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                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                            ------------------------

                                   FORM 10-K

                       FOR ANNUAL AND TRANSITION REPORTS
                    PURSUANT TO SECTIONS 13 OR 15(d) OF THE
                        SECURITIES EXCHANGE ACT OF 1934

(MARK ONE)

<TABLE>
<C>        <S>
   /X/     ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
           THE SECURITIES EXCHANGE ACT OF 1934
</TABLE>

                  FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000

                                       OR

<TABLE>
<C>        <S>
   / /     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
           THE SECURITIES EXCHANGE ACT OF 1934
</TABLE>

          FOR THE FISCAL PERIOD FROM ______________ TO ______________

                          COMMISSION FILE NO. 0-20991
                            ------------------------

                             CAMBRIDGE HEART, INC.
             (Exact Name of Registrant as Specified in its Charter)
                            ------------------------

<TABLE>
<S>                                            <C>
               DELAWARE                                     13-3679946
    (State or Other Jurisdiction of                      (I.R.S. Employer
    Incorporation or Organization)                     Identification No.)

     1 OAK PARK DRIVE, BEDFORD, MA                            01730
    (Address of Principal Executive                         (Zip Code)
               Offices)
</TABLE>

                            ------------------------

                                 (781) 271-1200
              (Registrant's telephone number, including area code)

          SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
                                      NONE

          SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
                         Common Stock, $0.001 par value
                                 TITLE OF CLASS
                            ------------------------

    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 / /

    Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to the
Form 10-K.  / /

    The aggregate market value of voting common stock held by non-affiliates of
the registrant was $43,846,751 based on the last reported sale price of the
common stock on the Nasdaq National Market on March 21, 2001.

    Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date: 17,052,889 shares of
$0.001 par value common stock as of March 21, 2001

                      Documents incorporated by reference:

<TABLE>
<CAPTION>
DOCUMENT DESCRIPTION                                              10-K PART
--------------------                                          -----------------
<S>                                                           <C>
Portions of the Registrant's Proxy Statement for the Annual
  Meeting of Shareholders
  to be held May 31, 2001...................................          Part III
</TABLE>

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                                     PART I

ITEM 1.  BUSINESS

    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 arrest and the early detection
of coronary artery disease. Our proprietary technology, Microvolt T-Wave
Alternans is the only diagnostic tool cleared by the U.S. Food and Drug
Administration to non-invasively measure Microvolt levels of T-Wave Alternans,
an extremely subtle beat-to-beat fluctuation in a patient's heartbeat. These
tiny heartbeat variations--measured at one millionth of a volt--are detected
during a typical treadmill or bicycle exercise stress test by our proprietary
Micro-V Alternans Sensors, which are placed on a patient's chest. Extensive
clinical research has shown that patients with symptoms of or at risk of life
threatening arrhythmias who test positive for Microvolt T-Wave Alternans are at
increased risk for subsequent sudden cardiac events including sudden death.
Sudden cardiac arrest accounts for approximately one-half of all deaths due to
heart attack, or about 300,000, in the United States each year, and is the
leading cause of death in people between the ages of 45 and 65.

    Our CH 2000 Alternans System, which we refer to as the CH 2000, Heartwave
System and Heartwave EP System, which together we refer to as Heartwave, and
Micro-V Alternans Sensors have all received 510(k) clearance from the FDA for
sale in the United States. Our CH 2000 and Micro-V Alternans Sensors have
received the CE mark for sale in Europe and have been approved for sale by the
Ministry of Health in Japan. The 510(k)clearance for the CH 2000 and the
Heartwave includes the claim that they can measure Microvolt T-Wave Alternans,
and the presence of Microvolt T-Wave Alternans in patients with known, suspected
or at risk of ventricular tachyarrhythmia predicts increased risk of ventricular
tachyarrhythmia or sudden death.

COMPANY OVERVIEW

    Research using our Microvolt T-Wave Alternans technology and Micro-V
Alternans Sensors to predict increased risk of ventricular tachyarrhythmias
indicates that our CH 2000 and Heartwave products have the following advantages:

    - Accuracy--Extensive clinical research to date has shown that the presence
      of microvolt levels of T-wave alternans in patients with known, suspected
      or at risk of ventricular tachyarrhythmia predicts increased risk of a
      cardiac event such as ventricular tachyarrhythmia or sudden death. The
      predictive capabilities of our technology exceed those of all other
      non-invasive diagnostics and is at least comparable to the results of an
      invasive electrophysiology study.

    - Non-invasive--Unlike electrophysiology studies, which require the
      insertion of electrical catheters into the patient's heart our CH 2000 and
      Heartwave systems require only the placement of our Micro-V Alternans
      Sensors on the patient's chest and the elevation of the patient's heart
      rate through exercise, pharmacologic agents and pacing.

    - Broad Applicability--Approximately six million standard stress tests and
      three million imaging stress tests are performed in the United States each
      year. The CH 2000 is able to perform both of these tests and to
      simultaneously assess the risk of sudden cardiac death due to ventricular
      arrhythmias with only a modest increase in the total cost of the
      procedure. The Heartwave is capable of assessing the risk of sudden
      cardiac death when used in conjunction with any manufacturer's stress test
      using standard stress test protocols or when connected to any
      electrophysiology monitoring system.

    - Non-Hospital Setting--Unlike invasive electrophysiology studies and other
      tests which require a hospital setting, both the CH 2000 and the Heartwave
      can be used in a physician's office.

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    - Procedure Cost Advantages--An alternans test costs approximately $300 per
      procedure, compared with approximately $3,000 to $4,000 for an
      electrophysiology study.

    - System Affordability--A fully equipped CH 2000 is priced in the United
      States starting at approximately $29,000, while a Heartwave is priced at
      $14,900. We have made several financing programs available to customers
      aimed at minimizing the amount of initial cash investment required to
      acquire either system in return for a commitment to purchase Micro-V
      Alternans Sensors at a fixed price.

    We are continuing to conduct research into the detection of ischemic heart
disease using our cardiac electrical imaging technology. Cardiac electrical
imaging provides an image of the electrical activity of the heart that is highly
sensitive to changes resulting from ischemia which is the lack of oxygen caused
by coronary artery disease or acute myocardial infarction, commonly known as a
heart attack. We are conducting research to determine the extent to which this
technology provides for enhanced detection and localization of coronary artery
disease during a standard exercise stress test.

    Cambridge Heart was incorporated in Delaware in 1990. Our executive offices
are located at 1 Oak Park Drive, Bedford, Massachusetts 01730.

PRINCIPAL PRODUCTS AND APPLICATIONS

    THE HEARTWAVE

    We have developed two models of our Heartwave product. The Heartwave System,
which was designed to operate with any manufacturer's stress test system during
the perfomance of a standard stress test, and the Heartwave EP System, which
functions in conjunction with the electrophysiology monitoring equipment in a
hospital's electrophysiology lab. Both systems require elevation of the patients
heart rate to produce an accurate result. They collect and process the Microvolt
T-Wave Alternans data using our proprietary Micro-V Alternans Sensors and our
Analytic Spectral Method of measuring microvolt levels of alternans.

    Each of our Heartwave products are portable and include:

    - a Pentium processor that provides real-time alternans computations and
      storage of the 10 most recent tests;

    - an LCD touch screen that displays key test parameters and means of
      entering patient information;

    - a digital ECG amplifier that, working in concert with our Micro-V
      Alternans Sensors, makes alternans measurements possible to levels below
      one microvolt;

    - printed trend reports with guided interpretation for quick, accurate
      analysis.

    THE CH 2000

    Our CH 2000 is a diagnostic system designed to support a broad range of
standard and physician-customized protocols for the conduct and measurement of
cardiac stress tests. It is capable of controlling both treadmill and bicycle
ergometers and is well suited for standard, nuclear or echocardiogram stress
tests. The CH 2000 is compatible with standard electrodes for routine stress
tests and our Micro-V Alternans Sensors for a Microvolt T-Wave Alternans test.

    MICROVOLT T-WAVE ALTERNANS AND VENTRICULAR ARRHYTHMIAS: CLINICAL STUDIES

    The association between ventricular arrhythmia and the presence of extremely
low levels of Microvolt T-Wave Alternans not detectable by visual inspection of
the ECG was unknown until the early 1980s. Research conducted in Dr. Richard
Cohen's laboratory at The Massachusetts Institute of

                                       3
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Technology indicated that the presence of microvolt (one-millionth of a volt)
levels of alternans was predictive of vulnerability to ventricular arrhythmias
responsible for sudden cardiac arrest. Dr. Cohen, a founder and director of, and
consultant to, us, and his associates developed the technology to quantify this
electrical conduction pattern which we exclusively licensed and which forms the
basis of our proprietary technology.

    In a study of 83 patients conducted at Massachusetts General Hospital in
collaboration with Dr. Cohen's laboratory at The Massachusetts Institute of
Technology, published in the NEW ENGLAND JOURNAL OF MEDICINE in December 1994,
the detection of Microvolt T-Wave Alternans at certain levels in patients
referred for electrophysiology studies was shown to be as accurate as invasive
electrophysiology testing in predicting sudden cardiac arrest and
life-threatening ventricular arrhythmias. In the high risk population studied
for up to 20 months following the procedure, an actuarial analysis involving 66
patients indicated that 81% of those testing positive for Microvolt T-Wave
Alternans died or suffered a life-threatening arrhythmia within 20 months of the
test; only 6% of the patients testing negative for Microvolt T-Wave Alternans
did so. These results were comparable to those obtained with invasive
electrophysiology testing and were more predictive than those that have been
reported using other non-invasive methods.

    Another study was conducted by Professor Stefan Hohnloser of J.W. Goethe
University, Frankfurt, Germany, the results of which were published in
December 1998 in the JOURNAL OF CARDIOVASCULAR ELECTROPHYSIOLOGY. In this study,
95 patients receiving an implantable cardioverter-defibrillator underwent
electrophysiology testing and most of the other accepted non-invasive risk
stratification tests, including Microvolt T-Wave Alternans testing. Professor
Hohnloser reported that the detection of the presence of Microvolt T-Wave
Alternans was found to be more accurate than all other invasive and non-invasive
tests studied in predicting recurrences of ventricular tachycardia and
ventricular fibrillation, the abnormal heart rhythms associated with sudden
cardiac arrest.

    During 1998, we completed a prospective multi-center study, the results of
which were published in December 2000 in the JOURNAL OF THE AMERICAN COLLEGE OF
CARDIOLOGY. The primary endpoint was a ventricular tachyarrhythmic event which
was defined as sudden cardiac death, appropriate firing of an implantable
cardioverter-defibrilator or resuscitated sustained ventricular tachycardia or
fibrillation. In 313 consecutive patients referred for electrophysiology study
to evaluate known, suspected or risk of arrhythmias, Microvolt T-Wave Alternans
was a highly significant predictor of a ventricular tachyarrhythmic event and
was more predictive than electrophysiology, with a relative risk of 10.9 for
Microvolt T-Wave Alternans versus 7.1 for electrophysiology. The secondary
endpoint was a ventricualr tachyarrhythmic event plus all death due to any
cause. Microvolt T-Wave Alternans was a highly significant predictor of this
endpoint and was also more predictive than electrophysiology, with a relative
risk of 13.9 versus 4.7 for electrophysiology. Relative risk is the chance of
having a cardiac event if the test is positive divided by the chance of having a
cardiac event if the test is negative. The greater the number, the more
predictive the test.

    Microvolt T-Wave Alternans was also evaluated as a predictor of
electrophsyiology study results in a protocol that enrolled a subset of 242
patients. Patient characteristics between this subset and the total 317 patients
were not materially different. In 140 patients who completed all study
procedures in accordance with the protocol and had determinate results for both
T-wave alternans and electrophysiology, Microvolt T-Wave Alternans predicted the
results of electropysiology with a sensitivity of 76%, a specificity of 65% and
a relative risk of 3.93.

    In March 2000 the results of a study of 102 patients with an acute
myocardial infarction were published in the JOURNAL OF THE AMERICAN COLLEGE OF
CARDIOLOGY. The study found that 28% of the patients testing positive for
Microvolt T-Wave Alternans had sustained a ventricular tachycardia or
fibrillation during the following 12 months, whereas, 98% of the patients
testing negative for Microvolt T-Wave Alternans had no such event. For Microvolt
T-Wave Alternans the relative risk, which is the

                                       4
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chance of having an event if the test is positive divided by the chance of
having an event if the test is negative, was 16.8, the highest of any of the
comparable tests performed in this study.

    In August 2000 the results of a study of 107 patients with congestive heart
failure were published in the British medical journal, THE LANCET. The
researchers found that Microvolt T-Wave Alternans is the most effective
non-invasive test to identify congestive heart failure patients at risk for
developing life-threatening abnormal heart rhythms. The 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. Researchers followed 107
congestive heart failure patients with no prior history of sustained ventricular
arrhythmias for 18 months. Microvolt T-Wave Alternans and six other clinical
measures that have traditionally been used to assess the risk of sudden death
were also obtained for the patients involved in this study. Of all seven
measures, Microvolt T-Wave Altenans was the only statistically significant
predictor of sudden death. Among those patients with a positive Microvolt T-Wave
Alternans test, the rate of sudden death or resuscitated life-threatening
arrhythmia was 21 percent at 18 months following the test.

MARKETING AND SALES

    The installed base of standard stress test systems in the United States is
estimated to be 23,000 units. The market is very mature, with approximately 10%
replacement of existing units each year, and is dominated by a few large
manufacturers. With the CH 2000 as our featured product, our sales efforts were
limited to the 10% of the market that was replaced each year and the limited
availability of hospital capital budgets. These circumstances provided for an
excessively long sales cycle and was a limiting factor in our success in
expanding the market for our Microvolt T-Wave Alternans technology.

    In the final quarter of 2000, we expanded our product line with the
introduction of the Heartwave. The Heartwave stress model was introduced in
September and is designed to be used with any manufacturer's standard stress
test system to non-invasively predict a patient's risk of sudden cardiac death
with accuracy comparable to that of an electrophysiology study. Using our
proprietary Micro-V Alternans Sensors and our proprietary Analytic Spectral
Method of measurement, the Heartwave is able to measure and collect alternans
data at a microvolt level. The fact that the Heartwave is capable of measuring
Microvolt T-Wave Alternans while connected to any standard stress test system,
expands the size of the available market for our technology from 10% of the
installed base of stress test systems to 100% of the installed base. The
Heartwave is an alternans-only unit and does not require that the customer be in
the market for a new stress unit. This product creates new opportunities to
focus our sales efforts on expanding the market opportunities for our
proprietary technology, Microvolt T-Wave Alternans, and increasing its clinical
use by electrophysiologists and clinical cardiologists.

    In December 2000 we introduced a second Heartwave model, our Heartwave EP
System. Using the same Microvolt T-Wave Alternans technology and Micro-V
Alternans Sensors, this unit is designed to be used by an electrophysiologist in
conjunction with the performance of an electrophysiology study and integrated
with the hospital's electrophysiology monitoring equipment.

    We believe that the keys to the adoption of our proprietary Microvolt T-Wave
Alternans technology as the standard of care for the diagnosis of heart disease
are reimbursement by third party insurers to healthcare providers for
performance of the test, continued publication of clinical study results in
medical journals and continued positive clinical experience with our products.
We believe that the trend toward management of health care costs in the United
States will lead to increased awareness of, and emphasis on, early detection and
prevention of heart disease, and will increase demand for cost-effective
diagnostic tests. The commercial success of our proprietary technologies will
require marketing, educational and sales efforts to encourage cardiologists and
other medical professionals to use the test in their medical practices for the
measurement of Microvolt T-Wave Alternans. We have

                                       5
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trained and expect to continue to train well-respected clinicians and their
professional staff in the use of Microvolt T-Wave Alternans testing as a means
of identifying patients at risk of sudden cardiac death. We have funded studies
to further demonstrate the efficiency of our technologies, and we expect to fund
additional studies in the future. We intend to continue to encourage the
presentation of the results of these studies at major national and international
medical symposia and the publication of clinical and scientific reports of such
results in major peer-reviewed publications. We also support educational
seminars regarding the benefits of Microvolt T-Wave Alternans testing and will
continue to participate in industry trade shows and academic conferences.

    In May 2000, we entered into a strategic marketing alliance with Spacelabs
Medical, Inc., a leading provider of integrated cardiology, monitoring and
clinical information systems, to distribute our Microvolt T-Wave Alternans
software and Micro-V Alternans Sensors for use with their diagnostic cardiology
system. Work on the software integration of the two systems in nearly complete,
and we are informed that Spacelabs intends to file a Form 510(k) with the FDA
early in 2001. We expect the first shipments of product to Spacelabs to begin
sometime in the second quarter 2001.

