Cardiac Science Reports Strong First Quarter Results

BOTHELL, Wash., April 27 /PRNewswire-FirstCall/ -- Cardiac Science Corporation , a global leader in advanced cardiac monitoring and defibrillation products, today announced strong results for the first quarter ended March 31, 2006. Revenue for the quarter was $39.1 million, an 8.9% sequential increase from the fourth quarter of 2005. The Company generated net income for the quarter of $264,000, or $0.01 per share and generated positive operating cash flow of $3.6 million.

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"As we expected, 2006 is off to a good start and we've returned the Company to GAAP profitability," said John Hinson, president and chief executive officer. "We reported first quarter revenue growth over the same quarter last year and over the fourth quarter 2005. This growth reflects increased revenue from both our defibrillation and cardiac monitoring product lines, with an especially strong performance in the international markets. As a result of our strong start, we are reiterating our previous guidance for both the top and bottom lines for 2006," he added.

There have been several significant developments at Cardiac Science since mid-February, all of which demonstrate progress toward 2006 objectives and also serve to increase management's optimism about the Company's long term prospects. Among the developments:

-- In mid-February the Company obtained FDA 510k clearance to market a new "crash cart" defibrillator monitor designed specifically for use by medical professionals to respond to cardiac emergencies in hospital settings. This new defibrillator monitor will be sold exclusively by GE Healthcare.

-- In late February, we announced that several significant enhancements to the executive team had been made by adding highly qualified individuals to the positions of Vice President -- Marketing, Vice President -- Regulatory Affairs/Quality Assurance and Vice President -- Corporate Controller.

-- In early March, the Company presented groundbreaking new research that illustrates a new dimension of analysis of cardiac stress testing data that can be used to substantially improve the determination of a patient's risk of cardiovascular death (CVD).

-- In early April, the Company announced it had begun shipping two new models of Powerheart(R) AEDs that meet the newly updated American Heart Association (AHA) Guidelines for Cardiopulmonary Resuscitation and Emergency Cardiovascular Care, as well as the recently released European Resuscitation Council (ERC) Guidelines for Resuscitation.

-- In mid-April, the Company announced it had been issued three new U.S. patents, demonstrating innovation in both defibrillation and cardiac monitoring technology.

-- This week, the Company announced it has received 510(k) regulatory clearance from the U.S. Food and Drug Administration (FDA) to market a new Electrocardiograph, the Atria(TM) 6100 and expects to begin shipping the product this quarter.

First Quarter Results

First quarter 2006 performance includes the results of both predecessor companies, Quinton Cardiology Systems, Inc. (Quinton) and Cardiac Science, Inc. (CSI), from the merger that closed on September 1, 2005. Comparable results for the first quarter of 2005 include only the performance of Quinton, affecting the comparability of year-over-year results.

First quarter 2006 revenue was up 84% over reported first quarter 2005 revenue of $21.3 million, due primarily to the effect of the merger. First quarter 2006 revenue was up 9.4% over pro forma revenue for the first quarter of 2005, which would have been $35.7 million had Quinton and CSI been combined during that period.

Gross margin for the first quarter was 47.0%. Excluding merger-related charges of approximately $267,000, pro forma gross margin for the first quarter would have been 47.7%. Gross margin was slightly less than previous guidance, due primarily to the effect of the large volume of sales to the Japanese market, including a specific sale in response to a competitive bid at a lower gross margin and, to a lesser degree, product mix

During the quarter, the Company recorded stock-based compensation charges of $449,000, depreciation of $689,000 and amortization of $868,000. EBITDA for the first quarter was $2.0 million. Excluding stock-based compensation expense and merger-related items, adjusted EBITDA was $2.9 million, or 7.5% of revenue.

Cardiac Science generated net cash from operating activities in the first quarter of $3.6 million and the Company had $6.2 million in cash as of March 31, 2006.

Outlook

Management is reiterating its guidance for 2006. Revenue for the full year is expected to be in the range of $160 to $175 million and gross margin is expected to be in the range of 48% to 52%. Fully taxed net income for 2006 is expected to be in the range of $5.0 to $6.0 million, or between $0.21 and $0.27 per fully diluted share. Adjusted EBITDA for the full year, excluding stock-based compensation, is expected to be in the range of 11% to 14% of revenues.

For the second quarter, the Company currently expects revenue to be between $38 million and $41 million. While the Company currently expects gross margin to be slightly higher than the first quarter, SG&A expenses are also expected to be higher, primarily due to legal expenses associated with the patent lawsuit the Company has filed against a competitor and, to a lesser extent, increases in staffing to support growth. Based on the expected revenue range, net income is expected to be in a range between breakeven and $600,000, or between $0.00 and $0.03 per share. Adjusted EBITDA, which excludes stock-based compensation, is expected to be in the range of 6% to 9% of revenue for the second quarter.

