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U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

For the Quarterly Period Ended May 31, 2003

For The Transition Period from                      to                     

Commission File Number: 0-11868

CARDIODYNAMICS INTERNATIONAL CORPORATION

(Exact name of registrant as specified in its charter)

(858) 535-0202

(Registrant’s telephone number)

Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 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 whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).  Yes x  No  ¨

As of July 10, 2003, 46,200,724 shares of common stock and no shares of preferred stock were outstanding.

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CARDIODYNAMICS INTERNATIONAL CORPORATION

FORM 10-Q

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PART I – FINANCIAL INFORMATION

CARDIODYNAMICS INTERNATIONAL CORPORATION

Balance Sheets

(Unaudited, in thousands, except share data)

Continued

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CARDIODYNAMICS INTERNATIONAL CORPORATION

Balance Sheets (Continued)

(Unaudited, in thousands, except share data)

See accompanying notes to financial statements.

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CARDIODYNAMICS INTERNATIONAL CORPORATION

Statements of Operations

(Unaudited – In thousands, except per share data)

See accompanying notes to financial statements.

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CARDIODYNAMICS INTERNATIONAL CORPORATION

Statements of Cash Flows

(Unaudited – In thousands)

Continued

See accompanying notes to financial statements.

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CARDIODYNAMICS INTERNATIONAL CORPORATION

Statements of Cash Flows (Continued)

(Unaudited – In thousands)

See accompanying notes to financial statements.

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CARDIODYNAMICS INTERNATIONAL CORPORATION

Notes to Financial Statements

(Unaudited)

1. Description of Business

CardioDynamics International Corporation (“CardioDynamics”) is the innovator and market leader of a breakthrough technology called Impedance Cardiography (ICG). We develop, manufacture, and market noninvasive heart-monitoring devices using proprietary BioZ^® ICG technology, with DISQ^® (Digital Impedance Signal Quantifier) technology, AERIS^™ (Adaptive Extraction & Recognition of Impedance Signals) processing and the Z MARC^® Algorithm.

Unlike other traditional cardiac function monitoring technologies, our monitors are noninvasive (without cutting into the body). Our BioZ^® ICG systems obtain data in a safe, efficient and cost-effective manner not previously available in the physician’s office and many hospital settings. Just as Electrocardiography (ECG) noninvasively monitors the heart’s electrical characteristics, ICG makes it possible to noninvasively assess the heart’s mechanical characteristics. Our technology noninvasively monitors the heart’s ability to deliver blood to the body and the amount of fluid in the chest. Our products provide 12 hemodynamic (blood flow) parameters, the most significant of which is cardiac output, or the amount of blood pumped by the heart each minute. Our lead products, the BioZ^® ICG Monitor and the BioZ^® ICG Module for GEMS-IT Patient Monitoring Systems have been cleared by the Food and Drug Administration (FDA) and carry the CE mark.

Our strategic partners include GE Medical Systems Information Technologies (GEMS-IT), Philips Medical Systems, Spacelabs Medical Systems, Vasomedical and SunTech Medical Instruments, Inc.

We were originally incorporated in California in June 1980 and changed our name to CardioDynamics International Corporation in 1993.

a. Basis of Presentation

The information contained in this report is unaudited, but in our opinion reflects all adjustments necessary to make the financial position and results of operations for the interim periods a fair presentation of our operations and cash flows. All such adjustments are of a normal recurring nature. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission. These statements should be read along with the Financial Statements and Notes that go along with our audited financial statements, as well as other financial information for the fiscal year ended November 30, 2002 as presented in our Annual Report on Form 10-K. Financial presentations for prior periods have been reclassified to conform to current period presentation. The results of operations for the three and six months ended May 31, 2003 and cash flows for the six months ended May 31, 2003 are not necessarily indicative of the results that may be expected for the full fiscal year ending November 30, 2003.

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CARDIODYNAMICS INTERNATIONAL CORPORATION

Notes to Financial Statements

(Unaudited)

b. Stock Options

In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based Compensation – Transition and Disclosure, an amendment of FASB Statement No. 123. SFAS No. 148 amends SFAS No. 123, Accounting for Stock-Based Compensation by providing alternative methods of transition for a voluntary change to the fair value method of accounting for stock based employee compensation. In addition, SFAS No. 148 amends the disclosure requirements of SFAS No. 123 to require prominent stock option disclosures in both annual and interim financial statements. The disclosure requirements are effective for financial statements of interim and annual periods ended after December 15, 2002.

