Forward-Looking Statements

This Form 10-Q contains forward-looking statements within the meaning of
Section 21E of the Securities Exchange Act of 1934, as amended. 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. Forward-looking statements are not guarantees of future performance and are subject to risks and uncertainties that may cause actual results to differ materially from those indicated in the forward-looking statements as a result of any number of factors. Factors that may cause or contribute to such differences include failure to achieve broad market acceptance of the Company's MTWA technology, failure of our sales and marketing organization or partners to market our products effectively, inability to hire and retain qualified clinical applications specialists in the Company's target markets, failure to obtain or maintain adequate levels of third-party reimbursement for use of the Company's MTWA test, customer delays in making final buying decisions, decreased demand for the Company's products, failure to obtain funding necessary to develop or enhance our technology, adverse results in future clinical studies of our technology, failure to obtain or maintain patent protection for our technology, overall economic and market conditions. Many of these factors are more fully discussed, as are other factors, in Part I, Item 1A. "Risk Factors" of the Company's Form 10-K for the fiscal year ended December 31, 2008.

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 a key problem in cardiac diagnosis-the identification of those at risk of sudden cardiac arrest (SCA). Our proprietary technology and products are the first diagnostic tools cleared by the FDA to non-invasively measure Microvolt levels of T-Wave Alternans or MTWA, an extremely subtle beat-to-beat fluctuation in the T-Wave portion of a patient's electrocardiogram. Our MTWA Test is performed using our primary product, the HearTwave II System in conjunction with our single patient use Micro-V Alternans Sensors.

Strategy

Our mission is to have our MTWA Test become a standard of care in the diagnostic monitoring regime for patients who are at elevated risk of SCA. We intend to achieve this mission by making our technology readily available, potentially in multiple product embodiments, in cardiology and internal medicine physician practices, and hospitals that provide healthcare services for those cardiac patients. In addition to our direct sales and marketing efforts, we intend to expand our distribution efforts through strategic partnerships with existing medical device companies who can offer greater access to our target customers. We believe that gaining access to a larger and more established distribution network will allow us to place more strategic focus on increasing clinical utilization of our Alternans technology, thereby increasing sales of our proprietary Micro-V Alternans Sensors.

Distribution Update

At March 31, 2009, we employed 5 direct sales representatives in the U.S. and employed 11 clinical application specialists who provide clinical support to our direct sales force, install systems, train customers and enhance sensor utilization. We utilize country specific independent distributors for the sales of our products outside the U.S.

During 2008, we had 11 direct sales representatives who sold our products in the United States and 2 area vice presidents of sales. In addition, we had 15 clinical application specialists to install systems, train customers and enhance sensor utilization. See "Other Recent Development" for further details regarding our headcount.

In March 2007, we entered into a Co-Marketing Agreement with St. Jude Medical granting St. Jude Medical the exclusive right to market and sell our HearTwave II System and other MTWA products to cardiologists and electrophysiologists in North America. In June 2007, the Co-Marketing Agreement was amended, effective March 21, 2007, to enable St. Jude Medical to also market our HearTwave II System and other MTWA products to North American primary care and internal medicine physicians and to enable Cambridge Heart's sales team to support St. Jude Medical's field sales force in all physician markets in North America.

In July 2008, we entered into a Restated Co-Marketing Agreement with St. Jude Medical, which effective May 5, 2008, replaced the previous Co-Marketing Agreement. The amendment granted St. Jude Medical the non-exclusive right to market and sell our HearTwave II System and other MTWA products to physicians in North America. Pursuant to the Restated Agreement, we retained full sales responsibility and could approach and deal directly with any account. We agreed to collaborate in the development and implementation of co-marketing programs with respect to marketing our products that may involve co-branding marketing materials, co-sponsoring of educational events and joint presence at industry conventions and trade shows. The Restated Agreement ended on November 5, 2008

Reimbursement Update

Reimbursement to healthcare providers by Medicare/Medicaid and third party insurers is critical to the long-term success of our efforts to make the MTWA Test a standard of care for patients at risk of ventricular tachyarrhythmia or sudden death. In January 2002, Current Procedural Terminology Code 93025, known as a CPT code, became available for use by healthcare providers for filing for reimbursement for the performance of a MTWA Test. This code may be used alone, or in conjunction with, other diagnostic cardiovascular tests. This unique CPT code provides a uniform language used by healthcare providers to describe medical services but does not guarantee payment for the test. Coding is used to communicate to third party 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 November 2006, CMS issued a ruling that changed the methodology used to calculate all physician reimbursement codes. This ruling, if not changed, will result in reductions in all categories of reimbursement levels through 2010. Effective January 1, 2009, the Centers for Medicare and Medicaid Services ("CMS"), reduced the Medicare payment amount for the CPT code for a MTWA Test from a national average of $252 in 2008 to $214 in 2009.