Pro Forma Financial Information

This news release contains certain financial information (presented on a "pro forma basis") calculated on a basis other than United States generally accepted accounting principles ("GAAP"). Information presented on a pro forma basis includes pro forma gross margin, EBITDA, adjusted EBITDA and earnings per share for the three-month period ended March 31, 2006. Management believes that this pro forma information is a meaningful indicator of operating performance. Reconciliations of EBITDA and adjusted EBITDA to net income and of gross margin to pro forma gross margin are provided in attached tables.

Conference Call Information

Cardiac Science has scheduled a conference call for 4:30 p.m. Eastern Standard Time today to discuss the Company's financial results for the first quarter. The call will be hosted by John Hinson, chief executive officer, and Mike Matysik, chief financial officer.

To access the conference call, please dial 800-866-5043. International participants can call 303-262-2006. The call will also be webcast live on the web at www.cardiacscience.com. An audio replay of the call will be available for 7 days following the call at 800-405-2236 for U.S. callers or 303-590-3000 for those calling outside the U.S. The password required to access the replay is 11059050#. An audio archive will be available at www.cardiacscience.com for one month following the call.

About Cardiac Science Corporation

Cardiac Science Corporation develops, manufactures, and markets a family of advanced diagnostic and therapeutic cardiology devices and systems, including AEDs, electrocardiographs, stress test systems, Holter monitoring systems, hospital defibrillators, cardiac rehabilitation telemetry systems, patient monitor -- defibrillators and cardiology data management systems. Cardiac Science Corporation also sells a variety of related products and consumables, and provides a comprehensive portfolio of training, maintenance and support services. The Company is the successor to various entities that have owned and operated cardiology-related businesses that sold products under the trusted brand names Burdick(R), Powerheart(R), and Quinton(R). Cardiac Science Corporation is headquartered in Bothell, WA, and also has operations in Lake Forest, California, Deerfield, Wisconsin, Shanghai, China and Manchester, United Kingdom.

Forward Looking Statements

This press release contains forward-looking statements. The word "believe," "expect," "intend," "anticipate," and variations of such words, and similar expressions identify forward-looking statements, but their absence does not mean that the statement is not forward-looking. Forward looking statements in this press release include, but are not limited to, those relating to Cardiac Science Corporation's future revenue, earnings, earnings per share, litigation related expenses, and adjusted EBITDA. These are forward-looking statements for purposes of the safe harbor provisions under the Private Securities Litigation Reform Act of 1995. Actual results may vary significantly from the results expressed or implied in such statements. Factors that could cause or contribute to such varying results and other risks are more fully described in the 10-k filed by Cardiac Science Corporation for the year ended December 31, 2005. Cardiac Science Corporation undertakes no duty or obligation to update the information provided herein.