At May 31, 2003, we have one stock-based employee compensation plan. We apply APB Opinion No. 25 in accounting for our Plan. Stock-based employee compensation costs are not reflected in net income when the options are granted under the plan and have an exercise price equal to or greater than the market value of the underlying common stock on the date of the grant. No compensation cost has been recognized in the financial statements for the stock options issued to employees since they were all issued at fair market value on the date of grant.

The following table illustrates the effect on net income (loss) and net income (loss) per common share as if we had applied the fair value recognition provisions of SFAS No. 123 to stock based employee compensation:

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CARDIODYNAMICS INTERNATIONAL CORPORATION

Notes to Financial Statements

(Unaudited)

Inventory consist of the following (in thousands):

Property and equipment consist of the following (in thousands):

In the third and fourth fiscal quarters of 2000, we offered no-interest financing for our BioZ^® ICG systems with maturities ranging from 24 to 60 months. The long-term receivables resulting from this financing program are collateralized by the respective systems. In the first fiscal quarter of 2001, we established a similar program through third-party financing companies to replace the internal equipment-financing program. Under certain circumstances, we may continue to provide in-house financing to our customers, although the contracts now typically include market rate interest provisions. Revenue is recorded on these contracts at the time of shipment, when title transfers, and there is no right of return. Interest income is recognized over the term of the contract.

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CARDIODYNAMICS INTERNATIONAL CORPORATION

Notes to Financial Statements

(Unaudited)

Long-term receivables and note receivable consist of the following (in thousands):

Basic net income (loss) per common share is computed by dividing the net income (loss) by the weighted-average number of common shares outstanding during the period. Diluted net income per share is calculated by including the additional shares of common stock issuable upon exercise of outstanding options and warrants in the weighted-average share calculation. The following table lists the dilutive equity instruments, each convertible into one share of common stock (in thousands):

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CARDIODYNAMICS INTERNATIONAL CORPORATION

FORWARD LOOKING STATEMENTS: NO ASSURANCES INTENDED

This Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. This filing includes statements regarding our plans, goals, strategies, intent, beliefs or current expectations. These statements are expressed in good faith and based upon a reasonable basis when made, but there can be no assurance that these expectations will be achieved or accomplished. Sentences in this document containing verbs such as “plan,” “intend,” “anticipate,” “target,” “estimate,” “expect,” and the like, and/or future-tense or conditional constructions (“will,” “may,” “could,” “should,” etc.) constitute forward-looking statements that involve risks and uncertainties. Items contemplating, or making assumptions about, actual or potential future sales, collaborations, trends or operating results, potential market size, growth and penetration rates, also constitute such forward-looking statements.

Although forward-looking statements in this Report on Form 10-Q reflect the good faith judgment of management, such statements can only be based on facts and factors currently known by management. Consequently, forward-looking statements are inherently subject to risks and uncertainties and actual results and outcomes may differ materially from the results and outcomes discussed in, or anticipated by, the forward-looking statements. Factors that could cause or contribute to such differences in results and outcomes, include without limitation, those discussed in our Annual Report on Form 10-K for the year ended November 30, 2002. Readers are urged not to place undue reliance on these forward-looking statements, which speak only as of the date of this Report. We undertake no obligation to revise or update any forward-looking statements in order to reflect any event or circumstance that may arise after the date of this Report. Readers are urged to carefully review and consider the various disclosures made by us in our Annual Report on Form 10-K for the year ended November 30, 2002, which attempt to advise interested parties of the risks and factors that may affect the our business, financial condition, results of operation and cash flows.

The following discussion should be read along with the Financial Statements and Notes to our audited financial statements for the fiscal year ended November 30, 2002, as well as the other interim unaudited financial information for the current fiscal year.

OVERVIEW

CardioDynamics is the innovator and market leader of a breakthrough technology called Impedance Cardiography (ICG). We develop, manufacture, and market noninvasive heart-monitoring devices using our proprietary, patented ICG technology.

Our ICG technology non-invasively monitors the heart’s ability to deliver blood to the body and the amount of fluid in the chest. Our products provide 12 hemodynamic (blood flow) parameters, the most significant of which is cardiac output, or the amount of blood pumped by the heart each minute. Our BioZ^® ICG Monitors have been cleared by the Federal Drug Administration (FDA) and carry the CE mark.

