<PAGE>
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 March 31,1999 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
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Number of shares outstanding of each of the issuer's classes of common stock
as of May 13, 1999:
Class Number of Shares Outstanding
- --------------------------------------- ----------------------------
Common Stock, par value $.001 per share 10,885,363
<PAGE>
CAMBRIDGE HEART, INC.
INDEX
PAGE NUMBER
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BALANCE SHEET AT DECEMBER 31, 1998 AND
MARCH 31, 1999 3
STATEMENT OF OPERATIONS
FOR THE THREE MONTH
PERIOD ENDED MARCH 31, 1998 AND 1999 4
STATEMENT OF CASH FLOWS
FOR THE THREE MONTH PERIOD ENDED
MARCH 31, 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
ITEM 5. OTHER INFORMATION 15
PART II. OTHER INFORMATION
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.
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1
FINANCIAL STATEMENTS
BALANCE SHEET
<TABLE>
<CAPTION>
December 31, March 31,
1998 1999
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(Unaudited)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents............. $2,426,032 $3,350,542
Marketable securities................. 4,064,321 1,386,046
Accounts receivable, net.............. 555,991 619,237
Inventory............................. 426,489 359,593
Prepaid expenses and other
current assets........................ 190,667 216,273
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Total current assets................ 7,663,500 5,931,691
Fixed assets, net..................... 647,629 661,971
Other assets.......................... 403,604 422,539
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$8,714,733 $7,016,201
========== ==========
Liabilities and
stockholders' equity
Current liabilities:
Accounts payable...................... $ 415,842 $ 495,326
Accrued expenses...................... 485,949 368,526
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Total current liabilities............. 901,791 863,852
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Stockholder's equity:
Common stock, $.001 par value;
20,000,000 shares authorized;
10,606,041 and 10,626,061 shares
issued and outstanding at
December 31, 1998 and March 31,
1999, respectively.................. 10,906 10,907
Additional paid-in capital............ 29,603,435 29,598,881
Accumulated deficit................... (21,700,389) (23,378,989)
----------- -----------
7,913,952 6,230,799
Less: deferred compensation........... (101,010) (78,449)
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Total stockholders' equity............ 7,812,942 6,152,349
----------- -----------
$ 8,714,733 $ 7,016,201
=========== ===========
</TABLE>
See accompanying notes to condensed financial statements.
<PAGE>
CAMBRIDGE HEART, INC.
STATEMENT OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
Three months ended March 31,
1998 1999
----------- -----------
<S> <C> <C>
Revenue...................................................... $ 406,848 $ 532,743
Cost of goods sold........................................... 355,978 465,322
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50,870 67,421
Cost and expenses:
Research and development..................................... 1,006,863 742,536
Selling, general and administrative 906,747 1,075,421
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Loss from operations....................................... (1,862,740) (1,750,536)
Interest income.............................................. 175,896 71,935
----------- -----------
Net loss..................................................... $(1,686,844) $(1,678,601)
=========== ===========
Net loss per share basic and
diluted..................................................... $(0.16) $(0.15)
========= =========
Weighted average common
shares outstanding basic and diluted...................... 10,624,486 10,907,049
========== ==========
</TABLE>
See accompanying notes to condensed financial statements.
<PAGE>
STATEMENT OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Three months ended March 31,
1998 1999
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss.............................................. $ (1,686,844) $(1,678,601)
Adjustments to reconcile net loss to net
cash used for operating activities:
Depreciation.......................................... 79,264 114,023
Compensation expense on stock options................. 42,437 17,410
Changes in assets and liabilities:
(Increase) decrease in accounts receivable........... 8,550 (25,606)
Decrease in inventory................................ 27,001 --
(Increase) decrease in prepaid expenses and other
current assets...................................... 8,668 (25,606)
Decrease in other assets............................. (19,342) --
Increase (decrease) in accounts payabe
and accrued expenses................................ 6,733 (37,939)
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Net cash used for operating activities............... (1,495,652) (1,607,063)
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Cash flows from investing activities:
Net (purchase) maturity of marketable securities...... 1,364,463 2,678,275
Purchase of fixed assets.............................. (137,447) (96,530)
Capitalization of sofware development costs........... 57,637 (50,770)
---------- ----------
Net cash (used for) provided by investing activities 1,169,379 2,530,975
---------- ----------
Cash flows from financing activities:
Proceeds from issuance of common stock................. 2,635 598
---------- ----------
Net increase/(decrease) in cash and cash equivalents... (323,638) 924,510
Cash and cash equivalents at beginning
of period............................................. 5,665,736 2,426,032
---------- ----------
Cash and cash equivalents at end
of period.............................................. $ 5,342,098 $ 3,350,542
=========== ===========
</TABLE>
See accompanying notes to condensed financial statements.
