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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period
ended June 30,1998 Commission File Number 0-20991
------------
CAMBRIDGE HEART, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 13-3679946
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1 OAK PARK DRIVE
BEDFORD, MASSACHUSETTS 01730
(Address of principal executive offices) (Zip Code)
781-271-1200
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 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
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Number of shares outstanding of each of the issuer's classes of common stock
as of August 7, 1998:
Class Number of Shares Outstanding
- --------------------------------------- ----------------------------
Common Stock, par value $.001 per share 10,824,011
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CAMBRIDGE HEART, INC.
INDEX
PAGE NUMBER
-----------
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BALANCE SHEET AT DECEMBER 31, 1997 AND
JUNE 30, 1998 3
STATEMENT OF OPERATIONS
FOR THE THREE MONTH AND SIX MONTH
PERIODS ENDED JUNE 30, 1997 AND 1998 4
STATEMENT OF CASH FLOWS
FOR THE SIX MONTH PERIOD ENDED
JUNE 30, 1997 AND 1998 5
NOTES TO CONDENSED FINANCIAL
STATEMENTS 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS 7
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS 15
ITEM 5. OTHER INFORMATION 15
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 16
SIGNATURES
This Quarterly Report on Form 10-Q contains forward-looking statements.
For this purpose, any statements contained herein that are not statements of
historical fact may be deemed to be forward-looking statements. Without
limiting the foregoing, the words "believes," "anticipates," "plans," "expects,"
and similar expressions are intended to identify forward-looking statements.
The important factors discussed below under the caption "Certain Factors That
May Affect Future Operating Results," among others, could cause actual results
to differ materially from those indicated by forward-looking statements made
herein and presented elsewhere by the Company's management from time to time.
2
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PART I - FINANCIAL INFORMATION
ITEM 1
FINANCIAL STATEMENTS
BALANCE SHEET
<TABLE>
<CAPTION>
December 31, June 30,
1997 1998
------------ ------------
(Unaudited)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents...................................... $ 5,665,736 $ 4,750,723
Marketable securities.......................................... 7,090,605 4,946,920
Accounts receivable, net....................................... 509,918 386,912
Inventory...................................................... 416,224 408,019
Prepaid expenses and other..................................... 301,127 223,144
------------ ------------
Total current assets......................................... 13,983,610 10,715,718
Fixed assets, net.............................................. 574,660 625,066
Other assets................................................... 190,167 244,633
------------ ------------
$14,748,437 $ 11,585,417
============ ============
Liabilities and stockholders' equity
Current liabilities:
Accounts payable............................................... $ 170,531 $ 353,341
Accrued expenses............................................... 356,606 353,899
------------ ------------
Total current liabilities...................................... 527,137 707,240
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Stockholder's equity:
Common stock, $.001 par value; 25,000,000 shares
authorized; 10,606,041 and 10,743,719 shares
issued and outstanding at December 31, 1997
and June 30, 1998, respectively.............................. 10,606 10,744
Additional paid-in capital..................................... 29,405,685 29,498,704
Accumulated deficit............................................ (15,163,304) (18,628,521)
------------ ------------
14,252,987 10,880,927
Less: deferred compensation.................................... (31,687) (2,750)
------------ ------------
Total stockholders' equity................................... 14,221,300 10,878,177
------------ ------------
$14,748,437 $ 11,585,417
============ ============
</TABLE>
See accompanying notes to condensed financial statements.
3
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CAMBRIDGE HEART, INC.
STATEMENT OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
Three months ended June 30, Six months ended June 30,
-------------------------- -----------------------------
1997 1998 1997 1998
----------- ------------- ----------- -----------
<S> <C> <C> <C> <C>
Revenue........................... $ 418,452 $ 443,344 $ 737,480 $ 850,192
Cost of goods sold................ 332,359 454,230 637,717 810,208
----------- ------------- ----------- -----------
86,093 (10,886) 99,763 39,984
Cost and expenses:
Research and development.......... 1,075,228 956,880 2,028,941 1,963,743
Selling, general and
administrative.................. 924,838 963,595 1,724,021 1,870,342
----------- ------------- ----------- -----------
Loss from operations............ (1,913,973) (1,931,361) (3,653,199) (3,794,101)
Interest income................... 209,569 152,988 465,352 328,884
----------- ------------- ----------- -----------
Net loss.......................... $(1,704,404) $(1,778,373) $(3,187,847) $(3,465,217)
=========== ============= =========== ===========
Net loss per share -- basic and.. $ (0.16) $ (0.17) $ (.31) $ (.33)
=========== ============= =========== ===========
Weighted average common
shares outstanding --
basic and diluted................ 10,401,567 10,661,946 10,362,586 10,643,216
=========== ============= =========== ===========
</TABLE>
See accompanying notes to condensed financial statements.
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STATEMENT OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Six months ended June 30,
---------------------------
1997 1998
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss............................................................................ $ (3,187,847) $ (3,465,217)
Adjustments to reconcile net loss to net
cash used for operating activities:
Depreciation........................................................................ 83,038 122,594
Amortization of deferred compensation............................................... 152,750 4,146
Compensation expense related to non employee stock options.......................... 80,000
Changes in assets and liabilities:
(Increase) decrease in accounts receivable........................................ (122,015) 123,006
(Increase) decrease in inventory.................................................... 16,381 8,205
(Increase) decrease in prepaid expenses and other current assets.................. 199,887 77,983
(Increase) decrease in other assets............................................... 35,343 (54,466)
Increase (decrease) in accounts payable and accrued expenses...................... (38,353) 186,382
Decrease in license fees payable.................................................. (4,253) (6,279)
------------ ------------
Net cash used for operating activities............................................ (2,865,069) (2,923,646)
------------ ------------
Cash flows from investing activities:
Net (purchase) maturity of marketable securities.................................... (4,108,241) 2,143,685
Purchase of fixed assets............................................................ (233,250) (173,000)
------------ ------------
Net cash (used for) provided by investing activities.............................. (4,341,491) 1,970,685
------------ ------------
Cash flows from financing activities:
Proceeds from issuance of common stock 162,594 37,948
------------ ------------
Net decrease in cash and cash equivalents........................................... (7,043,966) (915,013)
Cash and cash equivalents at beginning of period.................................... 18,588,583 5,665,736
------------ ------------
Cash and cash equivalents at end of period.......................................... $ 11,544,617 $ 4,750,723
============ ============
</TABLE>
See accompanying notes to condensed financial statements.
5
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CAMBRIDGE HEART, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(unaudited)
1. NATURE OF BUSINESS
Cambridge Heart, Inc. (the "Company"), was incorporated in Delaware on
January 16, 1990 and is engaged in the research, development and
commercialization of products for the non-invasive diagnosis of cardiac
disease.
