<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended JUNE 30, 1999
------------------------------------------------
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
Commission file number 0-19567
--------
CARDIAC SCIENCE, INC.
- -------------------------------------------------------------------------------
(Exact name of Small Business Issuer as specified in its charter)
DELAWARE 33-0465681
- -------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1176 MAIN STREET, SUITE C, IRVINE, CALIFORNIA 92614
- -------------------------------------------------------------------------------
(Address of principal executive offices)
Issuer's telephone number, including area code: (949) 587-0357
Check whether the issuer (1) filed all reports required to be filed 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
--- ---
The number of shares of the Common Stock of the registrant outstanding as of
August 4, 1999 was 9,189,732.
<PAGE>
CARDIAC SCIENCE, INC.
INDEX TO FORM 10-QSB
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
Item 1. Financial Statements:
Consolidated Condensed Balance Sheets as of June 30, 1999 (Unaudited)
and December 31, 1998 3
Consolidated Condensed Statements of Operations (Unaudited) for the
Three and Six months ended June 30, 1999 and 1998 4
Consolidated Condensed Statements of Cash Flows (Unaudited) for the
Six months ended June 30, 1999 and 1998 5
Consolidated Condensed Notes to Financial Statements (Unaudited) 6
Item 2. Management's Discussion and Analysis or Plan of Operation 9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 2. Changes in Securities and Use of Proceeds 13
Item 3. Defaults Upon Senior Securities 13
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 14
</TABLE>
2
<PAGE>
ITEM 1. FINANCIAL STATEMENTS
CARDIAC SCIENCE, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
(Unaudited)
June 30, December 31,
1999 1998
------------------ -------------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 1,165,120 $ 1,247,602
Prepaid expenses 35,830 30,129
------------------ -------------------
Total current assets 1,200,950 1,277,731
Equipment, net 227,318 117,710
Investment in unconsolidated affiliate 115,000 115,000
Other assets 45,266 45,266
------------------ -------------------
$ 1,588,534 $ 1,555,707
================== ===================
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current portion of capital lease obligation $ 19,016 $ 3,413
Accounts payable and accrued expenses 1,337,893 1,599,216
Notes payable 62,498 225,000
------------------ -------------------
Total current liabilities 1,419,407 1,827,629
------------------ -------------------
Long term portion of capital lease obligation 85,498 16,001
------------------ -------------------
Stockholders' Equity (Deficit):
Preferred Stock - $.001 par value; 1,000,000 shares authorized, none
issued or outstanding --- ---
Common stock - $ 0.001 par value; 20,000,000 shares authorized, 9,050,832
issued and outstanding at June 30, 1999 and 7,014,738 at
December 31, 1998 9,051 7,015
Common stock subscribed --- 100,000
Additional paid-in capital 14,397,053 10,823,448
Accumulated deficit (14,322,475) (11,218,386)
------------------ -------------------
Total stockholders' equity (deficit) 83,629 (287,923)
------------------ -------------------
$ 1,588,534 $ 1,555,707
================== ===================
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
<PAGE>
CARDIAC SCIENCE, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, 1999 June 30, 1998 June 30, 1999 June 30, 1998
(Restated see (Restated see
Note 5) Note 5)
---------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Operating expenses:
Research and development $ 1,072,282 $ 561,520 $ 1,669,310 $ 979,799
Selling expenses 404,672 71,943 679,921 121,994
General and administrative 468,513 356,235 749,625 608,400
---------------- --------------- --------------- ---------------
Loss from continuing operations (1,945,467) (989,698) (3,098,856) (1,710,193)
Interest (expense) net (460) (5,097) (3,632) (9,126)
---------------- --------------- --------------- ---------------
Loss from continuing operations before provision for
income taxes (1,945,927) (994,795) (3,102,488) (1,719,319)
Provision for income taxes --- --- 1,600 1,600
---------------- --------------- --------------- -- ---------------
Net loss from continuing operations (1,945,927) (994,795) (3,104,088) (1,720,919)
Loss from discontinued operations, net of
income taxes --- (88,705) --- (74,087)
