unit. Significant judgments required to estimate the fair value of reporting units include

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estimating future cash flows, determining appropriate discount rates and other assumptions. Changes in these estimates and assumptions could materially affect the determination of fair value for each reporting unit, and potentially result in recognition of an impairment of goodwill, which would be reflected as a loss on our statement of operations and as a reduction in the carrying value of goodwill.

     We performed a test for goodwill impairment at September 30, 2006 based on the decline in our stock price which we considered a trigger event in accordance with SFAS 142. We also performed a test for goodwill impairment at November 30, 2006 in accordance with our policy for performing this test annually. We did not record an impairment charge as a result of either analysis.

     Intangible Assets. Our intangible assets are comprised primarily of trade names, developed technology and customer relationships, all of which were acquired in our acquisition of Burdick in 2003 and the merger transaction with CSI in 2005. We use our judgment to estimate the fair value of each of these intangible assets. Our judgment about fair value is based on our expectation of future cash flows and an appropriate discount rate. We also use our judgment to estimate the useful lives of each intangible asset.

     We believe the Burdick and Cardiac Science trade names have indefinite lives and, accordingly, we do not amortize the trade names. We evaluate this conclusion annually or more frequently if events and circumstances indicate that the asset might be impaired and make a judgment about whether there are factors that would limit our ability to benefit from the trade name in the future. If there were such factors, we would start amortizing the trade name over the expected remaining period in which we believed it would continue to provide benefit. With respect to our developed technology and customer relationship intangible assets, we also evaluate the remaining useful lives annually.

     We periodically evaluate whether our intangible assets are impaired. For our trade names, this evaluation is performed annually, or more frequently if events occur that suggest there may be an impairment loss, and involves comparing the carrying amount to our estimate of fair value. For our developed technology and customer relationship intangible assets, this evaluation would be performed if events occur that suggest there may be an impairment loss. If we conclude that any of our intangible assets is impaired, we would record this as a loss on our statement of operations and as a reduction to the intangible asset.

     Valuation of Long-Lived Assets. We review long-lived assets, such as property, plant, and equipment, and intangible assets subject to amortization, for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset group may not be recoverable. Recoverability of asset groups to be held and used is measured by a comparison of the carrying amount of an asset group to estimated undiscounted future cash flows expected to be generated by the asset group. If the carrying amount of an asset group exceeds its estimated future cash flows, an impairment charge is recognized on our statement of operations and as a reduction to value of the asset group on our balance sheet if it is concluded that the fair value of the asset group is less than its carrying value. Assets to be disposed of would be separately presented in the balance sheet and reported at the lower of the carrying amount or fair value less costs to sell, and are no longer depreciated. The assets and liabilities of a disposal group classified as held for sale would be presented separately in the appropriate asset and liability sections of the balance sheet.

     Warranty. We provide warranty service covering the systems we sell. We estimate and accrue for future costs of providing warranty service, which relate principally to the hardware components of the systems, when the systems are sold. Our estimates are based in part on our warranty claims history and our cost to perform warranty service. Differences could result in the amount of the recorded warranty liability and cost of sales if we made different judgments or used different estimates.

     Deferred Tax Assets and Income Taxes. As part of the process of preparing our consolidated financial statements, we are required to determine our income taxes. This process involves calculating our current tax obligation or refund and assessing the nature and measurements of temporary differences resulting from differing treatment of items for tax and accounting purposes. These differences result in deferred tax assets and liabilities. In each period, we assess the likelihood that our deferred tax assets will be recovered from existing deferred tax liabilities or future taxable income. If required, we will recognize a valuation allowance to reduce such deferred tax assets to amounts that are more likely than not to be ultimately realized. To the extent that we establish a valuation allowance or change this allowance in a period, we adjust our tax provision or tax benefit in the statement of operations. We use our judgment to determine our provision or benefit for income taxes, and any valuation allowance recorded against our net deferred tax assets.

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     Litigation and Other Contingencies. We regularly evaluate our exposure to threatened or pending litigation and other business contingencies. Because of the uncertainties related to the amount of loss from litigation and other business contingencies, the recording of losses related to such exposures requires significant judgment about the potential range of outcomes. As additional information about current or future litigation or other contingencies becomes available, we will assess whether such information warrants the recording of additional expense relating to these contingencies. A loss contingency, to be recorded as an expense, must generally be both probable and measurable.

     Restructuring Costs. Our merger transaction with CSI caused excess facilities and redundant employee positions. In 2005 we recorded an estimated restructuring accrual of $4,411,000 in connection with the merger transaction. Determining the necessary restructuring accrual required us to estimate future sublease income for vacated excess facilities.

     Software Revenue Recognition. We account for the licensing of software in accordance with American Institute of Certified Public Accountants (“AICPA”) Statement of Position (“SOP”) 97-2 (“SOP 97-2”), “Software Revenue Recognition”, as amended by SOP 98-9, “Modification of SOP 97-2, Software Revenue Recognition, With Respect to Certain Transactions” (“SOP 98-9”). The application of SOP 97-2 requires judgment, including whether a software arrangement includes multiple elements, and if so, whether vendor-specific objective evidence (VSOE) of fair value exists for those elements. Customers may receive certain elements of our products over a period of time. These elements include post-delivery telephone support and the right to receive unspecified upgrades/enhancements (on a when-and-if available basis), the fair value of which is recognized over the product’s estimated life cycle. Changes to the elements in a software arrangement, the ability to identify VSOE for those elements, the fair value of the respective elements, and changes to a product’s estimated life cycle could materially impact the amount of earned and unearned revenue. Judgment is also required to assess whether future releases of certain software represent new products or upgrades and enhancements to existing products.

     Sales Returns. The Company provides a reserve against revenue for estimated product returns. The amount of this reserve is evaluated quarterly based upon historical trends.

     Critical Accounting Policies

     Revenue Recognition. Revenue from sales of hardware products is generally recognized when title transfers to the customer, typically upon shipment. Some of our customers are distributors that sell goods to third party end users. Except for certain identified distributors where collection may be contingent on distributor resale, we recognize revenue on sales of products made to distributors when title transfers to the distributor and all significant obligations have been satisfied. In making a determination of whether significant obligations have been met, we evaluate any installation or integration obligations to determine whether those obligations are inconsequential or perfunctory. In cases where the remaining installation or integration obligation is not determined to be inconsequential or perfunctory, we defer the portion of revenue associated with the fair value of the installation and integration obligation until these services have been completed.

     Distributors do not have price protection and generally do not have product return rights, except in cases upon termination of the distributor agreement or if product is defective. For certain identified distributors where collection may be contingent on the distributor’s resale, revenue recognition is deferred and recognized on a “sell through” or cash basis. The determination of whether sales to distributors are contingent on resale is subjective because we must assess the financial wherewithal of the distributor to pay regardless of resale. For sales to distributors, we consider several factors, including past payment history, where available, trade references, bank account balances, Dun & Bradstreet reports and any other financial information provided by the distributor, in assessing whether the distributor has the financial wherewithal to pay regardless of, or prior to, resale of the product and that collection of the receivable is not contingent on resale.

     We offer limited volume price discounts and rebates to certain distributors. Volume price discounts are on a per order basis based on the size of the order and are netted against the revenue recorded at the time of shipment. We have no arrangements that provide for volume discounts based on meeting certain quarterly or annual purchase levels. Rebates are paid quarterly or annually and are accrued for as incurred.

     With respect to arrangements where software is considered more than incidental to the product, the vendor specific objective evidence of undelivered support is deferred and the residual fair value of delivered software is recognized. Revenue from software implementation services is recognized as the services are provided (based on vendor specific objective evidence of fair value). When significant implementation activities are required, we

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recognize revenue from software and services upon installation. We occasionally sell software and hardware upgrades on a stand alone basis.

     We consider program management packages and training and other services as separate units of accounting and apply the provisions of Emerging Issues Task Force (“EITF”) consensus on Issue No. 00-21, “Revenue arrangements with Multiple Deliverables” (“EITF 00-21”) when sold with an AED based on the fact that the items have value to the customer on a stand alone basis and could be acquired from another vendor. Fair value is determined to be the price at which they are sold to customers on a stand alone basis. Training revenue is deferred and recognized at the time the training occurs. AED program management services revenue, pursuant to agreements that exist with some customers pursuant to annual or multi-year terms, are deferred and amortized on a straight-line basis over the related contract period.

     We offer optional extended service contracts to customers. Fair value is determined to be the price at which they are sold to customers on a stand alone basis. Service contract revenues are recognized on a straight-line basis over the term of the extended service contracts, which generally begin after the expiration of the original warranty period. For services performed, other than pursuant to warranty and extended service contract obligations, revenue is recognized when the service is performed and collection of the resulting receivable is reasonably assured.

     Accounting for Stock-Based Compensation. Prior to the January 1, 2006 adoption of the Financial Accounting Standards Board (“FASB”) Statement No. 123(R), “Share-Based Payment” (“SFAS 123R”), we accounted for stock-based compensation using the intrinsic value method prescribed in Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees,” (“APB 25”) and related interpretations. Accordingly, because the stock option grant price equaled the market price on the date of grant, and any purchase discounts under our stock purchase plans were within statutory limits, no compensation expense was recognized by for stock-based compensation. As permitted by SFAS No. 123, “Accounting for Stock-Based Compensation” (“SFAS 123”), stock-based compensation was included as a pro forma disclosure in the notes to the consolidated financial statements.

     Effective January 1, 2006 we adopted the fair value recognition provisions of SFAS 123R, and applied the provisions of Securities and Exchange Commission (“SEC”) Staff Accounting Bulletin No. 107, “Share-Based Payment” (“SAB 107”), using the modified-prospective transition method. Under this transition method, stock-based compensation expense is recognized in the consolidated financial statements for granted stock options and for expense related to the Employee Stock Purchase Plan (“ESPP”), since the related purchase discounts exceeded the amount allowed under SFAS 123R for non-compensatory treatment. Compensation expense recognized included the estimated expense for stock options granted on and subsequent to January 1, 2006, based on the grant date fair value estimated in accordance with the provisions of SFAS 123R, and the estimated expense for the portion vesting in the period for options granted prior to, but not vested as of December 31, 2005, based on the grant date fair value estimated in accordance with the original provisions of SFAS 123. Further, as required under SFAS 123R, forfeitures are estimated for share-based awards that are not expected to vest. Compensation expense for non-vested stock awards is based on the market price on the grant date and is recorded equally over the vesting period. Results for prior periods have not been restated, as provided for under the modified-prospective transition method.

     Prior Year Misstatements. In September 2006, the SEC issued Staff Accounting Bulletin No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements” (“SAB 108”). SAB 108 addresses how the effects of prior year uncorrected misstatements should be considered when quantifying misstatements in current year financial statements. SAB 108 requires an entity to quantify misstatements using a balance sheet and income statement approach and to evaluate whether either approach results in quantifying an error that is material in light of relevant quantitative and qualitative factors. SAB 108 is effective for fiscal years ending on or after November, 15, 2006. We recorded the impact of prior year misstatements in beginning accumulated deficit for 2006. See Note 17 to the consolidated financial statements in Item 8 of this report for further discussion.

Results of Operations

Overview of 2006 Results

     Revenues for 2006 were $155.4 million, with net income of $49,000. The following developments during 2006 were key for our business:

• We generated solid revenue growth in our AED products and significant cash flow company wide.

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• We successfully completed substantially all integration activities on schedule and as planned for a significant merger between Quinton and CSI.

• We laid the groundwork for future growth by consolidating all of our administrative and customer service functions in Washington State and consolidating substantially all of our U.S. manufacturing into a single location in Wisconsin.

• We released updates to our product lines in a number of key areas, including a web-enabled version of our Pyramis cardiology management system and AEDs with enhanced CPR prompting features.

• We obtained approval from the Japanese Ministry of Health for a biphasic private-labeled version of our Powerheart G-3 and, consequently, were able to regain sales momentum for our AED products in Japan.

Looking Forward

     We expect continued revenue growth in the foreseeable future. We expect modest growth, over time, in our cardiac monitoring product revenue as we increase our sales in both the domestic and international markets. We believe the decrease in sales of our cardiac monitoring products in 2006 compared to 2005 is a temporary fluctuation and, although we may experience continued decline in cardiac monitoring sales in the near future, we do not expect significant sustained reductions in sales of cardiac monitoring products in the foreseeable future. We expect significant growth, over time, in sales of our defibrillation products as we continue to participate in the growing overall AED market. Sales of both cardiac monitoring and defibrillation products in any given period may fluctuate, however, due to timing of orders and other factors. We expect modest growth in service revenue over the longer term.

     A number of factors will affect our gross margin in the foreseeable future and our gross margin may fluctuate from period to period and over time, as a result. Factors that may cause changes in our gross margins from period to period include, but are not limited to, fluctuations in sales mix, competitive impact on AED pricing, the effect of product cost reductions and other factors. We expect continued growth in gross profit from our product and service lines as our revenues increase in upcoming quarters.

     As revenues increase, we expect our operating expenses to increase also, though at a slower rate than our overall revenue rate. We are devoting substantial resources to the continued development of new versions of our products to meet the changing requirements of our customers. As a result, our research and development expenses are expected to increase in the future. In addition, we intend to expand our sales and marketing activities both domestically and internationally, in order to increase sales of our products and services. We expect that sales and marketing expenses will increase as we expand our sales efforts in both domestic and international locations, hire additional marketing personnel and initiate additional marketing programs. Finally, we expect general and administrative expenses to increase in the future, as we continue to develop our corporate infrastructure in support of the growth of our business. We expect to continue to incur significant legal expenses related to our patent litigation. All of our significant litigation cases are currently scheduled for trial (arbitration in one instance) in the second quarter of 2007. Based on delays, appeals or other circumstances, however, these proceedings, and related costs, may continue beyond the second half of 2007. In addition to these operating expenses, we expect stock-based compensation expense to continue to be a significant ongoing expense.

     Revenues

     We derive our revenues primarily from the sale of our cardiology products and related consumables, and to a lesser extent, from services. We categorize our revenues as (1) cardiac monitoring products, which includes capital equipment, software products and related accessories and supplies; (2) defibrillation products, which includes our AEDs, hospital defibrillators and related accessories; and (3) service, which includes service contracts, CPR/AED training services, AED program management services, equipment maintenance and repair, replacement part sales and other services. We derive a portion of our service revenue from sales of separate extended maintenance arrangements. We defer and recognize these revenues over the applicable maintenance period.

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     Revenues for the years ended December 31, 2006, 2005 and 2004 were as follows:

	Year Ended						Year Ended						Year Ended
	December 31,			% Change			December 31,			% Change			December 31,
(dollars in thousands)	2006			2005 to 2006			2005			2004 to 2005			2004
Cardiac monitoring products	$	71,016			(4.4	%)	$	74,278			(4.0	%)	$	77,373
% of revenue		45.7	%					69.6	%					86.4	%
Defibrillation products		67,414			251.4	%		19,182			100.0	%		—
% of revenue		43.4	%					18.0	%					—
Service		16,999			28.9	%		13,190			7.8	%		12,230
% of revenue		10.9	%					12.4	%					13.6	%
Total revenues	$	155,429			45.7	%	$	106,650			19.0	%	$	89,603

     Year Ended December 31, 2006 Compared to Year Ended December 31, 2005

     Cardiac monitoring products revenue decreased by 4% for 2006 from the comparable period in 2005. This decrease was caused primarily by increased competition and delays in some of our product launches. We believe that the recent restructuring of our domestic sales organization to provide a wide range of products to our distribution partners, in combination with planned new product introductions, will reverse the trend of decreasing sales in the longer term. However, further decreases may occur before these factors have the expected effect. Sales of cardiac monitoring products were strong in areas outside of the United States.

     Defibrillation products revenue increased for 2006 from the comparable period in 2005 due mostly to the addition of defibrillation products revenue through the merger with CSI as of September 1, 2005. Defibrillation product revenue increased by approximately 32% over pro forma revenue for the same period last year giving effect to the merger transaction as if the two companies had been combined for the entire period, driven by higher sales both internationally and domestically. We believe that the worldwide market for AEDs is growing and expect continued growth in sales of defibrillator products in the foreseeable future.

     Service revenue increased for 2006 compared to 2005 primarily due to the impact of the addition of defibrillation-related service revenue.

     Year Ended December 31, 2005 Compared to Year Ended December 31, 2004

     Cardiac monitoring products revenue decreased slightly for 2005 compared to 2004 due to softness in U.S. sales of our cardiac stress testing and rehabilitation monitoring products, which were only partially offset by strong sales of electrocardiographs and cardiology management systems and increased international sales of cardiac monitoring products. The net declines in U.S. sales were primarily related to significant turnover that occurred in the acute care sales force during the year and increased competitive pressure.

     Defibrillation products revenue began in 2005 due to the addition of defibrillation products revenue as a result of the merger with CSI as of September 1, 2005.

     Service revenue increased for 2005 compared to 2004 primarily due to services related to AED deployments, offset partially by a small decline in services related to cardiac monitoring products. The decline in cardiac monitoring products was due primarily to reduced parts and billable labor sales as customers replaced legacy cardiac monitoring products with newer versions of our products.

     Gross Profit

     Gross profit is the proportion of money left over from revenues after subtracting the cost of revenues. Cost of revenues consists primarily of the costs associated with manufacturing, assembling and testing our products, overhead costs, stock-based compensation expense, compensation and other costs related to manufacturing support and logistics. We rely on third parties to manufacture certain of our product components. Accordingly, a significant portion of our cost of revenues consists of payments to these manufacturers. Cost of service revenue consists of customer support costs, training and professional service expenses, parts and compensation. Our hardware products include a warranty period that includes factory repair services or replacement parts. We accrue estimated expenses for warranty obligations at the time products are shipped.

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     Gross profit for the years ended December 31, 2006, 2005 and 2004 were as follows:

	Year ended						Year ended						Year ended
	December 31,			% Change			December 31,			% Change			December 31,
(dollars in thousands)	2006			2005 to 2006			2005			2004 to 2005			2004
Products	$	68,573			62.2	%	$	42,265			22.5	%	$	34,511
% of products revenue		49.5	%					45.2	%					44.6	%
Service		4,661			1.5	%		4,591			(4.2	%)		4,790
% of service revenue		27.4	%					34.8	%					39.2	%
Total gross profit	$	73,234			56.3	%	$	46,856			19.2	%	$	39,301
% of total revenue		47.1	%					43.9	%					43.9	%

Year Ended December 31, 2006 Compared to Year Ended December 31, 2005

     Gross profit from products increased for 2006 from the comparable period in 2005 principally due to gross profit on sales of AEDs after the acquisition of CSI in September 2005. This included a charge of $0.2 million reflecting an upward adjustment to CSI’s inventory valuation over historical cost at the merger date in order to record this inventory at fair value. Sales of higher margin cardiac monitoring products in 2006 plus product mix changes and productivity improvements in our cardiac monitoring line contributed to the increase in gross margin as a percent of revenue from products as compared to 2005.

     Gross profit from service increased slightly for 2006 compared to 2005 principally due to the addition of gross profit from defibrillation service revenue, partially offset by the lower gross margins on cardiac monitoring service contracts in 2006 resulting from increased costs. Gross margin on service declined significantly from 2005 to 2006 due mostly to changes in cost structure resulting from the merger with CSI.

Year Ended December 31, 2005 Compared to Year Ended December 31, 2004

     Gross profit for 2005 included charges to cost of revenues arising in connection with the merger transaction of $3.2 million. This included a charge of $1.5 million reflecting an upward adjustment to CSI’s inventory valuation over historical cost at the merger date in order to record this inventory at fair value. Charges of $1.2 million were incurred during 2005 relating to retention bonuses and other costs relating to post-merger integration activities. Additional charges of $0.5 million were incurred during 2005 reflecting a write-off of licenses relating to discontinued product as well as a write-off of demonstration equipment. These charges to cost of revenues represented an adverse impact to gross profit of approximately 3.0%. There were no similar charges during 2004.

     Gross profit from products increased for 2005 compared to 2004 primarily due to the impact of higher gross margin defibrillation products since September 1, 2005 and, to a lesser extent, the result of ongoing cost reduction initiatives, combined with changes in product mix. Gross profit for 2005 included charges to cost of products of $3.2 million discussed above. These charges to cost of products revenues represented an adverse impact to gross margin from products revenues of approximately 3.4%. There were no similar charges during 2004.

     Gross profit from service decreased for 2005 compared to 2004. The decrease in service gross profit was principally attributable to a decrease in cardiac monitoring service revenues, referred to above, without a corresponding decrease in service staffing levels, which have been maintained to provide enhanced support to our customers.

Operating Expenses

     Operating expenses consisted of expenses related to research and development, sales, marketing and other expenses required to run our business, including stock-based compensation in 2006, which we began expensing in accordance with SFAS 123R in the first quarter of 2006.

     Research and development expenses consisted primarily of salaries and related expenses for development and engineering personnel, fees paid to consultants, and prototype costs related to the design, development, testing and enhancement of products. We expense research and development costs as incurred. Several components of our

37

research and development effort require significant funding, the timing of which can cause significant quarterly variability in our expenses.

     Sales expenses consisted primarily of salaries, commissions and related expenses for personnel engaged in sales and sales support functions.

     Marketing expenses consisted primarily of salaries and related expenses for personnel engaged in marketing functions as well as costs associated with promotional and other marketing activities.

     General and administrative expenses consisted primarily of employee salaries and related expenses for executive, finance, accounting, information technology, regulatory and human resources personnel, professional fees, legal fees, including fees associated with our ongoing litigation, and other corporate expenses.

     Operating expenses for the years ended December 31, 2006, 2005 and 2004 were as follows:

	Year Ended						Year Ended						Year Ended
	December 31,			% Change			December 31,			% Change			December 31,
(dollars in thousands)	2006			2005 to 2006			2005			2004 to 2005			2004
Research and development (including stock-based compensation expense of $321, $0 and $0)	$	11,733			25.4	%	$	9,353			26.4	%	$	7,397
% of total revenue		7.5	%					8.8	%					8.3	%
Sales (including stock-based compensation expense of $471, $0 and $0)		32,888			53.4	%		21,438			34.4	%		15,945
% of total revenue		21.2	%					20.1	%					17.8	%
Marketing (including stock-based compensation expense of $252, $0 and $0)		7,072			101.0	%		3,519			44.6	%		2,433
% of total revenue		4.5	%					3.3	%					2.7	%
General and administrative (including stock-based compensation expense of $650, $58 and $73)		22,927			51.6	%		15,126			81.2	%		8,348
% of total revenue		14.8	%					14.2	%					9.3	%
Total operating expenses	$	74,620			50.9	%	$	49,436			44.9	%	$	34,123
% of total revenue		48.0	%					46.4	%					38.1	%

Year Ended December 31, 2006 Compared to Year Ended December 31, 2005

     The increase in research and development expenses for 2006 compared to 2005 was primarily due to additional research and development expenses relating to our defibrillation products and recognition of stock-based compensation expense in 2006. The increase in research and development expenses was net of cost reductions that were realized after the merger transaction.

     The increase in sales expenses for 2006 compared to 2005 was primarily due to the addition of the defibrillation sales force in September 2005 and recognition of stock-based compensation expense in 2006.

     The increase in marketing expenses for 2006 compared to 2005 was primarily due to the addition of marketing costs associated with our defibrillation products as a result of the merger with CSI and recognition of stock-based compensation expense in 2006. To a lesser extent, the increase was also due to investments in marketing program expenses to facilitate future growth.

     The increase in general and administrative expenses for 2006 compared to 2005 was primarily due to increases in amortization expense related to intangible assets acquired in the merger, increases in legal expenses of $3.9 million, mostly related to our patent litigation, additional infrastructure relating to the former CSI business and recognition of stock-based compensation expense in 2006.

38

Year Ended December 31, 2005 Compared to Year Ended December 31, 2004

     The increase in research and development expenses for 2005 compared to 2004 was primarily due to the impact of additional research and development expenses relating to the CSI business. The increase in research and development expenses was net of cost reductions that were realized after the merger transaction.

     The increase in sales expenses for 2005 compared to 2004 was primarily due to the impact of additional sales expenses relating to the CSI business. Additionally, this increase was attributable to increases in commission expense associated with higher revenues. To a lesser extent, the increase was also due to increases in Quinton’s staffing related expenses in 2005 to facilitate future growth.

     The increase in marketing expenses for 2005 compared to 2004 was primarily due to the impact of additional marketing expenses relating to the CSI business. To a lesser extent, the increase was also due to increases in Quinton’s investments in marketing in 2005 to facilitate future growth.

     The increase in general and administrative expenses for 2005 compared to 2004 was primarily due to: (i) the impact of additional general and administrative expenses relating to the CSI business, (ii) expenses of $1.1 million relating to the purchase of tail insurance policies pursuant to the agreement for the merger transaction with CSI, (iii) increased legal costs of $0.7 million primarily related to the Philips patent litigation, (iv) increased audit, tax and consulting fees of $0.9 million, (v) increase in amortization expense of $0.6 million related to intangible assets acquired in the merger, and (vi) expenses of $0.8 million relating to retention bonuses and other post-merger integration activities.

Other Income and Expense

     Total other income was $0.8 million for 2006 compared to total other expense of $0.2 million for 2005 and total other income of $1.0 million for 2004. Other income for 2006 consisted of income of $0.2 million related to the release of a liability to the city of Deerfield, Wisconsin (the location of our manufacturing facilities), $0.3 million related to foreign exchange transaction gains and $0.2 million received during the period representing contingent consideration relating to the sale of our hemodynamic monitoring business in an earlier period. The increase in other income relating to the release of the liability in Deerfield, Wisconsin and foreign exchange transaction gains offset a decrease in interest income earned on cash balances which were less, on average, in 2006 than for 2005. The primary components of other expense in 2005 were $0.4 million received during the period representing contingent consideration relating to the sale of our hemodynamic monitoring business in an earlier period, offset by a loss of $0.9 million resulting from the write-down of our investment in an unconsolidated minority equity investment (ScImage) in the fourth quarter of 2005. Interest income in 2005 increased by $0.4 million compared to 2004 primarily due to an increase in average cash balances during 2005 compared to 2004.The primary components of other income in 2004 were a gain recorded on the sale of our hemodynamic monitoring business of $0.6 million and other income of $0.2 million related to adjustments to record certain assets and liabilities of Burdick.

Income Taxes

     During 2006 and 2005, we recorded income tax benefits of $0.6 million and $1.5 million, respectively, due primarily to our pre-tax net losses and research and development credits generated in these years. Our effective tax rates in 2006 and 2005 of (99.2)% and (53.7)%, respectively, were the result of the disproportionately high impact of these tax benefits in proportion to our relatively low pre-tax income.

     During the fourth quarter of 2004, we removed all of the valuation allowance against our net deferred tax assets and liabilities which resulted in an income tax benefit of $8.9 million.

39

Liquidity and Capital Resources

     Cash flows for the years ended December 31, 2006, 2005 and 2004 were as follows:

	Year Ended						Year Ended						Year Ended
	December 31,			% Change			December 31,			% Change			December 31,
(dollars in thousands)	2006			2005 to 2006			2005			2004 to 2005			2004
Cash flow provided by (used in) operating activities	$	8,683			1121.5	%	$	(850	)		(113.6	%)	$	6,259
Cash flow used in investing activities		(3,307	)		(81.7	%)		(18,053	)		n/m			(41	)
Cash flow provided by financing activities		897			64.0	%		547			(96.5	%)		15,499
Total change in cash	$	6,273			134.2	%	$	(18,356	)		184.5	%	$	21,717

     Cash flows provided by operating activities of $8.7 million for 2006 resulted from our net income of $49,000 plus net non-cash items included in this net income of $7.5 million, and a net reduction in working capital of $1.1 million. The increase in cash provided by operating activities relative to the net use of cash in operating activities of $0.9 million in 2005 was primarily due to the improvement in our net income plus the fact that net income in 2006 included higher non-cash charges than in 2005. The net use of cash in operating activities in 2005 was primarily due to the net loss we incurred as a result of merger integration activities in the latter part of the year.

     Net cash flows used in investing activities in 2006 consisted of payments for capital expenditures and purchases of short-term investments, partially offset by proceeds from maturities of short-term investments and collection of a note receivable related to a royalty agreement acquired in connection with the merger with CSI. In addition, net cash flows used in investing activities in 2006 included payments of acquisition costs related to the merger transaction of $1.7 million. Cash flows used in investing activities in 2005 included payments of $23.8 million related to the merger transaction and payments for capital expenditures, partially offset by cash acquired as a result of the merger transaction of $6.3 million and proceeds from the sale of marketable equity securities.

     Net cash flows provided by financing activities for 2006 consisted of proceeds from exercises of stock options and issuances of common stock under our ESPP. Net cash flows provided by financing activities for 2005 consisted of proceeds from exercises of stock options and issuances of common stock under our ESPP, which were offset by payments of stock registration costs connected with the merger transaction.

     As of December 31, 2006, our cash and cash equivalents totaled $9.8 million and we had short-term investments of $0.5 million. We anticipate that our existing cash and cash equivalents and future expected operating cash flow will be sufficient to meet operating expenses, working capital requirements, capital expenditures and other obligations for at least 12 months.

     We have a line of credit with Silicon Valley Bank. Borrowings under the line of credit are currently limited to the lesser of $20.0 million or an amount based on eligible accounts receivable and inventories. Substantially all of our assets are pledged as collateral for the line of credit. This line of credit bears interest based at a rate equal to the lender’s prime rate, provided that the interest rate in effect shall not be less than 6.25% on any day. In addition, unused balances under this facility bear monthly fees equal to 0.25% per annum on the difference between the maximum credit limit and the sum of (i) the average daily principal balance during the month and (ii) the face amount of any letters of credit. As of December 31, 2006, we had capacity to borrow $20.0 million based on eligible accounts receivable and eligible inventory, less letters of credit outstanding of $0.3 million.

     We may be affected by economic, financial, competitive, legislative, regulatory, business and other factors beyond our control. For more information on the factors that may impact our financial results, please see Part I, Item 1A Risk Factors included in this Annual Report on Form 10-K. In addition, we are continually considering other acquisitions that would complement or expand our existing business or that may enable us to expand into new markets. Future acquisitions may require use of our existing cash resources or additional debt or equity financing or both. We may not be able to obtain such additional financing, or may not be able to obtain such additional financing on acceptable terms.

    Contractual Obligations

     The tables below summarize our contractual obligations and other commercial commitments as of December 31, 2006 (amounts in thousands):

			Less than		1-3		3-5		After
Contractual Obligations	Total		1 year		years		years		5 years
Operating leases	$	9,464	$	2,855	$	3,303	$	1,494	$	1,812
Purchase obligations		31,165		31,165		—		—		—
Total contractual obligations	$	40,629	$	34,020	$	3,303	$	1,494	$	1,812

40

     Purchase obligations consist of outstanding purchase orders issued in the normal course of business.

			Less than		1-3		3-5		After
Other Commercial Commitments	Total		1 year		years		years		5 years
Line of credit	$	94	$	94	$	—	$	—	$	—

     Line of credit commitments includes minimum maintenance fees and unused fees related to our credit facility.

     At December 31, 2006, our Danish subsidiary had bank performance guarantees totaling 338,000 Danish Kroner (approximately $60,000 in U.S. dollars) that were issued in 1999 through 2000 in connection with sales contracts to foreign governments. These bank performance guarantees have all expired but are not officially released until the customer notifies the bank that renewal is not required. We have no further performance obligations under these contracts other than providing normal warranty service on the products sold under the contracts. In addition, we had performance bonds of $0.3 million outstanding at December 31, 2006 which were collateralized by letters of credit issued by Silicon Valley Bank in connection with various sales contracts or financing arrangements.

Item 7A. 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 the majority of 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.

41

Item 8. Financial Statements and Supplementary Data

CARDIAC SCIENCE CORPORATION
AND SUBSIDIARIES

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

42

MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

     Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f). Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework as of December 31, 2006 in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations (COSO) of the Treadway Commission. Based on our evaluation under the COSO framework, our management concluded that our internal control over financial reporting was effective as of December 31, 2006.

Our management’s assessment of the effectiveness of our internal control over financial reporting as of December 31, 2006 has been audited by KPMG LLP, an independent registered public accounting firm, as stated in their report which is included herein.

43

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Shareholders
Cardiac Science Corporation:

We have audited management’s assessment, included in the accompanying Management’s Report on Internal Control over Financial Reporting, that Cardiac Science Corporation (the Company) maintained effective internal control over financial reporting as of December 31, 2006, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, management’s assessment that the Company maintained effective internal control over financial reporting as of December 31, 2006, is fairly stated, in all material respects, based on criteria established in Internal Control—Integrated Framework issued by COSO. Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2006, based on criteria established in Internal Control—Integrated Framework issued by COSO.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of the Company as of December 31, 2006 and December 31, 2005, and the related consolidated statements of operations, shareholders’ equity and comprehensive income (loss), and cash flows for each of the years in the three-year period ended December 31, 2006 and our report dated March 16, 2007 expressed an unqualified opinion on those consolidated financial statements.

/s/ KPMG LLP

Seattle, Washington
March 16, 2007

44

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Shareholders
Cardiac Science Corporation:

We have audited the accompanying consolidated balance sheets of Cardiac Science Corporation and subsidiaries as of December 31, 2006 and December 31, 2005 and the related consolidated statements of operations, shareholders’ equity and comprehensive income (loss) and cash flows for each of the years in the three-year period ended December 31, 2006. In connection with our audits of the consolidated financial statements, we also have audited the financial statement schedule II. These consolidated financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Cardiac Science Corporation and subsidiaries as of December 31, 2006 and December 31, 2005, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2006, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

As discussed in Note 1 to the consolidated financial statements, the Company changed its accounting for share-based payments to employees as required by Statement of Financial Accounting Standards No. 123 (revised 2004), “Share-Based Payment”, effective January 1, 2006. As discussed in Note 17 to the consolidated financial statements, the Company adopted Securities and Exchange Commission Staff Accounting Bulletin No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in the Current Year Financial Statements”, effective January 1, 2006.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of the Company’s internal control over financial reporting as of December 31, 2006, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated March 16, 2007 expressed an unqualified opinion on management’s assessment of, and the effective operation of, internal control over financial reporting.

/s/ KPMG LLP

Seattle, Washington
March 16, 2007

45

CARDIAC SCIENCE CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

	December 31,
(In thousands)	2006			2005
ASSETS
Current Assets:
Cash and cash equivalents	$	9,819		$	3,546
Short-term investments		547			—
Accounts receivable, net of allowance for doubtful accounts of $907 and $3,455, respectively		26,971			25,738
Inventories		17,617			22,052
Deferred income taxes, net		3,902			12,115
Prepaid expenses and other current assets		2,121			2,511
Total current assets		60,977			65,962
Other assets		209			100
Machinery and equipment, net of accumulated depreciation and amortization of $10,245 and $7,565, respectively		5,956			7,631
Deferred income taxes, net		40,525			27,849
Intangible assets, net of accumulated amortization of $6,111 and $2,642, respectively		31,869			35,338
Investment in unconsolidated entities		496			462
Goodwill		107,613			111,215
Total assets	$	247,645		$	248,557
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Accounts payable	$	11,761		$	11,642
Accrued liabilities		9,890			11,918
Warranty liability		2,532			2,348
Deferred revenue		7,111			7,924
Total current liabilities		31,294			33,832
Other liabilities		679			1,806
Total liabilities		31,973			35,638
Minority interest		75			128
Commitments and contingencies
Shareholders’ Equity:
Preferred stock (10,000,000 shares authorized), $0.001 par value, no shares issued or outstanding as of December 31, 2006 and 2005, respectively		—			—
Common stock (65,000,000 shares authorized), $0.001 par value, 22,598,014 and 22,410,344 shares issued and outstanding at December 31, 2006 and 2005, respectively		221,213			218,335
Accumulated other comprehensive income		20			5
Accumulated deficit		(5,636	)		(5,549	)
Total shareholders’ equity		215,597			212,791
Total liabilities and shareholders’ equity	$	247,645		$	248,557

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

46

CARDIAC SCIENCE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

	Year Ended December 31,
(In thousands, except share and per share data)	2006			2005			2004
Revenues:
Products	$	138,430		$	93,460		$	77,373
Service		16,999			13,190			12,230
Total revenues		155,429			106,650			89,603
Cost of Revenues:
Products		69,857			51,195			42,862
Service		12,338			8,599			7,440
Total cost of revenues		82,195			59,794			50,302
Gross profit		73,234			46,856			39,301
Operating Expenses:
Research and development		11,733			9,353			7,397
Sales		32,888			21,438			15,945
Marketing		7,072			3,519			2,433
General and administrative		22,927			15,126			8,348
Total operating expenses		74,620			49,436			34,123
Operating income (loss)		(1,386	)		(2,580	)		5,178
Other Income (Expense):
Interest income		242			455			162
Interest expense		(258	)		(130	)		(232	)
Other income (expense), net		782			(487	)		1,031
Total other income (expense)		766			(162	)		961
Income (loss) before income tax benefit and minority interest		(620	)		(2,742	)		6,139
Income tax benefit		615			1,473			8,890
Income (loss) before minority interest		(5	)		(1,269	)		15,029
Minority interest		54			31			39
Net income (loss)	$	49		$	(1,238	)	$	15,068
Net income (loss) per share — basic	$	0.00		$	(0.08	)	$	1.47
Net income (loss) per share — diluted	$	0.00		$	(0.08	)	$	1.39
Weighted average shares outstanding — basic		22,502,040			14,695,261			10,236,838
Weighted average shares outstanding — diluted		22,555,326			14,695,261			10,814,680

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

47

CARDIAC SCIENCE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY AND COMPREHENSIVE INCOME (LOSS)

									Accumulated
						Deferred			Other
	Common Stock					Stock-based			Comprehensive			Accumulated
(in thousands, except share amounts)	Amount		Shares			Compensation			Income			Deficit			Total
Balance, December 31, 2003	$	45,617		9,428,061		$	(106	)	$	—		$	(19,379	)	$	26,132
Issuance of common stock upon exercise of stock options		359		121,422			—			—			—			359
Amortization of deferred stock compensation		—		—			73			—			—			73
Proceeds from issuance of common stock, net of issuance costs		15,451		1,239,571			—			—			—			15,451
Proceeds from issuance of stock under employee stock purchase plan		531		60,977			—			—			—			531
Tax benefit recognized for stock options		698		—			—			—			—			698
Comprehensive income:
Net income		—		—			—			—			15,068			15,068
Unrealized gain on available-for-sale securities, net of income tax effect of $14		—		—			—			22			—			22
Total comprehensive income																15,090
Balance, December 31, 2004		62,656		10,850,031			(33	)		22			(4,311	)		58,334
Issuance of common stock in connection with the merger of CSI, net of issuance costs		154,885		11,467,753			—			—			—			154,885
Issuance of common stock upon exercise of stock options		181		33,146			—			—			—			181
Amortization of deferred stock compensation		—		—			33			—			—			33
Proceeds from issuance of stock under employee stock purchase plan		538		59,387			—			—			—			538
Stock awards		25		463			—			—			—			25
Tax benefit recognized for stock options		50		—			—			—			—			50
Fractional shares refunded in stock split		—		(436	)		—			—			—			—
Comprehensive income:
Net loss		—		—			—			—			(1,238	)		(1,238	)
Unrealized loss on available-for-sale securities, net of income tax effect of $8		—		—			—			(13	)		—			(13	)
Reclassification adjustment for gain recognized in net income, net of income tax effect of $6		—		—			—			(9	)		—			(9	)
Foreign currency translation adjustments, net of income tax effect of $2		—		—			—			5			—			5
Total comprehensive loss																(1,255	)
Balance, December 31, 2005		218,335		22,410,344			—			5			(5,549	)		212,791
Cumulative effect of adjustment resulting from the adoption of SAB No. 108, net of tax		—		—			—			—			(136	)		(136	)
Issuance of common stock upon exercise of stock options		232		79,012			—			—			—			232
Stock-based compensation, net		1,981		—			—			—			—			1,981
Proceeds from issuance of stock under employee stock purchase plan		665		92,199			—			—			—			665
Stock awards		—		16,459			—			—			—			—
Comprehensive income:
Net income		—		—			—			—			49			49
Unrealized gain on available-for-sale securities, net of income tax effect of $12		—		—			—			20			—			20
Foreign currency translation adjustments, net of income tax effect of $2		—		—			—			(5	)		—			(5	)
Total comprehensive income																64
Balance, December 31, 2006	$	221,213		22,598,014		$	—		$	20		$	(5,636	)	$	215,597

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

48

CARDIAC SCIENCE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Year Ended December 31,
(In thousands)	2006			2005			2004
Operating Activities:
Net income (loss)	$	49		$	(1,238	)	$	15,068
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization		6,261			3,212			1,574
Deferred income taxes		(781	)		(1,565	)		(9,014	)
Stock-based compensation		2,028			58			73
Minority interest		(54	)		(31	)		(39	)
Gain on sale of marketable equity securities		—			(15	)		(610	)
Loss on disposal of machinery and equipment		58			6			20
Gain on sale of hemodynamic monitoring business		—			—			(633	)
Loss on disposal of technology		—			270			—
Loss in value of investment in unconsolidated entity		—			916			—
Changes in operating assets and liabilities, net of business acquired:
Accounts receivable, net		(1,189	)		(5,034	)		(1,169	)
Inventories		2,956			2,334			775
Prepaid expenses and other assets		1,189			(118	)		(51	)
Accounts payable		330			(2,742	)		(568	)
Accrued liabilities		(1,604	)		1,055			332
Warranty liability		(95	)		(208	)		49
Deferred revenue		(465	)		2,250			452
Net cash flows provided by (used in) operating activities		8,683			(850	)		6,259
Investing Activities:
Purchases of short-term investments		(839	)		—			—
Maturities of short-term investments		292			—			—
Purchases of machinery and equipment		(1,249	)		(1,187	)		(666	)
Payments related to the purchase of Cardiac Science, Inc.		(1,749	)		(17,491	)		—
Proceeds from sales of marketable equity securities		—			625			—
Purchase of technology		—			—			(125	)
Proceeds from collection of notes		238			—			750
Net cash flows used in investing activities		(3,307	)		(18,053	)		(41	)
Financing Activities:
Repayments on bank line of credit, net		—			—			(354	)
Proceeds from issuance of stock, net of issuance costs		—			(172	)		15,451
Payments of long-term debt		—			—			(363	)
Payment of note payable in connection with purchase of technology		—			—			(125	)
Proceeds from exercise of stock options and issuance of
shares under employee purchase plan		897			719			890
Net cash flows provided by financing activities		897			547			15,499
Net change in cash and cash equivalents		6,273			(18,356	)		21,717
Cash and cash equivalents, beginning of period		3,546			21,902			185
Cash and cash equivalents, end of period	$	9,819		$	3,546		$	21,902
Supplemental disclosures of cash flow information:
Cash paid for income taxes	$	204		$	251		$	150
Cash paid for interest		54			34			117
Supplemental disclosures of noncash investing and financing activities:
Note issued in connection with purchase of technology	$	—		$	—		$	125
Shares issued in connection with purchase of Cardiac Science, Inc.		—			155,057			—

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

49

CARDIAC SCIENCE CORPORATION. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Summary of Significant Accounting Policies

  Organization and Description of Business

     Cardiac Science Corporation was incorporated in Delaware on February 24, 2005 as CSQ Holding Company to effect the business combination of Quinton Cardiology Systems, Inc. (“Quinton”) and Cardiac Science, Inc. (“CSI”), the “merger transaction.” The merger transaction was consummated on September 1, 2005. In connection with the merger transaction, the outstanding shares of common stock of Quinton and CSI were cancelled and stockholders of Quinton and CSI were issued common stock of Cardiac Science Corporation in consideration of their shares of Quinton and CSI common stock. Cardiac Science Corporation, its direct and indirect wholly-owned subsidiaries Quinton Cardiology, Inc., Cardiac Science Operating Company, Cardiac Science International A/S, Cardiac Science Holdings (UK) Ltd. and its majority owned indirect subsidiary Shanghai Quinton Medical Device Co., Ltd. (“Shanghai-Quinton”) are collectively referred to herein as the Company.

