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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

x  Annual Report Under Section 13 or 15(d) of The Securities Exchange Act of 1934

For the fiscal Year Ended December 31, 2002

OR

¨  Transition Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from                    to                     

Commission File Number 0-19567

CARDIAC SCIENCE, INC.

(Exact Name of registrant as specified in its Charter)

16931 Millikan Avenue, Irvine, California 92606

(Address of Principal Executive Offices) (Zip Code)

Issuer’s telephone number (949) 587-0357

Securities registered under Section 12(b) of the Exchange Act:

None.

Securities registered under Section 12(g) of the Exchange Act:

Common Stock, $0.001 Par Value

(Title of Class)

Indicate by check mark whether the registrant (1) has filed all reports required by Section 13 or 15(d) of the Exchange Act during the past 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  x    No  ¨

Indicate by check mark if there is no disclosure of delinquent filers pursuant to Item 405 of Regulation S-K contained in this form, and no disclosure will be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendments to this Form 10-K:  x

Indicate by check mark if the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes  x  No  ¨

The aggregate market value of the voting stock held by non-affiliates of the registrant, based upon the closing price of Common Stock on June 28, 2002, as reported by the Nasdaq National Market System, was approximately $196,870,000. Shares of voting stock held by each officer and director and by each person who owns 10% or more of the outstanding voting stock have been excluded in that such persons may be deemed to be affiliates. This assumption regarding affiliate status is not necessarily a conclusive determination for other purposes.

There were 66,978,256 shares of the registrant’s Common Stock outstanding as of March 28th, 2003.

TABLE OF CONTENTS

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PART I

ITEM 1.     DESCRIPTION OF BUSINESS.

Overview

Cardiac Science is a leading developer, manufacturer and marketer of life-saving public access defibrillators, or automated external defibrillators (“AEDs”), and unique therapeutic patient monitor-defibrillators that instantly and automatically treat cardiac patients with life-threatening heart rhythms and those that suffer sudden cardiac arrest (“SCA”). More than 450,000 Americans die each year from SCA, making it the leading cause of death in both the United States and Europe. According to the American Heart Association (“AHA”), an estimated 95% of SCA victims die before reaching the hospital. For victims of SCA, survival is directly linked to the amount of time between the onset of SCA and receiving a defibrillation shock, so that for every minute’s delay until defibrillation, a victim’s chance of survival is reduced by approximately 10%. Additionally, the average survival rate for patients suffering an in-hospital SCA-event, is estimated to be 20%—a rate that has not improved since the 1960s.

Our proprietary software technology, RHYTHMx^®, and biphasic energy delivery system, STAR^® Biphasic, form the basis of our line of automated external defibrillator products—the Powerheart AED^®—and our unique therapeutic monitor-defibrillator—the Powerheart^® Cardiac Rhythm Module^®, or Powerheart^® CRM^®. Our products and technology are designed to effectively treat victims of SCA in the shortest time frame possible, thereby significantly increasing a victim’s chance of survival. Once the electrodes of our Powerheart AED are placed on a patient, our device instantly and accurately detects the presence of any life-threatening arrhythmias and will advise the user to deliver a shock if required. In the case of our bedside Powerheart CRM, which continuously monitors a patient’s heart rhythms, in the event of a life-threatening arrhythmia, our CRM can automatically deliver a potentially life-saving shock to the patient, without any human intervention.

We are active in new product development initiatives, including expanding our existing product line, as well as integrating our RHYTHMx and STAR Biphasic technology into new cardiac resuscitation product platforms. We have a portfolio of 70 issued patents relating to our core technology and products.

In September 2001, we acquired Survivalink Corporation (“Survivalink”), a privately held Minneapolis, Minnesota-based manufacturer of AEDs. The acquisition of Survivalink enabled us to enter the rapidly growing AED marketplace, which we estimated to have worldwide sales of $155 million in 2002 and, according to Frost & Sullivan, is expected to grow to approximately $650 million in sales by 2006.

In November 2001, we acquired approximately 95% of the outstanding shares of Artema Medical AB, (“Artema”) a Swedish based developer, manufacturer and marketer of standard hospital-based emergency defibrillators and patient monitoring equipment, which also had operations in Denmark.

