SEC Info - Cardima Inc - ‘10-Q’ for 6/30/98

SEC Info

Home

Help

Please Sign In

Cardima Inc – ‘10-Q’ for 6/30/98

As of: Wednesday, 8/12/98 · For: 6/30/98 · Accession #: 1012870-98-2078 · File #: 0-22419

  As Of                Filer                Filing    For·On·As Docs:Size              Issuer               Agent

 8/12/98  Cardima Inc                       10-Q        6/30/98    3:240K                                   Donnelley R R & S… 13/FA

Quarterly Report — Form 10-Q
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 10-Q        Quarterly Report                                      27    133K 
 2: EX-10.25    Master Loan and Security Agreement                    54    240K 
 3: EX-27       Financial Data Schedule                                2      8K

10-Q — Quarterly Report
Document Table of Contents

Page	(sequential)	\|	(alphabetic)	Top
			Alternative Formats (Word, et al.) Changes in Securities and Use of Proceeds Defaults Upon Senior Securities Exhibits and Reports on Form 8-K Factors Affecting Future Results Financial Statements Index to Exhibits for Form 10-Q Legal Proceedings Management's Discussion and Analysis of Financial Condition and Results of Operations Notes to financial statements Other Information Part I. Financial Information Signatures Submission of Matters to A Vote of Security Holders
1	1st Page - Filing Submission
3	Part I. Financial Information
"	Item 1. Financial Statements
6	Notes to financial statements
9	Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
12	Factors Affecting Future Results
24	Item 1. Legal Proceedings
"	Item 2. Changes in Securities and Use of Proceeds
"	Item 3. Defaults Upon Senior Securities
"	Item 4. Submission of Matters to A Vote of Security Holders
25	Item 5. Other Information
"	Item 6. Exhibits and Reports on Form 8-K
26	Signatures
27	Index to Exhibits for Form 10-Q

10-Q 1st Page of 27 TOC ↑Top Previous Next ↓Bottom Just 1st
 
UNITED STATES 
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549 

FORM 10-Q 

[X]  Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934.                                                          
For the quarterly period ended June 30, 1998                          

or

[_]  Transition report pursuant to Section 13 or 15(d) of the Securities        
Exchange Act of 1934.                                                 
     For the transition period from _________________  to _____________________.

COMMISSION FILE NUMBER: 0-22419 
                       -------

CARDIMA, INC. 

(Exact name of registrant as specified in its charter)

    DELAWARE                                      94-3177883
-------------------------------------           --------------------------------
(State or Other Jurisdiction                         (I.R.S. Employer     
of Incorporation or Organization)                     Identification No.)     

47266 BENICIA STREET, FREMONT, CA                            94538-7330         
(Address of  Principal Executive Offices)                    (Zip Code)         

Registrant's telephone number, including area code:  (510) 354-0300             

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) had been subject to such filing         
requirements for the past 90 days.        X Yes          No                     
                ----        ----
As of July 31, 1998, there were 8,282,996 shares of Registrant's Common Stock   
outstanding.                                                                    

10-Q 2nd Page of 27 TOC 1st Previous Next ↓Bottom Just 2nd
CARDIMA, INC. 

INDEX 

PART I.  FINANCIAL INFORMATION.................................................3

 ITEM 1.  FINANCIAL STATEMENTS.................................................3
  Balance Sheets as of June 30, 1998 and December 31, 1997.....................3
Statements of Operations for the three and nine months ended                
    June 30, 1998 and 1997.....................................................4
Statements of Cash Flows for the three and nine months ended                
    June 30, 1998 and 1997.....................................................5
  Notes to financial statements................................................6

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND      
           RESULTS OF OPERATIONS...............................................9

PART II. OTHER INFORMATION                                                      

 ITEM 1. LEGAL PROCEEDINGS....................................................24
 ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS............................24
 ITEM 3. DEFAULTS UPON SENIOR SECURITIES......................................24
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS..................24
 ITEM 5. OTHER INFORMATION....................................................25
 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.....................................25

SIGNATURES....................................................................26

INDEX TO EXHIBITS FOR FORM 10-Q...............................................27

 EXHIBIT 27.1.................................................................28

2 

10-Q 3rd Page of 27 TOC 1st Previous Next ↓Bottom Just 3rd
PART I. FINANCIAL INFORMATION                                                   

Item 1. FINANCIAL STATEMENTS                                                    

CARDIMA, INC. 

BALANCE SHEETS  
(In thousands except share amounts) 

                                                        [Enlarge/Download Table]

                                                                                                  (1)     
                                                                                   June 30,   December 31,
                                                                                     1998        1997     
                                                                                  ----------- ----------- 
ASSETS                                                                            (unaudited)             
                                                                                                          
Current Assets:                                                                                           
   Cash and cash equivalents                                                       $  5,012    $  8,578   
   Short-term investments                                                                -        4,270   
   Accounts receivable, net of allowances for doubtful accounts                                           
    of $26 at June 30, 1998 and $40 at December 31, 1997                                455         268   
   Inventories                                                                        1,075         532   
   Other current assets                                                                 233         261   
                                                                                   --------    --------   
       Total current assets                                                           6,775      13,909   

Property and equipment, net                                                           2,917       2,488   
Restricted cash                                                                         170         192   
Other assets                                                                            724       1,085   
                                                                                   --------    --------   
Total assets                                                                       $ 10,586    $ 17,674   
                                                                                   ========    ========   
LIABILITIES AND STOCKHOLDERS' EQUITY                                                                      
Current liabilities:                                                                                      
   Accounts payable                                                                $  1,040    $    898   
   Accrued compensation                                                                 768         753   
   Other current liabilities                                                             12          55   
   Notes payable                                                                         -            7   
   Capital lease obligation - current portion                                           717         587   
                                                                                   --------    --------   
       Total current liabilities                                                      2,537       2,300   

Deferred rent                                                                            66          90   
Capital lease obligation - noncurrent portion                                           856         840   
Commitments                                                                                               
Stockholders' equity                                                                                      
   Common stock, $.001 par value; 25,000,000 shares authorized, 8,212,248 shares                          
    issued and outstanding at June 30, 1998, 8,103,875 at December 31, 1997; at                           
    amount paid in                                                                   45,790      45,597   
   Deferred compensation                                                               (604)       (731)  
   Accumulated deficit                                                              (38,059)    (30,422)  
                                                                                   --------    --------   
       Total stockholders' equity                                                     7,127      14,444   
                                                                                   --------    --------   
Total liabilities and stockholders' equity                                         $ 10,586    $ 17,674   
                                                                                   ========    ========   

(1) The information in this column was derived from the Company's audited       
financial statements as of December 31, 1997. See accompanying notes to 
financial statements.                                                   

3 

10-Q 4th Page of 27 TOC 1st Previous Next ↓Bottom Just 4th
CARDIMA, INC. 

STATEMENTS OF OPERATIONS  
(In thousands, except per share amounts)  
(Unaudited) 

                                                        [Enlarge/Download Table]

                                                          Three months ended  Six months ended  
                                                               June 30,           June 30,      
                                                         -------------------  ----------------- 
                                                           1998      1997      1998       1997  
                                                         -------    -------   -------   ------- 
                                                                                                

Net sales                                                $   625    $   319   $ 1,126   $   536 
Cost of goods sold                                           595        457     1,343       831 
                                                         -------    -------   -------   ------- 
   Gross profit                                               30       (138)     (217)     (295)

Operating expenses:                                                                             
   Research and development                                1,908      1,059     3,571     1,869 
   Selling, general and administrative                     1,980      1,646     4,027     2,976 
                                                         -------    -------   -------   ------- 
      Total operating expenses                             3,888      2,705     7,598     4,845 
                                                         -------    -------   -------   ------- 
Operating loss                                            (3,858)    (2,843)   (7,815)   (5,140)

Interest  and other income                                   110        110       254       135 
Interest expense                                             (40)       (28)      (76)      (81)
                                                         -------    -------   -------   ------- 

Net loss                                                 $(3,788)   $(2,761)  $(7,637)  $(5,086)
                                                         =======    =======   =======   ======= 

Basic and diluted net loss per share                     $ (0.46)             $ (0.94)          
                                                         =======              =======           
Shares used in computing basic and diluted net loss per                                         
 share                                                     8,186                8,160           
                                                         =======              =======           

Pro forma net loss per share                                        $ (0.43)            $ (1.03)
                                                                    =======             ======= 

Shares used in computing pro forma net loss per share                 6,433               4,939 
                                                                    =======             ======= 

See accompanying notes to financial statements  

4 

10-Q 5th Page of 27 TOC 1st Previous Next ↓Bottom Just 5th
CARDIMA, INC. 