---------------- --------------- --------------- ---------------
Net loss $ (1,945,927) $ (1,083,500) $ (3,104,088) $ (1,795,006)
================ =============== =============== ===============
Basic and diluted loss per share $ (0.24) $ (0.22) $ (0.40) $ (0.36)
================ =============== =============== ===============
Number of shares used in the computation of loss
per share 8,198,222 5,015,329 7,671,205 5,000,030
================ =============== =============== ===============
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
<PAGE>
CARDIAC SCIENCE, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six months ended Six months ended
June 30,1999 June 30,1998
(Restated see
Note 5)
------------------- --------------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (3,104,088) $ (1,795,006)
Adjustments to reconcile net loss to net
cash used in operating activities from continuing operations:
Loss from discontinued operations --- 74,087
Depreciation and amortization 28,337 14,275
Compensation related to fair value of options granted to non-
employees 9,400 ---
Expenses paid with common stock 218,295 20,000
Changes in operating assets and liabilities,exclusive of Diagnostic
Monitoring:
Prepaid expenses (5,700) 64,008
Accounts payable and accrued expenses (467,988) 461,790
------------------- --------------------
Net cash used in operating activities from continuing operations (3,321,744) (1,160,846)
------------------- --------------------
Net cash used by discontinued operations --- (45,105)
------------------- --------------------
Cash flows from investing activities:
Purchase of equipment (52,846) (26,165)
------------------- --------------------
Net cash used by investing activities (52,846) (26,165)
------------------- --------------------
Cash flows from financing activities:
Payments on notes payable (162,502) (23,540)
Proceeds from line of credit 200,000
Proceeds from common stock subscribed 1,000,000
Proceeds from issuance of common stock 3,700,000 ---
Proceeds from exercise of common stock warrants 350 2,000
Costs of equity issuances (245,740) (96,959)
------------------- --------------------
Net cash provided by financing activities 3,292,108 1,081,501
------------------- --------------------
Net decrease in cash and cash equivalents (82,482) (150,615)
Cash and cash equivalents at beginning of period 1,247,602 561,351
------------------- --------------------
Cash and cash equivalents at end of period $ 1,165,120 $ 410,736
================== ====================
</TABLE>
The accompanying notes are an integral part of the financial statements
5
<PAGE>
CARDIAC SCIENCE, INC.
CONSOLIDATED CONDENSED NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 1999
1. ORGANIZATION AND CAPITALIZATION OF THE COMPANY
Cardiac Science, Inc. (the "Company") was incorporated on May 20, 1991
to develop, manufacture and market software driven non-invasive (non-surgical)
fully automatic external cardioverter defibrillator devices ("AECD") (the
"Products") to treat persons suffering from or at high risk of life-threatening
ventricular tachyarrhythmias. The Products, all of which are still under
development, are designed to continuously monitor, quickly detect and then
automatically, through transmission of electrical energy charges to the
patient's heart, terminate the ventricular tachyarrhythmia (abnormally fast
heart rate) and/or ventricular fibrillation (quivering of the heart following
tachyarrhythmia, which usually results in death) and convert the patients heart
back to a normal rhythm. The key benefit of the Company's AECD technology is its
ability to provide immediate defibrillation therapy without human intervention
for hospitalized patients at risk of cardiac arrest.
On April 11, 1997, the Company acquired Innovative Physician
Services, Inc. (d.b.a. Diagnostic Monitoring). The Company sold substantially
all of the assets of Diagnostic Monitoring on December 31, 1998 (see notes 4
and 5).
2. CONTINUED EXISTENCE
Additional capital is needed to fulfill the Company's current
marketing, research and product development goals. Through June 30, 1999, the
Company incurred losses of approximately $14.3 million. Recovery of the
Company's assets is dependent upon future events, the outcome of which is
indeterminable. Additionally, successful completion of the Company's development
program and its transition to attain profitable operations is dependent upon
achieving a level of revenues adequate to support the Company's cost structure.