2. BASIS OF PRESENTATION
The condensed financial statements have been prepared by the Company
without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally
accepted accounting principles have been omitted pursuant to such rules and
regulations. These condensed financial statements should be read in
conjunction with the financial statements dated December 31, 1997 and the
notes thereto included in the Company's Annual Report on Form 10-K. In the
opinion of management, all adjustments, consisting only of normal recurring
adjustments, necessary to present fairly the financial position of the
Company as of June 30, 1998, and the results of its operations and its cash
flows for the six month periods ended June 30, 1997 and 1998, have been
made. The results of operations for such interim periods are not
necessarily indicative of the results for the full year or any future
period.
Certain amounts in the three month and six month periods ended June 30,
1997 have been reclassified to conform to the current period presentation.
These reclassifications had no effect on the Company's reported net loss.
3. INVENTORIES
Inventories, consisting primarily of purchased components, are stated at
the lower of cost or market. Cost is determined using the first in, first
out (FIFO) method.
4. NET LOSS PER SHARE
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 128 ("SFAS 128"), "Earnings
per Share," which establishes new standards for computing and presenting
earnings per share. The new standard replaces the presentation of primary
earnings per share prescribed by Accounting Principles Board Opinion No. 15
("APB 15"), "Earnings per Share," with a presentation of basic earnings per
share and also requires dual presentation of basic and diluted earnings per
share on the face of the statement of operations for all entities with
complex capital structures. Basic earnings per share excludes dilution and
is computed by dividing income available to holders of common stock by the
weighted-average number of common shares outstanding for the period.
Diluted earnings per share includes dilutive potential common stock (such
as stock subject to repurchase, options,
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warrants and convertible preferred stock) and is computed similarly to
fully-diluted earnings per share pursuant to APB 15. The Company adopted
SFAS 128 and Securities and Exchange Commission Staff Accounting Bulletin
No. 98, which provides new guidance with respect to earnings per share
computations in the periods preceding a company's initial public offering,
in the fourth quarter of fiscal 1997 and has restated all prior periods in
its financial statements.
Consistent with SFAS 128, basic loss per share amounts are based on
the weighted average number of shares of common stock outstanding during
the period. Diluted loss per share amounts are based on the weighted
average number of shares of common stock and potential common stock
outstanding during the period. The Company has excluded potential common
stock from the calculation of diluted weighted average share amounts for
the three and six month periods ended June 30, 1997 and 1998, as its
inclusion would have been anti-dilutive.
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
Cambridge Heart, Inc. (the "Company" or "Cambridge Heart") is engaged in
the research, development and commercialization of products for the non-invasive
diagnosis of cardiac disease, the leading cause of death in the United States
and many other developed countries. Using innovative technologies, including
proprietary disposable electrodes, the Company is addressing such key problems
in cardiac diagnosis as (i) the identification of those at risk of sudden
cardiac death, accounting for approximately 50% of all deaths due to heart
attack, (ii) the early detection of coronary artery disease and (iii) the prompt
and accurate diagnosis of heart attack. The Company has experienced substantial
net losses since its inception, and expects to incur substantial and increasing
net losses for the foreseeable future. The Company believes that its research
and development expenses will increase significantly in the future as it
develops additional products and funds clinical trials of its product
candidates. The Company's research and development expenses may also increase in
the future as it supplements its internal research and development with
additional third party technology licenses and potential acquisition of
complimentary products and technologies. The Company also expects that its
selling, general and administrative expenses will continue to increase in
connection with the Company's continued expansion of its sales and marketing
activities. Revenues generated from the sale of the Company's products will
depend upon numerous factors, including the timing of regulatory actions,
progress of product development, the extent to which the Company's products gain
market acceptance, varying pricing promotions and volume discounts to customers,
competition and the availability of third party reimbursement. The Company has
incurred cumulative net losses since inception through June 30, 1998 of
$18,629,000.
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RESULTS OF OPERATIONS
The Company's principal products are the CH 2000 System and Hi-Resolution
electrodes. Both products have received 510(k) clearance from the Food and Drug
Administration ("FDA") for sale in the United States and have received the CE
mark for sale in Europe and has been approved for sale by the Ministry of Health
in Japan. The 510(k) clearance for the CH 2000 System includes the claim that
the CH 2000 System can measure T-wave alternans but no claim about the
applicability or prognostic value of the T-wave alternans measurement.
The Company has recently completed an additional clinical study designed to
obtain subsequent 510(K) clearance for broader claims. In the final statistical
report received from the Contract Research Organization ("CRO"), the study
results show that all of the study goals have been met in that, 1) the
noninvasive measure of microvolt alternans predicts the results of
Electrophysiology ("EP") testing with a statistical significance of p (less
than)0.0001, and 2) that it met all the other statistical tests defined in the
protocol. The Company expects to make a 510(K) submission to the FDA in the next
few weeks.
The labeling study is the largest study the Company has conducted to date
and examines the ability of T-wave alternans to noninvasively identify patients
susceptible to life threatening rhythm disturbances as indicated by the results
of invasive EP testing. In the study, which was conducted in 9 centers in the
United States, the measurement of T-wave alternans was also compared with signal
average ECG ("SAECG"), an older non-invasive test for determining risk of
arrhythmia, in this prediction. The Company also conducted a follow-up study,
which, in the same patients, compares the results of T-wave alternans to results
of EP testing and SAECG in predicting episodes of life threatening arrhythmias
and sudden cardiac death, the second largest cause of death in the U.S.
The Company expects to receive the final report on the follow up study on
these patients shortly. Preliminary data from this study was previously
presented at the annual meeting of the North American Society of Pacing and
Electrophysiology in May, 1998. The data presented by Michael R. Gold, M.D.,
Ph.D., the study's principal investigator, was on the first 148 patients of the
total 270 enrolled in the Company's labeling study. The data showed T-wave
alternans to be a statistically significant predictor of events (ventricular
arrhythmias and death).
THREE AND SIX MONTH PERIODS ENDED JUNE 30, 1997 AND 1998
Revenue for the three month periods ended June 30, 1997 and 1998 were
$418,452 and $443,344 respectively, an increase of 6%. Revenue for the six month
periods ended June 30, 1997 and 1998 were $737,480 and $850,192, respectively,
an increase of 15%. The Company's domestic revenue increased 58% from $184,485
during the three month period ended June 30, 1997 to $290,916 for the same
period in 1998. For the six month period ended June 30, 1997 and 1998, domestic
revenue increased 84% from $225,737 to $415,254. Since June 30, 1997, the
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Company has increased the total size of its sales force in the United States
from approximately 15 representatives to approximately 40. The domestic revenue
growth for the three and six month periods ended June 30, 1998 primarily results
from this increase in distribution resources. International revenue for the
three month period ended June 30, 1997 and 1998 were $233,967 and $152,428,
respectively, a decrease of 35%. For the six month period ended June 30, 1997
and 1998, international revenue has declined 15% from $511,743 to $434,938.