STATEMENTS OF CASH FLOWS  
(In thousands)  
(Unaudited) 

                                                                [Download Table]

                                                               Six Months ended  
                                                                  June 30,       
                                                             --------------------
                                                               1998       1997   
                                                             --------    --------
                                                                                 
CASH FLOWS FROM OPERATING ACTIVITIES:                                            
  Net loss                                                   $(7,637)    $(5,086)

  Adjustments to reconcile net loss to net cash provided by                      
   operations:                                                                   
    Depreciation and amortization                                415         277 
    Amortization of deferred compensation                        127         101 
    Loss on disposal of assets                                    12          -  
  Changes in operating assets and liabilities:                                   
    Accounts receivable                                         (187)        (93)
    Inventories                                                 (543)       (209)
    Other current assets                                          28         (70)
    Restricted cash                                               22          20 
    Other assets                                                 (17)        475 
    Accounts payable                                             142        (525)
    Accrued compensation                                          15          60 
    Other current liabilities                                    (43)         41 
    Deferred rent                                                (24)        (25)
                                                             -------     ------- 
      Net cash used in operating activities                   (7,690)     (5,034)

CASH FLOWS FROM INVESTING ACTIVITIES:                                            
  Purchases of short-term investments                           (517)          - 
  Maturities and sales of short-term investments               4,787           - 
  Capital expenditures                                          (342)       (717)
                                                             -------     ------- 
    Net cash used in investing activities                      3,928        (717)

CASH FLOWS FROM FINANCING ACTIVITIES:                                            
  Principal payments under capital leases                       (332)       (210)
  Net proceeds from issuance of preferred stock                    -      13,442 
  Payments under notes payable                                    (7)     (1,674)
  Net proceeds from sale of common stock                         194      13,765 
  Proceeds from sale/leaseback of capital equipment              341           - 
                                                             -------     ------- 
    Net cash provided by financing activities                    196      25,323 
                                                             -------     ------- 

NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS          (3,566)     19,572 

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                 8,578         907 
                                                             -------     ------- 

CASH AND CASH EQUIVALENTS, END OF PERIOD                     $ 5,012     $20,479 
                                                             =======     ======= 

5 

10-Q 6th Page of 27 TOC 1st Previous Next ↓Bottom Just 6th
CARDIMA, INC. 

NOTES TO FINANCIAL STATEMENTS 
JUNE 30, 1998 
(Unaudited) 

1.   BASIS OF PRESENTATION                                                      

The accompanying unaudited financial statements have been prepared by the       
Company according to the rules and regulations of the Securities and Exchange   
Commission for interim financial information and in accordance with the         
instructions to Form 10-Q and Article 10 of Regulation S-X.  Accordingly, they  
do not include all of the financial information and footnotes required by       
generally accepted accounting principles for complete financial statements.  In 
the opinion of management, all adjustments (consisting of normal recurring      
adjustments) considered necessary for a fair presentation have been included.   

The operating results for the three-month and six month periods ended June 30,  
1998 are not necessarily indicative of the results that may be expected for the 
fiscal year ending December 31, 1998.  The accompanying financial statements    
should be read in conjunction with the audited financial statements and notes   
thereto included in the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1997.                                                        

2.   BALANCE SHEET COMPONENTS                                                   

Certain balance sheet components are as follows (in thousands):                 

                                                                [Download Table]

                                           June 30,         December 31,  
                                             1998              1997/1/    
                                      -----------------  -----------------
                                                                          
Inventories:                                                              
      Raw materials                        $   218            $   209     
       Work-in-process                         403                119     
       Finished goods                          454                204     
                                           -------            -------     
                                           $ 1,075            $   532     
                                           =======            =======     
Property and equipment:                                                   
       Equipment                             4,512              3,715     
       Leasehold improvements                   99                 99     
                                           -------            -------     
                                           $ 4,611            $ 3,814     
       Less accumulated depreciation        (1,694)            (1,326)    
                                           -------            -------     
                                           $ 2,917            $ 2,488     
                                           =======            =======     

----------                                                                      
/1/   The information in this column was derived from the Company's audited     
financial statements as of December 31, 1997.                       

6 

10-Q 7th Page of 27 TOC 1st Previous Next ↓Bottom Just 7th
NOTES TO FINANCIAL STATEMENTS (continued) 
(Unaudited) 

3.   NET LOSS PER SHARE                                                         

In 1997, the Financial Accounting Standards Board issued Statement No. 128,     
"Earnings Per Share," ("SFAS 128").  SFAS 128 replaced the calculation of       
primary and fully diluted earnings per share with basic and diluted earnings per
share.  Unlike primary earnings per share, basic earnings per share excludes any
dilutive effect of options, warrants and convertible securities.  Diluted       
earnings per share is very similar to the previously reported fully diluted     
earnings per share.  All earnings per share amounts for all periods have been   
restated to conform to the SFAS 128 requirements.  Effective February 3, 1998,  
Staff Accounting Bulletin No. 98 ("SAB 98") was issued and amends the existing  
SEC staff guidance primarily to give effect to SFAS 128.  Topic 4.D of SAB 98   
essentially eliminates the cheap stock (convertible preferred stock, redeemable 
convertible preferred stock, common stock and common equivalent shares issued by
the Company at prices below the initial public offering price during the twelve-
month period prior to the offering) calculation from an initial public offering.

The Company has excluded all convertible debt, convertible preferred stock,     
warrants and employee stock options from the computation of basic and diluted   
earnings per share because all such securities are anti-dilutive for all periods
presented.                                                                      

The following table sets forth the computation of basic and diluted earnings per
share (in thousands except for per share data):                                 

                                                        [Enlarge/Download Table]

                                               Three Months Ended June 30,            Six Months Ended June 30,      
                                                1998                 1997             1998                 1997      
                                           --------------       --------------   --------------       -------------- 
                                                                                                                     
Net loss                                          $(3,788)             $(2,761)         $(7,637)             $(5,086)
                                                  =======              =======          =======              ======= 
   Weighted average shares outstanding....          8,186                2,280            8,160                1,178 
                                                  -------              -------          -------              ------- 
Shares used to compute basic and diluted                                                                             
 net loss per share.......................          8,186                2,280            8,160                1,178 
                                                  =======              =======          =======              ======= 
Basic and diluted net loss per share......        $ (0.46)             $ (1.21)         $ (0.94)             $ (4.32)
                                                  =======              =======          =======              ======= 

Pro forma net loss per share for 1997 has been computed as described above and  
also gives effect, pursuant to SEC staff policy, to the conversion of           
convertible preferred shares not included above that were converted upon        
completion of the Company's initial public offering (using the "if converted"   
method) from the original date of issuance.                                     

Pro forma basic and diluted net loss per share information for the three and six
month periods ended June 30, 1997 is as follows (in thousands except for per    
share data):                                                                    

7 

10-Q 8th Page of 27 TOC 1st Previous Next ↓Bottom Just 8th
                                                        [Enlarge/Download Table]

                                                           Three Months Ended       Six Months Ended   
                                                              June 30, 1997           June 30, 1997    
                                                         ----------------------  ----------------------
                                                                                                       
Net loss................................................        $(2,761)                $(5,086)       
                                                                =======                 =======        
Shares used in computing basic and diluted net loss per                                                
 share..................................................          2,280                   1,178        
Adjusted to reflect assumed conversion of preferred                                                    
 stock at the date of issuance..........................          4,153                   3,761        
                                                                -------                                
Shares used in computing pro forma basic and diluted                                                   
 loss per share.........................................          6,433                   4,939        
                                                                =======                 =======        
Pro forma basic and diluted net loss per share..........        $ (0.43)                $ (1.03)       
                                                                =======                 =======        

4.   LINE OF CREDIT                                                             

In June 1998, the Company secured a $3.0 million line of credit which may be    
used for general working capital purposes.  The payment of the line of credit is
interest only for the first six months, interest and principal for months seven 
through thirty-six and a balloon payment at the end of the term, if fully       
utilized.  As of June 30, 1998, $3.0 million of borrowing capacity remained     
available to the Company under this line of credit.                             

8 

10-Q 9th Page of 27 TOC 1st Previous Next ↓Bottom Just 9th
ITEM  2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND       
RESULTS OF OPERATIONS                                       

This Form 10-Q, including management's discussion and analysis of financial     
condition and results of operations, contains "forward-looking statements"      
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended, including,      
without limitation, statements regarding regulatory approvals, operating results
and capital requirements.  Except for historical information, the matters       
discussed in this Form 10-Q, are forward-looking statements that are subject to 
certain risks and uncertainties that could cause actual results to differ       
materially from those projected.  Such factors include the Company's ability to 
conduct successful clinical trials, obtain timely regulatory approvals and gain 
acceptance from the marketplace for its products, as well as the risk factors   
discussed below in "Factors Affecting Future Results" and those listed from time
to time in the Company's SEC reports.  The Company assumes no obligation to     
update the forward-looking statements included in this Form 10-Q.               

OVERVIEW                                                                        

The Company                                                                     

Since its incorporation in November 1992, Cardima has been engaged in the       
design, research, development, manufacturing and testing of microcatheter       
systems for the mapping (diagnosis) and ablation (treatment) of cardiac         
arrhythmias.  Cardima has generated revenues of approximately $3.4 million from 
inception to June 30, 1998, which until January 1997 were primarily in Europe   
and Japan, from sales of the Cardima Pathfinder and Tracer microcatheter systems
for diagnosing Ventricular Tachycardia (VT) and the Revelation microcatheter    
system for diagnosing Atrial Fibrillation (AF), as well as ancillary products   
such as the Venaport guiding catheters.  In January 1997, the Company received a
510(k) clearance in the United States and began to market and sell the Cardima  
Pathfinder system for diagnosing VT.  As a result, the Company has derived a    
majority of its revenues in 1997 and 1998 in the United States from sales of the
Cardima Pathfinder for diagnosis of VT.  In November 1997, the Company received 
a 510(k) clearance in the United States and began to market and sell the        
Revelation microcatheter for diagnosing AF.  To date, the Company's             
international sales have been made primarily through distributors who sell the  
Company's products to physicians and hospitals.                                 