     Stockholders of Quinton received 0.77184895 share of the Company’s common stock for each common share of Quinton held, representing approximately 48.8% of the Company’s total outstanding common stock as of the date of closing, and holders of CSI common stock received 0.10 share of the Company’s common stock for each common share of CSI held, which, together with 2,843,915 shares of the Company’s common stock issued to the holders of senior notes and related warrants of CSI in connection with the merger transaction, represented approximately 51.2% of the Company’s total outstanding common stock as of the date of closing. In addition, the Company assumed each outstanding option and other warrant to purchase common stock issued by Quinton and CSI.

     For accounting purposes, the merger transaction was treated as an acquisition by Quinton of CSI as of September 1, 2005. Since the Company is deemed to be the successor to Quinton for accounting purposes, the Company’s consolidated financial statements represent the historical statements of Quinton and include CSI’s results of operations since September 1, 2005. All share and per share data have been retroactively adjusted to reflect the conversion of Quinton shares into Cardiac Science Corporation shares at the exchange ratio set forth in the merger agreement.

     The Company develops, manufactures and markets a family of advanced cardiac monitoring and therapeutic cardiology devices and systems, including automated external defibrillators (“AEDs”), electrocardiographs, stress test systems, Holter monitoring systems, hospital defibrillators, cardiac rehabilitation telemetry systems, patient monitor defibrillators and cardiology data management systems. The Company also sells a variety of related products and consumables and provides a comprehensive portfolio of training, maintenance and support services. The Company markets its products under the Burdick, Powerheart and Quinton brand names.

   Basis of Presentation

     The accompanying consolidated financial statements present the Company on a consolidated basis, including the Company’s wholly owned subsidiaries and its majority owned joint venture. All intercompany accounts and transactions have been eliminated.

     The Company, in accordance with Securities and Exchange Commission (“SEC”) Staff Accounting Bulletin No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements” (“SAB 108”), adjusted its beginning retained earnings for fiscal 2006 in the accompanying consolidated financial statements. See Note 17 for additional information on the adoption of SAB 108.

  Use of Estimates

     The preparation of the financial statements and related disclosures in conformity with U.S. generally accepted accounting principles 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 the allocation of the purchase price, collectibility of accounts receivable, the recoverability of inventory, the adequacy of warranty liabilities, the valuation of stock awards, intra-period tax allocation, the realizability of investments, the realizability of deferred

50

CARDIAC SCIENCE CORPORATION. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

tax assets and valuation and useful lives of tangible and intangible assets, including goodwill, among others. 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. Estimates and assumptions are reviewed periodically, and the effects of revisions are reflected in the consolidated financial statements in the period they are determined to be necessary.

  Cash Equivalents

     Highly liquid investments with a maturity at the date of purchase of three months or less are considered cash equivalents.

  Short-term Investments

     The Company’s short-term investments are classified as available-for-sale as defined by Statement of Financial Accounting Standards (“SFAS”) No. 115, “Accounting for Certain Investments in Debt and Equity Securities” (“SFAS 115”). At December 31, 2006, short-term investments consisted of investment grade commercial paper and U.S. government and agencies’ discount notes maturing within one year. The securities are carried at fair value, with the unrealized gains and losses included in accumulated other comprehensive income, net of tax. Realized gains or losses on the sale of marketable securities are identified on a specific identification basis and are reflected as a component of interest income or expense. There have been no other-than-temporary declines in the securities.

     Short-term investments totaled $547,000 at December 31, 2006. There were no significant realized gains or losses on the sale of short-term investments during the year ended December 31, 2006. Gross unrealized gains and losses at December 31, 2006 were not significant. There were no short-term investments in 2005 or 2004.

  Accounts Receivable

     Accounts receivable are recorded at invoiced amount and do not bear interest. The Company performs initial and ongoing evaluations of its customers’ financial position, and generally extends credit on open account. The Company maintains an allowance for doubtful accounts which is reflective of management’s best estimate of probable accounts receivable losses. Management determines the allowance based on known troubled accounts, historical experience, and other currently available evidence. Trade receivable balances are charged against the allowance at the time management determines such balances to be uncollectible.

  Inventories

     Inventories are stated at the lower of cost, determined on a weighted-average basis, or market. Costs include materials, labor and overhead. The Company records inventory write-downs based on its estimate of excess and/or obsolete inventory.

  Machinery and Equipment

     Machinery and equipment are stated at cost. Machinery and equipment are depreciated using the straight-line method over the estimated useful lives of the assets of 2 to 14 years. Leasehold improvements are amortized over the shorter of the estimated useful lives or the remaining lease term. The costs for improvements are capitalized. Expenditures for maintenance and repairs are expensed as incurred. Upon retirement or disposal, the cost and accumulated depreciation of machinery and equipment are reduced and any gain or loss is recorded.

  Intangible Assets

     In accordance with SFAS No. 142 “Goodwill and Other Intangible Assets” (“SFAS 142”), intangible assets with indeterminate lives are not subject to amortization but are tested for impairment annually or whenever events or changes in circumstances indicate that the asset might be impaired. Other intangible assets with finite lives are subject to amortization, and any impairment is determined in accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS 144”).

51

CARDIAC SCIENCE CORPORATION. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

     The Company’s intangible assets related to the Burdick and Cardiac Science trade name, developed technology and distributor and customer relationships were acquired in acquisitions. Management uses judgment to estimate the useful lives of each intangible asset. The Company believes the Burdick and Cardiac Science trade names have indefinite lives, and accordingly, values of the trade names are not amortized. The useful lives of developed technologies were based on the estimated remaining economic lives of the related products. The useful lives of the distributor relationships were based on historical turnover experience and in consideration of the long standing and stable nature of these relationships, among other factors. The useful lives of customer relationships were based on expected turnover experience, among other factors. The Company evaluates the remaining useful lives of amortizable intangibles annually.

     The Company annually re-evaluates its conclusion that the trade names have indefinite lives and makes a judgment about whether there are factors that would limit the ability to benefit from the trade names in the future. If there were such factors, the Company would amortize the value of the trade names. Management annually reviews trade name intangible assets for impairment by comparing the fair value of the asset to its carrying value. The Company uses judgment to estimate the fair value of trade names. The judgment about fair value is based on expectations of future cash flows and an appropriate discount rate.

  Goodwill

     Goodwill represents the excess of costs over the estimated fair values of net assets acquired in connection with Quinton’s acquisitions of a medical treadmill manufacturing line in 2002 and Spacelabs Burdick, Inc. (“Burdick”) in 2003 and in connection with the merger transaction between Quinton and CSI in September 2005. In accordance with SFAS 142, goodwill is not being amortized. Also in accordance with SFAS 142, the Company tests goodwill for impairment at the reporting unit level on an annual basis and between annual tests in certain circumstances. The Company has determined that it has two reporting units, consisting of general cardiology products, which includes the service business, and the Shanghai-Quinton joint venture, both of which operate in the cardiology market and have similar economic and operating characteristics.

     SFAS 142 requires a two-step goodwill impairment test whereby the first step, used to identify potential impairment, compares the fair value of a reporting unit with its carrying amount including goodwill. If the fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is considered not impaired, thus the second step of the goodwill impairment test used to quantify impairment is unnecessary. Management has estimated that the fair values of the Company’s reporting units to which goodwill has been allocated exceed their carrying amounts, and as a result, the second step of the impairment test, which would compare the implied fair value of the reporting unit goodwill with the carrying amount of that goodwill, was unnecessary for the periods presented.

  Valuation of Long-Lived Assets

     In accordance with SFAS 144, long-lived assets, such as property, plant, and equipment, and intangible assets subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset group may not be recoverable. Recoverability of asset groups to be held and used is measured by a comparison of the carrying amount of an asset group to estimated undiscounted future cash flows expected to be generated by the asset group. If the carrying amount of an asset group exceeds its estimated future cash flows, an impairment charge is recognized on our statement of operations and as a reduction to the asset group if it is concluded that the fair market value of the asset group is less than its carrying value. Assets to be disposed of would be separately presented in the balance sheet and reported at the lower of the carrying amount or fair value less costs to sell, and are no longer depreciated. The assets and liabilities of a disposal group classified as held for sale would be presented separately in the appropriate asset and liability sections of the balance sheet.

52

CARDIAC SCIENCE CORPORATION. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

  Purchase Price Allocations

     SFAS No. 141, “Business Combinations,” (“SFAS 141”) requires that the purchase method of accounting be used for all business combinations and establishes specific criteria for the recognition of intangible assets separately from goodwill. The merger transaction was accounted for as an acquisition by Quinton of CSI under the purchase method of accounting in accordance with SFAS 141, and the Company allocated the respective purchase price plus transaction costs to estimated fair values of assets acquired and liabilities assumed. These purchase price allocation estimates were made based on the Company’s estimates of fair values. In connection with the Company’s acquisitions of the medical treadmill manufacturing line and Spacelabs Burdick, Inc., the Company allocated the respective purchase prices plus transaction costs to estimated fair values of assets acquired and liabilities assumed.

   Deferred Tax Assets and Income Taxes

     The Company accounts for income taxes under the asset and liability method as set forth in SFAS No. 109, “Accounting for Income Taxes,” (“SFAS 109”) under which deferred income taxes are provided for the temporary differences between the financial reporting basis and the tax basis of the Company’s assets and liabilities and operating loss and tax credit carryforwards. A valuation allowance is established when necessary to reduce deferred tax assets to the amount expected to be realized. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences and operating loss and tax credit carryforwards are expected to be recovered or settled.

  Litigation and Other Contingencies

     The Company regularly evaluates its exposure to threatened or pending litigation and other business contingencies. Because of the uncertainties related to the amount of loss from litigation and other business contingencies, the recording of losses related to such exposures requires significant judgment about the potential range of outcomes. As additional information about current or future litigation or other contingencies becomes available, the Company will assess whether such information warrants the recording of additional expense relating to these contingencies. A loss contingency, to be recorded as an expense, must be both probable and measurable.

  Restructuring Costs

     The Company’s merger transaction with CSI caused excess facilities and redundant employee positions. In 2005 the Company recorded an estimated restructuring accrual of $4,411,000 in connection with the merger transaction. Determining the necessary restructuring accrual required the Company to estimate future sublease income for vacated excess facilities.

   Revenue Recognition

     The Company’s revenue recognition policies are based on the requirements of SEC Staff Accounting Bulletin No. 104, “Revenue Recognition,” (“SAB 104”) and the Emerging Issues Task Force consensus on Issue No. 00-21, “Revenue arrangements with Multiple Deliverables” (“EITF 00-21”), and, in addition, to the extent an arrangement contains software that is more than incidental to the arrangement, the Company follows the provisions of AICPA Statement of Position 97-2, “Software Revenue Recognition” (“SOP 97-2”) as amended by AICPA Statement of Position 98-9, “Software Revenue Recognition with Respect to Certain Arrangements” (SOP 98-9”).

     Revenue from sales of hardware products is generally recognized when title transfers to the customer, typically upon shipment. Some of the Company’s customers are distributors that sell goods to third party end users. Except for certain identified distributors where collection may be contingent on distributor resale, the Company recognizes revenue on sales of products made to distributors when title transfers to the distributor and all significant obligations have been satisfied. In making a determination of whether significant obligations have been met, the Company evaluates any installation or integration obligations to determine whether those obligations are inconsequential or perfunctory. In cases where the remaining installation or integration obligation is not determined to be inconsequential or perfunctory, the Company defers the portion of revenue associated with the fair value of the installation and integration obligation until these services have been completed.

     Distributors do not have price protection and generally do not have product return rights, except in cases upon termination of the distributor agreement or if product is defective. For certain identified distributors where collection

53

CARDIAC SCIENCE CORPORATION. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

may be contingent on the distributor’s resale, revenue recognition is deferred and recognized on a “sell through” or cash basis. The determination of whether sales to distributors are contingent on resale is subjective because the Company must assess the financial wherewithal of the distributor to pay regardless of resale. For sales to distributors, the Company considers several factors, including past payment history, where available, trade references, bank account balances, Dun & Bradstreet reports and any other financial information provided by the distributor, in assessing whether the distributor has the financial wherewithal to pay regardless of, or prior to, resale of the product and that collection of the receivable is not contingent on resale.

     The Company offers limited volume price discounts and rebates to certain distributors. Volume price discounts are on a per order basis based on the size of the order and are netted against the revenue recorded at the time of shipment. Rebates are accrued for as incurred and are recorded as offset to revenue.

     With respect to arrangements where software is considered more than incidental, the vendor specific objective evidence of undelivered support is deferred and the residual fair value of delivered software is recognized. Revenue from software implementation services is recognized as the services are provided (based on vendor specific objective evidence of fair value). When significant implementation activities are required, the Company recognizes revenue from software and services upon completion of installation. The Company occasionally sells software and hardware upgrades on a stand alone basis.

     The Company considers program management packages and training and other services as separate units of accounting and applies the provisions of EITF 00-21 when sold with an AED based on the fact that the items have value to the customer on a stand alone basis and could be acquired from another vendor. Fair value is determined to be the price at which they are sold to customers on a stand alone basis. Training revenue is deferred and recognized at the time the training occurs. AED program management services revenue, pursuant to agreements that exist with some customers pursuant to annual or multi-year terms, are deferred and amortized on a straight-line basis over the related contract period.

     The Company offers optional extended service contracts to customers. Fair value is determined to be the price at which they are sold to customers on a stand alone basis. Service contract revenues are recognized on a straight-line basis over the term of the extended service contracts, which generally begin after the expiration of the original warranty period. For services performed, other than pursuant to warranty and extended service contract obligations, revenue is recognized when the service is performed and collection of the resulting receivable is reasonably assured.

     Upfront license fees are deferred and recognized as revenue using the straight-line method over the term of the related license agreement. Royalty revenues are due and payable quarterly (generally 60 days after period end) pursuant to the related license agreements. An estimate of royalty revenues is recorded quarterly in the period earned based on the prior quarter’s historical results adjusted for any new information or trends known to management at the time of estimation.

     Freight charges billed to customers and included in revenue were approximately $2,237,000, $1,667,000 and $1,473,000 in 2006, 2005 and 2004, respectively. The associated expense is classified within cost of revenues in the accompanying consolidated statements of operations.

     The Company accounts for the licensing of software in accordance with SOP 97-2, as amended by SOP 98-9. The application of SOP 97-2 requires judgment, including whether a software arrangement includes multiple elements, and if so, whether vendor-specific objective evidence (VSOE) of fair value exists for those elements. Customers may receive certain elements of the Company’s products over a period of time. These elements include post-delivery telephone support and the right to receive unspecified upgrades/enhancements (on a when-and-if available basis), the fair value of which is recognized over the product’s estimated life cycle. Changes to the elements in a software arrangement, the ability to identify VSOE for those elements, the fair value of the respective elements, and changes to a product’s estimated life cycle could materially impact the amount of earned and unearned revenue. Judgment is also required to assess whether future releases of certain software represent new products or upgrades and enhancements to existing products.

54

CARDIAC SCIENCE CORPORATION. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

  Sales Returns

     The Company provides a reserve against revenue for estimated product returns. The amount of this reserve is evaluated quarterly based upon historical trends.

  Segment Reporting

     Accounting standards require companies to disclose certain information about each of their reportable segments. Based on the similar economic and operating characteristics of the components of our business, we have determined that we currently have only one reportable segment, which markets various non-invasive cardiology products and services.

  Export Sales

     For the years ended December 31, 2006, 2005 and 2004, export sales were 24%, 13% and 7%, respectively, of total revenues. Export sales are denominated in U.S. dollars. Accordingly, the Company did not incur significant foreign currency transaction gains or losses.

  Foreign Currency Translation

     The functional currency of the Company’s foreign operations in Denmark and the U.K. is the U.S. dollar and therefore, the financial statements of these operations are maintained in U.S. dollars. Any assets and liabilities in foreign currencies, such as bank accounts and certain payables, are re-measured in U.S. dollars at period-end exchange rates in effect. Any transactions in foreign currencies, such as wages paid in local currencies, are re-measured in U.S. dollars using an average monthly exchange rate. Any resulting gains and losses are included in operations and were not significant in any period.

     The functional currency of the Company’s Shanghai-Quinton joint venture is the local currency. Thus, assets and liabilities are translated to U.S. dollars at exchange rates in effect at period end. Translation adjustments are included in accumulated other comprehensive income in stockholders’ equity. Gains and losses on foreign currency transactions are included in operations and were not significant in any period.

  Advertising Costs

     The cost of advertising is expensed as incurred. During the years ended December 31, 2006, 2005 and 2004, the Company incurred advertising expenses of $996,000, $465,000 and $268,000, respectively.

  Warranty

     The Company provides warranty service covering the systems it sells. Estimated future costs of providing warranty service, which relate principally to the hardware components of the systems, are provided when the systems are sold. Estimated future costs are based on warranty claims history and other relevant information.

     The Company’s sales to customers generally include certain provisions for indemnifying customers against liabilities if the Company’s software products infringe a third party’s intellectual property rights. To date, the Company has not incurred any material costs as a result of such indemnifications and has not accrued any liabilities related to such obligations in the consolidated financial statements.

  Research and Development Costs

     Research and development costs are expensed as incurred.

  Comprehensive Income

     The Company computes comprehensive income in accordance with SFAS No. 130 “Reporting Comprehensive Income” (“SFAS 130”). SFAS 130 establishes standards for the reporting and display of comprehensive income or

55

CARDIAC SCIENCE CORPORATION. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

loss and its components in the financial statements.

     For the Company, components of other comprehensive income consist of unrealized gains and losses on securities and foreign currency translation gains and losses, net of related income tax effects.

     Accumulated other comprehensive income consists of the following (in thousands):

	Year ended December 31,
	2006		2005
Unrealized gain on securities	$	20	$	—
Foreign currency translation adjustments		—		5
Total accumulated other comprehensive income	$	20	$	5

  Financial Instruments and Concentrations of Credit Risk

     Financial instruments that potentially subject the Company to concentrations of credit risk consist of cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities. Financial instruments that are short-term and/or that have little or no market risk are estimated to have a fair value equal to book value. The assets and liabilities listed above fall under this category.

     The Company owned preferred equity securities of a privately held company, ScImage, Inc. In the fourth quarter of 2005, the Company wrote this investment down to estimated fair value of $84,000 based on a significant change in circumstances.

  Stock-Based Compensation

     Prior to the January 1, 2006 adoption of the Financial Accounting Standards Board (“FASB”) Statement No. 123(R), “Share-Based Payment” (“SFAS 123R”), the Company accounted for stock-based compensation using the intrinsic value method prescribed in Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees,” (“APB 25”) and related interpretations. Accordingly, because the stock option grant price equaled the market price on the date of grant, and any purchase discounts under the Company’s stock purchase plans were within statutory limits, no compensation expense was recognized by for stock-based compensation. As permitted by SFAS No. 123, “Accounting for Stock-Based Compensation” (“SFAS 123”), stock-based compensation was included as a pro forma disclosure in the notes to the consolidated financial statements.

     Effective January 1, 2006 the Company adopted the fair value recognition provisions of SFAS 123R, and applied the provisions of Securities and Exchange Commission (“SEC”) Staff Accounting Bulletin No. 107, “Share-Based Payment” (“SAB 107”), using the modified-prospective transition method. Under this transition method, stock-based compensation expense is recognized in the consolidated financial statements for granted stock options and for expense related to the Employee Stock Purchase Plan (“ESPP”), since the related purchase discounts exceeded the amount allowed under SFAS 123R for non-compensatory treatment. Compensation expense recognized included the estimated expense for stock options granted on and subsequent to January 1, 2006, based on the grant date fair value estimated in accordance with the provisions of SFAS 123R, and the estimated expense for the portion vesting in the period for options granted prior to, but not vested as of December 31, 2005, based on the grant date fair value estimated in accordance with the original provisions of SFAS 123. Further, as required under SFAS 123R, forfeitures are estimated for share-based awards that are not expected to vest. Compensation expense for non-vested stock awards is based on the market price on the grant date and is recorded equally over the vesting period. Results for prior periods have not been restated, as provided for under the modified-prospective transition method.

     Determining the fair value of share-based awards at the grant date requires judgment, including estimating future volatility, expected term and the amount of share-based awards that are expected to be forfeited. If actual results differ significantly from these estimates, stock-based compensation expense and the Company’s results of operations could be materially impacted.

  Net Income (Loss) Per Share

     In accordance with SFAS No. 128, “Computation of Earnings Per Share,” (“SFAS 128”) basic income per share is computed by dividing net income by the weighted average number of shares of common stock outstanding during the period. Diluted income per share is computed by dividing net income by the weighted average number of common and dilutive common equivalent shares outstanding during the period. Common equivalent shares consist of shares issuable upon the exercise of stock options, warrants and issuance of shares under the ESPP using the treasury stock method. Common equivalent shares are excluded from the calculation if their effect is antidilutive.

56

     The following table sets forth the computation of basic and diluted net income per share:

CARDIAC SCIENCE CORPORATION. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

	Year ended December 31,
(in thousands, except share data)	2006		2005			2004
Numerator:
Net income (loss)	$	49	$	(1,238	)	$	15,068
Denominator:
Weighted average shares for basic calculation		22,502,040		14,695,261			10,236,838
Incremental shares from employee stock options and ESPP		53,286		—			577,842
Weighted average shares for diluted calculation		22,555,326		14,695,261			10,814,680

     The following table sets forth the number of antidilutive shares issuable upon exercise of stock options and warrants excluded from the computation of diluted income per share:

	Year ended December 31,
	2006		2005		2004
Antidilutive shares issuable upon exercise of stock options		2,296,587		3,339,624		175,253
Antidilutive shares issuable upon exercise of warrants		330,834		330,909		—
Total		2,627,421		3,670,533		175,253

Customer and Vendor Concentrations

     The following table summarizes the customers accounting for 10% or more of our total revenues:

	Year ended December 31,
Customer	2006			2005			2004
Customer 1		10.7	%		*			*
Customer 2		*			13.2	%		15.3	%

* Did not exceed 10%.

     The following table summarizes the vendors accounting for 10% or more of our purchases:

	Year ended December 31,
Vendor	2006			2005			2004
Vendor 1		11.9	%		*			*
Vendor 2		10.1	%		17.5	%		18.3	%

* Did not exceed 10%.

     Although components are available from other sources, a key vendor’s inability or unwillingness to supply components in a timely manner or on terms acceptable to the Company could adversely affect the Company’s ability to meet customers’ demands.

     Taxes Collected from Customers and Remitted to Governmental Authorities

     The Company uses the net method (excluded from revenue) for reporting taxes that are assessed by a governmental authority that are directly imposed on revenue-producing transactions, i.e. sales, use and value–added taxes.

     Reclassifications

     Certain reclassifications of prior period balances have been made for consistent presentation with the current period. These reclassifications had no impact on net income (loss) or shareholders’ equity as previously reported.

57

CARDIAC SCIENCE CORPORATION. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

      Recent Accounting Pronouncements

     In September 2006, the SEC issued Staff Accounting Bulletin No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements” (“SAB 108”). SAB 108 addresses how the effects of prior year uncorrected misstatements should be considered when quantifying misstatements in current year financial statements. SAB 108 requires an entity to quantify misstatements using a balance sheet and income statement approach and to evaluate whether either approach results in quantifying an error that is material in light of relevant quantitative and qualitative factors. SAB 108 is effective for fiscal years ending on or after November, 15, 2006. See Note 17 for further discussion.

     In July 2006, the FASB issued Interpretation No. 48, “Accounting for Uncertainty in Income Taxes — an interpretation of FASB Statement No. 109” (“FIN 48”). FIN 48 clarifies the recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006. The Company will adopt this interpretation effective January 1, 2007 as required. The adoption of FIN 48 is not expected to have a material impact on the Company’s consolidated financial statements.

     In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS 157”). This Statement defines fair value, establishes a framework for measuring fair value in accordance with U.S. generally accepted accounting principles and expands disclosures about fair value measurements. This Statement does not require any new fair value measurements; rather, it applies under other accounting pronouncements that require or permit fair value measurements. The provisions of SFAS 157 are effective for financial statements issued for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. The Company is currently evaluating the impact of this Statement on its consolidated financial statements.

     In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (“SFAS 159”). Under the provisions of SFAS 159, companies may choose to account for eligible financial instruments, warranties and insurance contracts at fair value on a contract-by-contract basis. Changes in fair value will be recognized in earnings each reporting period. SFAS 159 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. The Company is currently assessing the impact of this Statement on its consolidated financial statements.

2. Acquisitions

Merger Transaction with Cardiac Science, Inc.

     On September 1, 2005, the Company, Quinton and CSI completed the merger transaction which was accounted for as an acquisition of CSI by Quinton under the purchase method of accounting. Quinton was the acquiring entity for financial reporting purposes based on the criteria for determining the acquirer set forth in Financial Accounting Standards Board Statement No. 141, “Business Combinations”. Under the purchase method of accounting, the total estimated purchase price is allocated to the tangible and identifiable intangible assets acquired and liabilities assumed in connection with the merger transaction, based on their fair values as of the closing date. The excess of purchase price over the tangible and identifiable intangible assets acquired net of liabilities assumed is allocated to goodwill. Valuation specialists have conducted valuations in order to assist management in determining the fair values of the intangible and certain tangible assets acquired. The work performed by valuation specialists has been considered in management’s estimates of fair values.

     As a result of the merger transaction, there has been an ownership change within the meaning of Sections 382 and 383 of the Internal Revenue Code. As a result of such ownership change, the amount of taxable income in any year (or portions of a year) subsequent to the ownership change that may be offset by Quinton’s and CSI’s net operating losses (“NOL”s) from periods prior to the date of such ownership change generally cannot exceed the Section 382 limitation. Based on currently available information, the Company does not expect that the ownership change will materially affect the ultimate availability of Quinton’s NOLs or tax credit carryforwards to reduce tax liabilities in future taxable periods. The ownership change reduces the availability of a significant portion of CSI’s NOLs, and its tax credit carryforwards, to reduce future income tax liabilities.

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CARDIAC SCIENCE CORPORATION. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

     The purchase consideration of $181,075,000 was allocated to CSI assets and liabilities and consisted of the following:

• 11,467,753 shares of common stock valued at approximately $146,911,000 issued to CSI stockholders and senior note holders. The fair value of common stock issued is based on a per share value of $12.81, which is equal to Quinton’s average closing price per share as reported on The Nasdaq National Market for a five trading day period (two days before and after February 28, 2005), the announcement date of the merger transaction, adjusted by the Quinton exchange ratio.

• Cash payment of $20,000,000 to the CSI senior note holders.

• 1,229,881 vested options to purchase shares of common stock issued to CSI option holders, valued at $7,402,000 calculated using the Black-Scholes option-pricing model.

• 330,909 exercisable warrants to purchase shares of common stock issued to certain CSI warrant holders, valued at $1,320,000 calculated using the Black-Scholes option-pricing model.

• $3,198,000 in accrued liabilities related to estimated exit and severance costs.

• $2,244,000 in estimated transaction related costs of Quinton.

     The following table summarizes total purchase consideration:

	(in thousands)
Cash	$	20,000
Shares		146,911
Options		7,402
Warrants		1,320
Accrued liabilities		3,198
Transaction costs		2,244
Total	$	181,075

     The following table summarizes the fair values of assets acquired and liabilities assumed at September 1, 2005, the date on which the merger transaction was completed, with certain fair values adjusted in the twelve months ended August 31, 2006 as additional information became available. The initial allocations of purchase cost were recorded at fair value based upon the best information available to management and were finalized when the Company obtained information related to pre-acquisition contingencies which were identified at September 1, 2005. The fair values of property and equipment and intangible assets and liabilities were valued by an independent third party. During the nine months ended September 30, 2006, certain purchase accounting adjustments related to uncertainties of income tax matters resulting from the business combination and adjustments to other assets and liabilities were made as a result of obtaining information which the Company had previously arranged to obtain. Accordingly, there was a decrease to goodwill of approximately $3,602,000. The Company does not expect additional goodwill adjustments after the allocation period ended at September 1, 2006, with the exception of income taxes.

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CARDIAC SCIENCE CORPORATION. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

     The adjusted allocation of the purchase price is as follows:

	(in thousands)
Cash and cash equivalents	$	6,295
Accounts receivable, net of allowance for doubtful accounts		7,098
Inventories		11,826
Net deferred tax assets, current		3,106
Prepaid expenses and other current assets		2,548
Machinery and equipment		3,979
Net deferred tax assets, non-current		29,725
Other long-term assets		661
Intangible assets		31,360
Goodwill		98,990
Total assets acquired		195,588
Liabilities assumed		(14,513	)
Net assets acquired	$	181,075

     The adjustments made to goodwill for the year ended December 31, 2006 were as follows:

	Year ended
(In thousands)	December 31, 2006
Goodwill, as reported December 31, 2005	$	102,592
Increase in accounts receivable, net of allowance for doubtful accounts		(44	)
Decrease in inventories		1,513
Decrease in net deferred tax assets, current		4,593
Increase in prepaid expenses and other current assets		(1,135	)
Increase in net deferred tax assets, non-current		(8,225	)
Decrease in liabilities assumed		(304	)
Goodwill, end of period	$	98,990

     CSI’s finished goods inventories acquired as a part of the merger transaction were recorded at estimated selling prices less the sum of costs of disposal and a reasonable profit allowance for the selling effort, and raw materials inventories were recorded at estimated replacement cost. The purchase price allocated to inventories at September 1, 2005 exceeded CSI’s net book value by approximately $1,850,000. The increase in finished goods inventory value is being recorded as cost of revenues over the period that the related inventory is sold, of which approximately $1,600,000 was charged to cost of sales during the year ended December 31, 2005 and $250,000 during the quarter ended March 31, 2006.

     Intangible assets recorded in the business combination consist of the Cardiac Science trade name of $11,380,000, developed technology of $11,330,000 and customer relationships of $8,650,000. Management has not assigned value to any in-process research and development.

     The estimate of useful lives of each intangible asset was based on an analysis by management of all pertinent factors. These factors include the expected use of the asset by the Company, the expected useful life of another asset or a group of assets to which the useful life of an asset may relate, any legal, regulatory, or contractual provisions that may limit the useful life, any legal, regulatory, or contractual provisions that enable renewal or extension of the asset’s legal or contractual life without substantial cost, the effects of obsolescence, demand, competition, and other economic factors, and the level of maintenance expenditures required to obtain the expected future cash flows from the asset.

     Management estimated intangible asset useful lives as eight years for developed technology and five years for customer based intangibles, resulting in a weighted average useful life of acquired amortizable intangible assets of 6.7 years as of the acquisition date. Estimated annual expense for amortization of identifiable intangible assets approximates $3,146,000 for the first five years and $1,416,000 for the next three years.

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CARDIAC SCIENCE CORPORATION. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

     Management has concluded that no legal, regulatory, contractual, competitive, economic, or other factors limit the useful life of the Cardiac Science trade name and accordingly has considered the useful life of the trade name to be indefinite.

     Goodwill relating to previous CSI acquisitions of approximately $38,100,000 is expected to be deductible for tax purposes.

     The following unaudited pro forma data summarizes the results of operations for the years ended December 31, 2005 and 2004 as if the merger transaction had been completed as of January 1, 2005 for the year ended December 31, 2005, and as of January 1, 2004 for the year ended December 31, 2004. The pro forma data gives effect to actual operating results prior to the merger transaction, adjusted to include the pro forma effect of, among other things, increases in amortization expense of identified intangible assets, elimination of interest expense on retired debt and interest income on cash utilized to retire debt, and amortization of the increase in inventory:

	(unaudited)
	Year ended December 31,
(in thousands, except per share data)	2005			2004
Revenues	$	141,941		$	157,612
Net income (loss)	$	(61,502	)	$	3,847
Basic net income (loss) per share	$	(2.75	)	$	0.18

     Pro forma operating data for the year ended December 31, 2005 includes a goodwill impairment charge of $47,269,000 recorded by CSI during March 2005.

     Pro forma income tax benefits have been recorded for the years ended December 31, 2005 and 2004 on pro forma losses before income tax and minority interest calculated by applying the Company’s estimated pro forma effective tax rate of approximately 36% and 37%, respectively.

Minority Interest

     As part of the acquisition of Burdick, the Company acquired 56% ownership of Shanghai Burdick Medical Instrument Co., LTD., which became Shanghai-Quinton in 2004. The Shanghai-Quinton joint venture has a limited life of thirty years, terminating in 2030. If the joint venture is terminated, the Company would be required to liquidate the net assets of the joint venture and distribute proceeds to the partners. Assuming the joint venture were to have been terminated effective December 31, 2006, the Company estimates that such net proceeds would approximate the carrying value of the minority interest recorded in the accompanying consolidated balance sheet, which was approximately $75,000 at December 31, 2006.

3. Segment Reporting

     The Company follows the provisions of SFAS No. 131 “Disclosures about Segments of an Enterprise and Related Information” (“SFAS 131”) which established standards for reporting information about operating segments in annual financial statements and requires selected information about operating segments to be reported in interim financial reports issued to stockholders. It also established standards for related disclosures about products and services, geographic areas and major customers. An operating segment is defined as a component of an enterprise that engages in business activities from which it may earn revenues and incur expenses whose separate financial information is available and is evaluated regularly by the Company’s chief operating decision makers, or decision making group, to perform resource allocations and performance assessments.

     The Company’s chief operating decision makers are the Chief Executive Officer and other senior executive officers of the Company. Based on evaluation of the Company’s financial information, management believes that the Company operates in one reportable segment with its various cardiology products and services.

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CARDIAC SCIENCE CORPORATION. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

     The Company’s chief operating decision makers evaluate revenue performance of product lines, both domestically and internationally. However, operating, strategic and resource allocation decisions are based primarily on the Company’s overall performance in its operating segment.

     The following table summarizes revenues by product line:

	Year ended December 31,
(in thousands)	2006		2005		2004
Cardiac monitoring products	$	71,016	$	74,278	$	77,373
Defibrillation products		67,414		19,182		—
Service		16,999		13,190		12,230
Total	$	155,429	$	106,650	$	89,603

     The following table summarizes revenues, which are attributed based on the geographic location of the customers:

	Year ended December 31,
(in thousands)	2006		2005		2004
Domestic	$	117,497	$	92,409	$	83,696
Foreign		37,932		14,241		5,907
Total	$	155,429	$	106,650	$	89,603

     All intangible assets are domestic. Long-lived assets located outside of the United States are not material.

4. Restructuring costs

Restructuring Costs Associated with CSI Merger

     The merger transaction resulted in excess facilities and redundant employee positions. The Company accrued $1,418,000 of restructuring costs as part of the merger transaction purchase price for lease exit costs associated with the Irvine, California and Minnetonka Minnesota facilities and other operating leases. In addition, a restructuring liability with an estimated fair value of $1,291,000 was acquired in the merger transaction for facilities in Solon and Warrensville, Ohio, which had been previously vacated by CSI.

     Accrued exit costs relating to the Irvine, California lease were paid mainly in the first quarter of 2006. Accrued amounts for other vacated facilities will be paid over the lease terms of the Minnetonka, Minnesota and Solon and Warransville, Ohio facilities, which end in August 2007 and January 2009, respectively.

     The Company recorded charges of $233,000 and $1,589,000 for the year ended December 31, 2006 and 2005, respectively, which consisted of employee retention costs and other costs resulting from a reduction in force of 101 employees across all Company functions. These charges were recorded as part of operating expenses in the consolidated statements of operations.

     The Company recorded charges of $93,000 and $56,000 for the year ended December 31, 2006 and 2005, respectively, which consisted of costs related to vacated facilities. These charges were recorded as part of operating expenses in the consolidated statements of operations.

     Of the restructuring costs accrued at December 31, 2006, $679,000 was included in Other Liabilities and $971,000 was included in Accrued Liabilities. The remaining employee severance and retention costs will be paid out through August 2007.

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CARDIAC SCIENCE CORPORATION. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

     The following tables summarize restructuring activity during the years ended December 31, 2005 and 2006:

	Balance at		Accrued as Part							Balance at
	December 31,		of the Merger				Cash			December 31,
(in thousands)	2004		Transaction		Additions		Expenditures			2005
Vacated facilities	$	—	$	2,709	$	56	$	(514	)	$	2,251
Employee severance and retention costs		—		1,702		1,589		(1,478	)		1,813
Total	$	—	$	4,411	$	1,645	$	(1,992	)	$	4,064

	Balance at										Balance at
	December 31,				Cash						December 31,
(in thousands)	2005		Additions		Expenditures			Adjustments			2006
Vacated facilities	$	2,251	$	93	$	(808	)	$	(152	)	$	1,384
Employee severance and retention costs		1,813		233		(1,780	)		—			266
Total	$	4,064	$	326	$	(2,588	)	$	(152	)	$	1,650

5. Inventories

     Inventories were valued at the lower of cost, on an average cost basis, or market and were comprised of the following as of December 31:

(in thousands)	2006		2005
Raw materials	$	13,887	$	18,746
Finished goods		3,730		3,306
Total inventories	$	17,617	$	22,052

6. Machinery and Equipment

     Machinery and equipment includes the following as of December 31 (amounts in thousands):

	Depreciable
	Lives	2006			2005
Equipment	(2-14 years)	$	12,533		$	11,487
Furniture and fixtures	(2-13 years)		1,950			2,053
Leasehold improvements	(2-7 years)		1,718			1,656
Subtotal			16,201			15,196
Less: Accumulated depreciation and amortization			(10,245	)		(7,565	)
Net machinery and equipment		$	5,956		$	7,631

     During the years ended December 31, 2006, 2005 and 2004, the Company recorded depreciation expense related to machinery and equipment of $2,792,000, $1,840,000 and $1,251,000, respectively.

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CARDIAC SCIENCE CORPORATION. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

7. Intangible Assets

     The following table sets forth the balances of intangible assets at December 31, 2006 (in thousands):

				Accumulated
	Useful life	Cost		Amortization			Net
Intangible assets not subject to amortization:
Burdick trade name		$	3,400	$	—		$	3,400
Cardiac Science trade name			11,380		—			11,380
Intangible assets subject to amortization:
Cardiac Science customer relationships	5 years		8,650		(2,307	)		6,343
Cardiac Science developed technology	8 years		11,330		(1,888	)		9,442
Burdick distributor relationships	10 years		1,400		(560	)		840
Burdick developed technology	7 years		860		(491	)		369
Patents and patent applications	5-10 years		960		(865	)		95
Total		$	37,980	$	(6,111	)	$	31,869

     The Company recorded amortization expense related to identifiable intangibles of $3,469,000, $1,372,000, and $323,000 for the years ended December 31, 2006, 2005 and 2004, respectively.

     The Company’s estimated expense for the amortization of intangibles for each of the next five years is summarized as follows (in thousands):

2007	$	3,457
2008		3,419
2009		3,419
2010		2,720
2011		1,566
Thereafter		2,508

8. Investment in Unconsolidated Entities

     In connection with acquisition of certain entities, the Company received investments in certain unconsolidated entities. These are generally accounted for under either the cost method, for illiquid investments, or as available-for-sale, for investments with a readily determinable market value.

     As of December 31, the Company held the following investments (in thousands):

	2006		2005
ScImage	$	84	$	84
Biotel		370		370
Other		42		8
Total investment in unconsolidated entities	$	496	$	462

   ScImage

     The Company owns a preferred ownership investment in ScImage, a privately held company. The Company is entitled to earn commissions if it sells ScImage’s products. The Company has accounted for this investment using the cost method. In the fourth quarter of 2005, based on significant changes in circumstances which indicated a permanent impairment in value, the Company wrote down this investment to estimated fair value of $84,000. This resulted in a charge of $916,000 in 2005 recorded in other income (expense), net.

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CARDIAC SCIENCE CORPORATION. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

  Biotel, Inc.

     The Company owns approximately 6.8% of the outstanding shares of Biotel, a publicly traded company engaged in the development, manufacturing, and marketing of medical devices and related software. These shares were received through the merger with CSI and are valued based on quoted market price.

9. Goodwill

     In October 2002, the Company acquired the medical treadmill manufacturing business and related assets and technology rights from its previous supplier of these treadmills. The Company accounted for this transaction as a business combination and recorded goodwill of $926,000 in connection with this purchase.

     In January 2003, the Company purchased 100% of the stock of Spacelabs Burdick, Inc. (“Burdick”). The Company recorded goodwill of $9,027,000 in connection with this purchase.

     In June 2004, the Company reduced its goodwill by $263,000 in connection with the sale of its hemodynamic monitoring product line. In December 2004, in connection with reversing its valuation allowance against deferred tax assets, the Company decreased goodwill by approximately $618,000 due to net operating loss carryforwards resulting from the Company’s acquisition of Burdick.

     In connection with the September 2005 acquisition of Cardiac Science, Inc., the Company recorded goodwill of $98,990,000 and reduced acquired goodwill by $449,000 due to adjustments to registration costs.

10. Accrued Liabilities and Warranty

     Accrued liabilities are comprised of the following as of December 31 (amounts in thousands):

	2006		2005
Accrued compensation and benefits	$	5,019	$	5,329
Other accrued liabilities		4,871		6,589
Total accrued liabilities	$	9,890	$	11,918

     The Company’s warranty liability is summarized as follows (amounts in thousands):

					Purchase
					accounting
					adjustments
			Charged to		to estimated
	Beginning		product cost		fair value of		Warranty			End of
(in thousands)	of period		of revenues		acquired warranty		Expenditures			period
Year ended December 31, 2004	$	2,059	$	1,291	$	—	$	(1,257	)	$	2,093
Year ended December 31, 2005		2,093		1,611		479		(1,835	)		2,348
Year ended December 31, 2006		2,348		2,042		279		(2,137	)		2,532

11. Credit Facility

     Quinton established a line of credit in December 2002, which was assumed by the Company in the merger transaction. The credit agreement was amended in September 2005, and expires in September 2007. Borrowings under the line of credit are currently limited to the lesser of $20,000,000 or an amount based on eligible accounts receivable and inventories. Substantially all of the Company’s assets are pledged as collateral for the line of credit. This line of credit bears interest based at a rate equal to the lender’s prime rate, provided that the interest rate in effect shall not be less than 6.25% on any day. In addition, unused balances under this facility bear monthly fees equal to 0.25% per annum on the difference between the maximum credit limit and the sum of (i) the average daily principal balance during the month and (ii) the face amount of any letters of credit.