Effective April 1, 1998, the Company entered into a one year extension of the
exclusive distribution agreement with Fukuda Denshi Co., Ltd. ("Fukuda") for
distribution of the Company's products in Japan. Fewer units were sold to Japan
during the three month period ended June 30, 1998 than the previous year. This
was a planned adjustment for seasonal demand included in the new contract
extension. The contract calls for volumes to return to historical levels in the
next quarter and for the balance of the contract term. Effective April 1, 1998,
the Company entered into a one year exclusive distribution agreement with
Reynolds Medical, Ltd. ("Reynolds") for distribution of the Company's products
in Germany and the United Kingdom. The Company also entered into a one year
exclusive distribution agreement with Image Monitoring ("Image Monitoring") for
distribution of the Company's products in Canada. The current year quarter
includes the initial shipment of demonstration units to the Company's new
distributors in Europe and Canada. Per the distribution agreements, these
initial units were priced below the Company's normal distributor discounted
prices. The Company expects that future units will be at historical Company
prices.
The gross margin for the three month periods ended June 30, 1997 and 1998
were $86,093 (21% of revenues) and ($10,886) (-2% of revenues), respectively.
Gross margin for the six month periods ended June 30, 1997 and 1998 were $99,763
(14% of revenues) and $39,984 (5% of revenues) respectively. The current quarter
results include the effect of unfavorable pricing and product sales mix. Initial
systems sold to the Company's new distributors in Europe and Canada were
demonstration units priced below historical levels. The mix of CH 2000 systems
and CH 2000 systems with T-wave alternans sold to U.S. and international
customers during the three month period ended June 30, 1998 was less favorable
than the same period of 1997. The Company expects that future quarters will
reflect historical pricing and product mix.
Research and development expenses decreased 11% from $1,075,228 in the
three month period ended June 30, 1997 to $956,880 for the same period of 1998.
The prior year period includes approximately $113,200 of costs associated with
employee severance arrangements. The Company continued to incur costs in support
of its clinical trial activities targeted at the filing of a 510(k) with the FDA
for expansion of labeling claims for its T-wave alternans technology. Research
and development expenses for the six month period ended June 30, 1997 and 1998
were $2,028,941 and $1,963,743, respectively, a decrease of 3%.
Selling, general and administrative expenses increased 4% from $924,838 in
the three month period ended June 30, 1997 to $963,595 in the same period in
1998. The prior year period includes approximately $117,300 of costs associated
with employee severance arrangements. The remainder of the increase in costs is
a result of the Company's expansion of its U.S. sales organization and it
marketing efforts in support of the adoption of T-wave alternans testing by
clinical cardiologists. For the six month periods ended June 30, 1997 and 1998,
selling, general and administrative expenses were $1,724,021 and $1,870,342,
respectively, an increase of 8%.
Interest income declined 27% from $209,569 for the three month period ended
June 30, 1997 compared to $152,988 for the same period in 1998. For the six
month periods ended June 30, 1997 and 1998, interest income was $465,353 and
$328,884, respectively, a decrease of 29%. This decrease reflects the decline in
the remaining proceeds of the initial public offering of the Company's common
stock in August 1996, as a result of the operating losses incurred by the
Company.
9
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LIQUIDITY AND CAPITAL RESOURCES
The Company initially financed operations primarily from the sale of
convertible preferred stock. Through June 30, 1996 the Company had raised
$9,065,000 (net of stock issuance costs) from the sale of equity securities.
On August 2, 1996, the Company raised approximately $19,650,000 (net of stock
issuance costs) from the sale of 2,437,750 shares of common stock in the
Company's initial public offering. In conjunction with the initial public
offering, 4,455,708 shares of preferred stock were converted into common stock.
As of June 30, 1998, the Company had cash, cash equivalents and
marketable securities of $9,697,643. The proceeds of the equity offerings have
been used primarily to fund operating losses of $18,629,000, reflecting
expenditures made primarily to support research, new product development, and
clinical trial activities, to support a marketing and sales organization, and to
support an administrative infrastructure and the investment of approximately
$1,248,000 in property and equipment as of June 30, 1998.
During the six month period ended June 30, 1998, the Company's cash, cash
equivalents and marketable securities decreased by $3,058,698, or 24% consistent
with its net loss for the six month period of $3,465,217. Fixed asset additions
during the quarter of $173,000 represent increased sales demonstration and
clinical research units to support the Company's expanded efforts in these
areas.
The Company expects its capital expenditures to increase as it continues to
commercialize its products and expand its clinical trial efforts. The Company
does not expect capital expenditures to exceed an aggregate of $3,000,000 over
the next two years.
Under the terms of various license, consulting and technology agreements,
the Company is required to pay royalties on sales of its products. Minimum
license maintenance fees under these license agreements, which are creditable
against royalties otherwise payable for each year, range from $20,000 to $45,000
per year in total through 2008. The Company is committed to pay an aggregate of
$410,000 of such minimum license maintenance fees subsequent to June 30, 1998.
As part of these agreements, the Company is also committed to meet certain
development and sales milestones, including a requirement to spend a minimum of
$200,000 in any two-year period for research and development, clinical trials,
marketing, sales and/or manufacturing of products related to certain technology
covered by the consulting and technology agreements.
The Company anticipates that its existing capital resources will be
adequate to satisfy its capital requirements until at least June 30, 1999. The
Company's future liquidity and capital requirements will depend on numerous
factors including the success of commercializing the CH 2000 System, the ability
of the Company's suppliers to continue to meet the demands of the Company at
current contract prices, obtaining and enforcing patents important to the
Company's business, the status of regulatory approvals and competition. Changes
in these circumstances could accelerate the Company's use of capital. If this
occurs, the Company may from time to time incur indebtedness or issue, in public
or private transactions, equity or debt securities. However, there can be no
assurance that suitable debt or equity financing will be available to the
Company on acceptable terms, if at all.
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CERTAIN FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS
The Company is engaged primarily in the commercialization, manufacture,
research and development of its products for the non-invasive diagnosis of
cardiac disease. The Company has incurred substantial and increasing net losses
through June 30, 1998. There can be no assurance that the Company will ever
generate substantial revenues or achieve profitability on a quarterly or annual
basis.
The Company believes that its future success substantially depends upon the
successful commercialization and market acceptance of its T-wave alternans
technology. The analysis of T-wave alternans to diagnose ventricular arrhythmia
is a new diagnostic approach that is currently investigational. The Company
anticipates that it will submit 510(K) application for clearance from the FDA
for a labeling claim covering the applicability or prognostic use of its T-wave
alternans technology in the next few weeks. There can be no assurance that the
FDA will concur with the Company's 510(K) request for clearance, or that the FDA
will not require the Company to file a more extensive submission known as a pre-
market approval ("PMA") application. The process for obtaining clearance of a
PMA can be more expensive, uncertain and lengthy than the process of obtaining
510(K) clearance, and frequently requires from one to several years from the
date of submission before approval, if approval is obtained at all. The failure
to obtain 510(K) clearance for additional labeling claims for the CH 2000 System
would have a material adverse effect on the business, financial condition and
results of operations of the Company.