Prior to March 2006, local Medicare carriers had provided coverage for the Microvolt T-Wave Alternans Test. However, actual reimbursement has been inconsistent and in many instances administratively burdensome to physicians making it difficult to obtain. In addition to Medicare reimbursement at a local level, CMS issues National Coverage Determinations (NCDs) which represent approximately 10% of total Medicare coverage policies. In 2005, we applied to CMS for a NCD in order to gain broader and more uniform reimbursement coverage for our MTWA Test. After a nine-month application process, which included two public comment periods, CMS released a draft of its NCD on December 21, 2005, which became final on March 21, 2006. This broad coverage policy allows for payment for MTWA testing of patients at risk of SCD only when a MTWA test is performed using the Analytic Spectral Method, which is our patented and proprietary method of analysis.

We estimate that up to 10 million patients in the U.S. are most likely to benefit from our MTWA Test. In 2005, we received positive reimbursement decisions from Horizon Blue Cross/Blue Shield units in New Jersey, and had payment policies from Blue Cross/Blue Shield in New York, Iowa, Maryland, Washington DC, Delaware, Michigan and South Dakota. In 2006, we received favorable reimbursement decisions from Aetna and Humana, which included the use of our patented algorithm. Additionally, in 2006, we received positive reimbursement decisions from other large private payers including CIGNA Healthcare, Healthcare Service Corporation (HCSC) and WellPoint. In 2008, Premera Blue Cross and Blue Cross Blue Shield of Arizona revised their policies to make Microvolt T-Wave Alternans Testing a covered benefit. In February 2009, Harvard Pilgrim Health Care initiated reimbursement for the MTWA test. In April 2009, WellPoint revised its coverage policy on MTWA testing from a covered service to a non-covered service. We estimate that approximately 6 million high-risk cardiac patients are currently covered for MTWA testing by either Medicare or other commercial health plans in the United States.

Recent Clinical Developments

In May 2008, a meta-analysis of MTWA studies, which included the MASTER trial, conducted by a group led by Stefan Hohnloser, MD, FHRS, of the JW Goethe University Division of Cardiology in Frankfurt, Germany, was presented by Dr. Stefan Hohnloser at the Heart Rhythm Society 2008 Scientific Sessions in San Francisco. The study entitled "Predictive Accuracy of Microvolt T-Wave Alternans Testing in Primary Prevention Patients With and Without ICDs" analyzed 13 clinical studies, which collectively involved approximately 6,000 cardiac patients. The results showed that MTWA was a highly accurate predictor of arrhythmic events in those studies which used sudden cardiac death or sustained arrhythmias as the primary endpoint. Dr. Hohnloser noted that "appropriate" ICD therapy appeared to be an unreliable surrogate endpoint for sudden cardiac death and can skew the results of risk stratification studies. This comprehensive analysis, which was published in a supplement to the March 2009 issue of the Heart Rhythm journal, confirms the findings of numerous peer-reviewed studies which underscore the important role of MTWA in assessing a patient's risk of sudden cardiac arrest and points out the contrast between results from these studies that used sudden cardiac death or sustained arrhythmias as the primary endpoint and those studies, such as the MASTER trial, in which "appropriate" ICD discharge was the predominant endpoint. For additional information concerning clinical studies involving our MTWA test, including the MASTER trial, see Item
1. "Business-Clinical Studies" of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2008.

Other Recent Developments

In March 2009, in order to reduce cash expenditures, the Company implemented an expense reduction initiative. This initiative included a reduction in headcount from 39 full-time and 5 part-time employees at December 31, 2008, to 27 full-time and 5 part-time employees. The reduction in headcount, which impacts all of the Company's operational areas, included a restructuring of the direct sales organization to improve cost effectiveness.

Critical Accounting Policies and Estimates

Management's discussion and analysis of financial condition and results of operations is based upon the financial statements which have been prepared in accordance with U.S. generally accepted accounting principles. The notes to the financial statements contained in our Annual Report on Form 10-K for the fiscal year ended December 31, 2008 include a summary of our significant accounting policies and methods used in the preparation of our financial statements. The preparation of financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including those related to incentive compensation, revenue recognition, product returns, allowance for doubtful accounts, inventory valuation, investments valuation, intangible assets, income taxes, warranty obligations, the fair value of preferred stock and warrants, and contingencies and litigation. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

The critical accounting policies and the significant judgments and estimates used in the preparation of our condensed financial statements for the three months ended March 31, 2009 are consistent with those discussed in our Annual Report on Form 10-K for the year ended December 31, 2008 in the section captioned "Management's Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies and Estimates."