In May 2002, we placed $50 million in 6.9% senior notes due May 2007 with Perseus, LLC, a merchant bank and private equity fund management company. We used the proceeds from this financing to retire $27 million in short term notes issued in connection with our acquisition of Survivalink and for working capital purposes. The interest on the notes accrues, but is not payable until May 2005. As part of the placement, the investors also received warrants to purchase 10 million shares of our common stock at $3.00 per share and warrants to purchase 3 million shares of our common stock at $4.00 per share.

Our corporate headquarters are located in Irvine, California, and our manufacturing facility is in Minnetonka, Minnesota. Our international headquarters are in Copenhagen, Denmark. Our Irvine headquarters is located at 16931 Millikan Avenue, Irvine, CA 92606 and the telephone number is (949) 587-0357.

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Business Strategy

Our primary business objectives include becoming the market leader in the rapidly growing global AED marketplace and increasing the adoption of our in-hospital Powerheart CRM product, in order to generate consistent revenue growth and to achieve profitability. We expect that by focusing on the following core strategies, we will be able to achieve our primary objectives:

Sudden Cardiac Arrest

The Prevalence of SCA

Sudden Cardiac Arrest is the leading cause of death of Americans. Each year, more than 450,000 people in the U.S. die from SCA, more than the number of Americans killed in World War II, the Korean War and Vietnam, combined. Brain damage can start to occur in just 4-6 minutes after the onset of SCA, and death can

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occur in minutes if the SCA victim receives no treatment. External defibrillation is the only known treatment, but it must occur as soon as possible after the onset of SCA in order for it to be effective.

The Heart

The heart has four chambers, the two upper, smaller chambers are called the left and right atria and the two lower, larger and stronger chambers are referred to as the left and right ventricles. Blood is pumped throughout the circulatory system by a series of highly coordinated contractions of the heart’s four chambers. If these contractions do not occur in a synchronized manner, then the transportation of blood throughout the body is diminished. Under normal conditions, an electrical impulse is initiated in a bundle of highly specialized cells located in the right atrium. This bundle of cells, referred to as the sinus node, is also appropriately known as the heart’s natural pacemaker. From the sinus node, this electrical current moves across a specific path in the atria, and to the ventricles, causing the chambers to contract and pump blood. If the heart is to beat properly, then the electrical current, beginning in the atria, must follow a precise path so that the heart’s chambers beat in a synchronized and coordinated fashion.

Arrhythmias

If the heart deviates from this normal series of electrical impulses, then abnormal heart rhythms result, and the ability of the heart to effectively pump blood throughout the circulatory system is diminished. Although some arrhythmias are short in duration and have little effect on the heart’s normal rhythm, arrhythmias that last for some time may cause the heart to beat too fast—tachycardia—or too slow—bradycardia. If tachycardia originates in the ventricles, it is referred to as ventricular tachycardia (“VT”), otherwise it is known as supraventricular tachycardia (“SVT”). Tachycardia in the ventricles requires prompt treatment. VT may result from serious heart disease and can be treated with medicines and by treating the cause.

While atrial fibrillation and bradycardia, as described below, are serious conditions affecting heart rhythm and effectiveness, it is the first type of arrhythmia described below, ventricular fibrillation, that is immediately life threatening and must be corrected by defibrillation to prevent sudden cardiac death. Our products are capable of diagnosing all of these cardiac conditions and applying therapy to reestablish regular heart rhythm. Our technology and devices are designed to detect and treat the three types of arrhythmia.

Ventricular Fibrillation and SCA

Ventricular fibrillation (“VF”) is a lethal form of arrhythmia in which disordered electrical activity in the heart causes the ventricles to contract in a rapid, unsynchronized, uncoordinated fashion. With the onset of VF, little or no blood is pumped from the heart to the brain and vital organs, resulting in collapse and sudden death unless medical help is provided immediately. This loss of heart function is known as sudden cardiac arrest and to prevent death, the only treatment remains defibrillation—the application of an electric shock to resynchronize the heart’s disordered electrical activity to a normal rhythm.