The Company anticipates that its current cash balance will be sufficient to meet
the Company's cash requirements through August 31, 1999. Given the current
applications of cash, the Company expects that additional capital will be
necessary to sustain growth and viability. In this respect, the Company is
considering a number of alternatives, including additional equity financings and
corporate partnerships. There can be no assurance that any such transactions
will be available at terms acceptable to the Company, if at all, or that any
financing transaction will not be dilutive to current stockholders, or that the
Company will have sufficient working capital to fund future operations. If the
Company is not able to raise additional funds, it may be required to
significantly curtail or cease its operating activities. The accompanying
financial statements have been prepared assuming that the Company will continue
as a going concern.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
In the opinion of the Company's management, the accompanying
consolidated condensed unaudited financial statements include all adjustments
(which consist only of normal recurring adjustments) necessary for a fair
presentation of its financial position at June 30, 1999 and results of
operations and cash flows for the periods presented. Although the Company
believes that the disclosures in these financial statements are adequate to make
the information presented not misleading, certain information and disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted and should be read
in conjunction with the Company's audited financial statements
6
<PAGE>
included in the Company's 1998 Annual Report on Form 10-KSB. Results of
operations for the six months ended June 30, 1999 are not necessarily
indicative of results for the full year.
4. INVESTMENT IN UNCONSOLIDATED AFFILIATE
On December 31, 1998, the Company acquired a 7.7% voting interest in
Biosensor as partial consideration for the sale of substantially all of the
assets of Diagnostic Monitoring. The Company accounts for this investment using
the equity method of accounting in accordance with Accounting Principles Board
Opinion No. 18.
5. DISCONTINUED OPERATIONS
On December 31, 1998, the Company completed the sale of substantially
all of Diagnostic Monitoring's assets to Biosensor, a Minnesota corporation,
pursuant to an Agreement for Purchase and Sale of Assets dated December 31,
1998. The Company received, in consideration for the sale, 1,440,000 shares of
common stock of Biosensor valued at $115,000. In addition, Biosensor assumed
certain liabilities amounting to approximately $107,000.
The Company has restated its prior financial statements to present the
operating results of Diagnostic Monitoring as a discontinued operation. Included
in the loss from discontinued operations is amortization of goodwill of $32,856.
Operating results from discontinued operations are as follows:
<TABLE>
<CAPTION>
For the three For the six
months ended months ended
June 30, 1999 June 30, 1999
------------------ -----------------
<S> <C> <C>
Sales $ 355,644 $ 802,356
Cost of sales 226,650 517,013
----------------- -----------------
Gross profit 128,994 285,343
Operating expenses:
Research and development 15,932 17,391
Selling 143,350 232,817
General and administrative 58,417 108,422
----------------- -----------------
Loss from discontinued operations (88,705) (73,287)
Interest income (expense), net --- ---
----------------- -----------------
Loss from discontinued operations before
provision for income taxes (88,705) (73,287)
Provision for income taxes --- 800
----------------- -----------------
Net loss from discontinued operations $ (88,705) $ (74,087)
================= =================
</TABLE>
6. PRIVATE PLACEMENTS
For the period of April 1, 1999 through May 28, 1999, the Company
completed the sale of 1,200,000 shares of common stock and three-year
warrants to purchase 350,000 shares of common stock at $2.50 per share, for
an aggregate purchase price of $2,800,000 to foreign investors in an offshore
transaction pursuant to Regulation S promulgated under the Securities Act of
1933. In connection with the offering, the Company is obligated to pay a
finder a
7
<PAGE>
fee equal to ten percent of the gross proceeds of the sale, payable in cash
or common stock.
On April 1, 1999, the Company issued 10,000 shares of common stock
to a consultant in consideration for $21,250 of services rendered. The shares
were issued pursuant to Section 4(2) of the Securities Act of 1933.
On May 26, 1999, the Company issued 52,500 shares of common stock to
Zevex, Inc., the Company's contract manufacturer, in consideration for
$111,563 of services rendered. The shares were issued pursuant to Section 4(2)
of the Securities Act of 1933.
