Get Started for Free Contexxia identifies hard-to-find pieces of information in SEC filings. No more highlighters, no more redlining, no more poring over huge documents. CAMBRIDGE HEART INC (913443) 10-Q published on Nov 14, 2012 at 3:23 pm
Reporting Period: Sep 29, 2012
Under the 2012 Notes, the Company is required to make interest payments on the last date of each calendar quarter. Failure to make any payment within 10 days after such payment is due constitutes an event of default under the 2012 Notes. The Company did not make its required payment of $73,950 for the quarter ended September 30, 2012 which constitutes an event of default under the 2012 Notes. The Company sought and received the consent of the holders of 70% of the outstanding principal balance of the 2012 Notes (the “Consenting Holders”) to defer the interest payments on the 2012 Notes that would otherwise be due on October 1, 2012 and January 1, 2013 until March 31, 2013. Holders of the 2012 Notes who have not agreed to the deferral of the unpaid interest may seek to accelerate the payment of all amounts of principal and interest due to them under the 2012 Notes.
Pursuant to the New Subscription Agreement, the Company agreed to certain positive and negative covenants as set forth in the New Subscription Agreement and the New Notes. The holders of at least 65% of the principal amount of the New Notes, the 2012 Notes and any New Notes issued in any Additional Senior Note Offering (as defined in the New Subscription Agreement) may consent to take or forebear from any action permitted under or in connection with the New Subscription Agreement or the New Notes, modify the New Subscription Agreement or the New Notes or waive any default or requirement applicable to the Company or the subscribers under the New Subscription Agreement or the New Notes provided the effect of such action does not waive any accrued interest or damages and further provided that the relative rights of the holders to each other remains unchanged. Additionally, any amendment, modification or waiver that affects a holder of New Notes in a manner different from other holders of New Notes shall require the consent of such holder of New Notes and any amendment, modification or waiver that adversely affects the holders of New Notes or New Notes issued in any Additional Senior Note Offering in a manner different from holders of 2012 Notes shall require the consent of the holders of at least 70% of the principal amount of New Notes and New Notes issued in any Additional Senior Note Offering.
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 a key problem in cardiac diagnosis—the identification of those at risk of sudden cardiac arrest (“SCA”). Our products incorporate our proprietary technology for the measurement of Microvolt T-Wave Alternans (“MTWA”), and were the first diagnostic tools cleared by the U.S. Food and Drug Administration (“FDA”) to non-invasively measure Microvolt levels of T-Wave Alternans in order to predict the risk of SCA. MTWA is an extremely subtle beat-to-beat fluctuation in the t-wave segment of a patient’s electrocardiogram. Our technology can detect these variations down to one millionth of a volt. The MTWA Test is conducted by elevating the patient’s heart rate through exercise as performed on a treadmill similar to a standard stress test, pharmacologic agents, or pacing with electrical pulses. Our proprietary products in conjunction with our proprietary sensors, when placed on the patient’s chest, can acquire and analyze the patient’s electrocardiogram for MTWA. Published clinical data in a broad range of patients with heart disease has shown that patients with symptoms of, or at risk of, life threatening arrhythmias who test positive for MTWA are at an increased risk for subsequent sudden cardiac events including sudden death, while those who test negative are at minimal risk. Sudden cardiac arrest accounts for approximately one-third of all cardiac deaths, or approximately 300,000 deaths, in the U.S. each year, and is the leading cause of death in people over the age of 45. All of our products, including our first generation HearTwave System and second generation HearTwave II System, CH 2000 Cardiac Stress Test System, MTWA OEM (Original Equipment Manufacturer) Module (“MTWA Module”) and Micro-V Alternans Sensors have received 510(k) clearance from the FDA for sale in the U.S. Our products have also received the CE mark for sale in Europe, which certifies that a product has met European Union consumer, health and environmental requirements. Our first generation HearTwave System, CH 2000 Cardiac Stress Test System and the HearTwave II System have been approved for sale by the Japanese Ministry of Health Labor and Welfare. Our 510(k) clearance allows our MTWA Test to be used to test patients with known, suspected, or at risk of ventricular tachyarrhythmia and/or sudden cardiac arrest, and allows the claim that our MTWA Test is predictive of those events. In March 2006, the Centers for Medicare and Medicaid Services (“CMS”) issued a National Coverage Determination (“NCD”) that allows for reimbursement to healthcare providers for MTWA testing of patients at risk of SCD only when a MTWA Test is done using the Analytic Spectral Method, which is our patented and proprietary method of analysis.
A goal of the assessment was to determine whether any material weaknesses or significant deficiencies existed with respect to the Company’s internal control over financial reporting. A “material weakness” is defined as a significant deficiency, or a combination of significant deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. A “significant deficiency” is a control deficiency, or a combination of control deficiencies, that adversely affects a company’s ability to initiate, authorize, record, processor report external financial data reliably in accordance with generally accepted accounting principles such that there is more than a remote likelihood that a misstatement of the annual or interim financial statements that is more than inconsequential will not be prevented or detected.
In the course of its assessment, management determined that the Company lacked sufficient staff to segregate accounting duties. In July 2012, the Company underwent a restructuring of its operations including in order to reduce expenses. The restructuring included significant reductions in personnel and overhead costs across all functions of the Company. Specifically, the reduction in personnel included four employees in the accounting department. As a result, the Company does not maintain adequate segregation of duties within its critical financial reporting applications, the related modules and financial reporting processes. This control deficiency could result in a misstatement of balance sheet and income statement accounts in our interim or annual financial statements that would not be detected. Accordingly, management has determined that this control deficiency constituted a material weakness, and that the Company’s internal control over financial reporting was not effective, as of September 30, 2012.