Atrial Fibrillation

Atrial fibrillation occurs when the atria emit uncoordinated electrical signals, causing the atrial chambers to contract too fast, pumping blood unevenly. Although the heart beat will be irregular, these electrical signals will not always be transmitted to the ventricles, still allowing the ventricles to continue to pump blood throughout the circulatory system. Although AF is not life threatening, it can eventually lead to SCA and to other problems, including chronic fatigue, congestive heart failure and stroke. According to the AHA, patients with AF are five times more likely to suffer a stroke and 15% of all strokes occur in people with AF. More than two million Americans currently suffer from AF.

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Cardioversion and drug therapy are the common treatment modalities for AF. Cardioversion therapy is applied by a defibrillator which delivers an electric shock that is synchronized with a patient’s heartbeat, returning the atria to its normal rhythm. Our Powerheart CRM and Powerheart AEDs both have cardioversion capability.

Bradycardia

Bradycardia occurs when the heart beats too slowly, generally less than 60 beats per minute, depending on age. Bradycardia can cause fatigue, dizziness, lightheadedness and fainting. It is treated on an emergency basis through the administration of drugs or invasive temporary pacing, in which a wire is inserted into the heart to deliver a current, or noninvasive temporary pacing, where external electrodes are attached to a patient deliver an electrical stimulus. Our Powerheart CRM is noninvasive pacing capable.

Where does SCA Strike?

Factors contributing to the onset of SCA include coronary heart disease, drug abuse, respiratory arrest, electrocution, drowning, choking and trauma. Death from SCA is sudden and unexpected, occurring 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. And for those with a known history of heart attacks, the chance of sudden cardiac death is four to six times greater than the that of the general population.

According to the AHA, almost 60% of SCA incidents are witnessed. It is estimated that an alarming 95% of SCA victims die before reaching the hospital. Survival is directly linked to the amount of time between the onset of SCA and defibrillation: a victim’s chances of survival are reduced by approximately 10% with every minute of delay until defibrillation.

Average response time for emergency personnel to arrive on scene in the U.S. is approximately 8 –12 minutes after calling 911. The average time from collapse to providing defibrillation varies widely across the country. Communities with public access defibrillation (“PAD”) programs in place, where AEDs are placed in public buildings, at sporting events and in emergency vehicles, response times are significantly reduced. In some of these cities, when the first shock is delivered within 3-5 minutes, the reported survival rates from SCA are as high as 48% to 74%. Other studies show that police equipped with AEDs can cut response times to SCA victims by about three minutes when compared to historical response times, significantly improving a victim’s chance of survival.

Our Products

All of our 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 that we have developed, into multiple physical embodiments, including our Powerheart AED and Powerheart CRM. We also sell disposable products, including our proprietary disposable defibrillator electrodes, and are active in licensing our core technology to third-parties for integration into additional products.

Our RHYTHMx Technology

Our proprietary RHYTHMx technology allows for the detection and identification of life-threatening arrhythmias and, in the case of our CRM, automatic delivery of the appropriate, measured therapy, or in the case of our Powerheart AED, instructions to deliver the appropriate shock. Our patented RHYTHMx software algorithm offers the unique ability of filtering noise and artifact from a patient’s electrocardiogram (“ECG”) signal without compromising its ability to correctly identify heart rhythms that are life-threatening—shockable, or non-life-threatening—non-shockable.

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RHYTHMx begins by filtering the patient’s ECG signal to reduce noise artifact and then detects the heart’s QRS complexes in conjunction with the patient’s heart rate. The heart’s ECG signals contain wave shapes that are referred to as P-QRS-T waves. While a normal heartbeat contains each of these wave shapes, in the case of the chaotic and disorganized rhythm of ventricular fibrillation, these wave shapes—or QRS complexes—are absent or indistinguishable. If the heart rhythm is considered shockable by RHYTHMx, and it persists, then a shock is indicated. Further analysis by RHYTHMx, which occurs in a fraction of a second, classifies the shockable rhythm as requiring a synchronous shock—in the case of a life-threatening VT—or an asynchronous shock—in the case of life-threatening VF.