On May 26, 1999, the Company sold 200,000 shares of common stock and
three-year warrants to purchase 50,000 shares of common stock at $2.50 per
share, to Medtronic Physio-Control Corp. for an aggregate purchase price of
$400,000. The securities were sold pursuant to Section 4(2) of the Securities
Act of 1933 and Regulation D promulgated thereunder.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
GENERAL
The following discussion should be read in conjunction with the
consolidated financial statements and notes thereto set forth elsewhere in this
Quarterly Report on Form 10-QSB.
We are engaged in the development of non-invasive fully-automatic
external cardioverter defibrillation devices for the treatment of ventricular
tachyarrhythmias that lead to cardiac arrest. We commenced operations in May
1991. Until our acquisition of Diagnostic Monitoring in April 1997, our
operations consisted primarily of research and development activities and
clinical FDA testing. Diagnostic Monitoring manufactured PC-based Holter
Electrocardiogram systems and Ambulatory Holter recorders and distributed these
products in over 40 countries. We sold substantially all of the assets of
Diagnostic Monitoring on December 31, 1998 (see note 5 of the consolidated
financial statements).
Cardiac arrest is the single largest cause of death in the United
States and Europe. Our mission is to increase the survival rate of cardiac
arrest victims and create a new standard of care through the development and
commercialization of our proprietary automatic defibrillation technology.
We have three products under development that utilize our proprietary
technology. Our initial product, the Powerheart, is a bedside
defibrillator-monitor designed for in-hospital use. The Powerheart attaches
prophylactically to at risk cardiac patients for the purpose of providing
fully-automatic detection and treatment of life-threatening tachyarrhythmias
(abnormal rhythms of the heart), such as ventricular tachycardia (dangerously
rapid heart rate) and ventricular fibrillation (quivering of the heart), that
lead to cardiac arrest. The second product under development, the RHYTHMx ECD
module, is designed for integration into bedside patient monitoring systems.
Functionally, the RHYTHMx ECD module extends patient monitoring systems beyond
diagnostics to provide patients who suffer life-threatening tachyarrhythmias
with the added protection of automatic therapy delivery without human
intervention. . We believe the Powerheart and RHYTHMx ECD will be ideally suited
for hospitalized patients temporarily at risk (periods ranging from days to
months) of suffering cardiac arrest. . The third product under development is a
fully-automatic public access defibrillator that can be used by first responders
and other non-technical individuals outside of the hospital environment.
In December 1998, we entered into a five-year exclusive distribution
and licensing agreement with the world leader in external defibrillation,
Medtronic Physio-Control, a subsidiary of Medtronic, Inc. Medtronic
Physio-Control will market the Powerheart in the U.S., Canada and selected
European countries, and also has been licensed to integrate the AECD
Technology into Medtronic's LIFEPAK-Registered Trademark- line of in-hospital
external defibrillators. We have signed distribution agreements to date
covering 24 other international markets giving Cardiac Science representation
in 35 countries.
We have received 510(k) clearance from the U.S. Food and Drug
Administration for the clinical version of the Powerheart and have also received
FDA 510(k) clearance for its proprietary AECD Technology platform, which we plan
to integrate into third-party manufactured bedside monitoring and defibrillator
systems.
We have been issued one patent, and have one additional patent under
exclusive license. We are in the process of filing additional patents relating
to our proprietary technology.
9
<PAGE>
RESULTS OF OPERATIONS
Research and development expenses increased to $1,072,282 and
$1,669,310, respectively, for the three and six months ended June 30, 1999, from
$561,520 and $979,799, respectively, for the three and six months ended June 30,
1998. This increase was due to engineering and pre-production costs associated
with the commercialization of the Powerheart. Included in these costs were
increases in personnel costs and related fringes, and costs associated with
independent engineering contractors.
Selling expenses increased to $404,672 and $679,921, respectively, for
the three and six months ended June 30, 1999, from $71,943 and $121,994,
respectively for the three and six months ended June 30, 1998. The increase was
a result of pre-marketing expenses related to the Powerheart including costs
associated with the development of marketing literature and the addition of
personnel and related fringes.