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CARDIAC SCIENCE CORPORATION. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

     As of December 31, 2006, the Company had capacity to borrow $20,000,000 based on eligible accounts receivable and eligible inventory, less letters of credit outstanding of $295,000. The credit facility contains standard negative covenants and restrictions on actions by the Company, including but not limited to, activity related to common stock repurchases, liens, investments, capital expenditures, indebtedness, restricted payments including cash payments of dividends, and fundamental changes in, or disposition of assets. Certain of these actions may be taken with the consent of the lender. In addition, the credit agreement requires that the Company meet certain financial covenants, namely a minimum tangible net worth measure, an adjusted quick ratio and certain reporting requirements. At December 31, 2006, the Company was in compliance with all covenants under the credit facility. At December 31, 2006 and 2005, the Company did not have any borrowings under this line of credit.

12. Income Taxes

     Income tax expense (benefit) for 2006, 2005 and 2004 includes the following components (amounts in thousands):

	Year ended December 31,
	2006			2005			2004
Current
Federal	$	—		$	—		$	77
State		—			73			47
Foreign		166			19			—
Total current provision		166			92			124
Deferred
Federal		(490	)		(1,388	)		(8,472	)
State		(291	)		(177	)		(542	)
Total deferred benefit		(781	)		(1,565	)		(9,014	)
Total provision benefit	$	(615	)	$	(1,473	)	$	(8,890	)

     A reconciliation of the United States statutory rate to the effective tax rates attributable to continuing operations follows:

	2006			2005			2004
Federal income tax provision (benefit) at U.S. statutory rates		(34.0	%)		(34.0	%)		34.0	%
Meals and entertainment		23.2	%		3.5	%		1.6	%
Stock-based compensation		44.3	%		—			—
Research and development credits		(131.8	%)		(23.4	%)		(6.5	%)
State income taxes, net of federal benefit		—			(0.5	%)		0.5	%
Exclusion for extraterritorial income		—			—			(0.8	%)
Change in deferred tax valuation allowance		—			—			(173.6	%)
Other		(0.9	%)		0.7	%		—
Benefit for income taxes		(99.2	%)		(53.7	%)		(144.8	%)

     At December 31, 2006, net operating loss carryforwards available to offset future taxable income were $111,117,000. FAS 109 requires the Company to reduce the deferred tax asset resulting from these (and other) future tax benefits by a valuation allowance if, based on the weight of the available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. The Company has determined that it is more likely than not that it will realize the benefit of all of its deferred tax assets, and accordingly, no valuation allowance against its deferred tax assets is required.

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CARDIAC SCIENCE CORPORATION. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

     For the year ended December 31, 2005, the Company was unprofitable, primarily as a result of the acquisition of Cardiac Science, Inc. This loss and the net operating loss carryforwards of the Company and the significant operating loss carryforwards of Cardiac Science, Inc., to which the Company succeeded, increased the Company’s net operating loss carryforwards available to offset future taxable income to $103,300,000.

     At December 31, 2004, based on its positive earnings trend and projected future operating income, the Company removed the valuation allowance against its deferred tax assets of $10,272,000. This resulted in the recognition of an income tax benefit of $8,956,000, an increase to stockholders’ equity of $698,000 for the tax benefits of stock option exercises and a decrease to goodwill of approximately $618,000 due to certain basis differences and net operating loss carryforwards resulting from the Company’s acquisition of Burdick, Inc. Of the total income tax benefit recognized, approximately $8,412,000 related to Federal deferred tax benefit with the remainder representing state deferred tax benefit.

     Deferred tax assets (liabilities) are comprised of the following as of December 31 (amounts in thousands):

	2006			2005
Deferred tax assets:
Net operating loss carryforwards	$	42,471		$	38,427
Stock-based compensation		1,516			1,172
Research and experimentation and alternative minimum tax credits		5,754			4,510
Inventory basis difference		1,197			1,555
Warranty liability		936			889
Deferred revenue/ gain/ loss		763			2,096
Accrued compensation/ severance/ relocation		673			1,671
Other assets		3,354			1,188
Other		816			1,531
Gross deferred tax assets		57,480			53,039
Deferred tax liabilities:
Burdick intangible assets		(447	)		(559	)
Burdick trade name intangible asset		(1,257	)		(1,156	)
Cardiac Science intangible assets		(7,063	)		(7,005	)
Cardiac Science trade name		(4,207	)		(4,211	)
Goodwill from treadmill line acquisition		(79	)		(62	)
Depreciation/amortization		—			(82	)
Gross deferred tax liabilities		(13,053	)		(13,075	)
Net deferred tax asset	$	44,427		$	39,964

     At December 31, 2006, the Company had net operating loss carryforwards of approximately $111,117,000 and $61,770,000 related to U.S. federal and state jurisdictions, respectively. In addition, the Company has Federal credit carryforwards of $3,835,000, and state credit carryforwards of $1,919,000. The Federal and state net operating loss carryforwards expire in varying amounts between 2006 and 2025. The Federal tax credit carryforwards expire in varying amounts between 2018 and 2025, while most of the state credits have no expiration.

     Sections 382 and 383 of the Internal Revenue Code of 1986, as amended, provide for limitations on the utilization of net operating loss and research and experimentation credit carryforwards if the Company were to undergo an ownership change, as defined in Section 382. The acquisition by the Company of Quinton Cardiology Systems, Inc., and Cardiac Science, Inc., resulted in such an ownership change. Accordingly, the annual utilization of net operating loss and credit carryforwards are estimated to be limited to an amount between $7,500,000 and $9,750,000 in years 2006 through 2010, and $3,279,000 from 2011 through 2025.

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CARDIAC SCIENCE CORPORATION. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

     The domestic and foreign components of pre-tax earnings (losses) were as follows for the years ended December 31 (in thousands):

	Year ended December 31,
	2006			2005			2004
U.S.	$	(1,184	)	$	(2,679	)	$	6,237
Foreign		564			(63	)		(98	)
Total	$	(620	)	$	(2,742	)	$	6,139

     The company has not provided for U.S. federal income and foreign withholding taxes on any undistributed earnings from non-U.S. operations because such earnings are intended to be reinvested indefinitely outside of the United States. If these earnings were distributed, foreign tax credits may become available under current law to reduce or eliminate the resulting U.S. income tax liability. The Company has completed the evaluation of its position with respect to the indefinite reinvestment of foreign earnings to take into account the repatriation provisions contained in the American Jobs Creation Act of 2004. Such evaluation resulted in no change in the Company’s position regarding distribution of foreign earnings and none were repatriated.

13. Commitments and Contingencies

   Lease Commitments

     The Company leases its office facilities in the U.S. and its international sales offices under operating leases. The operating lease related to the Bothell, Washington corporate headquarters is a non-cancelable facility lease agreement that expires on December 31, 2013. The operating lease for the office, production and warehouse facilities in Deerfield, Wisconsin is a non-cancelable facility lease agreement that expires on November 30, 2008 with two five-year renewal options. In connection with the acquisition of CSI, the Company acquired a leased facility in Lake Forest, California, which houses certain research and development operations. This facility comprises approximately 10,000 square feet and the lease expires in 2008. Additionally, the Company acquired international sales and marketing offices in Copenhagen, Denmark, Manchester, England, and Beijing, China. The Company also leases equipment under non-cancelable operating leases.

     Future minimum lease payments for all non-cancelable leases are as follows (amounts in thousands):

			Operating
			Leases, Net
	Operating		of Sublease
	Leases		Income
Year:
2007	$	2,855	$	2,522
2008		2,441		2,249
2009		862		846
2010		741		741
2011		753		753
Thereafter		1,812		1,812
Total	$	9,464	$	8,923

     Net rental expense, including common area maintenance costs, during 2006, 2005 and 2004 was approximately $1,601,000, $1,252,000 and $1,165,000, respectively.

   Other Commitments

     As of December 31, 2006, the Company had purchase obligations of approximately $31,165,000 consisting of outstanding purchase orders issued in the normal course of business.

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CARDIAC SCIENCE CORPORATION. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

  Guarantees and Indemnities

     During its normal course of business, the Company has made certain guarantees, indemnities and commitments under which it may be required to make payments in relation to certain transactions. These indemnities include intellectual property and other indemnities to the Company’s customers and suppliers in connection with the sales of its products, and indemnities to directors and officers of the Company to the maximum extent permitted under the laws of the State of Delaware. Historically, the Company has not incurred any losses or recorded any liabilities related to performance under these types of indemnities.

   Performance Guarantees

     At December 31, 2006, the Company’s Danish subsidiary had bank performance guarantees totaling 338,000 Danish Kroner (approximately $60,000 in U.S. dollars) that were issued in 1999 through 2000 in connection with sales contracts to foreign governments. These bank performance guarantees have all expired but are not officially released until the customer notifies the bank that renewal is not required. The Company has no further performance obligations under these contracts other than providing normal warranty service on the products sold under the contracts. In addition, the Company had performance bonds of $295,000 outstanding at December 31, 2006 which were collateralized by letters of credit issued by Silicon Valley Bank in connection with various sales contracts or financing arrangements.

   Legal Proceedings

     In February 2003, a patent infringement action was brought initially by CSI against Philips Medical Systems North America, Inc., Philips Electronics North America Corporation and Koninklijke Philips Electronics N.V. (“Philips”) in the United States District Court for the District of Minnesota. The suit alleges that certain of Philips’ automated external defibrillators infringe certain of the Company’s United States patents including, among others, patents relating to pre-connected disposable defibrillation electrodes and daily self-testing of electrodes and batteries. In the same action, Philips counterclaimed, alleging that the Company’s automated external defibrillators infringe certain of Philips’ patents, including, among others, patents relating to self testing of automated external defibrillators. At this stage, the Company is unable to predict the outcome of this litigation and has not established an accrual for this matter because a loss is not determined to be probable. The Company intends to continue to defend this counter claim vigorously.

     In March 2004, William S. Parker brought suit against CSI for patent infringement in the United States District Court for the Eastern District of Michigan. The Parker patent generally covers the use of a synthesized voice to instruct a person to perform certain tasks. The Complaint alleges that certain of the Company’s AEDs infringe the patent. The patent is now expired. The Company has filed an Answer to the Complaint stating the patent is not infringed and is otherwise invalid and unenforceable. The patent was submitted for reexamination before the United States Patent and Trademark Office and emerged from reexamination in December 2005. In January 2006, the District Court issued an order lifting the stay in the litigation. Currently, the litigation is proceeding through discovery. At this stage, the Company is unable to predict the outcome of this litigation. The Company has not established an accrual for this matter because it has determined that a loss is not probable. The Company intends to defend against this suit vigorously.

     In March, 2006, the Institute of Applied Management and Law, Inc. (IAML) commenced an arbitration against CSI for alleged failure to perform on a marketing agreement. The Company believes that IAML’s interpretation of the agreement is unfounded and is contesting IAML’s claim. At this stage, the Company is unable to predict the outcome of this action. The Company has not established an accrual for this matter because it has determined a loss is not probable. The Company intends to defend against this claim vigorously.

     We are subject to other various legal proceedings arising in the normal course of business. In the opinion of management, the ultimate resolution of these proceedings is not expected to have a material effect on our consolidated financial position, results of operations or cash flows.

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CARDIAC SCIENCE CORPORATION. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

14. Shareholders’ Equity

   Preferred Stock

     The Company is authorized to issue a total of 10,000,000 shares of preferred stock, no shares of which were issued or outstanding as of December 31, 2006 and 2005. The Board of Directors is authorized to determine or alter the rights, preferences, privileges and restrictions granted to or imposed upon any wholly unissued series of preferred stock.

   Common Stock

     The Company is authorized to issue a total of 65,000,000 shares of common stock.

     In June 2004, the Company consummated a public offering of its common stock as more fully described in its prospectus dated May 25, 2004 filed with the Securities and Exchange Commission. In the offering, the Company sold 1,239,571 shares of common stock, adjusted to reflect the merger conversion ratio, at a price of $13.60 per share. Proceeds from the offering were approximately $15,451,000, net of underwriting discounts and offering expenses. In addition, a selling shareholder, as named in the prospectus, sold 1,075,976 shares of common stock, adjusted to reflect the merger conversion ratio, in this offering. The Company did not receive any proceeds from the sale of shares by the selling shareholder.

     On September 1, 2005, in conjunction with the merger with CSI, stockholders of Quinton received 0.77184895 shares of Company common stock (“common stock”) for each common share of Quinton held on the closing date, or approximately 48.8% of the total outstanding common stock of the Company. Stockholders of CSI received 0.10 shares of common stock for each common share of CSI held on the closing date, or approximately 51.2% of the total outstanding common stock of the Company, which percentage includes 2,843,915 shares of common stock issued to the CSI senior note holder on the closing date. In addition, each outstanding stock option, warrant and right to purchase common stock issued by Quinton and CSI prior to the merger transaction assumed by the Company became a right to purchase a number of shares of Company common stock at an exercise price adjusted in accordance with the appropriate exchange ratio in the merger transaction.

The following table summarizes warrants assumed in connection with the merger transaction that were outstanding and exercisable at December 31, 2006:

	Warrants
	Outstanding and		Exercise Price		Expiration
Grant Date	Exercisable		per Share		Date
1997		7,500	$	22.50		2007
2002		1,500		18.00		2007
2002		2,500		17.50		2012
2003		1,500		32.70		2008
2003		75,000		30.00		2007
2003		10,000		46.10		2008
2003		22,333		50.00		2008
2004		1,500		19.50		2009
2004		208,776		25.00		2009
Total		330,609
Weighted average exercise price			$	28.33

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CARDIAC SCIENCE CORPORATION. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

15. Stock-Based Compensation Plans

     The Company maintains several stock equity incentive plans under which it may grant non-qualified stock options, incentive stock options and non-vested stock awards to employees, non-employee directors and consultants. The Company also has an employee stock purchase plan (“ESPP”).

     Prior to the January 1, 2006 adoption of the Financial Accounting Standards Board (“FASB”) Statement No. 123(R), “Share-Based Payment” (“SFAS 123R”), the Company accounted for stock-based compensation to employees using the intrinsic value method prescribed in Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations. Accordingly, because the stock option grant price equaled the market price on the date of grant, and any purchase discounts under the Company’s stock purchase plans were within statutory limits, no compensation expense was recognized by the Company for stock-based compensation. As permitted by SFAS No. 123, “Accounting for Stock-Based Compensation” (“SFAS 123”), stock-based compensation was included as a pro forma disclosure in the notes to the consolidated financial statements.

     Effective January 1, 2006, the Company adopted the fair value recognition provisions of SFAS 123R, using the modified-prospective transition method and applied the provisions of Securities and Exchange Commission Staff Accounting Bulletin No. 107, “Share-Based Payment” (“SAB 107”). Under this transition method, stock-based compensation expense is recognized in the consolidated financial statements for grants of stock options and for purchases under the ESPP since the ESPP purchase discounts exceed the amount allowed under SFAS 123R for non-compensatory treatment. Compensation expense recognized includes the estimated expense for stock options granted on and subsequent to January 1, 2006, based on the grant date fair value estimated in accordance with the provisions of SFAS 123R, and the estimated expense for the portion vesting in the period for options granted prior to, but not vested as of December 31, 2005, based on the grant date fair value estimated in accordance with the original provisions of SFAS 123. Further, as required under SFAS 123R, forfeitures are estimated for share-based awards that are not expected to vest. Results for prior periods have not been restated, in accordance with the modified-prospective transition method. Prior to the adoption of SFAS 123R, benefits of tax deductions in excess of recognized compensation costs were reported as operating cash flows. SFAS 123R requires the benefits of tax deductions in excess of the compensation cost recognized for those options to be classified as financing cash inflows rather than operating cash inflows, on a prospective basis. This amount would be shown as “Excess tax benefit from exercise of stock options” on the consolidated statement of cash flows. There were no realized excess tax benefits in the year ended December 31, 2006.

     Total stock-based compensation expense recognized in the consolidated statement of operations for the years ended December 31, 2006, 2005 and 2004 was approximately $2,028,000, $58,000 and $73,000, respectively. The related tax benefit recognized in the consolidated statement of operations for the year ended December 31, 2006 was approximately $375,000 and was insignificant for the years ended December 31, 2005 and 2004. Stock-based compensation of $34,000 was capitalized and included in inventory in the consolidated balance sheet at December 31, 2006. Total stock-based compensation (including capitalized costs) consisted of stock option, ESPP, non-vested stock awards and vested stock awards expense totaling $1,548,000, $216,000, $285,000 and $13,000, respectively for the year ended December 31, 2006. The Company issues new shares upon the exercise of stock options, grants of stock awards and purchases through the ESPP.

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CARDIAC SCIENCE CORPORATION. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

     The following table presents the impact of the Company’s adoption of SFAS 123R on selected line items from the Company’s condensed consolidated financial statements for the year ended December 31, 2006:

	Year ended
	December 31, 2006
	As Reported			If Reported
	Following			Following
(in thousands, except per share data)	SFAS 123R			APB 25
Condensed Consolidated Statement of Operations:
Operating income (loss)	$	(1,386	)	$	344
Income (loss) before income taxes and minority interest	$	(620	)	$	1,110
Net income	$	49		$	1,548
Net income per share:
Basic	$	0.00		$	0.07
Diluted	$	0.00		$	0.07
Condensed Consolidated Statement of Cash Flows:
Net cash provided by operating activities	$	8,683		$	8,683
Net cash provided by financing activities	$	897		$	897

     The following table shows the effect on net income (loss) and earnings (loss) per share for the years ended December 31, 2005 and 2004 had compensation cost been recognized based upon the estimated fair value on the grant date of stock options (or the purchase date of the stock purchased under the ESPP, as applicable), in accordance with SFAS 123, as amended by SFAS No. 148 “Accounting for Stock-Based Compensation – Transition and Disclosure” (“SFAS 148”) for the years ended December 31, 2005 and 2004. Disclosures for the year ended December 31, 2006 are not presented because the amounts are recognized in the consolidated financial statements.

	Year ended December 31,
(in thousands, except per share data)	2005			2004
Net income (loss) — as reported	$	(1,238	)	$	15,068
Add back: Stock-based employee compensation expense included in reported income, net of related tax effects		58			73
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effect of $926 and $376, respectively		(3,673	)		(1,737	)
Net income (loss) — pro forma	$	(4,853	)	$	13,404
Net income (loss) per share as reported — basic	$	(0.08	)	$	1.47
Net income (loss) per share as reported — diluted	$	(0.08	)	$	1.39
Net income (loss) per share pro forma — basic	$	(0.33	)	$	1.31
Net income (loss) per share pro forma — diluted	$	(0.33	)	$	1.28

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CARDIAC SCIENCE CORPORATION. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

     The fair value of each option grant and ESPP purchase is estimated using the Black-Scholes option-pricing model with the following weighted-average assumptions, and the fair value of the non-vested stock awards is calculated based on the market value of the shares awarded at date of grant:

	Year ended December 31,
	2006			2005			2004
Stock options plans:
Volatility		52.6% - 56.0	%		59.0% - 62.0	%		70.0	%
Expected term (years)		6.25			6.25			7.00
Risk-free interest rate		4.6	%		4.5	%		3.8	%
Expected dividend yield		—			—			—
Fair value of options granted	$	4.99		$	5.71		$	8.29
Employee stock purchase plan:
Volatility		34.0	%		64.6	%		70.0	%
Expected term (years)		0.5			0.5			0.5
Risk-free interest rate		4.4	%		2.7	%		2.0	%
Expected dividend yield		—			—			—
Fair value of employee stock purchase rights	$	2.37		$	4.44		$	3.29
Non-vested stock:
Fair value of non-vested stock awards granted	$	8.25		$	—		$	—

     Volatility is based exclusively on historical volatility of the Company’s common stock as the Company believes this is representative of future volatility. Expected term represents the estimated period of time until exercise and is based on historical experience of similar awards, giving consideration to the contractual terms, vesting schedules and expectations of future employee behavior. The risk-free interest rate is based on the implied yield available on U.S. Treasury zero-coupon issues with an equivalent remaining term. The Company has not paid dividends in the past and does not plan to pay any dividends in the near future.

     The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options, which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions, particularly for the expected term and expected stock price volatility. The Company’s employee stock options have characteristics significantly different from those of traded options, and changes in the subjective input assumptions can materially affect the fair value estimate. While estimates of fair value and the associated charge to earnings materially affect the Company’s results of operations, it has no impact on the Company’s cash position. Because Company stock options do not trade on a secondary exchange, employees do not derive a benefit from holding stock options unless there is an increase, above the exercise price, in the market price of the Company’s stock. Such an increase in stock price would benefit all shareholders commensurately.

      Stock Option Plans — Stock options to purchase the Company’s common stock are granted at prices at or above the fair market value on the date of grant. Options held by employees generally vest 25% after one year from the date of the grant and then monthly thereafter and generally expire 10 years from the date of grant. Options granted to non-employee directors generally vest over one year.

     The fair value of each stock option granted is estimated on the date of grant using the Black-Scholes option valuation model. The assumptions used to calculate the fair value of options granted are evaluated and revised, as necessary, to reflect market conditions and the Company’s experience. Compensation expense is recognized only for those options expected to vest, with forfeitures estimated at the date of grant based on the Company’s historical experience and future expectations. Prior to the adoption of SFAS 123R, the effect of forfeitures on the pro forma expense amounts was not included as an assumption affecting disclosed pro forma compensation.

     The aggregate intrinsic values indicated in the tables below are before applicable income taxes, based on the Company’s closing stock price of $8.07 as of the last business day of the year ended December 31, 2006, which would have been received by the optionees had all options been exercised on that date.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

     As of December 31, 2006, total unrecognized stock-based compensation expense related to nonvested stock options was approximately $3,351,000, which is expected to be recognized over a weighted average period of approximately 3.3 years. The total intrinsic value of stock options exercised during the years ended December 31, 2006, 2005 and 2004 was $521,000, $190,000 and $977,000, respectively. The total fair value of shares vested during the years ended December 31, 2006, 2005 and 2004 was $1,438,000, $3,731,000 and $1,742,000, respectively. The Company issues new shares of common stock upon the exercise of options.

     The following shares of common stock have been reserved for issuance under the Company’s stock-based compensation plans as of December 31, 2006:

Outstanding shares - 2002 Plan	2,180,550
Outstanding shares - 1997 Plan	1,159,505
Stock options available for grant	621,087
Outstanding restricted stock grants	159,409
Employee stock purchase plan shares available for issuance	567,894
Total common shares reserved for future issuance	4,688,445

     2002 Plan — In February 2002, Quinton’s board of directors adopted and Quinton’s shareholders approved the 2002 Stock Incentive Plan (the “2002 Plan”), which became effective upon completion of Quinton’s initial public offering in May 2002 and was assumed by the Company in connection with the merger transaction. The 2002 Plan replaced Quinton’s 1998 Equity Incentive Plan (the “1998 Plan”) for purposes of all future incentive stock awards. The 2002 Plan allows the Company to issue awards of incentive or nonqualified stock options, shares of common stock or units denominated in common stock, all of which may be subject to restrictions. The 2002 Plan authorizes annual increases in shares for issuance equal to the lesser of (i) 526,261 shares, (ii) 3% of the number of shares of common stock outstanding on a fully diluted basis as of the end of the Company’s immediately preceding fiscal year, and (iii) a lesser amount established by the Company’s board of directors. Any shares from increases in previous years that are not issued will continue to be included in the aggregate number of shares available for future issuance.

     Options held by employees generally vest 25% after one year from the date of the grant and then monthly thereafter over a three and one-half to four year period. The term of the options is for a period of ten years or less. Options generally expire 90 days after termination of employment. The Company has also adopted a stock option grant program for non-employee directors, administered under the terms and conditions of the 2002 Plan.

     The following table summarizes information about the 2002 Plan option activity during the year ended December 31, 2006:

	Shares			Weighted Average		Weighted Average	Aggregate Intrinsic
	Subject to			Exercise Price		Remaining	Value
	Options			per Share		Contractual Life	(in thousands)
Outstanding, December 31, 2005		1,960,525		$	7.67
Granted		435,000			8.87
Exercised		(79,013	)		2.91
Cancelled		(135,962	)		9.99
Outstanding, December 31, 2006		2,180,550		$	7.92	6.7 years	$	3,234
Exercisable, December 31, 2006		1,607,944		$	7.32	6.0 years	$	3,234

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CARDIAC SCIENCE CORPORATION. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

     The following information is provided for 2002 Plan options outstanding and exercisable at December 31, 2006:

	Outstanding					Exercisable
					Weighted-
			Weighted-		Average			Weighted-
			Average		Remaining			Average
	Number of		Exercise		Contractual	Number of		Exercise
Range of Exercise Prices	Options		Price		Life	Options		Price
$0.00 - $1.08		31,634	$	0.29	1.9 years		31,634	$	0.29
$1.09 - $2.42		6,138		1.31	2.4 years		6,138		1.31
$2.43 - $3.25		553,592		2.85	3.7 years		553,592		2.85
$3.26 - $4.51		4,321		4.27	5.0 years		4,321		4.27
$4.52 - $7.59		7,718		6.99	6.2 years		7,718		6.99
$7.60 - $8.79		548,621		8.18	8.6 years		180,849		7.77
$8.80 - $10.84		579,418		9.84	7.4 years		565,537		9.83
$10.85 - $12.95		440,620		12.00	7.6 years		250,083		12.15
$12.96 - $14.25		8,488		13.34	7.5 years		8,072		13.36
$0.00 - $14.25		2,180,550	$	7.92	6.7 years		1,607,944	$	7.32

     1997 Plan — The Company assumed CSI’s 1997 Stock Option/Stock Issuance Plan (the “1997 Plan”) in connection with the merger transaction. The 1997 Plan provides for the granting of incentive or nonqualified stock options, subject to the limitations under applicable Nasdaq rules described below, to employees of the Company, including officers, and nonqualified stock options to employees, including officers and directors of the Company, as well as to certain consultants and advisors. Shares authorized under the 1997 Plan are subject to adjustment upon the occurrence of certain events, including, but not limited to, stock dividends, stock splits, combinations, mergers, consolidations, reorganizations, reclassifications, exchanges, or other capital adjustments. Shares that are forfeited or repurchased or otherwise cease to be subject to awards without shares being issued under the 1997 Plan will again be available for issuance under the 1997 Plan.

     All options outstanding under the 1997 Plan immediately prior to the merger transaction became fully vested and immediately exercisable as a result of the merger transaction. Pursuant to Nasdaq rules, (a) employees, directors, independent contractors, and advisors of CSI prior to the merger transaction and any new employees, directors, independent contractors, and advisors of the Company after the merger transaction, will be eligible to receive awards under the 1997 Plan and (b) any employees, directors, independent contractors, or advisors of Quinton prior to the merger transaction will not be eligible to receive awards under the 1997 Plan.

     The following table summarizes information about the 1997 Plan option activity during the year ended December 31, 2006:

	Shares			Weighted Average		Weighted Average	Aggregate Intrinsic
	Subject to			Exercise Price		Remaining	Value
	Options			per Share		Contractual Life	(in thousands)
Outstanding, December 31, 2005		1,274,748		$	25.04
Granted		52,500			8.38
Cancelled		(167,743	)		23.42
Outstanding, December 31, 2006		1,159,505		$	24.50	6.0 years	$	—
Exercisable, December 31, 2006		1,100,655		$	25.26	5.8 years	$	—

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CARDIAC SCIENCE CORPORATION. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

     The following information is provided for 1997 Plan options outstanding and exercisable at December 31, 2006:

	Outstanding					Exercisable
					Weighted-
			Weighted-		Average			Weighted-
			Average		Remaining			Average
	Number of		Exercise		Contractual	Number of		Exercise
Range of Exercise Prices	Options		Price		Life	Options		Price
$7.60 - $8.79		52,500	$	8.38	10.0 years		—	$	—
$8.80 - $10.84		63,825		9.12	8.8 years		63,825		9.12
$10.85 - $12.95		8,800		11.10	8.3 years		8,800		11.10
$12.96 - $17.50		115,975		17.39	5.8 years		114,725		17.38
$17.51 - $20.60		537,175		20.30	5.2 years		534,675		20.31
$20.61 - $22.40		10,950		22.22	6.5 years		10,950		22.22
$22.41- $24.60		55,645		24.20	5.7 years		55,645		24.20
$24.61 - $26.00		32,000		26.00	6.4 years		32,000		26.00
$26.01 - $36.50		24,500		35.20	6.9 years		24,400		35.20
$36.51 - $41.50		196,742		39.96	6.1 years		194,242		39.98
$41.51 - $50.70		29,500		46.05	6.2 years		29,500		46.05
$50.71 - $60.00		31,893		58.37	3.6 years		31,893		58.37
$7.60 - $60.00		1,159,505	$	24.50	6.0 years		1,100,655	$	25.26

     Non-vested Stock Awards — In the fourth quarter of 2005, the Company began granting employees non-vested stock awards in addition to stock options. The stock award program offers employees the opportunity to earn shares of our stock over time, rather than options that give employees the right to purchase stock at a set price. Non-vested stock awards require no payment from the employee, with the exception of employee-related federal taxes.

     Non-vested stock awards are grants that entitle the holder to shares of common stock as the award vests. Our stock awards generally vest ratably over a four-year period in annual increments. Compensation cost is recorded based on the market price on the grant date and is recorded equally over the vesting period of four years. Compensation expense related to non-vested stock awards approximated $285,000 during the year ended December 31, 2006.

     As of December 31, 2006, total unrecognized stock-based compensation expense related to non-vested stock awards was approximately $1,239,000, which is expected to be recognized over a weighted average period of approximately 3.3 years.

     The following table summarizes information about the non-vested stock awards activity during the year ended December 31, 2006:

				Weighted Average
	Shares			Grant-Date Fair Value
Non-vested balance, December 31, 2005		104,350		$	9.38
Granted		101,650			8.25
Vested		(23,516	)		9.39
Cancelled		(23,075	)		9.08
Non-vested balance, December 31, 2006		159,409		$	8.70

     Employee Stock Purchase Plan — The Company has an Employee Stock Purchase Plan (“ESPP”) which was established by Quinton in 2002 and was assumed by the Company in connection with the merger transaction. The ESPP permits eligible employees to purchase common stock through payroll deductions. Shares of our common stock may presently be purchased by employees at three month intervals at 85% of the fair market value on first day of the offering period or the last day of each three month purchase period. Employees may purchase shares having a value not exceeding 15% of their gross compensation during an offering period, not to exceed 525 shares during an offering period. The Company initially reserved 175,420 shares for issuance under the ESPP. In addition, the ESPP

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

authorizes annual increases in shares for issuance equal to the lesser of (i) 175,420 shares, (ii) 2% of the number of shares of common stock outstanding on a fully diluted basis as of the end of the Company’s immediately preceding fiscal year, and (iii) a lesser amount established by the Company’s board of directors. Any shares from increases in previous years that are not actually issued will continue to be included in the aggregate number of shares available for future issuance.

     The Company issued 92,199 shares of common stock during the year ended December 31, 2006 in connection with the ESPP and received total proceeds of $665,000. Prior to the adoption of SFAS 123R, the Company did not record compensation expense related to the ESPP. During the year ended December 31, 2006, the Company recorded stock-based compensation expense for the ESPP of approximately $216,000.

16. Employee Benefit Plans

     The Company is the sponsor of the Cardiac Science Corporation (formerly Quinton Cardiology Inc.) 401(k) Plan (“401(k) Plan”). The 401(k) Plan covers all regular employees of the Company who satisfy certain age and service requirements as specified in the 401(k) Plan. The 401(k) Plan includes provision for an employee deferral of up to 50% of pre-tax compensation to the maximum deferral allowed under IRC 2005 guidelines, and up to 50% of compensation for after-tax deferral. On behalf of eligible participants, the Company may make a Matching Contribution equal to a discretionary percentage of the elective deferral up to the Plan’s established limits and is subject to the Plan’s vesting schedule. The Company made matching contributions of approximately $761,000, $573,000 and $550,000 for the years ended December 31, 2006, 2005 and 2004, respectively. As of December 31, 2006 and 2005, the Company had accrued $38,000 and $27,000, respectively, for matching plan contributions.

     The Company acquired the Cardiac Science, Inc. 401(k) Retirement Plan (the “401(k) Plan”) in connection with the merger transaction. The 401(k) Plan covers former regular CSI employees who meet the eligibility requirements. The 401(k) Plan includes provision for an employee deferral of up to 25% of pre-tax compensation to the maximum deferral allowed under IRC 2005 guidelines. The Company made matching contributions of approximately $55,000 for the year ended December 31, 2006. The Company did not contribute to the plan in 2005. This plan was merged into the Cardiac Science Corporation 401(k) Plan on December 1, 2006.

17. SEC Staff Accounting Bulletin No. 108

     As discussed under Recent Accounting Pronouncements in Note 1, in September 2006, the SEC released SAB 108. The transition provisions of SAB 108 permit the Company to adjust for the cumulative effect on accumulated deficit of errors relating to prior years which were previously considered immaterial under the rollover method of evaluating errors. Such adjustments do not require previously filed reports with the SEC to be amended. Effective the beginning of the fiscal year ended December 31, 2006, the Company adopted SAB 108. In accordance with SAB 108, the Company has adjusted the beginning accumulated deficit for an error which would be material under the iron curtain method for fiscal 2006 in the accompanying consolidated financial statements for the item described below. The Company considers this adjustment to be immaterial to prior periods under the rollover method.

Lease Accounting

     Accounting for a lease was not in accordance with U.S. generally accepted accounting principles, for which a SAB 108 adjustment was made to deferred rent in the amount of $216,000. This was recorded as an adjustment to accumulated deficit in the amount of $136,000 and deferred taxes in the amount of $80,000, to properly reflect the amount, net of tax, as an adjustment to beginning retained earnings.

77

CARDIAC SCIENCE CORPORATION. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

18. Quarterly Results of Operations (Unaudited)

     The following table sets forth selected unaudited quarterly operating data for the last eight quarters. This information has been prepared on the same basis as our audited consolidated financial statements and includes, in the opinion of management, all normal and recurring adjustments that management considers necessary for a fair statement of the quarterly results for the periods. The operating results and data for any quarter are not necessarily indicative of the results for future periods. Since the Company, Cardiac Science Corporation, is deemed to be the successor to Quinton for accounting purposes, the Company’s consolidated financial statements represent the historical statements of Quinton and include CSI’s results of operations since September 1, 2005. Shares and earnings per share prior to September 30, 2005 have been retroactively adjusted to reflect the merger conversion ratio.

     The table below presents quarterly data for the years ended December 31, 2005 and 2006 (in thousands, except per share data):

	March 31,			June 30,			September 30,			December 31,			March 31,			June 30,			September 30,			December 31,
	2005			2005			2005			2005			2006			2006			2006			2006
Consolidated Statements of Operations Data:
Revenues	$	21,330		$	21,968		$	27,446		$	35,906		$	39,115		$	39,221		$	38,116		$	38,977
Cost of Revenues		11,564			12,093			15,168			20,969			20,722			20,631			20,048			20,794
Gross profit		9,766			9,875			12,278			14,937			18,393			18,590			18,068			18,183
Operating Expenses:
Research and development		1,809			1,908			2,262			3,374			2,970			2,875			2,792			3,096
Sales		3,968			3,944			5,666			7,860			7,543			8,059			8,443			8,843
Marketing		689			648			935			1,247			1,840			1,855			1,602			1,775
General and administrative		2,045			2,266			4,697			6,118			5,811			5,916			5,863			5,337
Total operating expenses		8,511			8,766			13,560			18,599			18,164			18,705			18,700			19,051
Operating income (loss)		1,255			1,109			(1,282	)		(3,662	)		229			(115	)		(632	)		(868	)
Other Income (Expense):
Interest income (expense), net		113			145			123			(56	)		(50	)		(5	)		18			21
Other income (expense), net		61			53			34			(635	)		231			274			94			183
Total other income (expense)		174			198			157			(691	)		181			269			112			204
Income (loss) before income tax benefit (expense) and minority interest		1,429			1,307			(1,125	)		(4,353	)		410			154			(520	)		(664	)
Income tax benefit (expense)		(470	)		(434	)		558			1,819			(159	)		(49	)		209			614
Income (loss) before minority interest		959			873			(567	)		(2,534	)		251			105			(311	)		(50	)
Minority interest		20			6			(2	)		7			13			13			13			15
Net income (loss)	$	979		$	879		$	(569	)	$	(2,527	)	$	264		$	118		$	(298	)	$	(35	)
Net income (loss) per share — basic	$	0.09		$	0.08		$	(0.04	)	$	(0.11	)	$	0.01		$	0.01		$	(0.01	)	$	(0.00	)
Net income (loss) per share — diluted	$	0.09		$	0.08		$	(0.04	)	$	(0.11	)	$	0.01		$	0.01		$	(0.01	)	$	(0.00	)

78

SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS

(In Thousands)

     A summary of the activity in the allowance for doubtful accounts follows:

			Increase		Expenses
	Beginning		Through		and					End of
(in thousands)	of Period		Acquisition		Adjustments		Write-offs			Period
Year Ended December 31, 2006	$	3,455	$	—	$	216	$	(2,764	)	$	907
Year Ended December 31, 2005		655		2,597		478		(275	)		3,455
Year Ended December 31, 2004		663		—		205		(213	)		655

79

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

     None.

Item 9A. Controls and Procedures

Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures

     Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted as of December 31, 2006, an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based on this evaluation as of December 31, 2006, our chief executive officer and our chief financial officer concluded that our disclosure controls and procedures were effective for ensuring that the information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. In addition, our principal executive and financial officers concluded as of December 31, 2006, that our disclosure controls and procedures are also effective to ensure that information required to be disclosed in reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including to our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.

Management’s Report on Internal Control Over Financial Reporting

     Management’s report on internal control over financial reporting is set forth on page 43 in our consolidated financial statements included elsewhere in this report.

     Our management’s assessment of the effectiveness of our internal control over financial reporting as of December 31, 2006 has been audited by KPMG LLP, an independent registered public accounting firm, as stated in their report, which is set forth on page 44 in our consolidated financial statements included elsewhere in this report.

Changes in Internal Controls

     There were no changes in our internal control over financial reporting that occurred during our fiscal quarter ended December 31, 2006 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Item 9B. Other Information

     None.

80

PART III

Item 10. Directors, Executive Officers and Corporate Governance

     The information called for by Part III, Item 10, is incorporated by reference to the sections entitled “Election of Directors,” “Executive Officers,” “Section 16(a) Beneficial Ownership Reporting Compliance,” “Code of Ethics” and “Other Information as to Directors – Board Committees and Meetings – Audit Committee” included in our definitive Proxy Statement relating to our 2007 annual meeting of stockholders. We will file the information called for by this item by an amendment to this report no later than the end of the 120 day period following the fiscal year end to which this report relates if our Proxy Statement is not filed by such date.

Item 11. Executive Compensation

     Information called for by Part III, Item 11, is incorporated by reference to the sections entitled “Other Information as to Directors – Directors Compensation,” “Executive Compensation” and “Compensation Committee Report” included in our definitive Proxy Statement relating to our 2007 annual meeting of stockholders. We will file the information called for by this item by an amendment to this report no later than the end of the 120 day period following the fiscal year end to which this report relates if our Proxy Statement is not filed by such date.

     Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

     Information called for by Part III, Item 12, is incorporated by reference to the sections entitled “Security Ownership of Certain Beneficial Owners and Management” and “Equity Compensation Plan Information” included in our definitive Proxy Statement relating to our 2007 annual meeting of stockholders. We will file the information called for by this item by an amendment to this report no later than the end of the 120 day period following the fiscal year end to which this report relates if our Proxy Statement is not filed by such date.

Item 13. Certain Relationships and Related Transactions, and Director Independence

     Information called for by Part III, Item 13, is incorporated by reference to the sections entitled “Certain Relationships and Related Person Transaction” and “Other Information as to Directors – Director Independence” included in our definitive Proxy Statement relating to our 2007 annual meeting of stockholders. We will file the information called for by this item by an amendment to this report no later than the end of the 120 day period following the fiscal year end to which this report relates if our Proxy Statement is not filed by such date.

Item 14. Principal Accountant Fees and Services.

     Information called for by Part III, Item 14, is incorporated by reference to the section entitled “Audit and Related Fees” included in our definitive Proxy Statement relating to our 2007 annual meeting of stockholders. We will file the information called for by this item by an amendment to this report no later than the end of the 120 day period following the fiscal year end to which this report relates if our Proxy Statement is not filed by such date.

81

PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) The following financial statements, financial statement schedule and exhibits are filed
as part of this report:

(1)	Consolidated Financial Statements: See Index to Financial Statements at Item 8 on page 42 of this report.
(2)	Financial Statement Schedule: See Schedule II – Valuation and Qualifying Accounts on page 79 of this report.
(3)	Exhibits are incorporated herein by reference or are filed with this report: See Index to Exhibits following the signature page of this report.

     All other schedules have been omitted because they are not applicable, not required, or because the information required to be set forth therein is included in the consolidated financial statements or in notes thereto.

(b) Exhibits.

     The Exhibit Index is included on pages 84-87.

82

SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) 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.

Cardiac Science Corporation
By:	/s/ Michael K. Matysik
	Michael K. Matysik
	Chief Financial Officer

Date: March 16, 2007

     Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated and on the dates indicated.