Clinical results with our RHYTHMx technology demonstrated 100% sensitivity (correct identification of shockable rhythms) and 99.4% specificity (correct identification of non-shockable rhythms). The average time to first shock was 21 seconds and normal rhythm was restored by the device’s first shock in 96.2% of the cases. These results were based on data from a multi-center clinical trial conducted between February 1993 and May 1997 using early versions of our original Powerheart device. The trial was divided into two phases, with 155 patients enrolled and 104 patients tested, at Arizona Heart Institute, University of California Irvine Medical Center and University of Southern California Medical Center. We received FDA clearance to market RHYTHMx technology as a standalone device in August 1998.

Another study, the European Powerheart Trial, was presented during the “late breaking” clinical trial session of the North American Society of Pacing and Electrophysiology at San Diego in May 2002, and was subsequently published in the Journal of the American College of Cardiology. In the study, 117 patients in 10 European medical centers in Germany, Spain, Italy and Finland were monitored. The patients included 51 at risk of cardiac arrest located in special monitoring wards (intensive or coronary care units or in the emergency room), and 66 who were undergoing electrophysiological testing or implantation of cardioverter-defibrillators because of suspected or documented ventricular tachyarrhythmias. During a total of 1,240 hours of testing, there were no adverse events, with 1,988 heart rhythm events documented and 115 of those requiring treatment through defibrillation. The mean response time of our Powerheart device was 14.4 seconds. The trial’s investigators concluded that our Powerheart device is safe and effective in detecting, monitoring and treating spontaneous arrhythmias and that the use of the device will shorten response times and significantly improve the outcome of patients with in-hospital cardiac arrest.

Our platform RHYTHMx technology is integral to our Powerheart CRM and Powerheart AED. We also license our RHYTHMx technology for use in defibrillators to selected partners worldwide.

Our STAR Biphasic Technology

Our STAR (“Self-Tracking Active Response”) Biphasic waveform technology allows our defibrillator devices—the Powerheart CRM and Powerheart AED – to deliver the most effective therapy possible by delivering an optimized amount of energy in response to SCA. STAR Biphasic quickly assesses the unique characteristics of a patient and customizes the defibrillation energy they receive.

The STAR Biphasic waveform treats cardiac patients individually, based on three important characteristics: impedance, defibrillation threshold and cellular response.

Impedance is the number one difficulty in delivering current to the heart in external defibrillation. 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 a patient’s impedance. Our STAR Biphasic waveform technology provides optimized energy delivery by measuring a patient’s impedance and customizing a waveform to deliver the most effective defibrillation energy. This customization occurs for even the most difficult high-impedance patients. STAR Biphasic technology delivers optimal therapy for every patient.

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Defibrillation threshold (“DFT”) is defined as the minimum current required to defibrillate the heart and establish normal rhythm. DFT varies from person to person, based primarily on a person’s anatomy, disease condition and metabolic state of the heart. Failure to exceed a patient’s DFT means failure to defibrillate a patient’s heart. STAR Biphasic technology automatically escalates defibrillation energy to ensure that a patient’s DFT is exceeded as rapidly as possible.

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, then refibrillation may occur. The STAR Biphasic waveform has been uniquely designed to neutralize any residual charge through a process of charge balancing. STAR Biphasic precisely controls the energy delivered in the first phase of defibrillation and balances any residual cellular charge during the second phase of defibrillation. By neutralizing the residual charge, STAR Biphasic minimizes the likelihood of refibrillation and provides the optimal environment to defibrillate the heart.

The STAR Biphasic waveform was validated in a clinical trial led by researchers at the Cleveland Clinic and Cedars-Sinai Medical Center. This multi-center study, designed according to FDA guidelines, determined that the STAR Biphasic waveform was safe and effective. The study’s high success rates resulted in statistically significant results with a smaller sample size than initially expected.

In addition to the use of STAR Biphasic waveform technology in our defibrillator devices, we also license this technology to selected partners internationally.

The Powerheart AED

Our Powerheart Automated External Defibrillator (“Powerheart AED”), powered by our RHYTHMx and STAR Biphasic technology, is the only AED that can provide continuous monitoring capabilities during and after SCA, protecting the victim against the reoccurrence of another life-threatening arrhythmia following resuscitation.