<PAGE>
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 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 March 31, 1999, and the results of its operations and its
cash flows for the three month periods ended March 31, 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
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, 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
<PAGE>
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 months ended March 31, 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
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.
The Company has experienced substantial net losses since its inception in
1993 and expects net losses to continue for the foreseeable future. The Company
believes that its research and development expenses will increase in the future
in support of its efforts to develop additional products and also to fund
clinical trials directed at expanding the indications for use of its T-wave
alternans technology. 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 product
acquisitions. The Company also expects that its selling, general and
administrative expenses will increase in connection with the expansion of
efforts targeted at acceleration of the rate of adoption of its technology as a
diagnostic tool for the identification of those at risk of sudden cardiac death.
The future growth of the Company's revenues will depend upon the success of
these strategies, as well as numerous factors, including competition and the
availability of third party reimbursement for T-wave alternans measurement.
The Company has incurred cumulative net losses since inception through March 31,
1999 of $23,379,000.
During March, 1999 the Company established a $500,000 revolving line of
credit with Silicon Valley Bank secured by the Company's trade accounts
receivable. The credit line agreement extends through March 31, 2000.
<PAGE>
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 were not included in the approved label. The Company is very
satisfied with this result.
The Company was granted and issued two new U.S. patents in April, 1999. The
first covers method and system for obtaining a localized cardiac measure
utilizing the Company's Cardiac Electrical Imaging ("CEI") technology and the
second covers the Company's proprietary method for the detection of abnormal
activation of the heart.
During the three month period ended March 31, 1999, the Company increased
the number of independent manufacturer's representatives selling their products
in the United States from 35 to 40.
In March, 1999 the Company participated in the 48th American College of
Cardiology Conference. The meeting included a total of four presentations on
T-wave alternans including the final results of the Company's 337 patient multi-
center labeling study. The studies results showed that TWA predicted
tachyarrhythmic events and total mortality with a relative risk of 13.9 compared
to a relative risk of 4.7 for electrophysiology study. Relative risk is the
chance of having an event if the test is positive divided by the chance of
having an event if the test is negative. The greater the number, the more
predictive the test.
<PAGE>
THREE MONTH PERIOD ENDED MARCH 31, 1998 AND 1999
Revenues for the three month period ended March 31, 1998 and 1999 were
$406,800 and $532,700, respectively, an increase of 31%. Sales to U.S. customers
increased 65% from $124,300 during the three month period ended March 31, 1998
to $255,300 for the same period in 1999. The growth in U.S. revenues results
from improvement in the Company's U.S. sales effort. The Company currently
employs 5 direct sales managers in the U.S. and approximately 40 independent
manufacturers' sales representatives. Revenues from product sold outside the
United States declined 2% from $282,500 for the three month period ended March
31, 1998, to $277,400 for the same period of 1999.
During the first quarter of Fiscal 1999, the Company entered into an
agreement with NeuroMetrics, Inc. to license the Company's electrode gel for use
with their carpal tunnel syndrome product.
The cost of goods sold for the three month period ended March 31, 1998 was
$356,000, or 87% of total revenue, compared to $465,300, or 87% of total revenue
for the same period in 1999.
Research and development expenses declined 26% from $1,006,900 in the three
month period ended March 31, 1998 to $742,500 for the same period of 1999. This
reflects the overall reduction in costs incurred associated with the Company's
multi-center labeling and follow-up studies during 1998. These studies were
conducted in support of the Company's successful 510(K) application to the FDA
for expansion of its labeling claims for the CH 2000 System. The Company
continues to further fund additional third party clinical trials in additional
patient groups in the attempt to broaden the indications for use of its T-wave
alternans technology. The Company also funded research and development programs
for new products and technologies, including its CEI technology.
Selling, general and administrative expenses increased from $906,700 in the
three month period ended March 31, 1998 to $1,075,400 during the same period of
1999. Most of this increase was associated with the Company's marketing efforts
to communicate to physicians and patients the benefits of its T-wave alternans
technology beginning immediately upon approval of its 510(K) for expansion of
labeling claims for its CH 2000 System.