Signature	Title	Date
/s/ JOHN R. HINSON  John R. Hinson	President, Chief Executive Officer and Director (Principal Executive Officer)	March 16, 2007
/s/ MICHAEL K. MATYSIK  Michael K. Matysik	Senior Vice President and Chief Financial Officer (Principal Financial Officer)	March 16, 2007
/s/ DAPHNE TAYLOR  Daphne Taylor	Vice President and Corporate Controller (Principal Accounting Officer)	March 16, 2007
/s/ RUEDIGER NAUMANN-ETIENNE  Ruediger Naumann-Etienne	Chairman of the Board	March 16, 2007
/s/ W. ROBERT BERG  W. Robert Berg	Director	March 16, 2007
/s/ JUE-HSIEN CHERN  Jue-Hsien Chern	Director	March 16, 2007
/s/ RAYMOND W. COHEN  Raymond W. Cohen	Director	March 16, 2007
/s/ TIMOTHY C. MICKELSON  Timothy C. Mickelson	Director	March 16, 2007
/s/ RAY E. NEWTON, III  Ray E. Newton, III	Director	March 16, 2007
/s/ JEFFREY F. O’DONNELL, SR.  Jeffrey F. O’Donnell, Sr.	Director	March 16, 2007

83

Exhibit
Number	Description
2.1	Agreement and Plan of Merger dated as of February 28, 2005, as amended on June 23, 2005, among Quinton Cardiology Systems, Inc., Cardiac Science, Inc., CSQ Holding Company, Rhythm Acquisition Corporation, and Heart Acquisition Corporation (1)
2.2	Stock Purchase Agreement dated December 23, 2002 by and among Spacelabs Medical, Inc., Spacelabs Burdick, Inc., Quinton Cardiology Systems, Inc. and Datex-Ohmeda, Inc. (3)
3.1	Amended and Restated Certificate of Incorporation (2)
3.2	Amended and Restated Bylaws (21)
4.1	Specimen Stock Certificate (2)
4.2	Common Stock and Warrant Purchase Agreement, dated July 20, 2004, by and among Cardiac Science, Inc., Perseus Market Opportunity Fund, L.P., Winterset Master Fund, L.P., Mill River Master Fund, L.P., Massachusetts Mutual Life Insurance Company and Walter Villager (17)
4.3	Second Amended and Restated Registration Rights Agreement, dated as of February 28, 2005, by and among Cardiac Science, Inc., and the investors listed on the signature pages thereto (27)
4.4	Form of Warrant (17)
4.5	Form of Warrant issued to Perseus Acquisition /Recapitalization Fund, L.L.C., Perseus Market Opportunity Fund, L.P. and Cardiac Science Co-Investment, L.P. (18)
10.1	Senior Note and Warrant Conversion Agreement dated as of February 28, 2005 among CSQ Holding Company, Cardiac Science, Inc. and the purchasers listed on the signature pages thereto (27)
10.2 *	Amended and Restated Employment Agreement dated as of September 20, 2006 between Cardiac Science Corporation and John R. Hinson (26)
10.3	Assumption and Amendment Agreement dated as of September 28, 2005 among Silicon Valley Bank, Cardiac Science Corporation, Quinton Cardiology, Inc. and Cardiac Science Operating Company (19)
10.4	Lease Termination Agreement effective as of September 14, 2005 between Cardiac Science, Inc. and Terrace Tower Orange County, LLC (20)
10.5*	Quinton Cardiology Systems, Inc. 1998 Amended and Restated Equity Incentive Plan (4)
10.6*	Quinton Cardiology Systems, Inc. 2002 Stock Incentive Plan (4)
10.7*	Quinton Cardiology Systems, Inc. 2002 Employee Stock Purchase Plan (4)
10.8*	Cardiac Science Corporation Stock Option Grant Program for Nonemployee Directors
10.10	OEM Agreement between Quinton Inc. and Mortara Instrument, Inc. dated August 1, 2000 (4)
10.11	OEM Agreement between Quinton Inc. and Mortara Instrument, Inc. dated October 17, 2000 (4)
10.12	OEM Agreement between Quinton Inc. and Mortara Instrument, Inc. dated October 1, 2001 (6)
10.13	Addendum No. 1 to the OEM Agreement between Mortara Instrument, Inc. and Quinton Inc. dated August 1, 2001 (4)
10.14	Loan and Security Agreement between Quinton Cardiology Systems, Inc. and Quinton Inc. and Silicon Valley Bank dated December 30, 2002 (7)
10.15	Amendment to Loan Documents between Quinton Cardiology Systems, Inc., Quinton Inc. and Burdick, Inc. and Silicon Valley Bank dated January 9, 2003 (7)
10.16	Streamline Facility Agreement between Quinton Cardiology Systems, Inc. and Quinton Inc. and Silicon Valley Bank dated as of December 30, 2002 (7)

84

Exhibit
Number	Description
10.17	Cross-Corporate Continuing Guaranty between Quinton Cardiology Systems, Inc. and Quinton Inc. and Silicon Valley Bank dated December 30, 2002 (7)
10.18	Intellectual Property Security Agreement between Quinton Cardiology Systems, Inc. and Quinton Inc. and Silicon Valley Bank dated December 30, 2002 (7)
10.19	Assumption Agreement between Quinton Cardiology Systems, Inc., Quinton Inc. and Burdick, Inc. and Silicon Valley Bank dated January 9, 2003 (7)
10.20	Cross-Corporate Continuing Guaranty between Burdick Inc. and Silicon Valley Bank dated January 9, 2003 (7)
10.21	Intellectual Property Security Agreement between Burdick, Inc. and Silicon Valley Bank dated January 9, 2003 (7)
10.22	Lease Agreement between Carl Ruedebusch LLC and Burdick, Inc. regarding premises at Deerfield Industrial Park in Deerfield, Wisconsin dated as of April 6, 1998 (7)
10.23	Lease Agreement between Quinton Cardiology Systems, Inc. and Hibbs/ Woodinville Associates, L.L.C. regarding premises at Bothell, Washington, dated August 29, 2003 (8)
10.24*	Form of Quinton Cardiology Systems, Inc. Stock Option Grant Notice and Stock Option Agreement (This exhibit represents other substantially identical documents that have been omitted because they are substantially identical to this document in all material respects and an Appendix attached to this exhibit sets forth material details by which the omitted documents differ from this exhibit.) (9)
10.25*	Quinton Cardiology Systems, Inc. Stock Option Grant Notice and Stock Option Agreement between Quinton Cardiology Systems, Inc. and Atul Jhalani, dated as of October 23, 2003 (9)
10.26*	Amended and Restated Employment Agreement dated as of September 20, 2006 between Cardiac Science Corporation and Michael K. Matysik (26)
10.27*	Amended and Restated Employment Agreement dated as of September 20, 2006 between Cardiac Science Corporation and Darryl Lustig (26)
10.28*	Quinton Cardiology Systems, Inc. Stock Option Grant Notice and Stock Option Agreement between Quinton Cardiology Systems, Inc. and Allan Criss, dated as of March 10, 2004 (10)
10.30	Amendment to Loan Documents between Quinton Cardiology Systems, Inc., Quinton Cardiology, Inc. and Silicon Valley Bank dated December 30, 2004 (12)
10.32*	Form of Stock Option Grant Notice and Stock Option Agreement for grants made pursuant to the Quinton Cardiology Systems, Inc. 2002 Stock Incentive Plan (25)
10.33*	Cardiac Science Corporation Senior Executives — 2006 Base Compensation
10.36++	OEM Purchase and Supply Agreement between Cardiac Science, Inc. and GE Medical Systems Information Technologies, Inc. dated July 29, 2003
10.37++	Addendum 1 dated as of March 24, 2004 to OEM Purchase and Supply Agreement between Cardiac Science, Inc. and GE Medical Systems Information Technologies, Inc. dated July 29, 2003
10.38	Amendment One dated August 10, 2004 to OEM Purchase and Supply Agreement between Cardiac Science, Inc. and GE Medical Systems Information Technologies, Inc. dated July 29, 2003
10.39	Second Amendment dated February 14, 2005 to OEM Purchase and Supply Agreement between Cardiac Science, Inc. and GE Medical Systems Information Technologies, Inc. dated July 29, 2003
10.40++	OEM Purchase Agreement between Cardiac Science, Inc. and GE Medical Systems Information Technologies, Inc. dated July 29, 2003
10.41*	Quinton Cardiology Systems, Inc. Stock Option Grant Notice and Stock Option Agreement between

85

Exhibit
Number	Description
	Quinton Cardiology Systems, Inc. and Feroze Motafram dated as of July 23, 2003 (13)
10.42	Amendment One dated August 10, 2004 to OEM Purchase Agreement between Cardiac Science, Inc. and GE Medical Systems Information Technologies, Inc. dated July 29, 2003
10.43*	Cardiac Science, Inc. 1997 Stock Option/Stock Issuance Plan, as amended (14)
10.44	Second Amendment dated February 14, 2005 to OEM Purchase Agreement between Cardiac Science, Inc. and GE Medical Systems Information Technologies, Inc. dated July 29, 2003
10.45*	Amended and Restated Employment Agreement dated as of September 20, 2006 between Cardiac Science Corporation and Kurt Lemvigh (26)
10.46	Third Amendment, dated June 10, 2005, to the OEM Purchase Agreement dated July 29, 2003, as amended, between Cardiac Science, Inc. and GE Medical Systems Information Technologies, Inc. (18)
10.47+	Third Amendment, dated June 10, 2005, to the OEM Purchase and Supply Agreement dated July 29, 2003, as amended, between Cardiac Science, Inc. and GE Medical Systems Information Technologies, Inc. (18)
10.48+	Exclusive Distribution Agreement for United States and Canadian Hospitals dated June 13, 2005, between Cardiac Science, Inc. and GE Medical Systems Information Technologies, Inc. (18)
10.50*	Employment Agreement effective September 1, 2005 between Cardiac Science Corporation and Raymond W. Cohen (21)
10.51*	Letter Agreement dated as of November 9, 2005 between Cardiac Science Corporation and Ruediger Naumann-Etienne (21)
10.52*	Form of Indemnification Agreement (21)
10.53*	Summary of Non-Employee Director Compensation (21)
10.54*	Cardiac Science Corporation 2006 Management Incentive Plan (22)
1056*	Severance and Release Agreement dated as of April 26, 2006 between Cardiac Science Corporation and Peter Foster (23)
10.57*	Form of 1997 Stock Option/Stock Issuance Plan Grant Notice and Option Agreement (24)
10.58*	2006 Compensation Incentive Plan for Darryl Lustig (26)
10.59++	Fourth Amendment dated October 25, 2006 to OEM Purchase Agreement between Cardiac Science Corporation and GE Medical Systems Information Technologies, Inc. dated July 29, 2003
10.60*	Form of Cardiac Science Corporation Stock Option Grant Notice under 2002 Stock Incentive Plan for Non-Employee Directors
21.1	Subsidiaries
23.1	Consent of Independent Registered Public Accounting Firm
31.1	Certification of Chief Executive Officer pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002.

86

Exhibit
Number	Description
31.2	Certification of Chief Financial Officer pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002.
32.1	Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

*	Indicates management contract or compensatory plan or arrangement.
+	Portions of this exhibit are omitted and were filed separately with the Securities and Exchange Commission pursuant to Cardiac Science Inc.’s application requesting confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934, as amended.
++	Portions of this exhibit are omitted and were filed separately with the Securities and Exchange Commission pursuant to Cardiac Science Corporation’s application requesting confidential treatment under Rule 24b-2 of the Securities and Exchange Act of 1934, as amended.
(1)	Incorporated by reference to the Registrant’s Amendment No. 3 to the Registration Statement on Form S-4/A (File No. 333-124514) filed on July 28, 2005.
(2)	Incorporated by reference to the Registrant’s Current Report on Form 8-K (File No. 000-51512) filed on September 1, 2005.
(3)	Incorporated by reference to Quinton Cardiology Systems, Inc.’s Current Report on Form 8-K (File No. 000-49755) filed on January 17, 2003.
(4)	Incorporated by reference to Quinton Cardiology Systems, Inc.’s Registration Statement on Form S-1 (File No. 333-83272) filed on February 22, 2002.
(5)	Incorporated by reference to Quinton Cardiology Systems, Inc.’s Amendment No. 1 to the Registration Statement on Form S-1/A (File No. 333-83272) filed on March 26, 2002.
(6)	Incorporated by reference to Quinton Cardiology Systems, Inc.’s Amendment No. 3 to the Registration Statement on Form S-1/A (File No. 333-83272) filed on April 3, 2002.
(7)	Incorporated by reference to Quinton Cardiology Systems, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2002 (File No. 000-49755).
(8)	Incorporated by reference to Quinton Cardiology Systems, Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2003 (File No. 000-49755).
(9)	Incorporated by reference to Quinton Cardiology Systems, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2003 (File No. 000-49755).
(10)	Incorporated by reference to Quinton Cardiology Systems, Inc.’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2004 (File No. 000-49755).
(11)	Incorporated by reference to Quinton Cardiology Systems, Inc.’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2004 (File No. 000-49755).
(12)	Incorporated by reference to Quinton Cardiology Systems, Inc.’s Current Report on Form 8-K (File No. 000-49755) filed on January 5, 2005.
(13)	Incorporated by reference to Quinton Cardiology Systems, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2004 (File No. 000-49755).
(14)	Incorporated by reference to Cardiac Science, Inc.’s Definitive Proxy Statement for the Annual Meeting of Stockholders (File No. 000-19567) held on September 9, 2002.
(15)	Incorporated by reference to Cardiac Science, Inc.’s Current Report on Form 8-K (File No. 000-19567) filed on March 27, 2001.
(16)	Incorporated by reference to Cardiac Science, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2002 (File No. 000-19567).
(17)	Incorporated by reference to Cardiac Science, Inc.’s Current Report on Form 8-K (File No. 000-19567) filed on July 22, 2004.
(18)	Incorporated by reference to Cardiac Science, Inc.’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2005 (File No. 000-19567).
(19)	Incorporated by reference to the Registrant’s Current Report on Form 8-K (File No. 000-51512) filed on September 30, 2005.
(20)	Incorporated by reference to the Registrant’s Current Report on Form 8-K (File No. 000-51512) filed on October 3, 2005.
(21)	Incorporated by reference to the Registrant’s Current Report on Form 8-K (File No. 000-51512) filed November 15, 2005.
(22)	Incorporated by reference to the Registrant’s Current Report on Form 8-K (File No. 000-51512) filed February 27, 2006.
(23)	Incorporated by reference to the Registrant’s Current Report on Form 8-K (File No. 000-51512) filed May 2, 2006.
(24)	Incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2006 (File No. 000-51512).
(25)	Incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2006 (File No. 000-51512).
(26)	Incorporated by reference to the Registrant’s Current Report on Form 8-K (File No. 000-51512) filed September 22, 2006.
(27)	Incorporated by reference to Registrant’s Registration Statement on Form S-4 (File No. 333-124514) filed on May 2, 2005.

87

EX-10.8

EXHIBIT 10.8

STOCK OPTION GRANT PROGRAM
FOR
NONEMPLOYEE DIRECTORS UNDER THE
CARDIAC SCIENCE CORPORATION
2002 STOCK INCENTIVE PLAN

     The following provisions set forth the terms of the stock option grant program (the “Program”) for nonemployee directors of Cardiac Science Corporation (the “Company”) under the Company’s 2002 Stock Incentive Plan (the “Plan”). The following terms are intended to supplement, not alter or change, the provisions of the Plan, and in the event of any inconsistency between the terms contained herein and in the Plan, the Plan shall govern. All capitalized terms that are not defined herein shall be as defined in the Plan.

     1. Eligibility

     Each director of the Company elected or appointed who is not otherwise an employee of the Company or a Related Company (an “Eligible Director”) shall be eligible to receive Initial Grants and Annual Grants under the Plan, as discussed below.

     2. Initial Grants

     Each Eligible Director shall automatically receive a Nonqualified Stock Option to purchase 7,500 shares of Common Stock (an “Initial Grant”) upon such Eligible Director’s initial election or appointment to the Board. Twenty-Five Percent (25%) of the shares subject to each Initial Grant shall vest and become exercisable one year after the grant date of such Initial Grant and 1/36th of remaining shares subject to such Initial Grant shall vest and become exercisable monthly thereafter over the next three years.

     3. Annual Grants

     Commencing with the 2006 annual stockholders meeting, each Eligible Director shall automatically receive a Nonqualified Stock Option to purchase 7,500 shares of Common Stock immediately following each year’s Annual Meeting (each, an “Annual Grant”); provided that any Eligible Director who received an Initial Grant within three months prior to an annual meeting shall not receive an Annual Grant until immediately following the second annual meeting after the date of such Initial Grant. Twenty-Five Percent (25%) of the shares subject to each Annual Grant shall vest and become exercisable one year after the grant date of such Annual Grant and 1/36th of remaining shares subject to such Annual Grant shall vest and become exercisable monthly thereafter over the next three years.

     4. Option Exercise Price

     The exercise price of an Option shall be the Fair Market Value of the Common Stock on the Grant Date.

     5. Manner of Option Exercise

     An Option shall be exercised by giving the required notice to the Company, stating the number of shares of Common Stock with respect to which the Option is being exercised, accompanied by payment in full for such Common Stock, which payment may be in whole or in part (a) in cash or check (acceptable to the Plan Administrator), (b) by tendering shares of Common Stock you have owned for at least six months, (c) if and so long as the Common Stock is registered under the Exchange Act, by delivery of a properly executed exercise notice, together with irrevocable instructions to a broker, to promptly deliver to the Company the amount of sale or loan proceeds to pay the exercise price, all in accordance with the regulation of the Federal Reserve Board or (d) by any other method permitted by the Plan Administrator.

     6. Term of Options

     Each Option shall expire ten years from the date of grant thereof, but shall be subject to earlier termination as follows:

     (a) In the event that an Eligible Director ceases to be a director of the Company for any reason other than death, the unvested portion of any Option granted to such Eligible Director (the “Unvested Portion”) shall continue to vest in accordance with the applicable vesting schedule set forth in Section 2 or Section 3 hereof. The vested portion of any Option may be exercised by the Eligible Director until the earlier of (i) six months after the date on which the unvested portion of all Options held by such Eligible Director is fully vested and exercisable and (ii) the expiration date of the Option set forth in the Option’s grant notice.

     (b) In the event of the death of an Eligible Director, the Unvested Portion shall immediately become fully vested and exercisable, and the Option may be exercised until the earlier of (i) one year after the date of death of the Eligible Director and (ii) the expiration date of the Option set forth in the Option’s grant notice, by the personal representative of the Eligible Director’s estate, the person(s) to whom the Eligible Director’s rights under the Option have passed by will or the applicable laws of descent and distribution or the beneficiary designated pursuant to Section 11 of the Plan.

     7. Company Transactions

     In the event of any Company Transaction,

     (a) Except as provided in subsection (b) below, each outstanding Option shall be assumed or an equivalent option or right substituted by the Successor Company.

     (b) If in connection with a Company Transaction the Successor Company refuses to assume or substitute for an Option, then upon consummation of a Company Transaction, each outstanding Option shall become fully vested and exercisable with respect to 100% of the

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unvested portion of the Option. In such case, the Plan Administrator shall notify the Eligible Director in writing or electronically that the unvested portion of each outstanding Option shall be fully vested and exercisable for a specified time period, and each such Option may be exercised until the earlier of (i) the expiration of the time period specified by the Plan Administrator and (ii) the expiration date of the Option set forth in the Option’s grant notice. If the Option has not otherwise expired by its terms, each such outstanding Option shall terminate at the expiration of the time period specified by the Plan Administrator.

     (c) All Options shall terminate and cease to remain outstanding upon consummation the Company Transaction, except to the extent assumed by the Successor Company.

     8. Amendment

     The Board may amend the provisions contained herein in such respects as it deems advisable. Any such amendment shall not, without the consent of the Eligible Director, impair or diminish any rights of an Eligible Director or any rights of the Company under an Option.

     Provisions of the Plan (including any amendments) that were not discussed above, to the extent applicable to Eligible Directors shall continue to govern the terms and conditions of Options granted to Eligible Directors.

     9. Effective Date

     The Program is effective as of January 1, 2006.

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PROGRAM ADOPTION AND AMENDMENTS
SUMMARY PAGE

Date of Board		Section/Effect
Action	Action	of Amendment
November 9, 2005	Initial Program Adoption

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EX-10.33

EXHIBIT 10.33

Cardiac Science Corporation
Certain Executive Officers — 2006 Base Salaries

     Base salary amounts were approved by the Compensation Committee, to be effective May 1, 2006, as set forth below. The compensation arrangement between the Company and each executive officer listed below is governed by an employment agreement between the Company and each executive officer.

Name	Title	2007 Base Salary
John Hinson	Chief Executive Officer	$	350,000
Michael Matysik	Chief Financial Officer	$	240,000
Kurt Lemvigh	Vice President, International Sales	DK 1,673,640
Darryl Lustig	Vice President, North America Cardiology Sales	$	200,000

EX-10.36

EXHIBIT 10.36

FINAL EXECUTABLE VERSION dated 7-29-03
GEMS-IT — Cardiac Science OEM Agreement for AED and CRM

OEM PURCHASE AND SUPPLY AGREEMENT

This OEM Purchase and Supply Agreement (the “Agreement”) is made as of the 29th day of July, 2003 (the “Effective Date”) between Cardiac Science, Inc., a Delaware corporation (“Supplier” or “Cardiac Science” or “CSI”), a medical device developer and manufacturer of automated external defibrillators having its principal place of business at 1900 Main Street, Irvine, CA 92614 and GE Medical Systems Information Technologies, Inc., a Wisconsin corporation (“GEMS-IT”), having its principal place of business at 8200 W. Tower Avenue, Milwaukee, WI 53223. The parties hereby agree as follows:

1. SCOPE OF AGREEMENT

1.1	General. This Agreement specifies the terms and conditions under which Supplier will manufacture, sell, license and support the OEM Products listed in Exhibit A to this Agreement. Under this Agreement Cardiac Science shall manufacture the OEM Products, which shall be regarded as “Original Equipment Manufacturer” products under the GEMS-IT private label. Nothing in this Agreement shall in any way limit the right of GEMS-IT or Cardiac Science to develop, produce, market, sell or distribute any products whatsoever.
1.2	Marketing Authority. Supplier hereby grants to GEMS-IT the non-exclusive right to promote, sell and distribute OEM Products worldwide. GEMS-IT shall only be excluded from selling the OEM Products in Japan. GEMS-IT will have the authority to market the OEM Products to the extent it deems appropriate, in its sole discretion. GEMS-IT will have the right to use its own business and license terms for all marketing and distribution of the OEM Products. The OEM Products will be marketed, serviced, and supported by GEMS-IT’s field organization and channel partners, subject to the marketing, service, and support obligations of Supplier pursuant to this Agreement.
1.3	Eligible Purchasers. This Agreement enables GEMS-IT, GEMS-IT Affiliates and GEMS-IT Subcontractors to purchase OEM Products from Supplier under the terms of this Agreement or any subsequent Product Addendum. Unless a Product Addendum specifically refers to and amends a term of this Agreement, the terms and conditions of this Agreement will control and take precedence over any conflicting terms in a Product Addendum.
1.4	Term of Agreement. This Agreement will commence as of the Effective Date and continue for a 3 year period (the “Term”) after the date of the first delivery to GEMS IT by Cardiac Science of the OEM Products unless terminated earlier under the terms of this Agreement. After the initial Term, this Agreement may be renewed only upon the written agreement of the parties.

2. DEFINITIONS

     The following capitalized terms will have these meanings throughout this Agreement.

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2.1	“Affiliate” means any person or entity directly or indirectly controlling, controlled by, or under common control with a party to this Agreement. “Control” shall be defined as direct or indirect power to direct or cause the direction of the management or policies of another person or entity, whether through the ownership of voting securities, by contract, or otherwise.
2.2	“CSI Proprietary Technology” means Cardiac Science’s proprietary STAR® biphasic defibrillation technology, proprietary RHYTHMx® software analysis algorithm and pacing technology, and RescueReady® self-testing technology, all of which shall be incorporated in the OEM Products pursuant to this Agreement.
2.3	“Delivery Date” means the date specified in an Order for the delivery of OEM Products by Supplier to the destination required under the Order.
2.4	“Documentation” means the user and technical manuals and other documentation that Supplier will make available for the use of the OEM Products.
2.5	“Eligible Purchasers” mean those parties authorized to purchase OEM Products under this Agreement as listed in Section 1.5 above.
2.6	“Forecast” means GEMS-IT’s estimate of its purchase requirements over a six-month period, or such other period designated by the parties.
2.7	“Intellectual Property Rights” means all rights in patents, copyrights, moral rights, trade secrets, mask works, Marks and other similar rights.
2.8	“Lead Time” means the time between the date an Order is sent and the Delivery Date.
2.9	“Marks” means the trademarks, service marks, trademark and service mark applications, trade dress, trade names, logos, insignia, symbols, designs or other marks identifying a party or its products.
2.10	“Noncomplying Product” means any OEM Product received by GEMS-IT that does not materially comply and/or perform in accordance with the Specifications, or otherwise does not materially comply with the requirements of an Order or other provisions of this Agreement, including applicable warranties. Noncomplying Products include, without limitation, dead-on-arrival products, overshipments and early shipments.
2.11	“AED or AEDs” means GEMS-IT private labeled Automated External Defibrillators manufactured by Cardiac Science and listed in Exhibit A.
2.12	“CRM or CRMs” means GEMS-IT private labeled Cardiac Rhythm Modules manufactured by Cardiac Science and listed in Exhibit A.
2.13	“OEM Products” means the products listed in Exhibit A, all related Documentation, Parts and other deliverables provided pursuant to this Agreement.

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2.14	“Orders” means a written or electronic purchase order or release issued by GEMS-IT to Supplier for purchase of the OEM Products.
2.15	“Parts and Accessories” means the AED or CRM accessories, replacement parts, components, consumables or other products that may be supplied in conjunction with or as additions to the OEM Products.
2.16	“Product Addendum” means an addendum to this Agreement entered into between Supplier and an Eligible Purchaser naming additional OEM Products and product specific requirements in addition to those requirements specified in this Agreement.
2.17	“Software” means any software or firmware included or bundled with the OEM Products, as designated in the description of OEM Products in Exhibit A.
2.18	“Specifications” means the technical and functional requirements for the OEM Products as specified or referenced in Exhibit C.
2.19	“Technical Information” means Supplier’s manufacturing information and technology deemed necessary by GEMS-IT to support OEM Products and to exercise any manufacturing rights provided under this Agreement, including, but not limited to: (i) specifications, software, schematics, software source code, designs, drawings or other materials pertinent to the most current revision level of manufacturing of the OEM Products; (ii) copies of all inspection, manufacturing, test, verification and quality control procedures and any other work processes; (iii) jig, fixture and tooling designs; (iv) supplier history files; (v) support documentation; and (vi) any additional technical information or materials agreed to by the parties.

3. ORDER AND SHIPMENT OF OEM PRODUCTS

3.1

Orders. Each delivery of OEM Products will be initiated by an Order issued to Supplier by GEMS-IT. Each Order will include: (i) unit quantity; (ii) unit price; (iii) shipping destination; (iv) Delivery Date; and (v) other instructions or requirements pertinent to the Order. GEMS-IT may schedule regular intervals for deliveries by an appropriate Order setting forth the intervals. To the extent of any inconsistency between the terms of an Order and the terms of this Agreement, the terms specified in this Agreement will control and take precedence.

3.2

Order Acknowledgment. An Order will be deemed to have been placed as of the date of receipt of the Order by Supplier. Supplier will promptly confirm the receipt of an Order electronically or through facsimile to GEMS-IT within two (2) working days after receipt by Supplier of the Order. Orders within Forecasts and Lead Time requirements of this Agreement will be deemed accepted upon receipt by Supplier. If a GEMS-IT Order exceeds the Forecast or shortens the Lead Time, Supplier will use its commercially reasonable best efforts to fill such excess or accommodate such shorter Lead Time.

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3.3	Emergency Orders. If GEMS-IT deems it necessary, GEMS-IT may order OEM Products by facsimile on an emergency basis (“Emergency Order”) subject to the availability of such OEM Products in Supplier’s inventory. Supplier will use its best efforts to ship the Emergency Order to GEMS-IT’s stipulated destinations within 8 work hours after the receipt by Supplier. Subject to GEMS-IT’s approval, GEMS-IT will pay any additional expenses related to such Emergency Orders.
3.4	Forecasts. GEMS-IT will provide a six month rolling Forecast of its projected Orders. Any quantities listed in any Forecast or other correspondence between the parties are only estimates made as an accommodation for planning purposes and do not constitute a commitment on GEMS-IT’s part to purchase such quantity. GEMS-IT may revise any Forecasts in its sole discretion.
3.5	Initial Purchase Requirement. There shall be no minimum purchase commitment during the Term of the Agreement, however, concurrent with the initiation of the Agreement, GEMS-IT shall purchase from Supplier the following minimum quantity of OEM Products for delivery by not later than the end of the calendar quarter immediately following the calendar quarter in which the Agreement is executed:

3.5.1	GEMS-IT labeled AEDs — [ * ]
3.5.2	GEMS-IT labeled CRMs — [ * ]

3.6	Lead Time. Supplier will determine the Lead Time for each OEM Product and will provide GEMS-IT with written notice of such Lead Time, which in no event will exceed four (4) weeks without GEMS-IT’s prior written consent. Supplier must give GEMS-IT no less than 30 days advance notice to approve or reject any proposed increase in Lead Time. CSI and GEMS-IT will review lead-time reduction opportunities two calendar quarters after date of first shipment.
3.7	Inventory Requirement. Supplier will maintain a protective inventory equal to no less than two (2) weeks supply of each OEM Product. If this inventory is depleted, Supplier will replenish the inventory as soon as possible after depletion. In addition, Supplier will rotate its supply of OEM Products in inventory to maintain a fresh stock of inventory.
3.8	Order Changes. GEMS-IT may, without charge, postpone, decrease, increase, or cancel any Order by notice to Supplier at least fifteen (15) days prior to the Delivery Date. If GEMS-IT postpones, decreases, or cancels an Order after such time period, Supplier will be entitled to reimbursement by GEMS-IT for actual costs incurred by Supplier as a direct result of such action that are not recoverable by Supplier within a reasonable period of time.
3.9	Shipment Requirements. All Orders are required to be shipped complete. Freight expenses and duties will be paid by GEMS-IT. Supplier will give GEMS-IT

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	immediate notice if it knows that it cannot meet a Delivery Date or that only a portion of the OEM Products will be available for shipment to meet a Delivery Date. If due to Supplier’s failure to make a timely shipment to meet a Delivery Date, Supplier will pay for any resulting increase in the freight cost over that which GEMS-IT would have been required to pay. For partial shipments, Supplier will ship the available OEM Products unless directed by GEMS-IT to reschedule shipment. If Supplier ships any OEM Product by a method other than as specified in the corresponding Order, Supplier will pay any resulting increase in the cost of freight. GEMS-IT may utilize drop shipment options to any GEMS-IT designated delivery destination. If GEMS-IT designates a drop shipment location outside the country in which the Order is placed, GEMS-IT agrees to pay any additional costs associated with the shipment.
3.10	GEMS-IT Option To Accept Overshipments. If Supplier ships more OEM Products than ordered, the amount of the overshipment may either be kept by GEMS-IT for credit against future Orders or returned to Supplier pursuant to Section 6 below, at GEMS-IT’s election.
3.11	No Advance Shipment. If OEM Products are delivered two (2) days in advance of the Delivery Date, GEMS-IT may, at its option, either return the OEM Products pursuant to Section 6 or keep the OEM Products with payment due as provided in Section 4 of the Agreement.
3.12	Title And Risk Of Loss. Shipments will be F.O.B. Cardiac Science’s Minnetonka, MN factory or Copenhagen, Denmark warehouse facility. GEMS IT will elect at which location it (or its designated carrier) will take delivery of the OEM Products from Cardiac Science. Except as otherwise provided in this Agreement, associated freight expenses and duties will be paid directly by GEMS-IT. Title to OEM Product hardware and media ordered under this Agreement and risk of loss or damage will pass from Supplier to GEMS-IT upon Supplier’s delivery of the OEM Products to the common carrier specified by GEMS-IT, subject to the provisions in Sections 3.13 and 3.14 below with respect to packing and handling.
3.13	Packing List. Each delivery of OEM Products to GEMS-IT must include a packing list that contains at least:

(a)	The Order number and the GEMS-IT part number;
(b)	The quantity of OEM Products or Parts shipped; and
(c)	The date of shipment.

3.14 Packaging. Supplier must preserve, package, handle, and pack all OEM Products so as to protect the OEM Products from loss or damage, in conformance with good commercial practice, the Specifications, GEMS IT’s indication of “ship to”

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	address and method of transportation, government regulations, and other applicable standards.
3.15	Responsibility For Damage. Supplier will be liable for any loss or damage due to its failure to properly preserve, package, handle, or pack OEM Products. GEMS-IT will not be required to assert any claims for such loss or damage against the common carrier involved.

4. PRICES AND PAYMENT TERMS

4.1	OEM Product Prices. Supplier’s prices for the OEM Products are listed in Exhibit B, in U.S. currency unless otherwise stated, and may not be increased without GEMS-IT’s written consent. The prices for Parts and Accessories will be Supplier’s published prices, less any applicable discounts as set forth in Exhibit B, unless the parties agree to a price schedule for Parts and Accessories. OEM Products and Parts will also be subject to any applicable prompt payment discounts.
4.2	Changed Prices. If during the Term changed prices or price formulas are put in effect by mutual agreement of GEMS-IT and Supplier, or reduced prices or price formulas are otherwise put in effect by Supplier, such prices or price formulas (if resulting in lower prices than the then current price) will apply to all Orders issued by GEMS-IT after the effective date of such prices or price formulas and to all unshipped Orders.
4.3	Payment Procedure. Payment for OEM Products will be 2% / 15, Net 75 days from the invoice date for the OEM Products following shipment by Supplier. GEMS-IT will not be liable for payments or any costs related to unordered or Noncomplying Products.
4.4	Sales Taxes And Duties. Prices are exclusive of all taxes or duties after delivery to the designated destination (other than taxes levied on Supplier’s income) that Supplier may be required to collect or pay upon shipment of the OEM Products. Any such taxes or duties must appear as a separate item on Supplier’s invoice. GEMS-IT agrees to pay such taxes or duties unless GEMS-IT is exempt from such taxes or duties. Where applicable, GEMS-IT will provide Supplier with an exemption resale certificate.

5. NONCOMPLYING PRODUCTS

5.1 Acceptance. GEMS-IT shall inspect the OEM Products within a reasonable period of time upon receipt at the shipping destination and may reject any Noncomplying Products. GEMS-IT may elect in its sole discretion to return a Noncomplying Product for replacement or repair at Supplier’s expense. In addition, GEMS-IT may return for repair or replacement an entire lot of OEM Products if a tested sample of that lot contains Noncomplying Products. Any OEM Products not rejected by written notice to Supplier within sixty (60) days of

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GEMS-IT receipt shall be deemed accepted. Acceptance by GEMS IT of any OEM Products shall in no way limit GEMS IT’s rights under any applicable warranties for the OEM Products. Supplier shall provide reasonable assistance to GEMS-IT in accordance with GEMS IT’s corrective action procedures (which have been described to Supplier) in order to determine whether any of the Products are Noncomplying Products. No returns will be accepted without a Return Materials Authorization (“RMA”). GEMS-IT shall provide a SCAR report with any non complying product being returned. Other than as permitted in this Section 5.1 or under the terms of a warranty covering the OEM Products, goods may not be returned to Supplier without Supplier’s consent.

5.2

Repair Period. Supplier shall ship replacement or repaired OEM Products to GEMS-IT as promptly as possible, but not later than ten (10) working days after Supplier’s receipt of Noncomplying Product.

6. RETURN OF PRODUCTS

6.1	Return Materials Authorization. All OEM Products returned by GEMS-IT to Supplier must be accompanied by a RMA. Unless further verification is reasonably required by Supplier, Supplier will supply an RMA within two work days after receiving GEMS-IT’s written request.
6.2	Return Charges. All Noncomplying Products returned by GEMS-IT to Supplier, and all replacement or repaired OEM Products shipped by Supplier to GEMS IT to replace Noncomplying Products, will be at Supplier’s risk and expense, including transportation charges (round trip charges for replacement or repaired OEM Products).
6.3	Duty To Remove Marks Or Destroy Noncomplying Products. Supplier agrees not to sell, transfer distribute or otherwise convey any part, component, product or service bearing or incorporating GEMS-IT Marks, part numbers or other identifiers, including any GEMS-IT packaging, copyrights or code, to any party other than to Eligible Purchasers. Supplier will remove from all rejected, returned or unpurchased OEM Products any such GEMS-IT Marks or identifiers, even if such removal would require destruction of the OEM Products. Supplier further agrees not to represent that such OEM Products are built for GEMS-IT or to GEMS-IT specifications. Supplier will defend and indemnify GEMS-IT against any claims, losses, liabilities, costs or expenses that GEMS-IT may incur as a result of Supplier’s breach of this obligation.

7. ENGINEERING PROCESS OR DESIGN CHANGES

7.1 Supplier Proposed Changes. Supplier will not, without the prior written consent of GEMS-IT, make or incorporate in OEM Products any of the following changes (collectively, “Engineering Changes”):

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(1)	Process or design changes which affect the intended use, function or quality of the OEM Products;
(2)	Geographical relocation of manufacturing processes; or
(3)	Process step discontinuances affecting the electrical performance, the mechanical form, fit, or function, the environmental compatibility or chemical characteristics, software compatibility, or the life, reliability, or quality of OEM Products.

7.2

Notice Of Proposed Change. Supplier will give GEMS-IT notice of any proposed Engineering Change, and will provide evaluation samples and other appropriate information as specified by GEMS-IT at least 90 days prior to the first proposed shipment of any OEM Products involving an Engineering Change. Regardless of whether GEMS-IT approves a proposed Engineering Change, Lead Time will not be changed except as provided in Section 3.5 above.

7.3

Safety Standard Changes. Supplier will immediately give notice to GEMS-IT if any upgrade, substitution or other change to an OEM Product is required to make that product meet applicable safety standards or other governmental statutes, rules, orders or regulations, even those that are not defined as Engineering Changes in Section 7.1 above. All affected OEM Products already purchased by GEMS-IT may, at GEMS-IT’s election, either be returned to Supplier for upgrade to current revisions or upgraded by Supplier or GEMS-IT in the field pursuant to the procedures outlined in Section 14.6 below.

8. QUALITY

8.1

Quality Program. Supplier agrees to maintain an objective quality program for all OEM Products. Supplier’s program will be (i) in accordance with the current revision of GEMS-IT’s Supplier Quality System Requirements, (ii) consistent with regulatory requirements applicable for products of the same type as the OEM Products and for the jurisdictions where regulatory approvals for the OEM Products have been obtained, and (iii) if applicable, any additional or substitute quality requirements agreed to by the parties. Supplier will, upon GEMS-IT’s request, provide to GEMS-IT copies of Supplier’s program and supporting test documentation. Supplier shall maintain device history records for each OEM Product shipped to GEMS-IT, including the date of manufacture, identifying lot codes and serial numbers, and provide that information to GEMS-IT upon request.

8.2

GEMS-IT’s Right To Inspect. GEMS-IT has the right to inspect, at Supplier’s plant, the OEM Products and associated manufacturing processes. Manufacturing processes may be inspected at any time during the Term. GEMS-IT’s inspection may be for any reason reasonably related to this Agreement, including to assure Supplier’s compliance with GEMS-IT’s requirements and with the regulatory and quality provisions of this Agreement. GEMS-IT’s right of inspection will apply

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	as well to any vendor or subcontractor of Supplier. Supplier will inform such vendors or subcontractors of GEMS-IT’s right to inspect, and, if necessary, use all reasonable effort to secure such rights for GEMS-IT.
8.3	Continuing Guarantee for SELLER as required by the FD&C Act and Other Applicable Law. The articles comprising each shipment for delivery hereafter made by Supplier to or on the order of GEMS-IT are hereby guaranteed by Supplier as of the date of shipment or delivery to be on that date: (a) manufactured and released as finished devices in accordance with the applicable provisions of the Federal Food, Drug and Cosmetic Act (FDCA) as amended (21 U.S.C. section 301 et seq.) relating to adulterated or misbranded devices; (b) not an article which may not, under the provisions of sections 404 or 405 of the FDCA, be introduced into interstate commerce; (c) in compliance with the provisions of sections 510, 513, and 515 of the FDCA. This guarantee is continuing and shall remain in full force and effect until revoked in writing.
8.4	Compliance with Quality System Regulation. Supplier represents and warrants that it is in substantial compliance with 21 CFR part 820 with respect to the OEM Products existing as of the date of this Agreement, and Supplier shall substantially comply with 21 CFR part 820 with respect to any future OEM Products which may become subject to this Agreement. Supplier shall be responsible for obtaining CE Marking for the OEM Products. Supplier also represents and warrants that it is in substantial compliance with any and all quality-related laws, rules and regulations of any other country worldwide with respect to the OEM Products existing as of the date of this Agreement, and Supplier shall substantially comply with such laws, rules and regulations with respect to any future OEM Products which may become subject to this Agreement.

9. WARRANTIES AND SUPPORT OBLIGATIONS

9.1 Warranty Period. All warranties set forth in Section 9.2 below will survive any inspection, delivery, acceptance, or payment by GEMS IT and (except for the warranty included in Section 9.2(2) below) will survive indefinitely. The warranty included in Section 9.2(2) below shall be in effect for the periods set forth in Sections 9.1.1 and 9.1.2.

9.1.1	AED product: for [ * ] from date of shipment of the OEM Product to GEMS IT’s end user customers. Batteries are for [ * ] from date of installation into the AED device. Accessories and consumables for ninety (90) days or until expiration date whichever is longer.
9.1.2	CRM product: for [ * ] from date of shipment of the OEM Products to GEMS IT’s end user customers. Accessories and consumables for ninety (90) days or until expiration date whichever is longer.

9.2 Limited Warranty. Supplier warrants during the applicable Warranty Period that each OEM Products will:

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(1)	Be manufactured, processed, and assembled by Supplier or by companies under Supplier’s direction.
(2)	Conform and perform in accordance with the Specifications, and other criteria referred to in this Agreement or agreed to by the parties in writing:
(3)	Be new, except as otherwise provided by the parties.
(4)	Be free from defects in design, material and workmanship
(5)	Be free and clear of all liens, encumbrances, restrictions, and other claims against title or ownership
(6)	Not violate or infringe any third party Intellectual Property Rights, and Supplier warrants that it is not aware of any facts upon which such claim could be made. If Supplier learns of any claim or any facts upon which claim could be made, it will promptly notify GEMS-IT of this information.

9.3

Warranty Obligation. During the applicable Warranty Period, Supplier shall be obligated to repair or replace any OEM Product that does not conform or perform in accordance with the warranties set forth in Section 9.2 above. In addition, GEMS IT shall have such other rights and remedies available at law or otherwise available under this Agreement for breach of the foregoing warranties.

9.4

Warranty Service Logistics and Availability. Supplier agrees to make its service personnel available to GEMS-IT personnel (via phone and/or fax) during regular business hours at no cost to GEMS-IT to address support obligations under this Agreement. If required, on an emergency basis, Supplier agrees on a worldwide basis to make on-site service available at an additional charge to GEMS-IT. The cost for on-site service shall be mutually determined by the Parties on a case by case basis.

9.4.1 Customer Service.

a.

Customer service calls will be handled by GEMS-IT. If customer calls GEMS-IT with Product Warranty issue (GE fields Warranty call), GEMS-IT will inform Supplier of Warranty call and will receive a RMA from Supplier. GEMS IT’s customer will return the product for repair or replacement to Supplier’s facility in Minnetonka, MN (for Americas) or Copenhagen, Denmark (for Europe, Asia, Africa and Middle East).

b.

If GEMS IT’s customer calls requiring in-field service, GEMS-IT will bill customer as appropriate per GEMS-IT policies (flat rate paid by GEMS-IT). GEMS-IT will inform Supplier of customer issue and will receive a RMA from Supplier. GEMS-IT or its customer will return product to Supplier facility as outlined in

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	9.4.1 (a) above. Supplier will repair and return product to customer. Supplier will bill GEMS-IT a flat rate per unit, which rate shall be negotiated with annual adjustments based in CPI. GEMS-IT will bill customer for service call.
c.	If customer calls requiring Parts, GEMS-IT will inform Supplier and request direct shipment of Parts to GEMS-IT customer. Supplier will bill GEMS-IT at agreed upon cost of Parts and GEMS-IT will bill customer.

9.5

Service Period. During the Term and for a period of at least [ * ] following the last shipment to GEMS-IT of the applicable OEM Product ordered by GEMS-IT hereunder, Supplier shall make available necessary replacement parts, technical support and repair service (or at Supplier’s sole discretion, exchange units for the OEM Products) for purchase by GEMS-IT and third party users of the OEM Products at Supplier’s then-current prices for such replacement parts, technical support and repair services and exchange units (unless otherwise covered by warranty or service agreement).