    In March 2001, we entered into an agreement with Agilent
Technologies, Inc., which we refer to as Agilent, making them the exclusive
distributor of our CH 2000 stress test system, within the U.S. With Agilent
distributing the CH 2000 for stress, it allows us to concentrate our efforts on
our patented Microvolt T-Wave Alternans products and technology. The CH 2000 to
be marketed by Agilent, has been upgraded to be compatible with Micorsoft
Windows 2000.

    We market our products and services to hospitals and group cardiology
practices in the United States through our direct sales organization, which is
supported by a group of four clinical support specialists trained to assist with
system installations and on-site training of clinical personnel and our in-house
marketing staff. Currently, our sales force consists of eight direct sales
representatives and two sales managers. Our plans are to increase the number of
direct sales representatives in the United States to 21 by the end of 2001.

    We maintain a small but experienced in-house service organization to respond
to customer queries and provide guidance, advice and troubleshooting regarding
use of our products.

    We market our products internationally through independent distributors. We
have distribution agreements with distributors for the sale of our products in
Europe and Japan. During the years ended December 31, 1998, 1999 and 2000, sales
to international distributors comprised 46%, 49% and 40%, respectively, of our
total revenue. Our independent international distributors provide comprehensive
marketing and sales services including identification of potential purchasers,
consummating sales and providing ongoing educational and support services to
customers. The exclusive distribution agreement with our distributor in Japan,
Fukuda Denshi Co., Ltd. expires March 31, 2001. The agreements with our European
distributors, Reynolds Medical, Ltd. and Oxford Instruments, expire March 1,
2002 and March 31, 2002, respectively.

MANUFACTURING

    The manufacturing process for our CH 2000, Heartwave and Micro-V Alternans
Sensors consists primarily of final assembly of purchased components, testing
operations and packaging. Components are purchased according to our
specifications and are subject to inspection and testing. We rely on outside
vendors to manufacture certain major components, a number of which are currently
supplied by sole source vendors. We believe that we would be able to locate
additional sources of these components in a timely fashion, if necessary.

    We perform a limited amount of final assembly of hardware and software
components, and testing of our CH 2000 and Heartwave products at our corporate
headquarters in Bedford, Massachusetts. We believe that this facility will be
adequate to meet our requirements through our current lease. We are

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required to meet and adhere to all applicable requirements of U.S. and
international regulatory agencies, including Good Manufacturing Practices and
Quality System Regulation requirements. Our manufacturing facilities are subject
to periodic inspection by both U.S. and international regulatory agencies.

    We last underwent a Quality System Regulation audit, conducted by the FDA,
in January 1999. A response to the FDA's observations was submitted and accepted
by the Agency in February 1999. No regulatory action was required.

RESEARCH AND DEVELOPMENT

    A substantial portion of our research and development investment is focused
on our efforts in the areas of clinical research and the development of
enhancements to our Microvolt T-Wave Alternans technology. Our clinical research
is focused on gathering substantial clinical data demonstrating the efficacy of
our Microvolt T-Wave Alternans technology and its results as a predictor of
patient risk of ventricular tachyarrhythmia or sudden cardiac death.

    Over the past year we have invested a major portion of our software and
hardware engineering resources in the development of our recently introduced
Heartwave product. We received clearance from the FDA of our 510(k) to market
the Heartwave in June 2000. We believe that the ability of Heartwave to measure
Microvolt T-Wave Alternans combined with its ability to be integrated with any
manufacturer's standard stress test system provides us with increased access to
the entire installed base of standard stress test systems and the opportunity
for increased use of our Micro-V Alternans Sensors. Additionally, we have
developed and released enhancements to our Microvolt T-Wave Alternans technology
providing the capability for exercising the patient on either a treadmill or
bicycle ergometer to elevate the heart rate during testing. The development of
additional relationships with other equipment manufacturers requires some
allocation of our engineering resources to support various software integration
requirements and enhancements.

    We are continuing to investigate the feasibility of using our proprietary
technology for the detection of ischemic heart disease based upon our cardiac
electrical imaging technology, which would provide an image of the electrical
activity of the heart. Animal studies and initial human studies have indicated
that Cardiac Electrical Imaging, which we refer to as CEI, is highly sensitive
to changes resulting from ischemia, the lack of oxygen caused by coronary artery
disease or acute myocardial infarction. We are conducting research to determine
the extent to which this technology provides for enhanced detection and
localization of coronary artery disease during a standard exercise stress test.
We are evaluating the feasibility of incorporating our CEI technology into the
CH 2000.

    Our research and development expenses were $3,594,900 in 1998, $2,850,400 in
1999 and $2,694,500 in 2000. We expect engineering expenses in 2001 to decline
modestly reflecting completion of the development efforts associated with the
Heartwave. However, clinical research costs are expected to increase over 2000
levels as we intend to fund several new clinical studies. As of December 31,
2000 the Company had four full time employees engaged in research and
development activities along with several independent research and engineering
consultants.

PATENTS, TRADE SECRETS AND PROPRIETARY RIGHTS

    The computer algorithms that allow the CH 2000 and the Heartwave to measure
Microvolt T-Wave Alternans and certain aspects of our cardiac electrical imaging
technology, including the cardiac electrical imaging sensors, are covered by
U.S. patents issued to The Massachusetts Institute of Technology. MIT licenses
these patents to us exclusively, and we hold a U.S. patent covering the use of
exercise or any other non-invasive means in the measurement of Microvolt T-Wave
Alternans. During 1998, we were issued a U.S. patent covering additional
proprietary signal processing algorithms and our Micro-V Alternans Sensors for
use in the measurement of Microvolt T-Wave Alternans. Corresponding

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foreign patents are pending with respect to each. The failure to obtain such
patents could have a material adverse effect on our business, financial
condition and results of operations. We own or are the exclusive licensee of 14
issued or allowed and six patents pending in the United States, with 17
corresponding foreign patents issued or pending with respect to our technology.

    We have entered into three license agreements with MIT, pursuant to which we
are the exclusive licensee of certain technologies upon which our current and
future products are based. Two of the MIT license agreements that cover the
Microvolt T-Wave Alternans measurement technology incorporated in our CH 2000
and Heartwave products and that relate to cardiac electrical imaging are of
material importance to us. These licenses are exclusive until 2007 after which,
each license will convert to a nonexclusive license for the remaining term of
the applicable patents, unless MIT agrees to an extension of exclusivity. These
license agreements impose various commercialization, sublicensing, insurance,
royalty, product liability indemnification and other obligations on us. Our
failure to comply with these requirements could result in conversion of the
licenses from being exclusive to nonexclusive in nature or, in some cases,
termination of the license. The loss of our exclusive rights to the Microvolt
T-Wave Alternans and cardiac electrical imaging technologies, licensed under two
of the MIT license agreements or the termination of either or both of such
agreements would have a material adverse effect on our business, financial
condition and results of operations.

    We believe that our intellectual property and expertise, as originally
licensed from MIT and further developed by us, constitute an important
competitive resource, and we continue to evaluate markets and products which are
most appropriate to exploit the expertise licensed and developed by us. In
addition, we maintain an active program of intellectual property protection,
both to assure that the proprietary technology developed us is appropriately
protected, and, where necessary, to assure that there is no infringement of our
proprietary technology by competitive technologies.

    Our future success will depend, in part, on our ability to continue to
develop patentable products, enforce those patents and obtain patent protection
for our products both in the United States and in other countries. However, the
patent positions of medical device companies like us, are generally uncertain
and involve complex legal and factual questions. We cannot assure that patents
will issue from any patent applications owned by or licensed to us or that, if
patents do issue, the claims allowed will be sufficiently broad to protect our
technology. In addition, we cannot assure that any issued patents owned by or
licensed to us will not be challenged, invalidated or circumvented, or that the
rights granted under the patents will provide competitive advantages to us.

    Our commercial success will also depend in part on our neither infringing
patents issued to others nor breaching the licenses upon which our products are
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 from MIT. Our licenses impose various
commercialization, sublicensing, insurance, royalty and other obligations on us.
Our failure to comply with these requirements could result in conversion of the
licenses from being exclusive to nonexclusive in nature or, in some cases,
termination of the license.

    We also rely on unpatented trade secrets to protect our proprietary
technology, and we can give no assurance that others will not independently
develop or otherwise acquire substantially equivalent 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 to protect our trade secrets. We
cannot assure 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. The failure by us to
obtain or maintain patent and trade secret protection for our products, for any
reason, would have a material adverse effect on our business, financial
condition and results of operations.

                                       8
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    Although we are not currently aware of any potential litigation regarding
our intellectual property rights, the medical device 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. We also may have
to participate in interference proceedings declared by the U. S. Patent and
Trademark Office, which could result in substantial costs, to determine the
priority of inventions. Furthermore, we may have to participate at substantial
costs in International Trade Commission proceedings to abate importation of
products which would compete unfairly with our products.

COMPETITION

    The cardiac diagnostic medical device market is characterized by intensive
development efforts and 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. We cannot assure that we will
be successful in identifying, developing and marketing new products or enhancing
our existing products. In addition, we cannot assure 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 our research and development, and
commercialization expenses incurred with respect to such products. Alternative
technologies exist today in each of the areas being addressed by us, including
electrocardiograms, Holter monitors, ultrasound tests and systems for measuring
cardiac late potentials. However, our CH 2000, Heartwave and Micro-V Alternans
Sensors are currently the only FDA cleared systems for the non-invasive
measurement of Microvolt T-Wave Alternans.

    Competition from medical devices which help to diagnose cardiac disease is
intense and likely to increase. Our competitors include manufacturers of stress
test equipment, including major multinational companies. Many of our competitors
and potential competitors have substantially greater capital resources, name
recognition, research and development experience and regulatory, manufacturing
and marketing capabilities than us. Many of these competitors offer
well-established, broad product lines and ancillary services not offered by us.
Some of our competitors have long-term or preferential supply arrangements with
hospitals that may act as a barrier to market entry. Other large health care
companies may enter the non-invasive cardiac diagnostic product market in the
future. Competing companies may succeed in developing products that are more
efficacious or less costly than any that we may develop, and such companies also
may be more successful than us in producing and marketing such products. We may
not be able to compete successfully with existing or new competitors.

GOVERNMENT REGULATION

    The manufacture and sale of medical devices intended for commercial
distribution are subject to extensive governmental regulation in the United
States. Medical devices are regulated in the United States by the FDA and
generally require pre-market clearance or pre-market approval prior to
commercial distribution. In addition, certain material changes or modifications
to medical devices also are subject to FDA review and clearance or approval. The
FDA regulates the research, testing, manufacture, safety, labeling, storage,
record keeping, advertising and distribution of medical devices in the United
States. Noncompliance with applicable requirements can result in failure of the
government to grant pre-market clearance or approval for devices, withdrawal of
approval, total or partial suspension of production, fines, injunctions, civil
penalties, recall or seizure of products, and criminal prosecution.

    Medical devices are classified into one of three classes, class I, II or
III, on the basis of the controls deemed by the FDA to be necessary to
reasonably ensure their safety and effectiveness. Class I devices are subject to
general controls (e.g., labeling, pre-market notification and adherence to
current

                                       9
<PAGE>
Good Manufacturing Practices standards). Class II devices are subject to general
controls and special controls (e.g., performance standards, post-market
surveillance, patient registries and FDA guidelines). Generally, class III
devices must receive pre-market approval by the FDA to ensure their safety and
effectiveness (e.g., life-sustaining, life-supporting and implantable or new
devices which have not been found to be substantially equivalent to legally
marketed devices), and class III devices require clinical testing to ensure
safety and effectiveness and FDA approval prior to marketing and distribution.
The FDA also has the authority to require clinical testing of class I and
class II devices. A pre market approval application must be filed if a proposed
device is not substantially equivalent to a legally marketed predicate device or
if it is a class III device for which the FDA has called for such application.

    Generally, before a new device can be introduced into the market in the
United States, the manufacturer or distributor must obtain FDA clearance of a
510(k) notification submission or approval of a pre market approval application.
If a medical device manufacturer or distributor can establish that a device is
"substantially equivalent" to a legally marketed class I or class II device, or
to a class III device for which the FDA has not called for pre market approval,
the manufacturer or distributor may seek clearance from the FDA to market the
device by filing a 510(k) notification. The 510(k) notification may need to be
supported by appropriate data establishing the claim of substantial equivalence
to the FDA. The FDA recently has been requiring a more rigorous demonstration of
substantial equivalence.

    Following submission of the 510(k) notification, the manufacturer or
distributor may not place the device into commercial distribution until an order
clearing the 510(k) is issued by the FDA. At this time, the FDA typically
responds to the submission of a 510(k) notification within 90 to 200 days. An
FDA order may declare that the device is substantially equivalent to a legally
marketed device and allow the proposed device to be marketed in the United
States. The FDA, however, may determine that the proposed device is not
substantially equivalent or requires further information, including clinical
data, to make a determination regarding substantial equivalence. Such
determination or request for additional information generally delays market
introduction of the product that is the subject of the 510(k) notification.

    A 510(k) submission is also required when a medical device manufacturer
makes a change or modification to a legally marketed device that could
significantly affect the safety or effectiveness of the device, or where there
is a major change or modification in the intended use of the device. When any
change or modification is made to a device or its intended use, the manufacturer
is expected to make the initial determination as to whether the change or
modification is of a kind that would necessitate the filing of a new 510(k)
application. The FDA's regulations provide only limited guidance for making this
determination. The FDA's regulations also require agency approval of a 510(k)
supplement for certain changes to a device if they affect the safety and
effectiveness of the device, including, but not limited to, new indications for
use, labeling changes, the use of a different facility to manufacture, process
or package the device, changes in manufacturing methods or quality control
systems and changes in performance or design specifications.

    Any products manufactured or distributed by us are subject to pervasive and
continuing regulation by the FDA including record keeping requirements,
reporting of adverse experience with the use of the device, post-market
surveillance, post-market registry and other actions deemed necessary by the
FDA. Failure by us to receive approval of a supplement regarding the use of a
different manufacturing facility or any other change affecting the safety or
effectiveness of an approved or cleared device on a timely basis, or at all,
would have a material adverse effect on our business, financial condition and
results of operations.

    Sales of medical device products outside the United States are subject to
foreign regulatory requirements that vary from country to country. The time
required to obtain approvals required by

                                       10
<PAGE>
foreign countries may be longer or shorter than that required for FDA approval,
and requirements for licensing may differ from FDA requirements. The current
regulatory environment in Europe for medical devices differs significantly from
that in the United States. There is currently no universally accepted definition
of a medical device in Europe and there is no common approach to medical device
regulation among the various countries. There are several different regulatory
regimes operating within the different European countries. Regulatory
requirements for medical devices range from no regulations in some countries to
rigorous regulations approaching the requirements of the FDA's regulations for
class III medical devices. Several countries require that device safety be
demonstrated prior to approval for commercialization. The regulatory environment
in certain European countries is expected to undergo major changes as a result
of the creation of medical directives by the European Union. Failure to comply
with regulatory requirements could have a material adverse effect on our
business, financial condition and results of operations.

    The CH 2000, Heartwave and Micro-V Alternans Sensors have received 510(k)
clearance from the FDA for sale in the United States. The 510(k) clearance for
the CH 2000 and the Heartwave includes the claim that the they can measure
Microvolt T-Wave Alternans, and the presence of Microvolt T-Wave Alternans in
patients with known, suspected or at risk of ventricular tachyarrhythmia
predicts increased risk of ventricular tachyarrhythmmia or sudden death.

    Internationally, the CH 2000 and Micro-V Sensors have received the CE mark
for sale in Europe and are approved for sale by the Ministry of Health in Japan.

REIMBURSEMENT

    Reimbursement to healthcare providers by third party insurers is critical to
the long-term success of our efforts to make the Microvolt T-Wave Alternans test
the standard of care for patients with known, suspected or at risk of
ventricular tachyarrhythmia or sudden death. Our customers have been successful
in receiving payment from many large third party insurers for the performance of
our test to date. The insurers that have paid for the test account for more than
55 million covered lives in the United States. At this time, third-party
insurers have paid healthcare providers an average of approximately $270 for
performance of a Microvolt T-Wave Alternans test. This amount is in addition to
any payments due to providers for a standard stress test that may have been done
at the same time as our test.

    The issue of medical reimbursement to healthcare providers for the
performance of a Microvolt T-Wave Alternans test involves third party payers
covering both Medicare and private insurance patients and can be segmented into
two main catagories--Coding and Coverage.

    CODING

    Coding refers to a uniform language used by healthcare providers to describe
medical services. Coding is used by providers to communicate to insurers about
services that have been performed for billing purposes and can affect both the
coverage decision and amount paid by third party insurers.

