Cardiac Science 8-K Cardiac Science Announces Pro Forma Fourth Quarter Profit; GAAP Loss due to Exceptional Charges

Exhibit 99.1

Cardiac Science Announces Pro Forma Fourth Quarter Profit;
GAAP Loss due to Exceptional Charges

BOTHELL, WA, February 23, 2006– Cardiac Science Corporation (NASDAQ: CSCX), a global leader in advanced cardiac monitoring and defibrillation products, today announced results for the quarter ended December 31, 2005, reporting pro forma net income of $0.1 million and pro forma revenue growth of 9% over the third quarter of 2005.

Pro forma net income for the fourth quarter excludes certain merger-related and other exceptional charges. Including these charges, which total approximately $2.6 million net of income taxes, the Company reported a net loss in accordance with U.S. generally accepted accounting principles (“GAAP”) of $2.5 million for the fourth quarter.

The fourth quarter was the first full quarter that included the results of both predecessor companies since the closing of the merger of Quinton Cardiology Systems, Inc. (“Quinton”) and Cardiac Science, Inc. (“CSI”) on September 1, 2005. Reported results for the year ended December 31, 2005 are comprised of Quinton’s financial results for the period prior to the closing of the merger and, since the closing, the combined results of Quinton and CSI.

Fourth Quarter Results

Revenue for the fourth quarter was $35.9 million, representing sequential growth of 31% over reported third quarter revenue of $27.4 million. Revenue for the fourth quarter increased by 9% over pro forma third quarter revenue (as if Quinton and CSI had been combined for all of the third quarter) of $32.9 million. Fourth quarter diagnostic monitoring and service revenues reflected single-digit percentage increases, while defibrillation revenue grew over 25 percent, compared with corresponding pro forma third quarter amounts.

“The sequential growth over the third quarter demonstrates that we have regained revenue momentum. In addition, by substantially completing our planned merger integration activities on schedule, and prior to year-end, we believe we are well-positioned to achieve our 2006 goals,” said John Hinson, president and chief executive officer.

Gross margin for the fourth quarter was 41.6%. Excluding merger-related charges and a write off of certain discontinued and field demonstration inventory items aggregating approximately $2.4 million, pro forma gross margin for the fourth quarter would have been 48.4%, an increase of one percentage point over the corresponding third quarter amount.

The Company reported a net loss for the fourth quarter of $2.5 million, or $0.11 per share. These results included planned retention bonuses and redundant staffing costs, as well as other non-recurring items, aggregating $4.3 million, or $2.6 million, net of tax. Excluding these items and the related income tax effect, the Company’s pro forma net income for this period would have been $0.1 million, or $0.01 per fully diluted share.

The fourth quarter loss was expected, but was higher than originally anticipated because it includes three significant exceptional charges. The Company wrote down a non-strategic minority preferred equity investment that the Company had obtained in a transaction over five years ago, resulting in a charge of $0.9 million. The Company also wrote off previously acquired technology rights of $0.3

million, which did not merit further investment and wrote off certain field demonstration inventory items aggregating $0.5 million.

Cash Flow and Liquidity

The Company used net cash in operating activities for the quarter of $2.4 million, principally due to merger-related payments. Adjusting for these merger-related payments, which were substantially in line with the Company’s expectations, pro forma cash provided by operations for the quarter would have been approximately break even. Additional transaction-related payments that were accrued at the time of the merger, amounting to approximately $1.6 million, were paid during the quarter. These transaction related costs were treated as a part of the merger consideration, so the related cash flows are classified as investing, rather than operating, activities.

The Company ended the quarter with $3.5 million in cash. In addition to its cash balances, the Company has a $20 million line of credit with Silicon Valley Bank, substantially all of which is currently available to fund future working capital needs or other strategic opportunities.

Outlook

For 2006, management expects revenue in the range of $160 to $175 million and gross margin in the range of 48% to 52%, depending on revenue mix. 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.

The expected 2006 results include estimated non-cash stock-based compensation expense of $2.6 to $2.8 million. Expected 2006 results also include anticipated expenses for depreciation of $3.3 to $3.5 million and acquisition-related amortization of $3.5 to $3.7 million.

The Company expects a statutory combined federal and state tax rate for 2006 of 37 % to 38% of pre-tax income, adjusted to exclude non-deductible stock-based compensation. Because stock-based compensation is generally non-deductible for tax purposes, the Company expects that its effective tax rate on reported pre-tax income will be between 45% and 49%. However, the Company expects cash income taxes to be $4.0 to $5.0 million less than reported income tax expense, due to the benefit of tax loss carryforwards.

