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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 September 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 November 14, 2000:
Class Number of Shares Outstanding
- --------------------------------------- ----------------------------
Common Stock, par value $.001 per share 17,052,597
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CAMBRIDGE HEART, INC.
INDEX
<TABLE>
<CAPTION>
PAGE NUMBER
-----------
<S> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BALANCE SHEET AT DECEMBER 31, 1999 AND
SEPTEMBER 30, 2000 3
STATEMENT OF OPERATIONS
FOR THE THREE MONTH AND NINE MONTH
PERIODS ENDED SEPTEMBER 30, 1999 AND 2000 4
STATEMENT OF CASH FLOWS
FOR THE NINE MONTH PERIOD ENDED
SEPTEMBER 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 17
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS 17
ITEM 5. OTHER INFORMATION 17
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 18
</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
(Unaudited)
<TABLE>
<CAPTION>
December 31, September 30,
1999 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.
3
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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.
4
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STATEMENT OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Nine months ended September 30,
-----------------------------
1999 2000
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<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 financing 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.
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 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.
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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 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.
7
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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.
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.
During the quarter ended September 30, 2000, the Company began the
shipment of the stress test model of its 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 the
Company's 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. The
Company will also introduce an electrophysiology "EP" model of the Heartwave
which, when used together with an EP Lab system and the Company's 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. 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 the quarter ended September 30, 2000, the Company 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. The Company anticipates that it
will begin shipment of the EP model of the Heartwave by the end of the year.
With the release to the market of the Company's Heartwave system
during the third quarter, the Company has begun to transition its sales
efforts away from the CH2000 System to the new Heartwave Systems. The
experience during the
8
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third quarter has been that the Heartwave has a shorter selling cycle than that
experienced with the CH2000.
In September, the Company completed a transaction for the sale of
2,390,000 shares of its 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. The investors, led by Frontier Capital Management of
Boston, MA, also received warrants with a five year term for the purchase of
an additional 717,000 shares of Common at $3.50. The Company intends to use
the proceeds to support the planned growth of its sales and field support
organizations in the United States.
The Company hired 2 new sales representatives in the US bringing the
total number of direct sales personnel to 7 at the end of the third quarter.
The Company anticipates that it will add an additional 2 or 3 representatives
during the fourth quarter.
Progress was made 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 (HCFA) for hospital outpatient costs. In addition,
the Medicare payers in Texas and Florida began paying for Alternans Tests
performed in the doctor's office. The Committee on Health Policy of the North
American Society of Pacing and Electrophysiology (NASPE) announced their
support of the Company's application for the establishment of a new Current
Procedural Terminology (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 the Company's ability to obtain a unique CPT code for
its Alternans Test.
Earlier in the year, 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 Micro-V Alternans disposable sensors for use with Spacelabs
Burdicks's 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 the Company's T-Wave Alternans technology is the
most effective non-invasive test off all the tests studied in identifying
congestive heart failure (CHF) 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 CHF patients with no
prior history or symptoms of abnormal heart rhythms, and to initiate
appropriate preventive therapy.
In September 2000, the Company took a major step to strengthen its
management team by adding David Chazanovitz as President and Chief Operating
Officer. Mr. Chazanovitz will be responsible for the day to day operations of
the Company. Jeffrey M. Arnold, who resigned as President of the Company in
September 2000, will remain as Chairman and Chief Executive Officer of the
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Company. 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 for the three month periods ended September 30, 1999 and 2000 was
$540,298 and $432,839 respectively, a decrease of 20%, highlighting the shift in
U.S. sales from standard stress systems to Alternans Systems. Revenue for the
nine month periods ended September 30, 1999 and 2000 were $1,635,121 and
$1,303,322 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 58% for the nine months 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 the company's total revenue as compared to 44% for
the nine month periods ended September 30, 2000 and 1999.