The Company has obtained the right to affix the CE mark to its Cardima          
Pathfinder, Tracer and Cardima Revelation microcatheter systems, permitting the 
Company to market these products in the member countries of the European Union  
("EU").  The Company received 510(k) clearances for the Revelation microcatheter
for mapping of AF in November 1997,  for the Vueport balloon guiding catheter in
July 1998, and the Cardima Pathfinder Mini microcatheter for mapping VT in July 
1998.  The Company is seeking 510(k) clearance for its Tracer mapping catheter  
and its Naviport deflectable tip guiding catheter.  The Company will be required
to conduct clinical trials, demonstrate safety and effectiveness and obtain PMA 
approval from the FDA in order to sell any of the Company's products designed   
for treatment of AF or VT in the United States.  Specifically, PMA approval will
be required prior to the introduction in the United States of the Revelation Tx 
microcatheter system for treatment of AF or Therastream microcatheter system for
treatment of VT.                                                                

The Company has a limited history of operations and has experienced significant 
operating losses since inception.  The Company expects that its operating losses
will continue for the foreseeable future as the                                 

9 

10-Q 10th Page of 27 TOC 1st Previous Next ↓Bottom Just 10th
Company continues to invest substantial resources in product development,       
preclinical and clinical trials, obtaining regulatory approval, sales and       
marketing and manufacturing.                                                    

RESULTS OF OPERATIONS - THREE AND SIX MONTHS ENDED 1998 AND 1997                

Net Sales                                                                       

Net sales for the quarter ended June 30, 1998 increased 96% to $625,000 from    
$319,000 in the same period in 1997.  Net sales for the six month period ended  
June 30, 1998 increased 110% to $1,126,000 from $536,000 in the same period in  
1997.  Each of these increases is primarily due to U.S. sales of the Cardima    
Pathfinder and Revelation lines of microcatheters for diagnosis of VT and AF,   
respectively, following FDA clearance in January 1997 and November 1997,        
respectively.  U.S. sales for the quarter ended June 30, 1998 increased 119% to 
$451,000 from $206,000 in the same period in 1997.  U.S. sales for the six month
period ended June 30, 1998 increased 155% to $829,000 from $325,000 in the same 
period in 1997.                                                                 

Cost of Goods Sold                                                              

Cost of goods sold primarily includes raw materials costs, catheter fabrication 
costs, system assembly, test costs and manufacturing overhead.  Cost of goods   
sold for the quarter ended June 30, 1998 increased 30% to $595,000 from $457,000
in the same period in 1997.  Cost of goods sold for the six month period ended  
June 30, 1998 increased 62% to $1,343,000 from $831,000 in the same period in   
1997.  The increase is due primarily to the increase in sales volume and        
associated manufacturing staff additions.                                       

Research and Development Expenses                                               

Research and development expenses for the quarter ended June 30, 1998 increased 
80% to $1,908,000 from $1,059,000 in the same period in 1997.  Research and     
development expenses for the six month period ended June 30, 1998 increased 91% 
to $3,571,000 from $1,869,000 in the same period in 1997.  The increase is due  
primarily to staff additions and associated expenses in research and development
and clinical and regulatory areas incurred as the Company increased human       
resources to meet development program goals and increased expenses for clinical 
trials in both Europe and the U.S.                                              

Selling, General and Administrative Expenses                                    

Selling, general and administrative expenses for the quarter ended June 30, 1998
increased 20% to $1,980,000 from $1,646,000 in the same period in 1997.         
Selling, general and administrative expenses for the six month period ended June
30, 1998 increased 35% to $4,027,000 from $2,976,000 in the same period in 1997.
Selling expenses for the quarter ended June 30, 1998 increased 47% to $853,000  
from $582,000 in the same period in 1997.  Selling expenses for the six month   
period ended June 30, 1998 increased 70% to $1,793,000 from $1,057,000 in the   
same period in 1997.  The increase is due primarily to costs associated with the
expansion of the Company's U.S. sales force, the ongoing establishment of a     
direct sales force in several major markets in Europe and the commencement of   
clinical trials, which requires training of participating physicians by sales   
and clinical specialists.  General and administrative expenses for the quarter  
ended June 30, 1998 decreased two percent to $620,000 from $631,000 in the same 
period in 1997.  General and administrative expenses for the six month period   
ended June 30, 1998 increased 18% to $1,286,000 from $1,094,000 in the same     
period in 1997.  The decrease for the quarter ended June 30, 1998 is due        
primarily to lower recruiting expenses in 1998 compared to expenses incurred    

10

10-Q 11th Page of 27 TOC 1st Previous Next ↓Bottom Just 11th
in the same period in 1997. The increase for the six month period ended June 30,
1998 is due primarily to additional staff and expenses related to the           
requirements of a public company. Marketing expenses for the quarter ended June 
30, 1998 increased 17% to $507,000 from $433,000 in the same period in 1997.    
Marketing expenses for the six month period ended June 30, 1998 increased 15% to
$948,000 from $825,000 in the same period in 1997. The increase is due primarily
to additional staff and expenses related to the development of marketing        
materials and programs to address new product introductions.                    

Interest and Other Income                                                       

Interest and other income for the quarter ended June 30, 1998 remained at the   
same level of  $110,000 as in the same period in 1997.  Interest and other      
income for the six month period ended June 30, 1998 increased to $254,000 from  
$135,000 in the same period in 1997.  The increase for the six month period     
ended June 30, 1998 is due primarily to larger cash and cash equivalent balances
as a result of the Company's initial public offering in June 1997.              

Interest Expense                                                                

Interest expense for the quarter ended June 30, 1998 increased to $40,000 from  
$28,000 in the same period in 1997.  Interest expense for the six month period  
ended June 30, 1998 decreased to $76,000 from $81,000 in the same period in     
1997.  The increase for the quarter ended June 30, 1998 is due primarily to     
higher borrowing levels for purchases of capital equipment.  The decrease for   
the six month period ended June 30, 1998, compared to the same period in 1997 is
due primarily to the conversion of all Notes Payable into shares of series E    
preferred stock in March 1997.                                                  

LIQUIDITY AND CAPITAL RESOURCES                                                 

The Company has financed its operations to date principally through private     
placements of equity securities, which have yielded net proceeds of $32.1       
million as of June 30, 1998, together with interest income on such proceeds, an 
initial public offering of Common Stock in June 1997, which yielded net proceeds
of approximately $13.6 million, and equipment leases, which have totaled $2.6   
million for the acquisition of certain capital equipment.  As of June 30, 1998, 
the Company had approximately $5.0 million in cash and cash equivalents.        

Net cash used in operating activities was approximately $7.7 million and $5.0   
million for the six months ended June 30, 1998 and 1997, respectively, resulting
primarily from operating losses incurred during such periods.  Net cash provided
by investing activities was approximately $3.9 million for the six months ended 
June 30, 1998, which was attributable primarily to maturities and sales of      
short-term investments.   Net cash used was approximately $717,000 for the six  
months ended June 30, 1997, which was attributable primarily to capital         
expenditures.  Net cash provided by financing activities was approximately      
$196,000 and $25.3 million for the six months ended June 30, 1998 and 1997,     
respectively, resulting primarily from the Company's financing equipment through
its established lease line, the Company's sale of equity securities in private  
placement transactions and the Company's initial public offering in June 1997.  