Interest income was $175,900 for the three month period ended March 31,
1998, compared to $71,900 for the same period in 1999. This decrease reflected a
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.
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically financed its operations from the sale of equity
securities. 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 offering, 4,455,708 shares of preferred stock
were converted to shares of common stock. The proceeds of the equity offerings
have been used primarily to fund operating losses of $23,379,000, reflecting
expenditures made primarily to support research, new product development, and
clinical trial activities, to support a marketing and
<PAGE>
sales organization, and to support an administrative infrastructure and the
investment of approximately $1,271,200 in property and equipment as of March 31,
1999.
As of March 31, 1999, the Company had cash, cash equivalents and marketable
securities of $4,736,600. During the three month period ended March 31, 1999,
the Company's cash, cash equivalents and marketable securities decreased by
$1,753,800, or 27% consistent with its net loss for the quarter of $1,678,601.
Fixed asset additions during the quarter of $92,600 represent improvements in
the Company's information systems infrastructure and increased sales
demonstration and clinical research units.
The Company anticipates that its existing capital resources will be
adequate to satisfy its capital requirements for the next nine months. However,
in the event unforeseen difficulties arise, the Company's available capital may
be exhausted in less than nine 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 that, 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, particularly in connection with the manufacture of
its proprietary Hi-Resolution electrodes. 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 obligated to pay an aggregate of
$360,000 of such minimum license maintenance fees subsequent to March 31, 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 is currently in the process of assessing 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 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 completed its assessment of each of these areas.
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
<PAGE>
expected to be in place by Mid-1999. 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. 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 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 will need to obtain additional financing in the near future or our
business will be materially adversely affected
For the three month period ended March 31, 1999, we had a net loss of
$1,678,600, and we expect to incur comparable losses for the foreseeable future.
As of March 31, 1999, we had cash, cash equivalents and marketable securities of
$4,736,600. We believe these funds will be adequate to continue our operations
for the next nine months, but in the event unforeseen difficulties arise, we may
need to obtain financing sooner. In any event, we will need to acquire
additional financing and we can not assure you that we will be able to obtain
such financing on a reasonable basis, if at all. 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.
<PAGE>
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
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
<PAGE>
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
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 the
same as 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.
<PAGE>
Our business could be subject to product liability claims
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
<PAGE>
as companies expend significant resources to correct their current systems for
year 2000 compliance. These expenditures may result in reduced funds being
available to purchase products offered by Cambridge Heart.
Item 5. OTHER INFORMATION
Nothing to report
<PAGE>
PART II - OTHER INFORMATION
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: May 17, 1998 By: /s/ Jeffrey M. Arnold
--------------------------------------
Jeffrey M. Arnold
Chairman, President, Chief
Executive Officer
<PAGE>
EXHIBIT INDEX
Exhibit Number Description
- -------------- -----------
11 Statement re Computation of Net Loss per Share
27 Financial Data Schedule
<PAGE>
Exhibit 11
Cambridge Heart, Inc.
Computation of Net Loss per Share-Basic and Diluted
<TABLE>
<CAPTION>
For the three months ended
March 31,
1998 1999
<S> <C> <C>
Net Loss $(1,686,844) $(1,678,601)
=========== ===========
Weighted average shares outstanding:
a. Shares attributable to common stock outstanding 10,624,486 10,907,049
========== ==========
Net loss per share $ (0.16) $ (0.15)
=========== ===========
</TABLE>
- ----------------
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED MARCH 31, 1999 FINANCIAL STATEMENT AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 3,350,542
<SECURITIES> 1,386,046
<RECEIVABLES> 659,237
<ALLOWANCES> 40,000
<INVENTORY> 359,593
<CURRENT-ASSETS> 5,931,691
<PP&E> 1,275,284
<DEPRECIATION> 613,313
<TOTAL-ASSETS> 7,016,201
<CURRENT-LIABILITIES> 863,852
<BONDS> 0
0
0
<COMMON> 10,907
<OTHER-SE> 6,141,443
<TOTAL-LIABILITY-AND-EQUITY> 7,016,202
<SALES> 532,743
<TOTAL-REVENUES> 532,743
<CGS> 465,322
<TOTAL-COSTS> 465,322
<OTHER-EXPENSES> 742,536
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,678,601)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,678,601)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,678,601)
<EPS-PRIMARY> (0.15)
<EPS-DILUTED> (0.15)
</TABLE>