The Company's 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 periods 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 for the three month periods ended September
30, 1999 and 2000 was less than 1% and 2% of revenue respectively. Gross margin
for the nine month periods ended September 30, 1999 and 2000 was 7% and (1%) of
revenue respectively. 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 the Company's Heartwave
product continued to account for the majority of expenses for the quarter. The
focus of the Company's fourth quarter R&D spending will be in support of the
final phase of development of the Heartwave EP model. Research and Development
expenses for the nine month period ended September 30, 1999 and 2000 were
$2,086,515 and $2,263,201 respectively, 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%. For the nine month period ended September 30, 1999
and 2000, selling, general and administrative expenses were $3,538,891 and
$3,985,801 respectively. The increase reflects marketing
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promotional and communications costs associated with the introduction of the
Heartwave. In addition, the Company added 2 new sales representatives and one
new clinical support specialist to its U.S. field organization during the third
quarter of 2000. These new hires coincide with the release of the Company's
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 the
Company's 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 the Company continues to expand its 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. For the nine month period
ended September 30, 1999 and 2000, interest income was $211,236 and $351,029
respectively. 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.
LIQUIDITY AND CAPITAL RESOURCES
During September 2000, the Company raised $7.7 million (net of issuance
costs of $618,000) from the sale of 2,389,500 shares of common stock issued an
effective price of $3.50 per share. In addition 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 September 30,
2000 was approximately $92,000.
As of September 30, 2000, the company had cash, cash equivalents and
marketable securities of $13,154,269. During the nine month period ended
September 30, 2000, the Company's 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 to $502,081 as of December 31,
1999 and September 30, 2000 respectively. 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. The Company expects capital expenditure increases
associated with the Heartwave 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.
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
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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
September 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
cardiac disease. We have incurred substantial and increasing net losses through
September 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
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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
issuance 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 Microvolt 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 Microvolt 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 Microvolt T-Wave Alternans technology and Micro-V disposable sensors to
establish the prognostic value of such technology. Although studies on high risk
patients to date have indicated that the measurement of Microvolt 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 Microvolt 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.
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However, there can be no assurance that we will be successful in identifying,
developing and marketing new products or enhancing our existing products. In
addition, there can be no assurance that new products or alternative diagnostic
techniques will not be developed that will render our current or planned
products obsolete or inferior. Rapid technological development by competitors
may result in our products becoming obsolete before we recover a significant
portion of the research, development and commercialization expenses incurred
with respect to such products.
WE HAVE SIGNIFICANT COMPETITION FROM A VARIETY OF SOURCES
Competition from competitors' medical devices that help to diagnose
cardiac disease is intense and likely to increase. We compete with manufacturers
of electrocardiogram stress tests, the conventional method of diagnosing
ischemic heart disease, and may compete with manufacturers of other non-invasive
tests, including 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
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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
our products 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 our products 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 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 Microvolt 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.
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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.
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 Microvolt 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 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 payers 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 payer, or is experimental,
unnecessary or inappropriate. Our ability to commercialize the CH2000 Alternans
Systeem and Heartwave 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 Alternans System or
Heartwave Systems. The unavailability of third-party reimbursement or the
inadequacy of the reimbursement for medical tests using the Ch2000 Alternans
System or Heartwave Systems would have material adverse effect on Cambridge
Heart.
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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 September 30, 2000 due to the short
maturities of these instruments.
PART II - OTHER INFORMATION
Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On September 14, 2000, the Company completed the sale of 2,390,000 shares
of its Common Stock for an aggregate price of $8,365,000 to a group of investors
introduced to the Company by Sunrise Securities Corp., which acted as placement
agent, and led by Frontier Capital Management. The Company also issued warrants
to the investors for the purchase of 717,000 shares of its Common Stock at an
exercise price of $3.50 per share and a term of five years. As compensation for
its services as placement agent, Sunrise Securities Corp. received a cash fee of
$525,097, 45,160 shares of the Company's Common Stock and warrants for the
purchase of 143,400 shares of the Company's Common Stock at an exercise price of
$4.20 per share and term of five years. The proceeds of the sale will be used to
fund operations. This transaction was exempt from registration requirements
pursuant to Section 4(2) and Rule 506 of the Securities Act of 199, as amended.
Item 5. OTHER INFORMATION
David A. Chazanovitz was appointed to the Board of Directors on October 6,
2000. Mr. Chazanovitz joined the Company as its President and Chief Operating
Officer on October 23, 2000.
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Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
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
Exhibit Number Description
---------------- -----------
10.1* Americorp Remarketing Agreement
10.2 Officers Severance Agreement
11 Statement re Computation of Net Loss per Share
27 Financial Data Schedule
* Confidential treatment requested as to certain portions.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended September
30, 2000.
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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: November 14, 2000 By: /s/ Jeffrey M. Arnold
--------------------------------
Jeffrey M. Arnold
Chairman, Chief
Executive Officer
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