Results of Operations

The following table presents our revenue by product line and geographic region for each of the periods indicated. This information has been derived from our statement of operations included elsewhere in this Quarterly Report on Form 10-Q. You should not draw any conclusions about our future results from our revenue for any prior period.

Revenue:



                                           Three months ended March 31,
                                             %                        %           %
      ($000's)                 2008       of Total       2009      of Total     Change
      Alternans Products:
      U.S.                  $   944,585         80 %   $ 522,015         62 %      -45 %
      Rest of World              33,880          3 %      47,727          6 %       41 %

      Total                     978,465         83 %     569,742         68 %      -42 %

      Stress Products:
      U.S.                       96,936          8 %     202,780         24 %      109 %
      Rest of World             101,200          9 %      63,000          8 %      -38 %

      Total                     198,136         17 %     265,780         32 %       34 %


      Total Revenues        $ 1,176,601        100 %   $ 835,522        100 %      -29 %

Three Month Periods Ended March 31, 2008 and 2009

Revenue

Total revenue for the three months ended March 31, 2008 and 2009 was $1,176,601 and $835,522, respectively, a decrease of 29%. Revenue from the sale of our Microvolt T-Wave Alternans products, which we call our Alternans products, was $978,465 during the three months ended March 31, 2008 compared to $569,742 during the same period of 2009, a decrease of 42%. Our Alternans products accounted for 83% and 68% of total revenue for the three-month periods ended March 31, 2008 and 2009, respectively. Revenue from the sale of our non-Alternans products for the three months ended March 31, 2008 and 2009 was $198,136 and $265,780, respectively.

The decrease in revenue was primarily driven by fewer HearTwave II System sales resulting from various factors including the ongoing weakness in the sales of medical capital equipment in general, and our limited scope of distribution.

Gross Profit

Gross profit, as a percent of revenue, for the three months ended March 31, 2008 and 2009, was 52% and 41%, respectively. The decrease in gross profit as a percentage of revenue is primarily attributable to lower overall sales levels relative to fixed overhead costs and higher expenses related to service and repairs.

Operating Expenses

The following table presents, for the periods indicated, our operating expenses.
This information has been derived from our statement of operations included
elsewhere in this Quarterly Report on Form 10-Q. Our operating expenses for any
period are not necessarily indicative of future trends.



                                                         Three months ended March 31,
                                                     %                              %
                                                  of Total                       of Total       % Inc/(Dec)
                                     2008         Revenue           2009         Revenue        2008 vs 2009
Operating Expenses:
Research and development          $   110,493            9 %          74,448            9 %              -33 %
Selling, general and
administrative                      3,054,478          260 %       2,432,955          291 %              -20 %

Total                             $ 3,164,971          269 %     $ 2,507,403          300 %              -21 %

Research and Development

Research and development expense for the three months ended March 31, 2008 and 2009 was $110,493 and $74,448, respectively, a decrease of 33%. Research and development expense for the 2009 period was lower due to non-recurring patent related expenses incurred by the Company in 2008.

Selling, General and Administrative

Selling, general and administrative ("SG&A") expense for the three months ended March 31, 2008 and 2009 was $3,054,478 and $2,432,955, respectively, a decrease of 20%. The decrease in selling expense from the 2008 period was primarily driven by lower variable selling expenses as a result of lower sales of commissionable products and less non-cash compensation expense related to unvested stock options that were forfeited as a result of the reduction in force. Further the first quarter of 2008 included commission costs related to the St. Jude Medical Co-Marketing Agreement. General and Administrative expenses were also lower compared to the 2008 period due to lower non-cash compensation expense related to unvested stock options that were forfeited and non-recurring legal advisory related costs. SG&A expense for the 2008 and 2009 period included $716,004 and $484,707 in non-cash, stock-based compensation expense, respectively.

Interest Income/Interest Expense

Interest income, net of interest expense, for the three months ended March 31, 2008 and 2009 was $165,963 and $9,625, respectively, a decrease of 94%. The decrease is primarily the result of lower amounts of invested cash and declines in short-term interest rates.

Net Income/(Loss)

As a result of the factors described above, the net loss attributable to common stockholders for the three months ended March 31, 2008 was $2,382,600 compared to $2,155,066 in the same period in 2009.

Liquidity and Capital Resources

Cash and cash equivalents were $6,207,074 at December 31, 2008 compared to $5,000,514 at March 31, 2009. At December 31, 2008 and March 31, 2009, investments consisted of money market funds and short-term certificate of deposits. As discussed in Note 2, the Company classifies investments in money market funds and short-term certificate of deposits as cash equivalents since these investments are readily convertible into known amounts of cash in short order and have insignificant valuation risk.