General and administrative expenses increased to $468,513 and $749,625,
respectively, for the three and six months ended June 30, 1999, from $356,235
and $608,400 for the three and six months ended June 30, 1998. The increase in
expenses for the quarter and six months ended June 30, 1999 as compared to the
same periods in 1998 included personnel costs and related fringes, consulting
and professional fees.
Interest expense, net, decreased to $460 and $3,632 for the three month
and year to date period ended June 30, 1999 as compared to $5,097 and $9,126,
respectively, for the same periods in the prior year due to the reduction of the
bank line of credit and investment of the proceeds from private placements.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1999, we had cash and cash equivalents of $1,165,120 and a
working capital deficit of $218,457 as compared to cash and cash equivalents of
$1,247,602 and negative working capital of $549,898 at December 31, 1998. From
inception, our sources of funding for operations were derived from equity
placements aggregating approximately $14,900,000. We have incurred losses of
$14,322,475 since inception, and we expect to incur substantial additional
operating losses as a result of expenditures related to marketing and sales
efforts, research and product development activities and costs associated with
the development of a commercial model and pre-production costs for the
Powerheart. The timing and amounts of these expenditures will depend upon many
factors, some of which are beyond our control, such as the requirements for and
time required to obtain approval of 510(k) applications or other regulatory
approvals, the progress of research and development programs, and market
acceptance of our products.
We have raised $3,700,000 in a series of private equity placements for
the six month period ending June 30, 1999. In connection with these private
placements we paid certain fees and expenses. Additional capital will be needed
to fulfill our marketing, research and product development goals. Successful
completion of our development program for our products and transition to attain
profitable operations is dependent upon achieving a level of revenues adequate
to support the required cost structure.
We anticipate that the current cash balance will be sufficient to meet
our cash requirements into September 1999. Given the current applications of
cash, we expect that additional capital will be necessary to sustain growth and
viability. In this respect, we are considering a number of alternatives,
including additional equity financings and corporate partnerships. There can be
no assurance that any such transactions will be available on terms acceptable to
us, if at all, or that any financing transaction will not be dilutive to current
stockholders, or that we will have sufficient working capital to fund future
operations. If we are not able to raise additional funds, we may be required to
significantly curtail or cease our operating activities. The accompanying
financial statements have been prepared assuming that we will continue as a
going concern.
10
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YEAR 2000 ISSUE
In the next six months, many companies will face a potentially serious
information systems (computer) problems because many software applications and
operational programs written in the past may not properly recognize calendar
dates beginning in the Year 2000. This problem could force computers to either
shut down or provide incorrect information and could result in an inability to
process transactions or engage in normal business activities. Based on a recent
assessment, we believe that the software we use will not be impacted by the Year
2000 issue. We believe that most of our existing information systems equipment,
primarily composed of personal computers, are Year 2000 compliant. We intend to
replace those systems that are not compliant, the cost of which is not
anticipated to be material. In addition, our initial product, the Powerheart,
and our proprietary technology are not expected to encounter any problems with
the Year 2000 issue. We have initiated communications with our vendors regarding
the Year 2000 Issue. Costs spent to date on the Year 2000 issue are minimal and
we do not expect to incur additional costs which would be considered material.
If we determine that a particular vendor will be impacted by this problem, we
may attempt to identify additional or replacement vendors, which could delay
accessibility of the products and/or services provided by such vendors. Such a
delay or failure to identify an additional or replacement vendor could have a
material adverse effect on our business, operating results and financial
condition.
FORWARD LOOKING STATEMENTS
Except for the historical information contained herein, the matters
discussed herein are forward looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. The forward looking statements
contained in this Quarterly Report on Form 10-QSB are subject to various risks,
uncertainties and other factors that could cause actual results to differ
materially from the results anticipated in such forward looking statements.
Included among the important risks, uncertainties and other factors are those
hereinafter discussed, the accuracy of which is necessarily subject to risks and
uncertainties.
Few of the forward looking statements in this Quarterly Report on Form
10-QSB deal with matters that are within our unilateral control. There is
substantial regulation of the manufacture and sale of medical products,
including many of our products, by governmental agencies in the United States
and foreign countries. These government agencies often have considerable
discretion in determining whether and when to approve the marketing of our
products that have not yet received such approval.