    In March 2001, we received notification from the American Medical
Association, commonly referred to as the AMA, that their CPT Editorial Panel
Executive Committee voted to establish a new Category I CPT code for our
Microvolt T-Wave Alternans test based upon their review of literature and data
we submitted for their consideration. The Committee found that the data
demonstrate Microvolt T-Wave Alternans testing is a predictor of risk of sudden
death. We are of the opinion that the new CPT code, when issued, should
significantly improve the process for obtaining reimbursement for the Microvolt
T-Wave Alternans test and provide our customers with an efficient means to
submit claims and receive payment in a timely manner.

                                       11
<PAGE>
    In August 2000, Medicare began reimbursing hospital outpatient departments
using the Ambulatory Payment Classification for the technical component of our
Microvolt T-Wave Alternans test. Healthcare providers are paid approximately
$100 per test for hospital outpatients covered by Medicare under the Prospective
Payment System created by the Health Care Financing Administration. Physician
costs are not covered under this system and therefore must continue to be
manually billed using a non-specific generic code.

    COVERAGE

    Coverage addresses whether or not a product or service is offered, and
therefore payment will be made, to the healthcare provider for delivery of an
insured benefit to the plan enrollees. Third party insurers can deny coverage,
or limit coverage to specific patient populations or healthcare providers.

    Healthcare providers in the United States have received payment from some of
the largest third party insurers for the performance of our Microvolt T-Wave
Alternans on their non-Medicare patients. Some of the larger insurers that have
paid for the test include Aetna, Connecticut General Life, United Healthcare,
Delta Health Systems and various Blue Cross and Blue Shield companies across the
country. Overall, the insurers that have paid for our test provide medical
insurance for more than 55 million people. Third party insurers have paid
providers approximately $270 on average for the Microvolt T-Wave Alternans test
in addition to any payments for conducting a stress test on the same patient.

    We are also making progress toward obtaining coverage for Medicare patients.
Medicare's Cardiology Working Group has developed a model coverage policy. This
policy will provide guidance to the 42 local Medicare Carriers across the United
States as to coverage and payment for our Microvolt T-Wave Alternans test. This
policy will be subject to modifications at the local level to allow for
differences in local standards of care.

    We continue to offer support to healthcare providers in the form of a
reimbursement guarantee of $94.00 for each Microvolt T-Wave Alternans test
performed, up to a maximum of 50 tests per quarter, in which a claim is
submitted to a third party insurer within prescribed guidelines and is
ultimately denied coverage after appeal. Once the insurer has initiated payment
for the test, the financial assistance is no longer available. This program is
effective through the end of 2001. To date, we have not had to make any payments
to providers under this program.

EMPLOYEES

    As of December 31, 2000, we had 35 full-time employees, of whom one holds a
Ph.D. degree and eight others hold other advanced degrees. None of our employees
are represented by a collective bargaining agreement, nor have we experienced
work stoppages. We believe that our relations with our employees are good.

ITEM 2.  PROPERTIES

    Our facilities consist of approximately 11,000 square feet of office,
research and manufacturing space located at 1 Oak Park Drive, Bedford,
Massachusetts. This facility is under lease through November 30, 2003. We
believe that suitable additional space will be available to us, when needed, on
commercially reasonable terms.

ITEM 3.  LEGAL PROCEEDINGS

    We are not party to any material legal proceedings.

                                       12
<PAGE>
ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

    No matters were submitted to a vote of our security holders, through
solicitation of proxies or otherwise, during the fourth quarter of the year
ended December 31, 2000.

EXECUTIVE OFFICERS OF THE REGISTRANT

    The following table sets forth (i) the names and ages of our current
executive officers; (ii) the position(s) presently held by each person named;
and (iii) the principal occupations held by each person named for at least the
past five years.

<TABLE>
<CAPTION>
NAME                                       AGE                            POSITION
----                                     --------                         --------
<S>                                      <C>        <C>
David A. Chazanovitz...................     50      Chief Executive Officer, President, Chief Operating
                                                    Officer and Director
Robert B. Palardy......................     52      Vice President, Finance and Administration and Chief
                                                    Financial Officer
Eric Dufford...........................     42      Vice President, Sales and Marketing and Secretary
James Sheppard.........................     41      Vice President, Operations
Kevin S. Librett.......................     35      Vice President, Research and Development
</TABLE>

    DAVID A. CHAZANOVITZ.  Mr. Chazanovitz became our President and Chief
Operating Officer and a director in October 2000 and Chief Executive Officer in
February 2001. From July 1998 to September 2000 Mr. Chazanovitz served as
Divisional President for Nitinol Medical Technologies, Inc., Neuroscience
Division. Mr. Chazanovitz was the founder of Innerventions, Inc. in 1995 which
he later merged with Nitinol Medical Technologies, Inc. where he held the
position of President of the Septal Repair Division until June 1998.
Mr. Chazanovitz has held the position of President for several divisions of C.R.
Bard, Inc., including Bard Ventures, Bard Electrophysiology Division and USCI
Angiography Division. Mr. Chazanovitz holds a B.S. in Biology from City College
of New York and an M.B.A. in Marketing from Long Island University.

    ROBERT B. PALARDY.  Mr. Palardy became our Vice President, Finance and
Administration and Chief Financial Officer in November 1997. From 1990 to
February 1997, Mr. Palardy was Vice President, Finance and Information Services
of Smith & Nephew Endoscopy, a company involved in the development, manufacture
and sale of medical devices for arthroscopy. From February 1997 through
October 1997, Mr. Palardy was an independent financial consultant. Mr. Palardy
is a Certified Public Accountant and holds a B.S. degree in Accounting from
LaSalle University.

    ERIC DUFFORD.  Mr. Dufford became our Vice President, Sales and Marketing
and Secretary in August 1997. From January 1990 to May 1994, Mr. Dufford was
Director of International Sales for St. Jude Medical, Inc. From May 1994 to
August 1997, Mr. Dufford was Division President of Quest Medical Inc.'s
Cardiovascular Systems Division. Mr. Dufford earned a B.A. in International
Business/ Marketing from the University of Colorado and an M.B.A. from Emory
University.

    JAMES SHEPPARD.  Mr. Sheppard became our Vice President, Operations in
August 1999. From 1996 to 1998, Mr. Sheppard was Vice President, Operations for
Nitinol Medical Technology, Inc. From 1995 to 1996, Mr. Sheppard served as
Director of Manufacturing for Summit Technology and from 1982 to 1994 he served
in several senior management positions at C.R. Bard, Inc. Mr. Sheppard holds a
BS in Industrial Engineering from Virginia Tech.

    KEVIN S. LIBRETT.  Mr. Librett was promoted to the position of Vice
President, Research and Development in April 2000. Mr. Librett joined Cambridge
Heart as a Senior Software Engineer in August 1993. From August 1995 to
August 1997, he served as Software Development Manager. From September 1997 to
March 2000 he was Director, Research and Development. Mr. Librett is the

                                       13
<PAGE>
inventor or co-inventor of five issued U.S. patents and two pending U.S. patents
related to the measurement, assessment and display of myocardial electrical
stability. Mr. Librett holds a B.S. in Biophysics from the University of
Connecticut and an M.S. in Electrical Engineering and Computer Science from
Massachusetts Institute of Technology.

    Executive officers of the Company are elected by and serve at the discretion
of the Board of Directors. There are no family relationships among any of our
executive officers or directors.

                                    PART II

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS

MARKET INFORMATION AND HOLDERS

    Shares of our common stock have been traded on the Nasdaq National Market
under the symbol "CAMH" since August 2, 1996. Prior to August 2, 1996, our
shares were not publicly traded. Our common stock is not traded on any market,
foreign or domestic, other than the Nasdaq National Market. The following table
sets forth, for the periods indicated, the range of high and low sale prices of
our common stock as reported on the Nasdaq National Market during the two most
recent fiscal years.

<TABLE>
<CAPTION>
                                                      FISCAL 1999           FISCAL 2000
                                                  -------------------   -------------------
PERIOD                                              HIGH       LOW        HIGH       LOW
------                                            --------   --------   --------   --------
<S>                                               <C>        <C>        <C>        <C>
First Quarter...................................   $9.06      $7.75      $7.50      $2.75
Second Quarter..................................   $8.50      $5.88      $5.25      $2.19
Third Quarter...................................   $6.81      $3.44      $5.00      $2.88
Fourth Quarter..................................   $3.69      $2.44      $4.50      $1.81
</TABLE>

    The depositary for our common stock is American Stock Transfer & Trust
Company, 40 Wall Street, New York, New York 10005. On March 21, 2001, we had
approximately 119 holders of Common Stock of record. This number does not
include shareholders for whom shares are held in a "nominee" or "street" name.

DIVIDENDS

    We have never declared or paid cash dividends on our Common Stock and do not
intend to pay cash dividends in the foreseeable future. Payment of future
dividends, if any, will be at the discretion of our board of directors after
taking into account various factors, including our financial condition,
operating results, restrictions imposed by financing arrangements, if any, legal
and regulatory restrictions on the payment of dividends, current and anticipated
cash needs and other factors the board of directors deem relevant.

                                       14
<PAGE>
ITEM 6.  SELECTED FINANCIAL DATA

    The following data, insofar as it relates to the years 1996, 1997, 1998,
1999 and 2000, have been derived from our audited financial statements,
including the balance sheet as of December 31, 1999 and 2000 and the related
statements of operations and of cash flows for each of the three years in the
period ended December 31, 2000 and notes thereto appearing elsewhere in this
Annual Report on Form 10-K. This data should be read in conjunction with the
Financial Statements and the Notes thereto and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" appearing elsewhere
in this Annual Report on Form 10-K. The historical results are not necessarily
indicative of the results of operations to be expected in the future. This data
is in thousands, except per share data.

<TABLE>
<CAPTION>
                                                               YEAR ENDED DECEMBER 31,
                                            -------------------------------------------------------------
                                              1996         1997         1998         1999         2000
                                            ---------   ----------   ----------   ----------   ----------
                                                        (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                         <C>         <C>          <C>          <C>          <C>
STATEMENT OF OPERATIONS DATA:
Revenue...................................  $     867   $    1,448   $    2,097   $    2,136   $    1,910
Cost of goods sold........................        884        1,386        1,848        2,007        1,879
                                            ---------   ----------   ----------   ----------   ----------
Gross profit (loss).......................        (17)          62          249          129           31
                                            ---------   ----------   ----------   ----------   ----------
Costs and expenses:
  Research and development................      2,433        3,587        3,595        2,850        2,694
  Selling, general and administrative.....      2,092        3,392        3,753        4,945        5,509
                                            ---------   ----------   ----------   ----------   ----------
    Total costs and expenses..............      4,525        6,979        7,348        7,795        8,203
                                            ---------   ----------   ----------   ----------   ----------
Loss from operations......................     (4,542)      (6,917)      (7,099)      (7,666)      (8,172)
Interest income, net......................        507          869          562          331          573
                                            ---------   ----------   ----------   ----------   ----------
Net loss..................................  $  (4,035)  $   (6,048)  $   (6,537)  $   (7,335)  $   (7,599)
                                            =========   ==========   ==========   ==========   ==========
Net loss per share--basic and diluted.....  $   (0.66)  $    (0.58)  $    (0.61)  $    (0.61)  $    (0.50)
                                            =========   ==========   ==========   ==========   ==========
Weighted average shares outstanding--basic
  and diluted(1)..........................  6,073,865   10,451,560   10,746,844   11,933,261   15,331,565
                                            =========   ==========   ==========   ==========   ==========
</TABLE>

<TABLE>
<CAPTION>
                                                                    DECEMBER 31,
                                            -------------------------------------------------------------
                                              1996         1997         1998         1999         2000
                                            ---------   ----------   ----------   ----------   ----------
<S>                                         <C>         <C>          <C>          <C>          <C>
BALANCE SHEET DATA:
Cash, cash equivalents and marketable
  securities..............................  $  18,589   $   12,756   $    6,490   $    9,176   $   11,455
Working capital...........................     19,146       13,456        6,761        8,950       11,258
Total assets..............................     20,229       14,748        8,715       11,454       13,975
Total liabilities.........................        500          527          902        1,404        1,293
Accumulated deficit.......................     (9,116)     (15,163)     (21,700)     (29,036)     (36,635)
Stockholders' equity......................     19,730       14,221        7,813       10,049       12,682
</TABLE>

------------------------

(1) All potential Common Stock (including options, warrants and convertible
    preferred stock) has been excluded from the calculation of diluted earnings
    per share as it is anti-dilutive for all periods presented.

                                       15
<PAGE>
ITEM 7.  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 arrest and the early detection
of coronary artery disease. Clinical research conducted to date has demonstrated
that the presence of Microvolt T-Wave Alternans in patients with known,
suspected or at risk of ventricular tachyarrhythmia predicts increased risk of a
cardiac event such as ventricular tachyarrhythmia or sudden death. Sudden
cardiac death accounts for approximately one-half of all cardiac related deaths,
or about 300,000, in the United States each year.

RESULTS OF OPERATIONS

    Entering 2000, limited published clinical data existed about our Microvolt
T-Wave Alternans technology, virtually no third parties were reimbursing for the
test in the United States and customers had to have budgeted funds available to
purchase our CH 2000 stress test system in order to be able to perform a
Microvolt T-Wave Alternans test. During the year we made significant progress in
our efforts to increase awareness of our Microvolt T-Wave Alternans technology
and expanding the clinical use of the Microvolt T-Wave Alternans test. We
believe these developments will allow us to begin the transition from a company
geared to achievement of development milestones to one focused on sales and
marketing to achieve revenue growth and ultimately, profitability.

    In March 2001, we received notification from the AMA, that their CPT
Editorial Panel Executive Committee voted to establish a new Category I CPT code
for our Microvolt T-Wave Alternans test based upon their review of literature
and data we submitted for their consideration. The Committee found that the data
demonstrate Microvolt T-Wave Alternans testing is a predictor of risk of sudden
death. We are of the opinion that the new CPT code, when issued, should
significantly improve the process for obtaining reimbursement for the Microvolt
T-Wave Alternans test and provide our customers with an efficient means to
submit claims and receive payment in a timely manner.

    We made significant progress in the area of medical reimbursement for our
Microvolt T-Wave Alternans test in 2000. Several large third party private
insurers began to pay healthcare providers for performing our Microvolt T-Wave
Alternans test. On average, these insurers are paying approximately $270.00 for
the test in addition to payments made for performing a standard stress test. In
August 2000, Medicare initiated payment for our test when performed on hospital
out patients. Payment of approximately $100.00 for the cost of the test's
technical component is being made electronically utilizing the Prospective
Payment System created by the Health Care Financing Administration.

    We are also making progress toward obtaining coverage for Medicare patients.
Medicare's Cardiology Working Group has developed a model coverage policy. This
policy will provide guidance to the 42 local Medicare Carriers across the United
States as to coverage and payment for our Microvolt T-Wave Alternans test. This
policy will be subject to modifications at the local level to allow for
differences in local standards of care.

    The results of three major clinical studies of Microvolt T-Wave Alternans
were published for three critical patient populations during the year. The
March 2000 edition of the JOURNAL OF THE AMERICAN COLLEGE OF CARDIOLOGY reported
the results of a study conducted at Toho University in Japan of 102 patients
with an acute myocardial infarction. The journal reported that 28% of the
patients testing positive for Microvolt T-Wave Alternans had sustained
ventricular tachycardia or fibrillation during the following 12 months, whereas
98% of the patients testing negative for Microvolt T-Wave Alternans had no such
events. In August 2000, in the prestigious British medical journal, THE LANCET,
the results of a

                                       16
<PAGE>
study performed on 107 congestive heart failure patients found Microvolt T-Wave
Alternans to be the most effective non-invasive test studied to identify
congestive heart failure patients at risk for developing life-threatening
abnormal heart rhythms. Finally, in December 2000 the JOURNAL OF THE AMERICAN
COLLEGE OF CARDIOLOGY published the results of a company sponsored prospective
multi-center study of 313 patients referred for an invasive electrophysiologic
test, which we refer to as EPS. The study found that patients with a positive
Microvolt T-Wave Alternans test were 13.9 times more likely to have a serious
ventricular arrhythmia or to die than patients with a negative test. In
comparison, patients with a positive EPS were 4.7 times more likely to have a
serious ventricular arrhythmia or to die than patients with a negative EPS.

