<PAGE>
Filed Pursuant to Rule 424(b)(3) and (c)
File No. 333-46988
CAMBRIDGE HEART, INC.
PROSPECTUS SUPPLEMENT NO. 1 DATED NOVEMBER 17, 2000
TO THE PROSPECTUS DATED OCTOBER 18, 2000
On November 14, 2000, Cambridge Heart, Inc. filed with the Securities
and Exchange Commission a Quarterly Report on Form 10-Q for the quarter ended
September 30, 2000. Attached hereto are financial information and
management's discussion and analysis of financial condition and results of
operations for the quarter ended September 30, 2000.
<PAGE>
CAMBRIDGE HEART, INC.
BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
December 31, 1999 September 30, 2000
----------------- ------------------
(Unaudited)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents ................................................ $ 2,657,392 $ 2,271,921
Marketable securities .................................................... 6,518,924 10,882,348
Accounts receivable, (net of allowance for doubtful
accounts of $7,725 and $53,197 at December 31, 1999
and September 30, 2000) ............................................... 577,156 509,819
Inventory ................................................................ 460,913 502,081
Prepaid expenses and other current assets ................................ 140,197 95,642
------------ ------------
Total current assets .................................................. 10,354,582 14,261,811
Fixed assets, net ........................................................ 645,931 810,086
Other assets ............................................................. 453,097 564,095
------------ ------------
$ 11,453,610 $ 15,635,992
============ ============
Liabilities and stockholders' equity
Current liabilities:
Accounts payable ......................................................... $ 679,660 $ 467,281
Accrued expenses ......................................................... 517,936 658,163
Short term debt .......................................................... 206,727 92,380
------------ ------------
Total current liabilities ................................................ 1,404,323 1,217,824
------------ ------------
Stockholder's equity:
Common stock, $.001 par value; 20,000,000 shares
authorized; 13,921,357 and 17,046,310 shares issued
and outstanding at December 31, 1999 and September 30, 2000,
respectively .......................................................... 13,921 17,046
Additional paid-in capital ............................................... 39,120,605 49,376,299
Accumulated deficit ...................................................... (29,035,803) (34,945,130)
------------ ------------
10,098,723 14,448,215
Less: deferred compensation ............................................. (49,436) (30,047)
------------ ------------
Total stockholders' equity ............................................ 10,049,287 14,418,168
------------ ------------
$ 11,453,610 $ 15,635,992
============ ============
</TABLE>
See accompanying notes to condensed financial statements.
<PAGE>
CAMBRIDGE HEART, INC.
STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
---------------------------- ----------------------------
1999 2000 1999 2000
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenue .................................................... $ 540,298 $ 432,839 $ 1,635,121 $ 1,303,322
Cost of goods sold ......................................... 537,699 424,448 1,517,214 1,314,676
------------ ------------ ------------ ------------
2,599 8,391 117,907 (11,354)
Cost and expenses:
Research and development ................................... 699,332 677,224 2,086,515 2,263,201
Selling, general and administrative ........................ 1,214,224 1,367,310 3,538,891 3,985,801
------------ ------------ ------------ ------------
Loss from operations .................................... (1,910,957) (2,036,143) (5,507,499) (6,260,356)
Interest income ............................................ 80,048 102,307 211,236 351,029
------------ ------------ ------------ ------------
Net loss ................................................... $ (1,830,909) $ (1,933,836) $ (5,296,263) $ (5,909,327)
============ ============ ============ ============
Net loss per share basic and diluted ....................... $ (0.15) $ (0.13) $ (.46) $ (.40)
============ ============ ============ ============
Weighted average common shares outstanding basic and diluted
11,865,739 15,097,940 11,546,176 14,753,727
============ ============ ============ ============
</TABLE>
See accompanying notes to condensed financial statements.