In February 1998, the Company entered into an equipment lease that permits the  
Company up to $1.5 million of financing for the purchase of office and          
manufacturing equipment, software and custom-built equipment.  In June 1998, the
Company secured a $3.0 million line of credit which may be used for general     

11

10-Q 12th Page of 27 TOC 1st Previous Next ↓Bottom Just 12th
working capital purposes.  As of June 30, 1998, $1.0 million and $3.0 million of
borrowing capacity remained available to the Company under these lines.  The    
Company's future liquidity and capital requirements will depend upon numerous   
factors, including the progress of the Company's product development efforts,   
the progress of the Company's clinical trials, actions relating to regulatory   
matters, the costs and timing of expansion of product development,              
manufacturing, sales and marketing activities, the extent to which the Company's
products gain market acceptance, and competitive developments.  The Company     
believes that available cash, a line of credit and lease lines will be          
sufficient to meet the Company's operating expenses and capital requirements    
through the balance of 1998.  There can be no assurance, however, that the      
Company will not require additional financing during that period, or that if    
required, such additional financing will be available on terms acceptable to the
Company, if at all.  The Company may seek to raise additional funds through     
public or private financing, collaborative relationships or other arrangements. 
There can be no assurance that such additional funding, if needed, will be      
available on terms acceptable to the Company, if at all.  Furthermore, any      
additional equity financing may be dilutive to stockholders, and debt financing,
if available, may involve restrictive covenants.  Collaborative arrangements, if
necessary to raise additional funds, may require the Company to relinquish its  
rights to certain of its technologies, products or marketing territories.  The  
failure of the Company to raise capital when needed would have a material       
adverse effect on the Company's business, financial condition and results of    
operations.                                                                     

FACTORS AFFECTING FUTURE RESULTS                                                

History of Losses and Expectation of Substantial Future Losses                  

Since inception, the Company has experienced losses and expects to experience   
substantial net losses for the foreseeable future.  To date, sales of the       
Company's microcatheter systems have been limited.  The Company had net losses  
of approximately $12.3 million and $7.8 million for the Company's fiscal years  
ended 1997 and 1996, respectively, and $7.6 million for the six months ended    
June 30, 1998.  As of June 30, 1998, the Company had an accumulated deficit of  
approximately $38.1 million.  The Company expects to incur substantial net      
operating losses for the foreseeable future as a result of research and product 
development, clinical trials, manufacturing, sales, marketing and other expenses
expected to be incurred as the Company further develops, seeks regulatory       
approvals, tests and distributes its microcatheter systems.  The Company's      
limited operating history makes accurate prediction of future operating results 
difficult or impossible.  There can be no assurance that the Company will ever  
generate substantial revenue or achieve profitability.  Failure by the Company  
to generate substantial revenues would have a material adverse effect on the    
Company's business, financial condition and results of operations.              

Future Additional Capital Requirements;  No Assurance Future Capital Will be    
Available                                                                       

The Company's future liquidity and capital requirements will depend on numerous 
factors, including: the progress of the Company's clinical research and product 
development programs; the receipt of, and the time required to obtain,          
regulatory clearances and approvals; the costs and timing of expansion of       
product development, manufacturing and sales and marketing activities; the      
extent to which the Company's products gain market acceptance; competitive      
developments; and other factors.  In February 1998, the                         

12

10-Q 13th Page of 27 TOC 1st Previous Next ↓Bottom Just 13th
Company entered into an equipment lease agreement that permits the Company to   
finance up to $1.5 million of office and manufacturing equipment, software and  
custom built equipment. In June 1998, the Company secured a $3.0 million line of
credit which may be used for general working capital purposes. As of June 30,   
1998, $1.0 million and $3.0 million of borrowing capacity remained available to 
the Company under these lines. The Company believes that available cash, a line 
of credit and lease lines will be sufficient to meet the Company's operating    
expenses and capital requirements through the balance of 1998. In addition, if  
unforeseen difficulties arise in the course of developing its products,         
performing clinical trials, obtaining necessary regulatory clearances and       
approvals or other aspects of the Company's business, the Company may be        
required to invest greater-than-anticipated funds. As a consequence, the Company
will be required to raise additional funds through public or private debt or    
equity financings, collaborative relationships, bank facilities or other        
arrangements. There can be no assurance that, if additional financing is needed,
it will be available on terms acceptable to the Company, if at all. Any         
additional equity financing may be dilutive to stockholders, and debt financing,
if available, may involve restrictive covenants.                                

No Assurance of Safety and Effectiveness; Early Stage of Product Development    

To date, the Company has completed two clinical trials and has received three   
510(k) pre-market clearances from the FDA with respect to its Cardima Pathfinder
and Pathfinder Mini microcatheter systems for venous mapping of VT and          
Revelation microcatheter system for mapping and pacing of the atria.  The       
Company also received 510(k) clearance for the Vueport guiding catheter in June 
1998 and is seeking 510(k) clearance for its Tracer mapping catheter and its    
Naviport deflectable tip guiding catheter.  Failure to obtain clearances for the
Company's other diagnostic products and guiding catheters under development on a
timely basis would have a material adverse effect on the Company's business,    
financial condition and results of operations.                                  

The Company is in the early stage of developing, testing and obtaining          
regulatory approval for its microcatheter systems designed for ablation of AF   
and VT.  The Company is currently developing the Revelation Tx microcatheter    
system for ablation of AF and the Therastream microcatheter system for ablation 
of VT.  The Company is required to obtain an IDE from the FDA prior to          
conducting human clinical trials of its microcatheter systems for ablation.  The
Company filed an IDE for clinical testing of the Revelation microcatheter system
for the mapping and ablation of AF in January 1997.  The Company completed the  
mapping phase of this feasibility study in August 1997 and began treating the   
first patient in the ablation phase with the Revelation Tx microcatheter system 
in March 1998.  The Company currently expects to file an IDE to begin clinical  
testing of its Therastream microcatheter system for VT ablation in 1998.  The   
Company must complete these clinical trials and a pivotal trial, if initiated,  
prior to the filing of a PMA, and must receive PMA approval prior to marketing  
such products for ablation in the United States.  Clinical trials of the        
Company's microcatheter systems will require substantial financial and          
management resources of the Company and the completion of such trials will take 
several years.  There can be no assurance that necessary IDEs will be granted by
the FDA, that human clinical trials, if initiated, will be completed or that    
these clinical studies will validate the results of the Company's pre-clinical  
studies or demonstrate that such products are safe and effective.  In addition, 
the clinical trials may identify significant technical or other obstacles to be 
overcome prior to obtaining necessary regulatory approvals or market acceptance.
The failure of the Company to initiate and complete clinical trials, demonstrate
product safety and clinical effectiveness, or obtain regulatory approval for the
use of the Company's microcatheter systems for the ablation of AF or VT would   
have a material adverse effect on the Company's business, financial condition   
and results of operations.                                                      

Uncertainty of Product and Procedure Acceptance                                 

13

10-Q 14th Page of 27 TOC 1st Previous Next ↓Bottom Just 14th
The Company's microcatheter systems represent a novel approach to the mapping   
and ablation of AF and VT.  Acceptance of the Company's products and procedures 
by physicians, patients and health care payors will be necessary in order for   
the Company to be successful.  The Company's microcatheter systems for the      
mapping and ablation of AF and VT are new technologies that must compete with   
more established treatments such as drugs, external electrical cardioversion and
defibrillation, implantable defibrillators, purposeful destruction of the Atrio-
Ventricular ("AV") node followed by implantation of a pacemaker, and open heart 
surgery.  It is likely that physicians will not recommend the use of the        
Company's microcatheter systems unless they conclude, based on clinical data and
other factors, that these systems provide a safe, effective and cost-efficient  
alternative to established or emerging approaches to the mapping and ablation of
AF and VT.  Although the Company has received regulatory clearance to market the
Cardima Pathfinder and Pathfinder Mini microcatheter systems for mapping VT and 
the Revelation microcatheter system for mapping AF, none of the products        
currently being developed by Cardima for ablation of AF and VT has received     
regulatory approval in the United States.  Even if the Company's ablation       
products are successfully developed and the required regulatory approvals are   
obtained, there can be no assurance that such products and the associated       
procedures will ultimately gain any significant degree of market acceptance.    
Since the Company's sole product focus is to design and market microcatheter    
systems to map and ablate AF and VT, the failure to successfully commercialize  
these systems would have a material and adverse affect on the Company's         
business, financial condition and results of operations.                        

Risks Regarding Products and Procedures Designed for Mapping and Ablation of AF 

Cardima is developing its Revelation Tx microcatheter system for mapping and    
ablation of AF.  Currently, there is considerable clinical debate about the need
for mapping AF prior to ablation, and no mapping is performed during the open   
heart surgical maze procedure.  However, the Company believes that mapping prior
to ablation may be useful to identify different segments of the AF population,  
each of which could require slightly different mapping and ablation procedures. 
For example, some electrophysiologists believe most AF patients will need to be 
mapped and ablated in both the left and right atria, while others believe only  
the right atrial intervention is warranted.  Market acceptance of this product  
for mapping will depend largely on a determination that there is a clinical need
for diagnostic mapping prior to ablation of AF.  The Revelation Tx ablation     
procedure may require the use of RF energy in both the right and left atria to  
produce lesions.  In general, the use of RF energy in the left atrium has the   
potential to create blood clots, which could travel through the vasculature to  
the brain and may cause a stroke.  Consequently, physicians may not recommend   
this procedure, in which event the Revelation Tx  would be unlikely to gain     
market acceptance.  The failure of the Company to complete development of the   
Revelation Tx  or to gain regulatory approval with respect to the Revelation Tx 
for ablation of AF, demonstrate safety, clinical effectiveness or cost          
effectiveness, gain wide market acceptance or successfully commercialize the    
Revelation Tx for the mapping and ablation of AF would have a material adverse  
effect on the Company's business, financial condition and results of operations.