    In June 2000, we received FDA clearance to market our Heartwave product. The
Heartwave is an "Alternans only" product that uses our Micro-V Alternans Sensors
and our proprietary Analytic Spectral Method to measure and collect alternans
data at a microvolt level. We have two models of the Heartwave. Our Heartwave
System is designed for use with any manufacturer's standard stress test system
to measure Microvolt T-Wave Alternans. Initial shipments to customers of this
Heartwave System began in September 2000. The Heartwave EP System using the same
Microvolt T-Wave Alternans technology and Micro-V Alternans Sensors, is designed
to measure Microvolt T-Wave Alternans during the performance of an
electrophysiology study and integrates with the hospital's electrophysiology
monitoring equipment.

    With the introduction of the Heartwave, we began a planned expansion of our
direct U.S. sales organization. During the second half of 2000 we added five
additional sales representatives bringing the total number in our U.S. sales
force to ten. The additional representatives have been added in major
metropolitan areas with large healthcare infrastructures. We plan to continue to
expand our sales force throughout 2001.

    In May 2000, we announced the formation of a strategic marketing alliance
with Spacelabs Medical, Inc. Under the agreement Spacelabs will distribute our
Microvolt T-Wave Alternans technology as a feature on its current diagnostic
cardiac system. The necessary software development work has been completed and
tested, and we expect Spacelabs to submitt a 510(k) to FDA for approval in the
very near future. We expect initial shipments of the new product to begin in the
second quarter of 2001.

    In March 2001, we entered into an agreement with Agilent
Technologies, Inc., which we refer to as Agilent, making them the exclusive
distributor of our CH 2000 stress test system, within the U.S. With Agilent
distributing the CH 2000 for stress, it allows us to concentrate our efforts on
our patented Microvolt T-Wave Alternans products and technology. The CH 2000 to
be marketed by Agilent, has been upgraded to be compatible with Micorsoft
Windows 2000.

    During 2000, we raised $10,465,000 ($9,748,000 net of issuance costs) from
the sale of 2,990,000 shares of our common stock at $3.50 per share in two
separate private placement transactions. In addition, we issued warrants for the
purchase of 837,000 shares of our common stock with an exercise price of $3.50
per share to the investors. We issued 45,160 shares of our common stock and
warrants for the purchase of an additional 188,561 shares of common stock with
an exercise price of $4.20 to the sales agent for both transactions.

    In October 2000, we strengthened our management team by hiring David A.
Chazanovitz as our President and Chief Operation 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. He is the former President of C.R. Bard
Electrophysiology and USCI divisions and has as such has direct knowledge of the
cardiology market. For the past five years, Mr. Chazanovitz has been a
Divisional President for NMT Medical.

                                       17
<PAGE>
    In February 2001, Mr. Chazanovitz was appointed our Chief Executive Officer.
Mr. Arnold, who was our Chief Executive Officer from September 1993 to
February 2001, continues as a part-time employee and Chairman of the Board of
Directors.

    FISCAL 2000 COMPARED TO FISCAL 1999

    Total revenues were $1,909,900 during the twelve month period ended
December 31, 2000, which we refer to as Fiscal 2000, and $2,136,000 during the
twelve month period ended December 31, 1999, which we refer to as Fiscal 1999, a
decrease of 11%. The decrease during Fiscal 2000 was led by a 20% decline in
sales during the first nine months of 2000 compared to the same period in 1999.
This was the result of our decision to focus all of our sales efforts on our
Alternans technology and away from the standard stress test market, which had
accounted for a major portion of our revenue in Fiscal 1999. However, revenue
during the fourth quarter of Fiscal 2000 increased 40% over the average of the
three previous quarters of Fiscal 2000. This is primarily the result of the
introduction of our new Heartwave System during the third quarter and our focus
on our Microvolt T-Wave Alternans technology.

    U.S. revenue was $1,150,100 during Fiscal 2000 and $1,087,700 during Fiscal
1999, an increase of 6%. Revenue from the sale of all Microvolt T-Wave Alternans
products (CH 2000, Heartwave, Micro-V Alternans Sensors) during Fiscal 2000
increased 74% compared to Fiscal 1999. Sales of Microvolt T-Wave Alternans
equipment, both our CH 2000 and Heartwave products, increased 64%, while sales
of Micro-V Alternans Sensors increased 140% during Fiscal 2000. Revenue from the
sale of standard stress test systems declined 53% in Fiscal 2000 compared to
Fiscal 1999 reflecting the change in focus away from the standard stress market.

    International revenue was $760,100 during Fiscal 2000, and $1,048,300 during
Fiscal 1999, a decrease of 27%. Revenue from the sale of equipment declined 32%
in Fiscal 2000. This is primarily the result of our Japanese distributors'
efforts to reduce their inventory levels of CH 2000 in advance of the
introduction of the Heartwave to Japan, which we anticipate will occur in the
second half of 2001. Revenue from the sale of Micro-V Alternans Sensors to
international distributors in Fiscal 2000 increased 46% over Fiscal 1999.

    Our revenue recognition method for license fees is to recognize income
ratably over the term of the license. License fee revenue for Fiscal 2000 and
Fiscal 1999 was $50,000 each year.

    Gross profit was 2% of total revenue in Fiscal 2000 compared to 6% for
Fiscal 1999. The decrease is the result of higher costs incurred on initial
Heartwave units shipped during the third and fourth quarters of Fiscal 2000.
These costs per unit are expected to decline as increased production volume will
provide for improved utilization of fixed labor and overhead costs.

    Research and development costs were $2,694,500 in Fiscal 2000 compared to
$2,850,400 in Fiscal 1999, a decrease of 5%. Costs associated with the design
and development of our new Heartwave products account for a major portion of the
costs incurred during Fiscal 2000. These costs are partially offset by reduced
costs associated with lower levels of clinical and regulatory activity during
Fiscal 2000 when compared to Fiscal 1999.

    Selling, general and administrative expenses were $5,508,600 in Fiscal 2000
compared to $4,945,500 in Fiscal 1999, an increase of 11%. The growth in Fiscal
2000 expenditures includes, costs incurred for the promotion of our new
Heartwave products, introduced late in Fiscal 2000; and, expenses in support of
our efforts to gain favorable reimbursement from third-party insurers, for
healthcare providers for their performance of a Microvolt T-Wave Alternans
tests. In addition, we incurred costs associated with the recruitment and hiring
of 5 additional direct sales representatives in the second half of Fiscal 2000.
We anticipate that our costs during Fiscal 2001 will increase, as we expect to
continue the expansion of our U.S. sales organization. General and
administrative expenses increased during Fiscal 2000 as a result of costs
incurred for the recruitment and hiring of key personnel.

                                       18
<PAGE>
    Interest income was $573,100 in Fiscal 2000 compared to $331,100 in Fiscal
1999, an increase of 73%. This increase resulted from a higher level of invested
cash resulting from the sale of 2,990,000 shares of our common stock in two
private placements completed in January 2000 and September 2000.

    FISCAL 1999 COMPARED TO FISCAL 1998

    Revenues were $2,136,000 during the twelve month period ended December 31,
1999, which we refer to as Fiscal 1999, and $2,096,900 during the twelve month
period ended December 31, 1998, which we refer to as Fiscal 1998, an increase of
2%. Revenue from the sale of capital equipment and other miscellaneous products
was $2,017,000 for Fiscal 1999 and $2,032,100 for Fiscal 1998, a decline of 1%.
Revenue from the sale of disposable sensors was $119,400 for Fiscal 1999 and
$64,600 for Fiscal 1998, an increase of 85% due primarily to increase in unit
sales in the United States.

    Revenue from the sale of the CH 2000 and our Micro-V Alternans Sensors
increased 12% during Fiscal 1999 while revenue from the sale of standard stress
systems declined 28% during the same period. These results reflect our planned
transition away from its previous sales focus on standard stress systems to one
primarily focused on potential customers interested in the clinical use of our
Microvolt T-Wave Alternans test and Micro-V Alternans Sensors.

    U.S. revenue from the sale of the CH 2000 and Micro-V Alternans Sensors
increased 46% during Fiscal 1999 while revenue from the sale of standard stress
test systems declined 41%.

    International revenue from the sale of the CH 2000 and Micro-V Alternans
Sensors declined by 2% during Fiscal 1999. Sales of all Microvolt T-Wave
Alternans product to Japan declined 13%. Our Japanese distributor Fukuda
Denshi, Ltd reduced its purchases during the year in an effort to reduce on hand
inventories. Sales to all other international customers increased 116% during
Fiscal 1999. Sales of standard stress test systems increased 211%, while revenue
from the sale of the CH 2000 with the Microvolt T-Wave Alternans option and
Micro-V Alternans Sensors increased 109% during the same period. We believe that
our decision to change distribution partners in Europe during Fiscal 1998 has
resulted in an improved focus and commitment to sale of our standard stress test
and Microvolt T-Wave Alternans products.

    Gross profits declined to 6% of total revenue in Fiscal 1999 from 12% for
Fiscal 1998. The decrease is due to the effect of the strong increase in the
sale of products to our European distributors at industry standard distributor
pricing, which is lower than commercial pricing, had a major effect on the gross
profit percentage.

    Research and development costs were $2,850,400 in Fiscal 1999 compared to
$3,594,900 in Fiscal 1998, a decrease of 21%. Fiscal 1998 included approximately
$900,000 of costs associated with our 337 patient multi center clinical study
supporting the 510(k) filed with FDA in August 1998 and cleared in April 1999,
for expansion of our labeling claims for Microvolt T-Wave Alternans. These costs
are partially offset by an increase in development costs associated with our new
Heartwave scheduled for introduction in 2000.

    Selling, general and administrative were $4,945,500 in Fiscal 1999 compared
to $3,753,300 in Fiscal 1998, an increase of 32%. The growth in Fiscal 1999
expenditures reflects spending on initiatives designed to increase awareness of
our Microvolt T-Wave Altenans technology and the clinical use of our Microvolt
T-Wave Alternans test, as well as, programs supporting reimbursement from
third-party insurers for healthcare providers that perform the Microvolt T-Wave
Alternans tests. General and administrative expenses increased during Fiscal
1999 due to cost incurred in support of our expanded information systems
infrastructure and employee education and training programs.

    Interest income was $331,100 in Fiscal 1999 compared to $562,500 in Fiscal
1998, a decrease of 59%. The reduction primarily reflects the impact of lower
interest rates during Fiscal 1999 on our

                                       19
<PAGE>
short-term cash investments partially offset by increased cash and marketable
securities balances from the private placement of our common stock in June 1999
and October 1999.

    INFLATION AND INCOME TAXES

    Inflation did not have a significant effect on our results of operations for
any of the years in the three year period ended December 31, 2000.

    We have not recorded a provision for income taxes for the years 1996, 1997,
1998, 1999 and 2000 because we incurred net losses in each of such years. At
December 31, 2000, we had net operating loss carryforwards of $37,400,000 as
well as $900,000 of federal and $600,000 of state tax credit carryforwards,
available to offset future taxable income and income tax liabilities,
respectively. These carryforwards generally expire in the years 2007 through
2020 and may be subject to annual limitations as a result of changes in our
ownership. There can be no assurance that changes in ownership in future periods
or continuing losses will not significantly limit our use of net operating loss
and tax credit carryforwards.

    We have generated taxable losses from operations since inception and,
accordingly, have no taxable income available to offset the carryback of net
operating losses. In addition, although our operating plans anticipate taxable
income in future periods, such plans provide for taxable losses over the near
term and make significant assumptions which cannot be reasonably assured
including market acceptance of our products by customers. We have provided a
full valuation allowance ($37,400,000 at December 31, 2000) for our deferred tax
assets since, in our opinion, realization of these future benefits is not
sufficiently assured (defined as a likelihood of slightly more than
50 percent).

                                       20
<PAGE>
QUARTERLY FINANCIAL RESULTS

    The following tables set forth a summary of our unaudited quarterly results
of operations for 2000 and 1999. In the opinion of management, this information
has been prepared on the same basis as the audited Consolidated Financial
Statements and all necessary adjustments, consisting only of normal recurring
adjustments, have been included in the amounts stated below to present fairly
the quarterly information when read in conjunction with the audited Consolidated
Financial Statements and Notes thereto included elsewhere in this Annual Report
on Form 10-K. The quarterly operating results are not necessarily indicative of
future results of operations.

<TABLE>
<CAPTION>
                                                                  THREE MONTHS ENDED (UNAUDITED)
                                                            ------------------------------------------
                                                            MARCH 31,   JUNE 30,   SEPT 30,   DEC 31,
                                                              2000        2000       2000       2000
                                                            ---------   --------   --------   --------
                                                              (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                                         <C>         <C>        <C>        <C>
STATEMENT OF OPERATIONS DATA:
Revenue...................................................   $   413    $   458    $   433    $   607
Cost of goods sold........................................       435        455        424        565
                                                             -------    -------    -------    -------
Gross profit (loss).......................................       (22)         3          9         42
                                                             -------    -------    -------    -------
Costs and expenses:
  Research and development................................       924        662        677        431
  Selling, general and administrative.....................     1,269      1,350      1,368      1,523
                                                             -------    -------    -------    -------
    Total costs and expenses..............................     2,193      2,012      2,045      1,954
                                                             -------    -------    -------    -------
Loss from operations......................................    (2,215)    (2,009)    (2,036)    (1,912)
Interest income, net......................................       129        120        102        222
                                                             -------    -------    -------    -------
    Net loss..............................................   $(2,086)   $(1,889)   $(1,934)   $(1,690)
                                                             =======    =======    =======    =======
Net loss per share--basic and diluted.....................   $ (0.14)   $ (0.13)   $ (0.13)   $ (0.10)
                                                             =======    =======    =======    =======
</TABLE>

<TABLE>
<CAPTION>
                                                                  THREE MONTHS ENDED (UNAUDITED)
                                                            ------------------------------------------
                                                            MARCH 31,   JUNE 30,   SEPT 30,   DEC 31,
                                                              1999        1999       1999       1999
                                                            ---------   --------   --------   --------
                                                              (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                                         <C>         <C>        <C>        <C>
STATEMENT OF OPERATIONS DATA:
Revenue...................................................   $   533    $   562    $   540    $   501
Cost of goods sold........................................       465        514        537        489
                                                             -------    -------    -------    -------
Gross profit (loss).......................................        68         48          3         12
                                                             -------    -------    -------    -------
Costs and expenses:
  Research and development................................       743        645        700        753
  Selling, general and administrative.....................     1,075      1,249      1,214      1,418
                                                             -------    -------    -------    -------
    Total costs and expenses..............................     1,818      1,249      1,214      1,418
                                                             -------    -------    -------    -------
Loss from operations......................................    (1,750)    (1,846)    (1,911)    (2,159)
Interest income, net......................................        72         59         80        120
                                                             -------    -------    -------    -------
    Net loss..............................................   $(1,678)   $ 1,787)   $(1,831)   $(2,039)
                                                             =======    =======    =======    =======
Net loss per share--basic and diluted.....................   $ (0.15)   $ (0.16)   $ (0.15)   $ (0.15)
                                                             =======    =======    =======    =======
</TABLE>

                                       21
<PAGE>

<TABLE>
<CAPTION>
                                                                AS A PERCENTAGE OF TOTAL REVENUES
                                                                  THREE MONTHS ENDED (UNAUDITED)
                                                            ------------------------------------------
                                                            MARCH 31,   JUNE 30,   SEPT 30,   DEC 31,
                                                              2000        2000       2000       2000
                                                            ---------   --------   --------   --------
                                                              (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                                         <C>         <C>        <C>        <C>
STATEMENT OF OPERATIONS DATA:
Revenue...................................................     100%       100%       100%       100%
Cost of goods sold........................................     105%        99%        98%        93%
                                                              -----      -----      -----      -----
Gross profit (loss).......................................      (5%)        1%         2%         7%
                                                              -----      -----      -----      -----
Costs and expenses:
  Research and development................................     224%       145%       156%        71%
  Selling, general and administrative.....................     307%       295%       316%       251%
                                                              -----      -----      -----      -----
    Total costs and expenses..............................     531%       440%       472%       322%
                                                              -----      -----      -----      -----
Loss from operations......................................    (536%)     (439%)     (470%)     (315%)
Interest income, net......................................      31%        26%        24%        37%
                                                              -----      -----      -----      -----
    Net loss..............................................    (505%)     (413%)     (447%)     (279%)
                                                              =====      =====      =====      =====
</TABLE>

<TABLE>
<CAPTION>
                                                                AS A PERCENTAGE OF TOTAL REVENUES
                                                                  THREE MONTHS ENDED (UNAUDITED)
                                                            ------------------------------------------
                                                            MARCH 31,   JUNE 30,   SEPT 30,   DEC 31,
                                                              1999        1999       1999       1999
                                                            ---------   --------   --------   --------
                                                              (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                                         <C>         <C>        <C>        <C>
STATEMENT OF OPERATIONS DATA:
Revenue...................................................     100%       100%       100%       100%
Cost of goods sold........................................      87%        91%       100%        98%
                                                              -----      -----      -----      -----
Gross profit (loss).......................................      13%         9%        --%         2%
                                                              -----      -----      -----      -----
Costs and expenses:
  Research and development................................     139%       115%       129%       150%
  Selling, general and administrative.....................     202%       222%       225%       283%
                                                              -----      -----      -----      -----
    Total costs and expenses..............................     341%       337%       354%       433%
                                                              -----      -----      -----      -----
Loss from operations......................................    (329%)     (328%)     (354%)     (431%)
Interest income, net......................................      14%        11%        15%        24%
                                                              -----      -----      -----      -----
    Net loss..............................................    (315%)     (318%)     (339%)     (407%)
                                                              =====      =====      =====      =====
</TABLE>

LIQUIDITY AND CAPITAL RESOURCES

    During Fiscal 2000, we raised gross proceeds of $10,465,000 ($9,748,000 net
of issuance costs) from the sale of common stock. In addition, we used $207,000
of a $500,000 line of credit collateralized by the Company's assets at the end
of Fiscal 2000. These financing activities offset cash used to fund the
increased level of operations, with corresponding increases in most balance
sheet accounts. Cash, cash equivalents and marketable securities increased by
$2,278,900 from December 31, 1999 to December 31, 2000, consistent with our net
loss for Fiscal 2000 net of total financing activities. Accounts receivable,
net, increased by $40,500 during the year, reflecting the broadening of our
customer base. Inventory remained level during the year. Fixed asset additions
during the year primarily represent increased sales demonstration, clinical
research units and additional information systems infrastructure.

