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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 30,1999 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
----- -----
Number of shares outstanding of each of the issuer's classes of common stock
as of August 16, 1998:
Class Number of Shares Outstanding
- --------------------------------------- ----------------------------
Common Stock, par value $.001 per share 11,865,988
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CAMBRIDGE HEART, INC.
INDEX
PAGE NUMBER
-----------
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BALANCE SHEET AT DECEMBER 31, 1998 AND
JUNE 30, 1999 3
STATEMENT OF OPERATIONS
FOR THE THREE MONTH AND SIX MONTH
PERIODS ENDED JUNE 30, 1998 AND 1999 4
STATEMENT OF CASH FLOWS
FOR THE SIX MONTH PERIOD ENDED
JUNE 30, 1998 AND 1999 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 16
ITEM 5. OTHER INFORMATION 16
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 17
SIGNATURES 17
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.
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PART I - FINANCIAL INFORMATION
ITEM 1
FINANCIAL STATEMENTS
BALANCE SHEET
<TABLE>
<CAPTION>
December 31, June 30,
1998 1999
------------ ------------
(Unaudited)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents........................... $ 2,426,032 $ 4,722,620
Marketable securities............................... 4,064,321 3,088,602
Accounts receivable, (net of allowance for
doubtful accounts of $40,000)... ................. 555,991 573,051
Inventory........................................... 426,489 341,432
Prepaid expenses and other current assets........... 190,667 162,085
----------- ------------
Total current assets.............................. 7,663,500 8,887,790
Fixed assets, net................................... 647,629 701,581
Other assets........................................ 403,604 430,431
----------- ------------
$ 8,714,733 $ 10,019,802
============ ============
Liabilities and stockholders' equity
Current liabilities:
Accounts payable.................................... $ 415,842 $ 415,089
Accrued expenses.................................... 485,949 466,229
------------ ------------
Total current liabilities........................... 901,791 881,318
------------ ------------
Stockholder's equity:
Common stock, $.001 par value; 20,000,000 shares
authorized; 10,906,174 and 11,865,988 shares
issued and outstanding at December 31, 1998
and June 30, 1999, respectively................... 10,906 11,866
Additional paid-in capital.......................... 29,603,435 34,362,988
Accumulated deficit................................. (21,700,389) (25,164,743)
------------ ------------
7,913,952 9,210,111
Less: deferred compensation......................... (101,010) (71,627)
------------ ------------
Total stockholders' equity........................ 7,812,942 9,138,484
------------ ------------
$ 8,714,733 $ 10,019,802
============ ============
</TABLE>
See accompanying notes to condensed financial statements.
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CAMBRIDGE HEART, INC.
STATEMENT OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
Three months ended June 30, Six months ended June 30,
---------------------------- ----------------------------
1998 1999 1998 1999
------------- ------------- ------------ ------------
<S> <C> <C> <C> <C>
Revenue................................. $ 443,344 $ 562,080 $ 850,192 $ 1,094,823
Cost of goods sold...................... 454,230 514,193 810,208 979,515
----------- ----------- ----------- ------------
(10,886) 47,887 39,984 115,308
Cost and expenses:
Research and development................ 956,880 644,647 1,963,743 1,387,183
Selling, general and administrative 963,595 1,249,245 1,870,342 2,324,667
----------- ----------- ----------- ------------
Loss from operations.................. (1,931,361) (1,846,005) (3,794,101) (3,596,542)
Interest income......................... 152,988 59,253 328,884 131,188
----------- ----------- ----------- ------------
Net loss................................ $(1,778,373) $(1,786,752) $(3,465,217) $(3,465,354)
=========== =========== =========== ============
Net loss per share basic and.......... $ (0.17) $ (0.16) $ (.33) $ (.31)
diluted =========== =========== =========== ============
Weighted average common
shares outstanding basic and......... 10,661,946 11,135,318 10,643,216 11,021,184
diluted =========== =========== =========== ============
</TABLE>
See accompanying notes to condensed financial statements.