9.6

DISCLAIMER. EXCEPT AS EXPRESSLY PROVIDED IN THIS AGREEMENT, SUPPLIER MAKES ANY OTHER WARRANTIES, EITHER EXPRESS OR IMPLIED, REGARDING MERCHANTABILITY OR THEIR FITNESS FOR ANY PARTICULAR PURPOSE FOR ANY OEM PRODUCTS,

10. OBSOLESCENCE FOR DISCONTINUED PRODUCTS

10.1 Buy Rights. Supplier acknowledges its obligation to manufacture, supply and support the OEM Products without interruption for the Term of the Agreement. If, however, Supplier seeks to discontinue the supply or support of any OEM Product during the Term of the Agreement (a “Discontinued Product”), Supplier will give notice to GEMS-IT no less than twelve (12) months in advance of the last date the Discontinued Product can be ordered. After receipt of notice of discontinuance, GEMS-IT may purchase from Supplier such quantity of the Discontinued Product as GEMS-IT deems necessary for its future requirements.

11. MARKETING AND LICENSING

11.1 No Rights In Marks. Except as otherwise specified in the private labeling section below, nothing in this Agreement should be construed to grant either party any rights in the Marks of the other party. Supplier acknowledges, however, that GEMS-IT may use the name of the OEM Products and Supplier’s marks in advertising and marketing the OEM Products. The OEM Products will be affixed with applicable patent numbers copyright notices, including Cardiac Science STAR®, RescueReady® and RHYTHMx® marks identifying the CSI Proprietary Technology, sufficient to give notice as to the rights of the parties in their respective products.

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11.2

Private Labeling. Supplier will ensure that the OEM Products sold to GEMS-IT contain the GEMS-IT Marks, serial number and packaging specified by GEMS-IT and conforming to GEMS-IT specifications for external appearance (which will not require any material change in form or dimensions of the OEM Products or require commercially unreasonable actions). GEMS-IT shall provide Supplier with a list of sequential serial numbers to be applied to each OEM Product and shipping container by Supplier and Supplier shall apply such numbers per GEMS-IT’s instructions. In addition, and without limiting the foregoing, Supplier will ensure that each OEM Product label includes the following statement: “Manufactured for GE Medical Systems Information Technologies by Cardiac Science — STREET ADDRESS, CITY, STATE.” Except as provided herein, Supplier will have no other right or license in any GEMS-IT marks.

11.3

Documentation License. Supplier hereby grants GEMS-IT a non-exclusive, non-transferable, worldwide fully paid up license to use, reproduce, distribute and prepare derivative works in GEMS-IT’s name all Documentation and other information, other than confidential information, furnished by Supplier under this Agreement. GEMS-IT has the right to use or modify the Supplier’s Product documentation or excerpts therefrom, for instance as follows: Functional description, Instruction sheet and product labels, Operators aids, Promotion information, and Product/Function description. Supplier shall provide GEMS-IT with this Product documentation free of charge both as a print version and on data media in readable form. These rights with respect to the Documentation will extend to GEMS-IT Subsidiaries and third party channels of distribution. GEMS-IT may reproduce such Documentation without Supplier’s logo or other identification of source, subject to affixing copyright notices to all copies of Documentation. These rights with respect to the Documentation will extend to GEMS-IT Subsidiaries and third party channels of distribution.

12. INTELLECTUAL PROPERTY PROTECTION

12.1

Ownership. Except as expressly provided herein, neither Party grants to the other Party any license or intellectual property right, either by implication, estoppels or otherwise in and to its products, patents, trademarks, documentation or confidential information. Except in the case of GEMS-IT’s need to service OEM Products, GEMS-IT shall not: (a) reverse engineer, decompile, disassemble or otherwise tamper with the OEM Products; (b) install, integrate, adapt or use the OEM Products except as described in the Documentation; (c) remove or alter any proprietary designs notices or Marks contained in or on the OEM Products, Documentation or related materials and (d) authorize any third party, including any of GEMS-IT distributors or end user customers, to do any of the foregoing.

12.2

Supplier’s Duty To Defend. Supplier will defend, indemnify and hold harmless GEMS-IT, its Affiliates and its Subsidiaries, subcontractors and customers from any claim that any OEM Product, any Software, Documentation or a Supplier Mark, or any product provided as part of Supplier’s support services constitutes an unauthorized use or infringement of any third party’s Intellectual Property

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	Rights. Supplier will pay all costs, damages and expenses (including reasonable attorneys’ fees) incurred by GEMS-IT, its Subsidiaries, subcontractors or customers and will pay any award with respect to any such claim or agreed to in any settlement by Supplier of such a claim.
12.3	GEMS-IT’s Duty To Notify. GEMS IT will give Supplier prompt notice of any such claim or action, and will give Supplier the authority, information, and reasonable assistance (at Supplier’s expense) necessary to defend. If Supplier does not diligently pursue resolution of the claim nor provide GEMS IT with reasonable assurance that it will diligently pursue resolution, then GEMS IT may, without in any way limiting its other rights and remedies, defend the claim.
12.4	Remedies For Infringing Products. If the use or combination of any product provided hereunder is enjoined (the “Infringing Product”), Supplier will, at its sole expense and option:

(1)	Procure for GEMS-IT and its customers the right to continue using or combining the Infringing Product;
(2)	Replace the Infringing Product with a non-infringing product of equivalent function and performance; or
(3)	Modify the Infringing Product to be non-infringing, without detracting from function or performance.

12.5 Limitations. Supplier will be relieved of its indemnification obligations under this Article 12 to the extent that the claim arises solely and directly from Supplier’s compliance with a GEMS-IT Specification, provided that all implementations of that Specification constitute an unauthorized use or infringement of a third party Intellectual Property Right.

13. IMPORT / EXPORT COMPLIANCE

13.1

Country Of Origin Certification. Upon GEMS-IT’s request, Supplier will provide GEMS-IT with an appropriate certification stating the country of origin for OEM Products, sufficient to satisfy the requirements of the customs authorities of the country of receipt and any applicable export licensing regulations, including those of the United States. In addition, Supplier will provide NAFTA certification (if Supplier determines the OEM Products qualify).

13.2

Country Of Origin Marking. Supplier will mark each OEM Product, or the container if there is no room on the OEM Product, with the country of origin in accordance with U.S. Government regulations (Supplier shall only mark “Made in USA” on products or containers if the product meets the U.S. Government Federal Trade Commission requirements for use of such a label). Supplier will, in marking OEM Products, comply with the requirements of the customs authorities of the country of receipt.

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13.3

Duty Drawback. If OEM Products delivered under this Agreement are imported by the OEM as the importer of record in the country of receipt, Supplier will, upon GEMS-IT’s request, provide GEMS-IT with documents required by the customs authorities of the country of receipt to prove importation and to transfer duty drawback rights to GEMS-IT.

13.4

Export Compliance. (a) In performing its obligations under this Agreement, Supplier shall comply with all applicable export laws, regulations and rules administered by the United States Customs Service, the Bureau of Industry and Security and the Food and Drug Administration, as well as all other applicable federal, state or local laws, regulations or requirements of the United States and any other nation. Supplier shall obtain all applicable permits and licenses necessary to perform its obligations under this Agreement.

(b)	If Supplier obtains Bureau of Industry and Security commodity classifications for the OEM Products, Supplier shall provide a copy of the CCATS document, including any revisions thereto during the Term of this Agreement. If Supplier obtains any U.S. Customs Rulings relating thereto, Supplier shall provide copies of the resulting revisions.
(c)	Supplier shall indemnify and save harmless GEMS IT, its affiliates, officers, directors, employees, successors and assigns from any and against any losses, damages, liabilities, fines, penalties, and expenses (including reasonable attorney’s fees) arising out of or resulting from the failure to comply with this provision, provided that GEMS IT gives Supplier prompt written notice of any such claim and requisite authority, information and assistance to defend such claim.
(d)	During the Term and for a period of five (5) years thereafter, Supplier shall keep accurate and complete export documentation records relating the OEM Products in accordance with U.S. Export regulations and FDA requirements and the requirements of any other similar agency of any other nation that will have jurisdiction over Supplier as a result of its performance of its obligations under this Agreement. If the U.S. Government or other government or agency requests the production of such records, Supplier shall copy and produce the records at no charge to GEMS IT.
(e)	Upon reasonable advance notice to Supplier and during normal business hours, GEMS IT may, at its option and expense, conduct audits at any Supplier Service Location of documents relating to the OEM Products to assure that Supplier is in compliance with all export and FDA laws, regulations and requirements, including record keeping. GEMS IT may make copies of any records it reviews during its audits. Further, upon reasonable advance notice to Supplier, GEMS IT may request copies of any export documentation records relating to the OEM Products, which Supplier will provide free of charge. If an audit reveals non-compliance,

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	undercharges or overcharges, Supplier will take appropriate measures to rectify the situation and bring the Supplier Service Location into compliance.
(f)	During the Term and for a period of five (5) years thereafter, GEMS IT may request from Supplier copies of records deemed necessary to defend against any claim related to this Section 13.4 made by a third party, including federal, state or local government. Such records shall not be unreasonably withheld.

14. GOVERNMENTAL COMPLIANCE

14.1 Duty To Comply. Supplier agrees to comply with all federal, state, local and foreign laws, rules, and regulations applicable to its performance of this Agreement or to OEM Products. Without limiting the generality of the foregoing sentence, Supplier represents that:

(1)	Supplier will comply with all applicable equal employment opportunity and non-discrimination requirements prescribed by Presidential Executive Orders, including the requirements of Executive Order 11246, the Vocational Rehabilitation Act, and the Vietnam Era Veterans’ Readjustment Assistance Act;
(2)	Each chemical substance contained in OEM Products is on the inventory of chemical substances compiled and published by the Environmental Protection Agency pursuant to the Toxic Substances Control Act;
(3)	All OEM Products will be shipped in conformance with government or freight regulations and requirements applicable to chemicals; and
(4)	Supplier will provide complete and accurate material safety data sheets prior to shipping any OEM Product.

14.2

Procurement Regulations. For OEM Products purchased under this Agreement for incorporation into products to be sold under a federal contract or subcontract, those applicable procurement regulations that are required by federal statute or regulation to be inserted in contracts or subcontracts will be deemed incorporated in this Agreement and made to apply to all Orders.

14.3

Regulatory Approvals. Supplier shall provide a listing of countries where the OEM Products have received all regulatory and other necessary and/or appropriate approvals for the sale of any OEM Product. Supplier will be solely responsible for identifying, obtaining, and maintaining at its sole cost and expense all regulatory and other necessary and/or appropriate approvals in any country worldwide which are applicable to this Agreement. If any such approval is subsequently revoked, terminated or suspended, Supplier shall immediately notify GEMS IT of such occurrence.

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14.4	Complaint Handling. GEMS-IT will be responsible for the coordination of customer complaint investigations. As determined by GEMS-IT, Supplier will investigate customer complaints at no charge and supply GEMS-IT with a written report summarizing the cause for the complaint and any corrective actions required within 14 days of receipt by Supplier of such complaint, it being understood that, depending on the nature of the complaint and investigation, the initial (14-day) response may be limited in scope and then followed up by a complete response as soon as reasonable practicable thereafter.
14.5	Duty to Report Incidents. GEMS-IT and Supplier shall inform each other in writing, within 5 business days from knowledge of a reportable event, of all incidents relating to the subject matter of the Agreement that must be reported according to the FDA Medical Device Reporting regulation (21 CFR Part 803) or the European Medical Device Vigilance regulations or that must be registered according to other national regulations such as Canadian medical device regulations, including without limitation incidents involving death or serious injury, malfunctions that, if recurrent, may cause or contribute to death or serious injury or other material quality problems or concerns. GEMS-IT will be responsible for reporting such incidents to the appropriate regulatory authority. Supplier shall fully cooperate with GEMS-IT as may be necessary to comply with any reporting obligations regarding such incidents or quality concerns.
14.6	Recalls and Field Corrections. In the event of any recall, product withdrawal or field correction of any OEM Product that is required by a governmental agency, by Supplier, or by GEMS-IT for safety or efficacy reasons, the parties agree that (a) they shall promptly notify each other and (b) they shall fully cooperate with each other concerning the necessity and nature of such action. GEMS-IT shall be the point of contact for purchasers of any OEM Product (whether directly or through its distributors) and shall be responsible for making any and all applicable regulatory authority contacts and for coordination of any recall or field correction activities involving such OEM Products, whether or not such action was requested by Supplier. In the event that any OEM Product requires field correction or is recalled as a result of (a) the supply by Supplier of a Noncomplying Product or (b) the grossly negligent or intentionally wrongful act or omission of Supplier or its affiliates or their representatives, then Supplier shall bear all costs and expenses, including but not limited to the costs and expenses related to such recall or field correction, communications and meetings with all required regulatory agencies, replacement stock, service labor, installation, travel, notifying customers of such recall and any replacement product to be delivered to those same customers, including shipping costs. To the extent that any such recall or field correction is due in part to the negligent or intentional acts or omissions of GEMS-IT, GEMS-IT shall be responsible for such costs and expenses equitably in proportion to its fault.
14.7	Regulatory Agency Inquiries. If the FDA or any other regulatory body with authority over medical devices provides written notice to either party to inquire about or investigate any OEM Product, the party notified shall use its best efforts

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to give notice thereof to the other party within one working day of receipt of such contact from the FDA or other body.

15. FORCE MAJEURE EVENTS

15.1

Delaying Causes. Subject to the provisions of this Article, Supplier will not be liable for any delay in performance under this Agreement caused by any “act of God” or other cause beyond Supplier’s control and without Supplier’s fault or negligence (a “delaying cause”). Notwithstanding the above, Supplier will not be relieved of any liability for any delay or failure to perform its defense obligations with respect to third party Intellectual Property Rights or furnish remedies for Infringing Products as described in Article 12 above.

15.2

GEMS-IT Option. Supplier will immediately give GEMS-IT notice of any delaying cause and its best estimate of the expected duration of such cause. In the event of a delaying cause, GEMS-IT may act in its sole discretion to:

(1)	Terminate this Agreement or any part hereof as to OEM Products not shipped; or
(2)	Suspend this Agreement in whole or in part for the duration of the delaying cause, buy similar products elsewhere, and deduct from any quantities specified under this Agreement the quantity so purchased.

15.3 Resumption Of Agreement. If GEMS-IT elects to purchase other similar products in the event of a delaying cause, GEMS-IT may resume performance under this Agreement once the delaying cause ceases and extend the Term up to the length of time the delaying cause endured. Unless GEMS-IT gives notice of termination as provided above within 30 days after notice from Supplier of the delaying cause, GEMS-IT will be deemed to have elected to suspend this Agreement for the duration of the delaying cause.

16. EVENTS OF DEFAULT

16.1	Notice Of Breach. If either party is in breach of any provision of this Agreement, the nonbreaching party may, by notice to the breaching party, except as otherwise prohibited by the United States bankruptcy laws, terminate the whole or any part of this Agreement or any Order, unless the breaching party cures the breach within 30 days after receipt of notice in writing.
16.2	Causes Of Breach. For purposes of Section 16.1, above, the term “breach” includes without limitation any:

i. Proceeding, whether voluntary or involuntary, in bankruptcy or insolvency by or against a party that is not dismissed within 60 days of its filing;

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ii.	Appointment, with or without a party’s consent, of a receiver or an assignee for the benefit of creditors;
iii.	Failure by Supplier to supply the OEM Products in accordance with the material requirements of this Agreement;
iv.	Failure by GEMS-IT to purchase and pay for the OEM Products in accordance with the provisions of this Agreement;
v.	Failure by Supplier to replace or repair Noncomplying Products in a timely manner as required by Articles 5, 6 & 9 above; or
vi.	Other failure by a party to comply with any material provision of this Agreement with additional failure to provide the nonbreaching party, upon request, with reasonable assurances of future performance.

16.3 Rights Upon Breach. In addition to a party’s right to terminate this Agreement upon breach, each party shall also have such other rights and remedies as may be available to them at law or in equity or otherwise available under this Agreement.

17. CONFIDENTIAL INFORMATION

17.1

Confidential Information. During the Term, a party (the “Recipient”) may receive or have access to certain information of the other party (the “Discloser”) that is marked as “Confidential Information,” including, though not limited to, information or data concerning the Discloser’s products or product plans, business operations, strategies, customers and related business information. The Recipient will protect the confidentiality of Confidential Information with the same degree of care as the Recipient uses for its own similar information, but no less than a reasonable degree of care. Confidential Information may only be used by those employees of the Recipient who have a need to know such information for the purposes related to this Agreement. The parties acknowledge that all GEMS-IT Property, Technical Information and Forecasts are deemed Confidential Information to be protected for a term of three years from the date of disclosure.

17.2

Exclusions. The foregoing confidentiality obligations will not apply to any information that is (a) already known by the Recipient prior to disclosure, (b) independently developed by the Recipient prior to or independent of the disclosure, (c) publicly available through no fault of the Recipient, (d) rightfully received from a third party with no duty of confidentiality, (e) disclosed by the Recipient with the Discloser’s prior written approval, or (f) disclosed under operation of law.

18.	LIMITATION OF LIABILITY
	UNLESS OTHERWISE STATED IN THIS AGREEMENT, NEITHER PARTY WILL BE LIABLE FOR ANY SPECIAL OR CONSEQUENTIAL DAMAGES OF THE

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OTHER ARISING OUT OF ANY PERFORMANCE OF THIS AGREEMENT OR IN FURTHERANCE OF THE PROVISIONS OR OBJECTIVES OF THIS AGREEMENT, REGARDLESS OF WHETHER SUCH DAMAGES ARE BASED ON TORT, WARRANTY, CONTRACT OR ANY OTHER LEGAL THEORY, EVEN IF ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. NOTWITHSTANDING THE ABOVE, SUPPLIER WILL BE RESPONSIBLE FOR ANY DAMAGES OF ANY KIND INCLUDED IN AN AWARD OR SETTLEMENT OF A THIRD PARTY CLAIM UNDER ARTICLE 12 ABOVE AND SECTION 21.2 BELOW.

19.

TERMINATION

19.1	Outstanding Orders. All Orders issued prior to the expiration of this Agreement must be fulfilled pursuant to and subject to the terms of this Agreement, even if the Delivery Dates are after expiration. Upon termination of this Agreement for Supplier’s breach, GEMS-IT may cancel any outstanding Order or require Orders to be fulfilled even if a Delivery Date is after the date of termination.
19.2	Surviving Provisions. Notwithstanding the expiration or early termination of this Agreement, the provisions regarding Warranties in Article 9, Marketing and Licensing in Article 11, Intellectual Property in Article 12, Confidentiality in Article 17, Limitation of Liability in Article 18, and the Miscellaneous provisions below will each survive in accordance with their terms.

20. CRISIS MANAGEMENT

20.1

Communications. Supplier must maintain the ability to contact GEMS IT on a 24 hour a day, 7 day a week basis in order to communicate and manage crisis situations that threaten to or interrupt the Supply Chain. Likewise, Supplier must be available if GEMS IT wishes to contact Supplier on a 24/7 basis. Means of communication may include, but are not limited to, phone, mobile phone or pager and interaction via email and the Internet.

20.2

Business Contingency Plan (BCP). Supplier must share with GEMS IT a BCP that includes Supplier’s plan for 24/7 communication with GEMS IT. The BCP will also include basic information on Supplier’s upstream Supply Chain. For instance, this information will include who Supplier’s Tier 1 and Tier 2 suppliers are, where they are located and the means of transportation for this Supply Chain.

21. MISCELLANEOUS

21.1 Notices. All notices to be given under this Agreement must be in writing addressed to the receiving party’s designated recipient. Notices are validly given upon the earlier of confirmed receipt by the receiving party or three days or seven days for international notices after dispatch by courier or certified mail, postage prepaid, properly addressed to the receiving party. Notices may also be delivered by telefax and will be validly given upon oral or written confirmation of receipt.

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	Either party may change its address for purposes of notice by giving notice to the other party in accordance with these provisions.
21.2	Indemnification. Supplier shall defend, indemnify, and hold harmless GEMS-IT and its Affiliates from and against any losses, expenses, and liability (including attorney fees) to third parties for any and all claims of personal injuries and/or damages arising out of the use of any OEM Product if such injuries and/or damages are attributable to any part of such OEM Product, provided that GEMS-IT notifies Supplier promptly in writing of any and all such claims.
21.3	Exhibits. Each Exhibit attached to this Agreement is deemed a part of this Agreement and incorporated herein wherever reference to it is made.
	Exhibit A: OEM Products List
	Exhibit B: Suppliers Prices
	Exhibit C: Product Specifications
21.4	Independent Contractors. The relationship of the parties established under this Agreement is that of independent contractors and neither party is a partner, employee, agent or joint venturer of or with the other.
21.5	Assignment. Except for any assignment by GEMS IT to any Affiliate of GEMS IT, neither this Agreement, nor any right, license, privilege or obligation provided herein may be assigned, transferred or shared by either party without the other party’s prior written consent, and any attempted assignment or transfer is void. Any merger, consolidation, reorganization, transfer of substantially all assets of a party, or other change in control or ownership will be considered an assignment for the purposes of this Agreement (other than a merger of GEMS-IT with or into an Affiliate of GEMS-IT). This Agreement will be binding on the successors and permitted assigns of the parties and the name of the party appearing herein will be deemed to include the names of such party’s successors or permitted assigns to the extent necessary to carry out the intent of this Agreement.
21.6	No Waiver. The waiver of any term, condition, or provision of this Agreement must be in writing and signed by an authorized representative of the waiving party. Any such waiver will not be construed as a waiver of any other term, condition, or provision except as provided in writing, nor as a waiver of any subsequent breach of the same term, condition, or provision.
21.7	Reference To Days. All references in this Agreement to “days” will, unless otherwise specified herein, mean calendar days.
21.8	Headings. The Section headings used in this Agreement are for convenience of reference only. They will not limit or extend the meaning of any provision of this Agreement, and will not be relevant in interpreting any provision of this Agreement.

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21.9	No Publication. Other than as required by SEC regulations which require disclosure of certain material events, neither party may publicize or disclose the terms of this Agreement to any third party, without the written consent of the other party. Without limiting the generality of the foregoing sentence, no press releases may be made without the mutual written consent of each party.
21.10	Severability. If any provision in this Agreement is held invalid or unenforceable by a body of competent jurisdiction, such provision will be construed, limited or, if necessary, severed to the extent necessary to eliminate such invalidity or unenforceability. The parties agree to negotiate in good faith a valid, enforceable substitute provision that most nearly affects the parties’ original intent in entering into this Agreement or to provide an equitable adjustment in the event no such provision can be added. The other provisions of this Agreement will remain in full force and effect.
21.11	Entire Agreement. This Agreement comprises the entire understanding between the parties with respect to its subject matters and supersedes any previous communications, representations, or agreements, whether oral or written. For purposes of construction, this Agreement will be deemed to have been drafted by both parties. No modification of this Agreement will be binding on either party unless in writing and signed by an authorized representative of each party.
21.12	Governing Law. This Agreement will be governed in all respects by the laws of the State of New York without reference to any choice of laws provisions.
21.13	Dispute Resolution. Any claim or controversy arising out of or relating to the Agreement must be submitted and settled as set forth in this Section 21.13. If any party to this Agreement alleges that any other party to this Agreement has breached any of the terms of this Agreement, then the party alleging breach will inform the other party of such breach in writing. Upon receipt of such notice, the allegedly non-performing party will have 30 days to cure the alleged breach. If the parties do not agree that effective cure has been accomplished by the end of the 30-day period, then upon written request of any party, a senior manager from each party will meet in person and confer in good faith to resolve the dispute within 15 days of the expiration of the prior 30-day period. If, after the above procedure, the dispute remains unresolved, either party may submit the dispute to the office of the American Arbitration Association (“AAA”) located in Chicago, Illinois for binding arbitration in accordance with the AAA’s Commercial Arbitration Rules then in effect, as amended by this Agreement. The law applicable to the arbitration, including the administration and enforcement thereof, is the Federal Arbitration Act, 9 U.S.C. §§ 1-16, as amended from time to time. The cost of the arbitration, including the fees and expenses of the arbitrator(s), will be shared equally by the parties, with each party paying its own attorneys’ fees. The arbitrator(s) will have the authority to apportion liability between the parties, but will not have the authority to award any damages or remedies not available under the express terms this Agreement. The arbitration award will be presented to the parties in writing, and upon the request of either

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FINAL EXECUTABLE VERSION dated 7-29-03
GEMS-IT — Cardiac Science OEM Agreement for AED and CRM

party, will include findings of fact and conclusions of law. The award may be confirmed and enforced in any court of competent jurisdiction. Any post-award proceedings will be governed by the Federal Arbitration Act. Nothing in this Section 21.13 shall preclude either party from seeking interim equitable relief in the form of a TRO or preliminary injunction. A request by a party of a court for interim equitable relief shall not be deemed a waiver of the obligation to arbitrate hereunder.

21.14

Insurance. During the term of this Agreement, Supplier shall maintain at its own expense, commercial general liability insurance for bodily injury, death and property loss and damage (including coverage’s for product liability, contractual liability and personal injury liability) covering Supplier for claims, lawsuits or damages arising out of its performance under this Agreement and any negligent or otherwise wrongful acts or omissions by Supplier or any employee or agent of Supplier. All such policies of insurance shall provide limits of liability in the minimum amount of three million dollars ($3,000,000) per occurrence with an annual aggregate of at least five million dollars ($5,000,000). Supplier shall provide GEMS IT with a copy of certificates of insurance evidencing the existence of all coverage required hereunder.

*    *    *

IN WITNESS WHEREOF, the parties have caused this Agreement to be signed by their thereunto duly authorized representatives as of the date first above written.

Cardiac Science, Inc.		GE Medical Systems Information Technologies, Inc.
By:	/s/ RAYMOND W. COHEN	By:	/s/ MICHAEL GENAU
Printed Name: Raymond W. Cohen		Printed Name: Michael Genau
Title: President & CEO		Title: Vice President & General Manager, Cardiology Systems

[ * ]   designates portions of this document that have been omitted pursuant to a request for confidential treatment filed separately with the commission.

22

FINAL EXECUTABLE VERSION dated 7-29-03
GEMS-IT — Cardiac Science OEM Agreement for AED and CRM

EXHIBIT A

OEM PRODUCT LIST

1. Powerheart® model G3 automated external defibrillator (AED) to be produced in GEMS-IT specified coloring and labeled GE Medical Responder® AED, is a portable battery operated automated external defibrillator that analyzes a persons’ electrocardiogram and advises an operator to deliver an electric shock(s) to a patient in order to restore normal heart rhythm; and includes Cardiac Science’s patented STAR® biphasic technology, RHYTHMx® algorithms and RescueReady® self-testing technology such as one button operation, pre-connected disposable electrode pads and status indicator.

2. Single patient use disposable defibrillation electrodes for use with the AEDs and CRMs. Electrodes will be packaged in to accommodate the RescueReady capabilities of the AED. Electrodes for use with the CRMs will have a smart-chip-based coding system in the connector that mitigates the possibility of the proprietary Electrodes being copied. Electrodes will be private-labeled with GEMS-IT labeling as agreed upon by the Parties.

3. Powerheart® Cardiac Rhythm Module^TM (CRM) is a portable external defibrillator that (i) continuously monitors a patient’s electrocardiogram and is capable of delivering an electric shock(s) using biphasic defibrillation technology to a patient in order to restore normal heart rhythm; and (ii) performs synchronized cardioversion and external pacing; and (iii) operates on an automatic, semi-automatic or manual basis. CRM with be private-labeled with GEMS-IT specified labeling as agreed upon by the Parties.

[ * ]   designates portions of this document that have been omitted pursuant to a request for confidential treatment filed separately with the commission.

23

FINAL EXECUTABLE VERSION dated 7-29-03
GEMS-IT — Cardiac Science OEM Agreement for AED and CRM

EXHIBIT B

SUPPLIER PRICES

OEM version AED Products	Price
GE Medical labeled Responder® AED	$	[ * ]
(Corresponds to Cardiac Science Powerheart® AED G3)
Primary AED Accessories:
G3 Molded carry case for AED G3 (part no. 168-6000-001)	$	[ * ]
G3 AED Replacement Electrodes for G3 (part no. 9131)	$	[ * ]
G3 AED Pediatric Electrodes (part no. 9730)	$	[ * ]
Wall-Mount Wire Rack (part no. 164-2191)	$	[ * ]
G3 Wall-Mount Storage & Display Case without Alarm (part no. tbd)	$	[ * ]
G3 Wall-Mount Storage & Display Case with Alarm (part no. tbd)	$	[ * ]
G3 Powerheart® AED Trainer device (part no. 180-3000-001)	$	[ * ]

Each Responder AED package includes (model G31):

One (1) each Automated External Defibrillator with extended life lithium battery, a pair of defibrillation electrodes, serial communication cable and a CD containing RescueLink® download software and instructions, User’s Manual and training video.

Each Pediatric Electrode package includes:

One (1) each MDLink® software and Users Manual and a pair of pediatric defibrillation electrodes.

CRM Products	Price
GE Medical labeled Powerheart® CRM	$	[ * ]
Primary CRM Accessories:
CRM Disposable Therapy Electrodes (part no. 170-2007)	$	[ * ]
(packaged 10 sets per box)
CRM Portable Carry Case (part no. 168-1020-001)	$	[ * ]
Wall Mount (part no. 168-2003)	$	[ * ]
IV Pole Mount (part no. 168-2011)	$	[ * ]
Pass-Thru Cable for GE Medical monitors (part no. 170-2089)	$	[ * ]

Each CRM package includes (model 2.0 with handle):

One (1) each CRM defibrillator device with rechargeable sealed lead acid battery, a pair of CRM Defibrillation Electrodes, AC Power Adaptor (part no. 139-0186) and Power Cord (part no. 167-0102), set of Patient Therapy Cable (part no. 162-0058), 3-lead ECG Patient Cable (part no. 162-0057), set of 3-lead ECG Monitoring Electrodes, Event Review Kit with CD-ROM of Event Review Software and CRM to PC cable (part no. 109-2000-001), Operators Manual, Quick Reference Guide and training video.

All prices are in US Dollars (USD).

[ * ]  designates portions of this document that have been omitted pursuant to a request for confidential treatment filed separately with the commission.

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FINAL EXECUTABLE VERSION dated 7-29-03
GEMS-IT — Cardiac Science OEM Agreement for AED and CRM

EXHIBIT C

Powerheart AED Technical Specifications

[ * ]

[ * ]   designates portions ( 4 pages) of this document that have been omitted pursuant to a request for confidential treatment filed separately with the commission.

25

EX-10.37

EXHIBIT 10.37

Addendum 1 To OEM Purchase and Supply Agreement between GE Medical Systems Information Technologies and Cardiac Science

The purpose of this addendum is to extend the set of private-label OEM devices manufactured by Cardiac Science (CSI) for GE Medical Systems Information Technologies (GEMS IT) to include one additional automated external defibrillator and its accessories. The product shall be labeled the “GE Responder AED Pro” and shall correspond in all other aspects with Cardiac Science’s version, the “Powerheart AED G3 Pro.” This document will also confirm transfer pricing to GEMS IT.

CSI authorizes GEMS IT to market this GE-branded AED on an exclusive basis anywhere in the world, except Japan. GEMS IT’s rights apply only to the GE-branded product. The technology on which this device is based will not be exclusive to GEMS IT and nothing in this agreement shall prohibit Cardiac Science from selling its products in any market or to any third parties.

The transfer prices shall be as follows:

•	Responder AED Pro package, including accessories & disposable battery	$	[ * ]
•	3-lead ECG patient cable for monitoring (optional)	$	[ * ]
•	Rechargeable battery (optional)	$	[ * ]
•	Battery charger	$	[ * ]

GE will incur no additional expenses for engineering, industrial design, or any other work associated with the customization of this product, its accessories, or its software. In particular, CSI will provide at no charge to GE translated RescueLink event-review software and operator’s manuals. As is the case with Responder AED, MDLink will be renamed ServiceLink and included on a separate, English-only Service CD-ROM.

CSI will manufacture this product for GEMS IT in accordance with (and this addendum shall form a part of and be otherwise subject to) the OEM Purchase and Supply Agreement signed between the parties on the 29^th day of July 2003 (the “Agreement”). The definition of OEM Products under the Agreement shall be deemed to include the items covered by this addendum. In the event of conflict, this addendum shall control.

***

IN WITNESS WHEREOF, the parties have caused this addendum to be signed by their thereunto duly authorized representatives as of March 24, 2004.

Cardiac Science, Inc.		GE Medical Systems Information Technologies
By:	/s/ RAYMOND W. COHEN	By:	/s/ MICHAEL GENAU
Name:	Raymond W. Cohen	Name:	Michael Genau
Title:	Chairman & CEO	Title:	Vice President & General Mgr., Diagnostic Cardiology

[ * ]  designates portions of this document that have been omitted pursuant to a request for confidential treatment filed separately with the commission.

EX-10.38

Exhibit 10.38

AMENDMENT ONE TO OEM PURCHASE AND SUPPLY AGREEMENT

     This Amendment (the “Amendment”) is made as of August 10, 2004, by and between Cardiac Science, Inc., a Delaware corporation (“Supplier” or “Cardiac Science” or “CSI”), a medical device developer and manufacturer of automated external defibrillators having its principal place of business at 1900 Main Street, Irvine, CA 92614 and GE Medical Systems Information Technologies, Inc., a Wisconsin corporation (“GEMS-IT”), having its principal place of business at 8200 W. Tower Avenue, Milwaukee, WI 53223. CSI and GEMS-IT may each be referred to herein as a “Party” and collectively, the “Parties”.

W I T N E S S E T H:

     WHEREAS, CSI and GEMS-IT are parties to an OEM Purchase and Supply Agreement dated July 29, 2003 and “Addendum 1” to the OEM Purchase and Supply Agreement dated as of March 24, 2004 (collectively, the “OEM Purchase and Supply Agreement”).

     WHEREAS, CSI and GEMS-IT desire to supplement and amend the OEM Purchase and Supply Agreement as set forth herein.

     NOW THEREFORE, in consideration of the premises and other good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, it is agreed as follows:

     1.   Construction. Except as provided in this Amendment, the terms and conditions set forth in the OEM Purchase and Supply Agreement shall remain unaffected by execution of this Amendment. To the extent any provisions or terms set forth in this Amendment conflict with the terms set forth in the OEM Purchase and Supply Agreement, the terms set forth in this Amendment shall govern and control. Terms not otherwise defined herein, shall have the meanings set forth in the OEM Purchase and Supply Agreement. This Amendment amends the OEM Purchase and Supply Agreement and not the OEM Purchase Agreement entered into by the Parties on July 29, 2003.

     2.   Section 14.5 of the OEM Purchase and Supply Agreement is deleted in its entirety and replaced with the following:

14.5 Duty to Report Incidents. GEMS-IT and Supplier shall inform each other in writing, within 5 business days from knowledge of a reportable event, of all incidents relating to the subject matter of the Agreement that must be reported according to the FDA Medical Device Reporting regulation (21 CFR Part 803) or the European Medical Device Vigilance regulations or that must be registered according to other national regulations such as Canadian medical device regulations, including without limitation incidents involving death or serious injury, malfunctions that, if recurrent, may cause or contribute to death or serious injury or other material quality problems or concerns. Supplier will be responsible for reporting such incidents to the appropriate regulatory authority. GEMS-IT shall fully cooperate with Supplier as may be necessary to comply with any reporting obligations regarding such incidents or quality concerns.

     3.   Section 14.6 of the OEM Purchase and Supply Agreement is deleted in its entirety and replaced with the following:

14.6 Recalls and Field Corrections.In the event of any recall, product withdrawal or field correction of any OEM Product that is required by a governmental agency, by Supplier, or by GEMS-IT for safety or efficacy reasons, the parties agree that (a) they shall promptly notify each other and (b) they shall fully cooperate with each other concerning the necessity and nature of such action. GEMS-IT shall be the point of contact for purchasers of any OEM Product (whether directly or through its distributors). Supplier shall be responsible for making any and all applicable regulatory contacts and for coordination of any recall or field correction activities involving such OEM Products. In the event that any OEM Product requires field correction or is recalled as a result of (a) the supply by Supplier of a Noncomplying Product or (b) the grossly negligent or intentionally wrongful act or omission of Supplier or its affiliates or their representatives, then Supplier shall bear all costs and expenses, including but not limited to the costs and expenses related to such recall or field correction, communications and meetings with all required regulatory agencies, replacement stock, service labor, installation, travel, notifying customers of such recall and any replacement product to be delivered to those same customers, including shipping costs. To the extent that any such recall or field correction is due in part to the negligent or intentional acts or omissions of GEMS-IT, GEMS-IT shall be responsible for such costs and expenses equitably in proportion to its fault.

2

     4.   Section 9.1.1 of the OEM Purchase and Supply Agreement is deleted in its entirety and replaced with the following:

9.1.1 AED product: for seven (7) years from date of shipment of the OEM Product to GEMS-IT’s end user customers. Batteries are for four (4) years from date of installation into the AED device. Accessories and consumables for one (1) year or until expiration date, whichever is longer.

     5.   Exhibit A of the OEM Purchase and Supply Agreement is amended to provide for the addition of the OEM Products known as the “Powerheart AED G3” and “Powerheart AED G3 Pro”. The specifications for these OEM Products are attached hereto as Exhibit A. GEMS-IT has the right to sell these CSI branded OEM Products on a non-exclusive basis in the United States and Canada. GEMS-IT has no minimum purchase commitments with respect to the Powerheart AED G3 and Powerheart AED G3 Pro. CSI shall provide sales training and support to the GEMS-IT Sub-Acute team and shall also provide product specialists who shall be available, as necessary, to assist the GEMS-IT representatives sell these OEM Products.

     6.   CSI Roles and Responsibilities. To further define the role of CSI, and to more explicitly set forth CSI’s responsibilities and obligations with respect to the OEM Purchase and Supply Agreement and the OEM products, the Parties agree that CSI shall be responsible for:

        (a) Designing and manufacturing the OEM Products.

        (b) All European Medical Device Vigilance reporting and requirements. Notwithstanding CSI’s reporting obligations, in the event a customer reports to a governmental authority in Europe, GEMS-IT may respond with its own report.

          (c) Providing a copy of its design hazard analysis on the OEM Products to GEMS-IT with five (5) days of its production. The design hazard analysis will be used to perform health risk analysis.

3

          (d) Performing all complaint investigations on the OEM Products and providing the results of such investigations to the GEMS-IT “Complaint Leader” via e-mail within fourteen (14) days of the conclusion of the investigation. The “Complaint Leader” will be the GEMS-IT employee who is responsible for the coordination and processing of complaint activities on the OEM Products. The results of any investigation will include any correction, corrective or preventive action, verification, and validation performed and/or recommended. The investigative results shall include information obtained in connection with any investigation performed at both the Copenhagen (Service repair) and Minnetonka facilities.

          (e) Ensuring that a CSI representative participates in all requested or required risk assessments. The CSI representative may be a member of CSI’s Service, Engineering, Quality Assurance or Regulatory Affair departments.

          (f) Notifying GEMS-IT (in writing) of any recall as soon as possible and in no event later than forty-eight (48) hours after a recall decision has been made by CSI or is required by a governmental agency.

          (g) Notifying GEMS-IT (in a written report) of any corrective action to be taken in connection with the OEM Products no later than fourteen (14) days after CSI determines that such corrective action will be taken.

          (h) Returning a Product to GEMS-IT or its distributor upon conclusion of the complaint investigation, if appropriate.

          (i) Providing its service work order number and a copy of the actual work order (including the results of CSI’s investigation) to GEMS-IT. The results of the CSI

4

investigation shall include root cause analysis and any corrective or preventive action initiated.

          (j) Compiling monthly complaint data (with each complaint coded for trending) and providing such trend data to GEMS-IT upon written request from GEMS-IT.

     7.   GEMS-IT Roles and Responsibilities. To further define the role of GEMS-IT, and to more explicitly set forth GEMS-IT’s responsibilities and obligations with respect to the OEM Purchase and Supply Agreement, the Parties agree that GEMS-IT shall be responsible for:

          (a) Recording complaints received on the OEM Products pursuant to the GEMS-IT Quality Procedure — Global Product Complaint Handling and providing a copy of the Complaint to CSI within five (5) business days of its receipt.

          (b) Scheduling a Risk Assessment when required per GEMS-IT Risk
Management Guidelines.

          (c) Providing CSI with any adverse event and malfunction report via the
MedWatch 3500A form.

          (d) Returning a “repaired” OEM Product to GEMS-IT or its distributors, regardless of whether GEMS-IT or CSI repaired said Product.

          (e) Notifying its customers of any recall, corrective action initiated by CSI per the GEMS-IT Global Customer Notification Procedure.

          (f) Sending GEMS-IT or its distributors a replacement OEM Product, even if CSI is responsible for replacing said product due to non-conformance, defects or otherwise.

     8.   Governing Law. The validity, construction, performance and enforceability of this Amendment shall be governed in all respects by the laws of the State of New York, without reference to the choice-of-law provisions thereof.

5

     9.   Counterparts; Facsimile. This Amendment may be executed simultaneously in multiple counterparts, each of which shall be deemed an original, but all of which taken together shall constitute one and the same instrument. Execution and delivery of this Amendment by exchange of facsimile copies bearing the facsimile signature of a party hereto shall constitute a valid and binding execution and delivery of this Amendment by such party. Such facsimile copies shall constitute enforceable original documents.

     5.   Severability. In the event any provision of this Amendment shall be determined to be invalid or unenforceable under applicable law, all other provisions of this Amendment shall continue in full force and effect unless such invalidity or unenforceability causes substantial deviation from the underlying intent of the parties expressed in this Amendment or unless the invalid or unenforceable provisions comprise an integral part of, or in inseparable from, the remainder of this Amendment. If this Amendment continues in full force and effect as provided above, the parties shall replace the invalid provision with a valid provision which corresponds as far as possible to the spirit and purpose of the invalid provision.

     10.   Interpretation. This Amendment has been negotiated at arm’s length and between persons sophisticated and knowledgeable in the matters dealt with in this Amendment. Each party has been represented by experienced and knowledgeable legal counsel. Accordingly, any rule of law or legal decision that would require interpretation of any ambiguities in this Amendment against the party that has drafted it is not applicable and is waived. The provisions of this Amendment shall be interpreted in a reasonable manner to effect the purposes of the parties and this Amendment.

     11.   Entire Agreement. The terms of this Amendment are intended by the parties to be the final expression of their agreement with respect to the subject matter hereof and may not be

6

contradicted by evidence of any prior or contemporaneous agreement. The parties further intend that this Amendment constitute the complete and exclusive statement of its terms and shall supersede any prior agreement with respect to the subject matter hereof

     12.   Headings. The article and section headings contained in this Amendment are for reference purposes only and will not affect in any way the meaning or interpretation of this Amendment.

7

IN WITNESS WHEREOF, the parties have caused this Agreement to be signed by their thereunto duly authorized representatives as of the date first above written.