    The proceeds of our equity offerings have been used primarily to fund the
accumulated deficit of $36,635,200 reflecting expenditures to support research,
new product development and clinical trials

                                       22
<PAGE>
activities, expansion of our sales organization, and to support an
administrative infrastructure and the investment of approximately $1,837,000 in
property and equipment through December 31, 2000. As of December 31, 2000, we
had cash, cash equivalents and marketable securities of $11,455,200.

    We expect our capital expenditures to increase as we improve on the design
of our products and support the expansion of our U.S. sales organization. We do
not expect capital expenditures to exceed an aggregate of $2,000,000 over the
next two years.

    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 $20,000 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 December 31, 2000. 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.

    We anticipate that our existing capital resources will be adequate to
satisfy our capital requirements through Fiscal 2001.

FACTORS WHICH MAY AFFECT FUTURE RESULTS

    THIS ANNUAL REPORT ON FORM 10-K 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 OUR 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 ANNUAL REPORT. IN THIS SECTION, "WE", "US" AND "OUR" REFER TO
CAMBRIDGE HEART, INC. (UNLESS THE CONTEXT OTHERWISE REQUIRES).

                        RISKS RELATED TO OUR OPERATIONS

WE HAVE A HISTORY OF NET LOSSES, WE EXPECT TO CONTINUE TO INCUR NET LOSSES AND
MAY NOT ACHIEVE OR MAINTAIN PROFITABILITY

    We are engaged primarily in the commercialization, manufacture, research and
development of products for the non-invasive diagnosis of heart disease. We have
incurred substantial and increasing net losses through December 31, 2000. We may
never generate substantial revenues or achieve profitability on a quarterly or
annual basis. We believe that our research and development expenses will
increase in the future as we develop additional products and fund clinical
trials of our product candidates. Our research and development expenses may also
increase in the future as we supplement our internal research and development
with additional third party technology licenses and potential acquisition of
complementary products and technologies. We also expect that our selling,
general and administrative expenses will increase significantly in connection
with the continued expansion of our sales and marketing activities. Revenues
generated from the sale of our products will depend upon numerous factors,
including:

    - the timing of regulatory actions;

    - progress of product development;

    - the extent to which our products gain market acceptance;

    - varying pricing promotions and volume discounts to customers; competition;
      and

                                       23
<PAGE>
    - 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
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.

WE DEPEND ON OUR MICROVOLT T-WAVE ALTERNANS TECHNOLOGY FOR A SIGNIFICANT PORTION
OF OUR REVENUES AND IF IT DOES NOT ACHIEVE BROAD MARKET ACCEPTANCE, OUR REVENUES
COULD DECLINE

    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 this technology
and upon our ability to obtain third party reimbursement for users of our
technology. The failure of our Microvolt T-Wave Alternans technology to achieve
broad market acceptance, the failure of the market for our products to grow or
to grow at the rate we anticipate, or a decline in the price of our products
would reduce our revenues. This could have a material adverse effect on the
market price of our common stock. 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 Alternans Sensors to
establish the predictive 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 the measurement of 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,
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, we
may not be successful in identifying, developing and marketing new products or
enhancing our existing products. In addition, we can give no assurance that new
products or alternative diagnostic techniques may be developed that will render
our current or planned products obsolete or inferior. Rapid technological
development by competitors may result in our

                                       24
<PAGE>
products becoming obsolete before we recover a significant portion of the
research, development and commercialization expenses incurred with respect to
such products.

WE FACE SUBSTANTIAL COMPETITION, WHICH MAY RESULT IN OTHERS DISCOVERING,
DEVELOPING OR COMMERCIALIZING COMPETING PRODUCTS BEFORE OR MORE SUCCESSFULLY
THAN WE DO

    Competition from competitors' medical devices that diagnose cardiac disease
is intense and likely to increase. Our success will depend on our ability to
develop products and apply our technology and our ability to establish and
maintain a market for our products. We compete with manufacturers of
electrocardiogram stress tests, the conventional method of diagnosing ischemic
heart disease, as well as with manufacturers of other invasive and non-invasive
tests, including EP testing, electrocardiograms, Holter monitors, ultrasound
tests and systems of measuring cardiac late potentials. Many of our competitors
and prospective competitors have substantially greater capital resources, name
recognition, research and development experience and regulatory, manufacturing
and marketing capabilities. Many of these competitors offer broad,
well-established product lines and ancillary services not offered by Cambridge
Heart. Some of our competitors have long-term or preferential supply
arrangements with physicians and hospitals which may act as a barrier to market
entry.

WE DEPEND HEAVILY ON INDEPENDENT MANUFACTURERS' REPRESENTATIVES AND FOREIGN
DISTRIBUTORS

    We currently market our products in the United States through a small direct
sales force and independent manufacturers' representatives. We may not be able
to continue to recruit and retain skilled sales management, direct sales persons
or independent manufacturers' representatives. We market our products
internationally through independent distributors. These distributors also
distribute competing products under certain circumstances. The loss of a
significant international distributor could have a material adverse effect on
our business if a new distributor, sales representative or other suitable sales
organization could not be found on a timely basis in the relevant geographic
market. To the extent that we rely on sales in certain territories through
distributors, any revenues we receive in those territories will depend upon the
efforts of our distributors. Furthermore, there can be no assurance that a
distributor will market our products successfully or that the terms of any
future distribution arrangements will be acceptable to us.

WE OBTAIN CRITICAL COMPONENTS AND SUBASSEMBLIES FOR THE MANUFACTURE OF OUR
PRODUCTS FROM A LIMITED GROUP OF SUPPLIERS, AND IF OUR SUPPLIERS FAIL TO MEET
OUR REQUIREMENTS, WE WILL BE UNABLE TO MEET CUSTOMER DEMAND AND OUR CUSTOMER
RELATIONSHIPS WOULD SUFFER

    We do not have long-term contracts with our suppliers. Our dependence on a
single supplier or limited group of smaller suppliers for critical components
and subassemblies exposes us to several risks, including:

    - a potential for interruption, or inconsistency in the supply of components
      or subassemblies leading to backorders and product shortages;

    - a potential for inconsistent quality of components or subassemblies
      supplied, leading to reduced customer satisfaction or increased product
      costs; and

    - inconsistent pricing.

Disruption or termination of the supply of these components and subassemblies
could cause delays in the shipment of our products, resulting in potential
damage to our customer relations and reduced revenue. From time to time in the
past, we have experienced temporary difficulties in receiving timely shipment of
key components from our suppliers. We can give no assurance that we would be
able to identify and qualify additional suppliers of critical components and
subassemblies in a timely manner.

                                       25
<PAGE>
Further, a significant increase in the price of one or more key components or
subassemblies included in our products could seriously harm our results of
operations.

WE WILL NOT BE ABLE TO SELL OUR PRODUCTS IN THE EUROPEAN COMMON MARKET IF WE ARE
UNABLE TO OBTAIN ISO 9001 CERTIFICATION AND TO RECEIVE A CE MARK CERTIFICATION
FOR OUR PRODUCTS

    We are required to obtain ISO 9001 certification and to receive a CE mark
certification, an international symbol of quality and compliance with applicable
European medical device directives. If we fail to receive a CE mark by June 30,
2001, we will be prohibited from selling our CH 2000 in the European Common
Market after this date. We can give no assurance that we will be successful in
meeting certification requirements. If we fail to obtain ISO 9001 certification
or receive a CE mark certification, our sales would be reduced and our results
of operations would be adversely impacted.

          RISKS RELATED TO THE MARKET FOR CARDIAC DIAGNOSTIC EQUIPMENT

WE COULD BE EXPOSED TO SIGNIFICANT LIABILITY CLAIMS IF WE ARE UNABLE TO OBTAIN
INSURANCE AT ACCEPTABLE COSTS AND ADEQUATE LEVELS OR OTHERWISE PROTECT OURSELVES
AGAINST POTENTIAL PRODUCT LIABILITY CLAIMS

    The testing, manufacture, marketing and sale of medical devices entails the
inherent risk of liability claims or product recalls. Although we maintain
product liability insurance in the United States and in other countries in which
we conduct business, including clinical trials and product marketing and sales,
such coverage may not be adequate. Product liability insurance is expensive and
in the future may not be available on acceptable terms, if at all. A successful
product liability claim or product recall could inhibit or prevent
commercialization of the CH 2000 and the Heartwave systems 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 both systems as currently contemplated.

WE MAY NOT BE ABLE TO OBTAIN OR MAINTAIN ADEQUATE LEVELS OF THIRD-PARTY
REIMBURSEMENT

    Our revenues currently depend and will continue to depend, to a significant
extent, on sales of our CH 2000 and Heartwave systems. Our ability to
successfully commercialize these systems depends in part on the availability of,
and our ability to obtain and maintain, adequate levels of third-party
reimbursement for use of these systems. Only limited reimbursement is currently
available for performance of our Microvolt T-Wave Alternans test. The amount of
reimbursement in the United States that will be available for clinical use of
the Microvolt T-Wave 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 CH 2000 and
Heartwave systems successfully will depend, in large part, on the extent to
which appropriate reimbursement levels for the cost of performing an Microvolt
T-Wave Alternans test are obtained from government authorities, private health
insurers and other organizations, such as health maintenance organizations. We
do not know whether reimbursement in the United States or foreign countries for
the Microvolt T-Wave Alternans 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 CH 2000 and Heartwave systems. The unavailability of third-party
reimbursement or the inadequacy of the reimbursement for Microvolt T-Wave
Alternans tests using the CH 2000 and Heartwave systems would have a material
adverse effect on our business.

                                       26
<PAGE>
WE MAY NOT BE ABLE TO OBTAIN OR MAINTAIN PATENT PROTECTION FOR OUR PRODUCTS

    Our success will depend, in large part, on our ability to develop patentable
products, enforce our patents and obtain patent protection for our products both
in the United States and in other countries. However, the patent positions of
medical device companies, including Cambridge Heart, are generally uncertain and
involve complex legal and factual questions. We can give no assurance that
patents will issue from any patent applications we own or license or that, if
patents do issue, the claims allowed will be sufficiently broad to protect our
proprietary technology. In addition, 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 others will not independently develop or otherwise acquire
substantially equivalent techniques, or otherwise gain access to our proprietary
technology, or disclose such technology or that we can ultimately protect
meaningful rights to such unpatented proprietary technology.

OTHERS COULD CLAIM THAT WE INFRINGE THEIR INTELLECTUAL PROPERTY RIGHTS

    Our commercial success will depend in part on our neither infringing patents
issued to others nor breaching the licenses upon which our products might be
based. 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 device 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
litigation. We also may have to participate in interference proceedings declared
by the United States Patent and Trademark Office, which could result in
substantial cost, to determine the priority of inventions. Furthermore, we may
have to participate at substantial cost in International Trade Commission
proceedings to abate importation of products, which would compete unfairly with
our products.

IF WE ARE NOT ABLE TO KEEP OUR TRADE SECRETS CONFIDENTIAL, OUR TECHNOLOGY AND
INFORMATION MAY BE USED BY OTHERS TO COMPETE AGAINST US

    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 may not have adequate remedies for any breach by a party to
these confidentiality agreements. Failure to obtain or maintain patent and trade
secret protection, for any reason, could have a material adverse effect on
Cambridge Heart.

                                       27
<PAGE>
ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

    Cambridge Heart owns financial instruments that are sensitive to market risk
as part of its investment portfolio. The investment portfolio is used to
preserve Cambridge Heart's capital until it is used to fund operations,
including research and development activities. None of these market-risk
sensative instruments are held for trading purposes. Cambridge Heart invests its
cash primarily in money market mutual funds and U.S. government and other
investment grade debt securities. These investments are evaluated quarterly to
determine the fair value of the portfolio. Cambridge Heart's investment
portfolio includes only marketable securities with active secondary or resale
markets to help assure liquidity. Cambridge Heart has implemented policies
regarding the amount and credit ratings of investments. Due to the conservative
nature of these policies, Cambridge Heart does not believe it has a material
exposure due to market risk.

    See note 2 Financial Statements for a description of the Company's other
financial instruments. We carry the amounts reflected in the balance sheet of
cash and cash equivalents, trade receivables, trade payables, and line of credit
at fair value at December 31, 2000 due to the short maturities of these
instruments.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                                       28
<PAGE>
                             CAMBRIDGE HEART, INC.

                         INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                                PAGE
                                                              --------
<S>                                                           <C>
Report of Independent Accountants...........................     30

Balance Sheet at December 31, 1999 and 2000.................     31

Statement of Operations for the three years ended
  December 31, 2000.........................................     32

Statement of Changes in Stockholders' Equity for the three
  years ended December 31, 2000.............................     33

Statement of Cash Flows for the three years ended
  December 31, 2000.........................................     34

Notes to Financial Statements...............................     35
</TABLE>

                                       29
<PAGE>
                       REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders of
Cambridge Heart, Inc.:

    In our opinion, the accompanying balance sheets and the related statements
of operations, of changes in stockholders' equity and of cash flows present
fairly, in all material respects, the financial position of Cambridge
Heart, Inc. at December 31, 1999 and 2000, and the results of its operations and
its cash flows for each of the three years in the period ended December 31,
2000, in conformity with accounting principles generally accepted in the United
States. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with auditing standards generally accepted in the United States which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

PricewaterhouseCoopers LLP

Boston, Massachusetts
February 2, 2001

                                       30
<PAGE>
                             CAMBRIDGE HEART, INC.

                                 BALANCE SHEET

<TABLE>
<CAPTION>
                                                                     DECEMBER 31,
                                                              ---------------------------
                                                                  1999           2000
                                                              ------------   ------------
<S>                                                           <C>            <C>
                           ASSETS
Current assets:
  Cash and cash equivalents.................................  $  2,657,392   $  1,305,845
  Marketable securities.....................................     6,518,924     10,149,397
  Accounts receivable, net of allowance for doubtful
    accounts of $7,725 and $54,807 at December 31, 1999 and
    2000 respectively.......................................       577,156        617,619
  Inventory.................................................       460,913        406,096
  Prepaid expenses and other current assets.................       140,197         72,058
                                                              ------------   ------------
    Total current assets....................................    10,354,582     12,551,015
Fixed assets, net...........................................       645,931        827,211
Other assets................................................       453,097        596,782
                                                              ------------   ------------
                                                              $ 11,453,610   $ 13,975,008
                                                              ============   ============
            LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable..........................................  $    679,660   $    578,050
  Accrued expenses..........................................       517,936        507,751
  Short term debt...........................................       206,727        206,958
                                                              ------------   ------------
    Total current liabilities...............................     1,404,323      1,292,759
Commitments and contingencies (Note 11)

Stockholders' equity:
  Preferred Stock, $0.001 par value; 2,000,000 shares
    authorized; 0 shares issued and outstanding at December
    31, 1999 and 2000.......................................            --             --
  Common Stock, $0.001 par value; 25,000,000 shares
    authorized; 13,921,357 and 17,052,597 shares issued and
    outstanding at December 31, 1999 and 2000,
    respectively............................................        13,921         17,053
  Additional paid-in capital................................    39,120,605     49,326,663
  Accumulated deficit.......................................   (29,035,803)   (36,635,176)
                                                              ------------   ------------
                                                                10,098,723     12,708,540
Less: deferred compensation.................................       (49,436)       (26,291)
                                                              ------------   ------------
                                                                10,049,287     12,682,249
                                                              ------------   ------------
                                                              $ 11,453,610   $ 13,975,008
                                                              ============   ============
</TABLE>

   The accompanying notes are an integral part of these financial statements.