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STATEMENT OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Six months ended June 30,
-------------------------
1998 1999
------------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss............................................... $(3,465,217) $(3,464,354)
Adjustments to reconcile net loss to net
cash used for operating activities:
Depreciation........................................... 122,594 244,142
Compensation expense related to stock options.......... 84,146 29,383
Changes in assets and liabilities:
(Increase) decrease in accounts receivable.......... 123,006 (17,060)
Decrease in inventory................................ 8,205 85,057
Decrease in prepaid expenses and other
current assets...................................... 77,983 28,582
Increase in other assets ............................ (54,466) (3,701)
Increase (decrease) in accounts payable
and accrued expenses................................ 180,103 (20,473)
----------- -----------
Net cash used for operating activities............... (2,923,646) (3,118,424)
----------- -----------
Cash flows from investing activities:
Net maturity of marketable securities..... ............ 2,143,685 975,719
Purchase of fixed assets............................... (173,000) (211,478)
Capitalization of software development costs........... (109,742)
----------- -----------
Net cash provided by investing activity 1,970,685 654,499
----------- -----------
Cash flows from financing activities:
Proceeds from issuance of common stock 37,948 5,040,513
Expenses from issuance of common stock (280,000)
----------- -----------
Net cash provided by financing activities 37,948 4,760,513
Net increase (decrease) in cash and cash equivalents.. (915,013) 2,296,588
Cash and cash equivalents at beginning
of period........................................... 5,665,736 2,426,032
----------- -----------
Cash and cash equivalents at end
of period.......................................... $ 4,750,723 $ 4,722,620
=========== ============
</TABLE>
See accompanying notes to condensed financial statements.
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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. The Company sells its products primarily to hospitals, research
institutions and cardiology specialists.
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, 1998 and the
notes thereto included in the Company's 1998 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, 1999, and the results of its operations and
its cash flows for the six month periods ended June 30, 1998 and 1999, 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.
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
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 1,431,222 and 1,504,738 of
potential common stock from the calculation of diluted weighted average
share amounts for the three and six month periods ended June 30, 1998 and
1999 respectively, as its inclusion would have been anti-dilutive.
In June 1999 the Company raised gross proceeds of $5 million in equity
capital less $280,000 in issuance costs from the sale of 952,380 shares of
Common Stock through a private placement with a group of institutional
investors led by the Tail Wind Fund Ltd. In addition,
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warrants with a four year term for the purchase of 95,238 shares of common
stock at an exercise price of $7.22 per share were issued. If the Company
sells Common Stock in a equity offering at a price per share lower than
this private placement during the next 24 months, the investors have the
right to a repricing of the remaining shares they hold at the date of
closing of the subsequent offering. The proceeds of the sale will be used
to fund operations.
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
The Company is engaged in the research, development and commercialization
of products for the non-invasive diagnosis of cardiac disease. Using innovative
technologies, the Company is addressing such key problems in cardiac diagnosis
as the identification of those at risk of sudden cardiac death, the early
detection of coronary artery disease and the prompt and accurate diagnosis of
heart attack. Clinical research conducted to date has demonstrated that the
presence of T-wave alternans in patients with known, suspected or at risk of
ventricular tachyarrhythmia predicts increased risk of a cardiac event
(ventricular tachyarrhythmia or sudden death). Sudden cardiac death accounts for
approximately one-half of all cardiac related deaths, or about 350,000 in the
United States each year.
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. Internationally, the CH
2000 System has received the CE mark for sale in Europe and has been approved
for sale by the Ministry of Health in Japan.
In April, 1999, the Company received clearance from the FDA of the 510k
submitted in August 1998 for expansion of the labeling claims for the CH 2000.
As approved by the FDA, the CH 2000 is intended for use as follows: For the
measurement of T-wave alternans and recording of electrocardiograms and vector
cardiograms at rest and during ECG stress testing. The presence of T-wave
alternans in patients with known, suspected or at risk of ventricular
tachyarrhythmia predicts increased risk of a cardiac event (ventricular
tachyarrhythmia or sudden death). The CH 2000 should be used only as an adjunct
to clinical history and the results of other non-invasive and/or invasive
tests. This approval by the FDA covers 100% of the indications for use that the
Company included in its 510k submittal. There are no claims for which the
Company filed that are not included in the approved label. The Company is very
satisfied with this result.
