8-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934

July 31, 2007

Date of Report (Date of earliest event reported)

CARDIAC SCIENCE CORPORATION

(Exact Name of Registrant as Specified in Charter)

Delaware	000-51512	94-3300396
(State or Other Jurisdiction	(Commission File No.)	(IRS Employer
of Incorporation)		Identification No.)
3303 Monte Villa Parkway, Bothell, Washington		98021
(Address of Principal Executive Offices)		(Zip Code)

(425) 402-2000

(Registrant’s Telephone Number, Including Area Code)

(Former Name or Former Address, if Changed Since Last Report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

     o Written communication pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

     o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

     o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

     o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 2.02. Results of Operations and Financial Condition.

     On July 31, 2007, Cardiac Science Corporation issued its earnings release announcing its financial results for the three and six month periods ended June 30, 2007. A copy of the earnings release is attached hereto as Exhibit 99.1 and is incorporated herein by reference.

     The information furnished under Item 2.02 of this Current Report on Form 8-K, including the exhibit attached hereto, shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, except as expressly set forth by specific reference in such filing.

Item 9.01. Financial Statements and Exhibits.

(d) Exhibits

     99.1 Earnings release of Cardiac Science Corporation dated July 31, 2007.

SIGNATURE

     Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, hereunto duly authorized.

CARDIAC SCIENCE CORPORATION
By:	/s/ MICHAEL K. MATYSIK
	Michael K. Matysik
	Senior Vice President and Chief Financial Officer

Dated: July 31, 2007

INDEX TO EXHIBITS

Exhibit No.	Description
99.1	Earnings release of Cardiac Science Corporation dated July 31, 2007.

EX-99.1

Exhibit 99.1

FOR IMMEDIATE RELEASE

Company Contact	Investor Contact
Mike Matysik	EVC Group, Inc.
Cardiac Science Corporation	Douglas Sherk/Jenifer Kirtland
Sr. Vice President and CFO	(415) 896-6820
(425) 402-2009
	Media Contact
	EVC Group, Inc.
	Steve DiMattia
	(646) 201-5445

CARDIAC SCIENCE REPORTS RECORD RESULTS
FOR SECOND QUARTER OF 2007

Defibrillation Up 39% on best ever Revenue of $44.9 Million
All Major Litigation resolved
EPS of $0.19, including $0.12 net litigation benefit
Operating cash flow of $3.4 Million

BOTHELL, WA, JULY 31, 2007 – Cardiac Science Corporation (Nasdaq: CSCX), a global leader in external cardiac monitoring and defibrillation products, today announced strong results for the second quarter ended June 30, 2007.

Revenue for the quarter was $44.9 million, an increase of 14.5% over the prior year period. The growth reflected a 39% increase in defibrillation sales, partially offset by a 6% decline in cardiac monitoring sales from the second quarter of 2006. Defibrillation was driven by domestic AED sales, which rose 83% from the prior year’s second quarter and 31% sequentially over first quarter of 2007, illustrating continued momentum and gains in market share. Cardiac monitoring revenue remained approximately flat compared to each of the last three quarters, despite the year-over-year contraction.

The Company reported net income of $4.5 million, or $0.19 per diluted share in the second quarter. Net income included a non-cash benefit of $6.0 million related to the Company’s settlement with Philips Medical Systems and charges of $2.0 million in legal and other costs related to this and other litigation during the quarter. The aggregate effect of these litigation-related items, net of income taxes, was to increase the already positive net income in the quarter by $2.7 million, or $0.12 per diluted share.

“Revenue this quarter surpassed our previous best performance, achieved in the first quarter of this year, and was driven by strength in our defibrillation sales. We are particularly pleased with

the return to operating profitability and our domestic AED performance. In addition, the settlement of all our major litigation over the last 90 days represents a significant milestone for the Company,” said John Hinson, president and chief executive officer. “With the spending and distraction related to the litigation behind us, we are now able to concentrate our efforts on gaining market share in defibrillation and growing the cardiac monitoring business during the second half,” he concluded.

Second Quarter Results

Second quarter revenue of $44.9 million increased 14.5% from the $39.2 million in revenue reported in the second quarter of 2006. The second quarter 2007 gross margin was 48.5%, an increase over the gross margin from the second quarter of 2006 of 47.4%, driven by favorable product mix and manufacturing efficiencies.