                                       31
<PAGE>
                             CAMBRIDGE HEART, INC.

                            STATEMENT OF OPERATIONS

<TABLE>
<CAPTION>
                                                                YEAR ENDED DECEMBER 31,
                                                        ----------------------------------------
                                                            1998          1999          2000
                                                        ------------   -----------   -----------
<S>                                                     <C>            <C>           <C>
Revenue...............................................  $  2,096,853   $ 2,135,981   $ 1,909,883
Cost of goods sold....................................     1,848,155     2,006,567     1,879,246
                                                        ------------   -----------   -----------
Gross Profit..........................................       248,698       129,424        30,637
Costs and expenses:
  Research and development............................     3,594,941     2,850,423     2,694,483
  Selling general and administrative..................     3,753,296     4,945,499     5,508,596
                                                        ------------   -----------   -----------
    Loss from operations..............................    (7,099,539)   (7,666,498)   (8,172,442)
Interest income.......................................       562,454       331,084       573,069
                                                        ------------   -----------   -----------
Net loss..............................................  $ (6,537,085)  $(7,335,414)  $(7,599,373)
                                                        ============   ===========   ===========
Net loss per share--basic and diluted.................  $      (0.61)  $     (0.61)  $     (0.50)
                                                        ============   ===========   ===========
Weighted average shares outstanding--basic and
  diluted.............................................    10,746,844    11,933,261    15,331,565
                                                        ============   ===========   ===========
</TABLE>

   The accompanying notes are an integral part of these financial statements.

                                       32
<PAGE>
                                CAMBRIDGE HEART

                  STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                                   COMMON STOCK
                                               ---------------------   ADDITIONAL                                      TOTAL
                                               NUMBER OF      PAR        PAID-IN     ACCUMULATED      DEFERRED     STOCKHOLDERS'
                                                 SHARES      VALUE       CAPITAL       DEFICIT      COMPENSATION      EQUITY
                                               ----------   --------   -----------   ------------   ------------   -------------
<S>                                            <C>          <C>        <C>           <C>            <C>            <C>
Balance at December 31, 1997.................  10,606,041    10,606     29,405,685   (15,163,304)      (31,687)      14,221,300
Issuance of common stock through exercise of
  stock options, warrants and employee stock
  purchase plan..............................    300,133        300        101,479                                      101,779
Compensation related to non-employee stock
  options granted............................                               15,719                                       15,719
Deferred compensation related to common stock
  options granted in connection with
  repricing of common stock options..........                              105,344                    (105,344)
Amortization of deferred compensation........                              (24,792)                     36,021           11,229
Net loss.....................................                                         (6,537,085)                    (6,537,085)
                                               ----------   -------    -----------   ------------    ---------      -----------
Balance at December 31, 1998.................  10,906,174   $10,906    $29,603,435   $(21,700,389)   $(101,010)     $ 7,812,942
Issuance of common stock through exercise of
  stock options, and employee stock purchase
  plan.......................................     16,707         17         56,770                                       56,787
Compensation related to non-employee stock
  options granted............................                               20,428                                       20,428
Amortization of deferred compensation........                              (29,800)                     51,574           21,774
Sale of common stock through a private
  placement net of fees......................  2,998,476      2,998      9,469,772                                    9,472,770
Net loss.....................................                                         (7,335,414)                    (7,335,414)
                                               ----------   -------    -----------   ------------    ---------      -----------
Balance at December 31, 1999.................  13,921,357   $13,921    $39,120,605   $(29,035,803)   $ (49,436)     $10,049,287
Issuance of common stock through exercise of
  stock options, warrants and employee stock
  purchase plan..............................     96,080         96        350,350                                      350,446
Compensation related to non-employee stock
  options granted............................                              118,342                                      118,342
Amortization of deferred compensation........                               (7,655)                     23,145           15,490
Sale of common stock through a private
  placement net of fees......................  3,035,160      3,036      9,745,021                                    9,748,057
Net loss.....................................                                         (7,599,373)                    (7,599,373)
                                               ----------   -------    -----------   ------------    ---------      -----------
Balance at December 31, 2000.................  17,052,597   $17,053    $49,326,663   $(36,635,176)   $ (26,291)     $12,682,249
                                               ==========   =======    ===========   ============    =========      ===========
</TABLE>

   The accompanying notes are an integral part of these financial statements.

                                       33
<PAGE>
                             CAMBRIDGE HEART, INC.

                            STATEMENT OF CASH FLOWS

                INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

<TABLE>
<CAPTION>
                                                                 YEAR ENDED DECEMBER 31,
                                                         ---------------------------------------
                                                            1998          1999          2000
                                                         -----------   -----------   -----------
<S>                                                      <C>           <C>           <C>
Cash flows from operating activities:
  Net loss.............................................  $(6,537,085)  $(7,335,414)  $(7,599,373)
  Adjustments to reconcile net loss to net cash used
    for operating activities:
    Depreciation and amortization......................      297,575       573,518       595,487
    Loss on disposal of fixed assets...................           --         9,518        18,398
    Compensation expense on stock options..............       26,220        42,202       133,832
    Changes in operating assets and liabilities:
      Accounts receivable..............................      (46,073)      (21,165)      (40,463)
      Inventory........................................      (10,265)      (34,424)       54,817
      Prepaid expenses and other current assets........      110,460        50,470        68,139
      Other assets.....................................       97,360         2,037          (382)
      Accounts payable and accrued expenses............      374,654       295,804      (111,795)
                                                         -----------   -----------   -----------
        Net cash used for operating activities.........   (5,687,154)   (6,417,454)   (6,881,340)
                                                         -----------   -----------   -----------
Cash flows from investing activities:
  Purchases of fixed assets............................     (369,817)     (376,659)     (507,932)
  Capitalization of software development costs.........     (310,796)     (256,208)     (430,536)
  Purchases of marketable securities...................           --    (2,454,603)   (3,630,473)
  Liquidation of marketable securities.................    3,026,284            --            --
                                                         -----------   -----------   -----------
        Net cash (used in)provided by investing
          activities...................................    2,345,671    (3,087,470)   (4,568,941)
                                                         -----------   -----------   -----------
Cash flows from financing activities:
  Proceeds from issuance of common stock, net of
    issuance costs.....................................      101,779     9,529,557    10,098,503
  Proceeds from utilization of bank credit line........           --       206,727           231
                                                         -----------   -----------   -----------
        Net cash provided by financing activities......      101,779     9,736,284    10,098,734
                                                         -----------   -----------   -----------
Net increase (decrease) in cash and cash equivalents...   (3,239,704)      231,360    (1,351,547)
Cash and cash equivalents, beginning of year...........    5,665,736     2,426,032     2,657,392
                                                         -----------   -----------   -----------
Cash and cash equivalents, end of year.................  $ 2,426,032   $ 2,657,392   $ 1,305,845
                                                         ===========   ===========   ===========
</TABLE>

   The accompanying notes are an integral part of these financial statements.

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

    During 1998, 1999 and 2000 the Company paid $0, $0 and $12,056,
respectively, in interest expense.

                                       34
<PAGE>
                             CAMBRIDGE HEART, INC.

                         NOTES TO FINANCIAL STATEMENTS

1.  THE COMPANY

    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
cardiovascular specialists.

    The Company anticipates that its existing capital resources, will be
adequate to satisfy its capital requirements through December 2001. Thereafter,
the Company may require additional funds to support its operating requirements
or for other purposes and may seek to raise such additional funds through public
or private equity financing or from other sources. There can be no assurance
that additional financing will be available at all or that, if available, such
financing would be obtainable on acceptable terms to the Company.

2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

    Significant accounting policies followed by the Company are as follows:

    CASH EQUIVALENTS AND MARKETABLE SECURITIES

    The Company considers all highly liquid debt instruments purchased with an
original maturity of three months or less to be cash equivalents. The Company
invests its excess cash primarily in money market accounts, short-term
securities of state government agencies, and short-term corporate bonds and
commercial paper of companies with strong credit ratings and in diversified
industries. The short-term securities of state government agencies are
redeemable at their face value, and bear interest at variable rates which are
adjusted on a frequent basis. Accordingly, these investments are subject to
minimal credit and market risk. The short-term corporate bonds and short-term
securities of state government agencies with maturities greater than three
months from date of purchase, totaling $6,518,924 and $10,149,397 at
December 31, 1999 and 2000, respectively, are classified as held to maturity,
and mature within one year. The short-term commercial paper, short-term
securities of state government agencies with maturities less than three months
from date of purchase and money market securities, totaling $2,150,000 and
$1,112,857 at December 31, 1999 and 2000, respectively, are classified as
available for sale. All of these investments have been recorded at amortized
cost, which approximates fair market value. No realized or unrealized gains or
losses have been recognized.

    FINANCIAL INSTRUMENTS

    The carrying amounts of the Company's financial instruments, which include
cash and cash equivalents, marketable securities, accounts receivable, accounts
payable, and accrued expenses approximate their fair values at December 31, 1999
and 2000.

    INVENTORIES

    Inventories, are stated at the lower of cost or market. Cost is computed
using standard cost, which approximates actual cost on a first-in, first-out
method.

    FIXED ASSETS

    Fixed assets are stated at cost, less accumulated depreciation. Depreciation
is provided using the straight-line method based on estimated useful lives.
Repair and maintenance costs are expensed as

                                       35
<PAGE>
                             CAMBRIDGE HEART, INC.

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)

2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
incurred. Upon retirement or sale, the costs of the assets disposed and the
related accumulated depreciation are removed from the accounts and any resulting
gain or loss is included in the determination of net income.

    SEGMENT

    The Company is engaged principally in one industry segment that represents
all of the revenues. See Note 11 with respect to significant customers and with
respect to sales in other geographic areas.

    REVENUE RECOGNITION

    The Company generally recognizes product revenue upon shipment of goods
provided that risk of loss has passed to the customer, all obligations of the
Company have been fulfilled, persuasive evidence of an arrangement exists, the
fee is fixed or determinable, and collectibility is probable. Revenue from
maintenance contracts and licenses is recorded over the term of the underlying
agreement. Revenue subject to reimbursement by the Company is deferred until the
customer's right to any reimbursement lapses. Payments received in advance of
services being performed is recorded as deferred revenue.

    RESEARCH AND DEVELOPMENT AND CAPITALIZED SOFTWARE DEVELOPMENT COSTS

    Research, engineering and product development costs, except for certain
software development costs, are expensed as incurred. Capitalization of software
development costs begins upon the establishment of technological feasibility of
both the software and related hardware as defined by Statement of Financial
Accounting Standards No. 86, "Accounting for the Cost of Computer Software to be
Sold, Leased, or Otherwise Marketed," and ceases upon the general release of the
products to the public. The establishment of technological feasibility and the
ongoing assessment of recoverability of capitalized software development costs
requires considerable judgment by management with respect to certain external
factors, including, but not limited to, technological feasibility, anticipated
future gross revenues, estimated economic life and changes in software and
hardware technologies.

    The Company amortizes software development costs on a straight-line basis
over the estimated economic life of the product, generally 3 years.

    Costs capitalized at December 31, 2000, which are included in other assets
in the accompanying balance sheet, totaled $540,000 ($395,000 at December 31,
1999), net of $539,000 of accumulated amortization ($283,000 at December 31,
1999).

    LICENSING FEES AND PATENT COSTS

    The Company has entered into licensing agreements which give the Company the
exclusive rights to certain patents and technologies and the right to market and
distribute any products developed, subject to certain covenants. Payments made
under these licensing agreements and costs associated with patent applications
have generally been expensed as incurred, because recovery of these costs is
uncertain. However, certain costs associated with patent applications for
products and processes which have received regulatory approval and are available
for commercial sale have been capitalized and are being amortized over their
estimated economic life of 5 years. Amounts capitalized at December 31, 2000
totaled $57,000 ($59,000 at December 31, 1999), net of $89,000 of accumulated
amortization ($58,000 at December 31, 1999), which are included in other assets
in the accompanying balance sheet.

                                       36
<PAGE>
                             CAMBRIDGE HEART, INC.

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)

2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
    STOCK-BASED COMPENSATION

    The Company accounts for employee awards under its stock plans in accordance
with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" and related interpretations. The Company adopted Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"), for disclosure purposes only (Note 7). All stock
based awards to non-employees are accounted for at their fair value as
prescribed by SFAS 123 and EITF 96-18, "Accounting for Equity Instruments that
are Issued to Other than Employees for Acquiring, or in conjunction with
Selling, Goods or Services".

    USE OF ESTIMATES

    The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect) the reported amount of assets and liabilities and
disclosure of contingencies and the reported amounts of revenues and expenses.
Actual results could differ from these estimates.

    NET LOSS PER SHARE

    Statement of Financial Accounting Standards No. 128 ("SFAS 128"), "Earnings
per Share," requires dual presentation of basic and diluted earnings per share
on the face of the statement of operations for all entities with complex capital
structures. Basic earnings per share excludes dilution and is computed by
dividing income available to common stockholders by the weighted-average number
of common shares outstanding for the period. Diluted earnings per share includes
dilutive potential common stock (such as options, warrants and convertible
preferred stock).

    As a result of the Company's net loss both basic and diluted earnings per
share are computed by dividing the net loss available to common shareholders by
the weighted average number of shares of common stock outstanding.

    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 did not 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

                                       37
<PAGE>
                             CAMBRIDGE HEART, INC.

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)

2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.

3.  FIXED ASSETS

    Fixed assets consist of the following:

<TABLE>
<CAPTION>
                                             ESTIMATED
                                              USEFUL          DECEMBER 31,
                                               LIVES     -----------------------
                                              (YEARS)       1999         2000
                                             ---------   ----------   ----------
<S>                                          <C>         <C>          <C>
Computer equipment.........................     3-5      $  549,731   $  579,721
Manufacturing equipment....................       5         157,888      380,568
Office furniture...........................       7          85,552       85,552
Sales display and clinical equipment.......       3         728,914      791,125
Leasehold Improvements.....................       2          17,275            0
                                                         ----------   ----------
                                                          1,539,360    1,836,966
Less--accumulated depreciation.............                 893,429    1,009,755
                                                         ----------   ----------
                                                         $  645,931   $  827,211
                                                         ==========   ==========
</TABLE>

4.  ACCRUED EXPENSES

    Accrued expenses consist of the following:

<TABLE>
<CAPTION>
                                                             DECEMBER 31,
                                                          -------------------
                                                            1999       2000
                                                          --------   --------
<S>                                                       <C>        <C>
Accrued employee compensation...........................  $286,992   $239,111
Accrued clinical trial costs............................    72,850     48,000
Accrued professional fees...............................    64,000     54,558
Accrued other...........................................    94,092    166,082
                                                          --------   --------
                                                          $517,934   $507,751
                                                          ========   ========
</TABLE>

5.  LINE OF CREDIT

    The Company has a line of credit facility in place which provides a
borrowing base of 75% of eligible accounts receivable as defined in the
agreement, up to a maximum borrowing of $500,000, payable on demand. Interest is
payable monthly in arrears at the bank's prime rate plus .5% (10.0% at
December 31, 2000). The line of credit is collateralized by all of the Company's
assets as defined in the agreement. This line of credit is scheduled to expire
on April 23, 2001. The amount outstanding at December 31, 2000 is $206,958. The
Company has incurred interest expense related to the line of credit facility of
$12,056 in 2000, $0 in 1999, and $0 in 1998.

                                       38
<PAGE>
                             CAMBRIDGE HEART, INC.

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)

6.  STOCKHOLDERS' EQUITY

    PREFERRED STOCK

    The Company's Board of Directors has authorized 2,000,000 shares of the
Company's $0.001 par value preferred stock. The preferred stock may be issued at
the discretion of the Board of Directors of the Company (without stockholder
approval) with such designations, rights and preferences as the Board of
Directors may determine from time to time. This preferred stock may have
dividend, liquidation, redemption, conversion, voting or other rights which may
be more expansive than the rights of the holders of the common stock.

    COMMON STOCK

    In private placement transactions completed in January 2000 and
September 2000, the Company raised gross proceeds totaling $10,465,000, less
$717,000 of issuance costs, from the sale of 2,990,000 shares of Common Stock at
$3.50 per share.