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In May, 1999 the Company entered into cooperative marketing agreements with
Guidant Corporation ("Guidant") and Medtronic, Inc. ("Medtronic"). The
agreements provide for the inclusion of T-wave alternans experts to speak at
national and regional seminars and symposia in the U.S. sponsored by Guidant and
Medtronic aimed at providing additional education to cardiologists about the
benefits of Alternans testing.
In June 1999 the Company raised gross proceeds of $5 million in equity
capital less $280,000 in issuance costs from the sale of 952,380 shares of
Common Stock through a private placement with a group of institutional investors
led by the Tail Wind Fund Ltd. In addition, warrants with a four year term for
the purchase of 95,238 shares of common stock at $7.22 per share were issued. If
the Company sells Common Stock in a capital raising transaction at a lower price
per share over the next two years, the investors have the right to a repricing
of their transaction. The proceeds of the sale will be used to fund operations.
Upon receiving clearance from the U.S. Food and Drug Administration ("FDA")
in April, 1999 for expansion of its labeling, the Company has been engaged in an
aggressive public relations campaign aimed at increasing awareness of the
benefits of Alternans testing among both the medical community and the patient
population at large. To date, the program has reached approximately 46 million
television viewers and 12 million newspaper subscribers around the U.S. In
addition the Company has launched an extensive direct mail campaign aimed at
educating cardiologists and electrophysiologists and generating leads for the
Company's CH 2000 system. The Company intends to continue their physician and
patient outreach during the remainder of 1999 at both the national and regional
levels.
Late in the third quarter, the Company is scheduled to introduce an upgrade
to its T-wave alternans technology that will allow a treadmill to be used to
exercise a patient during an Alternans test. This scientific breakthrough will
allow the Alternans test to fit seamlessly into the physicians normal testing
routine and eliminate the need for the purchase of other non standard devices to
exercise patients. In the U.S. a treadmill is the preferred device used by
physicians to elevate a patients heart rate during a standard stress test. There
can be no guarantee that the introduction of this upgraded technology will
happen as scheduled. If delayed, it could have an adverse impact on the third
quarter revenue results.
THREE AND SIX MONTH PERIODS ENDED JUNE 30, 1998 AND 1999
Revenue for the three month periods ended June 30, 1998 and 1999 were
$443,344 and $562,080 respectively, an increase of 27%. Revenue for the six
month periods ended June 30, 1998 and 1999 were $850,192 and $1,094,823
respectively, an increase of 29%. Revenue from the sale of T-wave alternans
systems increased 114% from $109,700 to $234,900 for the three month periods
ended June 30, 1998 and 1999 respectively. For the six month periods ended June
30 1998 and 1999 T-wave alternans system revenue increased from $348,800 to
$392,700 or 13% respectively. The growth in system revenues reflects the
increasing awareness of the benefits of T-wave alternans by the clinical
community.
The gross margin for the three month periods ended June 30, 1998 and 1999
were ($10,886) (-2% of revenues) and $47,887 (9% of revenues) respectively.
Gross margin for the six month periods ended June 30, 1998 and 1999 were $39,984
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(5% of revenues) and $115,308 (11% of revenues) respectively. This reflects a
favorable mix of product sales and the efforts of continuing product cost
reductions. The results for the three month period ended June 30, 1998 included
the effect of introductory special pricing considerations for two new
international distributors.
Research and development expenses decreased from $956,880 in the three
month period ended June 30, 1998 to $644,647 for the same period of 1999. The
Company incurred 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 in 1998. The Research and Development expenses for
the six month period ended June 30, 1998 and 1999 were $1,963,743 and $1,387,183
respectively. The Company anticipates that its research and development expenses
will increase during the second half of 1999. Several key new clinical trials
will be initiated during this period and costs associated with the development
of the Company's low cost TWA product are expected to increase.
Selling, general and administrative expenses increased from $963,595 in the
three month period ended June 30, 1998 to $1,249,245 in the same period in 1999.
The Company incurred incremental costs associated with its aggressive marketing
and media campaign targeted at increasing awareness of the benefits of T-wave
alternans and the Alternans test among both the medical community and the
patient population at large. Selling, general and administrative expenses are
expected to remain at current levels as the Company intends to continue these
marketing and sales efforts. For the six month period ended June 30, 1998 and
1999, selling, general and administrative expenses were $1,870,342 and
$2,324,667 respectively.