Reflecting the merger of Survivalink and Cardiac Science in September 2001, our Powerheart AED combines industry-leading AED expertise with advanced arrhythmia detection technology. In 2002, our Powerheart AED represented 70% of our company-wide device sales and has been deployed at such companies as Harrah’s Entertainment, Coca Cola, General Electric, Procter & Gamble, Exxon, Pepsi, Anheuser Busch and Merrill Lynch. Our Powerheart AED has also been chosen by many local governments and municipalities for use in respective community PAD programs, the United States Navy, Army and Air Force, as well as by numerous schools and educational facilities throughout the U.S.

We believe that our Powerheart AED offers the following competitive advantages:

Our proprietary self-testing Powerheart AED defibrillator electrodes are interchangeable for body placement and are supplied pre-gelled with a self-adhesive. We have also developed and are marketing our proprietary

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FDA-cleared pediatric defibrillation electrode system, designed for use with our Powerheart AED, to deliver reduced defibrillation energy to infants and children up to 8-years old, or up to 55 lbs. These innovative pediatric electrodes are suitably sized for a child’s smaller torso—less than half the size of our adult AED electrodes.

We anticipate that we will launch a new version of the Powerheart AED in the second half of 2003. This next generation AED device is anticipated to have upgraded features and optimized internal componentry, which are expected to result in a significant reduction in the cost of goods.

The Powerheart CRM

The chances of survival for a patient suffering SCA in a hospital remains at less than 30%. Because the time it takes to defibrillate patients, even under monitored conditions, has remained between 3 to 5 minutes, this survival rate has not changed in the last 40 years. And those that do survive are typically faced with a longer and more expensive hospital stay.

The Powerheart CRM, attached to patients via our disposable defibrillator electrodes, continuously monitors a patient’s cardiac rhythm, and if a life-threatening arrhythmia is detected, automatically delivers a life-saving defibrillation shock within seconds and without human intervention.

Therapeutic monitoring with the Powerheart CRM offers cardiac patients the best chance of survival from SCA and represents a potential new standard of care for medical facilities worldwide. In December 2001, we received clearance from the FDA to market the Powerheart CRM to medically supervised environments such as hospitals, medical and dental surgery centers, physician offices, clinics and nursing homes in the United States. We have also received the necessary approvals to market the Powerheart CRM in Europe, Canada, Australia and other regions around the world. Our Powerheart CRM is in numerous hospitals worldwide.

Our Powerheart CRM is a therapeutic monitor incorporating state-of-the-art technology that offers medical facilities the following features and benefits:

We also market our proprietary disposable defibrillator electrodes for use with the Powerheart CRM. These disposable defibrillator electrodes provide reliable ECG monitoring, defibrillation and external pacing performance and offer reduce motion artifact caused by patient movement. The compact design and radiotransluscence of the Powerheart CRM disposable defibrillator electrodes also allows clearer views of the chest under x-ray and fluoroscopy and a new hydrogel adhesive reduces the potential for skin irritation.

The Diascope G2 and G2 Central Monitoring Station

Marketed internationally, our Diascope G2 is a compact, transportable vital signs monitor designed for use in hospitals and day surgery units. The Diascope G2 monitor can be used as a bedside monitor for use with acute,

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step down, sub-acute, recovery room and emergency patient care wards, and as an intra-hospital transport monitor.

The Diascope G2 is a second generation monitor that has evolved out of a portfolio of patient monitors and emergency defibrillators that we acquired from Artema Medical in December 2001.

The Diascope G2 patient monitor offers exceptional value and performance with the following characteristics:

Also marketed internationally, our G2 central monitoring station is designed to be configured to support either a centralized multi-departmental monitoring mode linking multiple patient care wards to a common central

station, or can be networked to operate in a decentralized patient ward specific central monitoring station.

Our Markets

We segment the market for our devices and technology into four principal categories: AEDs, in-hospital therapeutic monitoring-defibrillation (Powerheart CRM), patient monitors sold internationally and technology licensing.

AED Market Segments

In 2002, we estimate the worldwide AED market was approximately $155 million, with the U.S. AED market, comprising 85% of the worldwide market, growing at approximately 30% with faster growth recorded in certain international markets. We expect the worldwide market for AEDs in 2003 to be between $200 million to $220 million, which we believe will expand at a more rapid pace in 2004 and beyond as international markets become a larger proportion of the overall market for AEDs.