14

10-Q 15th Page of 27 TOC 1st Previous Next ↓Bottom Just 15th
Risks Regarding Products and Procedures Designed for Mapping and Ablation of VT 

The Cardima Pathfinder and Tracer microcatheter systems for VT mapping are      
designed for use inside the vasculature of the heart wall and to provide access 
to the vasculature of the heart through the venous system.  To achieve market   
acceptance, the Company will need to demonstrate the safety and cost            
effectiveness of the Cardima Pathfinder and Tracer microcatheter systems for VT 
mapping, of which there can be no assurance.  In addition, electrophysiologists 
will need to be specially trained to perform this procedure, which may further  
impede market acceptance.  There can be no assurance that the Cardima Pathfinder
or Tracer microcatheter systems for VT mapping will ever achieve market         
acceptance, or in the case of the Tracer microcatheter system, be cleared for   
marketing by the FDA, or be successfully commercialized in the United States or 
internationally.  The inability of the Company to gain wide market acceptance or
successfully commercialize the Cardima Pathfinder and Tracer microcatheter      
systems for VT mapping would have a material adverse effect on the Company's    
business, financial condition and results of operations.                        

The Company's Therastream microcatheter system is being developed for ablation  
of VT using RF energy, which could cause damage to the arteries and veins of the
heart, potentially leading to myocardial infarction and even death.             
Consequently, physicians may not recommend this procedure, in which event the   
Therastream would be unlikely to gain market acceptance.  Failure of the Company
to gain market acceptance or successfully commercialize the Therastream would   
have a material adverse effect on the Company's business, financial condition   
and results of operations.                                                      

Fluctuations in Operating Results                                               

The Company's results of operations may fluctuate significantly from quarter to 
quarter or year to year depending upon a number of factors, including actions   
relating to regulatory matters, progress of pre-clinical and clinical trials,   
the extent to which the Company's products gain market acceptance, the scale-up 
of manufacturing capabilities, the expansion of sales and marketing activities, 
competition, the timing of new product introductions by the Company or its      
competitors and the ability of the Company to market its products successfully  
in the United States and internationally.  Although the Cardima Pathfinder and  
Tracer microcatheter systems are labeled for single use only, the Company is    
aware that some physicians are reusing these products. Reuse of the Company's   
microcatheter systems would reduce revenues from product sales and could have a 
material adverse effect on future performance and periodic operating results.   
Due to such fluctuations in operating results, period to period comparisons of  
the Company's revenues and operating results are not necessarily meaningful and 
should not be relied upon as indicators of likely future performance or annual  
operating results.                                                              

No Assurance of Obtaining Required Regulatory Approvals; Government Regulation  

The pre-clinical and clinical testing, manufacturing, labeling, distribution and
promotion of the Company's products are subject to extensive and rigorous       
government regulation in the United States and other countries.  Noncompliance  
with applicable requirements can result in enforcement actions by the FDA       
including, among other things, fines, injunctions, civil penalties, recall or   
seizure of products, refusal of the FDA to grant pre-market clearances or       
approvals, withdrawal of marketing approvals and criminal prosecution.  Any such
action would have a material adverse effect on the Company's business, financial
condition and results of operations.                                            

The Company is prohibited from marketing its products in the United States      
unless it obtains 510(k) clearance or PMA approval from the FDA.  The Company   
believes that it usually takes up to 12 months                                  

15

10-Q 16th Page of 27 TOC 1st Previous Next ↓Bottom Just 16th
from submission to obtain 510(k) clearance, but that it can take longer. The    
Cardima Pathfinder and Cardima Pathfinder Mini microcatheter systems for mapping
VT and Revelation microcatheter system for mapping AF have each received 510(k) 
clearance. The Company believes that its other mapping products will also be    
eligible for 510(k) clearance, and has submitted a 510(k) pre-market            
notification for the Tracer product. The Company has also submitted a 510(k)    
pre-market notification for the Naviport deflectable tip guiding catheter. These
submissions may need to include clinical trial data. There can be no assurance, 
however, that any of these types of products will receive 510(k) clearance in a 
timely fashion, if at all. Delays in market introduction resulting from the     
510(k) clearance process could have a material adverse effect on the Company's  
business, financial condition and results of operations.                        

The Company will be required to seek PMA approval for its ablation products,    
including the Revelation Tx  and the Therastream microcatheters for ablation.   
The process of obtaining PMA approval is much more costly, lengthy and uncertain
than the 510(k) clearance process.  The Company believes that the FDA's review  
of a PMA application after filing can last from one to three years, or even     
longer.  In order to prepare a PMA application, the Company will be required to 
complete clinical trials to demonstrate the safety and effectiveness of these   
products. The Company submitted an IDE for the Revelation microcatheter system  
for mapping and ablation of AF in January 1997, and completed a mapping study at
Stanford University Hospital and Massachusetts General Hospital in September    
1997.  In addition, the Company received conditional IDE approval in January    
1998 and full approval in March 1998 for a feasibility clinical study for AF    
ablation using the Revelation Tx microcatheter system.  The Company expects to  
file an additional IDE and begin its clinical trials for the Therastream        
microcatheter system in the second half of 1998.  There can be no assurance that
any clinical study that the Company proposes will be permitted by the FDA, will 
be completed or, if completed, will provide data and information that supports  
additional clinical investigations of the type necessary to obtain PMA approval.
The Company expects that a PMA application will not be submitted for at least   
one year, if at all.  No assurance can be given that the Company will ever be   
able to obtain PMA approval for any of its ablation products.  Failure of the   
Company to obtain timely PMA approval would have a material adverse effect on   
the Company's business, financial condition and results of operations.          

The Company is subject to periodic inspection by the FDA and the California     
Department of Health Services, and must comply with various other regulatory    
requirements that apply to medical devices marketed in the United States,       
including labeling regulations, the Quality System Regulation ("QSR") (which    
includes elaborate testing, control, documentation and other quality assurance  
procedures), the Medical Device Reporting regulation (which requires that a     
manufacturer report to the FDA certain types of adverse events involving its    
products), and the FDA's prohibitions against promoting approved products for   
unapproved ("off-label") uses.  The Company's failure to comply with applicable 
regulatory requirements could result in enforcement action by the FDA, which    
could have a material adverse effect on the Company's business, financial       
condition and results of operations.                                            

Sales of medical devices outside the United States are subject to international 
regulatory requirements that vary from country to country.  The time required   
for approval varies from country to country and may be longer or shorter than   
the time required in the United States.  The Company has obtained the requisite 
approvals by means of the CE mark and TGA approval to sell the Cardima          
Pathfinder, Cardima Pathfinder Mini, Revelation and Tracer for mapping in the   
European Union ("EU") and Australia, respectively, to sell the Cardima          
Pathfinder, Cardima Pathfinder Mini, Revelation and Tracer in Japan and to sell 
the Cardima Pathfinder, Tracer, Vueport and Naviport in Canada.  The Company    
also received CE mark approval on August 4, 1998 to sell the Revelation         
microcatheter for treatment of AF in the EU. The Company has ongoing clinical   
trials in the EU for its AF ablation products, and has submitted this data to   
support its application for CE mark. There can be no assurance the Company will 
be successful in obtaining such approvals.                                      
16

10-Q 17th Page of 27 TOC 1st Previous Next ↓Bottom Just 17th
Failure to receive approval to affix the CE mark would prohibit the Company from
selling these products in member countries of the EU, and would require         
significant delays in obtaining individual country approvals. No assurance can  
be given that such approvals will ever be obtained. In such event, the Company's
business, financial condition and results of operations would be materially and 
adversely affected.                                                             

Rapid Technological Change; Significant Competition                             

The medical device industry is characterized by rapid and significant           
technological change.  Accordingly, the Company's success will depend in part on
its ability to respond quickly to medical discoveries and technological changes,
including changes in the capital equipment with which the Company's             
microcatheter systems are designed to be compatible.  Product development       
involves a high degree of risk, and there can be no assurance that the Company's
new product development efforts will result in any commercially successful      
products.  Failure by the Company to respond to and develop new technologies    
could have a material adverse effect on the Company's business, financial       
condition and results of operations.                                            

The Company's microcatheter systems for the mapping and ablation of AF and VT   
are new technologies that must compete with more established treatments such as 
drugs, external electrical cardioversion and defibrillation, implantable        
defibrillators, purposeful destruction of the AV node followed by implantation  
of a pacemaker, and open heart surgery.  In the market for cardiac mapping and  
ablation devices, the Company believes that the primary competitive factors are 
safety, effectiveness, ease of use and overall system cost.  In addition, the   
length of time required for products to be developed and to receive regulatory  
and, in some cases, reimbursement approval are important competitive factors.   
Several of the Company's competitors are currently marketing and selling        
catheters in the United States and internationally that map and ablate a type of
arrhythmia known as supraventricular tachycardia ("SVT").  In addition, several 
competitors are also developing new approaches and new products for the mapping 
and ablation of AF and VT.  These approaches include mapping systems using      
contact mapping, single-point spatial mapping and non-contact, multi-site       
electrical mapping technologies, and ablation systems using RF, ultrasound,     
microwave, laser and cryoablation technologies.  In addition, companies are     
developing surgical procedures that could potentially be used by physicians to  
perform the open heart surgical maze procedure for the treatment of AF in a     
minimally invasive manner.  If any of these new approaches or new products prove
to be safe and effective, the Company's products could be rendered              
noncompetitive or obsolete, which could have a material adverse effect on the   
Company's business, financial condition and results of operations.              