Interest income was $152,988 for the three month period ended June 30, 1998
compared to $59,253 for the same period in 1999. For the six month period ended
June 30, 1998 and 1999, interest income was $328,884 and $131,188 respectively.
This decrease reflects the decline in the remaining proceeds of the initial
public offering of the Company's common stock in August 1996 and is a result of
the operating losses incurred by the Company. Interest income during the second
half of 1999 will be affected by the investment of $4,775,000 of net proceeds
from the sale of common stock concluded in June, 1999.
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 sales 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 to common stock.
In June 1999, the Company raised approximately $4,775,000 (net of stock
issuance costs) from the sale of 952,380 shares of common stock to a group of
investors led by the Tail Wind Fund Ltd. In addition, warrants for the purchase
of 95,238 shares of common stock were also issued at an exercise price of $7.22
per share with a term of four years. These proceeds are intended to be used to
fund the Company's operations.
As of June 30, 1999, the Company had cash, cash equivalents and
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marketable securities of $7,811,222. During the six month period ended June 30,
1999, the Company's cash, cash equivalents and marketable securities increased
by $1,320,869, or 20% consistent with its net loss for the period of $3,465,354,
net of proceeds from the sale of common stock in June 1999 of $4,775,000. Fixed
asset additions related to improvements in the Company's information systems
infrastructure and increased sales demonstration and clinical research units
amounted to $211,478 as of June 30, 1999.
The Company anticipates that its existing capital resources will be adequate to
satisfy its capital requirements for the next fifteen months. However, in the
event unforeseen difficulties arise, the Company's available capital may be
exhausted in less than fifteen months. In any event, the Company will require
additional funds to support its operating requirements or for other purposes and
intends to raise such additional funds through public or private equity
financing or from other sources. There can be no assurance that additional
financing will be available at all or, if available, such financing would be
obtainable on terms acceptable to the Company. If adequate financing is not
available, the Company may be required to curtail its operations significantly
or to obtain funds through entering into collaborative agreements or other
arrangements on less favorable terms. The failure of the Company to raise
capital on acceptable terms would have a material adverse effect on the
Company's business, financial condition and results of operations.
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 $1,000,000 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
$340,000 of such minimum license maintenance fees subsequent to June 30, 1999 as
the technology is used. 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.
YEAR 2000 ISSUES
Many currently installed computer systems and software products are coded
to accept or recognize only two digit entries in the date code field. These
systems may recognize a date using "00" as the year 1900 rather than the year
2000. As a result, computer systems and/or software used by many companies and
government agencies may need to be upgraded to comply with year 2000
requirements or risk system failure or miscalculations causing disruptions of
normal business activities.
The Company has completed its assessment of its exposure to the year 2000
issue and has established a response to that exposure. Generally, the Company
has year 2000 exposure in three areas: (i) the Company's business information
systems, including computer operating systems and applications, (ii) the
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hardware and software included in the CH 2000 System, and (iii) computer systems
used by third parties, including suppliers of the Company.
The Company has upgraded its existing software to versions that are year
2000 compliant and is in the process of installing a new business information
system for functionality reasons. The new business information system is
currently in place. All business information system changes would be performed
regardless of the year 2000 issue from both a timing and cost perspective. The
Company therefore believes that it has spent and is spending an immaterial
incremental amount on year 2000 remediation over what it would spend to
implement its planned business information system improvements.
The Company believes that its CH 2000 System is year 2000 compliant.
Software used in the CH 2000 System has been upgraded to year 2000 compliant
versions and the Company has successfully tested hardware, operating system and
applications software simulating post year 2000 systems clock dates.
The Company has sent written requests for year 2000 information to all
suppliers. The Company has been informed by all suppliers of material hardware
and software components of the CH 2000 System, and substantially all of the
suppliers, that the products used by the Company are currently year 2000
compliant.
Management continues to support the compliance efforts through allocation
of the resources necessary to complete the project. 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 risk related to its customers' and suppliers' Year 2000
efforts.