Operating expenses in the second quarter of 2007 were $15.5 million, including the pre-tax effect of the Philips licensing income and litigation settlement and other litigation and related expenses. Excluding the licensing income and litigation settlement of $6.0 million and other litigation and related expenses of $2.0 million, operating expenses were up approximately $2.0 million compared to the second quarter of last year. This year-over-year increase is primarily related to sales commissions and other costs associated with the significant growth in revenue.

Litigation and related expenses during the second quarter totaled $2.0 million, comprised of settlement costs and legal fees related primarily to the three cases, Philips, IAML and Parker, which were settled between April and July. Operating expenses in the second quarter of 2006 included $1.3 million in litigation expenses relating to these same cases.

The Company recorded the settlement with Philips in the second quarter, which included recognition of a $6.0 million non-cash benefit related to the license rights given to Philips. In addition, as part of the settlement, the Company recorded intangible assets of $7.0 million, representing the value of the license rights the Company received from Philips. The intangible assets will be amortized through a non-cash charge to cost of goods sold at a rate of approximately $500,000 per year over the estimated remaining economic life of the related patents.

Including the licensing income and litigation settlement benefit of $6.0 million and other litigation and related expenses of $2.0 million, the Company reported net income of $4.5 million, or $0.19 per diluted share, for the second quarter of 2007. The after-tax impact of the licensing income and litigation settlement benefit and other litigation related expenses was $0.12 per diluted share.

EBITDA was $8.3 million for the second quarter of 2007. Excluding stock-based compensation expense and the litigation related items, Adjusted EBITDA was $4.9 million, or 11% of revenue. The Company generated $3.4 million in cash from operating activities during the quarter and ended the quarter with $14.2 million in cash and short-term investments.

Outlook

The Company continues to expect revenue growth for the full year to be at least 10%, reflecting continued significant growth in defibrillation revenue and slight improvements in cardiac monitoring and service revenue in the second half. The Company anticipates the strong second half results will reflect substantial year-over-year growth in each quarter, although the third quarter may show a sequential decrease compared to the second quarter.

For the full year 2007, gross margin is expected to be at the higher end of the previously indicated range of 46% to 48%, depending on several factors, including product pricing and mix and the timing of the impact of planned cost reductions and productivity increases. Although gross margin exceeded this range during the second quarter, the above factors and the anticipated increase in the proportion of OEM shipments (including the GE crash cart) are expected to reduce the average during the second half. These gross margin expectations include the amortization of the intangible assets received in the Philips settlement discussed above.

Operating expenses are expected to remain consistent with earlier guidance. The Company will take advantage of the significantly reduced legal spending in the second half of 2007 to invest more in research and development. Total spending in the sales and marketing and general and administrative areas, however, is expected to moderate as a percentage of revenue during the remainder of the year.

Operating profit should increase year over year, both in dollars and as a percentage of revenue. Adjusted EBITDA is still expected to be in a range between 9% and 11%.

As a result of the impact of the litigation settlements and expenses, net of income taxes, the Company has increased its overall 2007 net income guidance to between $6.0 and $8.0 million, or between $0.26 and $0.34 per diluted share. Excluding the effects of the legal settlements and related litigation spending, this represents an increase to the upper end of the earlier guidance of approximately $0.02 per diluted share.

“The range of our expected results balances our expectation for continued momentum in domestic AED sales with the uncertainty related to the timing of GE shipments, as well as the uncertainty related to the timing of the domestic market re-entry by Medtronic Physio,” said Mike Matysik, chief financial officer. “If these things work in our favor, then we could certainly be in the upper portion of this range,” he concluded.

