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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 MARCH 31,2000 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 May 10, 2000:
Class Number of Shares Outstanding
- --------------------------------------- ----------------------------
Common Stock, par value $.001 per share 14,462,803
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CAMBRIDGE HEART, INC.
INDEX
PAGE NUMBER
-----------
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BALANCE SHEET AT DECEMBER 31, 1999 AND
March 31, 2000 (Unaudited) 3
STATEMENT OF OPERATIONS
FOR THE THREE MONTH PERIOD ENDED
MARCH 31, 1999 AND 2000(Unaudited) 4
STATEMENT OF CASH FLOWS
FOR THE THREE MONTH PERIOD ENDED
MARCH 31, 1999 AND 2000 (Unaudited) 5
NOTES TO CONDENSED FINANCIAL
STATEMENTS 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS 8
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT
MARKET RISK 12
PART II. OTHER INFORMATION
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
CAMBRIDGE HEART, INC.
BALANCE SHEET
<TABLE>
<CAPTION>
December 31, March 31,
1999 2000
------------ -----------
(Unaudited)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents....................... $ 2,657,392 $ 2,837,034
Marketable securities........................... 6,518,924 6,328,667
Accounts receivable,(net of allowance for doubtful
accounts of $7,725 at December 31, 1999 and
March 31, 2000)................................ 577,156 533,629
Inventory....................................... 460,913 562,217
Prepaid expenses and other current assets....... 140,197 200,567
----------- ------------
Total current assets.......................... 10,354,582 10,462,114
Fixed assets, net............................... 645,931 706,466
Other assets.................................... 453,097 436,856
----------- ------------
$11,453,610 $11,605,436
=========== ============
Liabilities and stockholders' equity
Current liabilities:
Accounts payable................................ $ 679,660 $ 618,985
Accrued expenses................................ 517,936 492,493
Short term debt................................. 206,727 117,751
----------- -----------
Total current liabilities....................... 1,404,323 1,229,229
----------- ------------
Stockholder's equity:
Common stock, $.001 par value; 20,000,000 shares
authorized; 13,921,357 and 14,642,887 shares
issued and outstanding at December 31, 1999
and March 31, 2000, respectively............... 13,921 14,643
Additional paid-in capital...................... 39,120,605 41,543,084
Accumulated deficit............................. (29,035,803) (31,121,826)
----------- ------------
10,098,723 10,435,901
Less: deferred compensation..................... (49,436) (59,694)
----------- ------------
Total stockholders' equity.................... 10,049,287 10,376,207
----------- ------------
$11,453,610 $11,605,436
=========== ============
</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 March 31,
1999 2000
---------------- ---------------
<S> <C> <C>
Revenue........................... $ 532,743 $ 412,904
Cost of goods sold................ 465,322 435,305
--------- ----------
67,421 (22,401)
Cost and expenses:
Research and development.......... 742,536 924,149
Selling, general and administrative 1,075,421 1,268,376
--------- ----------
Loss from operations............ (1,750,536) (2,214,926)
Interest income................... 71,935 128,903
--------- ----------
Net loss......................... $(1,678,601) $(2,086,023)
========== ==========
Net loss per share - basic and... $ (0.15) $ (0.14)
diluted ========== ==========
Weighted average common
shares outstanding - basic and.. 10,907,049 14,449,379
diluted ============ ===========
</TABLE>
See accompanying notes to condensed financial statements.