The availability of equity and debt financing to our company is
affected by, among other things, domestic and world economic conditions and the
competition for funds. Potential investors and lenders will be influenced by
their evaluations of our products and comparisons with alternative investment
opportunities.
Many of the our competitors have greater financial resources and
technical capabilities than we do, which may enable such competitors to design
and produce superior products or to market their products in a manner that
achieves commercial success even in the face of technical superiority on the
part of our products.
Our patents may not offer effective protection against competitors.
Competitors may be able to design around our patents or employ technologies not
covered by such patents. In addition, our patents may be challenged, and even if
such patents are upheld, the diversion of financial and human resources
associated with patent litigation could adversely affect our company. We may be
found to be violating the patents of others and forced to obtain a license under
such patents or modify the design of its products.
11
<PAGE>
Rapid technological developments are expected to continue in the
industries in which we compete. We may not be able to develop, manufacture and
market products which meet changing user requirements or which successfully
anticipate or respond to technological changes in a cost-effective and timely
manner.
12
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CARDIAC SCIENCE, INC.
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
None.
Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
For the period of April 1, 1998 through May 28, 1999, we
completed the sale of 1,200,000 shares of our common and
three-year warrants to purchase 350,000 shares of common stock
at $2.50 per share, for an aggregate purchase price of
$2,800,000 to foreign investors in an offshore transaction
pursuant to Regulation S promulgated under the Securities Act of
1933. In connection with the offering, we are obligated to pay a
finder a fee equal to ten percent of the gross proceeds of the
sale, payable in cash or common stock.
On April 1, 1999, we sold 10,000 shares of common stock to a
consultant in consideration for $21,250 of services rendered.
The shares were sold pursuant to Section 4(2) of the Securities
Act of 1933.
On May 26, 1999, we sold 52,500 shares of common stock to Zevex,
Inc., our contract manufacturer, in consideration for $111,563
of services rendered. The shares were sold pursuant to Section
4(2) of the Securities Act of 1933.
On May 26, 1999, we sold 200,000 shares of common stock and
three-year warrants to purchase 50,000 shares of common stock at
$2.50 per share, to Medtronic Physio-Control Corp. for an
aggregate purchase price of $400,000. The securities were sold
pursuant to Section 4(2) of the Securities Act of 1933 and
Regulation D promulgated thereunder.
Item 3. DEFAULTS UPON SENIOR SECURITIES
None.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On May 14, 1999, we held an Annual Meeting of Stockholders in
Irvine, California. The stockholders voted on three matters.
The following votes were cast for the nominees for election of
directors, and all such nominees were elected.
<TABLE>
<CAPTION>
Votes For Votes Against Votes Abstain
<S> <C> <C> <C>
Raymond Cohen 4,598,073 0 5,581
Paul Quadros 4,597,898 0 5,756
Peter Crosby 4,598,073 0 5,581
Howard Evers 4,598,073 0 5,581
</TABLE>
13
<PAGE>
The following votes were cast for the ratification and approval
of the amendment to the Company's 1997 Stock Option/Stock
Issuance Plan to increase the number of shares reserved for
issuance under the plan:
2,633,568 votes for the ratification and approval
182,598 votes against the ratification and approval
1,784,243 votes abstained from voting
The votes cast on the ratification of the selection of
PricewaterhouseCoopers LLP as independent accountants for the
Company for the year ending December 31, 1999 were as follows:
4,599,850 votes for the ratification and appointment
2,980 votes against the ratification and appointment
823 votes abstained from voting
Item 5. OTHER INFORMATION
None.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits:
10.14 Addendum and Modification to
the Distribution and License
Agreement, dated the 2nd day of
December, 1998 by and between
Medtronic Physio-Control Corporation
and Cardiac Science, Inc.
27. Financial Data Schedule.
b) Reports on Form 8-K:
None.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, hereunto duly
authorized.
CARDIAC SCIENCE, INC.