Non-GAAP and Pro Forma Financial Information

This news release contains a discussion of Adjusted EBITDA, which is a non-GAAP financial measure provided as a complement to results provided in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The term “Adjusted EBITDA” refers to a financial measure defined as earnings before net interest, income taxes, depreciation, amortization, stock-based compensation, merger related expenses and litigation expense. Adjusted EBITDA is not a substitute for measures determined in accordance with GAAP, and

may not be comparable to Adjusted EBITDA as reported by other companies. Adjusted EBITDA is an integral part of the internal management reporting and planning process and is the primary measure used by management to evaluate the operating performance of the Company’s operations. The components of Adjusted EBITDA include the key revenue and expense items for which operating managers are responsible and upon which their performance is evaluated. The Company also uses Adjusted EBITDA for planning purposes and in presentations to its board of directors. Reconciliations of net income, the most comparable GAAP measure, to Adjusted EBITDA are contained in this press release.

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 second 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) 240-7305. International participants can call (303) 262-2131. 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 11093331#. An audio archive will be available at www.cardiacscience.com for one month following the call.

About Cardiac Science Corporation

Cardiac Science is truly at the heart of saving lives. The Company 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 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^®, Powerheart^®, and Quinton^®. Cardiac Science 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,” 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, cash flow, gross margins, key distribution partnerships and revenue derived from them, operating expenses, research and development spending, product releases and revenue derived from them, 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. Risks and uncertainties include the effect of competitive and economic factors, and the Company’s reaction to those factors, on business buying decisions with respect to the Company’s products; public health issues and other circumstances that could disrupt supply, delivery, or demand of products; the continued availability on acceptable terms of certain components and services essential to the Company’s business currently obtained by the Company from sole or limited sources; the ability of the Company to deliver to the marketplace and stimulate customer demand for new products, services and technological innovations on a timely basis; the effect that product transitions, changes in product pricing or mix, and/or increases in component costs could have on the Company’s gross margin; the effect that product quality problems could have on the Company’s sales and operating profits; the inventory risk associated with the Company’s need to order or commit to order product components in advance of customer orders; the effect that the Company’s dependency on manufacturing and logistics services provided by third parties may have on the quality, quantity or cost of products manufactured or services rendered; the Company’s dependency on the performance of distributors and other resellers of the Company’s products; and the potential impact of a finding that the Company has infringed on the intellectual property rights of others. More information on potential factors that could affect the Company’s financial results is included from time to time in the Company’s public reports filed with the SEC, including the Company’s Form 10-K for the fiscal year ended December 31, 2006, its Form 10-Q for the quarter ended March 31, 2007, and other filings with the SEC.

The information provided in this press release speaks as of the date of this announcement. Cardiac Science Corporation undertakes no duty or obligation to update the information provided herein.

(Tables to Follow)

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

	Three Months Ended June 30
	2007						2006
	$			%			$			%
Revenues:
Products	$	40,787			90.9	%	$	35,007			89.3	%
Service		4,102			9.1	%		4,214			10.7	%
Total revenues		44,889			100.0	%		39,221			100.0	%
Cost of Revenues:
Products		19,949			48.9	%		17,511			50.0	%
Service		3,174			77.4	%		3,120			74.0	%
Total cost of revenues		23,123			51.5	%		20,631			52.6	%
Gross Profit:
Products		20,838			51.1	%		17,496			50.0	%
Service		928			22.6	%		1,094			26.0	%
Gross profit		21,766			48.5	%		18,590			47.4	%
Operating Expenses:
Research and development		3,090			6.9	%		2,875			7.3	%
Sales and marketing		11,445			25.5	%		9,914			25.3	%
General and administrative		4,933			11.0	%		4,662			11.9	%
Litigation and related expenses		2,029			4.5	%		1,254			3.2	%
Licensing income and litigation settlement		(6,000	)		-13.4	%		—			0.0	%
Total operating expenses		15,497			34.5	%		18,705			47.7	%
Operating income (loss)		6,269			14.0	%		(115	)		-0.3	%
Other Income (Expense):
Interest income (expense), net		74			0.2	%		(5	)		0.0	%
Other income, net		327			0.7	%		274			0.7	%
Total other income		401			0.9	%		269			0.7	%
Income before income tax expense and minority interest		6,670			14.9	%		154			0.4	%
Income tax expense		(2,155	)		-4.8	%		(49	)		-0.1	%
Income before minority interest		4,515			10.1	%		105			0.3	%
Minority interest		15			0.0	%		13			0.0	%
Net income	$	4,530			10.1	%	$	118			0.3	%
Net income per share — basic	$	0.20					$	0.01
Net income per share — diluted	$	0.19					$	0.01
Weighted average shares outstanding — basic		22,689,932						22,486,564
Weighted average shares outstanding — diluted		23,283,471						22,522,902