Market acceptance will depend upon the Company's ability to obtain
regulatory clearance or approval for claims covering the applicability or
prognostic use of T-wave alternans measurement, as well as its ability to
demonstrate the diagnostic advantages and cost-effectiveness of the technology.
There can be no assurance that regulatory approval for such claims will ever be
received or that the Company will be able to successfully commercialize or
achieve market acceptance of its T-wave alternans technology or that the
Company's competitors will not develop competing technologies that are superior
to those of the Company.
The Company has sponsored and is continuing to sponsor clinical studies
relating to its T-wave alternans technology and Hi-Res electrodes to establish
the prognostic value of such technology. While these studies on high risk
patients to date have indicated that T-wave alternans is associated with
ventricular arrhythmia to a degree comparable to EP testing, there can be no
assurances that the results of such studies will continue to do so. Any results
of clinical studies or trials which fail to demonstrate that T-wave alternans is
at least comparable in accuracy to alternative diagnostic tests, or which
otherwise call into question the cost-effectiveness, efficacy or safety of this,
or other Company technologies, would have a material adverse effect on the
Company's business, financial condition and results of operations.
The Company's products, product development activities, manufacturing
processes and sales and marketing are subject to extensive and rigorous
regulation by the FDA and comparable regulatory agencies in foreign countries.
In the United States, the FDA regulates the introduction of medical devices as
well as manufacturing, labeling and record keeping procedures for such products.
In order for the Company to market its products for clinical use in the United
States, the Company must obtain from the FDA clearance of a 510(k) pre-market
notification. Marketing clearance or approval for new medical devices from the
FDA can be costly and time consuming, and there can be no assurance that such
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clearance or approval will be granted for the Company's future products on a
timely basis, if at all, or that FDA review will not involve delays that will
adversely affect the Company's ability to commercialize additional product or
expand permitted uses of existing products.
A significant portion of the Company's revenue is dependent upon sales of
its products outside the United States. Foreign regulatory bodies have
established varying regulations, duties and tax requirements. Specifically, the
European Union has promulgated rules which require that medical products receive
the right to affix the CE mark, an international symbol of adherence to quality
assurance standards and compliance with applicable European medical device
directives. There is no assurance that the Company will be able to obtain EC
approval for any future products. The inability or failure of the Company or its
international distributors to comply with varying foreign regulations or the
imposition of new regulations could restrict or, in certain countries, result in
the prohibition of the sale of the Company's products, and thereby adversely
affect the Company's business, financial condition and results of operations.
The medical device market is characterized by intense competition and
rapidly advancing technology. The future success of the Company will depend, in
large part, upon its ability to anticipate and keep pace with advancing
technology and competitive innovations. However, there can be no assurance that
the Company will be successful in identifying, developing and marketing new
products or enhancing its existing products. In addition, there can be no
assurance that new products or alternative diagnostic techniques will not be
developed that will render the Company's current or planned products obsolete or
inferior. Rapid technological development by competitors may result in the
Company's products becoming obsolete before the Company recovers a significant
portion of the research, development and commercialization expenses incurred
with respect to such products.
Competition from competitors' medical devices that help to diagnose cardiac
disease is intense and likely to increase. The Company competes with
manufacturers of ECG stress tests, the conventional method of diagnosing
ischemic heart disease, and may compete with manufacturers of other non-invasive
tests, including ECG's, Holter monitors, ultrasound tests and systems of
measuring cardiac late potentials. Many of the Company's competitors and
potential competitors have substantially greater capital resources, name
recognition, research and development experience and regulatory, manufacturing
and marketing capabilities. Many of these competitors offer well established,
broad product lines and ancillary services not offered by the Company. Some of
the Company's competitors have long-term or preferential supply arrangements
with physicians and hospitals which may act as a barrier to market entry.
The Company currently markets its products in the United States through a
small direct sales force and independent manufacturers' representatives. There
can be no assurance that the Company will be able to continue to recruit and
retain skilled sales management, direct sales persons or independent
manufacturers' representatives. The Company markets its products internationally
through independent distributors. These distributors may also distribute
competing products under certain circumstances. The loss of a significant
international distributor could have a material adverse effect on the Company's
business if a new distributor, sales representative or other suitable sales
organization cannot be found on a timely basis in the relevant geographic
market. To the extent that the Company relies on sales in certain territories
through distributors, any revenues the Company receives in those territories
will depend upon the efforts of its distributors. Furthermore, there can be no
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assurance that a distributor will market the Company's products successfully or
that the terms of its distribution arrangements will be acceptable to the
Company.
The testing, manufacture, marketing and sale of medical devices entail the
inherent risk of liability claims or product recalls. Although the Company
maintains product liability insurance in the United States and in other
countries in which the Company intends to conduct business, including clinical
trials and product marketing and sales, there can be no assurance that such
coverage is adequate or will continue to be available. Product liability
insurance is expensive and in the future may not be available on acceptable
terms, if at all. A successful product liability claim or product recall could
inhibit or prevent commercialization of the CH 200 System, or cause a
significant financial burden on the Company, or both, and could have a material
adverse effect on the Company's business, financial condition and ability to
market the CH 2000 System as currently contemplated.
The Company's success will depend in part on its ability to develop
patentable products, enforce its patents and obtain patent protection for its
products both in the United States and in other countries. However, the patent
positions of medical device companies, including Cambridge Heart, are generally
uncertain and involve complex legal and factual questions. No assurance can be
given that patents will issue from any patent applications owned or licensed to
Cambridge Heart or that, if patents do issue, the claims allowed will be
sufficiently broad to protect the Company's technology. In addition, no
assurance can be given that any issued patents owned by or licensed to the
Company will not be challenged, invalidated or circumvented, or that the rights
granted thereunder will provide competitive advantages to the Company. The
Company also relies on unpatented trade secrets to protect its proprietary
technology, and no assurance can be given that others will not independently
develop or otherwise acquire substantially equivalent techniques or otherwise
gain access to the Company's proprietary technology or disclose such technology
or that the Company can ultimately protect meaningful rights to such unpatented
proprietary technology.
The commercial success of the Company will also depend in part on its
neither infringing patents issued to others nor breaching the licenses upon
which the Company's products might be based. The Company's licenses of patents
and patent applications impose various commercialization, sublicensing,
insurance, royalty and other obligations on the Company. Failure of the Company
to comply with these requirements could result in conversion of the licenses
from being exclusive to nonexclusive in nature or termination of the licenses.
The medical device industry has been characterized by extensive litigation
regarding patents and other intellectual property rights. Litigation, which
would likely result in substantial cost to the Company, may be necessary to
enforce any patents issued or licensed to the Company and/or to determine the
scope and validity of others' proprietary rights. In particular, competitors of
the Company and other third parties hold issued patents and are assumed by the
Company to hold pending patent applications which may result in claims of
infringement against the Company to hold pending patent applications which may
result in claims of infringement against the Company or other patent litigation.
