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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, 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 August 11, 2000:
Class Number of Shares Outstanding
--------------------------------------- ----------------------------
Common Stock, par value $.001 per share 14,656,311
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CAMBRIDGE HEART, INC.
INDEX
<TABLE>
<CAPTION>
PAGE NUMBER
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<S> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BALANCE SHEET AT DECEMBER 31, 1999 AND
JUNE 30, 2000 3
STATEMENT OF OPERATIONS
FOR THE THREE MONTH AND SIX MONTH
PERIODS ENDED JUNE 30, 1999 AND 2000 4
STATEMENT OF CASH FLOWS
FOR THE SIX MONTH PERIOD ENDED
JUNE 30, 1999 AND 2000 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 DISCLOSURES ABOUT
MARKET RISK 15
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS 16
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 16
</TABLE>
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, June 30,
1999 2000
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(Unaudited)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents....................... $ 2,657,392 $ 786,401
Marketable securities........................... 6,518,924 6,458,402
Accounts receivable,(net of allowance for doubtful
accounts of $7,725 and $27,937 at December 31, 1999
and June 30, 2000)................................ 577,156 538,136
Inventory....................................... 460,913 571,915
Prepaid expenses and other current assets....... 140,197 148,957
----------- -----------
Total current assets.......................... 10,354,582 8,503,811
Fixed assets, net............................... 645,931 798,943
Other assets.................................... 453,097 442,751
----------- -----------
$11,453,610 $ 9,745,505
=========== ===========
Liabilities and stockholders' equity
Current liabilities:
Accounts payable................................ $ 679,660 $ 596,491
Accrued expenses................................ 517,936 540,362
Short term debt................................. 206,727 116,874
----------- -----------
Total current liabilities....................... 1,404,323 1,253,727
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Stockholder's equity:
Common stock, $.001 par value; 20,000,000 shares
authorized; 13,921,357 and 14,656,311 shares
issued and outstanding at December 31, 1999
and June 30, 2000, respectively............... 13,921 14,656
Additional paid-in capital...................... 39,120,605 41,522,218
Accumulated deficit............................. (29,035,803) (33,011,293)
----------- -----------
10,098,723 8,525,581
Less: deferred compensation..................... (49,436) (33,803)
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Total stockholders' equity.................... 10,049,287 8,491,778
----------- -----------
$11,453,610 $ 9,745,505
=========== ===========
</TABLE>
See accompanying notes to condensed financial statements.
3
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CAMBRIDGE HEART, INC.
STATEMENT OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
Three months ended June 30, Six months ended June 30,
--------------------------- --------------------------
1999 2000 1999 2000
------------ ------------ ----------- ------------
<S> <C> <C> <C> <C>
Revenue............................. $ 562,080 $ 457,580 $ 1,094,823 $ 870,484
Cost of goods sold.................. 514,193 454,923 979,515 890,228
----------- ----------- ----------- -----------
47,887 2,657 115,308 (19,744)
Cost and expenses:
Research and development............ 644,647 661,828 1,387,183 1,585,977
Selling, general and administrative 1,249,245 1,350,115 2,324,667 2,618,491
----------- ----------- ----------- -----------
Loss from operations.............. (1,846,005) (2,009,286) (3,596,542) (4,224,212)
Interest income..................... 59,253 119,819 131,188 248,722
----------- ----------- ----------- -----------
Net loss............................ $(1,786,752) $(1,889,467) $(3,465,354) $(3,975,490)
=========== =========== =========== ===========
Net loss per share basic and........ $ (0.16) $ (0.13) $ (.31) $ (.27)
diluted =========== =========== =========== ===========
Weighted average common
shares outstanding basic and diluted 11,135,318 14,655,855 11,021,184 14,575,745
=========== =========== =========== ===========
</TABLE>
See accompanying notes to condensed financial statements.