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CAMBRIDGE HEART, INC
STATEMENT OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Three months ended March 31,
-------------------------
1999 2000
----------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net loss........................................... $(1,678,601) $(2,086,023)
Adjustments to reconcile net loss to net
cash used for operating activities:
Depreciation and amortization...................... 114,023 88,605
Compensation expense related to stock options...... 17,410 43,022
Changes in assets and liabilities:
Accounts receivable.............................. (63,246) 43,527
Inventory........................................ 66,896 (101,304)
Prepaid expenses and other current assets........ (25,606) (60,370)
Other assets..................................... - (1,040)
Accounts payable and accrued expenses............ (37,939) (86,119)
----------- ----------
Net cash used for operating activities........... (1,607,063) (2,159,702)
----------- ----------
Cash flows from investing activities:
(Purchase) sale of marketable securities............ 2,678,275 190,257
Purchase of fixed assets............................ (96,530) (86,888)
Capitalization of software development costs........ (50,770) (44,970)
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Net cash provided by(used for) investing activity. 2,530,975 58,399
----------- ----------
Cash flows from financing activities:
Proceeds from issuance of common stock, net
Of issuance costs .................................. 598 2,075,080
Proceeds from the exercise of warrants.............. 294,841
Proceeds from utilization of bank credit line....... - (88,976)
----------- ----------
Net cash provided by financing activities......... 598 2,280,945
Net increase in cash and cash equivalents........... 924,510 179,642
Cash and cash equivalents at beginning
of period......................................... 2,426,032 2,657,392
----------- ----------
Cash and cash equivalents at end
of period......................................... $3,350,542 $2,837,034
========== ==========
</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. 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, 1999 and
the notes thereto included in the Company's 1999 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, 2000, and the results of its
operations and its cash flows for the three month periods ended March
31, 1999 and 2000, 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 1,280,500 and 2,285,187 of
potential common stock equivalents from the calculation of diluted
weighted average share amounts for the three months ended March 31, 1999
and 2000 respectively, as its inclusion would have been anti-dilutive.
5. FINANCINGS
In January 2000 the Company raised gross proceeds of $2.1 million
in equity capital less approximately $36,000 in issuance costs from the
sale of 600,000 shares of Common Stock through a private placement with
a single investors at a 10% discount to the final trading price of the
Company's stock on the NASDAQ on January 11, 2000. In addition, warrants
with a four year term for the purchase of 120,000 shares of Common Stock
at $3.50 per share were issued. If the Company sells Common Stock in a
capital raising transaction at a lower price per share over the next 12
months, the investor has the right to receive additional shares to
adjust the price of the transaction. The sales agent, Sunrise
Securities, Inc. received 45,160 shares of common stock as commission
and warrants with a four year term for the purchase of 45,161 shares of
Common Stock at $4.20 per share. The proceeds of the sale will be used
to fund operations.
6. NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities," was issued, which establishes accounting and
reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts, and for hedging
activities. We are required to adopt SFAS No. 133, as amended by SFAS
NO.
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137, "Accounting for Derivative Instruments and Hedging
Activities-Deferral of the Effective Dates of FASB Statement 133," on a
prospective basis for interim periods and fiscal years beginning January
1, 2001. Had we implemented SFAS No. 133 in the current period,
financial position and results of operations would not have been
affected.
SEC Staff Accounting Bulletin No. 100, "Restructuring and Impairment
Charges," issued in November 1999, expresses views of the Staff
regarding the accounting for and disclosure of certain expenses commonly
reported in connection with exit activities and business combinations.
This includes accrual of exit and employee termination costs pursuant to
Emerging Issues Task Force (EITF) Issues No. 94-3, Liability Recognition
for Certain Employee Termination Benefits and Other Costs to Exit an
Activity (Including Certain Costs Incurred in a Restructuring), and No.
95-3, Recognition of Liabilities in Connection with a Purchase Business
Combination, and the recognition of impairment charges pursuant to
Accounting Principles Board (APB) Opinion No. 17, Intangible Assets and
Statement of Financial Accounting Standards (SFAS) No. 121, Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of.
In December 1999, the Securities and Exchange Commission (SEC) issued
Staff Accounting Bulletin No. 101 (SAB 101), "Revenue Recognition in
Financial Statements." SAB 101 summarizes the SEC's views in applying
generally accepted accounting principles to selected revenue recognition
issues.