Approved by: Mike Matysik Sr. Vice President and CFO Cardiac Science Corporation 425-402-2009 Contact: Doug Sherk/Jennifer Beugelmans EVC Group, Inc. 415-896-6820 Cardiac Science Corporation and Subsidiaries Condensed Consolidated Statements of Operations (unaudited) (in thousands, except share and per share amounts) Three Months Ended March 31, 2006 2005 $ % $ % Revenues: Products $34,569 88.4% $18,344 86.0% Service 4,546 11.6% 2,986 14.0% Total revenues 39,115 100.0% 21,330 100.0% Cost of Revenues: Products 17,680 51.1% 9,682 52.8% Service 3,042 66.9% 1,882 63.0% Total cost of revenues 20,722 53.0% 11,564 54.2% Gross Profit: Products 16,889 48.9% 8,662 47.2% Service 1,504 33.1% 1,104 37.0% Gross profit 18,393 47.0% 9,766 45.8% Operating Expenses: Research and development 2,970 7.6% 1,809 8.5% Sales and Marketing 9,383 24.0% 4,657 21.8% General and administrative 5,811 14.8% 2,045 9.6% Total operating expenses 18,164 46.4% 8,511 39.9% Operating income 229 0.6% 1,255 5.9% Other Income (Expense): Interest income (expense) (50) -0.1% 113 0.5% Other income, net 231 0.6% 61 0.3% Total other income 181 0.5% 174 0.8% Income before income taxes and minority interest 410 1.1% 1,429 6.7% Income taxes (159) -0.4% (470) -2.2% Income before minority interest in loss of consolidated entity 251 0.7% 959 4.5% Minority interest in loss of consolidated entity 13 0.0% 20 0.1% Net income $264 0.7% $979 4.6% Income per share - basic $0.01 $0.09 Income per share - diluted $0.01 $0.09 Weighted average shares outstanding - basic 22,430,814 10,857,886 Weighted average shares outstanding - diluted 22,607,617 11,406,306 Cardiac Science Corporation and Subsidiaries Condensed Consolidated Balance Sheets (unaudited) (in thousands) March 31, December 31, 2006 2005 ASSETS Current Assets: Cash and cash equivalents $6,169 $3,546 Accounts receivable, net 25,899 25,738 Inventories 20,004 22,052 Deferred income taxes 12,115 12,115 Prepaid expenses and other current assets 1,988 2,511 Total current assets 66,175 65,962 Machinery and equipment, net of accumulated depreciation 7,262 7,631 Intangibles assets, net of accumulated amortization 34,470 35,338 Goodwill 110,888 111,215 Investment in unconsolidated entities 454 462 Other assets 100 100 Deferred income taxes 27,790 27,849 Total assets $247,139 $248,557 LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Accounts payable $11,760 $11,642 Accrued liabilities 9,890 11,918 Warranty liability 2,359 2,348 Deferred revenue 7,937 7,924 Total current liabilities 31,946 33,832 Other liabilities 1,306 1,806 Total liabilities 33,252 35,638 Minority interest in consolidated entity 116 128 Shareholders' Equity 213,771 212,791 Total liabilities and shareholders' equity $247,139 $248,557 Cardiac Science Corporation and Subsidiaries Condensed Consolidated Statements of Cash Flows (unaudited) (in thousands) Three Months Ended March 31, 2006 2005 Operating Activities: Net income $264 $979 Adjustments to reconcile net income to cash from operating activities: Depreciation and amortization 1,557 404 Stock-based compensation expense 479 24 Deferred taxes 63 434 Minority interest in consolidated entity (12) (20) Changes in operating assets and liabilities, net of business acquired: Accounts receivable 34 1,427 Inventories 2,024 (692) Prepaid expenses and other current assets 616 13 Accounts payable 118 397 Accrued and other liabilities (1,598) (1,864) Warranty liability 11 (77) Deferred revenue 13 (25) Net cash flows from operating activities 3,569 1,000 Investing Activities: Purchases of machinery and equipment, net (396) (187) Payments of acquisition related costs (773) (79) Net cash flows used in investing activities (1,169) (266) Financing Activities: Proceeds from exercise of stock options and employee stock purchase plan 223 185 Net cash flows from financing activities 223 185 Net change in cash and cash equivalents 2,623 919 Cash and cash equivalents, beginning of period 3,546 21,902 Cash and cash equivalents, end of period $6,169 $22,821 Cardiac Science Corporation and Subsidiaries Reconciliation of GAAP Results to Pro Forma Results Reconciliation of Net Income to Pro Forma Net Income Three months ended March 31, 2006 (in thousands, except share and per share amounts) As Pro Forma Adjustments Reported in Accordance Merger Inventory Pro Forma with GAAP Expenses Valuation Results Total revenues $39,115 $-- $-- $39,115 Gross profit 18,393 32 235 18,660 % 47.0% 47.7% Total operating expenses 18,164 (152) -- 18,012 Operating income 229 184 235 648 Total other income 181 -- -- 181 Income before income taxes 410 184 235 829 Income taxes (159) (72) (92) (323) Income before minority interest 251 112 143 506 Minority interest 13 -- -- 13 Net income $264 $112 $143 $519 Weighted average shares - primary 22,430,814 22,430,814 Weighted average shares - fully diluted 22,607,617 22,607,617 Net income per share (1) $0.01 $0.02 (1) Fully diluted weighted average shares are used for computing net income per share. Reconciliation of Cash Flows From Operations to Pro Forma Cash Flow From Operations (in thousands) Pro Forma Adjustment for GAAP Merger Related Pro Forma Results Cash Payments Results Net cash flows from operating activities for the three months ended March 31, 2006 $3,569 $751 $4,320 Reconciliation of Net Income to Pro Forma adjusted EBITDA (in thousands) Three Months Three Months Ended Ended March 31, 2006 March 31, 2005 % of % of revenue revenue Net income $264 0.7% $979 4.6% Depreciation and amortization 1,557 4.0% 404 1.9% Interest (income) expense 50 0.1% (113) -0.5% Income taxes 159 0.4% 470 2.2% EBITDA 2,030 5.2% 1,740 8.2% Stock-based compensation (net of $30 capitalized in inventory) 449 1.1% 24 0.1% Pro forma merger related adjustments 419 1.1% -- 0.0% Pro forma adjusted EBITDA $2,898 7.4% $1,764 8.3%

CONTACT: Mike Matysik, Sr. Vice President and CFO of Cardiac ScienceCorporation, +1-425-402-2009; or Doug Sherk, or Jennifer Beugelmans, bothof EVC Group, Inc., +1-415-896-6820, for Cardiac Science Corporation

Web site: http://www.cardiacscience.com//