The Company also may have to participate in interference proceedings declared by
the United States Patent and Trademark Office, which could result in substantial
cost to the Company, to determine the priority of inventions. Furthermore, the
Company may have to participate at substantial cost in International Trade
Commission proceedings to abate importation of products which would compete
unfairly with products of the Company.
13
<PAGE>
The Company relies on confidentiality agreements with its collaborators,
employees, advisors, vendors and consultants. There can be no assurance that
these agreements will not be breached, that the Company would have adequate
remedies for any breach or that the Company's trade secrets will not otherwise
become known or be independently developed by competitors. Failure to obtain or
maintain patent and trade secret protection, for any reason, could have a
material adverse effect on the Company.
The Company's ability to successfully market its products is likely to
depend in part on the extent to which reimbursement for the cost of such
products and the procedures in which such products are used will be available
from government third party payors (including the Medicare and Medicaid
programs), government health administration authorities, private health insurers
and other organizations. These third party payors may deny coverage if they
determine that a procedure was not reasonable or necessary as determined by the
payor, was experimental or was used for an unapproved indication. In addition,
certain healthcare providers are moving towards a managed care system in which
such providers contract to provide comprehensive healthcare for a fixed cost per
person, irrespective of the amount of care actually provided. Such providers, in
an effort to control healthcare costs are increasingly challenging the prices
charged for medical products and services, and in some instances, have pressured
medical suppliers to lower their prices. The Company is unable to predict what
changes will be made in the reimbursement methods utilized by third party
healthcare payors, Furthermore, the Company could be adversely affected by
changes in reimbursement policies of governmental or private healthcare payors,
particularly to the extent any such changes affect reimbursement for procedures
in which the Company's products are used. If coverage and adequate reimbursement
levels are not provided by government or third party payors for uses on the
Company's technologies or products, the Company's business, financial position
and ability to market its technologies or products may be adversely affected.
The Company expects to derive a substantial majority of its future revenues
from sales of the CH 2000 System. If the Company is unable to commercialize the
CH 2000 System successfully, the period during which the Company is in the
development stage would be extended significantly. This would have a material
adverse effect on the Company's business, financial condition and results of
operations.
The Company has determined that its products are Year 2000 compliant. The
Company has completed an initial assessment of Year 2000 issues with respect to
its business systems and has begun to take actions to ensure their compliance.
Management continues to support the compliance efforts through allocation of the
resources necessary to complete the project. Based on the completed initial
assessment, management does not expect the costs of bringing the Company's
systems into compliance with Year 2000 to have a material adverse effect on the
Company's financial position, results of operations or liquidity. The Company
does not believe that it is subject to significant business risks related to its
customers' and suppliers' Year 2000 efforts.
USE OF PROCEEDS
The Company's Securities Act registration statement on Form S-1 (SEC File
No. 333-04879) became effective on August 2, 1996. To date, the Company has used
approximately $1,248,000 for the purchase and installation of machinery and
equipment and approximately $10,994,000 for working capital.
RECENTLY ENACTED ACCOUNTING STANDARDS
In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133 ("SFAS No. 133"), "Accounting for Derivative Instruments and for Hedging
Activities." SFAS No. 133 requires companies to record derivatives on the
balance sheet as assets or liabilities, measured at fair value. Gains or losses
resulting from the changes in the values of those derivatives would be accounted
for depending on the use of the derivatives and whether they qualify for hedge
14
<PAGE>
accounting. The Company is required to adopt this statement in the first
quarter of 2000. The Company is currently assessing the impact implementation
of SFAS No. 133 will have on the Company's financial position and results of
operations. To date, the Company has not generally utilized derivative
instruments.
PART II - OTHER INFORMATION
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's Annual Meeting of Stockholders was held on May 21, 1998 (the
"Annual Meeting"). At the Annual Meeting, Richard J. Cohen and Harris A. Berman
were elected as Class II Directors for a three year term. The other directors
whose terms of office as a director continue after the meeting are as follows:
Jeffrey M. Arnold, J. Daniel Cole, Laurence J. Blumberg, M.D. and Rolf S. Stutz.
The following is a summary of each matter voted at the meeting and the
number of votes cast for, against or withheld and abstentions as to each such
matter:
1. To elect Richard J. Cohen and Harris A. Berman to serve as Class II
Directors of the Company for the ensuing three years.
For: 8,564,956 Withheld: 12,934
2. To ratify the appointment of PricewaterhouseCoopers LLP as independent
auditors of the Company for 1998.
For: 8,570,840 Against: 4,300 Abstain: 2,750
Item 5. OTHER INFORMATION
In August 1998, Andra C. Thomas, R.N. joined the Company as Vice President,
Clinical Affairs replacing Kenneth Collins M.D. who left the Company in February
1998.
15
<PAGE>
ITEM 6
EXHIBITS AND REPORTS ON FORM 8-K
a. The exhibits listed in the Exhibit Index filed as part of this report
are filed as part of or are included in this report.
b. The Company filed no reports on Form 8-K during the quarter for which
this report is filed.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
CAMBRIDGE HEART, INC.
Date: August 14, 1998 By: /s/ Jeffrey M. Arnold
--------------------------------
Jeffrey M. Arnold
Chairman, President, Chief
Executive Officer
16
<PAGE>
EXHIBIT INDEX
Exhibit Number Description
- -------------- -----------
10.1 First Amendment to the License Agreement by and
between the Registrant and the Massachusetts
Institute of Technology dated May 30, 1998,
relating to the technology of "Cardiovascular
System Identification".
10.2 First Amendment to the License Agreement by and
between the Registrant and the Massachusetts
Institute of Technology dated May 21, 1998,
relating to the technology of "Cardiac Electrical
Imaging".
10.3 First Amendment to the License Agreement by and
between the Registrant and the Massachusetts
Institute of Technology dated May 21, 1998,
relating to the technology of "Pacing Technology
for Prevention of Cardiac Dysrhythmias".
10.4 First Amendment to the License Agreement by and
between the Registrant and the Massachusetts
Institute of Technology dated May 21, 1998,
relating to the technology of "Assessing
Myocardial Electrical Stability".
10.5* First Amendment to the Exclusive Distributorship
Agreement by and between the Registrant and Fukuda
Denshi Co., Ltd.
11 Statement re Computation of Net Loss per Share
27 Financial Data Schedule
* Confidential treatment has been requested for certain portions of this
document, which portions are omitted and filed separately with the
Commission.
<PAGE>
FIRST AMENDMENT
This First Amendment pertains to the License Agreement "Cardiovascular
System Identification" effective September 29, 1993, by and between the
MASSACHUSETTS INSTITUTE OF TECHNOLOGY and CAMBRIDGE HEART, INC. (hereinafter
LICENSEE).