    WARRANTS

    During 2000, warrants to purchase a total of 1,025,561 shares of common
stock were issued in connection with the sale of 2,990,000 of common stock.
Investors received warrants to purchase 837,000 shares of common stock at $3.50
per share. In addition, the Company's selling agent received warrants to
purchase 188,561 shares of common stock at $4.20 per share. Warrants for the
purchase of 74,867 shares of common stock at a weighted average price of $3.94
per share were exercised as of December 31, 2000.

    Warrants outstanding at December 31, 2000 are as follows:

<TABLE>
<CAPTION>
                                                    EXERCISE
                                          NUMBER     PRICE
                                            OF        PER
                                          SHARES     SHARE      EXPIRATION DATE
                                         --------   --------   ------------------
<S>                                      <C>        <C>        <C>
Common stock...........................   95,238     $3.710    June 9, 2003
Common stock...........................  275,269     $3.500    October 6, 2004
Common stock...........................   77,127     $4.200    December 9, 2004
Common stock...........................  147,311     $3.630    January 11, 2005
Common stock...........................  860,400     $3.620    September 14, 2005
</TABLE>

7.  STOCK PLANS

    1993 INCENTIVE AND NON-QUALIFIED STOCK OPTION PLAN

    During 1993, the Company adopted the 1993 Incentive and Non-Qualified Stock
Option Plan (the "1993 Plan"). The 1993 Plan provides for the granting of
incentive and non-qualified stock options to management, other key employees,
consultants and directors of the Company. The total number of shares of common
stock that may be issued pursuant to the exercise of options granted under the
1993 Plan is 1,688,663. Incentive stock options may not be granted at less than
fair market value of the Company's common stock at the date of grant and for a
term not to exceed ten years. For holders of more than 10% of the Company's
total combined voting power of all classes of stock, incentive stock options may
not be granted at less than 110% of the fair market value of the Company's
common stock at the date of grant and for a term not to exceed five years. The
exercise price under each

                                       39
<PAGE>
                             CAMBRIDGE HEART, INC.

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)

7.  STOCK PLANS (CONTINUED)
non-qualified stock option shall be specified by the stock option committee, but
shall in no case be less than the par value of the common stock subject to the
non-qualified stock option.

    1996 EQUITY INCENTIVE PLAN

    During 1996, the Board of Directors authorized the 1996 Equity Incentive
Plan (the "Incentive Plan"), providing for the issuance of up to 1,000,000
shares of the Company's common stock to eligible employees, officers, directors,
consultants and advisors of the Company. Under the Incentive Plan, the Board of
Directors may award incentive and non-qualified stock options, stock
appreciation rights, performance shares and restricted and unrestricted stock
with terms to be defined therein except that the exercise and transfer of stock
appreciation rights granted in tandem with stock options is limited by the terms
of the related options.

    In December 1999, at a Special Shareholders' Meeting, the Stockholders voted
to increase the number of shares authorized under the plan to 1,300,000 shares.

    1996 DIRECTOR OPTION PLAN

    During 1996, the Board of Directors authorized the issuance of up to 100,000
shares of the Company's common stock pursuant to its 1996 Director Option Plan
(the "Director Plan"). Under the Director Plan, outside directors of the Company
who are not otherwise affiliated with the Company are entitled to receive
options to purchase 10,000 shares of common stock upon their initial election to
the Board of Directors. All option grants made under the Director Plan have
exercise prices equal to the fair market value of the Company's common stock on
the date of grant, and will vest in three annual installments on the anniversary
date of the grant. Director options will become immediately exercisable upon the
occurrence of a change in control (as defined in the Director Plan).

    All options granted during 1998, 1999 and 2000 have exercise prices equal to
the fair market value of the common stock at the date of grant. Transactions
under the Company's stock option plans during the years ended December 31, 1998,
1999 and 2000 are summarized as follows:

<TABLE>
<CAPTION>
                                            DECEMBER 31, 1998      DECEMBER 31, 1999      DECEMBER 31, 2000
                                           --------------------   --------------------   --------------------
                                                       WEIGHTED               WEIGHTED               WEIGHTED
                                                       AVERAGE                AVERAGE                AVERAGE
                                           NUMBER OF   EXERCISE   NUMBER OF   EXERCISE   NUMBER OF   EXERCISE
                                            OPTIONS     PRICE      OPTIONS     PRICE      OPTIONS     PRICE
                                           ---------   --------   ---------   --------   ---------   --------
<S>                                        <C>         <C>        <C>         <C>        <C>         <C>
Outstanding at beginning of year.........  1,372,750    $3.57     1,341,500    $3.55     1,705,450    $3.53
Granted..................................    653,000     5.92       617,950     3.47       552,500     3.18
Exercised................................   (147,750)    0.23        (1,750)    1.20        (6,250)    1.68
Canceled.................................   (536,500)    7.80      (252,250)    6.22      (272,450)    5.57
                                           ---------    -----     ---------    -----     ---------    -----
Outstanding at end of year...............  1,341,500    $3.55     1,705,450    $3.53     1,979,250    $2.79
                                           =========    =====     =========    =====     =========    =====
Exercisable at end of year...............    560,467    $0.74       785,128    $2.07       971,725    $2.27
                                           =========    =====     =========    =====     =========    =====
Weighted average fair value of options
  granted during the year................               $1.71                  $0.96                  $1.27
                                                        =====                  =====                  =====
</TABLE>

    In October 1998, the Company repriced unexercised options to purchase a
total of 396,250 shares of Common stock previously granted to employees and
options to purchase a total of 40,000 shares of

                                       40
<PAGE>
                             CAMBRIDGE HEART, INC.

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)

7.  STOCK PLANS (CONTINUED)
Common stock previously granted to members of the Company's Scientific Advisory
Board ("SAB"). All vesting in the surrendered options was forfeited. The new
employee options vest at a rate of 25% per year and the SAB options vest at a
rate of 33% per year. The Company recorded $21,775 and $15,490 of deferred
compensation in 1999 and 2000 respectively relating to this repricing.

    The Board of Directors granted non qualified options to purchase a total of
752,000 shares of Common stock with an exercise price of $2.69, vesting 25% per
year for four years, to the newly hired President and Chief Operating Officer of
the Company in October 2000. None of these options were exercisable at 12/31/00.
During 1999, non qualified options to purchase 85,000 shares of Common stock
were granted to advisors to the Company. None of these options are covered by an
existing plan. These options have exercise prices equal to the fair market value
of the common stock at the date of grant. They are not included in the chart
above.

    The following table summarizes information about stock options outstanding
under the Company's stock option plans at December 31, 2000:

<TABLE>
<CAPTION>
                                                 WEIGHTED AVERAGE   WEIGHTED                 WEIGHED AVERAGE
                                                    REMAINING       AVERAGE     NUMBER OF    EXERCISE PRICE
                                     NUMBER      CONTRACTUAL LIFE   EXERCISE     OPTIONS       OF OPTIONS
RANGE OF EXERCISE PRICES           OUTSTANDING       IN YEARS        PRICE     EXERCISABLE     EXERCISABLE
------------------------           -----------   ----------------   --------   -----------   ---------------
<S>                                <C>           <C>                <C>        <C>           <C>
$.002-$.019......................      32,070          3.33          $0.02        32,070          $0.02
$ .20-$2.00......................     594,430          5.63           0.58       594,430           0.58
$2.50-$2.94......................     762,750          9.25           2.72       131,275           2.71
$3.06-$5.13......................     460,500          8.60           4.49       122,750           4.99
$6.63-$9.38......................     129,500          7.66           8.01        91,200           7.98
                                    ---------                                    -------
                                    1,979,250          7.81          $2.79       971,725          $2.27
                                    =========                                    =======
</TABLE>

    At December 31, 2000, 1,979,250 shares of common stock are reserved for
issuance upon exercise of the options issued under the Company's stock option
plans and there are 1,865 options available for future grant. Outstanding
options generally vest on a pro rata basis over a period of two to five years.

    The Company has recorded compensation expense related to options granted to
non-employee consultants for services rendered totaling $15,719 in 1998, $20,428
in 1999 and $118,342 in 2000.

    1996 EMPLOYEE STOCK PURCHASE PLAN

    During 1996, the Board of Directors authorized the 1996 Employee Stock
Purchase Plan (the "Purchase Plan"). The Purchase Plan provides for the issuance
of up to 100,000 shares of the Company's common stock to eligible employees.
Under the Purchase Plan, the Company is authorized to make one or more offerings
during which employees may purchase shares of common stock through payroll
deductions made over the term of the offering. The term of individual offerings,
which are set by the Board of Directors, may be for periods of twelve months or
less and may be different for each offering. The per-share purchase price at the
end of each offering is equal to 85% of the fair market value of the common
stock at the beginning or end of the offering period (as defined by the Purchase
Plan), whichever is lower. The Company issued 11,929, 14,857 and 14,961 shares
of common stock at an average price of $5.72, $3.68 and $3.01 during 1998, 1999
and 2000 respectively. At December 31, 2000, the Company had 47,450 shares of
common stock reserved for issuance under the Purchase Plan.

                                       41
<PAGE>
                             CAMBRIDGE HEART, INC.

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)

7.  STOCK PLANS (CONTINUED)
    FAIR VALUE DISCLOSURES

    As discussed in Note 2, the Company has elected to adopt SFAS 123 for
options granted to employees through disclosure only. Had compensation cost for
the Company's option plans and employee stock purchase plan been determined
based on the fair value of the options at the grant dates, as prescribed in
SFAS 123, for options granted in 1998, 1999 and 2000 the Company's net loss and
net loss per share would have been as follows:

<TABLE>
<CAPTION>
                                                                 YEAR ENDED DECEMBER 31,
                                                           ------------------------------------
                                                              1998         1999         2000
                                                           ----------   ----------   ----------
<S>                                                        <C>          <C>          <C>
Net loss:
    As reported..........................................  $6,537,085   $7,335,414   $7,599,373
    Pro forma............................................  $6,900,661   $7,537,124   $7,869,246
  Net loss per share:
    As reported--basic and diluted.......................  $     0.61   $     0.61   $     0.50
    Pro forma--basic and diluted.........................  $     0.65   $     0.63   $     0.51
</TABLE>

    The fair value of each option grant under SFAS 123 was estimated on the date
of grant using the Black-Scholes option pricing model with the following
assumptions used for grants in 1998, 1999 and 2000, respectively: (i) dividend
yield of 0% for all periods; (ii) expected volatility of 0%, 0%-50%; and 60%;
(iii) risk free interest rates of 5.8%-6.8%, 6.1%-6.9% and 4.58%; and
(iv) expected option terms of 5 years for 1998, 4 years for 1999 and 2000.
SFAS 123 requires that volatility be considered in the calculation of the fair
value of an option grant only for grants made when an entity has publicly traded
securities or has filed a registration statement to do so. Accordingly, a
volatility of 0% was utilized for options granted by the Company prior to the
initial filing of its Registration Statement on Form S-1.

    The above pro forma disclosures reflect options granted during 1998, 1999
and 2000 only. Because additional option grants are expected to be made each
year and options vest over several years, the above pro forma disclosures are
not necessarily representative of the pro forma effects of reported net income
(loss) for future years.

8.  INCOME TAXES

    The income tax benefit consists of the following:

<TABLE>
<CAPTION>
                                                                 YEAR ENDED DECEMBER 31,
                                                           ------------------------------------
                                                              1998         1999         2000
                                                           ----------   ----------   ----------
<S>                                                        <C>          <C>          <C>
Income tax benefit:
    Federal..............................................  $2,344,000   $2,272,772   $2,375,768
    State................................................     513,000      796,063      470,107
                                                           ----------   ----------   ----------
                                                            2,857,000    3,523,835    2,845,875
  Deferred tax asset valuation allowance.................  (2,857,000)  (3,523,835)  (2,845,875)
                                                           ----------   ----------   ----------
                                                           $       --   $       --   $       --
                                                           ==========   ==========   ==========
</TABLE>

                                       42
<PAGE>
                             CAMBRIDGE HEART, INC.

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)

8.  INCOME TAXES (CONTINUED)
    Deferred tax assets (liabilities) are comprised of the following:

<TABLE>
<CAPTION>
                                                                     DECEMBER 31,
                                                      ------------------------------------------
                                                          1998           1999           2000
                                                      ------------   ------------   ------------
<S>                                                   <C>            <C>            <C>
Net operating loss carryforwards....................  $  9,164,000   $ 12,307,604   $ 15,049,459
Research and development tax credit carryforwards...       856,000      1,451,927      1,525,425
Deferred start up and organization expenses.........            --             --             --
Other...............................................        43,000         58,292         77,403
                                                      ------------   ------------   ------------
    Gross deferred tax assets.......................    10,063,000     13,817,823     16,652,287
Capitalized software................................      (137,000)      (138,142)      (158,893)
Fixed assets........................................       (48,000)       (46,261)       (14,829)
Patent costs........................................       (16,000)       (24,453)       (23,723)
                                                      ------------   ------------   ------------
    Net deferred tax assets.........................     9,862,000     13,608,967     16,454,842
    Deferred tax asset valuation allowance..........    (9,862,000)   (13,608,967)   (16,454,842)
                                                      ------------   ------------   ------------
                                                      $         --   $         --   $         --
                                                      ============   ============   ============
</TABLE>

    The Company has generated taxable losses from operations since inception
and, accordingly, has no taxable income available to offset the carryback of net
operating losses. In addition, although management's operating plans anticipate
taxable income in future periods, such plans provide for taxable losses over the
near term and make significant assumptions which cannot be reasonably assured
including approval of the Company's products and labeling claims by the U.S.
Food and Drug Administration and market acceptance of the Company's products by
customers. Based upon the weight of all available evidence, the Company has
provided a full valuation allowance for its deferred tax assets since, in the
opinion of management, realization of these future benefits is not sufficiently
assured (defined as a likelihood of slightly more than 50 percent).

    Approximately $1,367,491 of the deferred tax asset attributable to net
operating loss carryforwards was generated by the exercise of certain
non-qualified stock options. Any future utilization of this amount will be
credited directly to additional paid-in-capital, and not the income tax
provision.

    Income taxes computed using the federal statutory income tax rate differs
from the Company's effective tax rate primarily due to the following:

<TABLE>
<CAPTION>
                                                           YEAR ENDED DECEMBER 31,
                                                     ------------------------------------
                                                       1998          1999          2000
                                                     --------      --------      --------
<S>                                                  <C>           <C>           <C>
Statutory U.S. federal tax rate....................   (35.0)%        (35.0)%      (35.0)%
State taxes, net of federal tax benefit............    (6.4)        (10.85)        (6.2)
Non-deductible expenses............................     0.2           0.24          1.5
Federal research and development credits...........    (2.7)         (3.37)        (0.6)
Other..............................................     0.2          (0.94)        (1.6)
Valuation allowance on deferred tax assets.........    43.7          48.04         37.5
                                                      -----         ------        -----
                                                         --%            --%          --%
                                                      =====         ======        =====
</TABLE>

    As of December 31, 2000, the Company has approximately $37,400,000 of net
operating loss carryforwards and $900,000 and $600,000 of federal and state
research and development credits,

                                       43
<PAGE>
                             CAMBRIDGE HEART, INC.

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)

8.  INCOME TAXES (CONTINUED)
respectively, which may be used to offset future federal and state taxable
income and tax liabilities, respectively. The credits and carryforwards expire
in various years ranging from 2007 to 2020.

    An ownership change, as defined in the Internal Revenue Code, resulting from
the Company's issuance of additional stock may limit the amount of net operating
loss and tax credit carryforwards that can be utilized annually to offset future
taxable income and tax liabilities. The amount of the annual limitation is
determined based upon the Company's value immediately prior to the ownership
change. The Company has determined that ownership changes have occurred at the
time of the Series A Preferred Stock issuance in 1993 and the Series B Preferred
Stock issuance in 1995, but has not yet determined the amount of the annual
limitations. However, management does not believe that such limitations would
materially impact the Company's ability to ultimately utilize its carryforwards,
provided sufficient taxable income is generated in future years, although the
limitations may impact the timing of such utilization. Subsequent significant
changes in ownership could further affect the limitations in future years.

9.  SAVINGS PLAN

    In January 1995, Cambridge Heart adopted a retirement savings plan for all
employees pursuant to Section 401(k) of the Internal Revenue Code. Employees
become eligible to participate on the first day of the calendar quarter
following their hire date. Employees may contribute any whole percentage of
their salary, up to a maximum annual statutory limit. The Company is not
required to contribute to this plan. The Company made no contributions to this
plan in 1998, 1999 or 2000.

10.  COMMITMENTS

    OPERATING LEASES

    The Company has various noncancelable operating leases for office space and
computer hardware and software which expire through 2004. Certain of these
leases provide the Company with various renewal options. Total rent expense
under all operating leases was approximately $178,600, $202,500 and $231,043 for
the years ended December 31, 1998, 1999 and 2000, respectively.