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 Alternans System and
Hi-Resolution sensors. Both products have received 510(k) clearance from the
Food and Drug Administration ("FDA") for sale in the United States.
Internationally,
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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 January 2000 the Company raised gross proceeds of $2.1 million in
equity capital less approximately $36,000 in issuance costs from the sale of
600,000 shares of Common Stock through a private placement with a single
investors at a 10% discount to the final trading price of the Company's stock on
the NASDAQ on January 11, 2000. In addition, warrants with a four year term for
the purchase of 120,000 shares of Common Stock at $3.50 per share were issued.
If the Company sells Common Stock in a capital raising transaction at a lower
price per share over the next 12 months, the investor has the right to receive
additional shares to adjust the price of the transaction. The sales agent,
Sunrise Securities, Inc. received 45,160 shares of common stock as commission
and warrants with a four year term for the purchase of 45,161 shares of Common
Stock at $4.20 per share. The proceeds of the sale will be used to fund
operations.
During the quarter ended March 31, 2000, the number of third
party insurers that have reimbursed healthcare providers for Alternans Tests
submitted for reimbursement has increased by three to a total of five. The five
payers and the state in which the service was provided are: Blue Cross
(California), Delta Health Systems (California), Blue Shield (California),
Connecticut General Life Insurance (Washington), Prudential HMO (California).
These providers are paying for valid claims submitted to them but have not, in
general, established coverage policies that would codify their reimbursement
amounts throughout their health plans. However, as of the end of the quarter,
two additional payers have begun the process of establishing coverage policies.
On March 31, 2000 the Company submitted a 510(K) to the Food and
Drug Administration ("FDA") seeking clearance to market its new Alternans
Add-on product. This device utilizes the Company's previously cleared
proprietary T-wave Alternans technology and Hi-Resolution disposable sensors
to allow cardiologists to conduct and Alternans test using any manufacturers'
installed standard stress test system. When cleared, this product will
provide greater access to the market of potential customers who are
interested in performing alternans tests but who are not in the market for a
new stress test system. There are approximately 23,000 stress test systems
installed in the U.S. but only fewer than 2,300 systems sold new each year.
The Company anticipates that the availability of this product will have a
positive impact on its efforts to accelerate the rate of clinical use of its
alternans technology. During April 2000, the Company received questions
regarding its 510(K) submission from FDA. The Company has recently submitted
its response to these questions and expects that the process will continue
toward receipt of final clearance in a timely manner.
THREE MONTH PERIOD ENDED MARCH 31, 1999 AND 2000
Revenue for the three month periods ended March 31, 1999 and 2000
were $532,700 and $412,900 respectively, a decrease of 22%. Worldwide revenue
from the sale of CH2000 Alternans systems and disposable sensors increased
$95,200 or 55% during the three month period ended March 31, 2000 when
compared to the same period last year accounting for 67% of all revenue from
the sale of product (excluding license fees). Worldwide revenue from the sale
of standard stress (i.e. those systems without T-wave alternans), declined
$168,300 or 58%.
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The Company has been changing the emphasis of its sales efforts in the
U.S. from standard stress systems to its Alternans system and proprietary
disposable sensors. As a result, during the quarter ended March 31, 2000, U.S.
revenue from the sale of CH2000 Alternans systems and disposable sensors
accounted for 78% of all U.S. revenue from the sale of product (excluding
license fees) and increased $131,300 or 367% over the same period last year.
U.S. revenue from the sale of standard stress, declined $123,200 or 74% during
the quarter ended March 31, 2000 as compared the same period last year.
The Company's revenue recognition method for license fees is to
recognize income evenly over a 12 month period. The change in license fee
revenue contributes to $37,500 or 7% of the total revenue decline in the first
quarter as compared to the same period in 1999.
The gross margin on products sold for the three month periods ended
March 31, 1999 and 2000 were 13% and (5%) of revenue respectively. Aggressive
pricing on standard stress test systems sold outside the U.S. adversely effected
the margin by 12 points as compared to the same period last year. The Company
plans to continue to aggressively market its products internationally. The lower
license fee revenue in the three month period ended March 31, 2000 accounts for
the majority of the remaining decline in the margin percentage.