Date: August 13, 1999 /s/ Brett L. Scott
---------------- --------------------------
Brett L. Scott
Chief Financial Officer
14
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ADDENDUM AND MODIFICATION, made this 19th day of May, 1999, to
Distribution and License Agreement, dated the 2nd day of December, 1998 (the
"Agreement"), by and between Medtronic Physio-Control Corporation, formerly
known as Physio-Control Corporation, ("Physio") and Cardiac Science, Inc.
("Cardiac Science").
WITNESSETH:
WHEREAS, pursuant to the Agreement, Physio was (a) appointed as the
exclusive distributor of the Products for sale to the Hospital Market in the
United States and Canada (the "Domestic Territory"), (b) granted a license to
incorporate the Software Technology into any Defibrillator-Monitor
manufactured by or for Physio, which license is exclusive for the Hospital
Market in the Domestic Territory, and (c) issued a warrant ("Warrant") to
purchase 200,000 shares of Cardiac Science common stock at a price of $3.00
per share through November 30, 1999 (the "Expiration Date"); and
WHEREAS, pursuant to the Agreement, Physio's exclusivity as a distributor
of the Products for sale to the Hospital Market in the Domestic Territory is
conditioned upon Physio purchasing a minimum number of Products or Software
Technology (or a combination of both), for sale to the Hospital Market in the
Domestic Territory, following the successful completion (and availability in
commercially reasonable quantities) of Cardiac Science's commercial version
of the Products; and
WHEREAS, pursuant to the Agreement, Physio's exclusivity with respect to
the use of the Software Technology in Defibrillator-Monitors for the Hospital
Market in the Domestic Territory is conditioned upon Physio maintaining its
exclusivity with respect to the sale of Products to the Hospital Market in
the Domestic Territory; and
WHEREAS, Physio and Cardiac Science wish to expand the territory in which
Physio (a) is the exclusive distributor of the Products for sale to the
Hospital Market, and (b) has an exclusive license to use the Software
Technology in Defibrillator-Monitors for the Hospital Market, to include the
United Kingdom (including Northern Ireland and Scotland), Ireland, France,
Germany, the Netherlands, Norway, Finland, Denmark and Sweden (collectively,
the "European Territory"); and
WHEREAS, the parties intend that Physio's exclusivity (a) as a
distributor of the Products for sale to the Hospital Market in the European
Territory be conditioned upon Physio purchasing a minimum number of Products
or Software Technology (or a combination of both), for sale to the Hospital
Market in the European Territory, following the successful completion (and
availability in commercially reasonable quantities) of the commercial, local
language version of the Products, and (b) with respect to the use of the
Software Technology in Defibrillator-Monitors for the Hospital Market in the
European Territory be conditioned upon Physio maintaining its exclusivity
with respect to the sale of Products to the Hospital Market in the European
Territory; and
1
<PAGE>
WHEREAS, the parties wish to extend the Expiration Date of the Warrant;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements herein contained, the parties agree as follows:
1. EXPANSION OF EXCLUSIVE TERRITORY. The territory within which Physio
shall (a) be the exclusive authorized dealer and distributor of the Products
for sale to the Hospital Market, and (b) have the exclusive license to use
the Software Technology in Defibrillator-Monitors for the Hospital Market,
shall include the European Territory in addition to the Domestic Territory.
2. MINIMUM PURCHASES OF PRODUCTS AND SOFTWARE TECHNOLOGY TO RETAIN
EXCLUSIVITY. The following provisions shall be applicable with respect to
Physio retaining exclusivity for (a) the sale of Products to the Hospital
Market, and (b) the use of the Software Technology in Defibrillator-Monitors
for the Hospital Market, in the Domestic Territory and the European Territory.
2.1 SALE OF PRODUCTS - EXCLUSIVITY IN DOMESTIC TERRITORY. The
minimums contained in Section 2.1 of the Agreement for Physio to maintain
exclusivity as a distributor of Products for sale to the Hospital Market in
the Domestic Territory, shall apply only to aggregate purchases of Products
and Software Technology (or a combination of both) for the Domestic Territory.