Management noted this 2006 guidance is consistent with that which was provided previously, with solid double-digit percentage revenue growth and with EBITDA, excluding stock-based compensation, in the range of 11% to 14% of revenues.

“We have been operating out of combined facilities since December,” said Mike Matysik, chief financial officer. “With the headcount and other cost reductions already implemented, we expect to see the full benefits of the related savings, as well as greater scale, in 2006,” he continued.

For the first quarter of 2006, management expects revenue to be in a range between $36 million to $38 million. While the merger integration activities are essentially complete, additional merger-related costs, estimated to be approximately $0.5 million pre-tax, will be incurred in the first quarter of 2006, after which no further merger-related expenses are expected to be incurred. Including these charges, the Company expects gross margin for the first quarter to be in a range between 48% and 50%, depending on revenue mix.

Net income for the first quarter is expected to be between breakeven and $0.5 million, or between $0.00 and $0.02 per fully diluted share. Excluding the merger-related charges of approximately $0.5 million per-tax, management expects first quarter pro forma earnings per share to be in the range of $0.01 to $0.03 per share.

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First quarter results are expected to include non-cash stock-based compensation of $0.5 to $0.7 million and depreciation and amortization expenses of $1.6 to $1.8 million.

Pro Forma Financial Information

This press 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 relates to gross profit, gross margin, net income, earnings per share and operating cash flows for the three month period and year ended December 31, 2005, after adjusting for merger-related items and other items which are unusual in nature.

One of the pro forma adjustments to gross profit was for the effect of a charge to cost of sales resulting from a purchase accounting valuation adjustment to the inventory of CSI, which increased the value of inventory above its historical cost as of the date of the merger. An additional pro forma adjustment to gross profit was for the effect of merger-related retention bonuses and redundant facility and personnel costs that were incurred during a transitional period while the Company consolidated its manufacturing operations into one facility. The final pro forma adjustment to gross profit was for the effect of certain field demonstration and other inventory items that were written off during the quarter, including field demonstration units and discontinued product components.

Other pro forma adjustments include the effects of: (1) similar retention bonuses and redundant costs that were incurred during a transitional period while the Company consolidated its corporate headquarters into one facility; (2) the write-off of a technology investment that the Company has decided to abandon for strategic reasons; (3) the write-down of a non-strategic minority preferred equity interest in ScImage, which the Company received as consideration in a divestiture transaction in 2000; (4) the cost of tail insurance coverage that was purchased in the third quarter for directors and officers of the predecessor companies (Quinton and CSI); and (5) cost of merger-related shareholder litigation incurred in the second quarter of 2005.

The pro forma adjustments to operating cash flows relate to the payment of the merger related items severance and retention, the purchase of tail coverage under the predecessor companies’ insurance programs covering directors and officers and other less significant items.

The estimated income tax effect (as applicable) relating to the foregoing items is also included in the adjustments to arrive at pro forma net income and earnings per share information. Management has applied an estimated statutory rate of 38% to these pro forma adjustments.

Management believes that this pro forma information is meaningful because the write-downs of the minority equity interest, the technology investment and the inventory items that are the subject of the pro forma adjustments occur infrequently. In addition, the merger related items that are the subject of the pro forma adjustments are expected to occur infrequently once the integration of Quinton and CSI is complete and once the inventory items that were subject to revaluation as of the merger date have been sold. These charges are not expected to extend beyond the first quarter of 2006.

Conference Call / Webcast

Cardiac Science has scheduled a conference call for Thursday, February 23, 2006 at 4:30 p.m. Eastern Standard Time to discuss the Company’s fourth quarter financial results with analysts and investors. The call will be hosted by John Hinson, chief executive officer, and Mike Matysik, chief financial officer.

To access the conference call, dial (877) 851-1757. International participants can call (706) 679-3220. The ID number is 5566110. The call will also be audio cast live through the web at: www.cardiacscience.com.

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An audio replay of the call will be available for 7 days following the call at (800) 642-1687 for U.S. callers or (706) 645-9291 for those calling outside the U.S. The ID number is 5566110. 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 automated external defibrillators, 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, which sold products under the trusted brand names Burdick^®, Powerheart^®, and Quinton^®. Cardiac Science Corporation is headquartered in Bothell, WA, and also has operations in Lake Forest, California, Deerfield, Wisconsin, Shanghai, China, Copenhagen, Denmark and Manchester, United Kingdom.