<PAGE>
STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine months ended September 30,
---------------------------------
1999 2000
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss .......................................................... $ (5,296,263) $ (5,909,327)
Adjustments to reconcile net loss to net cash used for
operating activities:
Depreciation and amortization ..................................... 399,297 400,595
Loss on disposal of fixed assets .................................. 16,826
Compensation expense on stock options ............................. 27,855 106,564
Changes in operating assets and liabilities:
Accounts receivable ............................................ (94,863) 67,337
Inventory ...................................................... 28,505 (41,168)
Prepaid expenses and other current assets ...................... 33,225 44,555
Other assets ................................................... 13,807 (383)
Accounts payable and accrued expenses .......................... (23,998) (72,152)
------------ ------------
Net cash used for operating activities ...................... (4,912,435) (5,387,153)
------------ ------------
Cash flows from investing activities:
Purchase of marketable securities ................................. (25,412,435) (25,045,594)
Net maturity/sale of marketable securities ........................... 24,795,214 20,682,170
Purchase of fixed assets .......................................... (294,129) (384,011)
Capitalization of software development costs ...................... (208,644) (308,181)
------------ ------------
Net cash used in investing activity ......................... (1,119,994) (5,055,616)
------------ ------------
Cash flows from investing activities:
Proceeds from issuance of common stock, net of
issuance costs .......................................... 4,726,489 10,171,645
Net payment of bank credit line ............................. -- (114,347)
------------ ------------
Net cash provided by financing activities ............... (1,305,940) 10,057,298
Net decrease in cash and cash equivalents ............................ (1,305,940) (385,471)
Cash and cash equivalents, beginning of year ......................... 2,426,032 2,657,392
------------ ------------
Cash and cash equivalents, end of period ............................. $ 1,120,092 $ 2,271,921
============ ============
</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, 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 September 30, 2000,
and the results of its operations and its cash flows for the
six month periods ended September 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 1,519,238 and 3,136,845 of
potential common stock equivalents from the calculation of
diluted weighted average share amounts for the three and nine
month periods ended September 30, 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 less approximately $36,000 in issuance costs from the
sale of 600,000 shares of Common Stock through a
<PAGE>
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 as commission
45,160 shares of common stock 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 are being used to
fund operations. A subsequent capital raising transaction was
completed in September 2000. This transaction did not obligate
the Company to issue to the investor additional shares as the
share price of those shares issued did not fall below the
$3.50 share price.
In September 2000 the Company raised gross proceeds of $8.4
million less approximately $618,000 in issuance costs from the
sale of 2,390,000 shares of Common Stock through a private
placement at $3.50 per share, the final trading price of the
Company's stock on the NASDAQ on September 13, 2000. In
addition, warrants with a five year term for the purchase of
717,000 shares of Common Stock at $3.50 per share were issued.
The sales agent, Sunrise Securities, Inc. received as
commission warrants with a five year term for the purchase of
143,400 shares of Common Stock at $4.20 per share. The
proceeds of the sale will be used to fund operations. This
transaction did not require the Company to issue any
additional shares under the terms of any previous financing
agreements.
6. NEW ACCOUNTING PRONOUNCEMENTS
During April 2000, the Financial Accounting Standards Board
issued Interpretation ("FIN") No. 44, "Accounting for Certain
Transactions Involving Stock Compensation--an Interpretation
of Accounting Principles Board Opinion No. 25". Among other
issues, FIN 44 clarifies (a) the definition of an employee,
(b) the criteria for determining whether a stock award plan
qualifies as non-compensatory, and (c) the accounting
consequences of various award modifications. This
interpretation became effective July 1, 2000. The adoption of
FIN 44 did not have a significant impact on our financial
position and results of operations. During June 2000, the
Securities and Exchange Commission issued Staff Accounting
Bulletin ("SAB") No. 101B, an amendment to SAB 101, "Revenue
Recognition in Financial Statements". SAB 101B defers the
required implementation of SAB 101 until the fiscal quarter
ended December 31, 2000. The adoption of SAB 101 is not
expected to have a significant effect on our financial
position and results of operations.
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.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
OVERVIEW
We are engaged in the research, development and commercialization of
products for the non-invasive diagnosis of cardiac disease. Using innovative
technologies, we are 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.
During the quarter ended September 30, 2000, we began the shipment of
the stress test model of our new Heartwave System for the prediction of life
threatening heart rhythm disturbances and sudden death via the measurement of
Microvolt T-wave Alternans. The device utilizes our previously FDA cleared
proprietary T-wave Alternans technology and disposable Micro-V Alternans
Sensors. It attaches to any manufacturer's stress test system, to allow
cardiologists to conduct an Alternans test. We will also introduce an
electrophysiology "EP" model of the Heartwave which, when used together with
an EP Lab system and our proprietary disposable Micro-V Alternans Sensors,
will allow an electrophysiologist to perform an Alternans test in the EP Lab.