The overall decrease in the Company's cash, cash equivalents is primarily attributable to cash used by operations. Our financial statements have been prepared on a "going concern basis," which assumes we will realize our assets and discharge our liabilities in the normal course of business. In the first quarter of 2009, we experienced losses from operations of $2,164,691. The main changes in operating assets and liabilities in 2009 were a decrease in accounts receivable, net of allowance for doubtful accounts, of $194,775, or 25%, as a result of lower sales volume and cash collection efforts, and a decrease in inventory, net of reserve, of $107,280, or 7%, primarily attributable to sufficient inventory built up in connection with our contractual obligations to St. Jude Medical. Prepaid expenses and other current assets at March 31, 2009 increased $33,646 compared to December 31, 2008. Accounts payable and accrued expenses at March 31, 2009 increased $162,205

compared to December 31, 2008 as due to timing of certain expenses. As a result of the aforementioned, we have incurred negative cash flow from operations of $1,201,099 for the three months ended March 31, 2009. In addition, we have an accumulated deficit at March 31, 2009 of $90,799,159.

In March 2009, we implemented an expense reduction initiative. The initiative, in conjunction with previous measures, included a 33% reduction in headcount from 46 full-time equivalents employees in the fourth quarter of 2008. The reduction in headcount, which impacts all of our operational areas, includes a restructuring of the direct sales organization to improve cost effectiveness. We have evaluated the Company's cash flow for the next 12 months assuming average sales productivity per sales representative consistent with the prior quarters and operating expenditures reflecting our cost cutting initiative. Further, given the current level of inventory, we do not anticipate having to make significant inventory purchases related to our HearTwave II System during the coming quarters. We believe that our existing resources, and currently projected financial results including the cost cutting initiative, are sufficient to fund our operations through March 31, 2010. We will evaluate opportunities to raise additional capital through public or private financing, collaborative relationships or other arrangements. However, there can be no assurance that such capital would be available at all, or if available, that the terms of such financing would not be dilutive to other stockholders.

If the Company is unsuccessful in raising additional capital as circumstances require, it may be required to implement additional cost cutting initiatives or may not be able to continue its operations at all. These financial statements assume that the Company will continue as a going concern. If the Company is unable to continue as a going concern, it may be unable to realize its assets and discharge its liabilities in the normal course of business.

Under the terms of our license and consulting and technology agreements, we are required to pay royalties on sales of our Alternans products. Minimum license maintenance fees under the MIT license agreement, which is creditable against royalties otherwise payable for each year, is $10,000 per year through 2013. We are committed to pay an aggregate of $10,000 of such minimum license maintenance fees subsequent to March 31, 2009. In addition, monthly royalty under the Company's consulting and technology agreement is $10,505.

Contractual Obligations and Commercial Commitments

Our contractual obligations as of March 31, 2009 are set forth in the table
below.



                                                                Payments Due by Period
                                                        Less than                                More than
Contractual Obligations                      Total        1 Year      1-3 Years     3-5 Years     5 Years
Capital Lease Obligations                 $    45,942   $   17,784   $    28,158   $        -    $       -
Operating Lease Obligations               $ 1,554,275   $  359,003   $ 1,162,070   $    33,202   $       -
Purchase Obligations                      $    50,000   $   10,000   $    20,000   $    20,000   $       -

Total                                     $ 1,650,217   $  386,787   $ 1,210,228   $    53,202   $       -

In November 2007, we entered into a definitive agreement with Farley White Management Company, LLC to lease 17,639 usable square feet of office space located at 100-200 Ames Pond Drive, Tewksbury, Massachusetts, which is our new executive and operating facility. The initial lease term is for 62 months with an option to extend the lease for one extension period of five years. The term of the lease commenced March 1, 2008. We were not required to pay rent for the first two months of the initial lease term. Thereafter, the annual base rent for the first, second, third, fourth and fifth years of the initial lease term will be $262,500, $367,776, $377,992, $388,208 and $398,424, respectively, plus our pro-rata share of real estate taxes and property maintenance, in each case over a base year. During the term of our lease, we are required to maintain a standby letter of credit in favor of the landlord as security for the obligations under the lease. The amount of the letter of credit is $500,000 for the first lease year and is reduced by $100,000 at the end of each of the second, third and fourth lease years. The landlord for the property was responsible for paying the costs of construction for the interior of the space occupied by us. We are generally responsible for paying for our interior furnishings, telephones, data cabling and equipment. Based on these terms, we account for this agreement as an operating lease.

Off-Balance Sheet Arrangements

We have not created, and are not a party to, any special-purpose or off-balance sheet entities for the purpose of raising capital, incurring debt or operating parts of our business that are not consolidated into our financial statements. We do not have any arrangements or relationships with entities that are not consolidated into our financial statements that have, or are reasonably likely to have, a current or future material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.