Cardiac Science, Inc.		GE Medical Systems Information Technologies, Inc.
By:	/s/ Raymond W. Cohen	By:	/s/ Matthias Weber
Name:	Raymond W. Cohen	Name:	Matthias Weber
Title:	Chairman and CEO	Title:	Vice President & General Manager Cardiology Systems
Dated:	11-4-04

8

EXHIBIT A

SPECIFICATIONS FOR POWERHEART AED G3 AND POWERHEART AED G3 PRO

POWERHEART AED G3

DEFIBRILLATOR

Operation: Semi-automatic
Waveform: Biphasic truncated exponential
Energy (J) range available: Escalating Variable Energy (VE) 105J to 360J
Protocols: 5 energy protocols available
Factory default (Nominal): 200VE, 300VE, 300VE
Shock time cycle (Typical): Less than 55 seconds for three shock series
Controls: One-button operation
Voice prompts: Comprehensive voice instructions guide user through rescue process
Text screen: Displays written instructions to guide user through rescue process
Visible indicators: RescueReady Status Indicator, SmartGauge Battery Status Indicator, Service
Indicator, Pad Indicator, Text Display
Audible alerts: Voice Prompt, System Alert
Synchronized shock: Built-in automatic synchronization feature
Pacemaker pulse detection: Yes
Programmable: Yes, via ServiceLink^®
Pediatric capability: Yes

PADS

Minimum combined surface area: 228 cm²
Extended length of lead wire: 1.3m
Supplied: Self-checking, pre-connected to the AED
Type: Adult, pre-gelled, self-adhesive, disposable, non-polarized (identical pads can be placed in either position) defibrillation pads
Shelf life: 2 years

BATTERY

Type: IntelliSense^® lithium battery
Warranty: 4 year, full operational replacement

AUTOMATED SELF-TESTS

Daily: Battery, pads (presence and function), internal electronics, no energy charge, SHOCK/CONTINUE button, and software
Weekly: Battery, pads (presence and function), internal electronics, partial energy charge, SHOCK/CONTINUE button, and software

9

Monthly: Battery, pads (presence and function), internal electronics, full energy charge cycle, SHOCK/CONTINUE burton, and software

EVENT DOCUMENTATION

Type: Internal memory
Internal memory: 34 minutes ECG data with event annotation
Playback: Viewable via RescueLink^® software via PC
Communications: Serial port or USB (via adapter) for PC with Windows
Clock synchronization: Precise synchronization of AED time to dispatch time

PHYSICAL DIMENSIONS

Height: 8 cm (3.3 in)
Width: 27 cm (10.6 in)
Depth: 31 cm (12.4 in)
Weight: 3.10 kg (6.6 lb)

POWERHEART AED G3 PRO

DEFIBRILLATOR

Operation: Semi-automatic and manual
Waveform: Biphasic truncated exponential
Energy (J) range available: Escalating Variable Energy (VE) 105J to 360J
Protocols: 5 energy protocols available
Factory default (Nominal): 200VE, 300VE, 300VE
Shock time cycle: Approximately 1 minute for three shock series
Control buttons: Automated (Shock) and manual
Voice prompts: Comprehensive voice instructions guide user through rescue process
Display content: Displays written instructions to guide user through rescue process, SmartGauge
Battery Status Indicator, Service Indicator, Pads Indicator, Text Display, ECG Display
Display specifications: Sharp “LO035O70H01.” 8.9 cm (3.5") diagonal transreflective TFT
display with 320 x 240 pixels (quarter VGA). Resolution is 4.47 dots/mm (113.5 dots/in.)
Visible indicators: RescueReady Status Indicator
Audible alerts: Voice Prompt, System Alert
Synchronized shock: Built-in automatic synchronization feature
Pacemaker pulse detection: Yes
Programmable: Yes, via ServiceLink^®
Pediatric capability: Yes

PADS

Minimum combined surface area 228 cm²

10

Extended length of lead wire: 1.3 m
Supplied: Pre-connected to the AED
Type: Adult, pre-gelled, self-adhesive, disposable, non-polarized (identical pads can be placed in either position) defibrillation pads
Shelf life: 2 years

BATTERY

Type IntelliSense^® lithium battery
Warranty: 1 year or 12 hours of use, whichever occurs first

OPTIONS

3-Lead ECG Cable Kit
Rechargeable Battery

AUTOMATED SELF-TESTS

Daily: Battery, pads (presence and function), internal electronics, no energy charge, SHOCK button, and software
Weekly: Battery, pads (presence and function), internal electronics, partial energy charge, SHOCK button, and software
Monthly: Battery, pads (presence and function), internal electronics, full energy charge cycle, SHOCK button, and software

EVENT DOCUMENTATION

Internal memory: 60 minutes ECG data with event annotation
Multiple rescue: Yes
Playback: Viewable via RescueLink^® software via PC
Communications: Infrared Data Transfer for PC with Windows
Clock synchronization: Precise synchronization of AED time to dispatch time

PHYSICAL DIMENSIONS

Height: 8 cm (3.3 in)
Width: 27 cm (10.6 in)
Depth: 31 cm (12.4 in)
Weight: 3.1kg (6.9 lb)

11

EX-10.39

Exhibit 10.39

SECOND AMENDMENT TO OEM PURCHASE AND SUPPLY AGREEMENT

     This Second Amendment (the “Amendment”) is made as of February 14, 2005, by and between Cardiac Science, Inc., a Delaware corporation (“Supplier” or “Cardiac Science” or “CSI”), a medical device developer and manufacturer of automated external defibrillators having its principal place of business at 1900 Main Street, Irvine, CA 92614 and GE Medical Systems Information Technologies, Inc., a Wisconsin corporation (“GEMS-IT”), having its principal place of business at 8200 W. Tower Avenue, Milwaukee, WI 53223. CSI and GEMS-IT may each be referred to herein as a “Party” and collectively, the “Parties”.

W I T N E S S E T H:

     WHEREAS, CSI and GEMS-IT are parties to an OEM Purchase and Supply Agreement dated July 29, 2003, an “Addendum 1” to the OEM Purchase and Supply Agreement dated as of March 24, 2004 and Amendment One to OEM Purchase Agreement dated August 10, 2004 (collectively, the “OEM Purchase and Supply Agreement”).

     WHEREAS, CSI and GEMS-IT desire to supplement and amend the OEM Purchase and Supply Agreement as set forth herein.

     NOW THEREFORE, in consideration of the premises and other good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, it is agreed as follows:

     1. Construction. Except as provided in this Amendment, the terms and conditions set forth in the OEM Purchase and Supply Agreement shall remain unaffected by execution of this Amendment. To the extent any provisions or terms set forth in this Amendment conflict with the terms set forth in the OEM Purchase and Supply Agreement, the terms set forth in this Amendment shall govern and control. Terms not otherwise defined herein, shall have the meanings set forth in the OEM Purchase and Supply Agreement. This Amendment amends the OEM Purchase and

Supply Agreement and not the OEM Purchase Agreement entered into by the Parties on July 29, 2003.

     2. CSI Roles and Responsibilities. To further define the role of CSI, and to more explicitly set forth CSI’s responsibilities and obligations with respect to the OEM Purchase and Supply Agreement and the OEM Products, the Parties agree that CSI shall be responsible for tracking all OEM Products (as defined in Exhibit A to the OEM Purchase and Supply Agreement) sold by GEMS-IT in the United States, in accordance with 21 C.F.R. 821. As the manufacturer of the OEM Products, CSI is solely responsible for establishing records that accurately match end users with each of the OEM Products. CSI is also responsible for establishing such records and maintaining them for accessories that are trackable per 21 C.F.R. 821. CSI shall keep these records current and up-to-date over the life of each OEM Product, according to FDA rules and regulations. Additionally, CSI will implement audits of the tracking system per 21 C.F.R. 821 and make records of the audit finds available to GEMS-IT upon request. CSI releases GEMS-IT, and agrees to indemnify, defend and hold GEMS-IT harmless, from any obligation to maintain such records of its own, and from any damages resulting from failure to comply with statutory or regulatory requirements with respect thereto. In the event the FDA requests records in connection with an audit or if there is a recall of an OEM Product and such records are requested, CSI will rely on its internal processes and compliance procedures to respond appropriately and according to its obligations, as set forth herein and in the OEM Purchase Agreement. GEMS-IT will share all customer contact information with CSI for the purpose of: (a) direct order fulfillment by CSI from its manufacturing facility, and (b) device tracking.

     3. The last sentence of Paragraph 3 (“Powerheart^® Cardiac Rhythm Module™ (CRM)”) on Exhibit A to the OEM Purchase and Supply Agreement is deleted and replaced with

2

the following: CRM may be private labeled with GEMS-IT specified labeling as agreed upon by the Parties.

     4. Governing Law. The validity, construction, performance and enforceability of this Amendment shall be governed in all respects by the laws of the State of New York, without reference to the choice-of-law provisions thereof.

     5. Counterparts; Facsimile. This Amendment may be executed simultaneously in multiple counterparts, each of which shall be deemed an original, but all of which taken together shall constitute one and the same instrument. Execution and delivery of this Amendment by exchange of facsimile copies bearing the facsimile signature of a party hereto shall constitute a valid and binding execution and delivery of this Amendment by such party. Such facsimile copies shall constitute enforceable original documents.

     6. Severability. In the event any provision of this Amendment shall be determined to be invalid or unenforceable under applicable law, all other provisions of this Amendment shall continue in full force and effect unless such invalidity or unenforceability causes substantial deviation from the underlying intent of the parties expressed in this Amendment or unless the invalid or unenforceable provisions comprise an integral part of, or in inseparable from, the remainder of this Amendment. If this Amendment continues in full force and effect as provided above, the parties shall replace the invalid provision with a valid provision which corresponds as far as possible to the spirit and purpose of the invalid provision.

     7. Interpretation. This Amendment has been negotiated at arm’s length and between persons sophisticated and knowledgeable in the matters dealt with in this Amendment. Each party has been represented by experienced and knowledgeable legal counsel. Accordingly, any rule of law or legal decision that would require interpretation of any ambiguities in this Amendment

3

against the party that has drafted it is not applicable and is waived. The provisions of this Amendment shall be interpreted in a reasonable manner to effect the purposes of the parties and this Amendment.

     8. Entire Agreement. The terms of this Amendment are intended by the parties to be the final expression of their agreement with respect to the subject matter hereof and may not be contradicted by evidence of any prior or contemporaneous agreement. The parties further intend that this Amendment constitute the complete and exclusive statement of its terms and shall supersede any prior agreement with respect to the subject matter hereof.

     9. Headings. The article and section headings contained in this Amendment are for reference purposes only and will not affect in any way the meaning or interpretation of this Amendment.

IN WITNESS WHEREOF, the parties have caused this Agreement to be signed by their thereunto duly authorized representatives as of the date first above written.

Cardiac Science, Inc.		GE Medical System
		Information Technologies, Inc.
By: Name:	/s/ Raymond W. Cohen Raymond W. Cohen	By: Name:	/s/ Matthias Weber Matthias Weber
Title:	Chairman and CEO	Title:	Vice President & General Manager
			Cardiology Systems

4

EX-10.40

EXHIBIT 10.40

FINAL EXECUTABLE VERSION of OEM Purchase Agreement dated 7-29-03

OEM PURCHASE AGREEMENT

     This OEM Agreement (the “Agreement”) is made as of the 29th day of July, 2003 (the “Effective Date”) between Cardiac Science, Inc., a Delaware corporation (“Supplier” or “Cardiac Science” or “CSI”), a medical device developer and manufacturer of external defibrillators having its principal place of business at 1900 Main Street, Irvine, CA 92614 and GE Medical Systems Information Technologies, Inc., a Wisconsin corporation (“GEMS-IT”), having its principal place of business at 8200 W. Tower Avenue, Milwaukee, WI 53223. The parties hereby agree as follows:

1. SCOPE OF AGREEMENT

1.1	General. This Agreement specifies the terms and conditions under which Supplier will manufacture, sell, license and support the OEM Products listed in Exhibit A to this Agreement. The OEM Products are regarded as “Original Equipment Manufacturer” products that will be sold separately or incorporated into GEMS-IT Products for resale worldwide under GEMS-IT’s private label. The OEM Products and the GEMS-IT Products will be marketed, serviced, and supported by GEMS-IT’s field organization and channel partners, subject to the marketing, service, and support obligations of Supplier pursuant to this Agreement. Nothing in this Agreement shall in any way limit the right of GEMS-IT to develop, produce, market, sell and distribute any products whatsoever. Nothing is this Agreement shall in any way limit the right of Cardiac Science to develop, produce, market, sell or distribute any products that utilize its proprietary STAR® biphasic defibrillation technology and proprietary RHYTHMx® software analysis algorithm and pacing technology, or any other Cardiac Science technology, collectively (the “CSI Proprietary Technology”) as long as Cardiac Science otherwise complies with its obligations set forth in Section 1.7 of this Agreement. In connection with the execution of this Agreement and partially in consideration of the agreements set forth herein, Cardiac Science has issued to GEMS-IT that certain warrant dated the Effective Date to purchase 1,000,000 shares of common stock, par value $0.001 per share, of Cardiac Science.
1.2	Project Scope. This Agreement includes an engineering and product development project (the “Development Project”) whereby Cardiac Science, among other things listed in the Specification and Development Project Plan set forth in Exhibit B, will integrate its proprietary STAR® biphasic defibrillation technology and proprietary RHYTHMx® software analysis algorithm and pacing technology collectively (the “CSI Proprietary Technology”) into the OEM Products. The Development Project shall be performed at Cardiac Science’s sole expense. The parties agree that time is of the essence with respect to Cardiac Science’s completion of the Development Project and commencement of deliveries of the OEM Products, and Cardiac Science shall make its commercially reasonable best efforts to complete the Development Project and begin deliveries of the OEM Products not later than twelve (12) months of the Effective Date.
1.3	GEMS-IT License. Under this Agreement GEMS-IT will deliver and license (the “License”) to Cardiac Science the following relating to its existing CardioServ basic and CardioServ SpO2 products on an as-is basis, without warranty of any kind (including without limitation any warranty of merchantability or fitness for a particular purpose): models, molds, overlay tools, equipment, copies of designs and documentation and other materials that may reasonably be required by Cardiac Science to complete the Development Project (the “GEMS-IT CardioServ Property”). Supplier shall be

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FINAL EXECUTABLE VERSION of OEM Purchase Agreement dated 7-29-03

	responsible for all costs and expense of transporting the GEMS-IT CardioServ Property to its facilities and shall be responsible for all risk of loss once such property is removed from GEMS-IT’s premises. Supplier shall adequately insure such property while it is in its possession. GEMS-IT shall make the GEMS-IT CardioServ Property available to Supplier for its use no later than ninety (90) days preceding the date Cardiac Science has identified to GEMS-IT in writing as the date it reasonably expects to be able to deliver the- first units of OEM Products (the “Expected First Delivery Date”); provided, that Cardiac Science has provided GEMS IT with written notice of the Expected First Delivery Date at least one hundred and twenty (120) days preceding such date. If Cardiac Science has not been able to deliver the first units of OEM Products by September 30, 2004, upon GEMS IT’s request Cardiac Science shall promptly return all GEMS-IT CardioServ Property at its costs and expense to a mutually agreed upon GEMS-IT location. For purposes of the preceding two sentences, “delivery of the first units of OEM Products” shall mean delivery meeting the requirements of the First Delivery Date as defined in Section 1.6 below. The License shall be free of royalty or any charge and shall be limited to Cardiac Science’s use of the GEMS-IT CardioServ Property to manufacture the OEM Products for GEMS-IT for exclusive worldwide sale by GEMS-IT. Cardiac Science shall make no other use of the GEMS-IT CardioServ Property. Upon expiration of the Term of this Agreement and in the event the Agreement is not renewed by mutual agreement of the parties for an additional term, the license for the GEMS-IT CardioServ Property shall survive beyond the original term and be free of cost, fees, licenses and royalties to Cardiac Science. If the Agreement is terminated earlier than its Term, Cardiac Science shall be obligated to promptly return the GEMS-IT CardioServ Property in accordance with the applicable provisions above.
1.4	Manufacture Authority. Under this Agreement Cardiac Science shall have the right to manufacture the OEM Products, which will include the GEMS-IT CardioServ Property. Cardiac Science shall have no rights to, and shall not, label, market, distribute or sell the OEM Products in the name or with the Marks of anyone other than GEMS-IT (unless GEMS-IT directs otherwise). In addition, Cardiac Science shall not permit or authorize any third party to do any of the foregoing.
1.5	Eligible Purchasers. This Agreement enables GEMS-IT, GEMS-IT Affiliates and GEMS-IT Subcontractors to purchase OEM Products from Supplier under the terms of this Agreement or any subsequent Product Addendum. Unless a Product Addendum specifically refers to and amends a term of this Agreement, the terms and conditions of this Agreement will control and take precedence over any conflicting terms in a Product Addendum.
1.6	Term of Agreement. This Agreement will commence as of the Effective Date and continue for a 3 year period (the “Term”) after the date of the first delivery to GEMS IT by Cardiac Science of the OEM Products capable of commercial resale by GEMS-IT in the United States and European countries accepting the CE Mark (the “First Delivery Date”), unless terminated earlier under the terms of this Agreement. GEMS IT may terminate this Agreement if Cardiac Science is not able to reasonable demonstrate to GEMS IT that is has commenced Alpha testing (Phase 3 of the Development Project Plan) by not later than June 15, 2004. In addition, if the First Delivery Date has not occurred by not later than September 30, 2004, GEMS-IT may at its option terminate this Agreement. After the initial Term, this Agreement may be renewed only upon the written agreement of the parties.

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FINAL EXECUTABLE VERSION of OEM Purchase Agreement dated 7-29-03

1.7 Exclusive Relationship. This Agreement enables GEMS-IT to sell the OEM Products on a worldwide exclusive basis. In consideration of GEMS-IT’s undertakings set forth in this Agreement, including GEMS-IT’s minimum purchase obligations set forth in Section 3.4 below, from and after the Effective Date until expiration of the Term, Cardiac Science shall not (directly or indirectly through a third party) develop, manufacture, license or sell any products that (i) incorporate the CSI Proprietary Technology and (ii) provide the substantially the same functionality (including user interface) as the OEM Products, without the prior written consent of GEMS IT. For purposes of this section, Cardiac Science’s Powerheart CRM and Powerheart AED products shall not be deemed to provide substantially the same functionality as the OEM Products.

2.	DEFINITIONS
	The following capitalized terms will have these meanings throughout this Agreement.

2.1	“Affiliate” means any person or entity directly or indirectly controlling, controlled by, or under common control with a party to this Agreement. “Control” shall be defined as direct or indirect power to direct or cause the direction of the management or policies of another person or entity, whether through the ownership of voting securities, by contract, or otherwise.
2.2	“CSI Proprietary Technology” means Cardiac Science’s proprietary STAR® biphasic defibrillation technology, proprietary RHYTHMx® software analysis algorithm and pacing technology, all of which shall be integrated into the OEM Products pursuant to this Agreement.
2.3	“Development Project” shall have the meaning set forth in Section 1.2.
2.4	“Delivery Date” means the date specified in an Order for the delivery of OEM Products by Supplier to the destination required under the Order.
2.5	“Documentation” means the user and technical manuals and other documentation that Supplier will make available for the use of the OEM Products.
2.6	“Eligible Purchasers” mean those parties authorized to purchase OEM Products under this Agreement as listed in Section 1.5 above.
2.7	“Forecast” means GEMS-IT’s estimate of its purchase requirements over a six-month period, or such other period designated by the parties.
2.8	“GEMS-IT Products” means the GEMS-IT products or systems that will incorporate the OEM Products and that will be marketed and sold to end-user customers by GEMS-IT and its distributors.
2.9	“GEMS-IT Property” means all property, including without limitation, the GEMS-IT CardioServ Property and all other models, tools, equipment, copies of designs and documentation and other materials that may be furnished to Supplier by GEMS-IT or on GEMS-IT’s behalf or separately paid for by GEMS-IT for use by Supplier in connection with this Agreement.

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FINAL EXECUTABLE VERSION of OEM Purchase Agreement dated 7-29-03

2.10	“Intellectual Property Rights” means all rights in patents, copyrights, moral rights, trade secrets, mask works, Marks and other similar rights.
2.11	“Lead Time” means the time between the date an Order is sent and the Delivery Date.
2.12	“Marks” means the trademarks, service marks, trademark and service mark applications, trade dress, trade names, logos, insignia, symbols, designs or other marks identifying a party or its products.
2.13	“Noncomplying Product” means any OEM Product received by GEMS-IT that does not materially comply and/or perform in accordance with the Specifications, or otherwise does not materially comply with the requirements of an Order or other provisions of this Agreement, including applicable warranties. Noncomplying Products include, without limitation, dead-on-arrival products, overshipments and early shipments.
2.14	“OEM Products” means the products listed in Exhibit A, all related Documentation, Parts and other deliverables provided pursuant to this Agreement. For the avoidance of doubt, Cardiac Science shall incorporate the CSI Proprietary Technology into the OEM Products pursuant to the Development Project.
2.15	“Orders” means a written or electronic purchase order or release issued by GEMS-IT to Supplier for purchase of the OEM Products.
2.16	“Parts” means the replacement parts, components, consumables or other products that may be supplied in conjunction with or as additions to the OEM Products.
2.17	“Product Addendum” means an addendum to this Agreement entered into between Supplier and an Eligible Purchaser naming additional OEM Products and product specific requirements in addition to those requirements specified in this Agreement.
2.18	“Software” means any software or firmware included or bundled with the OEM Products, as designated in the description of OEM Products in Exhibit A.
2.19	“Specifications” means the technical and functional requirements for the OEM Products as specified or referenced in Exhibit B or as agreed to by the parties in writing.
2.20	“Technical Information” means Supplier’s manufacturing information and technology deemed necessary by GEMS-IT to support OEM Products and to exercise any manufacturing rights provided under this Agreement, including, but not limited to: (i) specifications, software, schematics, software source code, designs, drawings or other materials pertinent to the most current revision level of manufacturing of the OEM Products; (ii) copies of all inspection, manufacturing, test, verification and quality control procedures and any other work processes; (iii) jig, fixture and tooling designs; (iv) supplier history files; (v) support documentation; and (vi) any additional technical information or materials agreed to by the parties.
2.21	“Technical Materials” means jigs, fixtures and tools used by Supplier to manufacture the OEM Products, other than the GEMS-IT Property, and any production software (including without limitation source code) used in such manufacture.

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FINAL EXECUTABLE VERSION of OEM Purchase Agreement dated 7-29-03

3. ORDER AND SHIPMENT OF OEM PRODUCTS

3.1	Orders. Each delivery of OEM Products will be initiated by an Order issued to Supplier by GEMS-IT. Each Order will include: (i) unit quantity; (ii) unit price; (iii) shipping destination; (iv) Delivery Date; and (v) other instructions or requirements pertinent to the Order. GEMS-IT may schedule regular intervals for deliveries by an appropriate Order setting forth the intervals. To the extent of any inconsistency between the terms of an Order and the terms of this Agreement, the terms specified in this Agreement will control and take precedence.
3.2	Order Acknowledgment. An Order will be deemed to have been placed as of the date of receipt of the Order by Supplier. Supplier will promptly confirm the receipt of an Order electronically or through facsimile to GEMS-IT within two (2) working days after receipt by Supplier of the Order. Orders within Forecasts and Lead Time requirements of this Agreement will be deemed accepted upon receipt by Supplier. If a GEMS-IT Order exceeds the Forecast or shortens the Lead Time, Supplier will use its commercially reasonable best efforts to fill such excess or accommodate such shorter Lead Time.
3.3	Emergency Orders. If GEMS-IT deems it necessary, GEMS-IT may order OEM Products by facsimile on an emergency basis (“Emergency Order”) subject to the availability of such OEM Products in Supplier’s inventory. Supplier will use its commercially reasonable best efforts to ship the Emergency Order to GEMS-ITs stipulated destinations within 8 work hours after the receipt by Supplier. GEMS-IT will pay any additional expenses related to such Emergency Orders.
3.4	Forecasts and Minimum Purchases. GEMS-IT will provide a six month rolling Forecast of its projected Orders. Any quantities listed in any Forecast or other correspondence between the parties are only estimates made as an accommodation for planning purposes and do not constitute a commitment on GEMS-IT’s part to purchase such quantity. GEMS-IT may revise any Forecasts in its sole discretion. During the Term of the Agreement, GEMS-IT shall purchase from Supplier a minimum of four hundred and twenty five (425) units of the OEM Products per calendar quarter, commencing with the first full calendar quarter after the First Delivery Date; provided that (i) the OEM Products are fully approved for sale throughout Europe by July 1st, 2004 in accordance with Section 14.3, (ii) the OEM Products perform in accordance, and fully comply, with the Specifications, and (iii) the aforementioned regulatory approvals remain in full effect in accordance with Section 14.3. If any of the above conditions are not satisfied, then GEMS IT’s minimum purchase obligations will be of no force and effect. Any purchases in excess of a 425 unit minimum quarterly requirement will count toward the next minimum quarterly purchase requirement (i.e. GEMS IT’s total minimum purchase requirement over the Term of this Agreement (assuming the conditions set forth above are satisfied) will not exceed 5,100 units).
3.5	Lead Time. Supplier will determine the Lead Time for each OEM Product and will provide GEMS-IT with written notice of such Lead Time, which in no event will exceed four (4) weeks without GEMS-IT’s prior written consent. Supplier must give GEMS-IT no less than 30 days advance notice to approve or reject any proposed increase in Lead Time. CSI and GEMS-IT will review lead-time reduction opportunities two calendar quarters after date of first shipment.

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FINAL EXECUTABLE VERSION of OEM Purchase Agreement dated 7-29-03

3.6	Inventory Requirement. Supplier will maintain a protective inventory equal to seventy- five (75) units or no less than two (2) weeks supply of each OEM Product. If this inventory is depleted, Supplier will replenish the inventory as soon as possible after depletion. In addition, Supplier will rotate its supply of OEM Products in inventory to maintain a fresh stock of inventory.
3.7	Order Changes. GEMS-IT may, without charge, postpone, decrease, increase, or cancel any Order by notice to Supplier at least thirty (30) days prior to the Delivery Date. If GEMS-IT postpones, decreases, or cancels an Order after such time period, Supplier will be entitled to reimbursement by GEMS-IT for actual costs incurred by Supplier as a direct result of such postponement, decrease, or cancellation that are not recoverable by Supplier within a reasonable period of time.
3.8	Shipment Requirements. All Orders are required to be shipped complete. Freight expenses, insurance, and duties will be paid directly by GEMS-IT. Supplier will give GEMS-IT immediate notice if it knows that it cannot meet a Delivery Date or that only a portion of the OEM Products will be available for shipment to meet a Delivery Date. If due to Supplier’s failure to make a timely shipment to meet a Delivery Date, Supplier will pay for any resulting increase in the freight cost over that which GEMS-IT would have been required to pay. For partial shipments, Supplier will ship the available OEM Products unless directed by GEMS-IT to reschedule shipment. If Supplier ships any OEM Product by a method other than as specified in the corresponding Order, Supplier will pay any resulting increase in the cost of freight. GEMS-IT may utilize drop shipment options to any GEMS-IT designated delivery destination. If GEMS-IT designates a drop shipment location outside the country in which the Order is placed, GEMS-IT agrees to pay any additional costs associated with the shipment.
3.9	GEMS-IT Option To Accept Overshipments. If Supplier ships more OEM Products than ordered, the amount of the overshipment may either be kept by GEMS-IT for credit against future Orders or returned to Supplier pursuant to Article 6 below, at GEMS-IT’s election.
3.10	No Advance Shipment. If OEM Products are delivered two (2) days in advance of the Delivery Date, GEMS-IT may, at its option, either return the OEM Products pursuant to Article 6 below or keep the OEM Products with payment due as provided in Section 4.3 below.
3.11	Title And Risk Of Loss. Shipments will be F.O.B. Cardiac Science’s Minnetonka, MN factory or Copenhagen, Denmark warehouse facility. GEMS IT will elect at which location it (or its designated carrier) will take delivery of the OEM Products from Cardiac Science. Except as otherwise provided in this Agreement, associated freight expenses and duties will be paid directly by GEMS-IT. Title to OEM Product hardware and media ordered under this Agreement and risk of loss or damage will pass from Supplier to GEMS-IT upon Supplier’s delivery of the OEM Products to the common carrier specified by GEMS-IT, subject to the provisions in Sections 3.13 and 3.14 below with respect to packing and handling.
3.12	Packing List. Each delivery of OEM Products to GEMS-IT must include a packing list that contains at least:

(a) The Order number and the GEMS-IT part number;

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FINAL EXECUTABLE VERSION of OEM Purchase Agreement dated 7-29-03

(b)	The quantity of OEM Products or Parts shipped; and
(c)	The date of shipment.

3.13	Packaging. Supplier must preserve, package, handle, and pack all OEM Products so as to protect the OEM Products from loss or damage, in conformance with good commercial practice, the Specifications, GEMS IT’s indication of “ship to” address and method of transportation, government regulations, and other applicable standards.
3.14	Responsibility For Damage. Supplier will be liable for any loss or damage due to its failure to properly preserve, package, handle, or pack OEM Products. GEMS-IT will not be required to assert any claims for such loss or damage against the common carrier involved.

4. PRICES AND PAYMENT TERMS

4.1	OEM Product Prices. Supplier’s prices for the OEM Products are listed in Exhibit C, in U.S. currency unless otherwise stated, and may not be increased without GEMS-IT’s written consent. The prices for Parts will be Supplier’s published prices, less any applicable discounts as set forth in Exhibit C, unless the parties agree to a price schedule for Parts. OEM Products and Parts will also be subject to any applicable prompt payment discounts. Supplier and GEMS-IT agree to review OEM Product prices annually. If, during the Term, Supplier effectuates cost reductions in its manufacturing and delivery processes, it will pass such reductions to GEMS-IT and amend the prices accordingly. GEMS-IT has an annual [ * ]% cost reduction target, but acknowledges that Supplier may not be able to achieve such target and will not be liable to GEMS-IT for any such failure to achieve this target as long as Supplier is using commercially reasonable efforts to reduce its costs of manufacturing and delivering the OEM Products.
4.2	Changed Prices. If during the Term changed prices or price formulas are put in effect by mutual agreement of GEMS-IT and Supplier, or reduced prices or price formulas are otherwise put in effect by Supplier, such prices or price formulas (if resulting in lower prices than the then current price) will apply to all Orders issued by GEMS-IT after the effective date of such prices or price formulas and to all unshipped Orders.
4.3	Payment Procedure. Payment for OEM Products will be 2% / 15, Net 75 days from the invoice date for the OEM Products following shipment by Supplier. GEMS-IT will not be liable for payments or any costs related to unordered or Noncomplying Products.
4.4	Sales Taxes And Duties. Prices are exclusive of all taxes or duties after delivery to the designated destination (other than taxes levied on Supplier’s income) that Supplier may be required to collect or pay upon shipment of the OEM Products. Any such taxes or duties must appear as a separate item on Supplier’s invoice. GEMS-IT agrees to pay such taxes or duties unless GEMS-IT is exempt from such taxes or duties. Where applicable, GEMS-IT will provide Supplier with an exemption resale certificate.

5. NONCOMPLYING PRODUCTS

5.1 Acceptance. GEMS-IT shall inspect the OEM Products within a reasonable period of time upon receipt at the shipping destination and may reject any Noncomplying Products. GEMS-IT may elect in its sole discretion to return a Noncomplying Product for replacement or repair at Supplier’s expense. In addition, GEMS-IT may return for repair

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or replacement an entire lot of OEM Products if a tested sample of that lot contains Noncomplying Products. Any OEM Products not rejected by written notice to Supplier within sixty (60) days of GEMS-IT receipt shall be deemed accepted. Acceptance by GEMS IT of any OEM Products shall in no way limit GEMS IT’s rights under any applicable warranties for the OEM Products. Supplier shall provide reasonable assistance to GEMS-IT in accordance with GEMS IT’s corrective action procedures (which have been described to Supplier) in order to determine whether any of the Products are Noncomplying Products. No returns will be accepted without a Return Materials Authorization (“RMA”). GEMS-IT shall provide a SCAR report with any non-complying product being returned. Other than as permitted in this Section 5.1 or under the terms of a warranty covering the OEM products, goods may not be returned to Supplier without Supplier’s consent.

5.2

Repair Period. Supplier shall ship replacement or repaired OEM Products to GEMS-IT as promptly as possible, but not later than ten (10) working days after Supplier’s receipt of Noncomplying Product.

6. RETURN OF PRODUCTS

6.1	Return Materials Authorization. All OEM Products returned by GEMS-IT to Supplier must be accompanied by a RMA. Unless further verification is reasonably required by Supplier, Supplier will supply an RMA within two work days after receiving GEMS-IT’s written request.
6.2	Return Charges. All Noncomplying Products returned by GEMS-IT to Supplier, and all replacement or repaired OEM Products shipped by Supplier to GEMS-IT to replace Noncomplying Products, will be at Supplier’s risk and expense, including transportation charges (round trip charges for replacement or repaired OEM Products).
6.3	Duty To Remove Marks Or Destroy Noncomplying Products. Supplier agrees not to sell, transfer distribute or otherwise convey any part, component, product or service bearing or incorporating GEMS-IT Marks, part numbers or other identifiers, including any GEMS- IT packaging, copyrights or code, to any party other than to Eligible Purchasers. Supplier will remove from all rejected, returned or unpurchased OEM Products any such GEMS- IT Marks or identifiers, even if such removal would require destruction of the OEM Products. Supplier further agrees not to represent that such OEM Products are built for GEMS-IT or to GEMS-IT specifications. Supplier will defend and indemnify GEMS-IT against any claims, losses, liabilities, costs or expenses that GEMS-IT may incur as a result of Supplier’s breach of this obligation.

7. ENGINEERING PROCESS OR DESIGN CHANGES

7.1 Supplier Proposed Changes. Supplier will not, without the prior written consent of GEMS-IT, make or incorporate in OEM Products any of the following changes (collectively, “Engineering Changes”):

(1)	Process or design changes which affect the intended use, function or quality of the OEM Products;
(2)	Geographical relocation of manufacturing processes; or

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(3) Process step discontinuances affecting the electrical performance, the mechanical form, fit, or function, the environmental compatibility or chemical characteristics, software compatibility, or the life, reliability, or quality of OEM Products.

7.2	Notice Of Proposed Change. Supplier will give GEMS-IT notice of any proposed Engineering Change, and will provide evaluation samples and other appropriate information as specified by GEMS-IT at least 90 days prior to the first proposed shipment of any OEM Products involving an Engineering Change. Regardless of whether GEMS- IT approves a proposed Engineering Change, Lead Time will not be changed except as provided in Section 3.5 above.
7.3	GEMS-IT Proposed Changes. GEMS-IT may, from time to time, request changes to Specifications. Such changes will not be effective unless agreed to in writing by Supplier. If any such change reasonably and directly affects the prices or delivery schedules of OEM Products, the Parties shall agree in writing to the adjustment. In addition, if during the Term, Supplier develops enhancements to its proprietary STAR® biphasic defibrillation technology and proprietary RHYTHMx® software analysis algorithm and pacing technology, Supplier will provide GEMS IT with prompt notice of such development. Supplier agrees to incorporate, at GEMS IT reasonable request, such enhancements into the OEM Products; provided that such incorporation does not materially increase the cost of manufacturing the OEM Products.
7.4	Safety Standard Changes. Supplier will immediately give notice to GEMS-IT if any upgrade, substitution or other change to an OEM Product is required to make that product meet applicable safety standards or other governmental statutes, rules, orders or regulations, even those that are not defined as Engineering Changes in Section 7.1 above. All affected OEM Products already purchased by GEMS-IT may, at GEMS-IT’s election, either be returned to Supplier for upgrade to current revisions or upgraded by Supplier or GEMS-IT in the field pursuant to the procedures outlined in Section 14.6 below.

8. QUALITY

8.1

Quality Program. Supplier agrees to maintain an objective quality program for all OEM Products. Supplier’s program will be (i) in accordance with the current revision of GEMS-IT’s Supplier Quality System Requirements, (ii) consistent with regulatory requirements applicable for products of the same type as the OEM Products and for the jurisdictions where regulatory approvals for the OEM Products have been obtained, and (iii) if applicable, any additional or substitute quality requirements agreed to by the parties. Supplier will, upon GEMS-IT’s request, provide to GEMS-IT copies of Supplier’s program and supporting test documentation. Supplier shall maintain device history records for each OEM Product shipped to GEMS-IT, including the date of manufacture, identifying lot codes and serial numbers, and provide that information to GEMS-IT upon request.

8.2

GEMS-IT’s Right To Inspect. GEMS-IT has the right to inspect, at Supplier’s plant, the OEM Products and associated manufacturing processes. Manufacturing processes may be inspected at any time during the Term. GEMS-IT’s inspection may be for any reason reasonably related to this Agreement, including to assure Supplier’s compliance with GEMS-IT’s requirements and with the regulatory and quality provisions of this Agreement. GEMS-IT’s right of inspection will apply as well to any vendor or subcontractor of Supplier. Supplier will inform such vendors or subcontractors of GEMS-

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	IT’s right to inspect, and, if necessary, use all reasonable effort to secure such rights for GEMS-IT.
8.3	Continuing Guarantee for SELLER as required by the FD&C Act and Other Applicable Law. The articles comprising each shipment for delivery hereafter made by Supplier to or on the order of GEMS-IT are hereby guaranteed by Supplier as of the date of shipment or delivery to be on that date: (a) manufactured and released as finished devices in accordance with the applicable provisions of the Federal Food, Drug and Cosmetic Act (FDCA) as amended (21 U.S.C. Section 301 et seq.) relating to adulterated or misbranded devices; (b) not an article which may not, under the provisions of sections 404 or 405 of the FDCA, be introduced into interstate commerce; (c) in compliance with the provisions of sections 510, 513, and 515 of the FDCA. This guarantee is continuing and shall remain in full force and effect until revoked in writing.
8.4	Compliance with Quality System Regulation. Supplier represents and warrants that it is in substantial compliance with 21 CFR part 820 with respect to the OEM Products existing as of the date of this Agreement, and Supplier shall substantially comply with 21 CFR part 820 with respect to any future OEM Products which may become subject to this Agreement. Supplier shall be responsible for obtaining CE Marking for the OEM Products. Supplier also represents and warrants that it is in substantial compliance with any and all quality-related laws, rules and regulations of any other country worldwide with respect to the OEM Products existing as of the date of this Agreement, and Supplier shall substantially comply with such laws, rules and regulations with respect to any future OEM Products which may become subject to this Agreement.

9. LIMITED WARRANTIES AND SUPPORT OBLIGATIONS

9.1	Warranty Period. All warranties set forth in Section 9.2 below will survive any inspection, delivery, acceptance, or payment by GEMS-IT and (except for the warranty included in Section 9.2(2) below) will survive indefinitely. The warranty included in Section 9.2(2) below shall be in effect for the one year period following the date of shipment of the OEM Product to GEMS-IT’s end-user customers.
9.2	Limited Warranty. Supplier warrants that, during the applicable Warranty Period, each OEM Product will:

(1)	Be manufactured, processed, and assembled by Supplier or by companies under Supplier’s direction.
(2)	Conform and perform in accordance with the Specifications, and other criteria referred to in this Agreement or agreed to by the parties in writing.
(3)	Be new, except as otherwise provided by the parties.
(4)	Be free from defects in design, material and workmanship.
(5)	Be free and clear of all liens, encumbrances, restrictions, and other claims against title or ownership.

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(6) Not violate or infringe any third party Intellectual Property Rights, and Supplier warrants that it is not aware of any facts upon which such claim could be made. If Supplier learns of any claim or any facts upon which claim could be made, it will promptly notify GEMS-IT of this information.

9.3

Warranty Obligation. During the applicable Warranty Period, Supplier shall be obligated to repair or replace any OEM Product that does not conform or perform in accordance with the warranties set forth in Section 9.2 above. In addition, GEMS IT shall have such other rights and remedies available at law or otherwise available under this Agreement for breach of the foregoing warranties.

9.4

Service Availability. Supplier agrees to make its service personnel available to GEMS- IT personnel (via phone and/or fax) during regular business hours at no cost to GEMS-IT to address support obligations under this Agreement. If required, on an emergency basis, Supplier agrees on a worldwide basis to make on-site service available at an additional charge to GEMS-IT. The cost for on-site service shall be mutually determined by the Parties on a case by case basis.

9.4.1 Warranty Service Logistics and Availability. Supplier agrees to make its service personnel available to GEMS-IT personnel (via phone and/or fax) during regular business hours at no cost to GEMS-IT to address support obligations under this Agreement. If required, on an emergency basis, Supplier agrees on a worldwide basis to make on-site service available at an additional charge to GEMS-IT. The cost for on-site service shall be mutually determined by the Parties on a case by case basis.

9.4.2 Customer Service.

a.	Customer service calls will be handled by GEMS-IT. If customer calls GEMS-IT with Product Warranty issue (GE fields Warranty call), GEMS-IT will inform Supplier of Warranty call and will receive a RMA from Supplier. GEMS IT’s customer will return the product for repair or replacement to Supplier’s facility in Minnetonka, MN (for Americas) or Copenhagen, Denmark (for Europe, Asia, Africa and Middle East).
b.	If GEMS IT’s customer calls requiring in-field service, GEMS-IT will bill customer as appropriate per GEMS-IT policies (flat rate paid by GEMS-IT). GEMS-IT will inform Supplier of customer issue and will receive a RMA from Supplier. GEMS-IT or its customer will return product to Supplier facility as outlined in 9.4.2(a) above. Supplier will repairs and returns product to customer. Supplier will bill GEMS-IT flat rate per unit, which rate shall be negotiated with annual adjustments based in CPI). GEMS-IT will bill customer for service call.
c.	If customer calls requiring Parts, GEMS-IT will inform Supplier and request direct shipment of Parts to GEMS-IT customer. Supplier will bill GEMS-IT at agreed upon cost of Parts and GEMS-IT will bill customer.

9.5 Service Period. During the Term and for a period of at least [ * ] following the last shipment to GEMS-IT of the applicable OEM Product ordered by GEMS-IT hereunder, Supplier shall make available necessary replacement parts, technical support and repair service (or at Supplier’s sole discretion, exchange units for the OEM Products) for purchase by GEMS-IT and third party users of the OEM Products at Supplier’s then- current prices for such replacement parts, technical support and repair services and exchange units (unless otherwise covered by warranty or service agreement).

[ * ] designates portions of this document that have been omitted pursuant to a request for confidential treatment filed separately with the commission.

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9.6 DISCLAIMER. EXCEPT AS EXPRESSLY PROVIDED IN THIS AGREEMENT, NEITHER PARTY MAKES ANY OTHER WARRANTIES, EITHER EXPRESS OR IMPLIED, REGARDING ANY OEM PRODUCTS OR THE GEMS-IT CARDIOSERVE PROPERTY, OR REGARDING THEIR MERCHANTABILITY OR THEIR FITNESS FOR ANY PARTICULAR PURPOSE.

10. OBSOLESCENCE AND MANUFACTURING RIGHTS FOR DISCONTINUED PRODUCTS

10.1 Buy Rights. Supplier acknowledges its obligation to manufacture, supply and support the OEM Products without interruption for the Term of the Agreement. If, however, Supplier seeks to discontinue the supply or support of any OEM Product during the Term of the Agreement (a “Discontinued Product”), Supplier will give notice to GEMS-IT no less than 12 months in advance of the last date the Discontinued Product can be ordered. After receipt of notice of discontinuance, GEMS-IT may, at its option:

(1)	Purchase from Supplier such quantity of the Discontinued Product as GEMS-IT deems necessary for its future requirements; and
(2)	Manufacture the Discontinued Product under the manufacturing rights granted in Section 10.2 below, without payment to Supplier of any royalties or other charges.