CERTAIN FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS
This Quarterly Report on Form 10-Q (the "Quarterly Report") 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," "intends" and similar expressions are intended to identify
forward-looking statements. There are a number of important factors that could
cause the Company's actual results to differ materially from those indicated by
such forward-looking statements. These factors include, without limitation,
those set forth below and elsewhere in this Quarterly Report. In this section,
"we," "us," and "our" refer to Cambridge Heart, Inc.(unless the context
otherwise requires).
We may never generate substantial revenues
We are engaged primarily in the commercialization, manufacture, research
and development of our products for the non-invasive diagnosis of cardiac
disease. We have incurred substantial and increasing net losses through March
31, 1999. There can be no assurance that we will ever generate substantial
revenues or achieve profitability on a quarterly or annual basis. Revenues
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generated from the sale of our products will depend upon numerous factors,
including:
progress of product development,
the extent to which our products gain market acceptance,
varying pricing promotions and volume discounts to customers,
competition, and
the availability of third party reimbursement.
Our technology may never achieve market acceptance
We believe that our future success will substantially depend upon the
successful commercialization and market acceptance of our T-wave alternans
technology. Market acceptance will depend upon our ability to demonstrate the
diagnostic advantages and cost-effectiveness of the technology. There can be no
assurance that we will be able to successfully commercialize or achieve market
acceptance of our T-wave alternans technology or that our competitors will not
develop competing technologies that are superior to our technology.
The results of future clinical studies may not support the usefulness of
our technology
We have sponsored and are continuing to sponsor clinical studies relating
to our T-wave alternans technology and Hi-Resolution electrodes to establish the
prognostic value of such technology. While studies to date have demonstrated
that the presence of T-wave alternans in patients with known, suspected or at
risk of ventricular tachyarrhythmia predicts increased risk of a cardiac event,
there can be no assurances that the results of such studies, particularly
studies involving patients who are not known, suspected or at risk of
ventricular tachyarrhythmia, will produce similar results. Any 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 our technology, or our
other technologies, would have a material adverse effect on our business,
financial condition and results of operations.
We may never receive necessary foreign regulatory approvals
A significant portion of our revenue is dependent upon sales of our
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. While we have received European Union approval to CE Mark our CH2000
system, there is no assurance that we will be able to obtain European Union
approval for any future products. The inability or failure of Cambridge Heart or
its international distributors to comply with varying foreign regulations or the
imposition of new regulations could restrict or, in certain
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countries, result in the prohibition of the sale of our products, and thereby
adversely affect our business, financial condition and results of operations.
We may have difficulty responding to changing technology
The medical device market is characterized by rapidly advancing technology.
Our future success will depend, in large part, upon our ability to anticipate
and keep pace with advancing technology and competitive innovations. However,
there can be no assurance that we will be successful in identifying, developing
and marketing new products or enhancing our existing products. In addition,
there can be no assurance that new products or alternative diagnostic techniques
will not be developed that will render our current or planned products obsolete
or inferior. Rapid technological development by competitors may result in our
products becoming obsolete before we recover a significant portion of the
research, development and commercialization expenses incurred with respect to
such products.
We have significant competition from a variety of sources
Competition from competitors' medical devices that help to diagnose cardiac
disease is intense and likely to increase. We compete with manufacturers of
electrocardiogram stress tests, the conventional method of diagnosing ischemic
heart disease, and may compete with manufacturers of other non-invasive tests,
including electrocardiograms, Holter monitors, ultrasound tests and systems of
measuring cardiac late potentials. Many of our 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 Cambridge Heart. Some of our
competitors have long-term or preferential supply arrangements with physicians
and hospitals which may act as a barrier to market entry.
We depend heavily on our ability to identify and retain effective
independent manufacturers representatives and foreign distributors
We currently market our products in the United States through a small
direct sales force and independent manufacturers' representatives. There can be
no assurance that we will be able to continue to recruit and retain skilled
sales management, direct sales persons or independent manufacturers'
representatives. We market our products internationally through independent
distributors. These distributors may also distribute competing products under
certain circumstances. Our distribution agreement with our Japanese distribution
partner, Fukuda Denshi, Ltd. ("Fukuda"), expired as of March 31, 1999. We are in
the process of negotiating a contract renewal with Fukuda. There can be no
assurance that we will be able to renew this contract or that the terms
negotiated will be similar to the previous agreement. The loss of a significant
international distributor could have a material adverse effect on our 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 we rely on sales in certain territories through distributors, any
revenues we receive in those territories will depend upon the efforts of our
distributors. Furthermore, there can be no assurance that a distributor will
market our products successfully or that the terms of its distribution
arrangements will be acceptable to us.