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We estimate that we now hold approximately 25% worldwide market share in AEDs, up from 15% to 17% at the end of 2001. Medtronic Physio-Control, a wholly owned subsidiary of Medtronic, Inc. and Philips Heartstream, a division of Philips, we estimate each hold a worldwide market share of between 30% to 33%. We believe that we are the leader in two of our market segments, the schools and education segment and the U.S. corporate workplace market. The following are our market segment highlights:

In-Hospital Therapeutic Monitoring-Defibrillation (Powerheart CRM)

Traditionally, hospitals have deployed manual or semi-automatic defibrillators to treat SCA victims. Standard defibrillators require supervision by highly skilled medical personnel to analyze and interpret the patient’s electrocardiogram and to manually deliver a shock using handheld paddles. Standard defibrillators are typically positioned in the hospital at locations such as critical care and cardiac care units, emergency and operating rooms and electrophysiology labs. We estimate that there are 6,000 hospitals in the United States.

Despite the availability of standard defibrillators to treat SCA in hospitals, numerous hospital studies have documented delays of five minutes or more between the onset of cardiac arrest to the arrival of the first medical team member. Clinical studies show that the average survival rate of patients who have an in-hospital SCA is between 15% and 25%—a rate of survival that has not improved since the 1960s. We believe that our Powerheart CRM is well positioned to provide hospitals with a therapeutic monitoring alternative which will result in an increase in survival rates and a reduction in patient care costs.

Technology Licensing

We are seeking strategic relationships with third parties to license our RHYTHMx and STAR Biphasic proprietary technologies for use in patient monitoring type devices.

During 2002, we entered into three separate licensing agreements with Zoll Medical, Inc., Lifecor, Inc and Innomed Medical Co. We licensed our STAR Biphasic technology for use into standard emergency defibrillators

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for sales internationally and licensed certain patents relating to wearable defibrillators and other proprietary features of our AEDs, as well as licensing of our platform RHYTHMx technology. In consideration for these licenses we received cash and ongoing royalty payments.

AED Market Drivers

SCA kills approximately 450,000 people in the United States each year. A few minutes after the onset of SCA, brain damage can start to occur and death will result unless the victim’s heart is shocked back into rhythm by a defibrillator. According to the AHA almost 60% are witnessed by a bystander. Moreover, the AHA currently estimates that 95% of SCA victims die before reaching the hospital. Communities that strategically place AEDs in public buildings, arenas and emergency vehicles can significantly reduce response times. In these communities where bystanders or first responders can defibrillate a victim within three to five minutes, the reported survival rates from SCA are as high as 48% to 74%.

There is now widespread acknowledgement and increasing awareness that AEDs save lives and can be safely used by lay people. The AHA has publicly encouraged widespread deployment of AEDs through community AED programs.

Legislation is a key market driver, and numerous AED-related bills have been introduced at the Federal level and in State governments in the past two years, which we believe will facilitate the growth of new and existing markets for AEDs:

Sales and Marketing

In 2002, we expanded our AED marketing and distribution efforts into the U.S. corporate workplace segment and the schools market segment. As a result of this effort, we believe that we are the market leaders in those segments. We currently have 55 direct AED sales people in the United States, an increase of 38 sales personnel compared to a year ago and also have over 30 distributors focusing on certain domestic market segments.

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Outside the U.S., we distribute the Powerheart AED through 40 international distributors and have a presence in all major foreign markets. Our international distribution channel is managed from our Copenhagen office by a group of eight sales managers who each have sales responsibility for certain regions of the world. This international sales group is also responsible for sales of our G2 patient monitor products.

A key part of our sales and marketing strategy is to align ourselves with strong strategic distribution partners who have the market presence to gain and control a dominant share of their respective markets. We believe the competitive advantages of our AED product combined with market-leading distribution capabilities will allow us to grow revenue and gain market share.