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

	Six Months Ended June 30
	2007						2006
	$			%			$			%
Revenues:
Products	$	78,478			90.7	%	$	69,576			88.8	%
Service		8,081			9.3	%		8,760			11.2	%
Total revenues		86,559			100.0	%		78,336			100.0	%
Cost of Revenues:
Products		38,786			49.4	%		35,191			50.6	%
Service		6,127			75.8	%		6,162			70.3	%
Total cost of revenues		44,913			51.9	%		41,353			52.8	%
Gross Profit:
Products		39,692			50.6	%		34,385			49.4	%
Service		1,954			24.2	%		2,598			29.7	%
Gross profit		41,646			48.1	%		36,983			47.2	%
Operating Expenses:
Research and development		6,072			7.0	%		5,845			7.5	%
Sales and marketing		22,553			26.1	%		19,297			24.6	%
General and administrative		9,445			10.9	%		9,754			12.5	%
Litigation and related expenses		3,717			4.3	%		1,973			2.5	%
Licensing income and litigation settlement		(6,000	)		-6.9	%		—			0.0	%
Total operating expenses		35,787			41.3	%		36,869			47.1	%
Operating income		5,859			6.8	%		114			0.1	%
Other Income (Expense):
Interest income (expense), net		96			0.1	%		(55	)		0.0	%
Other income, net		452			0.5	%		505			0.6	%
Total other income		548			0.6	%		450			0.6	%
Income before income tax expense and minority interest		6,407			7.4	%		564			0.7	%
Income tax expense		(2,080	)		-2.4	%		(208	)		-0.2	%
Income before minority interest		4,327			5.0	%		356			0.5	%
Minority interest		37			0.0	%		26			0.0	%
Net income	$	4,364			5.0	%	$	382			0.5	%
Net income per share — basic	$	0.19					$	0.02
Net income per share — diluted	$	0.19					$	0.02
Weighted average shares outstanding — basic		22,651,053						22,458,843
Weighted average shares outstanding — diluted		23,187,206						22,565,413

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

	June 30, 2007		December 31, 2006
ASSETS
Current Assets:
Cash and cash equivalents	$	13,821	$	9,819
Short-term investments		395		547
Accounts receivable, net		27,331		26,971
Inventories		20,190		17,617
Deferred income taxes, net		3,813		3,902
Prepaid expenses and other current assets		3,138		2,121
Total current assets		68,688		60,977
Other assets		208		209
Machinery and equipment, net of accumulated depreciation		5,287		5,956
Deferred income taxes, net		38,573		40,525
Intangible assets, net of accumulated amortization		37,044		31,869
Investment in unconsolidated entities		738		496
Goodwill		107,613		107,613
Total assets	$	258,151	$	247,645
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Accounts payable	$	14,316	$	11,761
Accrued liabilities		10,907		9,890
Warranty liability		2,905		2,532
Deferred revenue		7,706		7,111
Total current liabilities		35,834		31,294
Other liabilities		366		679
Total liabilities		36,200		31,973
Minority interest		37		75
Shareholders’ Equity		221,914		215,597
Total liabilities and shareholders’ equity	$	258,151	$	247,645

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

	Three Months Ended
	June 30
	2007			2006
Operating Activities:
Net income	$	4,530		$	118
Adjustments to reconcile net income to cash provided by operating activities:
Licensing income and litigation settlement		(6,000	)		—
Depreciation and amortization		1,706			1,543
Deferred income taxes		2,027			49
Stock-based compensation		562			567
Minority interest		(16	)		(13	)
Loss on disposal of machinery and equipment		1			—
Changes in operating assets and liabilities, net of business acquired:
Accounts receivable, net		(102	)		864
Inventories		(1,934	)		(280	)
Prepaid expenses and other assets		(432	)		370
Accounts payable		372			760
Accrued liabilities		1,904			(751	)
Warranty liability		297			52
Deferred revenue		460			(104	)
Net cash flows provided by operating activities		3,375			3,175
Investing Activities:
Purchases of short-term investments		(395	)		—
Maturities of short-term investments		149			—
Purchase of patents as part of litigation settlement		(1,000	)		—
Purchases of machinery and equipment		(494	)		(400	)
Payments related to the purchase of Cardiac Science, Inc.		(292	)		(441	)
Net cash flows used in investing activities		(2,032	)		(841	)
Financing Activities:
Proceeds from exercise of stock options and issuance of shares under employee purchase plan		387			243
Net cash flows provided by financing activities		387			243
Net change in cash and cash equivalents		1,730			2,577
Cash and cash equivalents, beginning of period		12,091			6,169
Cash and cash equivalents, end of period	$	13,821		$	8,746