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We sell to physicians and hospitals in the United States through our own direct sales force and distribute our products to domestic hospitals and targeted international markets through a strategic alliance with GE Medical Systems Information Technologies (GEMS-IT) and a network of international distributors. In November 1998, Health Care Finance Administration (HCFA), now known as the Center for Medicare & Medicaid Services (CMS), mandated Medicare reimbursement for our BioZ^® procedures and in January 2001, implemented national uniform pricing throughout the United States. To date, we have sold over 2,600 ICG systems to physician offices and hospital sites throughout the world.

Our products help physicians assess, diagnose, and treat cardiovascular disease, which is the number one killer of adults in the United States. According to the American Heart Association (AHA), approximately one in five Americans has some form of cardiovascular disease. The AHA estimated that over $329 billion was spent in the United States during 2002 as a result of cardiovascular disease and stroke. This figure includes both the direct costs associated with physicians and other professionals, hospital and nursing home services and medication and the indirect costs associated with lost productivity resulting from morbidity and mortality.

Electrocardiogram (ECG) is a widely used noninvasive assessment of the electrical characteristics of the heart. Our ICG technology non-invasively quantifies the mechanical functioning of the heart. Conditions that can interfere with the proper mechanical functioning of the heart include hypertension, congestive heart failure, pulmonary disease, high-risk pregnancy and kidney dysfunction. Our technology complements ECG and supplements information obtained through the five vital signs – heart rate, respiration rate, body temperature, blood pressure and oxygen saturation – quickly, safely and cost effectively. Our customers have suggested noninvasive cardiac output to be the “Sixth Vital Sign.”

Currently, the primary method used to assess hemodynamic parameters is pulmonary artery catheterization (PAC). The invasive PAC procedure requires hospitalization and involves an incision into the patient’s neck or groin region and the insertion of a catheter (plastic tube) into the heart directly into the pulmonary artery. Complications associated with this procedure occur in as many as one in four reported cases and include irregular heartbeats, infection, pulmonary artery rupture and death.

Because of the high risk of complications, physicians generally prescribe PAC only for critically ill patients. In the non-sterile environment of a physician’s office or outpatient clinic, PAC is simply unavailable. As a result, in the great majority of situations, the physician seeking to diagnose cardiovascular disease must indirectly assess the patient’s hemodynamic status by measuring blood pressure, checking the pulse, looking at neck veins and employing subjective examination techniques that are prone to human error. A compelling need exists for objective, noninvasive measurement tools, such as our BioZ^® ICG systems.

During ICG monitoring using our BioZ^® ICG systems, an undetectable electrical signal is sent through our proprietary sensors on the patient’s neck and chest. Our sophisticated DISQ^® (Digital Impedance Signal Quantifier) technology, AERIS^™ (Adaptive Extraction & Recognition of Impedance Signals) processing and Z MARC^® Algorithm analyze and record significant hemodynamic parameters. Based on this data, a physician can quickly and safely identify underlying cardiovascular disorder, assess and diagnose, customize and target treatment, monitor the effectiveness of prescribed medications and more accurately identify potential complications.

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Our objective is to establish our BioZ^® ICG technology as a standard of care in cardiovascular medicine. Key elements of our strategy include efforts to:

RESULTS OF OPERATIONS (Quarters referred to herein are fiscal quarters ended May 31)

Net Sales – Net sales for the second quarter of 2003 were $7,285,000, an increase of 30% over the same three-month period of 2002 in which net sales were $5,623,000. During the first six months of fiscal 2003, net sales were $13,670,000, up 37% from $9,989,000 in the first half of fiscal 2002. The increase in net sales in the second quarter can be attributed to a 21% increase in the number of BioZ Systems sold and a 71% increase in disposable sensor revenue. We sold 183 BioZ Systems and placed nine fee-per-use rentals during our second quarter, up from 151 sold and eight fee-per use rentals in the same quarter last year.

Sales by our domestic direct sales force, which targets physician offices and hospitals, increased 34% in the second quarter of 2003 over the second quarter in 2002, representing 95% of our overall sales for the quarter. We experienced a 25% increase in unit productivity by our direct sales force compared with the same quarter last year, partly driven by lower sales force turnover and the sales support of our clinical application specialists. These specialists assist in three primary areas: pre-sales activities including demonstrations, post sales activities such as initial set-up and training for physician and staff, and ongoing customer support to maintain customer satisfaction and increase recurring sales of our proprietary disposable sensors.

Each time our BioZ^® products are used, disposable sets of four BioZtect^® sensors are required. This recurring sensor revenue increased 71% in the second quarter of 2003 to $1,198,000 accounting for 16% of sales, up from $701,000 or 12% of sales in the same quarter of 2002. The growth was primarily driven by a 58% increase in the number of units in the active installed base along with a 21% increase in the average use per BioZ system in the installed base. Sensor sales for the first six months of fiscal 2003 were $2,175,000, an increase of 74% over sensors sold during the same period last year of $1,248,000. The BioZtect^® sensors for our ICG Module have a list price of $19.95 and we recently increased the list price for our BioZ sensors from $9.95 to $10.95 per application; however, domestic outpatient customers can obtain significant sensor pricing discounts through our discount sensor program in exchange for minimum monthly sensor purchase commitments. At the end of the second quarter of 2003, approximately 46% of our active customer base was participating in the discount sensor program. As the installed base of BioZ^® equipment grows, we expect the revenue generated by our disposable BioZtect^® sensors to continue to increase.

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International sales were $268,000 in the second quarter of 2003, compared with $382,000 in the second quarter of 2002. In the first half of fiscal 2003, international sales were $767,000, a decrease of 2% over international sales of $785,000 in the same six months last year.

Revenue derived from extended service contracts, spare parts, accessories and non-warranty repairs for the second quarter of 2003 was $246,000, up from $221,000 for the three months ended May 31, 2002 and $377,000 versus $354,000 in the first half of 2003 and 2002, respectively. Prior to 2001, our systems included a 13-month warranty, however, since then our new BioZ^® Systems come with a standard five-year warranty. As a result, we do not anticipate that this revenue stream will grow significantly in the near term.

Gross Margin – We generated $5,613,000 of gross margin in the second quarter, up 38% over the same quarter last year in which our gross margin was $4,063,000. As a percentage of sales, our gross margin was 77% in the second quarter, up from 72% in the same quarter last year. In the first half of fiscal 2003, our gross margin percentage was 76% of sales, up from 72% of sales in the same six-month period last year. The increase in gross margin is largely the result of improved manufacturing efficiencies, a decrease in our sensor costs, higher net revenue per unit due to modified leasing company incentive programs and a reduction in the number of demo systems sold at a lower list price.

Research and Development – Our investment in research, product development and clinical studies increased 28% in the second quarter of 2003 to $784,000, from $611,000 in the second quarter of 2002. For the first six months of fiscal 2003 expenditures for research and development increased to $1,520,000 from $1,253,000 during the first six months of fiscal 2002. The majority of the increase can be attributed to the hiring of additional engineering and research personnel providing us with the capacity to focus increased attention on the development of new products and product enhancements.

We entered into a co-development and OEM agreement with Philips Medical Systems in the third quarter of 2002 under which we will develop and manufacture a proprietary ICG module for integration into the Philips 12-lead electrocardiography (ECG) products, providing a combined ECG/ICG monitor. We are expecting this product to be released in the second half of 2004. Under the terms of the agreement, the co-developed products will be sold by both companies. We do not anticipate that this development and OEM agreement will require significant additional development resources, nor do we expect to derive additional revenue from the co-developed product in 2003.

Spending on clinical studies during the first six months of fiscal 2003, decreased approximately $156,000 compared to the same six-month period last year now that Phase I data collection of the PREDICT study has been completed and we are in the process of compiling and analyzing the data. Data collection for the ESCAPE-BIG study, which began in mid 2001, is targeted to be completed and move into the analysis phase by the end of this year.

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Selling and Marketing – Selling and marketing expenses for the second quarter of 2003 were $3,870,000, up 27% over the second quarter of 2002 at $3,049,000. For the six months ended May 31, 2003, selling and marketing expenses were $7,351,000 compared to $5,770,000 for the same six-month period last year. The expense growth was primarily due to higher commission expense on increased sales by our direct sales force and additional allowance for doubtful accounts resulting from higher accounts receivable balances. Selling and marketing expenses for the first half of fiscal 2003 were 54% of sales, down from 58% in the same period last year. This improvement is primarily due to the increased productivity of our domestic sales force. We now have a total of 66 field sales personnel, up 8% over last year at this same time. We plan to increase the number of field sales personnel by approximately 10% to 15% by the end of this year.

General and Administrative – Our general and administrative expenses were $479,000 in the second quarter 2003, compared with $422,000 in second quarter of 2002. For the six months ended May 31, 2003 general and administrative costs were $978,000, compared to $861,000 in the first six months of fiscal 2002. As a percentage of sales, general and administrative expenses for the six months of fiscal 2003 were 7%, down from 9% in the same period last year. This decrease is largely a result of our ongoing focus on administrative cost containment and continued sales growth.