We currently have 12 direct sales people and clinical specialists supporting our CRM sales and marketing effort, and also utilize distributors in certain regions in the United States and internationally. Our CRM sales and marketing strategy emphasizes the potentially large recurring revenue associated with the sales of our proprietary, disposable defibrillator electrodes. In addition to selling our Powerheart CRM to hospitals and clinics, we also offer the device on a no-capital cost basis, which allows hospitals to adopt our technology with no up-front capital expenditure, in exchange for an agreement to purchase minimum quantities of our therapy electrodes. We are also focused on the collection of clinical data supporting the cost-effectiveness and improved patient outcomes of our Powerheart CRM.

Competition

Our principal competitors in the AED market are Medtronics’ PhysioControl division and Philips Heartstream. We also compete against other participants in this marketplace, including ZOLL and other smaller competitors.

Our experience indicates that the key criteria that buyers of AEDs exhibit in their purchasing decision is:

We believe that our Powerheart AED compares favorably with competitors’ products in the AED market on these factors as well as on other competitive determinants.

The Powerheart CRM is the only FDA-cleared external defibrillator that provides fully automatic detection and treatment for patients suffering from life-threatening arrhythmias. We compete against numerous companies in the hospital marketplace where we sell our Powerheart CRM, as well as our line of Diascope G2 patient monitors.

Manufacturing

We manufacture our Powerheart AEDs and Powerheart CRMs at our 15,000 square foot manufacturing facility in Minnetonka, Minnesota. Our current in-place assembly and manufacturing capacity will allow us to build approximately 80,000 AEDs annually. We outsource the manufacture of major subassembly components such as printed circuit boards primarily for the benefit of reduced cost.

Our FDA-registered Minnetonka facility is ISO certified for the design and manufacture of medical products. Our certifications allow us to design and manufacture medical products with the CE mark for shipment to Europe and to ship FDA-cleared products in the United States.

The manufacturing processes used to produce our products are required to comply with FDA enforced GMP regulations which cover the design, testing, production, control and documentation of our products. In those foreign jurisdictions where we market our products, we are also required to comply with and obtain regulatory

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approvals and clearances. These regulatory requirements also apply to our third party contract manufacturers, as well as to some of our suppliers. The FDA and foreign counterparts conduct periodic inspections of manufacturing facilities to ensure compliance with “Quality System Regulation,” GMP, and other regulations, such as those promulgated by the International Standards Association. Any concern raised by such inspections could result in regulatory action, delays or termination of production.

Intellectual Property

We believe that our intellectual assets, including trademarks, patents, trade secrets and proprietary technology, are extremely valuable and constitute a cornerstone of our business. We own 70 U.S. and foreign patents relating to our automatic defibrillation technology platform and its various applications. We intend to file additional patent applications relating to each of our products and our underlying proprietary technology, as well as around new technological inventions that we are developing. We believe that our patents and proprietary technology provide us with a competitive advantage over our competitors. We will aggressively defend our inventions and also look for opportunities to generate royalty fees from licensing our intellectual property.

We have a wide range of patents covering the technology found in our AEDs, including our RescueReady technology, which features one button operation, pre-connected disposable electrode pads and self-test capabilities. Other patents we have been issued cover our proprietary RHYTHMx arrhythmia detection software technology, our STAR Biphasic defibrillation waveform technology and our disposable therapy electrodes.

During 2002, we were granted five additional U.S. patents and one European patent relating to our core technology and key aspects of our RHYTHMx analysis algorithm software.

Clinical Studies

We are actively engaged in, and are pursuing the sponsorship of, clinical studies at hospital medical centers both in the U.S. and Europe, relating to our Powerheart CRM product. These studies are primarily focused on demonstrating clinical efficacy, along with improved survival rates and the economic benefits associated with deployment of our Powerheart technology for hospitalized at-risk cardiac patients. We anticipate that the results of these studies will be presented in abstract form at conferences, and if accepted, as manuscripts published in peer reviewed medical journals. Various studies are either ongoing, planned or proposed, at luminary medical centers such as Maimonides Medical Center, Duke University Medical Center, Jackson Memorial Hospital at the University of Miami, Arizona Heart Institute and St. Georges Hospital in Hamburg, Germany.