WHEREAS, commercializing products based on the patents licensed by M.I.T.
to LICENSEE in the above referenced License Agreement require additional
non-licensed technology, in particular a noninvasive blood pressure device; and
WHEREAS, such a device has not been commercially available from September,
1993 to March, 1998;
The parties hereby agree to modify the above referenced License Agreement
by deleting paragraphs 3.2(d) and 3.3 in their entirety and substituting
therefor the following:
3.2(d) LICENSEE and/or SUBLICENSEE shall have developed a working
commercial prototype of a LICENSED PRODUCT and, if needed for commercial
sale, shall have filed an application for premarket FDA approval before
seven (7) years after the EFFECTIVE DATE of this License Agreement.
3.3 LICENSEE and/or SUBLICENSEE shall make commercial sales of LICENSED
PRODUCTS or LICENSED PROCESSEE at least according to the following
schedule:
2000 $ 50,000
2001 $ 100,000
2002 $ 250,000
2003 and each year thereafter $ 500,000
WHEREAS, both LICENSEE and the M.I.T. Technology Licensing Office have
changed addresses, the parties agree to modify the above referenced License
Agreement by deleting Article 14 in its entirety, and substituting therefor the
following:
Any payment, notice, or other communication pursuant to this Agreement
shall be sufficiently made or given on the date of mailing if sent to such
party by certified first class mail, postage prepaid, addressed to it at
its address below or as it shall designate by written notice given to the
other party:
In the case of M.I.T.:
Director
Technology Licensing Office
Room NE25-230
Massachusetts Institute of Technology
77 Massachusetts Avenue
Cambridge, MA 02139
In the case of LICENSEE:
President & C.E.O.
Cambridge Heart, Inc.
1 Oak Park Drive
Bedford, MA 01730
All other terms and conditions of the above referenced License Agreement
remain unchanged and in full force and effect.
MASSACHUSETTS INSTITUTE OF CAMBRIDGE HEART, INC.
TECHNOLOGY
By: /s/ Lori Pressman By: /s/ Robert B. Palardy
- ------------------------------------- --------------------------------
Name: Lori Pressman Name: Robert B. Palardy
- ------------------------------------- --------------------------------
Title: Assistant Director Title: Vice President, Finance/
Technology Licensing Office Administration & CFO
- ------------------------------------- --------------------------------
Date: May 21, 1998 Date: March 30, 1998
- ------------------------------------- --------------------------------
<PAGE>
FIRST AMENDMENT
This First Amendment pertains to the License Agreement "Cardiac Electrical
Imaging" effective September 29, 1993, and amended December 13, 1993, by and
between the MASSACHUSETTS INSTITUTE OF TECHNOLOGY and CAMBRIDGE HEART, INC.
(hereinafter LICENSEE).
WHEREAS, LICENSEE has invested more than $275,000 toward the
commercialization of products based on the patents licensed in the above
referenced License Agreement, completed a working prototype in October 1997, and
started a clinical study in January 1998, but due to placing a priority on
developing products related to assessing mydocardial electrical stability, such
products also based on patents licensed to LICENSEE by M.I.T. in another license
agreement, the parties hereby agree to modify the above referenced License
Agreement by deleting paragraph 3.2(d) and 3.3 in their entirety and
substituting therefor the following:
3.2(d) LICENSEE and/or SUBLICENSEE shall have developed a working
commercial prototype of a LICENSED PRODUCT and, if needed for commercial
sale, shall have filed an application for premarket FDA approval before six
(6) years after the EFFECTIVE DATE of this License Agreement.
3.3 LICENSEE and/or SUBLICENSEE shall make commercial sales of LICENSED
PRODUCTS or LICENSED PROCESSEE at least according to the following
schedule:
2000 $ 100,000
2001 $ 500,000
2002 and each year thereafter $1,000,000
WHEREAS, both LICENSEE and the M.I.T. Technology Licensing Office have
changed addresses, the parties agree to modify the above referenced License
Agreement by deleting Article 14 in its entirety, and substituting therefor the
following:
Any payment, notice, or other communication pursuant to this Agreement
shall be sufficiently made or given on the date of mailing it shall
designate by written notice given to the other party:
In the case of M.I.T.:
Director
Technology Licensing Office
Room NE25-230
Massachusetts Institute of Technology
77 Massachusetts Avenue
Cambridge, MA 02139
In the case of LICENSEE:
President & C.E.O.
Cambridge Heart, Inc.
1 Oak Park Drive
Bedford, MA 01730
All other terms and conditions of the above referenced License Agreement
remain unchanged and in full force and effect.
MASSACHUSETTS INSTITUTE OF CAMBRIDGE HEART, INC.
TECHNOLOGY
By: /s/ Lori Pressman By: /s/ Robert B. Palardy
- ------------------------------------- --------------------------------
Name: Lori Pressman Name: Robert B. Palardy
- ------------------------------------- --------------------------------
Title: Assistant Director Title: Vice President, Finance/
Technology Licensing Office Administration & CFO
- ------------------------------------- --------------------------------
Date: May 21, 1998 Date: March 30, 1998
- ------------------------------------- --------------------------------
<PAGE>
EXHIBIT 10.3
FIRST AMENDMENT
This First Amendment pertains to the License Agreement "Pacing Technology
for Prevention of Cardiac Dysrhythmias" effective September 29, 1993 by and
between the MASSACHUSETTS INSTITUTE OF TECHNOLOGY and CAMBRIDGE HEART, INC.
(hereinafter LICENSEE).
WHEREAS, both LICENSEE and M.I.T. Technology Licensing Office have changed
addresses, the parties agree to modify the above referenced License Agreement by
deleting Article 14 in its entirety, and substituting therefor the following:
Any payment, notice, or other communication pursuant to this Agreement
shall be sufficiently made or given on the date of mailing if sent to such
party by certified first class mail, postage prepaid, addressed to it at
its address below or as it shall designate by written notice given to the
other party:
In the case of M.I.T.:
Director
Technology Licensing Office
Room NE25-230
Massachusetts Institute of Technology
77 Massachusetts Avenue
Cambridge, MA 02139
In the case of LICENSEE:
President & C.E.O.
Cambridge Heart, Inc.
1 Oak Park Drive
Bedford, MA 01730
All other terms and conditions of the above referenced License Agreement
remain unchanged and in full force and effect.
MASSACHUSETTS INSTITUTE OF CAMBRIDGE HEART, INC.
TECHNOLOGY
By: /s/ Lori Pressman By: /s/ Robert B. Palardy
--------------------------- -------------------------
Name: Lori Pressman Name: Robert B. Palardy
--------------------------- -------------------------
Title: Assistant Director Title: Vice President, Finance/
Technology Licensing Office Administration & CFO
--------------------------- -------------------------
Date: May 21, 1998 Date: March 30, 1998
--------------------------- -------------------------
<PAGE>
FIRST AMENDMENT
This First Amendment pertains to the License Agreement "Assessing
Myocardial Electrical Stability" effective September 29, 1993, and Amended
February 20, 1996, by and between the MASSACHUSETTS INSTITUTE OF TECHNOLOGY and
CAMBRIDGE HEART, INC. (hereinafter LICENSEE).