4
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STATEMENT OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Six months ended June 30,
-----------------------------
1999 2000
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<S> <C> <C>
Cash flows from operating activities:
Net loss............................................... $(3,464,354) $(3,975,490)
Adjustments to reconcile net loss to net
cash used for operating activities:
Depreciation and amortization.......................... 244,142 242,818
Loss on Disposal of fixed assets....................... 6,787
Compensation expense on stock options.................. 29,383 68,913
Changes in operating assets and liabilities:
Accounts receivable.................................. (17,060) 39,020
Inventory............................................ 85,057 (111,002)
Prepaid expenses and other current assets............ 28,582 (8,760)
Other assets ........................................ (3,701) 7,968
Accounts payable and accrued expenses................ (20,473) (60,743)
----------- -----------
Net cash used for operating activities............. (3,118,424) (3,790,489)
----------- -----------
Cash flows from investing activities:
Net maturity of marketable securities.................. 975,719 60,522
Purchase of fixed assets............................... (211,478) (278,115)
Capitalization of software development costs........... (109,742) (122,124)
----------- -----------
Net cash (used in) provided by investing activity.... 654,499 (339,717)
----------- -----------
Cash flows from financing activities:
Proceeds from issuance of common stock, net of issuance
costs................................................ 4,760,513 2,349,068
Net payment of bank credit line........................ - (89,853)
----------- -----------
Net cash provided by financing activities............ 4,760,513 2,259,215
Net increase (decrease) in cash and cash equivalents..... 2,296,588 (1,870,991)
Cash and cash equivalents, beginning of year............. 2,426,032 2,657,392
----------- ------------
Cash and cash equivalents, end of period................. $ 4,722,620 $ 786,401
=========== ============
</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 June 30, 2000, and the results of its operations and
its cash flows for the six month periods ended June 30, 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 1,504,738 and 1,372,750 of
potential common stock equivalents from the calculation of diluted
weighted average share amounts for the three and six month periods ended
June 30, 1999 and 2000 respectively, as its inclusion would have been
anti-dilutive.
6
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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
investor 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. 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.
During June 2000, the Financial Accounting Standards Board issued
Financial Accounting Standard ("FAS") No. 138, "Accounting for Certain
Derivative Instruments - An amendment of FAS 133 "Accounting for
Derivative Instruments and Hedging Activities". FAS 138 shall be
effective for all fiscal quarters of all fiscal years beginning after
June 15, 2000. We do not expect this to have a material impact on our
financial position and results of operations.
7
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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.
In May 2000, at the annual meeting of the North American Society of
Pacing and Electrophysiology, the Company introduced its new Heartwave
product for the prediction of life threatening heart rhythm disturbances and
sudden death via the measurement of Microvolt T-wave Alternans. The device
utilizes the Company's previously FDA cleared proprietary T-wave Alternans
technology and Hi-Resolution disposable sensors to allow cardiologists and
electrophysiologists to conduct an Alternans test. Two models of the product
will be offered, The Heartwave System, to be used in conjunction with any
manufacturer's standard stress test system, and the Heartwave EP System, to
be used with an EP system. The stress model 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. The EP
model will provide electrophysiologists the ability to measure T-wave
Alternans while performing an EP study. 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. The Company
received clearance from the Food and Drug Administration in June, 2000 of its
510K submitted in March, 2000 for its Heartwave product.
With the recent FDA approval of the Company's Heartwave systems in
June 2000, the Company has begun to transition its sales efforts away from
the CH 2000 System to the new Heartwave Systems, offering both a stress and
EP model. Heartwave is expected to have a shorter selling cycle than that
experienced with the CH 2000.
In May 2000, the Company entered into a strategic marketing alliance
with Spacelabs Medical, Inc. ("Spacelabs"). The alliance provides for
Spacelabs to market and distribute the Company's Alternans software and
proprietary disposable sensors for the Company's Alternans Test for use with
Spacelabs Burdicks's diagnostic cardiology systems. Spacelabs will be
required to file a 510K with the FDA before they can begin shipping the
product. The Companies currently anticipate introduction during the fourth
quarter of 2000.