Research and development expenses increased from $742,500 in the three
month period ended March 31, 1999 to $924,150 for the same period of 2000, an
increase of 24%. This incremental spending is for the Company's "add-on" product
which is scheduled for release later this year. The Company anticipates that
research and development costs will be reduced in the third quarter after the
release of the "add-on". The Company will continue to fund a variety of clinical
trials already underway targeted at increasing the growing body of evidence in
support of T-wave alternans as a strong predictor of arrhythmic risk in various
patient populations. Additionally the Company continues to fund the ongoing
research efforts focused on evaluating the commercial feasibility of its cardiac
electrical imaging technology.
Selling, general and administrative expenses increased from $1,075,400
in the three month period ended March 31, 1999 to $1,268,400 in the same period
in 2000. The incremental costs are associated with the Company's various
marketing and media initiatives targeted at increasing awareness of the benefits
of T-wave alternans and the Alternans test. The Company is continuing efforts
targeted at gaining payment for healthcare providers who clinically perform the
Alternans Test. During the current quarter, five additional third party insurers
have reimbursed healthcare providers for valid claims submitted for the
performance of the Alternans Test. The Company will continue to build on this
success to expand the list of major third party insurers providing reimbursement
for its Alternans Test and will fund programs supporting these efforts.
Interest income was $71,900 for the three month period ended March 31, 1999
compared to $128,900 for the same period in 2000. This increase is a result of a
higher cash balance due to equity capital raised by the Company for the three
month period ended March 31, 2000.
LIQUIDITY AND CAPITAL RESOURCES
During January 2000, the Company raised $2.064 million (net of issuance
costs) from the sale of 600,000 shares of common stock and approximately
$295,000 from the exercise of 74,870 warrants issued at an average price of
$3.94 per share. In addition the Company continues to utilize a $500,000 line
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of credit collateralized by selected customer accounts receivable. The amount
of utilization of the credit line as of March 31, 2000 was approximately
$118,000.
As of March 31, 2000, the company had cash, cash equivalents and
marketable securities of $9,165,700. This represents a less than 1% decrease
over December 31, 1999. During the three month period ended March 31, 2000, the
$2.4 million of equity capital raised funded the Company's reported net loss for
the quarter.
Inventory levels have increased from $460,900 to $562,200 during the
quarter mainly attributable to the timing of shipments for the second quarter.
Fixed asset additions during the year primarily represent increased
clinical research units.
The Company expects capital expenditures to increase as it continues to
commercialize its products, particularly in connection with the introduction of
its "add-on" product during Fiscal 2000. The company does not expect capital
expenditures to exceed an aggregate of $1,000,000 over the next year.
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 $10,000
to $40,000 per year in total through 2008. The Company is committed to pay an
aggregate of $320,000 of such minimum license maintenance fees subsequent to
March 31, 2000 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
The Company anticipates that its existing capital resources will be
adequate to satisfy its capital requirements through the next twelve months.
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).
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RISKS RELATED TO OUR OPERATIONS
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, 2000. We can give no assurance that we will ever generate
substantial revenues or achieve profitability on a quarterly or annual basis.
We believe that our research and development expenses will increase
significantly in the future as we develop additional products and fund
clinical trials of our product candidates. Our research and development
expenses may also increase in the future as we supplement our internal
research and development with additional third party technology licenses and
potential acquisition of complimentary products and technologies. We also
expect that our selling, general and administrative expenses will continue to
increase in connection with the continued expansion of our sales and
marketing activities. Revenues generated from the sale of our products will
depend upon numerous factors, including:
- - the timing of regulatory actions;
- - 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 depend, in large part, 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 this
technology. We can give 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 sensors to
establish the prognostic value of such technology. Although studies on high
risk patients to date have indicated that the measurement of T-wave alternans
to predict the vulnerability to ventricular arrhythmia is comparable to
electro physiology testing, there can be no assurances that the results of
such studies, particularly studies involving patients who are not high risk,
will continue to be favorable. Any clinical studies or trials which fail to
demonstrate that the measurement of 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, would
have a material adverse effect on our business, financial condition and
results of operations.