WHEREAS, both LICENSEE and M.I.T. Technology Licensing Office have changed
addresses, the parties agree to modify the above referenced License Agreement by
deleting Article 14 in its entirety, and substituting therefor the following:
Any payment, notice, or other communication pursuant to this Agreement
shall be sufficiently made or given on the date of mailing if sent to such
party by certified first class mail, postage prepaid, addressed to it at
its address below or it shall designate by written notice given to the
other party:
In the case of M.I.T.:
Director
Technology Licensing Office
Room NE25-230
Massachusetts Institute of Technology
77 Massachusetts Avenue
Cambridge, MA 02139
In the case of LICENSEE:
President & C.E.O.
Cambridge Heart, Inc.
1 Oak Park Drive
Bedford, MA 01730
All other terms and conditions of the above referenced License Agreement
remain unchanged and in full force and effect.
MASSACHUSETTS INSTITUTE OF CAMBRIDGE HEART, INC.
TECHNOLOGY
By: /s/ Lori Pressman By: /s/ Robert B. Palardy
- ------------------------------------- ----------------------------------
Name: Lori Pressman Name: Robert B. Palardy
- ------------------------------------- ----------------------------------
Title: Assistant Director Title: Vice President, Finance/
Technology Licensing Office Administration & CFO
- ------------------------------------- ----------------------------------
Date: May 21, 1998 Date: March 30, 1998
- ------------------------------------- ----------------------------------
<PAGE>
EXHIBIT 10.5
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
Amendment #2 to
Exclusive Distributor Agreement
of May 30, 1996
1. The term is hereby extended for one year until March 31, 1999
2. During this one-year extension the Minimum is [**] units and the Target is
[**] units. FD shall purchase [**] units in the first quarter ( ending June 30,
1998) and [**] units each quarter thereafter. FD may replace its nine demo units
at the Demo price (same as the Target price with Alternans) and these units will
count toward the Minimum.
3. The prices are [**]:
4. Each quarter the prices will be adjusted so that CHI and FD split the
amount of exchange rate variation. The Adjusted Price will be determined from
the above Contract prices by the following formula:
Adjusted Price=Contract price x square root of (128/RATE)
Where RATE is the Yen to dollar exchange rate on the last day of the
previous quarter.
5. Both parties agree to use best efforts to complete a Marketing Plan within
60 days of signing this Amendment.
6. CHI agrees to supply a person or persons to FD for demonstration of the CH
2000 for a total of two weeks during the month of July . CHI will pay salary
plus airfare to and from Japan; FD will pay travel and living expenses within
Japan.
7. CHI agrees to use its best efforts to complete the software and product
changes requested by FD and described on Attachment I.
8. The Product Descriptions for the CH 2000 Systems is hereby changed to that
in the Price List in Attachment II. The Alternans Option is now called the
Alternans Hardware Option and does not include a license to the Alternans
Software. This license is conferred for a single use upon payment of a separate
USE FEE. This USE FEE is included in the purchase price of a set of High
Resolution Electrodes.
<PAGE>
9. FD hereby agrees to the terms of the License Agreement in Attachment III
which includes the Purchaser Agreement in Attachment A. FD agrees that its
purchases of products from CHI are subject to the terms of the License
Agreement, that it may only resell CHI products to others subject to the terms
of the License Agreement, that it may only sell CHI products to those who agree
to be bound by the Purchaser Agreement, and that it will not sell multi-segment
electrodes for use on CHI systems except for those manufactured by or under
license from CHI unless it has paid to CHI in advance the USE FEE called for
under the License Agreement.
FD further agrees that it is responsible for making its customers aware of
the terms of the Product Descriptions and terms of the License Agreement and
wishes to do so in a manner consistent with Japanese law and business practices.
Therefore:
(a) Starting within sixty (60) days of signing this Amendment, FD agrees to
use the Product Description language in Attachment II (or other language
mutually agreed in writing by CHI and FD) in new quotations for the CH 2000 with
Alternans hardware Option are made aware of and accept the terms of the
Purchaser Agreement.
(b) Within approximately one hundred and twenty days (120) of the signing
of this agreement, CHI will add the Purchaser Agreement language to the labeling
of the Hi-Resolution Electrodes pouch and to the Alternans Hardware Option box.
Within sixty (60) days of CHI supplying the pouches with the Purchaser Agreement
language, FD will ensure that customers who subsequently purchase CH 2000 with
Alternans Hardware Option are made aware of and accept the terms of the
Purchaser Agreement.
FD acknowledges that its responsibilities in this paragraph 9 survive
termination of the Exclusive Distributor Agreement.
10. This Amendment constitutes a valid Purchase Order (no ________) from FD to
CHI for the Minimum quantity of Stress only CH 2000 systems to be shipped
quarterly from CHI to FD on or about the first week of the last month of each
quarter. FD agrees to supply amendments to this Purchase Order prior to the 15th
of the first month of each quarter for changes in quantities and mix for
shipments during the quarter.
<PAGE>
11. During the course of this agreement both companies agree to start to
discuss mutual technical collaboration for future products.
CAMBRIDGE HEART FUKUDA DENSHI
Signed: /s/ J. M. Arnold Signed: /s/ Takeyasn Yawamen
------------------------ ---------------------
J.M. Arnold Director
By: Jeffrey A. Arnold By: Takeyasn Yawamen
--------------------------- -------------------------
Jeffrey A. Arnold Takeyasn Yawamen
President & CEO
Date: July 2, 1998 Date: June 29, 1998
------------ -------------
<PAGE>
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
Attachment I:
Product and Software Changes
[**]
<PAGE>
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
Attachment II:
Fukuda Denshi Price List
[**]
<PAGE>
Attachment III:
License Agreement
CH-2000 Cardiac Diagnostic System with T-Wave Alternans Hardware ("the System")
CH-2000 Cardiac Diagnostic System Alternans Software ("the Software")
This is a legal agreement between Fukuda Denshi ("FD") and Cambridge Heart, Inc.
("CHI").
CHI owns technology, including patents and copyrights, related to the
detection and analysis of alternans ("the CHI technology"). FD ACKNOWLEDGES AND
AGREES THAT PURCHASE OF THE SYSTEM BY FD DOES NOT PROVIDE RIGHTS IN ANY OF THE
CHI TECHNOLOGY.
Grant of License. CHI grants to FD the right to use one copy of the Software and
- ------------------
any upgrades or new versions thereof on each system provided by CHI in Japan.