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. We anticipate that the availability of this product will have a
positive impact on our efforts to accelerate the rate of clinical use of our
Alternans technology. During the quarter ended September 30, 2000, we
received orders for a total of 10 Heartwave systems of which 4 stress models
were shipped in September and the remaining 6 (5 EP models and 1 stress
model) were in backlog at the end of the quarter. We anticipate that we will
begin shipment of the EP model of the Heartwave by the end of the year.
With the release to the market of our Heartwave system during the third
quarter, we have begun to transition our sales efforts away from the CH2000
System to the new Heartwave Systems. Our experience during the third quarter
has been that the Heartwave has a shorter selling cycle than that experienced
with the CH2000.
In September, we completed a transaction for the sale of 2,390,000
shares of our common stock through a private placement at $3.50 per share,
the final trading price of our stock on the NASDAQ on September 13, 2000. The
investors, led by Frontier Capital Management of Boston, Massachusetts, also
received warrants with a five year term for the purchase of an additional
717,000 shares of Common at $3.50. We intend to use the proceeds to support
the planned growth of our sales and field support organizations in the United
States.
We hired two new sales representatives in the U.S. bringing the total
number of direct sales personnel to seven at the end of the third quarter. We
anticipate that we will add an additional two or three representatives during
the fourth quarter.
<PAGE>
We made progress during the quarter in the areas of reimbursement
coverage and coding. Medicare began reimbursement in August for the Alternans
Test through the new Prospective Payment System created by the Health Care
Financing Administration for hospital outpatient costs. In addition, the
Medicare payers in Texas and Florida began paying for Alternans Tests
performed in a doctor's office. The Committee on Health Policy of the North
American Society of Pacing and Electrophysiology, which we refer to as NASPE,
announced their support of our application for the establishment of a new
Current Procedural Terminology, which we refer to as CPT, code for the
Alternans Test. NASPE is expected to provide notice of their support to the
American College of Cardiology and to the American Medical Association which
is the final decision-making body in the establishment of new CPT codes. The
support of the Specialty practice is very important to our ability to obtain
a unique CPT code for our Alternans Test.
Earlier in the year, we entered into a strategic marketing alliance
with Spacelabs Medical, Inc. The alliance provides for Spacelabs to market
and distribute our Alternans software and proprietary Micro-V Alternans
disposable sensors for use with Spacelabs' Burdicks stress test systems. The
initial shipments under this agreement have been delayed from the fourth
quarter of 2000 until the first quarter of 2001.
A major British medical journal, The Lancet, published the results of a
study that concluded that our T-Wave Alternans technology is the most
effective non-invasive test off all the tests studied in identifying
congestive heart failure patients at risk for developing life threatening
abnormal heart rhythms. The study results suggest that the Microvolt T-Wave
Alternans Test can help save lives by enabling clinicians to accurately
assess the risk of sudden cardiac death among congestive heart failure
patients with no prior history or symptoms of abnormal heart rhythms, and to
initiate appropriate preventive therapy.
In September 2000, we took a major step to strengthen our management
team by adding David Chazanovitz as President and Chief Operating Officer.
Mr. Chazanovitz will be responsible for the day to day operations of
Cambridge Heart. Jeffrey M. Arnold, who resigned as President of Cambridge
Heart in September 2000, will remain as our Chairman and Chief Executive
Officer. Mr. Chazanovitz has over 28 years of sales, marketing and general
management experience in the medical products market ranging from early stage
device companies to larger more established businesses. As the former
President of the C. R. Bard Electrophysiology and USCI divisions he has
direct knowledge of the cardiology market. For the past five years, Mr.
Chazanovitz has been a Divisional President for NMT Medical.
RESULTS OF OPERATIONS
THREE AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 1999 AND 2000
Revenue was $540,298 for the three month period ended September 30,
1999 and $432,839 for the three month period ended September 30, 2000, a
decrease of 20%, highlighting the shift in U.S. sales from standard stress
systems to Alternans Systems. Revenue was $1,635,121 for the nine month
period ended September 30, 1999 and $1,303,322 for the nine month period
ended September 30, 2000, a decrease of 20%. The overall decline in revenue
is primarily attributable to the change in our sales focus away from standard
stress systems to T-wave Alternans systems. Sales of standard stress test
systems declined 58% for the nine months
<PAGE>
ended September 30, 2000 as compared to the nine months ended September 30,
1999 while revenue from the sale of T-wave Alternans product increased 17%
for the same period. T-wave Alternans product now represents 64% of our total
revenue as compared to 44% for the nine month periods ended September 30,
2000 and 1999.