A recent 117-patient, 10-center study, published February 2003, in the Journal of the American College of Cardiology, demonstrates that our Powerheart CRM is not only safe and effective, but significantly shortens hospital response time to SCA. Because time to defibrillation is critical to patient survival, the study investigators concluded that our Powerheart CRM has the potential to significantly improve the outcome of patients with SCA.

Government Regulation

In the United States, clinical testing, manufacturing, packaging, labeling, promotion, marketing, distribution, registration, record keeping and reporting, clearance or approval of medical devices generally are subject to regulation by the FDA. Medical devices intended for human use are classified into three categories, subject to varying degrees of regulatory control. Class III devices, which we believe cover certain of our products, are subject to the most stringent controls.

In October 1997, we received 510(k) clearance from the FDA to market the clinical version of the original Powerheart in the United States. In August 1998, we received 510(k) clearance from the FDA to market RHYTHMx and to integrate it into other stand-alone defibrillator monitors. In January 2000, we received clearance from the FDA to market the commercial version of the original Powerheart in the United States. In

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February 2001, we received notification from the FDA that allows our original Powerheart to be used in outpatient surgery centers, nursing homes and at home when prescribed by a physician. In December 2001, the FDA granted us 510(k) clearance to market our Powerheart CRM in medically supervised environments such as hospitals, medical and dental surgery centers, physician offices, clinics and nursing homes. In October 2001, the FDA granted us 510(k) clearance to market a new advanced version of our monitoring-defibrillation-pacing electrodes.

In February, 2002, the FDA granted us 510(k) clearance to market our Powerheart AED for the emergency treatment of victims of sudden cardiac arrest and in January 2003, the FDA granted us 510(k) clearance to market our Powerheart AED for use on children under eight-years of age.

We have also received the necessary approvals to market the Powerheart CRM, Powerheart AED and related product accessories within Europe, Canada, Australia and other regions of the world.

Our products are be subject to FDA review of labeling, advertising and promotional materials, as well as record keeping and reporting requirements. Failure to comply with any of the FDA’s requirements, or the discovery of a problem with any of the products, could result in FDA regulatory or enforcement action. Further, any changes to the products or their labeling may require additional FDA submissions, review, clearance or approval.

Research and Development

We are committed to improving and expanding our product line through the application of our existing patented and proprietary technology, and through the research and development of new technology. Our core RHYTHMx and STAR Biphasic technologies have multiple patient monitoring and therapeutic applications, and we continue to seek out new device embodiments integrating our proprietary technology, enhancing or expanding our own product line, or by licensing to a third-party.

We expect to commercially release a new version Powerheart AED in the second half of 2003. We are also developing a small, lightweight, easy-to-use, personal wearable defibrillator, our PWD, which is designed to be attached to patients who are mobile and who are at risk of SCA.

Research and development expenses for the years ended December 31, 2002, 2001 and 2000 were $6.1 million, $8.6 million, and $8.3 million, respectively. We intend to continue to devote resources and capital to research and development so we can improve and refine our existing products and technology, develop and commercialize our products currently under development, and develop new applications for our technology.

Backlog

As of December 31, 2002, we had a backlog of $877,924 firm orders, as compared to a backlog of $2,274,000 as of December 31, 2001. The majority of the backlog in 2001 was related to Artema-brand emergency defibrillators and patient monitoring products.

Employees

As of December 31, 2002, we had 197 full-time employees, of which 105 employees were involved in worldwide sales and marketing functions, 17 were involved in supporting our research and development activities, 46 were in manufacturing and 29 were general and administrative personnel. None of our employees are represented by a collective bargaining arrangement and we believe our relationship with our employees is satisfactory. We intend to add additional personnel as we implement our business strategy.

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General Information

We maintain an Internet website at www.cardiacscience.com where our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and all amendments to those reports are available without charge, as reasonably practicable following the time they are filed with or furnished to the SEC.

A Warning About Forward-Looking Information and the Safe Harbor Under the Securities Litigation Reform Act of 1995

This Annual Report on Form 10-K and the other reports, releases, and statements (both written and oral) issued by us and our officers from time to time may contain statements concerning our future results, future performance, intentions, objectives, plans, and expectations that are deemed to be “forward-looking statements.” These statements, including statements regarding: