Quinton Cardiology Systems, Inc. Begins Manufacturing Medical Treadmills

Business Wire, Oct 3, 2002

Business Editors & Health/Medical Writers

BOTHELL, Wash.--(BUSINESS WIRE)--Oct. 3, 2002

Quinton Cardiology Systems, Inc. (Nasdaq:QUIN), a global leader in advanced cardiology products, announced today that it has begun manufacturing medical treadmills.

Quinton announced yesterday the acquisition of the medical treadmill assets from Stairmaster Health & Fitness Products, Inc., a subsidiary of The Nautilus Group, Inc., (NYSE:NLS) of Vancouver, Wash.

In 1999, Quinton sold its fitness division, including the medical treadmill line to Stairmaster, Inc., in order to reduce debt and focus development on diagnostic cardiology technology. During the interim time, Quinton has continued distributing these treadmills exclusively, pursuant to an OEM supply agreement with Stairmaster. In February 2002, Nautilus acquired Stairmaster. Since the sale of the line by Quinton to Stairmaster, the medical treadmill production has remained in the same facility, using space subleased from Quinton.

Medical treadmills are an integral component of cardiac stress testing systems and cardiac rehabilitation systems. Quinton is a market leader in both areas and has a worldwide reputation for high quality medical treadmills. By regaining control of its medical treadmill line, Quinton will continue to evolve the underlying technology in concert with advances in its cardiac monitoring systems. The Company also expects to pursue design changes which will provide updated features, drive reduction in per-unit costs and possibly result in an array of medical treadmills at different price points.

Despite the importance of treadmills to certain of Quinton's cardiac monitoring systems, the Company's principal focus will remain on the development of computer technology for diagnostic cardiology systems.

In connection with the transaction, Quinton will also manufacture certain treadmills under an OEM contract for two years, subject to certain terms and conditions. Quinton expects revenue from the sales of these treadmills to be approximately $1.5 million annually, for the term of the contract. Revenue in the fourth quarter of 2002 is expected to be relatively insignificant. Accordingly, Quinton does not expect the acquisition to have a significant impact on fourth quarter financial results. The Company expects, however, that the acquisition will have a positive impact on overall results in 2003 and beyond. Quinton may pursue additional opportunities to sell medical treadmills on an OEM basis in the future. Although the gross profit margins on these sales would be expected to be relatively low in comparison with the margins on Quinton's other products, the contribution of these sales to operating profit could be significant.

As a result of the acquisition, Quinton has added eight people to its full time staff and expects to add another five people in the near future. Quinton does not expect a significant interruption in manufacturing as a result of the transaction.

Consideration for the acquisition included $1,000,000 in cash and approximately $900,000 in notes, payable over two years.

Quinton Cardiology Systems, a global provider of cardiology solutions for nearly half a century, is a leading provider of cardiac stress testing systems, cardiac rehabilitation equipment, Holter monitoring devices, ECG management systems and hemodynamic monitoring solutions.

This press release contains forward-looking statements, including, but not limited to, those relating to expected future sales of treadmills, expected reductions in costs of treadmills, the overall impact of the acquisition of the treadmill assets on future profitability, possible future treadmill design changes and the expected stability of its manufacturing operations, all of which involve a number of risks and uncertainties. These are forward-looking statements for purposes of the safe harbor provisions under the Private Securities Litigation Reform Act of 1995. The words "believe," "expect," "intend," anticipate," variations of such words, and similar expressions identify forward-looking statements, but their absence does not mean that the statement is not forward-looking. Actual results may vary significantly from the results expressed or implied in these statements. Factors that could cause or contribute to such varying results include, but are not limited to, reduced demand for our products, delays in our product development activities and commercial introduction of product enhancements and new products, changes in competitors' products or their pricing which may impair the market acceptance of our products or force us to lower our prices, our inability to establish or maintain distribution and similar arrangements with third parties that may be necessary to expand market penetration in our existing markets and enter into new markets, disruptions in supplies or increases in prices of certain components we use in our products, the impact of acquisitions and divestitures and our inability to maintain good relationships with our employees. These and other risks are more fully described under the caption "Risk Factors" included in the Prospectus and other documents, as filed with the Securities and Exchange Commission by Quinton Cardiology Systems, Inc. Quinton undertakes no duty or obligation to update the information provided herein.