10.2 GEMS-IT’s Right To Manufacture. Subject to the terms of Section 10.1 above, Supplier grants to GEMS-IT during the Term of this Agreement, under Supplier’s Intellectual Property Rights, a non-exclusive, world-wide, royalty-free license to use, modify, reproduce, import, manufacture, distribute, offer for sale and sell the Discontinued Product during the Term of this Agreement. GEMS-IT may sublicense these rights to third parties, provided any such third party complies with the terms of this Agreement and any associated obligations of confidentiality. In the event GEMS-IT elects to exercise this right:

(1)	Supplier will release to GEMS-IT all Technical Information or other materials necessary for the manufacture of the Discontinued Product. GEMS-IT will keep all Technical Information confidential in accordance with the terms of Article 17 below.
(2)	Supplier will furnish to GEMS-IT all Technical Materials at their book value within thirty (30) days after GEMS-IT has notified Supplier of its exercise of its rights under this Article 10. If the materials are not delivered within this time period, GEMS-IT will have the right to collect such materials at Supplier’s plant or offices and Supplier agrees to assist GEMS-IT in such collection. GEMS-IT will pay amounts due on such materials within 35 days after receipt of Supplier’s invoice or receipt of the materials, whichever is later. If GEMS-IT has to use measures to collect the materials itself, it may deduct its costs from the book value of the materials.
(3)	Supplier will furnish to GEMS-IT within seven days after GEMS-IT’s written request, the names and addresses of Supplier’s sources for Parts not manufactured by Supplier, including the appropriate part numbers for commercially available equivalents of electronic parts.

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(4)	Supplier will furnish to GEMS-IT without charge all Parts catalogues, schematics, material lists, engineering change orders, and other servicing documentation deemed necessary by GEMS-IT to service and support the Discontinued Product.
(5)	Supplier will assign to GEMS-IT any license rights it may have with third parties for software, documentation or any intellectual property used in the manufacture of the Discontinued Product.

10.3 Return of CSI Information, Intellectual Property, etc. After the Term of this Agreement, all information, intellectual property, and other property of CSI, including but not limited to the CSI Proprietary Technology, shall be returned immediately, and any licenses and other rights under this Section 10 shall immediately cease.

11. MARKETING AND LICENSING

11.1	Marketing Authority. Supplier hereby grants to GEMS-IT the exclusive right to promote, sell and distribute OEM Products worldwide. GEMS-IT will have the authority to market the OEM Products and the GEMS-IT Products containing the OEM Products to the extent it deems appropriate, in its sole discretion. GEMS-IT will have the right to use its own business and license terms for all marketing and distribution of the OEM Products and GEMS-IT Products.
11.2	No Rights In Marks. Except as otherwise specified in the private labeling section below, nothing in this Agreement should be construed to grant either party any rights in the Marks of the other party. Supplier acknowledges, however, that GEMS-IT may use the name of the OEM Products in advertising and marketing the OEM Products or the GEMS-IT Products. The OEM Products will be affixed with applicable patent numbers copyright notices, including Cardiac Science STAR® and RHYTHMx® marks identifying the CSI Proprietary Technology, sufficient to give notice as to the rights of the parties in their respective products.
11.3	Private Labeling. Supplier will ensure that the OEM Products sold to GEMS-IT contain the GEMS-IT Marks, serial number and packaging specified by GEMS-IT and conforming to GEMS-IT specifications for external appearance (which will not require any material change in form or dimensions of the OEM Products or require commercially unreasonable actions). GEMS-IT shall provide Supplier with a list of sequential serial numbers to be applied to each OEM Product and shipping container by Supplier and Supplier shall apply such numbers per GEMS-IT’s instructions. In addition, and without limiting the foregoing, Supplier will ensure that each OEM Product label includes the following statement: “Manufactured for GE Medical Systems Information Technologies by Cardiac Science — STREET ADDRESS, CITY, STATE.” Except as provided herein, Supplier will have no other right or license in any GEMS-IT Marks.
11.4	Documentation License. Supplier hereby grants GEMS-IT a non-exclusive, non- transferable, worldwide fully paid up license to use, reproduce, distribute and prepare derivative works in GEMS-IT’s name all Documentation and other information, other than confidential information, furnished by Supplier under this Agreement. GEMS-IT has the right to use or modify the Supplier’s Product documentation or excerpts therefrom, for instance as follows: Functional description, Instruction sheet and product labels, Operators aids, Promotion information, and Product/Function description. Supplier shall provide GEMS-IT with this Product documentation free of charge both as a print version

[ * ] designates portions of this document that have been omitted pursuant to a request for confidential treatment filed separately with the commission.

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and on data media in readable form. These rights with respect to the Documentation will extend to GEMS-IT Subsidiaries and third party channels of distribution. GEMS-IT may reproduce such Documentation without Supplier’s logo or other identification of source, subject to affixing copyright notices to all copies of Documentation. These rights with respect to the Documentation will extend to GEMS-IT Subsidiaries and third party channels of distribution.

12. INTELLECTUAL PROPERTY PROTECTION

12.1	Ownership. Except as expressly provided herein, neither Party grants to the other Party any license or intellectual property right, either by implication, estoppels or otherwise in and to its products, patents, trademarks, documentation or confidential information. Except in the case of GEMS-IT’s need to service OEM Products, GEMS-IT shall not: (a) reverse engineer, decompile, disassemble or otherwise tamper with the OEM Products; (b) install, integrate, adapt or use the OEM Products except as described in the Documentation; (c) remove or alter any proprietary designs notices or Marks contained in or on the OEM Products, Documentation or related materials or (d) authorize any third party, including any of GEMS-IT distributors or end user customers, to do any of the foregoing.
12.2	Duty To Defend. Except in the event that GEMS-IT exercises its rights to manufacture Discontinued Products pursuant to Article 10 hereof, Supplier will defend, indemnify and hold harmless GEMS-IT, its Affiliates and its Subsidiaries, subcontractors and customers from any claim that any OEM Product, any Software, Documentation or a Supplier Mark, or any product provided as part of Supplier’s support services constitutes an unauthorized use or infringement of any third party’s Intellectual Property Rights. Supplier will pay all costs, damages and expenses (including reasonable attorneys’ fees) incurred by GEMS- IT, its Subsidiaries, subcontractors or customers and will pay any award with respect to any such claim or agreed to in any settlement by Supplier of such a claim.
12.3	GEMS-IT’s Duty To Notify. GEMS-IT will give Supplier prompt notice of any such claim or action, and will give Supplier the authority, information, and reasonable assistance (at Supplier’s expense) necessary to defend. If Supplier does not diligently pursue resolution of the claim nor provide GEMS-IT with reasonable assurances that it will diligently pursue resolution, then GEMS-IT may, without in any way limiting its other rights and remedies, defend the claim.
12.4	Remedies For Infringing Products. If the use or combination of any product provided hereunder is enjoined (the “Infringing Product”), Supplier will, at its sole expense and option:

(1)	Procure for GEMS-IT and its customers the right to continue using or combining the Infringing Product;
(2)	Replace the Infringing Product with a non-infringing product of equivalent function and performance; or
(3)	Modify the Infringing Product to be non-infringing, without detracting from function or performance.

12.5 Limitations. Supplier will be relieved of its indemnification obligations under this Article 12 to the extent that the claim arises solely and directly from Supplier’s

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compliance with a GEMS-IT Specification, provided that all implementations of that Specification constitute an unauthorized use or infringement of a third party Intellectual Property Right.

13. IMPORT / EXPORT COMPLIANCE

13.1	Country Of Origin Certification. Upon GEMS-IT’s request, Supplier will provide GEMS-IT with an appropriate certification stating the country of origin for OEM Products, sufficient to satisfy the requirements of the customs authorities of the country of receipt and any applicable export licensing regulations, including those of the United States. In addition, Supplier will provide NAFTA certification (if Supplier determines the OEM Products qualify).
13.2	Country Of Origin Marking. Supplier will mark each OEM Product, or the container if there is no room on the OEM Product, with the country of origin in accordance with U.S. Government regulations (Supplier shall only mark “Made in USA” on products or containers if the product meets the U.S. Government Federal Trade Commission requirements for use of such a label). Supplier will, in marking OEM Products, comply with the requirements of the customs authorities of the country of receipt.
13.3	Duty Drawback. If OEM Products delivered under this Agreement are imported by the GEMS-IT as the importer of record in the country of receipt, Supplier will, upon GEMS- IT’s request, provide GEMS-IT with documents required by the customs authorities of the country of receipt to prove importation and to transfer duty drawback rights to GEMS-IT.
13.4	Export Compliance.

(a)	In performing its obligations under this Agreement, Supplier shall comply with all applicable export laws, regulations and rules administered by the United States Customs Service, the Bureau of Industry and Security and the Food and Drug Administration, as well as all other applicable federal, state or local laws, regulations or requirements of the United States and any other nation. Supplier shall obtain all applicable permits and licenses necessary to perform its obligations under this Agreement.
(b)	If Supplier obtains Bureau of Industry and Security commodity classifications for the OEM Products, Supplier shall provide a copy of the CCATS document, including any revisions thereto during the Term of this Agreement. If Supplier obtains any U.S. Customs Rulings relating thereto, Supplier shall provide copies of the resulting revisions.
(c)	Supplier shall indemnify and save harmless GEMS IT, its affiliates, officers, directors, employees, successors and assigns from any and against any losses, damages, liabilities, fines, penalties, and expenses (including reasonable attorney’s fees) arising out of or resulting from the failure to comply with this provision, provided that GEMS IT gives Supplier prompt written notice of any such claim and requisite authority, information and assistance to defend such claim.
(d)	During the Term and for a period of five (5) years thereafter, Supplier shall keep accurate and complete export documentation records relating the OEM Products in accordance with U.S. Export regulations and FDA requirements and the

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requirements of any other similar agency of any other nation that will have jurisdiction over Supplier as a result of its performance of its obligations under this Agreement. If the U.S. Government or other government or agency requests the production of such records, Supplier shall copy and produce the records at no charge to GEMS IT.

(e)

Upon reasonable advance notice to Supplier and during normal business hours, GEMS IT may, at its option and expense, conduct audits at any Supplier Service Location of documents relating to the OEM Products to assure that Supplier is in compliance with all export and FDA laws, regulations and requirements, including record keeping. GEMS IT may make copies of any records it reviews during its audits. Further, upon reasonable advance notice to Supplier, GEMS IT may request copies of any export documentation records relating to the OEM Products, which Supplier will provide free of charge. If an audit reveals non- compliance, undercharges or overcharges, Supplier will take appropriate measures to rectify the situation and bring the Supplier Service Location into compliance.

(f)

During the Term and for a period of five (5) years thereafter, GEMS IT may request from Supplier copies of records deemed necessary to defend against any claim related to this Section 13.4 made by a third party, including federal, state or local government. Such records shall not be unreasonably withheld.

14. GOVERNMENTAL COMPLIANCE

14.1 Duty To Comply. Supplier agrees to comply with all federal, state, local and foreign laws, rules, and regulations applicable to its performance of this Agreement or to OEM Products. Without limiting the generality of the foregoing sentence, Supplier represents that:

(1)	Supplier will comply with all applicable equal employment opportunity and non- discrimination requirements prescribed by Presidential Executive Orders, including the requirements of Executive Order 11246, the Vocational Rehabilitation Act, and the Vietnam Era Veterans’ Readjustment Assistance Act;
(2)	Each chemical substance contained in OEM Products is on the inventory of chemical substances compiled and published by the Environmental Protection Agency pursuant to the Toxic Substances Control Act;
(3)	All OEM Products will be shipped in conformance with government or freight regulations and requirements applicable to chemicals; and
(4)	Supplier will provide complete and accurate material safety data sheets prior to shipping any OEM Product.

14.2 Procurement Regulations. For OEM Products purchased under this Agreement for incorporation into products to be sold under a federal contract or subcontract, those applicable procurement regulations that are required by federal statute or regulation to be inserted in contracts or subcontracts will be deemed incorporated in this Agreement and made to apply to all Orders.

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14.3	Regulatory Approvals. Supplier shall be solely responsible for identifying, obtaining, and maintaining at its sole cost and expense all regulatory and other necessary and/or appropriate approvals for the development, manufacture, or sale of any OEM Product in the following countries: All European countries, Russia, Turkey, South Africa, Egypt, Morocco, Tunisia, Algeria, Libya, Israel, Jordan, Syria, Iraq, Iran, Saudi Arabia, Kuwait, Oman, Yemen, U.A.E., Qatar, Bahrain, China, Taiwan, India, Pakistan, Afghanistan, South Korea, Australia, New Zealand, Singapore, Indonesia, Malaysia, Thailand, Vietnam, Mexico, Brazil, Argentina, Chile, Peru, Colombia and Bolivia. Supplier shall have obtained all such approvals by not later than 30 days following the First Delivery Date. If any such approval is not obtained, subsequently revoked, terminated or suspended, Supplier shall immediately notify GEMS IT of such occurrence. If any such lack of obtainment, revocation, termination or suspension lasts for more than thirty (30) days, a proportional reduction in the minimum purchase obligations under Section 3.4 shall be made for any calendar quarter in which such country-specific approvals are not in place for the full duration of the calendar quarter (the “Pending Approvals”) as follows: minimum purchase obligation shall equal 425 units less the product of 425 multiplied by the sum of the “% reductions” for each specific Pending Approval calculated using the data set forth on Exhibit D hereto. Cardiac Science shall obtain Regulatory Approval in the United States in order to facilitate the sale of the OEM Products in such International markets that require FDA clearance. Regulatory Approval in Canada and Japan shall be sought based on mutual consent of both GEMS-IT and Supplier and only after such time as both GEMS-IT and Supplier agree on the Specifications, and certain modification to the form factor for the proposed OEM Product to be marketed in the aforementioned countries. Failure to receive Regulatory Approval in Canada and Japan shall have no proportional reduction in the minimum purchase obligation as outlined in Section 3.4 herein.
14.4	Complaint Handling. GEMS-IT will be responsible for the coordination of customer complaint investigations. As determined by GEMS-IT, Supplier will investigate customer complaints at no charge and supply GEMS-IT with a written report summarizing the cause for the complaint and any corrective actions required within 14 days of receipt by Supplier of such complaint, it being understood that, depending on the nature of the complaint and investigation, the initial (14-day) response may be limited in scope and then followed up by a complete response as soon as reasonable practicable thereafter.
14.5	Duty to Report Incidents. GEMS-IT and Supplier shall inform each other in writing, within 5 business days from knowledge of a reportable event, of all incidents relating to the subject matter of the Agreement that must be reported according to the FDA Medical Device Reporting regulation (21 CFR Part 803) or the European Medical Device Vigilance regulations or that must be registered according to other national regulations such as Canadian medical device regulations, including without limitation incidents involving death or serious injury, malfunctions that, if recurrent, may cause or contribute to death or serious injury or other material quality problems or concerns. GEMS-IT will be responsible for reporting such incidents to the appropriate regulatory authority. Supplier shall fully cooperate with GEMS-IT as may be necessary to comply with any reporting obligations regarding such incidents or quality concerns.
14.6	Recalls and Field Corrections. In the event of any recall, product withdrawal or field correction of any OEM Product that is required by a governmental agency, by Supplier, or by GEMS-IT for safety or efficacy reasons, the parties agree that (a) they shall promptly notify each other and (b) they shall fully cooperate with each other concerning

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	the necessity and nature of such action. GEMS-IT shall be the point of contact for purchasers of any OEM Product (whether directly or through its distributors) and shall be responsible for making any and all applicable regulatory authority contacts and for coordination of any recall or field correction activities involving such OEM Products, whether or not such action was requested by Supplier. In the event that any OEM Product requires field correction or is recalled as a result of (a) the supply by Supplier of a Noncomplying Product or (b) the grossly negligent or intentionally wrongful act or omission of Supplier or its affiliates or their representatives, then Supplier shall bear all costs and expenses, including but not limited to the costs and expenses related to such recall or field correction, communications and meetings with all required regulatory agencies, replacement stock, service labor, installation, travel, notifying customers of such recall and any replacement product to be delivered to those same customers, including shipping costs. To the extent that any such recall or field correction is due in part to the negligent or intentional acts or omissions of GEMS-IT, or the non-performance of the GEMS-IT Products, GEMS-IT shall be responsible for such costs and expenses equitably in proportion to its fault.
14.7	Regulatory Agency Inquiries. If the FDA or any other regulatory body with authority over medical devices provides written notice to either party to inquire about or investigate any OEM Product, the party notified shall use its best efforts to give notice thereof to the other party within one working day of receipt of such contact from the FDA or other body.
15.	FORCE MAJEURE EVENTS
15.1	Delaying Causes. Subject to the provisions of this Article, Supplier will not be liable for any delay in performance under this Agreement caused by any “act of God” or other cause beyond Supplier’s control and without Supplier’s fault or negligence (a “delaying cause”). Notwithstanding the above, Supplier will not be relieved of any liability for any delay or failure to perform its defense obligations with respect to third party Intellectual Property Rights or furnish remedies for Infringing Products as described in Article 12 above.
15.2	GEMS-IT Option. Supplier will immediately give GEMS-IT notice of any delaying cause and its best estimate of the expected duration of such cause. In the event of a delaying cause, GEMS-IT may act in its sole discretion to:

(1)	Terminate this Agreement or any part hereof as to OEM Products not shipped; or
(2)	Suspend this Agreement in whole or in part for the duration of the delaying cause, buy similar products elsewhere, and deduct from any quantities specified under this Agreement the quantity so purchased.

15.3 Resumption Of Agreement. If GEMS-IT elects to purchase other similar products in the event of a delaying cause, GEMS-IT may resume performance under this Agreement once the delaying cause ceases and extend the Term up to the length of time the delaying cause endured. Unless GEMS-IT gives notice of termination as provided above within 30 days after notice from Supplier of the delaying cause, GEMS-IT will be deemed to have elected to suspend this Agreement for the duration of the delaying cause.

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16.	EVENTS OF DEFAULT
16.1	Notice Of Breach. If either party is in breach of any provision of this Agreement, the nonbreaching party may, by notice to the breaching party, except as otherwise prohibited by the United States bankruptcy laws, terminate the whole or any part of this Agreement or any Order, unless the breaching party cures the breach within 30 days after receipt of notice in writing.
16.2	Causes Of Breach. For purposes of Section 16.1 above, the term “breach” includes without limitation any:

i.	Proceeding, whether voluntary or involuntary, in bankruptcy or insolvency by or against a party that is not dismissed within 60 days of its filing;
ii.	Appointment, with or without a party’s consent, of a receiver or an assignee for the benefit of creditors;
iii.	Failure by Supplier to make the minimum quarterly delivery of OEM Products in accordance with the material requirements of this Agreement;
iv.	Failure by GEMS-IT to purchase and pay for the agreed upon minimum quantity of the OEM Products for a given calendar quarter in accordance with the provisions of Section 3.4.
v.	Failure by Supplier to replace or repair Noncomplying Products in a timely manner as required by Articles 5, 6 & 9 above; or
vi.	Other failure by a party to comply with any material provision of this Agreement with additional failure to provide the nonbreaching party, upon request, with reasonable assurances of future performance.

16.3 Rights Upon Breach. In addition to a party’s right to terminate this Agreement upon breach, each party shall also have such other rights and remedies as may be available to them at law or in equity or otherwise available under this Agreement.

17. CONFIDENTIAL INFORMATION

17.1

Confidential Information. During the Term, a party (the “Recipient”) may receive or have access to certain information of the other party (the “Discloser”) that is marked as “Confidential Information,” including, though not limited to, information or data concerning the Discloser’s products or product plans, business operations, strategies, customers and related business information. The Recipient will protect the confidentiality of Confidential Information with the same degree of care as the Recipient uses for its own similar information, but no less than a reasonable degree of care. Confidential Information may only be used by those employees of the Recipient who have a need to know such information for the purposes related to this Agreement. The parties acknowledge that all GEMS-IT Property, Technical Information and Forecasts are deemed Confidential Information to be protected for a term of three years from the date of disclosure.

17.2

Exclusions. The foregoing confidentiality obligations will not apply to any information that is (a) already known by the Recipient prior to disclosure, (b) independently

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developed by the Recipient prior to or independent of the disclosure, (c) publicly available through no fault of the Recipient, (d) rightfully received from a third party with no duty of confidentiality, (e) disclosed by the Recipient with the Discloser’s prior written approval, or (f) disclosed under operation of law.

18.	LIMITATION OF LIABILITY
	UNLESS OTHERWISE STATED IN THIS AGREEMENT, NEITHER PARTY WILL BE LIABLE FOR ANY SPECIAL OR CONSEQUENTIAL DAMAGES OF THE OTHER ARISING OUT OF ANY PERFORMANCE OF THIS AGREEMENT OR IN FURTHERANCE OF THE PROVISIONS OR OBJECTIVES OF THIS AGREEMENT, REGARDLESS OF WHETHER SUCH DAMAGES ARE BASED ON TORT, WARRANTY, CONTRACT OR ANY OTHER LEGAL THEORY, EVEN IF ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. NOTWITHSTANDING THE ABOVE, SUPPLIER WILL BE RESPONSIBLE FOR ANY DAMAGES OF ANY KIND INCLUDED IN AN AWARD OR SETTLEMENT OF A THIRD PARTY CLAIM UNDER ARTICLE 12 ABOVE AND SECTION 21.2 BELOW.
19.	TERMINATION

19.1	Outstanding Orders. All Orders issued prior to the expiration of this Agreement must be fulfilled pursuant to and subject to the terms of this Agreement, even if the Delivery Dates are after expiration. Upon termination of this Agreement for Supplier’s breach, GEMS-IT may cancel any outstanding Order or require Orders to be fulfilled even if a Delivery Date is after the date of termination.
19.2	Return Of GEMS-IT Property. Except as expressly provided otherwise in this Agreement, Supplier must return all GEMS-IT Property to GEMS-IT upon expiration or termination. All such property must be in good condition, normal wear and tear excepted. GEMS-IT will determine the manner and procedure for return. GEMS-IT will bear all return freight costs if return is due to GEMS-IT convenience or an uncured breach by GEMS-IT. Otherwise, Supplier will bear all such costs.
19.3	Continuation of License of GEMS-IT CardioServ Property. Upon expiration of the Term of this Agreement and in the event the Agreement is not renewed by mutual agreement of the parties for an additional term, the license of the GEMS-IT CardioServ Property shall survive beyond the original term free of cost, fees, licenses and royalties to Cardiac Science.
19.4	Surviving Provisions. Notwithstanding the expiration or early termination of this Agreement, the provisions regarding Warranties in Article 9, Manufacturing Rights in Article 10, Marketing and Licensing in Article 11, Intellectual Property in Article 12, Confidentiality in Article 17, Limitation of Liability in Article 18, Transfer of GEMS-IT CardioServ Property in Article 19, and the Miscellaneous provisions below will each survive in accordance with their terms.

20. CRISIS MANAGEMENT

20.1 Communications. Supplier must maintain the ability to contact GEMS IT on a 24 hour a day, 7 day a week basis in order to communicate and manage crisis situations that threaten to or interrupt the Supply Chain. Likewise, Supplier must be available if GEMS IT wishes to contact Supplier on a 24/7 basis. Means of communication may include, but

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	are not limited to, phone, mobile phone or pager and interaction via email and the Internet.
20.2	Business Contingency Plan (BCP). Supplier must share with GEMS IT a BCP that includes Supplier’s plan for 24/7 communication with GEMS IT. The BCP will also include basic information on Supplier’s upstream Supply Chain. For instance, this information will include who Supplier’s Tier 1 and Tier 2 suppliers are, where they are located and the means of transportation for this Supply Chain.

21. MISCELLANEOUS

21.1	Notices. All notices to be given under this Agreement must be in writing addressed to the receiving party’s designated recipient. Notices are validly given upon the earlier of confirmed receipt by the receiving party or three days or seven days for international notices after dispatch by courier or certified mail, postage prepaid, properly addressed to the receiving party. Notices may also be delivered by telefax and will be validly given upon oral or written confirmation of receipt. Either party may change its address for purposes of notice by giving notice to the other party in accordance with these provisions.
21.2	Indemnification. Supplier shall defend, indemnify, and hold harmless GEMS-IT and its Affiliates from and against any losses, expenses, and liability (including attorney fees) to third parties for any and all claims of personal injuries and/or damages arising out of the use of any OEM Product if such injuries and/or damages are attributable to any part of such OEM Product, provided that GEMS-IT notifies Supplier promptly in writing of any and all such claims.
21.3	Exhibits. Each Exhibit attached to this Agreement is deemed a part of this Agreement and incorporated herein wherever reference to it is made.

Exhibit A:	Product List
Exhibit B:	Product Specifications & Development Project Plan
Exhibit C:	Suppliers Prices
Exhibit D:	GEMS-IT Anticipated OEM Product Unit Volume by Country

21.4	Independent Contractors. The relationship of the parties established under this Agreement is that of independent contractors and neither party is a partner, employee, agent or joint venturer of or with the other. .
21.5	Assignment. Except for any assignment by GEMS IT to any Affiliate of GEMS IT, neither this Agreement, nor any right, license, privilege or obligation provided herein may be assigned, transferred or shared by either party without the other party’s prior written consent, and any attempted assignment or transfer is void. Any merger, consolidation, reorganization, transfer of substantially all assets of a party, or other change in control or ownership will be considered an assignment for the purposes of this Agreement (other than a merger of GEMS-IT with or into an Affiliate of GEMS-IT). This Agreement will be binding on the successors and permitted assigns of the parties and the name of the party appearing herein will be deemed to include the names of such party’s successors or permitted assigns to the extent necessary to carry out the intent of this Agreement.
21.6	No Waiver. The waiver of any term, condition, or provision of this Agreement must be in writing and signed by an authorized representative of the waiving party. Any such

[ * ] designates portions of this document that have been omitted pursuant to a request for confidential treatment filed separately with the commission.

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FINAL EXECUTABLE VERSION of OEM Purchase Agreement dated 7-29-03

waiver will not be construed as a waiver of any other term, condition, or provision except as provided in writing, nor as a waiver of any subsequent breach of the same term, condition, or provision.

21.7	Reference To Days. All references in this Agreement to “days” will, unless otherwise specified herein, mean calendar days.
21.8	Headings. The Section headings used in this Agreement are for convenience of reference only. They will not limit or extend the meaning of any provision of this Agreement, and will not be relevant in interpreting any provision of this Agreement.
21.9	No Publication. Other than as required by SEC regulations which require disclosure of certain material events, neither party may publicize or disclose the terms of this Agreement to any third party, without the written consent of the other party. Without limiting the generality of the foregoing sentence, no press releases may be made without the mutual written consent of each party.
21.10	Severability. If any provision in this Agreement is held invalid or unenforceable by a body of competent jurisdiction, such provision will be construed, limited or, if necessary, severed to the extent necessary to eliminate such invalidity or unenforceability. The parties agree to negotiate in good faith a valid, enforceable substitute provision that most nearly affects the parties’ original intent in entering into this Agreement or to provide an equitable adjustment in the event no such provision can be added. The other provisions of this Agreement will remain in full force and effect.
21.11	Entire Agreement. This Agreement comprises the entire understanding between the parties with respect to its subject matters and supersedes any previous communications, representations, or agreements, whether oral or written. For purposes of construction, this Agreement will be deemed to have been drafted by both parties. No modification of this Agreement will be binding on either party unless in writing and signed by an authorized representative of each party.
21.12	Governing Law. This Agreement will be governed in all respects by the laws of the State of New York without reference to any choice of laws provisions.
21.13	Dispute Resolution. Any claim or controversy arising out of or relating to the Agreement must be submitted and settled as set forth in this Section 21.13. If any party to this Agreement alleges that any other party to this Agreement has breached any of the terms of this Agreement, then the party alleging breach will inform the other party of such breach in writing. Upon receipt of such notice, the allegedly non-performing party will have 30 days to cure the alleged breach. If the parties do not agree that effective cure has been accomplished by the end of the 30-day period, then upon written request of any party, a senior manager from each party will meet in person and confer in good faith to resolve the dispute within 15 days of the expiration of the prior 30-day period. If, after the above procedure, the dispute remains unresolved, either party may submit the dispute to the office of the American Arbitration Association (“AAA”) located in Chicago, Illinois for binding arbitration in accordance with the AAA’s Commercial Arbitration Rules then in effect, as amended by this Agreement. The law applicable to the arbitration, including the administration and enforcement thereof, is the Federal Arbitration Act, 9 U.S.C. §§ 1-16, as amended from time to time. The cost of the arbitration, including the fees and expenses of the arbitrator(s), will be shared equally by the parties, with each party paying its own attorneys’ fees. The arbitrator(s) will have the

[ * ] designates portions of this document that have been omitted pursuant to a request for confidential treatment filed separately with the commission.

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FINAL EXECUTABLE VERSION of OEM Purchase Agreement dated 7-29-03

authority to apportion liability between the parties, but will not have the authority to award any damages or remedies not available under the express terms this Agreement. The arbitration award will be presented to the parties in writing, and upon the request of either party, will include findings of fact and conclusions of law. The award may be confirmed and enforced in any court of competent jurisdiction. Any post-award proceedings will be governed by the Federal Arbitration Act. Nothing in this Section 21.13 shall preclude either party from seeking interim equitable relief in the form of a TRO or preliminary injunction. A request by a party of a court for interim equitable relief shall not be deemed a waiver of the obligation to arbitrate hereunder.

21.14

Insurance. During the term of this Agreement, Supplier shall maintain at its own expense, commercial general liability insurance for bodily injury, death and property loss and damage (including coverages for product liability, contractual liability and personal injury liability) covering Supplier for claims, lawsuits or damages arising out of its performance under this Agreement and any negligent or otherwise wrongful acts or omissions by Supplier or any employee or agent of Supplier. All such policies of insurance shall provide limits of liability in the minimum amount of three million dollars ($3,000,000) per occurrence with an annual aggregate of at least five million dollars ($5,000,000). Supplier shall provide GEMS IT with a copy of certificates of insurance evidencing the existence of all coverage required hereunder.

[ * ] designates portions of this document that have been omitted pursuant to a request for confidential treatment filed separately with the commission.

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FINAL EXECUTABLE VERSION of OEM Purchase Agreement dated 7-29-03

     IN WITNESS WHEREOF, the parties have caused this Agreement to be signed by their thereunto duly authorized representatives as of the date first above written.

Cardiac Science, Inc.		GE Medical Systems
		Information Technologies, Inc.
By:	/s/ RAYMOND W. COHEN	By:	/s/ MICHAEL GENAU
Name: Raymond W. Cohen		Name: Michael Genau
Title: President & CEO		Title: Vice President & General Manager
		Cardiology System

[ * ] designates portions of this document that have been omitted pursuant to a request for confidential treatment filed separately with the commission.

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EX-10.42

EXHIBIT 10.42

AMENDMENT ONE TO OEM PURCHASE AGREEMENT

     This Amendment (the “Amendment”) is made as of August 10, 2004, by and between Cardiac Science, Inc., a Delaware corporation (“Supplier” or “Cardiac Science” or “CSI”), a medical device developer and manufacturer of automated external defibrillators having its principal place of business at 1900 Main Street, Irvine, CA 92614 and GE Medical Systems Information Technologies, Inc., a Wisconsin corporation (“GEMS-IT”), having its principal place of business at 8200 W. Tower Avenue, Milwaukee, WI 53223. CSI and GEMS-IT may each be referred to herein as a “Party” and collectively, the “Parties”.

W I T N E S S E T H:

     WHEREAS, CSI and GEMS-IT are parties to an OEM Purchase Agreement dated July 29, 2003 (the “OEM Purchase Agreement”).

     WHEREAS, CSI and GEMS-IT desire to supplement and amend the OEM Purchase Agreement as set forth herein.

     NOW THEREFORE, in consideration of the premises and other good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, it is agreed as follows:

     1. Construction. Except as provided in this Amendment, the terms and conditions set forth in the OEM Purchase Agreement shall remain unaffected by execution of this Amendment. To the extent any provisions or terms set forth in this Amendment conflict with the terms set forth in the OEM Purchase Agreement, the terms set forth in this Amendment shall govern and control. Terms not otherwise defined herein, shall have the meanings set forth in the OEM Purchase Agreement. This Amendment amends the OEM Purchase Agreement and not the OEM Purchase and Supply Agreement entered into by the Parties on July 29, 2003.

     2. Section 1.3 of the OEM Purchase Agreement is amended to change the date set forth in such section from September 30, 2004 to June 30, 2005.

     3. Section 3.4 (i) of the OEM Purchase Agreement is deleted in its entirety and replaced with the following: (i) Supplier delivers the first units of OEM Products by June 30, 2005 and the OEM Products are fully approved for sale throughout Europe by such date.

     4. The last three (3) sentences of Section 14.3 are deleted in their entirety and replaced with the following:

     “Supplier shall be responsible for obtaining Regulatory Approval in the United States. In Canada and Japan, GEMS-IT will utilize its in-country resources to interface with the appropriate regulatory body and GEMS-IT will be responsible for the filings necessary to obtain regulatory approval. Supplier shall be responsible for providing all necessary objective evidence and other documentation to GEMS-IT to support these filings. Failure to receive Regulatory approval in Canada and Japan shall have no effect on the minimum purchase obligations.”

     5. Section 14.5 of the OEM Purchase Agreement is deleted in its entirety and replaced with the following:

14.5 Duty to Report Incidents. GEMS-IT and Supplier shall inform each other in writing, within 5 business days from knowledge of a reportable event, of all incidents relating to the subject matter of the Agreement that must be reported according to the FDA Medical Device Reporting regulation (21 CFR Part 803) or the European Medical Device Vigilance regulations or that must be registered according to other national regulations such as Canadian medical device regulations, including without limitation incidents involving death or serious injury, malfunctions that, if recurrent, may cause or contribute to death or serious injury or other material quality problems or concerns. Supplier will be responsible for reporting such incidents to the appropriate regulatory authority. GEMS-IT shall fully cooperate with Supplier as may be necessary to comply with any reporting obligations regarding such incidents or quality concerns.

     6. Section 14.6 of the OEM Purchase Agreement is deleted in its entirety and replaced with the following:

14.6 Recalls and Field Corrections. In the event of any recall, product withdrawal or field correction of any OEM Product that is required by a governmental agency, by Supplier, or by GEMS-IT for safety or efficacy reasons,

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the parties agree that (a) they shall promptly notify each other and (b) they shall fully cooperate with each other concerning the necessity and nature of such action. GEMS-IT shall be the point of contact for purchasers of any OEM Product (whether directly or through its distributors). Supplier shall be responsible for making any and all applicable regulatory authority contacts and for coordination of any recall or field correction activities involving OEM Products. In the event that any OEM Product requires field correction or is recalled as a result of (a) the supply by Supplier of a Noncomplying Product or (b) the grossly negligent or intentionally wrongful act or omission of Supplier or its affiliates or their representatives, then Supplier shall bear all costs and expenses, including but not limited to the costs and expenses related to such recall or field correction, communications and meetings with all required regulatory agencies, replacement stock, service labor, installation, travel, notifying customers of such recall and any replacement product to be delivered to those same customers, including shipping costs. To the extent that any such recall or field correction is due in part to the negligent or intentional acts or omissions of GEMS-IT, or the non-performance of the GEMS-IT Products, GEMS-IT shall be responsible for such costs and expenses equitably in proportion to its fault.

     7. Exhibit A of the OEM Purchase Agreement is amended to provide for the addition of the OEM Product known as the “Cardiac Science Powerheart 2000” (hereafter, the “PH2K” and referred to in the OEM Purchase Agreement as the “Cardioserv’’). The specifications for the PH2K are attached hereto as Exhibit A. The PH2K is a manual defibrillator being developed and manufactured by CSI, exclusively for sale by CSI to GEMS-IT. GEMS-IT shall market and sell

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the PH2K to its customers in the United States and Canada as either the “GE Responder 2000” or under the CSI brand name “Cardiac Science Powerheart 2000” (or such other CSI brand name as determined by CSI), in the discretion of GEMS-IT. GEMS-IT has no minimum purchase commitments with respect to the PH2K. CSI shall provide sales training and support to the GEMS-IT Sub-Acute team and shall also provide product specialists who shall be available, as necessary, to assist the GEMS-IT representatives in selling these OEM Products.

(a) CSI will not market, distribute, promote, manufacture or sell the PH2K directly or indirectly to any third party, via its dealer network or otherwise. CSI is prohibited from manufacturing for any third party, or selling the PH2K, or any upgrades, adaptions, modifications, improvements and substitutes thereof to any third party.

(b) CSI further grants GEMS-IT the exclusive right to purchase any future device, upgrade, adaptation, modification, add-on, substitute, or improvement manufactured by CSI utilizing the PH2K platform (i.e., such as a more feature-rich defibrillator; for example, a device built with the PH2K platform with an additional feature such as Non-Invasive Blood Pressure, End-Tidal CO₂, 12-lead ECG, etc.,). Any software patches or updates developed for PH2K by Supplier, shall also be incorporated free of charge into any R2K product produced afterwards, and shall be made available by Supplier at no charge to customers having purchased either device.

(c) CSI grants to GEMS-IT the exclusive right to sell PH2K on a worldwide basis.

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     8. The last sentence in Section 1.1 of the OEM Purchase Agreement is amended to provide that CSI has issued to GEMS-IT that certain warrant dated the Effective Date to purchase 750,000 shares of common stock, par value $0.001 per share, of CSI.

     9. CSI Roles and Responsibilities. To further define the role of CSI, and to more explicitly set forth CSI’s responsibilities and obligations with respect to the OEM Purchase Agreement, the Parties agree that CSI shall be responsible for:

     (a) Designing and manufacturing the OEM Products.

     (b) All European Medical Device Vigilance reporting and requirements. Notwithstanding CSI’s reporting obligations, in the event a customer reports to a governmental authority in Europe, GEMS-IT may respond with its own report.

     (c) Providing a copy of its design hazard analysis on the OEM Products to GEMS-IT with five (5) days of its production. The design hazard analysis will be used to perform health risk analysis.

     (d) Performing all complaint investigations on the OEM Products and providing the results of such investigations to the GEMS-IT “Complaint Leader” via e-mail within fourteen (14) days of the conclusion of the investigation. The “Complaint Leader” will be the GEMS-IT employee who is responsible for the coordination and processing of complaint activities on the OEM Products. The results of any investigation will include any correction, corrective or preventive action, verification, and validation performed and/or recommended. The investigative results shall include information obtained in connection with any investigation performed at both the Copenhagen (Service repair) and Minnetonka facilities.

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     (e) Ensuring that a CSI representative participates in all requested or required risk assessments. The CSI representative may be a member of CSI’s Service, Engineering, Quality Assurance or Regulatory Affair departments.

     (f) Notifying GEMS-IT (in writing) of any recall as soon as possible and in no event later than twenty-four (24) hours after a recall decision has been made by CSI or is required by a governmental agency.

     (g) Notifying GEMS-IT (in a written report) of any corrective action to be taken in connection with the OEM Products no later than fourteen (14) days after CSI determines that such corrective action will be taken.

     (h) Returning a Product to GEMS-IT or its distributor upon conclusion of the complaint investigation, if appropriate.

     (i) Providing its service work order number and a copy of the actual work order (including the results of CSI’s investigation) to GEMS-IT. The results of the CSI investigation shall include root cause analysis and any corrective or preventive action initiated.

     (j) Compiling weekly complaint data (with each complaint coded for trending) and providing such trend data to GEMS-IT upon written request from GEMS-IT.

     10. GEMS-IT Roles and Responsibilities. To further define the role of GEMS-IT, and to more explicitly set forth GEMS-IT’s responsibilities and obligations with respect to the OEM Purchase Agreement, the Parties agree that GEMS-IT shall be responsible for:

     (a) Recording complaints received on the OEM Products pursuant to the GEMS-IT Quality Procedure — Global Product Complaint Handling and providing a copy of the Complaint to CSI within five (5) business days of its receipt.

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     (b) Scheduling a Risk Assessment when required per GEMS-IT Risk Management Guidelines.

     (c) Providing CSI with any adverse event and malfunction report via the MedWatch 3500A form.

     (d) Returning a “repaired” OEM Product to GEMS-IT or its distributors, regardless of whether GEMS-IT or CSI repaired said Product.

     (e) Notifying its customers of any recall, corrective action initiated by CSI per the GEMS-IT Global Customer Notification Procedure.

     (f) Sending GEMS-IT or its distributors a replacement OEM Product, even if CSI is responsible for replacing said product due to non-conformance, defects or otherwise.

     11. Governing Law. The validity, construction,performance and enforcebility of this Amendment shall be governed in all respects by the laws of the State of New Jersey, without reference to the choice-of-law provisions thereof.

     12. Counterparts; Facsimile. This Amendment may be executed simultaneously in multiple counterparts, each of which shall be deemed an original, but all of which taken together shall constitute one and the same instrument. Execution and delivery of this Amendment by exchange of facsimile copies bearing the facsimile signature of a party hereto shall constitute a valid and binding execution and delivery of this Amendment by such party. Such facsimile copies shall constitute enforceable original documents.

     13. Severability. In the event any provision of this Amendment shall be determined to be invalid or unenforceable under applicable law, all other provisions of this Amendment shall continue in full force and effect unless such invalidity or unenforceability causes substantial deviation from the underlying intent of the parties expressed in this Amendment or unless the

7

invalid or unenforceable provisions comprise an integral part of, or in inseparable from, the remainder of this Amendment. If this Amendment continues in full force and effect as provided above, the parties shall replace the invalid provision with a valid provision which corresponds as far as possible to the spirit and purpose of the invalid provision.

     14. Interpretation. This Amendment has been negotiated at arm’s length and between persons sophisticated and knowledgeable in the matters dealt with in this Amendment. Each party has been represented by experienced and knowledgeable legal counsel. Accordingly, any rule of law or legal decision that would require interpretation of any ambiguities in this Amendment against the party that has drafted it is not applicable and is waived. The provisions of this Amendment shall be interpreted in a reasonable manner to effect the purposes of the parties and this Amendment.

     15. Entire Agreement. The terms of this Amendment are intended by the parties to be the final expression of their agreement with respect to the subject matter hereof and may not be contradicted by evidence of any prior or contemporaneous agreement. The parties further intend that this Amendment constitute the complete and exclusive statement of its terms and shall supersede any prior agreement with respect to the subject matter hereof.

     16. Headings. The article and section headings contained in this Amendment are for reference purposes only and will not affect in any way the meaning or interpretation of this Amendment.

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     IN WITNESS WHEREOF, the parties have caused this Agreement to be signed by their thereunto duly authorized representatives as of the date first above written.

Cardiac Science, Inc.			GE Medical Systems Information Technologies, Inc.
By:	/s/ Raymond W. Cohen	11-12-04	By:	/s/ Matthias Weber	Nov 5, 2004
Name:	Raymond W. Cohen		Name:	Matthias Weber
Title:	Chairman and CEO		Title:	Vice President & General Manager Cardiology Systems

9

EX-10.44

EXHIBIT 10.44

SECOND AMENDMENT TO OEM PURCHASE AGREEMENT

     This Second Amendment (the “Amendment”) is made as of February 14, 2005, by and between Cardiac Science, Inc., a Delaware corporation (“Supplier” or “Cardiac Science” or “CSI”), a medical device developer and manufacturer of automated external defibrillators having its principal place of business at 1900 Main Street, Irvine, CA 92614 and GE Medical Systems Information Technologies, Inc., a Wisconsin corporation (“GEMS-IT”), having its principal place of business at 8200 W. Tower Avenue, Milwaukee, WI 53223. CSI and GEMS-IT may each be referred to herein as a “Party” and collectively, the “Parties”.