Forward Looking Statements

This press release contains forward-looking statements, including, but not limited to, those relating to Cardiac Science Corporation’s future revenue, earnings, earnings per share, depreciation and amortization expenses, stock-based compensation charges, litigation related expenses, merger related costs and income taxes and that involve a number of risks and uncertainties. These are 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,” variations of such words, and similar expressions identify forward-looking statements, but their absence does not mean that the statement is not forward-looking. Actual results may vary significantly from the results expressed or implied in such statements. Factors that could cause or contribute to such varying results include, but are not limited to, delays in our product development activities, regulatory approvals and commercial introduction of product enhancements and new products, changes in competitors’ products or their pricing which may impair the market acceptance of our products or force us to lower our prices, unexpected softness in the market demand for our products, changes to expected order cycles, disruptions in supplies or increases in prices of certain components we use in our products, unexpected delays or difficulties in completing merger-related integration activities, changes in the number of primary or fully diluted shares outstanding, the impact of acquisitions and divestitures, circumstances or events that may lead to limitations on the usage of our income tax operating loss carryforwards or other changes in circumstances relating to taxes on our income, the final court decision with respect to currently pending litigation, and our ability to maintain good relationships with our employees. These and other risks are more fully described in the registration statement on Form S-4/A that was filed by Cardiac Science Corporation under the name CSQ Holding Company on July 28, 2005, under the caption “Risk Factors,” and in the Annual Reports of Quinton Cardiology Systems, Inc. and Cardiac Science, Inc. on Form 10-K for the year ended December 31, 2004, under the captions “Certain Factors that May Affect Future Results,” in the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2005 under the caption “Certain Factors that May Affect Future Results,” and in other documents we file with the Securities and Exchange Commission. Cardiac Science Corporation undertakes no duty or obligation to update the information provided herein.

Contact:
Mike Matysik, senior vice president and chief financial officer
(425) 402-2009
www.cardiacscience.com

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Cardiac Science Corporation and Subsidiaries
Condensed Consolidated Statements of Operations (unaudited)
(in thousands, except share and per share amounts)

	Three Months Ended December 31,												Twelve Months Ended December 31,
	2004						2005						2004						2005
	$			%			$			%			$			%			$			%
Revenues:
Products	$	20,871			87.7	%	$	31,827			88.6	%	$	77,373			86.4	%	$	93,460			87.6	%
Service		2,934			12.3	%		4,079			11.4	%		12,230			13.6	%		13,190			12.4	%
Total revenues		23,805			100.0	%		35,906			100.0	%		89,603			100.0	%		106,650			100.0	%
Cost of Revenues:
Products		11,196			53.6	%		18,286			57.5	%		42,862			55.4	%		51,195			54.8	%
Service		1,884			64.2	%		2,683			65.8	%		7,440			60.8	%		8,599			65.2	%
Total cost of revenues		13,080			54.9	%		20,969			58.4	%		50,302			56.1	%		59,794			56.1	%
Gross Profit:
Products		9,675			46.4	%		13,541			42.5	%		34,511			44.6	%		42,265			45.2	%
Service		1,050			35.8	%		1,396			34.2	%		4,790			39.2	%		4,591			34.8	%
Gross profit		10,725			45.1	%		14,937			41.6	%		39,301			43.9	%		46,856			43.9	%
Operating Expenses:
Research and development		1,888			7.9	%		3,374			9.4	%		7,397			8.3	%		9,353			8.7	%
Sales and Marketing		4,872			20.5	%		9,107			25.4	%		18,378			20.5	%		24,957			23.4	%
General and administrative		2,283			9.6	%		6,118			17.0	%		8,348			9.3	%		15,126			14.2	%
Total operating expenses		9,043			38.0	%		18,599			51.8	%		34,123			38.1	%		49,436			46.3	%
Operating income (loss)		1,682			7.1	%		(3,662	)		-10.2	%		5,178			5.8	%		(2,580	)		-2.4	%
Other Income (Expense):
Interest income (expense)		(48	)		-0.2	%		(56	)		-0.1	%		(70	)		-0.1	%		325			0.3	%
Other income (expense), net		381			1.6	%		(635	)		-1.8	%		1,031			1.2	%		(487	)		-0.5	%
Total other income (loss)		333			1.4	%		(691	)		-1.9	%		961			1.1	%		(162	)		-0.2	%
Income (loss) before income taxes and minority interest		2,015			8.5	%		(4,353	)		-12.1	%		6,139			6.9	%		(2,742	)		-2.6	%
Income tax benefit		8,960			37.6	%		1,819			5.1	%		8,890			9.9	%		1,473			1.4	%
Income (loss) before minority interest in loss of consolidated entity		10,975			46.1	%		(2,534	)		-7.0	%		15,029			16.8	%		(1,269	)		-1.2	%
Minority Interest in loss of consolidated entity		4			0.0	%		7			0.0	%		39			0.0	%		31			0.0	%
Net income (loss)	$	10,979			46.1	%	$	(2,527	)		-7.0	%	$	15,068			16.8	%	$	(1,238	)		-1.2	%
Income (loss) per share — basic	$	1.01					$	(0.11	)				$	1.47					$	(0.08	)
Income (loss) per share — diluted	$	0.96					$	(0.11	)				$	1.39					$	(0.08	)
Weighted average shares outstanding — basic		10,838,402						22,398,829						10,236,838						14,695,261
Diluted Weighted average shares outstanding — diluted		11,412,643						22,398,829						10,814,680						14,695,261