Many of the Company's competitors have an established presence in the field of  
interventional cardiology and electrophysiology, including Boston Scientific,   
C.R. Bard, Inc., Johnson & Johnson, through its Cordis division, St. Jude       
Medical, Inc., through its Daig division, and Medtronic, Inc.  These competitors
have substantially greater financial and other resources than the Company,      
including larger research and development staffs and more experience and        
capabilities in conducting research and development activities, testing products
in clinical trials, obtaining regulatory approvals, and manufacturing, marketing
and distributing products.  In addition, other companies are developing         
proprietary systems for the diagnosis and treatment of cardiac arrhythmias,     
including Biosense, Inc. a division of Johnson and Johnson, Cardiac Pathways,   
Inc. and Endocardial Solutions, Inc.  Other companies develop, market and sell  
alternative approaches to the treatment of AF and VT, including Guidant         
Corporation, Medtronic, Inc., and Ventritex, Inc., a subsidiary of St. Jude,    
Inc., the leading manufacturers of implantable defibrillators.  There can be no 
assurance that the Company will succeed in developing and marketing technologies
and products that are more clinically effective and cost-effective than the more
established                                                                     

17

10-Q 18th Page of 27 TOC 1st Previous Next ↓Bottom Just 18th
treatments or the new approaches and products being developed and marketed by   
its competitors. Furthermore, there can be no assurance the Company will succeed
in developing new technologies and products that are available prior to its     
competitors' products. Failure of the Company to demonstrate the competitive    
advantages of its products would have a material adverse effect on the Company's
business, financial condition and results of operations.                        

Dependence on Patents and Proprietary and Licensed Technology; Risk of Patent   
Infringement                                                                    

The Company's success will depend in part on its ability to obtain patent       
protection for its products and processes, to preserve its trade secrets,       
trademarks, copyrights and to operate without infringing or violating the       
proprietary rights of others.  The Company's strategy is to actively pursue     
patent protection in the United States and foreign jurisdictions for technology 
that it believes to be proprietary and that offers a potential competitive      
advantage for its products.  The patent positions of medical device companies,  
including the Company, are uncertain and involve complex and evolving legal and 
factual questions.  The coverage sought in a patent application either can be   
denied or significantly reduced before or after the patent is issued.  In       
addition, the United States patent laws were recently amended to exempt         
physicians, other health care professionals and affiliated entities from        
infringement liability for medical and surgical procedures performed on         
patients.  The Company cannot predict whether this amendment might have a       
material adverse effect on the Company's ability to protect its proprietary     
methods and procedures.                                                         

The Company relies on certain license agreements through which it licenses      
certain technology from others, including technology of Target Therapeutics,    
Inc., a subsidiary of Boston Scientific Corporation, ("Target") that is         
integrated into the Company's microcatheter systems for mapping and ablation.   
Under a license agreement with Target (the "Target License Agreement"), the     
Company has an exclusive license (the "Target License") under certain issued    
United States patents.  The Target License covers the diagnosis and treatment of
electrophysiological disorders in areas other than the central nervous system.  
The Target License will terminate upon the expiration or invalidation of all    
claims under the underlying patents.  In addition, the Company has obtained a   
non-exclusive license to use Target's technology, provided it has made a        
substantial improvement of such technology, for the diagnosis or treatment of   
diseases of the heart, other than using balloon angioplasty.  Under the Target  
License Agreement, Cardima has granted Target an exclusive, royalty-free license
to use any technology developed by Cardima prior to May 1996 in the fields of   
neurology, interventional neuroradiology, interventional radiology, diagnosis   
and treatment of male and female reproductive disorders and vascular prostheses.
The Target License Agreement imposes various commercialization, sublicensing,   
insurance, royalty, product liability, indemnification, non-competition and     
other obligations on the Company.  Failure by the Company to comply with certain
of these requirements could result in a termination of the Target License.  The 
loss of the Company's exclusive rights to the Target-based microcatheter        
technology would have a material adverse effect on the Company's business,      
financial condition and results of operations.                                  

The Company has also licensed a proprietary surface coating material used on    
certain of its catheters.  There can be no assurance that these licenses will   
continue to be available to the Company.  The loss of or inability to maintain  
any of these licenses could result in delays in commercial shipments by the     
Company until equivalent technology could be developed internally or identified,
licensed and integrated, which would have a material adverse effect on the      
Company's business, financial condition and results of operations.              

Although the Company has not received any significant letters from others       
threatening to enforce intellectual property rights against the Company, there  
can be no assurance that the Company will not                                   

18

10-Q 19th Page of 27 TOC 1st Previous Next ↓Bottom Just 19th
become subject to patent infringement claims or litigation, to interference     
proceedings in the USPTO to determine the priority of inventions or to          
oppositions to patent grants in foreign jurisdictions. An adverse determination 
in litigation, interference or opposition proceedings to which the Company may  
become a party could subject the Company to significant liabilities to third    
parties, require disputed rights to be licensed from third parties or require   
the Company to cease using such technology. Under the Company's license         
agreement with Target, the Company is not indemnified against claims brought by 
third parties alleging infringement of patent rights. Consequently, the Company 
could bear the liability resulting from such claims. There can be no assurance  
that the Company will have the financial resources to protect and defend its    
intellectual property, as such defense is often costly and time-consuming.      
Failure of the Company to protect its patent rights, trade secrets, know-how or 
other intellectual property could have a material adverse effect on the         
Company's business, financial condition and results of operations.              

The validity and breadth of claims in medical technology patents involve complex
legal and factual questions and, therefore, may be highly uncertain.  There can 
be no assurance that any issued patent or patents based on pending patent       
applications or any future patent application will exclude competitors or       
provide competitive advantages to the Company, that any of the Company's patents
or patents in which it has licensed rights will be held valid if subsequently   
challenged or that others will not claim rights in or ownership of the patents  
and other proprietary rights held or licensed by the Company.  There can be no  
assurance that others have not developed or will not develop similar products,  
duplicate any of the Company's products or design around any patents issued to  
or licensed by the Company or that may be issued in the future to the Company.  
Since patent applications in the United States are maintained in secrecy until  
patents issue, the Company cannot be certain that others were not the first to  
file applications for inventions covered by the Company's pending patent        
applications, nor can the Company be certain that it will not infringe any      
patents that may be issued to others on such applications.  The Company         
periodically reviews the scope of patents of which it is aware.  Although       
Cardima does not believe that it is infringing patents known to the Company, the
question of patent infringement involves complex legal and factual issues and   
there can be no assurance that any conclusion reached by the Company regarding  
infringement will be consistent with the resolution of any such issues by a     
court.                                                                          

Risks Associated with International Sales                                       

A number of risks are inherent in international transactions.  International    
sales may be limited or disrupted by the imposition of government controls,     
export license requirements, economic or political instability, trade           
restrictions, changes in tariffs or difficulties in staffing and management.    
Additionally, although the Company's sales are denominated in U.S. dollars,     
Cardima's business, financial condition and results of operations may be        
adversely affected by fluctuations in currency exchange rates as well as        
increases in duty rates and difficulties in obtaining export licenses.  The     
financial condition, expertise and performance of the Company's international   
distributors and any future international distributors could affect sales of the
Company's products internationally and could have a material adverse effect on  
the Company's business, financial condition and results of operations.  The     
Company is in the process of hiring, training and establishing a direct sales   
force in certain major European markets.  The ability of the Company to         
effectively operate a remote sales force will require additional resources, time
and expense and could have a material adverse effect on the Company's business, 
financial condition and results of operations.  The international nature of the 
Company's business also subjects it and its employees, representatives, agents  
and distributors to laws and regulations of the international jurisdictions in  
which they operate or in which the Company's products may be sold.  The         
regulation of medical devices in a number of such jurisdictions, particularly in
the EU, continues to develop, and there can be no assurance that new laws or    
regulations will not have a material adverse effect on the Company's business,  
financial                                                                       

19

10-Q 20th Page of 27 TOC 1st Previous Next ↓Bottom Just 20th
condition and results of operations. Foreign regulatory agencies often establish
product standards different from those in the United States and any inability to
obtain foreign regulatory approvals on a timely basis could have a material     
adverse effect on the Company's international business and its financial        
condition and results of operations. In addition, the laws of certain foreign   
countries do not protect the Company's intellectual property rights to the same 
extent as do the laws of the United States. There can be no assurance that the  
Company will be able to successfully commercialize any of its current           
microcatheter products, including the Cardima Pathfinder, Cardima Pathfinder    
Mini, Revelation and Tracer microcatheter systems, or any future product in any 
foreign market.                                                                 

Uncertainty Related to Third-Party Reimbursement                                

U. S. health care providers, including hospitals and physicians, that purchase  
medical devices generally rely on third-party payors, principally federal       
Medicare, state Medicaid and private health insurance plans, to reimburse all or
a part of the costs and fees associated with the procedures performed using     
these devices.  The Company's success will depend upon, among other things, the 
ability of health care providers to obtain satisfactory reimbursement from      
third-party payors for medical procedures in which the Company's microcatheter  
systems are used.  Third-party payors may deny reimbursement if they determine  
that a prescribed device has not received appropriate regulatory clearances or  
approvals, is not used in accordance with cost-effective treatment methods as   
determined by the payor, or is experimental, unnecessary or inappropriate.  If  
FDA clearance or approval is received, third-party reimbursement would also     
depend upon decisions by the United States Health Care Financing Administration 
for Medicare, as well as by individual health maintenance organizations, private
insurers and other payors.  Reimbursement systems in international markets vary 
significantly by country and by region within some countries, and reimbursement 
approvals may be obtained on a country-by-country basis.  Many international    
markets have government managed health care systems that control reimbursement  
for new devices and procedures.  In most markets, there are private insurance   
systems as well as government managed systems.  There can be no assurance that  
reimbursement for the Company's products will be available or, if available,    
that such reimbursement will be available in sufficient amounts in the United   
States or in international markets under either government or private           
reimbursement systems, or that physicians will support and advocate             
reimbursement for procedures using the Company's products.  Failure by hospitals
and other users of the Company's products to obtain reimbursement from third-   
party payors or changes in government and private third-party payor policies    
toward reimbursement for procedures employing the Company's products would have 
a material adverse effect on the Company's business, financial condition and    
results of operations.  Moreover, the Company is unable to predict what         
additional legislation or regulation, if any, relating to the heath care        
industry or third-party coverage and reimbursement may be enacted in the future,
or what effect such legislation or regulation would have on the Company.        