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WE MAY NOT 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. We can give no assurance that we will be able to
obtain European Union approval for any future products. Our inability or
failure, or the inability or failure of our 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 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, as well as with manufacturers of other invasive and
non-invasive tests, including EP testing, electrocardiograms, Holter
monitors, ultrasound tests and systems of measuring cardiac late potentials.
Many of our competitors and prospective competitors have substantially
greater capital resources, name recognition, research and development
experience and regulatory, manufacturing and marketing capabilities. Many of
these competitors offer broad, well-established 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 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 also distribute
competing products under certain circumstances. 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 could not be found on a
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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 any future distribution
arrangements will be acceptable to us.
RISKS RELATED TO THE MARKET FOR CARDIAC DIAGNOSTIC EQUIPMENT
OUR BUSINESS COULD BE SUBJECT TO PRODUCT LIABILITY CLAIMS
The testing, manufacture, marketing and sale of medical devices
entails 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 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
Alternans System as currently contemplated.
OUR BUSINESS COULD BE ADVERSELY AFFECTED IF WE ARE UNABLE TO PROTECT OUR
PROPRIETARY TECHNOLOGY
Our success will depend, in large part, on our ability to develop
patentable products, enforce our patents and obtain patent protection for our
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. We can
give no assurance that patents will issue from any patent applications we own
or license or that, if patents do issue, the claims allowed will be
sufficiently broad to protect our proprietary technology. In addition, we can
give no assurance that any issued patents we own or license will not be
challenged, invalidated or circumvented, or that the rights granted
thereunder will provide us with competitive advantages. We also rely on
unpatented trade secrets to protect our proprietary technology, and we can
give no assurance that others will not independently develop or otherwise
acquire substantially equivalent techniques, or otherwise gain access to our
proprietary technology, or disclose such technology or that we can ultimately
protect meaningful rights to such unpatented proprietary technology.
OTHERS COULD CLAIM THAT WE INFRINGE THEIR INTELLECTUAL PROPERTY RIGHTS
Our commercial success will depend in part on our neither infringing
patents issued to others nor breaching the licenses upon which our products
might be based. Our licenses of patents and patent applications impose
various commercialization, sublicensing, insurance, royalty and other
obligations on our part. If we fail to comply with these requirements,
licenses could convert from being exclusive to nonexclusive in nature or
could terminate.
WE COULD BECOME INVOLVED IN LITIGATION OVER INTELLECTUAL PROPERTY RIGHTS
The medical device industry has been characterized by extensive
litigation regarding patents and other intellectual property rights.
Litigation, which
13
<PAGE>
would likely result in substantial cost to us, may be necessary to enforce
any patents issued or licensed to us and/or to determine the scope and
validity of others' proprietary rights. In particular, our competitors and
other third parties hold issued patents and are assumed to hold pending
patent applications which may result in claims of infringement against us or
other patent litigation. We also may have to participate in interference
proceedings declared by the United States Patent and Trademark Office, which
could result in substantial cost, to determine the priority of inventions.
Furthermore, we may have to participate at substantial cost in International
Trade Commission proceedings to abate importation of products which would
compete unfairly with our products.
WE MAY NOT BE ABLE TO PROTECT OUR TRADE SECRETS
We rely on confidentiality agreements with our collaborators,
employees, advisors, vendors and consultants. We can give no assurance that
these agreements will not be breached, that we would have adequate remedies
for any breach or that our 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 Cambridge Heart.
