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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, 2002
 
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
of Incorporation or Organization)
   
(I.R.S. Employer
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 August 9, 2002, there were 49,641,458 shares of Registrant’s Common Stock outstanding.
 

Table of Contents
CARDIMA, INC.
 
INDEX
 
Part I
     
Item 1.
  
Financial Statements
     
      
3
      
4
      
5
      
6
Item 2.
     
9
      
12
      
14
Item 3.
     
30
Part II—OTHER INFORMATION
     
Item 4.
     
31
Item 6.
     
32
  
33

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PART I.
 
Item 1.    Financial Statements
 
CARDIMA, INC.
 
CONDENSED BALANCE SHEETS
(In thousands, except share and per share amounts)
 
    
June 30, 2002
     
December 31, 2001
  
    
(Unaudited)
     
(See Note 1)
  
ASSETS
                  
Current assets:
                  
Cash and cash equivalents
   
$
1,473
 
   
$
7,542
 
Accounts receivable, net of allowances for doubtful accounts of $73 at June 30, 2002 and $75 at December 31, 2001
   
 
361
 
   
 
301
 
Inventories
   
 
1,692
 
   
 
1,564
 
Other current assets
   
 
385
 
   
 
327
 
    
  
Total current assets
   
 
3,911
 
   
 
9,734
 
Property and equipment, net
   
 
1,248
 
   
 
1,323
 
Notes receivable from officers
   
 
580
 
   
 
565
 
Other assets
   
 
77
 
   
 
196
 
    
  
    
$
5,816
 
   
$
11,818
 
    
  
LIABILITIES AND STOCKHOLDERS’ EQUITY
                  
Current liabilities:
                  
Accounts payable
   
$
1,618
 
   
$
1,563
 
Accrued compensation
   
 
1,030
 
   
 
1,094
 
Capital lease obligation—current portion
   
 
101
 
   
 
279
 
Other current liabilities
   
 
175
 
   
 
42
 
    
  
Total current liabilities
   
 
2,924
 
   
 
2,978
 
Deferred rent
   
 
7
 
   
 
19
 
Capital lease obligation—noncurrent portion
   
 
46
 
   
 
64
 
Commitments
                  
Stockholders’ equity:
                  
Common stock, $0.001 par value; 75,000,000 shares authorized, 42,712,366 shares issued and outstanding at June 30, 2002; 42,528,143 as of December 31, 2001; at amount paid in
   
 
86,403
 
   
 
86,583
 
Accumulated deficit
   
 
(83,564
)
   
 
(77,826
)
    
  
Total stockholders’ equity
   
 
2,839
 
   
 
8,757
 
    
  
    
$
5,816
 
   
$
11,818
 
    
  
 
See accompanying notes to condensed financial statements

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CARDIMA, INC.
 
CONDENSED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
 
    
Three months ended June 30,
     
Six months ended June 30,
  
    
2002
     
2001
     
2002
     
2001
  
    
(Unaudited)
     
(Unaudited)
  
Net sales
   
$
423
 
   
$
473
 
   
$
1,189
 
   
$
1,012
 
Cost of goods sold
   
 
703
 
   
 
945
 
   
 
1,593
 
   
 
1,919
 
    
  
  
  
Gross profit (loss)
   
 
(280
)
   
 
(472
)
   
 
(404
)
   
 
(907
)
Operating expenses:
                                    
Research and development
   
 
1,213
 
   
 
1,290
 
   
 
2,046
 
   
 
2,647
 
Selling, general and administrative
   
 
1,688
 
   
 
1,592
 
   
 
3,321
 
   
 
3,101
 
    
  
  
  
Total operating expenses
   
 
2,901
 
   
 
2,882
 
   
 
5,367
 
   
 
5,748
 
    
  
  
  
Operating loss
   
 
(3,181
)
   
 
(3,354
)
   
 
(5,771
)
   
 
(6,655
)
Interest and other income
   
 
19
 
   
 
44
 
   
 
47
 
   
 
56
 
Interest expense
   
 
(6
)
   
 
(16
)
   
 
(14
)
   
 
(35
)
Gain on sale of intellectual property(1)
   
 
—  
 
   
 
—  
 
   
 
—  
 
   
 
4,000
 
    
  
  
  
Net income (loss)
   
$
(3,168
)
   
$
(3,326
)
   
$
(5,738
)
   
$
(2,634
)
    
  
  
  
Basic and diluted net loss per share
   
$
(0.07
)
   
$
(0.11
)
   
$
(0.13
)
   
$
(0.10
)
    
  
  
  
Shares used in computing basic and diluted net loss per share
   
 
42,705
 
   
 
29,148
 
   
 
42,712
 
   
 
25,384
 
    
  
  
  
(1)
 
In January 2001, we received $4,000,000 from Medtronic, Inc., representing the final payment on the transaction initiated in December 2000, whereby we sold a portion of our patent portfolio and related intellectual property pertaining to intravascular sensing and signal detection and certain guiding catheters. See our Annual Report on Form 10-K filed with the SEC on April 1, 2002 for more information.
 