Limited Manufacturing Experience; Scale-Up Risk; Need to Comply with United     
States Manufacturing Standards; Dependence on Key Suppliers                     

The Company has only limited experience in manufacturing its microcatheter      
systems.  The Company currently manufactures its microcatheter systems in       
limited quantities for U. S. and international sales and for pre-clinical and   
clinical trials.  The Company has no experience manufacturing its products in   
the volumes that will be necessary for the Company to achieve significant       
commercial sales, and there can be no assurance that reliable, high-volume      
manufacturing capacity can be established or maintained at commercially         
reasonable costs.  The Company has recently increased the number of             
microcatheters manufactured and expects that, if United States sales for the    
Cardima Pathfinder and Revelation microcatheter systems increase, or if the     
Company receives FDA clearance or approvals for other                           

20

10-Q 21st Page of 27 TOC 1st Previous Next ↓Bottom Just 21st
products, it will need to expend significant capital resources and develop      
manufacturing expertise to establish large-scale manufacturing capabilities.    
Manufacturers often encounter difficulties in scaling up production of new      
products, including problems involving production yields, quality control and   
assurance, component supply shortages, shortages of qualified personnel,        
compliance with FDA regulations, and the need for further FDA approval of new   
manufacturing processes. In addition, the Company believes that substantial cost
reductions in its manufacturing operations will be required for it to           
commercialize its microcatheter systems on a profitable basis. Any inability of 
the Company to establish and maintain large-scale manufacturing capabilities    
would have a material adverse effect on the Company's business, financial       
condition and results of operations.                                            

The Company's manufacturing facilities are subject to periodic inspection by    
regulatory authorities, and its operations must either undergo QSR compliance   
inspections conducted by the FDA or receive an FDA exemption from such          
compliance inspections in order for the Company to be permitted to produce      
products for sale in the United States.  The Company's facilities and           
manufacturing processes are subject to inspections from time to time by the FDA,
State of California and TUV.  The Company has demonstrated compliance with ISO  
9001 (EN 46001) quality standards, as well as compliance with 93/42/EEC, the    
Medical Device Directive and is in compliance with procedures to produce        
products for sale in Europe.  Any failure by the Company to comply with QSR     
requirements or to maintain its compliance with ISO 9001 (EN 46001) standards   
may result in the Company being required to take corrective actions, such as    
modification of its policies and procedures.  In addition, the Company may be   
required to cease all or part of its operations for some period of time until it
can demonstrate that appropriate steps have been taken to comply with QSR or ISO
9001 (EN 46001) standards.  There can be no assurance that the Company will be  
found in compliance with QSR by regulatory authorities, or that it will continue
to comply with ISO 9001 (EN 46001) standards in future audits or that the       
Company will not experience difficulties in the course of developing its        
manufacturing capability.  Any failure of the Company to comply with state or   
FDA QSR requirements or to maintain compliance with ISO 9001 (EN 46001)         
standards, or to develop its manufacturing capability in compliance with such   
standards, would have a material adverse effect on the Company's business,      
financial condition and results of operations.                                  

The Company purchases certain key components of its products, including the     
hydrophilic coating for certain of its microcatheters, from sole, single or     
limited source suppliers.  For certain of these components, there are relatively
few alternative sources of supply.  Establishing additional or replacement      
suppliers for any of the numerous components used in the Company's products, if 
required, may not be accomplished quickly and could involve significant         
additional costs.  Any supply interruption from vendors or failure of the       
Company to obtain alternative vendors for any of the numerous components used to
manufacture the Company's products would limit the Company's ability to         
manufacture its products and would have a material adverse effect on the        
Company's business, financial condition and results of operations.              

Limited Sales, Marketing and Distribution Experience                            

The Company has only limited experience marketing and selling its products in   
commercial quantities.  Expanding the Company's marketing and sales capability  
to adequately support sales in commercial quantities will require substantial   
effort and require significant management and financial resources.  The Company 
has terminated several distribution arrangements in Europe and is in the process
of hiring a direct sales force in France and Germany.  The Company currently has
one salesman in Germany and there can be no assurance that the Company will be  
able to build a European direct sales force, that establishing such a sales     
force will be cost-effective or that the Company's European sales efforts will  
be successful.  The Cardima Pathfinder, Pathfinder Mini, Revelation and Tracer  
microcatheter systems for                                                       

21

10-Q 22nd Page of 27 TOC 1st Previous Next ↓Bottom Just 22nd
mapping of AF and VT have obtained regulatory approval in certain international 
markets, and sales and marketing of these products is often conducted through   
distributors. The Company received CE mark approval on August 4, 1998 to sell   
the Revelation microcatheter for treatment of AF in the EU. The Company         
currently has a number of exclusive distributors that cover certain European    
countries and Japan and has sold only a limited number of Cardima Pathfinder,   
Revelation and Tracer microcatheter systems through these distributors. The     
Company does not have written agreements with certain of its exclusive          
distributors. Consequently, the terms of such arrangements, such as length of   
arrangements and minimum purchase obligations, are uncertain. In addition, the  
laws in certain international jurisdictions may make it difficult and costly for
the Company to terminate such distribution arrangements absent specific written 
termination terms. There can be no assurance that these distributors will be    
able to market and sell the Company's products in these markets. There can be no
assurance that the Company will be able to enter into additional agreements with
desired distributors on a timely basis or at all, or that such distributors will
devote adequate resources to selling the Company's products. Failure to         
establish an adequate sales force or to establish and maintain appropriate      
distribution relationships would have a material adverse effect upon the        
Company's business, financial condition and results of operations.              

Dependence Upon Key Personnel                                                   

The Company's ability to operate successfully depends in significant part upon  
the continued service of certain key scientific, technical, clinical, regulatory
and managerial personnel, and its continuing ability to attract and retain      
additional highly qualified personnel in these areas.  Competition for such     
personnel is intense, especially in the San Francisco Bay Area, and there can be
no assurance that the Company can retain such personnel or that it can attract  
or retain other highly qualified scientific, technical, clinical, regulatory and
managerial personnel in the future, including key sales and marketing personnel.

Risk of Product Liability; Adequacy of Insurance Coverage                       

The development, manufacture and sale of the Company's microcatheter systems may
expose the Company to product liability claims.  Although the Company has not   
experienced any claims to date, there can be no assurance that the Company will 
not experience losses due to product liability claims in the future.  Although  
the Company currently has general liability insurance with coverage in the      
amount of $1.0 million per occurrence, subject to a $2.0 million annual         
limitation, and product liability insurance with coverage in the amount of $5.0 
million per occurrence, subject to a $5.0 million annual limitation, there can  
be no assurance that such coverage will continue to be available to the Company 
on reasonable terms, if at all.  In addition, there can be no assurance that all
of the activities encompassed within the Company's business are or will be      
covered under the Company's policies.  Although the Cardima Pathfinder,         
Pathfinder Mini, Revelation and Tracer products are labeled for single use only,
the Company is aware that some physicians are reusing such products.  Moreover, 
despite labeling of the Company's microcatheters for diagnostic use only, the   
Company believes that physicians are using such mapping microcatheters for      
ablation.  Multiple use or "off-label" use of the Company's microcatheters could
subject the Company to increased exposure to product liability claims, which    
could have a material adverse effect on the Company's business, financial       
condition and results of operations.  The Company may require additional product
liability coverage if the Company significantly expands commercialization of its
products.  Such additional coverage is expensive, difficult to obtain and may   
not be available in the future on acceptable terms, if at all.  Any claims or   
series of claims against the Company, regardless of their merit or eventual     
outcome, could have a material adverse effect on the Company's business,        
financial condition and results of operations.                                  