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

	Six Months Ended
	June 30
	2007			2006
Operating Activities:
Net income	$	4,364		$	382
Adjustments to reconcile net income to cash provided by operating activities:
Licensing income and litigation settlement		(6,000	)		—
Depreciation and amortization		3,312			3,100
Deferred income taxes		1,952			112
Stock-based compensation		1,175			1,016
Minority interest		(38	)		(26	)
Loss on disposal of machinery and equipment		4			—
Changes in operating assets and liabilities, net of business acquired:
Accounts receivable, net		(360	)		898
Inventories		(2,541	)		1,774
Prepaid expenses and other assets		(1,016	)		986
Accounts payable		2,547			878
Accrued liabilities		1,266			(2,348	)
Warranty liability		373			63
Deferred revenue		595			(91	)
Net cash flows provided by operating activities		5,633			6,744
Investing Activities:
Purchases of short-term investments		(544	)		—
Maturities of short-term investments		696			—
Purchase of patents as part of litigation settlement		(1,000	)		—
Purchases of machinery and equipment		(822	)		(796	)
Payments related to the purchase of Cardiac Science, Inc.		(562	)		(1,214	)
Net cash flows used in investing activities		(2,232	)		(2,010	)
Financing Activities:
Proceeds from exercise of stock options and issuance of shares under employee purchase plan		601			466
Net cash flows provided by financing activities		601			466
Net change in cash and cash equivalents		4,002			5,200
Cash and cash equivalents, beginning of period		9,819			3,546
Cash and cash equivalents, end of period	$	13,821		$	8,746

Cardiac Science Corporation and Subsidiaries
Reconciliation of GAAP Results to Non-GAAP Results (unaudited)
(in thousands)

	Reconciliation of Net Income to Adjusted EBITDA
	Three Months Ended						Three Months Ended
	June 30, 2007						June 30, 2006
				% of revenue					% of revenue
Net income	$	4,530			10.1	%	$	118		0.3	%
Depreciation and amortization		1,706			3.8	%		1,543		3.9	%
Interest (income) expense		(74	)		-0.2	%		5		0.0	%
Income tax expense		2,155			4.8	%		49		0.1	%
EBITDA		8,317			18.5	%		1,715		4.4	%
Stock-based compensation		562			1.3	%		567		1.4	%
Litigation and related expenses		2,029			4.5	%		1,254		3.2	%
Licensing income and litigation settlement		(6,000	)		-13.4	%		—		0.0	%
Pro forma merger related adjustments		—			0.0	%		—		0.0	%
Adjusted EBITDA	$	4,908			10.9	%	$	3,536		9.0	%

	Reconciliation of Net Income to Adjusted EBITDA
	YTD Months Ended						YTD Months Ended
	June 30, 2007						June 30, 2006
				% of revenue					% of revenue
Net income	$	4,364			5.0	%	$	382		0.5	%
Depreciation and amortization		3,312			3.8	%		3,100		4.0	%
Interest (income) expense		(96	)		-0.1	%		55		0.1	%
Income tax expense		2,080			2.4	%		208		0.3	%
EBITDA		9,660			11.2	%		3,745		4.8	%
Stock-based compensation		1,175			1.4	%		1,016		1.3	%
Litigation and related expenses		3,717			4.3	%		1,973		2.5	%
Licensing income and litigation settlement		(6,000	)		-6.9	%		—		0.0	%
Pro forma merger related adjustments		—			0.0	%		419		0.5	%
Adjusted EBITDA	$	8,552			9.9	%	$	7,153		9.1	%