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Cardiac Science Corporation and Subsidiaries
Condensed Consolidated Balance Sheets (unaudited)
(in thousands)

	Dec 31, 2004		Dec 31, 2005
ASSETS
Current Assets:
Cash and cash equivalents	$	21,902	$	3,546
Marketable equity securities		646		—
Accounts receivable, net		13,649		25,738
Inventories		11,047		22,052
Deferred income taxes		5,542		12,115
Prepaid expenses and other current assets		790		2,511
Total current assets		53,576		65,962
Machinery and equipment, net of accumulated depreciation		4,314		7,631
Intangibles assets, net of accumulated amortization		5,619		35,338
Goodwill		9,072		111,215
Investment in unconsolidated entities		1,000		462
Other assets		—		100
Deferred income taxes		3,594		27,849
Total assets	$	77,175	$	248,557
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Accounts payable	$	5,615	$	11,642
Accrued liabilities		6,220		11,918
Warranty liabilities		2,093		2,348
Deferred revenue		4,754		7,924
Total current liabilities		18,682		33,832
Other liabilities		—		1,806
Total liabilities		18,682		35,638
Minority interest in consolidated entity		159		128
Shareholders’ Equity		58,334		212,791
Total liabilities and shareholders’ equity	$	77,175	$	248,557

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Cardiac Science Corporation and Subsidiaries
Condensed Consolidated Statements of Cash Flows (unaudited)
(in thousands)

	Three Months Ended						Twelve Months Ended
	December 31,						December 31,
	2004			2005			2004			2005
Operating Activities:
Net income (loss)	$	10,979		$	(2,527	)	$	15,068		$	(1,238	)
Adjustments to reconcile net income (loss) to cash from (used in) operating activities:
Depreciation and amortization		394			1,606			1,574			3,212
Loss on sale of machinery and equipment		16			6			20			6
Stock-based compensation expense		19			19			73			58
Gain on sale of marketable equity securities		(610	)		—			(610	)		(15	)
Deferred taxes		(9,028	)		(1,856	)		(9,014	)		(1,565	)
Minority interest in consolidated entity		(4	)		(7	)		(39	)		(31	)
Gain on sale of hemodynamic monitoring business		—			—			(633	)		—
Loss on disposal of technology		—			270			—			270
Loss in value of investment in unconsolidated entity		—			916			—			916
Effect of foreign currency exchange		—			5			—			5
Changes in operating assets and liabilities, net of businesses acquired and divested:
Accounts receivable		199			(5,194	)		(1,169	)		(5,034	)
Inventories		(245	)		1,638			775			2,334
Prepaid expenses and other current assets		9			(105	)		(51	)		(123	)
Accounts payable		(378	)		(775	)		(568	)		(2,742	)
Accrued and other liabilities		1,814			1,846			332			1,055
Warranty liability		84			14			49			(208	)
Deferred revenue		389			1,752			452			2,250
Net cash flows from (used in) operating activities		3,638			(2,392	)		6,259			(850	)
Investing Activities:
Purchases of machinery and equipment		(323	)		(696	)		(666	)		(1,187	)
Payments of acquistion related costs, net of cash acquired of $6,295		—			(1,588	)		—			(17,491	)
Proceeds from sale of marketable equity securities		—			—			—			625
Proceeds from collection of a note receivable issued in connection with the sale of hemodynamic monitoring product line		750			—			750			—
Purchase of technology		—			—			(125	)		—
Net cash flows from (used in) investing activities		427			(2,284	)		(41	)		(18,053	)
Financing Activities:
Proceeds from issuance of stock, net of issuance costs		—			(32	)		15,451			(172	)
Proceeds from exercise of stock options and employee stock purchase plan		154			135			890			719
Repayments on bank line of credit, net		—			—			(354	)		—
Payments of long term debt		(91	)		—			(363	)		—
Payment of note payable related to purchase of technology		—			—			(125	)		—
Net cash flows from financing activities		63			103			15,499			547
Net change in cash and cash equivalents		4,128			(4,573	)		21,717			(18,356	)
Cash and cash equivalents, beginning of period		17,774			8,119			185			21,902
Cash and cash equivalents, end of period	$	21,902		$	3,546		$	21,902		$	3,546