Impact of the Year 2000 Issue on the Company's Operations                       

22

10-Q 23rd Page of 27 TOC 1st Previous Next ↓Bottom Just 23rd
Many existing computer programs use only two digits to identify a year in the   
date field.  These programs were designed and developed without considering the 
impact of the upcoming change in the century.  If not corrected, many computer  
applications could fail or create erroneous results by or at the Year 2000 (the 
"Year 2000 Issue").  The Company is in the process of performing an assessment  
of the potential impact of the Year 2000 Issue on its operations.  Management is
in the process of formalizing its assessment procedures and developing a plan to
address identified issues.  The Company has evaluated its financial and         
accounting and inventory tracking systems and concluded that they are not       
materially affected by the Year 2000 Issue.  The extent, if any, of the impact  
of the Year 2000 Issue on the other systems and equipment is unknown.  A        
corporate-wide inventory of computer applications is being performed by the     
Company and is expected to be completed by the end of fiscal year 1998, after   
which time the Company will attempt to remedy any issues.  The Company has also 
begun communications with its facilities managers to determine the impact on    
building security and related equipment.  There can be no assurance that all    
third parties will address the Year 2000 Issue in a timely fashion, if at all.  
Any Year 2000 Issue compliance problems of either the Company, its business     
partners or its customers could have a material adverse effect on the Company's 
business, operating results and financial condition.                            

23

10-Q 24th Page of 27 TOC 1st Previous Next ↓Bottom Just 24th
PART II.  OTHER INFORMATION                                                     

Item 1.   Legal Proceedings                                                     

None.                                                       

Item 2.   Changes in Securities and Use of Proceeds                             

      Changes in Securities is incorporated by reference to Registrant's
     Annual Report on Form 10-K for the fiscal year ended December 31,
1997.                                                       

USE OF PROCEEDS FROM REGISTERED SECURITIES                  

         On June 6, 1997, a Registration Statement on Form S-1 (No. 333-23209)
          was declared effective by the SEC pursuant to which the Company issued
   2,275,000 shares of common stock.  The shares were sold for the
    account of the Company at a price of $7.00 per share, generating
     $15,925,000 in gross proceeds to the Company.  The initial public
offering was managed by Bear Stearns & Company.             

     From the effective date of the Registration Statement to June 30,
       1998, the Company incurred approximately $1,114,750 in underwriting
      discounts and commissions and approximately $2,285,609 of expenses
        paid to or for the underwriters and other related expenses.  The net
          proceeds of the offering, after deducting the foregoing expenses, were
approximately $13,639,391.                                  

     From the effective date of the Registration Statement to June 30,
       1998, the Company has used approximately $8,545,693 to fund ongoing
operations.                                                 

Item 3.   Defaults Upon Senior Securities                                       

None.                                                       

Item 4.   Submission of Matters to a Vote of Security Holders                   

  (a) On May 19, 1998, the Registrant held its Annual Meeting of
Stockholders.                                               

        (b) As listed below, all of management's nominees for directors were
    elected at the meeting pursuant to proxies solicited pursuant to
Regulation 14 under the Securities and Exchange Act of 1934 

                                                        [Enlarge/Download Table]

              Name of Nominee  No. of Votes For  No. of Votes Withheld  No. of Votes Abstain
                                                                                            
Phillip Radlick, Ph.D.           7,173,661                    0                 1,235       
Gabriel Vegh                     7,173,661                    0                 1,235       
Michael J.F. Du Cros             7,173,661                    0                 1,235       
Neal Moszkowski                  7,173,661                    0                 1,235       
Charles P. Waite, Jr.            7,173,661                    0                 1,235       

       c)  The appointment of Ernst & Young LLP as independent auditors of
         the Company for the fiscal year ending December 31, 1998 was ratified
     with 7,174,896 shares voting in favor, 0 voting against, 0 shares
abstaining.                                                 

24

10-Q 25th Page of 27 TOC 1st Previous Next ↓Bottom Just 25th
Item 5.   Other Information                                                     

None.                                                       

Item 6.   Exhibits and Reports on Form 8-K                                      

(a)  Exhibits - See Index to Exhibits.                      
       (b)  No reports on Form 8-K were filed by the Registrant during the
quarter ended June 30, 1998.                      

25

10-Q 26th Page of 27 TOC 1st Previous Next ↓Bottom Just 26th
CARDIMA, INC. 

SIGNATURES  

Pursuant to the requirements 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.                                          

DATE:    August 12, 1998     CARDIMA, INC.                                      

                                       /s/   Phillip C. Radlick, Ph.D.
                           -------------------------------------------------
       PHILLIP C. RADLICK, Ph.D.
                             President, Chief Executive Officer and Director

                              /s/   Ronald E. Bourquin
                            --------------------------------------------------
RONALD E. BOURQUIN
                         Vice President, Chief Financial Officer and
Secretary         

26

10-Q Last Page of 27 TOC 1st Previous Next ↓Bottom Just 27th
CARDIMA, INC. 

INDEX TO EXHIBITS FOR FORM 10-Q 

FOR QUARTER ENDED JUNE 30, 1998 

EXHIBIT NO.    EXHIBIT DESCRIPTION                                              
-----------    -------------------                                              

 10.25       Master Loan and Security Agreement Dated June 19, 1998, between
Registrant and Transamerica Business Credit Corp. 

27.1        Financial Data Schedule                                       

27

10-Q	1st Page of 27	TOC	↑Top	Previous	Next	↓Bottom	Just 1st

10-Q	2nd Page of 27	TOC	1st	Previous	Next	↓Bottom	Just 2nd

10-Q	3rd Page of 27	TOC	1st	Previous	Next	↓Bottom	Just 3rd

10-Q	4th Page of 27	TOC	1st	Previous	Next	↓Bottom	Just 4th

10-Q	5th Page of 27	TOC	1st	Previous	Next	↓Bottom	Just 5th

10-Q	6th Page of 27	TOC	1st	Previous	Next	↓Bottom	Just 6th

10-Q	7th Page of 27	TOC	1st	Previous	Next	↓Bottom	Just 7th

10-Q	8th Page of 27	TOC	1st	Previous	Next	↓Bottom	Just 8th

10-Q	9th Page of 27	TOC	1st	Previous	Next	↓Bottom	Just 9th

10-Q	10th Page of 27	TOC	1st	Previous	Next	↓Bottom	Just 10th

10-Q	11th Page of 27	TOC	1st	Previous	Next	↓Bottom	Just 11th

10-Q	12th Page of 27	TOC	1st	Previous	Next	↓Bottom	Just 12th

10-Q	13th Page of 27	TOC	1st	Previous	Next	↓Bottom	Just 13th

10-Q	14th Page of 27	TOC	1st	Previous	Next	↓Bottom	Just 14th

10-Q	15th Page of 27	TOC	1st	Previous	Next	↓Bottom	Just 15th

10-Q	16th Page of 27	TOC	1st	Previous	Next	↓Bottom	Just 16th

10-Q	17th Page of 27	TOC	1st	Previous	Next	↓Bottom	Just 17th

10-Q	18th Page of 27	TOC	1st	Previous	Next	↓Bottom	Just 18th

10-Q	19th Page of 27	TOC	1st	Previous	Next	↓Bottom	Just 19th

10-Q	20th Page of 27	TOC	1st	Previous	Next	↓Bottom	Just 20th

10-Q	21st Page of 27	TOC	1st	Previous	Next	↓Bottom	Just 21st

10-Q	22nd Page of 27	TOC	1st	Previous	Next	↓Bottom	Just 22nd

10-Q	23rd Page of 27	TOC	1st	Previous	Next	↓Bottom	Just 23rd

10-Q	24th Page of 27	TOC	1st	Previous	Next	↓Bottom	Just 24th

10-Q	25th Page of 27	TOC	1st	Previous	Next	↓Bottom	Just 25th

10-Q	26th Page of 27	TOC	1st	Previous	Next	↓Bottom	Just 26th

10-Q	Last Page of 27	TOC	1st	Previous	Next	↓Bottom	Just 27th

Dates Referenced Herein and Documents Incorporated by Reference

		Referenced-On Page
This ‘10-Q’ Filing	Date	First	Last	Other Filings

	12/31/98	6	24	10-K405, 10-K405/A
Filed on:	8/12/98	26
	8/4/98	16	22
	7/31/98	1
For Period End:	6/30/98	1	27	10-Q/A
	6/19/98	27
	5/19/98	24		DEF 14A
	2/3/98	7
	12/31/97	2	24	10-K405, 10-K405/A
	6/30/97	2	11	10-Q
	6/6/97	24		424B4
				List all Filings

↑Top

Filing Submission 0001012870-98-002078 – Alternative Formats (Word / Rich Text, HTML, Plain Text, et al.)

Cardima Inc – ‘10-Q’ for 6/30/98

As of: Wednesday, 8/12/98 · For: 6/30/98 · Accession #: 1012870-98-2078 · File #: 0-22419

Previous ‘10-Q’: ‘10-Q’ on 5/13/98 for 3/31/98 · Next: ‘10-Q/A’ on 10/26/98 for 6/30/98 · Latest: ‘10-Q’ on 8/11/10 for 6/30/10

Quarterly Report — Form 10-QFiling Table of Contents

10-Q — Quarterly ReportDocument Table of Contents

Dates Referenced Herein and Documents Incorporated by Reference

Quarterly Report — Form 10-Q
Filing Table of Contents

10-Q — Quarterly Report
Document Table of Contents