Our revenue recognition method for license fees is to recognize income
ratably over the term of the license. License fee revenue represented $12,500
or 3% of the total revenue for the quarter ended September 30, 2000 as
compared $0 for the same period in 1999. For the nine month period ended
September 30, 2000, license fee revenue contributed $12,500, or 4%, of the
total revenue decline as compared to the same period in 1999.
Gross margin on products sold was less than 1% of revenue for the three
month period ended September 30, 1999 and less than 2% of revenue for the
three month period ended September 30, 2000. Gross margin was 7% of revenue
for the nine month period ended September 30, 1999 and (1%) of revenue for
the three month period ended September 30, 2000. The overall decline in
margin percentage to sales reflects the effect of lower equipment sales
volume on the utilization of fixed labor and overhead costs.
Research and development expenses decreased from $699,332 in the three
month period ended September 30, 1999 to $677,224 for the same period of
2000, a decrease of 3%. Costs associated with the development of our
Heartwave product continued to account for the majority of expenses for the
quarter. The focus of our fourth quarter research and development spending
will be in support of the final phase of development of the Heartwave EP
model. Research and development expenses were $2,086,515 for the nine month
period ended September 30, 1999 and $2,263,201 for the nine month period
ended September 30, 2000, an increase of 8%. This increase is attributable to
the release of the Heartwave product.
Selling, general and administrative expenses increased from $1,214,224
in the three month period ended September 30, 1999 to $1,367,310 in the same
period in 2000, an increase of 13%. Selling, general and administrative
expenses were $3,538,891 for the nine month period ended September 30, 1999
and $3,985,801 for the nine month period ended September 30, 2000. The
increase reflects marketing promotional and communications costs associated
with the introduction of the Heartwave. In addition, we added two new sales
representatives and one new clinical support specialist to our U.S. field
organization during the third quarter of 2000. These new hires coincide with
the release of our Heartwave stress system in the third quarter. Hiring of
additional sales representatives is expected to continue during the fourth
quarter of 2000 and for the full year 2001. Spending continues in the area of
reimbursement with our efforts targeted at gaining reimbursement from third
party private payers and Medicare healthcare providers who clinically perform
the Alternans Test. Selling, general and administrative expenses are expected
to increase as revenues grow and we continue to expand our direct sales
headcount.
Interest income was $80,048 for the three month period ended September
30, 1999 compared to $102,307 for the same period in 2000. Interest income
was $211,236 for the nine month period ended September 30, 1999 and $351,029
for the nine month period ended September 30, 2000. This increase resulted
from a higher level of invested cash for the nine months ended September 30,
2000 when compared to the same period last year due to the equity financings
completed during the current year.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
During September 2000, we raised $7.7 million (net of issuance costs of
$618,000) from the sale of 2,389,500 shares of common stock at a price of
$3.50 per share. In addition we continue to utilize a $500,000 line of credit
collateralized by selected customer accounts receivable. The amount of
utilization of the credit line as of September 30, 2000 was approximately
$92,000.
As of September 30, 2000, we had cash, cash equivalents and marketable
securities of $13,154,269. During the nine month period ended September 30,
2000, our cash, cash equivalents and marketable securities increased by
$3,977,953 or 43%, consistent with its net loss for the nine month period of
$5,909,327 net of proceeds from the sale of common stock in January 2000 of
$2,064,000 and proceeds from the sale of common stock in September 2000 of
$7,746,000.
Inventory levels increased from $460,913 as of December 31, 1999 to
$502,081 as of September 30, 2000. The inventory increase is mainly
attributable to the planned build of Heartwave components in preparation for
estimated shipments during the fourth 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 product. We expect capital expenditure increases
associated with the Heartwave will continue for the balance of Fiscal 2000.
We do 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, we are required to pay royalties on sales of our 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. We are committed to pay an
aggregate of $320,000 of such minimum license maintenance fees subsequent to
September 30, 2000 as the technology is used. As part of these agreements, we
are 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.
We anticipate that our existing capital resources will be adequate to
satisfy our capital requirements through the next twelve months.