Also in May 2000, the Company entered into an agreement with St.
Jude Medical to conduct a cooperative study on the accuracy of
Microvolt-Twave Alternans to identify certain candidates for implantable
cardioverter defibrillator (ICD) therapy. The multi-center study, called the
Alternans Before Cardioverter-Debibrillator (ABCD) trial, will follow
asymptomatic patients with coronary artery disease, low ejection fraction,
and non-sustained ventricular tachycardia (VT) for a year. Patients who test
positive for increased risk of sudden cardiac death (SCD) will receive a St.
Jude Medical Profile MD ICD. The trial will be conducted at 25 leading
medical centers in the United States under the direction of Dr. David
Rosenbaum and Dr. Otto Constantini of the Heart and Vascular Research Center
of Case Western Reserve University, in Cleveland, Ohio. The study is expected
to commence in the fourth quarter of 2001 and continue for 24 months.
8
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On August 1, 2000, Medicare began to reimburse the Company's Alternans
Test under the new Prospective Payment System created by the Health Care
Financing Administration (HCFA) for hospital outpatients. Hospitals will be able
to submit bills electronically for the Alternans Test under Ambulatory Payment
Classification (APC) code 0096. The APC will pay $99.88 to the provider for the
technical component of the Alternans Test. This payment is in addition to
amounts that may be billed for an associated stress test.
In August 2000, the Company increased the number of direct sales
representatives in its sales organization by one bringing the total number of
direct sales representatives to six. The Company also has nine independent
manufacturers representatives under contract in the United States. The
Company plans to increase its direct sales force by an additional two to
three representatives by the end of 2000.
The total number of private third-party insurers that have
reimbursed healthcare providers for performance of its Alternans Tests is now
at thirteen. A representative list of the major payers includes: Aetna/US
Healthcare, Kemper of California, United Healthcare Insurance Company, Blue
Cross/Blue Shield of Texas, Perscare (California), Blue Cross (California),
Delta Health Systems (California), Blue Shield (California), Connecticut
General Life Insurance, Prudential HMO (California). The total list of
current payers represents over 57 million covered lives. These private
insurers are paying for valid claims submitted to them but they may have not
yet established coverage policies that would codify their reimbursement
amounts throughout their health plans.
RESULTS OF OPERATIONS
THREE AND SIX MONTH PERIODS ENDED JUNE 30, 1999 AND 2000
Revenue for the three month periods ended June 30, 1999 and 2000 were
$562,080 and $457,580 respectively, a decrease of 19%. As the Company
anticipated, revenue was negatively impacted as some customers elected to
delay their Alternans purchases in anticipation of the availability of the
Company's new Heartwave systems scheduled for release commencing in the third
quarter. Revenue for the six month periods ended June 30, 1999 and 2000 were
$1,094,823 and $870,484 respectively, a decrease of 20%. The overall decline
in revenue is primarily attributable to the Company's change in its sales
focus away from standard stress systems to T-wave Alternans systems. Sales of
standard stress test systems declined 60% for the six months ended June 2000
while revenue from the sale of T-wave Alternans product increased 31% for the
same period. T-wave Alternans product now represents 69% of the company's
total revenue as compared to 42% for the six month periods ended June 30,
2000 and 1999.
9
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The Company's revenue recognition method for license fees is to
recognize income evenly over a 12 month period. The increase in license fee
revenue contributed $12,500 or 2% increase to total revenue for the quarter
ended June 30, 2000 as compared to the same period in 1999. For the six month
periods ended June 30, 2000, license fee revenue contributed $25,000 or 11%
of the total revenue decline as compared to the same period in 1999.
Gross margin on products sold for the three month periods ended June 30,
1999 and 2000 was 9% and less than 1% of revenue respectively. The decline in
margin percentage to sales reflects the effect of lower equipment sales volume
on the utilization of fixed labor and overhead costs. Gross margin for the six
month periods ended June 30, 1999 and 2000 was 11% and (2%) of revenue
respectively.