This license is contingent upon payment in advance by FD of a USE FEE for each
use of the Software to perform a single alternans test on a single patient.
payment of the USE FEE provides a limited, single-use license of the CHI
technology, including CHI's copyright in the Software and the technology
described in CHI's U.S. Patent No. 5,713,367, to perform a single alternans
test. The USE FEE is deemed to be paid in full for a particular alternans test
if Hi-Resolution Electrodes manufactured by CHI are purchased and used with the
alternans test, and also may be paid directly to CHI at the address provided
below. THE LICENSE WILL TERMINATE IMMEDIATELY UPON USE OF THE SOFTWARE TO
PERFORM AN ALTERNANS TEST WITHOUT PAYMENT IN ADVANCE OF THE USE FEE FOR THAT
TEST. FD acknowledges that the performance of an alternans test without payment
of the USE FEE constitutes a violation of CHI's rights.
Ownership: Copyright. FD owns the physical media on which the Software is
- ---------------------
originally or subsequently recorded, but CHI retains title and ownership of the
Software recorded on the original media and all subsequent copies of the
Software. This license is not a sale of the original Software or any copy
thereof. The Software and the accompanying documentation are protected by United
States patent and copyright laws and by international treaty provisions, and may
contain trade secret and proprietary information. FD agrees to treat the
Software like any other patented and copyrighted material. Subject to these
restrictions, FD may either (a) make one copy of the Software soley for backup
purposes in support of FD's permitted use of the Software, or (b) transfer the
Software to a single hard disk, provided FD keeps the original of the Software
soley for backup purposes. (Some versions of the Software may include mechanisms
to limit or inhibit copying.) Any patent. copyright or other notices must be
reproduced on the backup copy of the Software. FD may not copy the documentation
accompanying the Software.
<PAGE>
Right to Sublicense. CHI grants FD the right to see the System and to sublicense
- --------------------
the Software to a purchaser of the system, provided that the purchaser agrees to
be bound by terms and conditions contained in the Purchaser Agreement in
Attachment A or other such Purchaser Agreement approved by CHI. CHI does not
grant FD the right to sublicense the Software without requiring payment of the
USE FEE for each use as set forth above.
Other Restrictions. FD may not rent or lease the Software, and, except as set
- -------------------
forth above under the right to sublicense, may not transfer any rights under
this Agreement. Any unapproved transfer of possession of the Software in whole
or in part to another party shall automatically terminate this license. EXCEPT
AS SET FORTH ABOVE UNDER RIGHT TO SUBLICENSE, FD MAY NOT DISTRIBUTE COPIES OF
SOFTWARE OR ACCOMPANYING DOCUMENTATION TO OTHERS. FD MAY NOT MODIFY, ADAPT,
TRANSLATE, REVERSE ENGINEER, DECOMPILE, DISASSEMBLE, OR CREATE DERIVATIVE WORKS
BASED ON SOFTWARE OR DOCUMENTATION.
General. FD may not sublicense, assign or transfer the license of the Software
- --------
except as expressly provided in the Agreement. Any attempt otherwise to
sublicense, assign or transfer any of the rights, duties, or obligations
thereunder is void. No amendment to or modification of this Agreement shall be
binding unless in writing and signed by a duly authorized representative of CHI.
This Agreement is governed by the internal laws of the Commonwealth of
Massachusetts, U.S.A., without the conflict of laws principles thereof and, to
the extent not inconsistent with those laws, by the United Nations Convention on
the International Sale of Goods. FD may contact CHI with any questions
concerning this Agreement, or for nay other reason, including payment of the USE
FEE, by writing to: CAMBRIDGE HEART, INC., 1 OAK PARK, BEDFORD, MA 01730.
FD further agrees that this Agreement is the complete and exclusive statement of
the agreement with respect to the subject matter of this Agreement, and that
this Agreement supersedes any proposal or prior agreement, oral or written, and
any other communications relating to the subject matter of this Agreement.
<PAGE>
Attachment A
PURCHASER AGREEMENT:
CH-2000 CARDIAC DIAGNOSTIC SYSTEM
HI-RESOLUTION ELECTRODES
AND ASSOCIATED SOFTWARE
Opening of this package, constitutes acceptance by the purchaser of the terms,
hereafter delineated.
TERMS OF THE AGREEMENT:
PRODUCT: CH-2000 CardiacDiagnostic System with Alternans Hardware Option (The
System), Hi-Resolution Electrodes and CH 2000 Cardiac Diagnostic System
Alternans Software.
The software and the accompanying documentation are protected by copyright laws
and by international treaty provisions, and may contain trade secrets and other
proprietary material.
RIGHTS OF PURCHASER: The purchaser acknowledges and agrees that the purchase of
the product identified above does not provide rights, other than the right to
use the system, to any technologies or proprietary materials used by or embodied
in the system.
PURCHASER RIGHT: Fukuda Denshi grants the purchaser the right to use one copy of
the Software, including upgrades or new versions, on a single computer provided
by Fukuda Denshi. This right is contingent upon the payment, in advance, by the
purchaser of a USE FEE for twenty (20) single uses. For use over this limit,
additional use fees must be paid, in advance. USE FEE is deemed to be paid for
each use if Hi-Resolution Electrodes manufactured by Cambridge Heart are
purchased and used. NO RIGHT IS GIVEN FOR USE WITHOUT PAYMENT OF AN APPROPRIATE
USE FEE.
The right to use the product is limited to Japan. The purchaser agrees that the
product shall not be utilized outside of Japan.
OWNERSHIP: Fukuda Denshi is the licensee of the Alternans Hardware Option and
the Alternans Software, both of which are owned and copyrighted by Cambridge
Heart, Inc., 1 Oak park, Bedford, Massachusetts 01730, U.S.A.
<PAGE>
Exhibit 11
Cambridge Heart, Inc.
Computation of Net Loss per Share -- Basic and Diluted
<TABLE>
<CAPTION>
For the three months ended For the six months ended
June 30, June 30,
1997 1998 1997 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net Loss $(1,704,404) $(1,778,373) $(3,187,847) $(3,465,217)
=========== =========== =========== ===========
Weighted average shares outstanding:
a. Shares attributable to common stock outstanding 10,401,567 10,661,946 10,362,586 10,643,216
=========== =========== =========== ===========
Net loss per share $ (0.16) $ (0.17) $ (0.31) $ (0.33)
=========== =========== =========== ===========
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED JUNE 30, 1998 FINANCIAL STATEMENT AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 4,750,723
<SECURITIES> 4,946,920
<RECEIVABLES> 417,912
<ALLOWANCES> 31,000
<INVENTORY> 408,019
<CURRENT-ASSETS> 10,715,718
<PP&E> 1,008,435
<DEPRECIATION> 383,369
<TOTAL-ASSETS> 11,585,417
<CURRENT-LIABILITIES> 707,240
<BONDS> 0
0
0
<COMMON> 10,744
<OTHER-SE> 10,867,433
<TOTAL-LIABILITY-AND-EQUITY> 11,585,417
<SALES> 850,192
<TOTAL-REVENUES> 850,192
<CGS> 810,208
<TOTAL-COSTS> 810,208
<OTHER-EXPENSES> 1,963,743
<LOSS-PROVISION> 0
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