2.2 SALE OF PRODUCTS - EXCLUSIVITY IN EUROPEAN TERRITORY.
Exclusivity for the sale of Products to the Hospital Market in the European
Territory is conditioned upon Physio purchasing for the European Territory at
least the following minimum number of Products and/or Software Technology (or
a combination of both), following successful completion (and availability in
commercially reasonable quantities) of the commercial version of the Products:
<TABLE>
<S> <C>
First 12 months 225
Second 12 months 300
Third 12 months 400
Fourth 12 months 550
Fifth 12 months 700
</TABLE>
2
<PAGE>
2.3 PERIOD TO CURE; CONSEQUENCES OF FAILURE TO CURE. The
provisions of the second and third paragraphs of Section 2.1 of the Agreement
shall apply separately with respect to the minimum purchases required
pursuant to Section 2.1 and Section 2.2 of this Addendum and Modification to
the Agreement. Cardiac Science's right to develop, manufacture and sell
disposable defibrillator parts with a Proprietary Chip embedded in the
connector component thereof compatible with the Products, in the event
Physio's distribution rights have been terminated in accordance with the
third paragraph of Section 2.1 of the Agreement, shall apply separately for
the Domestic Territory and the European Territory.
2.4 SOFTWARE TECHNOLOGY - EXCLUSIVITY. Physio's exclusive license
with respect to the use of the Software Technology in Defibrillator-Monitors
for the Hospital Market in the Domestic Territory as set forth in Section 4.1
of the Agreement, and in the European Territory, as set forth in Section 1 of
this Addendum and Modification to the Agreement, shall be treated as separate
licenses, so that exclusivity for each of the Domestic Territory and the
European Territory shall be dependent upon Physio separately maintaining its
exclusivity with respect to the sale of Products to the Hospital Market in
each such Territory. Accordingly, the reference in Section 4.1.1 of the
Agreement to Section 2.1 shall mean Section 2.1 of the Agreement as modified
by Section 2 of this Addendum and Modification to the Agreement.
3. COST OF DEMO UNITS FOR THE DOMESTIC AND EUROPEAN TERRITORY. Physio
and Cardiac Science agree that Physio may purchase up to 50 Demo Units of the
Products for the Domestic and European Territory at Manufactured Cost.
4. MARKETING SUPPORT FOR EUROPEAN TERRITORY. Cardiac Science, at its
discretion, shall provide the following marketing support for the Products in
the European Territory: professional journal advertising, product literature
translations and production, product and service training, marketing and
sales support at key cardiology and critical care congresses, and direct
marketing campaigns.
5. EXTENSION OF WARRANT EXPIRATION DATE. The Warrant Expiration Date is
hereby extended to November 30, 2000.
6. DEFINITIONS. Unless the context otherwise requires, (a) terms
defined in the Agreement and used herein shall have the same meaning as in
the Agreement, and (b) the term Exclusive Territory as used in the Agreement
shall include the Domestic Territory and the European Territory.
3
<PAGE>
7. AGREEMENT IN FULL FORCE AND EFFECT. Except to the extent modified
herein the Agreement remains in full force and effect.
MEDTRONIC PHYSIO-CONTROL CORP. CARDIAC SCIENCE, INC.
By: [ILLEGIBLE] By: /s/ Raymond W. Cohen
-------------------------- --------------------------
Title: Executive V.P. Raymond W. Cohen
Title: President & CEO
4
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED CONSOLIDATED CONDENSED BALANCE SHEET AS OF JUNE 30, 1999 AND THE
UNAUDITED CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS FOR THE SIX MONTHS
ENDED JUNE 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 1,165,1200
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,200,950
<PP&E> 353,631
<DEPRECIATION> 126,313
<TOTAL-ASSETS> 1,588,534
<CURRENT-LIABILITIES> 1,419,407
<BONDS> 0
9,051
0
<COMMON> 0
<OTHER-SE> 74,218
<TOTAL-LIABILITY-AND-EQUITY> 1,588,534
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 3,098,856
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,632
<INCOME-PRETAX> (3,102,488)
<INCOME-TAX> 1,600
<INCOME-CONTINUING> (3,104,088)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,104,088)
<EPS-BASIC> (.40)
<EPS-DILUTED> (.40)
</TABLE>