    At December 31, 2000, future minimum rental payments under the
non-cancelable leases are as follows:

<TABLE>
<S>                                                           <C>
2001........................................................  $232,510
2002........................................................   197,286
2003........................................................   172,659
2004 and thereafter.........................................     4,199
                                                              --------
                                                              $606,654
</TABLE>

    LICENSE MAINTENANCE FEES

    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 through 2008. The Company is so required to meet certain development
and sales milestones as specified in the agreements. Should the Company fail to
meet such milestones,

                                       44
<PAGE>
                             CAMBRIDGE HEART, INC.

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)

10.  COMMITMENTS (CONTINUED)
the license arrangements may be terminated at the sole option of the licensor.
License maintenance fees paid during 1998 and 1999 amounted to $20,000 in each
year. License maintenance paid during 2000 totaled $40,000. The future minimum
license maintenance fee commitments at December 31, 2000 are approximately as
follows:

<TABLE>
<S>                                                           <C>
2001........................................................  $ 40,000
2002........................................................    40,000
2003........................................................    40,000
2004........................................................    40,000
Thereafter..................................................   160,000
                                                              --------
                                                              $320,000
</TABLE>

    During the term of these license agreements, the Company is obligated to pay
a royalty (ranging from 1.5% to 2.0%) based on net sales of any products
developed from the licensed technologies. The license maintenance fees described
above are creditable against royalties otherwise payable for such year.

11.  RELATED PARTY TRANSACTIONS, INCLUDING ROYALTY OBLIGATIONS

    LICENSE AGREEMENT/CONSULTING AND TECHNOLOGY AGREEMENT

    Since February 1993, the Company has been a party to a license agreement
with a member of the Company's Board of Directors. This individual is also
Chairman of the Company's Scientific Advisory Board and a faculty member at the
institution with which the Company has entered into certain other license
agreements. In exchange for exclusive patented technology licensing rights, the
Company was required to pay this individual a royalty based on 1% of net sales
of products developed from such technology and spend a minimum of $200,000 in
each two-year period for research and development, clinical trials, marketing,
sales and/or manufacturing of products related to this technology. If the
Company chose to sublicense this product to an unrelated party, the royalty
would be based on 20% of the gross revenue. Because the Company has chosen not
to invest in this technology as required by the license agreement, both parties
have agreed to terminate the agreement effective September 2000.

    Also in February 1993, the Company entered into a consulting and technology
agreement with this individual. This agreement, which has been extended to
December 31, 2001, requires the Company to pay a monthly consulting fee of
$10,833, as stipulated in the agreement. In February 2000, the Company modified
this consulting agreement for additional consulting services, requiring the
Company to pay an additional consulting fee of $8,333 per month through
January 2001. Total payments made on both agreements during 1998, 1999 and 2000
were approximately $118,000, $121,300 and $217,494 respectively, and are
included in research and development expense. The Company is also required to
remit to this individual a royalty of 1% of net sales of products developed from
certain other technology licensed from the institution described above. If the
Company chooses to sublicense such products to an unrelated party, the royalty
will be based on 7% of the gross revenue received from the unrelated party for
products developed from such technology. In connection with this 1993 consulting
and technology agreement, a warrant to purchase 109,634 shares of common stock
was issued to this individual. This warrant was exercised during 1998, and
85,510 shares of common stock were issued. During 2000, the Company granted an
option to purchase 45,000 shares vesting annually over a 3 year

                                       45
<PAGE>
                             CAMBRIDGE HEART, INC.

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)

11.  RELATED PARTY TRANSACTIONS, INCLUDING ROYALTY OBLIGATIONS (CONTINUED)
period and granted an additional option to purchase 20,000 shares vesting
annually over a 4 year period.

    Operations through December 31, 2000 did not result in the recognition of
any material royalty expense in connection with these agreements.

12.  MAJOR CUSTOMERS, EXPORT SALES AND CONCENTRATION OF CREDIT RISK

    Revenues from the Company's Japanese distributor accounted for 36%, 27% and
19% of total revenues during 1998, 1999 and 2000 respectively and 37%, 16% and
4% of the accounts receivable balance at December 31, 1998, 1999 and 2000
respectively. Company policy does not require collateral on accounts receivable
balances.

                                       46
<PAGE>
ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
  FINANCIAL DISCLOSURE

    Not applicable.

                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

    The response to this item is contained in part under the caption "EXECUTIVE
OFFICERS OF THE REGISTRANT" in Part I hereof, and the remainder is contained in
the Company's Proxy Statement for the Annual Meeting of Stockholders to be held
on May 31, 2001 (the "2001 Proxy Statement") under the caption "Election of
Directors" and "Section 16(a) Beneficial Ownership Reporting Compliance" and is
incorporated herein by reference.

ITEM 11.  EXECUTIVE COMPENSATION

    The response to this item is contained in the 2001 Proxy Statement under the
captions "Compensation of Directors," "Executive Compensation," and "Severance
and Other Agreements," and is incorporated herein by reference.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

    The response to this item is contained in the 2001 Proxy Statement under the
caption "Security Ownership of Certain Beneficial Owners and Management" and is
incorporated herein by reference.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

    The response to this item is contained in the 2001 Proxy Statement under the
caption "Transactions with Directors," and is incorporated herein by reference.

                                    PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

    (a) 1.  FINANCIAL STATEMENTS

    Our financial statements listed in the Index to Financial Statements in Item
8 hereof are filed as part of this Annual Report on Form 10-K.

    (a) 2.  FINANCIAL STATEMENT SCHEDULES

    All applicable information is readily determinable from the notes to our
financial statements.

                                       47
<PAGE>
    (a) 3.  LISTING OF EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT NO.                                     DESCRIPTION
-----------             ------------------------------------------------------------
<S>                     <C>                                                           <C>
 (1)3.1                 Restated Certificate of Incorporation of the Registrant.
 (1)3.2                 By-Laws of the Registrant, as amended.
 (1)4.1                 Specimen Certificate for shares of Common Stock, $.001 par value, of
                        the Registrant.
(1)10.1#                1993 Incentive and Non-Qualified Stock Option Plan, as amended.
(1)10.2#                1996 Equity Incentive Plan, as amended.
(1)10.3#                1996 Employee Stock Purchase Plan.
(1)10.4#                1996 Director Stock Option Plan.
(1)10.5#                Consulting and Technology Agreement between the Registrant and Dr.
                        Richard J. Cohen, dated February 8, 1993.
(1)10.6#                Employment Agreement between the Registrant and Jeffrey M. Arnold,
                        dated September 1, 1993, as amended.
(1)10.7#                License Agreement By and Between the Registrant and Dr. Richard J.
                        Cohen, dated February 8, 1993.
(1)10.8*                Exclusive Distributorship Agreement by and between the Registrant and
                        Fukuda Denshi Co., Ltd.
(1)10.9                 License Agreement by and between the Registrant and the Massachusetts
                        Institute of Technology, dated September 28, 1993, relating to the
                        technology of "Assessing Myocardial Electrical Stability".
(1)10.10                License Agreement by and between the Registrants and the Massachusetts
                        Institute of Technology, dated September 28, 1993, relating to the
                        technology of "Cardiac Electrical Imaging".
(1)10.11                License Agreement by and between the Registrant and the Massachusetts
                        Institute of Technology, dated September 28, 1993, relating to the
                        technology of "Cardiovascular System Identification", as amended on
                        July 9, 1996.
(2)10.12                Amended and Restated Lease By and Between the Registrant and R.W.
                        Connelly, dated October 22, 1997.
(2)10.13#               Agreement to Extend the Consulting and Technology Agreement between
                        the Registrant and Dr. Richard J. Cohen, dated January 23, 1998.
(3)10.14                First Amendment to the License Agreement by and between the Registrant
                        and the Massachusetts Institute of Technology dated May 21, 1998,
                        relating to the technology of "Cardiovascular System Identification".
(3)10.15                First Amendment to the License Agreement by and between the Registrant
                        and the Massachusetts Institute of Technology dated May 21, 1998,
                        relating to the technology of "Cardiac Electrical Imaging".
(3)10.16                First Amendment to the License Agreement by and between the Registrant
                        and the Massachusetts Institute of Technology dated May 21, 1998,
                        relating to the technology of "Assessing Myocardial Electrical
                        Stability".
(3)10.17*               First Amendment to the Exclusive Distributorship Agreement by and
                        between the Registrant and Fukuda Denshi Co., Ltd.
(3)10.18*               Distributor Agreement, dated as of April 1, 1998, by and between the
                        Registrant and Reynolds Medical Ltd.
(3)10.19*               Distributor Agreement, dated as of March 1, 1998, by and between the
                        Registrant and Image. Monitoring, Inc
(4)10.20                Cooperative Marketing Agreement between the Registrant and Guidant
                        Corporation dated May 7, 1999.
(4)10.21                Cooperative Marketing Agreement between the Registrant and
                        Medtronic, Inc. dated May 20, 1999.
</TABLE>

                                       48
<PAGE>

<TABLE>
<CAPTION>
EXHIBIT NO.                                     DESCRIPTION
-----------             ------------------------------------------------------------
<S>                     <C>                                                           <C>
(4)10.22                Purchase Agreement among the Registrant, The Tail Wind Fund Ltd.,
                        Special Situations Private Equity Fund, L.P., Special Situations Fund
                        III, L.P., and Geoffrey H. Galley dated June 8, 1999.
(4)10.23                Registration Rights Agreement among the Registrant, The Tail Wind
                        Fund Ltd., Special Situations Private Equity Fund, L.P., Special
                        Situations Fund III, L.P. and Geoffrey H. Galley dated June 8, 1999.
(4)10.24                Warrant to purchase common stock of the Registrant in favor of
                        Geoffrey H. Galley.
                        Warrant to purchase common stock of the Registrant in favor of Special
(4)10.25                Situations
                        Fund III, L.P.
(4)10.26                Warrant to purchase common stock of the Registrant in favor of Special
                        Situations Private Equity Fund, L.P.
(4)10.27                Warrant to purchase common stock of the Registrant in favor of The
                        Tail Wind Fund Ltd.
(5)10.28                Sales Agency Agreement between the Registrant and Sunrise Securities
                        Corp. dated August 16, 1999.
(5)10.29                Form of Subscription Agreement entered into between the Registrant and
                        each of the persons listed below, for the number of shares of
                        Registrant's common stock listed opposite each name:

                        Cambridge Options...........................................  150,000
                        Jerry Heymann...............................................   14,286
                        Little Wing L.P.............................................  225,700
                        Little Wing L.P. Too........................................   82,860
                        Nathan A. Low...............................................  140,000
                        Amy Newmark.................................................   20,000
                        Rebel Investments & Co......................................  150,000
                        Matthew Rebold..............................................   25,000
                        Judy W. Stone, M.D..........................................    8,500
                        Robert L. Swisher, Jr.......................................  100,000
                        Tradewinds Fund Ltd.........................................  120,000
                        Yale University.............................................  285,714
                        Richard B. Stone............................................   30,000
                        Paul Scharfer...............................................  100,000
                        Cheryl Halpern..............................................   14,286
                        David S. Hannes.............................................   14,286
                        Norwest Bank North Dakota, N.A..............................   21,429
                        RLH Options, Inc............................................   14,286
                        Robert P. Khederian.........................................  600,000

(8)10.30#               Amendment dated September 8, 1999 to the Employment Agreement between
                        the Registrant and Jeffrey M. Arnold dated September 1, 1993.
(8)10.31#               Amendment dated October 25, 1999 to the Employment Agreement between
                        the Registrant and Jeffrey Arnold dated September 1, 1993.
(8)10.32#               Severance Agreement dated November 18, 1999 between the Registrant and
                        Robert Palardy.
(8)10.33#               Severance Agreement dated November 18, 1999 between the Registrant and
                        Eric Dufford.
(8)10.34#               Severance Agreement dated November 18, 1999 between the Registrant and
                        James Sheppard.
(8)10.35#               Severance Agreement dated November 18, 1999 between the Registrant and
                        Andra Thomas.
(9)10.36*               Distribution and License Agreement dated May 10, 2000 between the
                        Registrant and SMI Medical, Inc.
</TABLE>

                                       49
<PAGE>

<TABLE>
<CAPTION>
EXHIBIT NO.                                     DESCRIPTION
-----------             ------------------------------------------------------------
<S>                     <C>                                                           <C>
(9)10.37*               Sensor Usage Agreement Remarketing Agreement dated September 8, 2000
                        between Registrant and Americorp Financial, Inc.
(9)10.38#               Severance Agreement dated September 27, 2000 between the Registrant
                        and David Chazanovitz.
  10.39#                Agreement dated June 19,2000 between Registrant and Jeffrey M. Arnold
                        modifying the Employment Agreement of Jeffrey M. Arnold.
  23.1                  Consent of PricewaterhouseCoopers LLP.
(6)99.1                 Integrated Clinical Statistical Report--A Prospective Multi-Center
                        Study to Determine the Effectiveness of T-Ware Alternans in Predicting
                        Susceptibility to Ventricular Arrhythmias.
(7)99.2                 Integrated Clinical Statistical Report (Interim Report)--A 12 Month
                        Follow-Up Study of Patients Enrolled in a Prospective Multi-Center
                        Study to Determine the Effectiveness of T-Wave Alternans in Predicting
                        Susceptibility to Ventricular Arrhythmias.
</TABLE>

------------------------

(1) Incorporated herein by reference to the Company's Registration Statement on
    Form S-1, as amended (File No. 333-04879).

(2) Incorporated herein by reference to the Company's Form 10-K, as amended, for
    the fiscal year ended December 31, 1997.

(3) Incorporated herein by reference to the Company's Form 10-Q, as amended, for
    the quarter ended June 30, 1998.

(4) Incorporated herein by reference to the Registrant's Form 10-Q, as amended,
    for the quarter ended June 30, 1999.

(5) Incorporated herein by reference to the Registrant's Form 10-Q, as amended,
    for the quarter ended September 30, 1999

(6) Incorporated herein by reference to the Registrant's Current Report on
    Form 8-K filed
    August 19, 1998.

(7) Incorporated herein by reference to the Registrant's Amendment No. 1 to
    Current Report on Form 8-K/A filed September 4, 1998.

(8) Incorporated by reference to the Registrant's Form 10-K for the fiscal year
    ended       December 31, 1999.

(9) Incorporated by reference to the Registrant's Form 10-Q for the quarter
    ended June 30, 2000.

(10) Incorporated by reference to the Registrant's Form 10-Q for the quarter
    ended September 30, 2000.

*   Confidential treatment has been granted as to certain portions.

#  Management contract or compensatory plan or arrangement filed as an exhibit
    to this Form pursuant to Items 14(a) and 14(c) of Form 10-K.

    (b) No Current Reports on Form 8-K were filed by the Company during the last
quarter of the period covered by this report.

                                       50
<PAGE>
                                   SIGNATURES

    Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on March 23, 2001.

<TABLE>
<S>                                                    <C>  <C>
                                                       CAMBRIDGE HEART, INC.

                                                       By:           /s/ DAVID A. CHAZANOVITZ
                                                            -----------------------------------------
                                                                       David A. Chazanovitz
                                                                     CHIEF EXECUTIVE OFFICER
</TABLE>

    Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
                      SIGNATURE                                   TITLE                    DATE
                      ---------                                   -----                    ----
<C>                                                    <S>                          <C>
                                                       President, Chief Executive
              /s/ DAVID A. CHAZANOVITZ                   Officer and Director
     -------------------------------------------         (Principal Executive         March 23, 2001
                David A. Chazanovitz                     Officer)

                /s/ ROBERT B. PALARDY                  Chief Financial Officer
     -------------------------------------------         (Principal Financial and     March 23, 2001
                  Robert B. Palardy                      Accounting Officer)

                /s/ JEFFREY M. ARNOLD                  Chairman of the Board of
     -------------------------------------------         Directors                    March 23, 2001
                  Jeffrey M. Arnold

                                                       Director
     -------------------------------------------                                       March , 2001
                  Maren D. Anderson

                /s/ HARRIS A. BERMAN                   Director
     -------------------------------------------                                      March 23, 2001
                  Harris A. Berman

                /s/ RICHARD J. COHEN                   Director
     -------------------------------------------                                      March 23, 2001
                  Richard J. Cohen

                /s/ JEFFREY J. LANGAN                  Director
     -------------------------------------------                                      March 23, 2001
                  Jeffrey J. Langan

                                                       Director
     -------------------------------------------                                       March , 2001
                  Daniel M. Mulvena
</TABLE>

                                       51