Other Income and Expense – We earned $82,000 of interest income in the second quarter of 2003, up from $76,000 earned in the second quarter of 2002. The increase is primarily due to an increase in the funds available for investment and an increase in the interest received on our internally financed leases. Year to date interest income is slightly down at $175,000, as compared to $182,000 during 2002. The year to date decrease is primarily due to lower interest rates earned on our invested funds. Interest expense for the six months ended May 31, 2003 was $10,000, compared to $6,000 for the same six-month period last year and is primarily related to capital leases.

Net Income (Loss) – Net income in the second quarter of fiscal 2003 was $518,000 or $0.01 per common share, bringing our net income in the first half of 2003 to $634,000 or $0.01 per common share. In fiscal 2002 we had net income in the second quarter of $47,000, or $0.00 per common share, reducing our first half of 2002 net loss to $583,000 or ($0.01) per common share.

LIQUIDITY AND CAPITAL RESOURCES

Net cash provided by operating activities for the first six months of 2003 was $546,000, compared with a use of $720,000 in the first six months of fiscal 2002. The improvement in operating cash flow resulted from the net income earned along with non-cash provisions for depreciation, warranty repairs and doubtful receivables, partly offset by a reduction in accounts payable.

For the first six months of fiscal 2003, $272,000 was invested in property and equipment compared with $92,000 during the same time period last year. Much of the increased investment in fiscal 2003 is for a new computer information system that we are currently in the process of implementing. We expect to convert to the new system early in our fourth quarter of 2003.

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For the first six months of fiscal 2003, $26,000 of cash was provided by financing activities, compared with $823,000 provided during the same six-month period of 2002. The cash provided by financing activities in both periods was primarily the result of the exercise of stock options and warrants.

We have a secured revolving credit line with Comerica Bank that provides for borrowings up to $4,000,000 at the bank’s prime rate through September 2003. All the assets of the Company collateralize the credit line. Under the terms of the agreement, we are required to maintain minimum ratios of current assets to liabilities and not to exceed certain loss levels. At May 31, 2003, there were no outstanding borrowings under the line of credit and it is not anticipated that borrowings will be necessary during the balance of this fiscal year.

We have operating loss carryforwards of approximately $24 million for federal income tax purposes. The Tax Reform Act of 1986 contains provisions that limit the federal net operating loss carryforwards that can be used in any given year in the event of specified occurrences, including significant ownership changes. If these specified events occur we may lose some or all of the tax benefits of these carryforwards. A valuation allowance has been recognized for the full amount of the deferred tax asset created by these carryforwards. As a result of the California state budget shortfall, California has suspended the use of net operating loss carryforwards in 2003 and 2004, which will require us to pay franchise tax on any income earned in California in those years.

Since May 1999, we have raised approximately $24 million through various private placements of common stock to accredited and institutional investors. To date, these financings, together with the line of credit and various loans, have provided the capital required to fund initial commercialization of our BioZ^® products. In the near term, we intend to use our cash on hand and availability under our line of credit to fund ongoing research and development efforts, expansion of our field sales force, capital expenditures and to meet our working capital requirements.

Our long-term liquidity will depend on our ability to further commercialize the BioZ^® and other diagnostic products and to raise additional funds through public or private financing, bank loans, collaborative relationships or other arrangements. We can give no assurance that such additional funding will be available on terms attractive to us, or at all.

OTHER ITEMS

The Company is not a party to off-balance sheet arrangements, does not engage in trading activities involving non-exchange traded contracts, and is not a party to any transaction with persons or activities that derive benefits, except as disclosed herein, from their non-independent relationships with the Company.

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CARDIODYNAMICS INTERNATIONAL CORPORATION

Interest Rate Sensitivity

The primary objective of our investment activities is to preserve principal, while at the same time, maximize the income we receive from our investments without significantly increasing risk. In the normal course of business, we employ established policies and procedures to manage our exposure to changes in the fair value of our investments. Under our current policies, we do not use interest rate derivative instruments to manage exposure to interest rate changes. We attempt to ensure the safety and preservation of our invested principal funds by limiting default risks, market risk and reinvestment risk. We mitigate default risk by investing in investment grade securities. Some of the securities that we have invested in may be subject to market risk. This means that a change in prevailing interest rates may cause the principal amount of the investment to fluctuate. For example, if we hold a security that was issued with a fixed rate equal to the then-prevailing interest rate and the prevailing interest rate later rises, the fair value of our investment will decline. To minimize this risk, we maintain substantially our entire portfolio of cash equivalents in commercial paper, certificates of deposit, money market and mutual funds. Our interest income is sensitive to changes in the general level of U.S. interest rates, however, due to the nature of our short-term investments, we have concluded that there is no material market risk exposure.