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Cardiac Science Corporation and Subsidiaries
Reconciliation of GAAP Results to Pro Forma Results
(in thousands, except share and per share amounts)

	Reconciliation of Net Income to Pro Forma Net Income
	Three months ended December 31, 2005
	(In thousands, except per share amounts)
	As Reported			Pro Forma Adjustements
	in Accordance			Merger			Inventory			Inventory			Technology			Equity Investment			Pro Forma
	with GAAP			Expenses			Valuation			Write-off			Write-off			Write-off			Results
Total revenues	$	35,906		$	—		$	—		$	—		$	—		$	—		$	35,906
Gross profit		14,937			919			1,052			465			—			—			17,373
%		41.6	%																	48.4	%
Total operating expenses		18,599			(573	)		—			—			(347	)		—			17,679
Operating income (loss)		(3,662	)		1,492			1,052			465			347			—			(306	)
Total other income (expense)		(691	)		—			—			—			—			916			225
Income (loss) before income taxes		(4,353	)		1,492			1,052			465			347			916			(81	)
Income tax (expense) benefit		1,819			(567	)		(399	)		(177	)		(132	)		(348	)		196
Income (loss) before minority interest		(2,534	)		925			653			288			215			568			115
Minority interest		7			—			—			—			—			—			7
Net income (loss)	$	(2,527	)	$	925		$	653		$	288		$	215		$	568		$	122
Weighted average shares — primary		22,399																		22,399
Weighted average shares — fully diluted		22,399																		22,815
Net income (loss) per share (1)	$	(0.11	)																$	0.01

	Reconciliation of Net Income to Pro Forma Net Income
	Year ended December 31, 2005
	(In thousands, except per share amounts)
	As Reported			Pro Forma Adjustements
	in Accordance			Merger			Inventory			Inventory			Technology			Equity Investment			Pro Forma
	with GAAP			Expenses			Valuation			Write-off			Write-off			Write-off			Results
Total revenues	$	106,650		$	—		$	—		$	—		$	—		$	—		$	106,650
Gross profit		46,856			1,186			1,567			465			—			—			50,074
%		43.9	%																	47.0	%
Total operating expenses		49,436			(2,244	)		—			—			(347	)		—			46,845
Operating income (loss)		(2,580	)		3,430			1,567			465			347			—			3,229
Total other income (expense)		(162	)		—			—			—			—			916			754
Income (loss) before income taxes		(2,742	)		3,430			1,567			465			347			916			3,983
Income tax (expense) benefit		1,473			(1,303	)		(595	)		(177	)		(132	)		(348	)		(1,082	)
Income (loss) before minority interest		(1,269	)		2,127			972			288			215			568			2,901
Minority interest		31			—			—			—			—			—			31
Net income (loss)	$	(1,238	)	$	2,127		$	972		$	288		$	215		$	568		$	2,932
Weighted average shares — primary		14,695																		14,695
Weighted average shares — fully diluted		14,695																		15,173
Net income (loss) per share (1)	$	(0.08	)																$	0.19

(1) Primary weighted average shares are used for computing net loss per share and 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, except per share amounts)
				Pro Forma
	GAAP			Adjustment for Merger		Pro Forma
	Results			Related Cash Payments		Results
Net cash flows from operating activities for the three months ended 12/31/2005	$	(2,392	)	$	2,448	$	56
Net cash flows from operating activities for the year ended 12/31/2005	$	(850	)	$	4,719	$	3,869

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