Research and development expenses increased from $644,647 in the
three month period ended June 30, 1999 to $661,828 for the same period of
2000, an increase of 3%. Costs associated with the development of the
Company's Heartwave product continued to account for the majority of expense
for the quarter. The Company anticipates that these costs will decline during
the second half of the year as both the Heartwave System and Heartwave EP are
scheduled for market introduction. Research and Development expenses for the
six month period ended June 30, 1999 and 2000 were $1,387,183 and $1,585,977
respectively. The Company anticipates that, overall, its research and
development expenses will decrease during the second half of 2000.
Selling, general and administrative expenses increased from
$1,249,245 in the three month period ended June 30, 1999 to $1,350,115 in the
same period in 2000, or 8%. The increase reflects marketing promotional and
communications costs associated with the upcoming introduction of the
Heartwave. In addition, costs related to the Company's efforts targeted at
gaining reimbursement from third party private payers and Medicare healthcare
providers who clinically perform the Alternans Test continue to impact these
numbers. Selling, general and administrative expenses are expected to
increase as revenues improve and the Company expands its direct sales
headcount. For the six month period ended June 30, 1999 and 2000, selling,
general and administrative expenses were $2,324,667 and $2,618,491
respectively.
Interest income was $59,253 for the three month period ended June 30,
1999 compared to $119,819 for the same period in 2000. For the six month period
ended June 30, 1999 and 2000, interest income was $131,188 and $248,722
respectively. This increase resulted from a higher level of invested cash for
the quarter when compared to the same quarter last year.
10
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LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 2000, the company had cash, cash equivalents and
marketable securities of $7,244,803. During the six month period ended June 30,
2000, the Company's cash, cash equivalents and marketable securities decreased
by $1,931,513, or 21%, consistent with its net loss for the period of $3,975,490
net of proceeds from the sale of common stock in January 2000 of $2,064,000.
Inventory levels increased from $460,913 to $571,915 as of December 31,
1999 and June 30, 2000 respectively. The inventory build is mainly attributable
to the planned build of Heartwave-TM- components in preparation for its
scheduled release during the third quarter.
Fixed asset additions during the year primarily represent increased
clinical research units and the cost of capitalized production tooling and molds
for the Heartwave-TM- product. The Company expects capital expenditures
increases associated with the Heartwave-TM- will continue for the balance of
Fiscal 2000. The company does not expect capital expenditures to exceed an
aggregate of $1,000,000 over the next year.
The Company continues to utilize a $500,000 line of credit
collateralized by selected customer accounts receivable. The amount of
utilization of the credit line as of June 30, 2000 was approximately $117,000.
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
June 30, 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).
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
11
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cardiac disease. We have incurred substantial and increasing net losses through
June 30, 2000. 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:
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.
WE HAVE NOT BEEN ABLE TO FUND OUR OPERATIONS FROM CASH GENERATED BY OUR
BUSINESS, AND IF WE CANNOT MEET OUR FUTURE CAPITAL REQUIREMENTS, WE MAY NOT
BE ABLE TO DEVELOP OR ENHANCE OUR TECHNOLOGY, TAKE ADVANTAGE OF BUSINESS
OPPORTUNITIES AND RESPOND TO COMPETITIVE PRESSURES.
We have principally financed our operations over the past year through
the private placement of shares of our common stock. If we do not generate
sufficient cash from our business to fund operations or if we cannot obtain
additional capital through equity or debt financings, we will be unable to
grow as planned and may not be able to take advantage of business
opportunities, develop new technology or respond to competitive pressures.
This could limit our growth and have a material adverse effect on the market
price of our common stock.