WITNESSETH:

     WHEREAS, CSI and GEMS-IT are parties to an OEM Purchase Agreement dated July 29, 2003 and Amendment One to OEM Purchase Agreement dated August 10, 2004 (collectively, the “OEM Purchase Agreement”).

     WHEREAS, CSI and GEMS-IT desire to supplement and amend the OEM Purchase Agreement as set forth herein.

     NOW THEREFORE, in consideration of the premises and other good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, it is agreed as follows:

     1. Construction. Except as provided in this Amendment, the terms and conditions set forth in the OEM Purchase Agreement shall remain unaffected by execution of this Amendment. To the extent any provisions or terms set forth in this Amendment conflict with the terms set forth in the OEM Purchase Agreement, the terms set forth in this Amendment shall govern and control. Terms not otherwise defined herein, shall have the meanings set forth in the OEM Purchase Agreement. This Amendment amends the OEM Purchase Agreement and not the OEM Purchase and Supply Agreement entered into by the Parties on July 29, 2003.

     2. CSI Roles and Responsibilities. To further define the role of CSI, and to more explicitly set forth CSI’s responsibilities and obligations with respect to the OEM Purchase Agreement and the OEM Products, the Parties agree that CSI shall be responsible for tracking all OEM Products (as defined in Exhibit A to the OEM Purchase and Supply Agreement) sold by GEMS-IT in the United States, in accordance with 21 C.F.R. 821. As the manufacturer of the OEM Products, CSI is solely responsible for establishing records that accurately match end users with each of the OEM Products. CSI is also responsible for establishing such records and maintaining them for accessories that are trackable per 21 C.F.R. 821. CSI shall keep these records current and up-to-date over the life of each OEM Product, according to FDA rules and regulations. Additionally, CSI will implement audits of the tracking system per 21 C.F.R. 821 and make records of the audit finds available to GEMS-IT upon request. CSI releases GEMS-IT, and agrees to indemnify, defend and hold GEMS-IT harmless, from any obligation to maintain such records of its own, and from any damages resulting from failure to comply with statutory or regulatory requirements with respect thereto. In the event the FDA requests records in connection with an audit or if there is a recall of an OEM Product and such records are requested, CSI will rely on its internal processes and compliance procedures to respond appropriately and according to its obligations, as set forth herein and in the OEM Purchase Agreement. GEMS-IT will share all customer contact information with CSI for the purpose of: (a) direct order fulfillment by CSI from its manufacturing facility, and (b) device tracking.

     3. Governing Law. The validity, construction, performance and enforceability of this Amendment shall be governed in all respects by the laws of the State of New Jersey, without reference to the choice-of-law provisions thereof.

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     4. Counterparts; Facsimile. This Amendment may be executed simultaneously in multiple counterparts, each of which shall be deemed an original, but all of which taken together shall constitute one and the same instrument. Execution and delivery of this Amendment by exchange of facsimile copies bearing the facsimile signature of a party hereto shall constitute a valid and binding execution and delivery of this Amendment by such party. Such facsimile copies shall constitute enforceable original documents.

     5. Severability. In the event any provision of this Amendment shall be determined to be invalid or unenforceable under applicable law, all other provisions of this Amendment shall continue in full force and effect unless such invalidity or unenforceability causes substantial deviation from the underlying intent of the parties expressed in this Amendment or unless the invalid or unenforceable provisions comprise an integral part of, or in inseparable from, the remainder of this Amendment. If this Amendment continues in full force and effect as provided above, the parties shall replace the invalid provision with a valid provision which corresponds as far as possible to the spirit and purpose of the invalid provision.

     6. Interpretation. This Amendment has been negotiated at arm’s length and between persons sophisticated and knowledgeable in the matters dealt with in this Amendment. Each party has been represented by experienced and knowledgeable legal counsel. Accordingly, any rule of law or legal decision that would require interpretation of any ambiguities in this Amendment against the party that has drafted it is not applicable and is waived. The provisions of this Amendment shall be interpreted in a reasonable manner to effect the purposes of the parties and this Amendment.

     7. Entire Agreement. The terms of this Amendment are intended by the parties to be the final expression of their agreement with respect to the subject matter hereof and may not be

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contradicted by evidence of any prior or contemporaneous agreement. The parties further intend that this Amendment constitute the complete and exclusive statement of its terms and shall supersede any prior agreement with respect to the subject matter hereof.

     8. Headings. The article and section headings contained in this Amendment are for reference purposes only and will not affect in any way the meaning or interpretation of this Amendment.

          IN WITNESS WHEREOF, the parties have caused this Agreement to be signed by their thereunto duly authorized representatives as of the date first above written.

Cardiac Science, Inc.		GE Medical Systems
		Information Technologies, Inc.
By:	/s/ Raymond W. Cohen	By:	/s/ Matthias Weber
Name:	Raymond W. Cohen	Name:	Matthias Weber
Title:	Chairman and CEO	Title:	Vice President & General Manager Cardiology Systems

4

EX-10.59

Execution Copy

EXHIBIT 10.59

FOURTH AMENDMENT TO OEM PURCHASE AGREEMENT

     This Fourth Amendment (this “Amendment”) is made as of October 20, 2006, by and between Cardiac Science Corporation (f/k/a Cardiac Science, Inc.), a Delaware corporation (“Supplier” or “Cardiac Science” or “CSC”), a medical device developer and manufacturer of automated external defibrillators, having its principal place of business at 3303 Monte Villa Parkway, Bothell, WA 98021, and GE Medical Systems Information Technologies, Inc., a Wisconsin corporation d/b/a GE Healthcare (“GEMS-IT”), having its principal place of business at 8200 W. Tower Avenue, Milwaukee, WI 53223.

W I T N E S S E T H:

     WHEREAS, CSC and GEMS-IT are parties to that certain OEM Purchase Agreement dated July 29, 2003 (“Initial OEM Purchase Agreement”), as amended by (i) Amendment One thereto dated August 10, 2004 (“Amendment One”), (ii) Second Amendment thereto dated February 14, 2005 (“Amendment Two”), and (iii) Third Amendment thereto dated June 10, 2005 (“Amendment Three”). The Initial OEM Purchase Agreement, Amendment One, Amendment Two, and Amendment Three are collectively referred to herein as the “OEM Purchase Agreement”.

     WHEREAS, CSC and GEMS-IT desire to supplement and further amend the OEM Purchase Agreement as set forth herein.

     NOW THEREFORE, in consideration of the premises and other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto agree as follows:

     1. Construction. Except as provided in this Amendment, the terms and conditions set forth in the OEM Purchase Agreement shall remain unaffected by the execution of this Amendment. To the extent any provisions or terms set forth in this Amendment conflict with the terms set forth in the OEM Purchase Agreement, the terms set forth in this Amendment shall govern and control. Terms not otherwise defined herein, shall have the meanings set forth in the OEM Purchase Agreement. This Amendment

[ * ]  designates portions of this document that have been omitted pursuant to a request for confidential treatment filed separately with the commission.

amends the OEM Purchase Agreement and not that certain OEM Purchase and Supply Agreement entered into by the parties on July 29, 2003.

     2. Section 1.6 of the OEM Purchase Agreement [as amended by Section 3 of Amendment Three] is hereby deleted in its entirety and replaced with the following:

“Term of Agreement. This Agreement will commence as of the Effective Date and continue through the calendar year ending five (5) years (the “Term”) after the date of the first delivery to GEMS-IT by Cardiac Science of the OEM Products capable of commercial resale by GEMS-IT in the United States and European countries accepting the CE Mark (the “First Delivery Date”), unless terminated earlier under the terms of the this Agreement. (For example, if the First Delivery Date is October 1, 2006, the Term will end December 31, 2011.) If the First Delivery Date has not occurred prior to December 31, 2006, GEMS-IT may at its option terminate this Agreement.”

     3. Section 3.4 of the OEM Purchase Agreement [as amended by Section 3 of Amendment One and Section 5 of Amendment Three] is hereby deleted in its entirety and replaced with the following:

“Forecasts and Minimum Purchases. GEMS-IT will provide a six (6) month rolling Forecast of its projected Orders. Any quantities listed in any Forecast or other correspondence between the parties are only estimates made as an accommodation for planning purposes and do not constitute a commitment on GEMS-IT’s part to purchase such quantity. GEMS-IT may revise any Forecasts in its sole discretion. During the Term, GEMS-IT shall purchase from Supplier a minimum of one thousand seven hundred (1,700) units of OEM Products during each full twelve (12) month period (“Annual Minimum Purchase”), commencing with the first full calendar quarter after the First Delivery Date; provided, that (i) the OEM Products perform in accordance, and fully comply, with the Specifications and (ii) all Regulatory Approvals remain in full force and effect in accordance with Section 14.3. If either of the above conditions are not satisfied, then GEMS-IT shall be released from the Annual Minimum Purchase obligations for the annual period(s) in which such conditions are not satisfied, and the parties shall meet and discuss in good faith adjustments to the Annual Minimum Purchase.”

     4. Section 4.1 of the OEM Purchase Agreement is hereby deleted in its entirety and replaced with the following:

“4.1 OEM Product Prices. Supplier’s prices for the OEM Products are listed in Exhibit C of this Agreement attached hereto in U.S. currency unless otherwise stated, and may not be increased without GEMS-ITs written consent. The prices for Parts will be established in accordance with Exhibit D of this Agreement attached hereto, unless the parties mutually agree to a different price schedule for Parts. OEM Products and Parts will also be subject to the prompt payment discount set forth in Section 4.3 and any other prompt payment discounts agreed to by the parties, if any.

[ * ]  designates portions of this document that have been omitted pursuant to a request for confidential treatment filed separately with the commission.

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4.1.1 Sharing of Cost Reductions. Six months after the First Delivery Date, and in each subsequent November during the Term, Supplier shall furnish to GEMS-IT a schedule of its costs associated with the production and delivery of each OEM Product as of the date of the schedule (the “Annual Cost Schedule”), the accuracy and completion of which shall be certified by an officer of Supplier. Supplier shall be available to meet with GEMS-IT and discuss matters related to the Annual Cost Schedule promptly following GEMS-ITs reasonable request. The parties agree that the price for each OEM Product or priced Part shall be reduced by [ * ]% of the dollar value of Supplier’s reduced cost, if any, relating to each such OEM Product or Part, as shown by comparing the then current Annual Cost Schedule with the previous Annual Cost Schedule. Any such price reductions shall be effective as of January 1 of the next calendar year. (For example, cost reductions reflected in the first delivered Annual Cost Schedule and the second Annual Cost Schedule delivered in November 2007 shall reduce the prices of OEM Products and Parts effective January 1, 2008.) If the parties are unable to mutually agree on such pricing adjustments, the supply of OEM Products shall continue unabated at the then current prices and any pricing adjustment shall be resolved in accordance with the arbitration provision contained in this Agreement. Price adjustments resulting from arbitration will become effective retroactively to the date the arbitration proceeding commenced.

4.1.2 Component Cost Pricing Adjustments. At the request of Supplier, the parties agree to review and adjust, by mutual agreement and in good faith, the pricing of the OEM Products, for calendar years commencing three (3) years after the First Delivery Date, to take into account any material increases in the costs of components of OEM Products based on the then current Annual Cost Schedules. Supplier shall provide GEMS-IT with any additional objective documented proof of any such changes if requested by GEMS-IT. The parties agree that the price for each OEM Product or priced Part shall be increased by [ * ]% of the dollar value of Supplier’s increased component cost, if any, relating to each such OEM Product or Part, as shown by comparing the then current Annual Cost Schedule with the previous Annual Cost Schedule. Any such price increases shall be effective as of January 1 of the next calendar year. If the parties are unable to mutually agree on such pricing adjustments, the supply of OEM Products shall continue unabated at the then current prices and any pricing adjustment shall be resolved in accordance with the arbitration provision contained in this Agreement. Price adjustments resulting from arbitration will become effective retroactively to the date the arbitration proceeding commenced.

     5. Section 7.4 of the OEM Purchase Agreement is hereby deleted in its entirety and replaced with the following:

“Safety Standard Changes. Supplier and GEMS-IT will immediately give notice to one another if any upgrade, substitution or other change to an OEM

[ * ]  designates portions of this document that have been omitted pursuant to a request for confidential treatment filed separately with the commission.

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Product is required to make that product meet applicable safety standards or other governmental statutes, rules, orders or regulations, even those that are not defined as Engineering Changes in Section 7.1 above. All affected OEM Products already purchased by GEMS-IT may, at GEMS-IT’s election, either be returned to Supplier for upgrade to current revisions or upgraded by Supplier or GEMS-IT in the field pursuant to the procedures outlined in Section 14.6 below.”

     6. Section 9.1 of the OEM Purchase Agreement is deleted in its entirety and replaced with the following:

          “All warranties set forth in Section 9.2 below will survive any inspection, delivery, acceptance, or payment by GEMS-IT and (except for the warranty included in section 9.2(2) below) will survive for a period of [ * ] after the date of the last new product sale shipment of the OEM Product to GEMS-ITs end user customers. For the Powerheart ECD, the warranty included in section 9.2(2) below shall be in effect for the [ * ] period following the date of shipment of the Powerheart ECD to GEMS-IT’s end-user customers. For the Responder 2000, the warranty included in section 9.2(2) below shall be in effect for the one (1) year period following the date of shipment of the Responder 2000 to GEMS-IT’s end-user customers.

     7. Section 9.4.2 of the OEM Purchase Agreement [as amended by Section 7 of Amendment Three] and Section 9.5 of the OEM Purchase Agreement [as amended by Section 8 of Amendment Three] are hereby deleted in their entirety, and are replaced by the provisions of the service plan set forth in Exhibit D to the Agreement attached hereto.

     8. Section 14.3 of the OEM Purchase Agreement [as amended by Section 4 of Amendment One and Section 9 of Amendment Three] is hereby deleted in its entirety and replaced with the following:

“14.3 Regulatory Approvals. Supplier shall be responsible for identifying, obtaining, and maintaining at its sole cost and expense all regulatory and other necessary and/or appropriate approvals for the development, manufacture, and/or sale of any OEM Product (“Regulatory Approvals”) in the following countries: all European countries, Russia, Turkey, South Africa, Egypt, Morocco, Tunisia, Algeria, Libya, Israel, Jordan, Syria, Iraq, Iran, Saudi Arabia, Kuwait, Oman, Yemen, U.A.E., Qatar, Bahrain, China, Taiwan, India, Pakistan, Afghanistan, South Korea, Australia, New Zealand, Singapore, Indonesia, Malaysia, Thailand, Vietnam, Mexico, Brazil, Argentina, Chile, Peru, Colombia and Bolivia. GEMS-IT will utilize its in-country resources (at its expense) in the foregoing countries to assist Supplier in interfacing with the appropriate regulatory bodies in connection with Supplier’s efforts to obtain Regulatory Approvals; provided, however, the parties understand and agree that Supplier is responsible for preparing

[ * ]  designates portions of this document that have been omitted pursuant to a request for confidential treatment filed separately with the commission.

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and providing all materials, data, documentation, and other items necessary for obtaining Regulatory Approvals, and is ultimately responsible for obtaining such Regulatory Approvals. Supplier shall have obtained all such Regulatory Approvals by not later than 30 days following the First Delivery Date. If any such approval is not so obtained, subsequently revoked, terminated or suspended, Supplier shall immediately notify GEMS-IT of such occurrence.
Supplier shall be solely responsible for obtaining Regulatory Approvals in the United States and Canada. In Japan, GEMS-IT will utilize its in-country resources to interface with the appropriate regulatory body and GEMS-IT will be responsible for the filings necessary to obtain Regulatory Approvals.

Supplier shall be responsible for providing, upon reasonable request of GEMS-IT, all necessary objective evidence and other documentation to GEMS-IT to support Supplier’s filings pursuant to this section 14.3. Supplier shall provide GEMS-IT Regulatory Affairs with any proposed submission to the US Food & Drug Administration, no less than five (5) working days prior to the proposed submission date, in order for GEMS-IT Regulatory Affairs to review and revise any such proposed submission with the intention of uncovering any errors or omissions which might cause a delay in approval. Supplier shall consider revising its proposed submissions to include any reasonable revisions that GEMS-IT Regulatory Affairs shall make to any such submissions, but shall have no obligation to do so.

     9. Section 14.6 of the OEM Purchase Agreement [as amended by Section 6 of Amendment One] is deleted in its entirety and replaced with the following:

“14.6 Recalls and Field Corrections. In the event of any recall, product withdrawal or field correction of any OEM Product that is required by a governmental agency, by Supplier, or by GEMS-IT for safety or efficacy reasons, the parties agree that (a) they shall promptly notify each other and (b) they shall fully cooperate with each other concerning the necessity and nature of such action. Supplier shall be the point of contact for end-user purchasers of the Powerheart ECD version of the OEM Product in the United States and Canada and GEMS-IT shall be the point of contact for end-user purchasers of the GE Responder 2000 version of the OEM Product (whether directly or through its distributors) in markets outside of the United States and Canada. Supplier shall be responsible for making any and all applicable regulatory authority contacts and for coordination of any recall or field correction activities involving OEM Products. In the event that any OEM Product requires field correction or is recalled as a result of (a) Supplier’s or an OEM Product’s failure to comply with applicable laws or regulations, (b) Supplier’s reasonable determination to effectuate such correction or recall for business, safety, or efficacy reasons, (c) the supply by Supplier of Noncomplying Product, or (d) Supplier’s failure to provide OEM Products that (i) conform in all material respects to applicable industry standards or (ii) are free from defect in material and workmanship (under

[ * ]  designates portions of this document that have been omitted pursuant to a request for confidential treatment filed separately with the commission.

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customary, proper, and intended usage), then Supplier shall bear all costs and expenses, including but not limited to the costs and expenses related to such recall or field correction, communications and meetings with all required regulatory agencies, replacement stock, service labor, installation, travel, notifying customers of such recall and any replacement product to be delivered to those same customers, including shipping costs. To the extent that any such recall or field correction is due in part to the negligent or intentional acts or omissions of GEMS-IT, or the non-performance of the GEMS-IT Products, GEMS-IT shall be responsible for such costs and expenses equitably in proportion to its fault.”

     10. The parties agree that Exhibit A of the OEM Purchase Agreement [as amended by Section 7 of Amendment One] is hereby deleted in its entirety and replaced with new Exhibit A attached hereto.

     11. The parties agree that Exhibit B of the OEM Purchase Agreement and Exhibit A of Amendment One are hereby deleted in their entirety and replaced with new Exhibit B attached hereto.

     12. The parties agree that Exhibit C of the OEM Purchase Agreement [as amended by Exhibit C of Amendment One and Sections 10, 11, and 12 of Amendment Three] is hereby deleted in its entirety and replaced with new Exhibit C attached hereto.

     13. The parties agree that Exhibit D of the OEM Purchase Agreement is hereby deleted in its entirety.

     14. The parties agree that Section 7 of Amendment One is deleted in its entirety and replaced with the following provisions:

The OEM Product is a manual defibrillator being developed and manufactured by CSC, exclusively for sale by CSC to GEMS-IT. GEMS-IT shall market and sell the Cardiac Science Powerheart ECD version of the OEM Product to its customers in the United States and Canada and the GE Responder 2000 version of the OEM Product to its customers in markets outside of the United States and Canada.
Supplier will support GEMS-IT’s sales efforts in the United States and Canada by providing:

(i)	unlimited access to Supplier’s Web Site “Library” page, including access to all of Supplier’s distributor marketing material such as competitive analyses and white papers;
(ii)	telephone support as necessary;

[ * ]  designates portions of this document that have been omitted pursuant to a request for confidential treatment filed separately with the commission.

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(iii)	in person (including customer presentations) and/or telephone support on large OEM Product opportunities; and
(iv)	an annual “train the trainer session” for a GEMS-IT clinical educator (at a mutually agreed upon location and date) with additional phone support as requested by the GEMS-IT clinical educator.

CSC will not market, distribute, promote, manufacture or sell the OEM Product directly or indirectly to any third party, via its dealer network or otherwise. CSC is prohibited from manufacturing for any third party, or selling the OEM Product, or any upgrades, adaptations, modifications, improvements and substitutes thereof to any third party.

CSC further grants GEMS-IT the exclusive right to purchase any future device, upgrade, adaptation, modification, add-on, substitute, or improvement manufactured by CSC utilizing the OEM Product platform (i.e., such as a more feature rich defibrillator; for example a device built with the OEM Product platform with an additional feature such as Non-Invasive Blood Pressure, End-Tidal CO2, 12 lead ECG, etc.). Any software patches or updates developed for the OEM Product by the Supplier shall also be incorporated free of charge into any OEM Product produced afterwards, and shall be made available by Supplier at no charge to customers having purchased the OEM Product.

CSC further grants GEMS-IT the exclusive right to sell the OEM Product on a world wide basis.

     15. Governing Law. The validity, construction, performance and enforceability of this Amendment shall be governed in all respects by the laws of the State of New York, without reference to the choice-of-law provisions thereof.

     16. Counterparts; Facsimile. This Amendment may be executed simultaneously in multiple counterparts, each of which shall be deemed an original, but all of which taken together shall constitute one and the same instrument. Execution and delivery of this Amendment by exchange of facsimile copies bearing the facsimile signature of a party hereto shall constitute a valid and binding execution and delivery of this Amendment by such party. Such facsimile copies shall constitute enforceable original documents.

     17. Severability. In the event any provision of this Amendment shall be determined to be invalid or unenforceable under applicable law, all other provisions of this Amendment shall continue in full force and effect unless such invalidity or unenforceability causes substantial deviation from the underlying intent of the parties

[ * ]  designates portions of this document that have been omitted pursuant to a request for confidential treatment filed separately with the commission.

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expressed in this Amendment or unless the invalid or unenforceable provisions comprise an integral part of, or in inseparable from, the remainder of this Amendment. If this Amendment continues in full force and effect as provided above, the parties shall replace the invalid provision with a valid provision which corresponds as far as possible to the spirit and purpose of the invalid provision.

     18. Interpretation. This Amendment has been negotiated at arm’s length and between persons sophisticated and knowledgeable in the matters dealt with in this Amendment. Each party has been represented by experienced and knowledgeable legal counsel. Accordingly, any rule of law or legal decision that would require interpretation of any ambiguities in this Amendment against the party that has drafted it is not applicable and is waived. Notwithstanding the foregoing the provisions of this Amendment shall be interpreted in a reasonable manner to affect the purposes of the parties and this Amendment.

     19. Entire Agreement. The terms of this Amendment are intended by the parties to be the final expression of their agreement with respect to the subject matter hereof and may not be contradicted by evidence of any prior or contemporaneous agreement. The parties further intend that this Amendment constitute the complete and exclusive statement of its terms and shall supersede any prior agreement with respect to the subject matter hereof.

     20. Headings. The article and section headings contained in this Amendment are for reference purposes only and will not affect in any way the meaning or interpretation of this Amendment.

[Signature Page Follows]

[ * ]  designates portions of this document that have been omitted pursuant to a request for confidential treatment filed separately with the commission.

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     IN WITNESS WHEREOF, the parties have caused this Amendment to be signed by their thereunto duly authorized representatives as of the date first above written.

Cardiac Science Corporation		GE Medical Systems Information Technologies, Inc.
By:	/s/ John R. Hinson	By:	/s/ Matthias Weber
Name:	John R. Hinson	Name:	Matthias Weber
Title:	President and CEO	Title:	Vice President & General Manager Cardiology Systems

[ * ]  designates portions of this document that have been omitted pursuant to a request for confidential treatment filed separately with the commission.

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Exhibit A

OEM Product List

1. Responder 2000 / Powerheart ECD Basic version

• Includes biphasic defibrillator, rechargeable battery, external paddles, user manual, roll of paper and power cord

2. Responder 2000 / Powerheart ECD Pacing version

• Includes biphasic defibrillator with external-packing functionality, rechargeable battery, external paddles, user manual, roll of paper and power cord

3. Responder 2000 / Powerheart ECD Pacing and Sp02 version

• Includes biphasic defibrillator with external-pacing and pulse oximetry-monitoring functionality, rechargeable battery, external paddles, user manual, roll of paper and power cord

[ * ]  designates portions of this document that have been omitted pursuant to a request for confidential treatment filed separately with the commission.

Exhibit B
OEM Product Specifications

[ * ]

[ * ]  designates portions (7 pages) of this document that have been omitted pursuant to a request for confidential treatment filed separately with the commission.

Exhibit C
Supplier’s Prices

GEMS-IT OEM Products

	Responder 2000		Powerheart ECD
	Price		Price
OEM Product basic version package	$	[ * ]	$	[ * ]
OEM Product pacing version package	$	[ * ]	$	[ * ]
OEM Product pacing & SpO2 version package	$	[ * ]	$	[ * ]

Each OEM Product package includes one (1) each of:

• OEM Product defibrillator

• Pair of external defibrillation paddles

• Power Cord

• Rechargeable battery

• Roll of Thermal Paper

• User Manual

Powerheart ECD pricing includes provision of a [ * ] warranty, while Responder 2000 pricing includes provision of a [ * ] warranty.

Powerheart ECD pricing includes a $[ * ] Kitting Fee for Supplier stocking and kitting of optional accessories to be bundled with the OEM Product package. This Kitting Fee is included in the Powerheart ECD price regardless of whether a specific purchase order requires optional accessories. Optional accessories are to be purchased from the GEMS-IT approved suppliers at GEMS-IT pricing and inventoried at the Supplier. These accessories will be listed on the Purchase Order from GEMS-IT at the time of customer order and Supplier will be reimbursed for the cost of the items, without additional mark-up, according to the terms and conditions of the agreement. At its sole discretion, GEMS-IT may choose to take over this kitting responsibility from Supplier after first giving Supplier (90) days

[ * ]  designates portions of this document that have been omitted pursuant to a request for confidential treatment filed separately with the commission.

notice of its intent, at which time the Kitting Fee would be removed from the Powerheart ECD product price. Kitting of optional accessories is not provided by Supplier for the Responder 2000.

[ * ]  designates portions of this document that have been omitted pursuant to a request for confidential treatment filed separately with the commission.

Exhibit D

Service Plan

1. WARRANTY AND OUT-OF-WARRANTY SERVICE

1.1 WITHIN THE UNITED STATES AND CANADA

Customer calls for warranty and out-of-warranty product service for the Powerheart ECD will be handled by CSC. CSC will perform all product repairs or product replacements for the Powerheart ECD. If a customer calls GEMS-IT with a product issue, GEMS-IT will direct the call to the correct location. GEMS-IT will also inform CSC of any customer complaints it receives. If a customer returns any OEM Product to GEMS-IT for any reason, GEMS-IT will inform CSC of the return and arrange to return the product to the designated CSC facility. Repaired or replaced product must be delivered within two (2) weeks of CSC’s receipt of returned product. The parties agree that a list of out-of-warranty services, including prices, will be created as an addendum to the OEM Purchase Agreement.

1.2 OUTSIDE THE UNITED STATES AND CANADA

Customer calls for warranty and out-of warranty product service for the Responder 2000 will be handled by GEMS-IT. Technical reporting regarding the Responder 2000 product failures, repair findings and complaints will be provided to CSC by GEMS-IT.

1.2.1 Service Training

CSC agrees to conduct an annual service training session to a commercially reasonable number of GEMS-IT service staff at its premises, with all participants responsible for their own travel expenses. CSC will provide additional training sessions to GE Service personnel should there be any major design change.

1.2.2 GEMS-IT will perform service repair or provide replacement products to its customers. GEMS-IT will select the type of repair level as deemed appropriate for each

[ * ]  designates portions of this document that have been omitted pursuant to a request for confidential treatment filed separately with the commission.

country and the customer’s needs, in compliance with the repair processes defined in the OEM Product Service Manual.

1.2.3 GEMS-IT will purchase Field Replaceable Unit (“I-RU”) stock from CSC to support its field operations plans. For warranty repairs, CSC shall provide GEMS-IT replacement parts at no charge upon I) receipt of an in-warranty FRU for repair, or 2) Acceptable notification of GEMS-1T consumption of an 1-RU for repair of an in-warranty product. Likewise, GEMS-IT agrees to provide labor to affect in-warranty repairs at no charge to CSC. In instances that GEMS-IT does not perform the repair, the product may be returned to CSC for repair or replacement. The returned product or replacement product must be delivered after repair to the location requested by GEMS-IT within two (2) weeks of its receipt by CSC.

GEMS-IT and CSC will define and maintain a list of FRU parts that supports the capability to perform full repair of the product per the Service Manual. The FRU list is to indicate which parts (if any) are to be returned for repair and reuse. Pricing of FRU parts shall not exceed the amount Supplier charges for similar parts to any of its other customers.

CSC must notify GEMS-IT of any FRU changes, as from parts obsolescence, within forty-five (45) days of its learning of such change. The parties agree that a list of out-of-warranty services, and FRU parts, including prices will be created as an addendum to the OEM Purchase Agreement. CSC will notify GEMS-IT in writing of any updates to the parts lists, services, and pricing.

1.2.4 CSC shall provide, at no cost to GEMS-IT, eighteen (18) OEM Products to be used by GEMS-IT as loaner inventory and to facilitate warranty exchanges for end users. These units shall be suitably configured with local languages as per GEMS-IT instructions.

2.0 SERVICE MANUAL

[ * ]  designates portions of this document that have been omitted pursuant to a request for confidential treatment filed separately with the commission.

The Service Manual produced by CSC will address information needed by GEMS-IT to maintain full repair capability on the device (to the PCB replacement level). The Service Manual shall include, at a minimum, the following topics:

Introduction

Software upgrade

Troubleshooting

Assembly/Disassembly Maintenance and Service Parts &

Accessories

Theory of Operation

Specifications and Safety

Index

3.0 SERVICE PROCESSES

To facilitate accurate and timely communication of service-related information, a table of contacts at both GEMS-IT and CSC will be developed and maintained to assure that information is delivered to the correct persons and locations.

GEMS-IT will provide sample field-reporting forms, repair-report forms, and a customer-complaint-process chart to CSC. GEMS-IT will amend these forms and processes to meet CSC’s quality system requirements as needed.

CSC will provide complete quality reports to GEMS-IT for the products distributed in the United States and Canada. GEMS-IT will provide complete quality reports to CSC for products distributed outside of the United States and Canada. These reports will be provided on a monthly basis, with sufficient detail to support the needs of the CSC and

GEMS-IT quality systems for tracking, trending, proactive product field support and other quality monitoring activities.

4.0 Long-Term Service Support

For a period of [ * ] following the last shipment of OEM Product ordered by GEMS-IT for new sales to its end-customers, CSC shall make available to GEMS-IT necessary

[ * ]  designates portions of this document that have been omitted pursuant to a request for confidential treatment filed separately with the commission.

replacement parts, technical support, and repair service, or at Supplier’s sole discretion, it may exchange units for the OEM Products. The Prices for such replacement parts, technical support, repair services, and exchange units shall be calculated by adding a reasonable margin to Supplier^‘s cost of procurement or production, and shall not exceed the amount Supplier charges any of its other customers for similar parts, support, services, and products to its own customers.

[ * ]  designates portions of this document that have been omitted pursuant to a request for confidential treatment filed separately with the commission.

EX-10.60

EXHIBIT 10.60

CARDIAC SCIENCE CORPORATION
STOCK OPTION GRANT NOTICE
2002 STOCK INCENTIVE PLAN

     Cardiac Science Corporation (the “Company”) hereby grants to Participant an Option (the “Option”) to purchase shares of the Company’s Common Stock. The Option is subject to all the terms and conditions set forth in this Stock Option Grant Notice (this “Grant Notice”), in the Stock Option Agreement, the Plan Summary and the Company’s 2002 Stock Incentive Plan (the “Plan”), which are available on the web at www.wealthviews.com/CSC or from the current administrator of the Plan and are incorporated into this Grant Notice in their entirety.

Participant:
Grant Date:
Vesting Commencement Date:
Number of Shares Subject to Option:
Exercise Price (per Share):
Option Expiration Date:	(subject to earlier termination in accordance with the terms of the Plan and the Stock Option Agreement)__________
Type of Option:	Nonqualified Stock Option
Vesting and Exercisability Schedule:	1/4th of the shares subject to the Option will vest and become exercisable one year after the Vesting Commencement Date.
	1/36th of the remaining shares subject to the Option will vest and become exercisable monthly thereafter over the next three years.

Additional Terms/Acknowledgement: The undersigned Participant acknowledges receipt of, and understands and agrees to, this Grant Notice, the Stock Option Agreement, the Plan Summary and the Plan. The Stock Option Agreement, Plan Summary, and Plan are available on the Web at www.wealthviews.com/CSC or from the current administrator of the Plan. Participant further acknowledges that as of the Grant Date, this Grant Notice, the Stock Option Agreement and the Plan set forth the entire understanding between Participant and the Company regarding the Option and supersede all prior oral and written agreements on the subject.

Cardiac Science Corporation	PARTICIPANT
By:	Signature
Its:
	Date:
Attachments:	Address:
1. Stock Option Agreement
2. 2002 Stock Incentive Plan	Taxpayer ID:
3. Plan Summary

CARDIAC SCIENCE CORPORATION
2002 STOCK INCENTIVE PLAN
STOCK OPTION AGREEMENT

Pursuant to your Stock Option Grant Notice (the “Grant Notice”) and this Stock Option Agreement, Cardiac Science Corporation has granted you an Option under its 2002Stock Incentive Plan (the “Plan”) to purchase the number of shares of the Company’s Common Stock indicated in your Grant Notice (the “Shares”) at the exercise price indicated in your Grant Notice. Capitalized terms not explicitly defined in this Stock Option Agreement but defined in the Plan shall have the same definitions as in the Plan.

The details of the Option are as follows:

1. Vesting and Exercisability. Subject to the limitations contained herein, the Option will vest and become exercisable as provided in your Grant Notice.

2. Securities Law Compliance. Notwithstanding any other provision of this Agreement, you may not exercise the Option unless the Shares issuable upon exercise are registered under the Securities Act or, if such Shares are not then so registered, the Company has determined that such exercise and issuance would be exempt from the registration requirements of the Securities Act. The exercise of the Option must also comply with other applicable laws and regulations governing the Option, and you may not exercise the Option if the Company determines that such exercise would not be in material compliance with such laws and regulations.

3. Method of Exercise. You may exercise the Option by giving written notice to the Company, in form and substance satisfactory to the Company, which will state your election to exercise the Option and the number of Shares for which you are exercising the Option. The written notice must be accompanied by full payment of the exercise price for the number of Shares you are purchasing. At the discretion of the Plan Administrator, you may make this payment in any combination of the following: (a) by cash; (b) by check acceptable to the Company; (c) by tendering shares of Common Stock you have owned for at least six months; (d) if and so long as the Common Stock is registered under the Exchange Act, by delivery of a properly executed exercise notice, together with irrevocable instructions to a broker, to promptly deliver to the Company the amount of sale or loan proceeds to pay the exercise price, all in accordance with the regulation of the Federal Reserve Board; or (e) by any other method permitted by the Plan Administrator.

4. Treatment Upon Termination of Service Relationship. You may exercise the vested portion of the Option as follows:

(a) General Rule. The unvested portion of the Option shall continue to vest in accordance with the vesting schedule set forth in the Grant Notice irrespective of termination of your service relationship with the Company or a Related Company for any reason other than death. If your service relationship terminates for any reason other than death, you must exercise the vested portion of the Option on or before the earlier of (i) six months after the date on which the unvested portion of the Option is fully vested and exercisable and (ii) the Option Expiration Date;

(b) Death. If your service relationship terminates due to your death, the unvested portion of the Option shall immediately vest and become exercisable, and the Option must be exercised on

or before the earlier of (i) one year after the date of your death and (ii) the Option Expiration Date. If you die after termination of your service relationship with the Company or a Related Company but while the Option is still exercisable, the unvested portion of the Option shall immediately vest and become exercisable, and the Option may be exercised until the earlier of (x) one year after the date of your death and (y) the Option Expiration Date; and

(c) Company Transaction. In the event of any Company Transaction, except as provided below, the Option shall be assumed or an equivalent option or right substituted by the Successor Company. If in connection with a Company Transaction the Successor Company refuses to assume or substitute for the Option, upon consummation of a Company Transaction, the Option shall become fully vested and exercisable with respect to 100% of the unvested portion of the Option. In such case, the Plan Administrator shall notify you in writing or electronically that the unvested portion of the Option shall be fully vested and exercisable for a specified time period, and the Option may be exercised until the earlier of (i) the expiration of the time period specified by the Plan Administrator and (ii) the Option Expiration Date. If the Option has not otherwise expired by its terms, the Option shall terminate and cease to remain outstanding upon consummation the Company Transaction, except to the extent assumed by the Successor Company.

It is your responsibility to be aware of the date the Option terminates.

5. Limited Transferability. During your lifetime only you can exercise the Option. Nonqualified Stock Options may be transferred to the extent permitted by the Plan Administrator. The Plan provides for exercise of the Option by a beneficiary designated on a Company-approved form or the personal representative of your estate.

6. Withholding Taxes. As a condition to the exercise of any portion of an Option, you must make such arrangements as the Company may require for the satisfaction of any federal, state, local or foreign withholding tax obligations that may arise in connection with such exercise.

7. Option Not an Employment or Service Contract. Nothing in the Plan or any Award granted under the Plan will be deemed to constitute an employment contract or confer or be deemed to confer any right for you to continue in the employ of, or to continue any other relationship with, the Company or any Related Company or limit in any way the right of the Company or any Related Company to terminate your relationship at any time.

8. No Right to Damages. You will have no right to bring a claim or to receive damages if you are required to exercise the vested portion of the Option within a specified time period or if any portion of the Option is cancelled or expires unexercised. The loss of existing or potential profit in Awards will not constitute an element of damages in the event of your Termination of Service for any reason even if the termination is in violation of an obligation of the Company or a Related Company to you.

9. Binding Effect. This Agreement will inure to the benefit of the successors and assigns of the Company and be binding upon you and your heirs, executors, administrators, successors and assigns.

[Include Sections 10 and 11 for non-U.S. resident option grants only: 10. Limitation on Rights; No Right to Future Grants; Extraordinary Item of Compensation. By entering into this Agreement and accepting the grant of the Option evidenced hereby, you acknowledge: (a) that the Plan is discretionary in nature and may be suspended or terminated by the Company at any time; (b) that the grant of the Option is a one-time benefit which does not create any contractual or other right to receive future grants of options, or benefits in lieu of options; (c) that all determinations with respect to any such future grants, including, but not limited to, the times when options will be granted, the number of shares subject to each option, the option price, and the time or times when each option will be exercisable, will be at the sole discretion of the Company; (d) that your participation in the Plan is voluntary; (e) that the value of the Option is an extraordinary item of compensation which is outside the scope of your employment contract, if any; (f) that the Option is not part of normal or expected compensation for purposes of calculating any severance, resignation, redundancy, end of service payments, bonuses, long-service awards, pension or retirement benefits or similar payments; (g) that the vesting of the Option ceases upon your Termination of Service for any reason except as may otherwise be explicitly provided in the Plan or this Agreement or otherwise permitted by the Plan Administrator; (h) that the future value of the Shares underlying the Option is unknown and cannot be predicted with certainty; and (i) that if the Shares underlying the Option do not increase in value, the Option will have no value.

11. Employee Data Privacy. By entering this Agreement, you (a) authorize the Company and your employer, if different, and any agent of the Company administering the Plan or providing Plan recordkeeping services, to disclose to the Company or any of its affiliates any information and data the Company requests in order to facilitate the grant of the Option and the administration of the Plan; (b) waive any data privacy rights you may have with respect to such information; and (c) authorize the Company and its agents to store and transmit such information in electronic form.]

EX-21.1

Exhibit 21.1

Subsidiaries of Cardiac Science Corporation

Cardiac Science International A/S, a Danish corporation

Cardiac Science Holdings UK, a U.K. corporation

Shanghai Quinton Medical Device Co., Ltd., a Chinese joint venture company

LifeTec Medical Limited (dba Cardiac Science UK), a U.K. corporation

EX-23.1

Exhibit 23.1

Consent of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders
Cardiac Science Corporation:

We consent to the incorporation by reference in the registration statement (No. 333-130182) on Form S-3 and the registration statement (No. 333-128057) on Form S-8 of Cardiac Science Corporation of our reports dated March 16, 2007, relating to the consolidated balance sheets of Cardiac Science Corporation and subsidiaries as of December 31, 2006 and 2005, and the related consolidated statements of operations, shareholders’ equity and comprehensive income (loss), and cash flows for each of the years in the three-year period ended December 31, 2006, the related financial statement schedule, management’s assessment of the effectiveness of internal control over financial reporting as of December 31, 2006 and the effectiveness of internal control over financial reporting as of December 31, 2006, which reports appear in the December 31, 2006 annual report on Form 10-K of Cardiac Science Corporation. Our report refers to a change in the accounting policy for share-based payments to employees as required by Statement of Financial Accounting Standards No. 123 (revised 2004), “Share-Based Payment” and the adoption of Securities and Exchange Commission Staff Accounting Bulletin No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in the Current Year Financial Statements”, effective January 1, 2006.

/s/ KPMG LLP
Seattle, Washington
March 16, 2007

EX-31.1

Exhibit 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302(a) OF
THE SARBANES-OXLEY ACT OF 2002

I, John R. Hinson, certify that:

          1. I have reviewed this report on Form 10-K of Cardiac Science Corporation;

          2. Based on my knowledge, this 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 report;

          3. Based on my knowledge, the financial statements, and other financial information included in this 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 report;

          4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have:

          a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared;

          b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

          c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and

          d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

          5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, 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 and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

          b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

          Date: March 16, 2007 

     /s/   John R. Hinson  

John R. Hinson 

Chief Executive Officer 

EX-31.2

Exhibit 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 302(a) OF
THE SARBANES-OXLEY ACT OF 2002

I, Michael K. Matysik, certify that:

          1. I have reviewed this report on Form 10-K of Cardiac Science Corporation;

          2. Based on my knowledge, this 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 report;

          3. Based on my knowledge, the financial statements, and other financial information included in this 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 report;

          4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have:

          a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared;

          b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

          c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and

          d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

          5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, 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 and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

          b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

          Date: March 16, 2007 

     /s/   Michael K. Matysik  

Michael K. Matysik 

Chief Financial Officer 

EX-32.1

Exhibit 32.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT
TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

     In connection with the Annual Report of Cardiac Science Corporation (the Company) on Form 10-K for the fiscal year ended December 31, 2006 as filed with the Securities and Exchange Commission on the date hereof (the Report), I, John R. Hinson, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

          (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

          (2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

	/s/   John R. Hinson
	John R. Hinson
	Chief Executive Officer
Date: March 16, 2007

EX-32.2

Exhibit 32.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT
TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

     In connection with the Annual Report of Cardiac Science Corporation (the Company) on Form 10-K for the fiscal year ended December 31, 2006 as filed with the Securities and Exchange Commission on the date hereof (the Report), I, Michael K. Matysik, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

          (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

          (2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

	/s/   Michael K. Matysik
	Michael K. Matysik
	Chief Financial Officer
Date: March 16, 2007