Our business could be subject to product liability claims
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The testing, manufacture, marketing and sale of medical devices entail the
inherent risk of liability claims or product recalls. Although we maintain
product liability insurance in the United States and in other countries in which
we intend 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 Cambridge Heart, or
both, and could have a material adverse effect on our business, financial
condition and ability to market the CH 2000 System as currently contemplated.
The cost of our products may never be covered by third party payors
Our ability to successfully market our products will depend in large part
on the extent to which reimbursement for the cost of such products and the
procedures in which such products are used will become available from third
party payors, including:
government third party payors (including the Medicare and Medicaid
programs),
government health administration authorities, and
private health insurers.
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. We are unable to predict what changes
will be made in the reimbursement methods utilized by third party healthcare
payors. Furthermore, we 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 our
products are used. If coverage and adequate reimbursement levels are not
provided by government or third party payors for uses on our technologies or
products, our business, financial position and ability to market our
technologies or products will be adversely affected.
We have a number of risks associated with the year 2000
Although we do not believe that year 2000 issues will have a significant
impact on our internal operations or on our products, there can be no assurance
that we will not experience interruptions of operations because of year 2000
problems. Year 2000 problems could require us to incur unanticipated expenses,
and such expenses could have a material adverse effect on our business,
financial condition and results of operations. Furthermore, the purchasing
patterns of customers or potential customers may be affected by year 2000 issues
as companies expend significant resources to correct their current systems for
year 2000 compliance. These expenditures may result in reduced funds being
14
<PAGE>
available to purchase products offered by Cambridge Heart.
Item 3. Quantitative and Qualitative Disclosure about Market Risk
In January 1997, the securities and Exchange Commission issued Financial
Reporting Release No. 48, which expands the disclosure requirements for certain
derivatives and other financial instruments. The Company does not utilize
derivative financial instruments. The carrying amounts reflected in the balance
sheet of cash and cash equivalents, marketable securities, trade receivables and
trade payables approximates fair value at June 30,1999 due to the short
maturities of these instruments.
15
<PAGE>
PART II - OTHER INFORMATION
Item 1. Nothing to report
Item 2. Nothing to report
Item 3. Nothing to report
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's Annual Meeting of Stockholders was held on June 15, 1999
(the "Annual Meeting"). At the Annual Meeting, Laurence J. Blumberg and Rolf S.
Stutz were elected as Class III 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, Richard J. Cohen, M.D.,Ph.D. and
Harris A. Berman.
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 Laurence J. Blumberg and Rolf S. Stutz to serve as Class III
Directors of the Company for the ensuing three years.
For: 10,133,280 Withheld: 22,109
2. To ratify the appointment of PricewaterhouseCoopers LLP as independent
auditors of the Company for 1999.
For: 10,127,805 Against: 23,506 Abstain: 4,078
Item 5. OTHER INFORMATION
Laurence J. Blumberg resigned his position as a member of the Board of
Directors effective July 19, 1999.
16
<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. On June 16, 1999, the Company filed a current report on Form 8K dated
June 9, 1999 reporting under Item 5 the issuance of a press release
announcing the private placement of equity capital.
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 16, 1999 By: /s/ Jeffrey M. Arnold
--------------------------------
Jeffrey M. Arnold
Chairman, President, Chief
Executive Officer
17
<PAGE>
EXHIBIT INDEX
Exhibit Number Description
- -------------- -----------
10.1 Cooperative Marketing Agreement between Registrant and
Guidant Corporation dated May 7, 1999
10.2 Cooperative Marketing Agreement between Registrant and
Medtronic, Inc dated May 20, 1999
11 Statement re Computation of Net Loss per Share
27 Financial Data Schedule
18
<PAGE>
Exhibit 10.1
CAMBRIDGE Cooperative Marketing Agreement
HEART
Friday, May 7, 1999
Mark Bartell
VP of Marketing
CPI/Guidant
4100 Hamline Avenue North
St. Paul, MN 55112-5798
Fax: 651-582-5933
Dear Mark:
This letter confirms our agreement to cooperate in educating physicians about
the clinical use and benefits of T-wave alternans measurement. Specifically
we agree:
1. Guidant will identify and make available speaking opportunities for
presentations on T-wave alternans at Guidant sponsored national and
regional seminars and symposia in the U.S.