Our management, including our Chief Executive Officer (CEO) and Chief Financial Officer (CFO), does not expect that our disclosure controls or our internal controls will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, control may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

The CEO/CFO evaluation of our disclosure controls and our internal controls included a review of the controls’ objectives and design, the controls’ implementation by CardioDynamics and the effect of the controls on the information generated for use in this Quarterly Report. In the course of the controls evaluation, we sought to identify data errors, controls failures or acts of fraud and to confirm that appropriate corrective action, including process improvements, were being undertaken.

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This type of evaluation will be done on a quarterly basis so that the conclusions concerning controls effectiveness can be reported in our Quarterly Reports on Form 10-Q and Annual Report on Form 10-K. The overall goals of these various evaluation activities are to monitor our disclosure controls and our internal controls and to make modifications as necessary; our intent in this regard is that the disclosure controls and the internal controls will be maintained as dynamic systems that change (including with improvements and corrections) as conditions warrant.

Among other matters, we sought in our evaluation to determine whether there were any “significant deficiencies” or “material weaknesses” in the company’s internal controls, or whether the company had identified any acts of fraud involving personnel who have a significant role in the Company’s internal controls. This information was important both for the controls evaluation generally and because Items 5 and 6 in the Section 302 Certifications of the CEO and CFO require that the CEO and CFO disclose that information to our Board’s Audit Committee and to our independent accountants and to report on related matters in this section of the Report.

Our review of our internal controls was made within the context of the relevant professional auditing standards defining “internal controls,” “significant deficiencies,” and “material weaknesses.” “Internal controls” are processes designed to provide reasonable assurance that our transactions are properly authorized, our assets are safeguarded against unauthorized or improper use, and our transactions are properly recorded and reported, all to permit the preparation of our financial statements in conformity with generally accepted accounting principles. “Significant deficiencies” are referred to as “reportable conditions,” or control issues that could have a significant adverse effect on the ability to record, process, summarize and report financial data in the financial statements. A “material weakness” is a particularly serious reportable condition where the internal control does not reduce to a relatively low level the risk that misstatements caused by error or fraud may occur in amounts that would be material in relation to the financial statements and not be detected within a timely period by employees in the normal course of performing their assigned functions. As part of our internal controls procedures, we also address other, less significant control matters that we or our auditors identify, and we determine what revision or improvement to make, if any, in accordance with our on-going procedures.

Our CEO and CFO have, within 90 days of the date of this report, reviewed our process of gathering, analyzing and disclosing information that is required to be disclosed in our periodic reports (and information that, while not required to be disclosed, may bear upon the decision of management as to what information is required to be disclosed) under the Exchange Act of 1934, including information pertaining to the condition of, and material developments with respect to, our business, operations and finances. Based on this evaluation, our CEO and CFO have concluded that our process provides for timely collection and evaluation of information that may need to be disclosed to investors.

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This Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. This filing includes statements regarding our plans, goals, strategies, intent, beliefs or current expectations. These statements are expressed in good faith and we believe had a reasonable basis when expressed, but there can be no assurance that these expectations will be achieved or accomplished. Sentences in this document containing verbs such as “plan,” “intend,” “anticipate,” “target,” “estimate,” “expect,” etc., and/or future-tense or conditional constructions (“will,” “may,” “could,” “should,” etc.) constitute forward-looking statements that involve risks and uncertainties. Items contemplating, or making assumptions about, actual or potential future sales, market size, collaborations, trends or operating results also constitute such forward-looking statements. These statements are only predictions and actual results could differ materially. Certain factors that might cause such a difference as well as other risks are detailed in the Company’s annual report on Form 10-K for the fiscal year ended November 30, 2002 and any later filed SEC reports. Any forward-looking statement speaks only as of the date we made the statement, and we do not undertake to update the disclosures contained in this document or reflect events or circumstances that occur subsequently or the occurrence of unanticipated events.

SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

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CERTIFICATIONS

I, Michael K. Perry, Chief Executive Officer of CardioDynamics International Corporation, certify that:

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CERTIFICATIONS

I, Stephen P. Loomis, Chief Financial Officer of CardioDynamics International Corporation, certify that:

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