Any additional financing we may need in the future may not be available
on terms favorable to us, if at all. If we raise additional funds through the
isuance of equity or convertible debt securities, the percentage ownership of
Cambridge Heart by our stockholders would be reduced and the securities
issued could have rights, preferences and privileges more favorable than
those of our current stockholders.
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 the 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 electrophysiology
testing, we do not know whether 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 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 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.
12
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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 EP testing 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 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. 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.
RISKS RELATED TO THE MAKKET FOR CARDIAC DIAGNOSTIC EQUIPMENT
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 CH2000 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 CH2000 System as currently contemplated.
OUR BUSINESS COULD BE ADVERSELY AFFECTED IF WE ARE UNABLE TO PROTECT OUR
PROPRIETARY TECHNOLGY
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 Sates and in other countries. However, the patent
positions of medical device companies, including Cambridge Heart, are
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generally uncertain and involve complex legal and factual questions. We can give
no assurances 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, any issued patents we
own or license may be challenged, invalidated or circumvented, and the rights
granted under issued patents may not provide us with competitive advantages. We
also rely on unpatented trade secrets to protect our proprietary technology, and
we can give no assurance that other s 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. We have licensed significant technology and patents from
third parties, including patents and technology relating to T-wave Alternans
and cardiac electrical imaging licensed from The Massachusetts Institute of
Technology. 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 devise industry has been characterized by extensive
litigation regarding patents and other intellectual property rights. Litigation,
which 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
litigations. We also may have to participate in interference proceeding declared
by the United Sates 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 unpatented trade secrets to protect our proprietary
technology. We can give no assurance that others will not independently
develop or acquire substantially equivalent technologies 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. 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, Inc.
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 products containing our T-wave Alternans
technology. Our ability to successfully commercialize these products depends
in part on the availability of, and our ability to obtain, adequate levels of
third-party reimbursement for use of these products. Only limited
reimbursement is currently available for the performance of the Alternans
Test.
The amount of reimbursement in the United States that will be
available for the performance of the Alternans Test is uncertain and may
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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 CH2000 and Heartwave Alternans Systems successfully will
depend, in large part, on the extent to which appropriate reimbursement
levels for the cost of performing an Alternans Test and associated sensors
are obtained from government authorities, private health insurers and other
organizations, such as health maintenance organizations.
We do no know whether the availability of reimbursement in the
United States or foreign countries for the performance of an Alterans Test
will increase, or will not be decreased in the future or that reimbursement
amounts will not reduce the demand for, or the price of, the Ch2000 or
Heartwave Alternans Systems. The unavailability of third-party reimbursement
or the inadequacy of the reimbursement for medical tests using the Ch2000 or
Heartwave Alternans Systems would have material adverse effect on 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 30,2000 due to
the short maturities of these instruments.
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PART II - OTHER INFORMATION
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's Annual Meeting of Stockholders was held on May 31, 2000
(the "Annual Meeting"). At the Annual Meeting, Jeffrey M. Arnold and Maren D.
Anderson were each elected as Class I Directors for a three year term. The
other directors whose terms of office continue after the meeting are as
follows: Harris A. Berman, M.D., Richard J. Cohen, M.D.,Ph.D., Jeffrey J.
Langan, Daniel M. Mulvena.
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 Jeffrey M. Arnold and Maren D. Anderson to serve as Class I
Directors of the Company for the ensuing three years.
For: 11,284,540 Withheld: 53,306
2. To ratify the appointment of PricewaterhouseCoopers LLP as independent
auditors of the Company for the year ending December 31, 2000.
For: 11,298,791 Against: 20,500 Abstain: 18,555
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>
10.1* Distribution and License Agreement dated May 10,
2000 between the Registrant and SMI Medical, Inc.
11 Statement re Computation of Net Loss per Share
27 Financial Data Schedule
</TABLE>
* Confidential treatment has been granted as to certain portions.
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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 11, 2000 By: /s/ Jeffrey M. Arnold
--------------------------------
Jeffrey M. Arnold
Chairman, President, Chief
Executive Officer
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