2. Cambridge Heart will identify speakers for these opportunities and will
pay their travel expenses and honoraria.
3. It is the non-binding intent of both parties that Guidant will identify
and Cambridge Heart will pay for at least three such opportunities per
calendar quarter.
4. Cambridge Heart will additionally make available to Guidant educational
materials that can be given to clinicians by Guidant sales
representatives.
5. The parties agree to periodically consult on other means of potential
cooperation.
6. The term of this agreement is through December 31, 2000. It can be
terminated at any time by 30 day written notice of either party.
Yours sincerely,
/s/ Jeff Arnold
Jeffrey M. Arnold
Chairman, President and CEO
Agreed: /s/ Mark Bartell Date 5-14-99
------------------------- ----------------------
Mark Bartell
<PAGE>
Exhibit 10.2
CAMBRIDGE Cooperative Marketing Agreement
HEART
Thursday, May 20, 1999
Michael Tofflee
Medtronics, Inc.
7000 Central Avenue, Northeast
Minneapolis, MN 55432
Fax: 612-514-3366
Dear Mike:
This letter confirms our agreement to cooperate in educating physicians about
the clinical use and benefits of T-wave alternans measurement. Specifically
we agree:
1. Medtronic will identify and make available speaking opportunities for
presentations on T-wave alternans at Medtronic sponsored national and
regional seminars and symposia in the U.S. It is understood that Medtronic
can suggest but cannot dictate speakers at these symposia.
2. Cambridge Heart will identify speakers for these opportunities and will
pay their travel expenses and honoraria.
3. It is the non-binding intent of both parties that Medtronic will identify
and Cambridge Heart will pay for at least three such opportunities per
calendar quarter.
4. Cambridge Heart will train Medtronic tacharrhythmia field engineers on
T-wave alternans and make available to them educational materials that
can be given to clinicians who inquire about T-wave alternans.
5. The parties agree to periodically consult on other means of potential
cooperation.
6. The term of this agreement is through December 31, 2000. It can be
terminated at any time by 30 day written notice of either party.
Yours sincerely,
/s/ Jeff Arnold
Jeffrey M. Arnold
Chairman, President and CEO
Agreed: /s/ Michael M. Tofflee Date 5-20-99
-------------------------- ----------------------
Michael Tofflee
<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,
1998 1999 1998 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net Loss $(1,778,373) $(1,786,752) $(3,465,217) $(1,094,823)
=========== =========== =========== ===========
Weighted average shares outstanding:
a. Shares attributable to common
stock outstanding 10,661,946 11,135,318 10,643,216 11,021,184
=========== =========== =========== ===========
Net loss per share $ (0.17) $ (0.16) $ (0.33) $ (0.31)
=========== =========== =========== ===========
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED JUNE 30, 1999 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-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 4,722,620
<SECURITIES> 3,088,602
<RECEIVABLES> 613,051
<ALLOWANCES> 40,000
<INVENTORY> 341,433
<CURRENT-ASSETS> 8,887,790
<PP&E> 1,393,628
<DEPRECIATION> 692,047
<TOTAL-ASSETS> 10,019,802
<CURRENT-LIABILITIES> 881,318
<BONDS> 0
0
0
<COMMON> 11,866
<OTHER-SE> 9,126,618
<TOTAL-LIABILITY-AND-EQUITY> 10,018,802
<SALES> 1,094,823
<TOTAL-REVENUES> 1,094,823
<CGS> 979,515
<TOTAL-COSTS> 979,515
<OTHER-EXPENSES> 3,711,850
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (3,465,354)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,465,354)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,465,354)
<EPS-BASIC> (0.31)
<EPS-DILUTED> (0.31)
</TABLE>