WE MAY NOT BE ABLE TO OBTAIN THIRD-PARTY REIMBURSEMENT
Our revenues currently depend and will continue to depend, to a
significant extent, on sales of the CH 2000 Alternans System. Our ability to
successfully commercialize the CH 2000 Alternans System depends in part on
the availability of, and our ability to obtain, adequate levels of
third-party reimbursement for use of the CH 2000 Alternans System.
Reimbursement is not currently available for the use of the CH 2000 Alternans
System for measuring T-wave alternans.
The amount of reimbursement in the United States that will be
available for clinical use of the CH 2000 Alternans System, if any, is
uncertain and may vary. In the United States, the cost of medical care is
funded, in substantial part, by government insurance programs, such as
Medicare and Medicaid, and private and corporate health insurance plans.
Third-party payors may deny reimbursement if they determine that a prescribed
device has not received appropriate FDA or other governmental regulatory
clearances, is not used in accordance with cost-effective treatment methods
as determined by the payor, or is experimental, unnecessary or inappropriate.
Our ability to commercialize the CH 2000 Alternans System successfully will
depend, in large part, on the extent to which appropriate reimbursement
levels for the cost of the use of the CH 2000 Alternans System are obtained
from government authorities, private health insurers and other organizations,
such as health maintenance organizations.
We can give no assurance that reimbursement in the United States or
foreign countries will be available for the CH 2000 Alternans System, or if
available, will not be decreased in the future or that reimbursement amounts
will not reduce the demand for, or the price of, the CH 2000 Alternans
System. The unavailability of third-party reimbursement or the inadequacy of
the reimbursement for medical tests using the CH 2000 Alternans System would
have a material adverse effect on Cambridge Heart.
14
<PAGE>
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 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 March 31, 2000 due
to the short maturities of these instruments.
PART II - OTHER INFORMATION
1. On March 7, 2000, the Board of Directors unanimously approved the
election of Maren D. Anderson to replace J. Daniel Cole as member of
the Company's Board. Mr. Cole resigned from the Board in
December 1999.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
1. The exhibits listed in the Exhibit Index filed as part of this report
are filed as part of or are included in this report.
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Number Description
- -------------- -----------
<S> <C>
11 Statement re Computation of Net Loss per Share
27 Financial Data Schedule
</TABLE>
15
<PAGE>
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 15, 2000 By: /s/ Jeffrey M. Arnold
---------------------------------------
Jeffrey M. Arnold
Chairman, President, Chief
Executive Officer
16
<PAGE>
Exhibit 11
Cambridge Heart, Inc.
Computation of Net Loss per Share - Basic and Diluted
<TABLE>
<CAPTION>
For the three months ended
March 31,
1999 2000
---------- ----------
<S> <C> <C>
Net Loss $(1,678,601) $(2,086,023)
=========== ===========
Weighted average shares outstanding:
a. Shares attributable to common stock outstanding 10,907,049 14,449,379
=========== ===========
Net loss per share $ (0.15) $ (0.14)
=========== ===========
</TABLE>
- ----------------
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED MARCH 31, 2000 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-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 2,837,034
<SECURITIES> 6,328,667
<RECEIVABLES> 541,354
<ALLOWANCES> 7,725
<INVENTORY> 562,217
<CURRENT-ASSETS> 10,462,114
<PP&E> 1,626,249
<DEPRECIATION> 919,783
<TOTAL-ASSETS> 11,605,436
<CURRENT-LIABILITIES> 1,229,229
<BONDS> 0
0
0
<COMMON> 14,643
<OTHER-SE> 10,361,564
<TOTAL-LIABILITY-AND-EQUITY> 11,605,436
<SALES> 412,904
<TOTAL-REVENUES> 412,904
<CGS> 435,305
<TOTAL-COSTS> 435,305
<OTHER-EXPENSES> 2,192,525
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (2,086,023)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,086,023)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,086,023)
<EPS-BASIC> (0.14)
<EPS-DILUTED> (0.14)
</TABLE>