 
See accompanying notes to financial statements

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CARDIMA, INC.
 
STATEMENTS OF CASH FLOWS
(In thousands)
 
    
Six months ended June 30,
  
    
2002
     
2001
  
    
(Unaudited)
  
CASH FLOWS FROM OPERATING ACTIVITIES
                  
Net loss
   
$
(5,738
)
   
$
(2,634
)
Adjustments to reconcile net loss to net cash provided by operations:
                  
Depreciation and amortization
   
 
505
 
   
 
438
 
Stock-based compensation
   
 
(287
)
   
 
26
 
Loss on disposal of assets
   
 
5
 
   
 
0
 
Changes in operating assets and liabilities:
                  
Accounts receivable
   
 
(60
)
   
 
54
 
Inventories
   
 
(128
)
   
 
464
 
Other current assets
   
 
(58
)
   
 
(103
)
Other assets
   
 
119
 
   
 
(77
)
Accounts payable
   
 
55
 
   
 
220
 
Accrued employee compensation
   
 
(64
)
   
 
(304
)
Other current liabilities
   
 
133
 
   
 
33
 
Deferred rent
   
 
(12
)
   
 
0
 
    
  
Net cash used in operating activities
   
 
(5,530
)
   
 
(1,883
)
CASH FLOWS FROM INVESTING ACTIVITIES
                  
Capital expenditures
   
 
(435
)
   
 
(152
)
    
  
Net cash used in investing activities
   
 
(435
)
   
 
(152
)
CASH FLOWS FROM FINANCING ACTIVITIES
                  
Principal payments under capital leases
   
 
(196
)
   
 
(152
)
Notes receivable from officers
   
 
(15
)
   
 
(36
)
Net proceeds from sale of common stock
   
 
107
 
   
 
6,302
 
    
  
Net cash provided by (used in) financing activities
   
 
(104
)
   
 
6,114
 
    
  
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
   
$
(6,069
)
   
$
4,079
 
    
  
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
   
$
7,542
 
   
$
1,324
 
    
  
CASH AND CASH EQUIVALENTS END OF PERIOD
   
$
1,473
 
   
$
5,403
 
    
  

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CARDIMA, INC.
 
NOTES TO CONDENSED FINANCIAL STATEMENTS
June 30, 2002
(Unaudited)
 
1.     Basis of Presentation
 
The accompanying unaudited condensed 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 accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation have been included.
 
The operating results for the three- and six-month periods ended June 30, 2002 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2002 or for future operating results. 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, 2001. The accompanying balance sheet at December 31, 2001 has been derived from these audited financial statements.
 
2.     Management’s Plans
 
As of June 30, 2002 the Company had approximately $1,473,000 in cash and cash equivalents, working capital of $987,000 and an accumulated deficit of $83,564,000. Assuming the Company has adequate funding to continue the course of its development activities, the Company expects such losses to continue for at least the next two years. Management is seeking to continue to finance operations with a combination of funds from equity or debt offerings, revenue from product sales, funds from potential corporate alliances and technology licenses. Following a private placement resulting in $4.5 million in net proceeds completed on August 5, 2002 and subsequent to this quarter end, the Company expects its existing capital resources will permit it to meet its capital and operational requirements through at least November 2002. The Company is currently in discussions with investment bankers to raise additional equity capital during the later part of 2002. Failure to raise additional capital will cause the Company’s business to suffer and could cause it to cease operations.
 
The Company continues to initiate relationships with new distributors worldwide. As of the quarter ended June 30, 2002, the Company had distributors in place in eleven countries that service sales in sixteen countries, consultants and sales agents in place in two countries which service sales in four countries and a European distribution center in place which services an additional nine European countries. The Company is currently seeking registration approval of all its therapeutic products in China, but cannot predict if its products will ultimately be approved for sale or whether or not the Company will be successful in marketing and selling its products in China and other Asian countries. Recent registration additions have been the acceptance by

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Turkey of the CE Mark already in place in Europe for our diagnostic and therapeutic products and the ratification of an agreement between the EU and Switzerland which grants us the approval to market and sell CE Mark products in that country.
 
3.     Subsequent Events—Private Placement
 
In August 2002, we sold a total of 6,788,325 shares of common stock at $0.72 per share in a private placement transaction to accredited investors. The transaction included warrants to investors exercisable for 2,036,491 shares of common stock at an exercise price of $0.90 per share. These warrants are redeemable by the Company if the Company’s common stock closes at $1.44 for fifteen consecutive trading days. As a commission for the transaction, the Company will pay approximately $342,000 in cash and will issue warrants, exercisable for 678,832 shares of common stock at an exercise price of $1.1875 per share. The Company’s net proceeds, after expenses of the placement, were approximately $4,500,000. The Company is using these proceeds for development activities, clinical trial expenses and commercialization of product offerings, operating costs and other general corporate purposes.
 
We relied on the exemption provided by Rule 506 under Regulation D and Section 4(2) of the Securities Act of 1933, as amended. A registration statement on Form S-3 will be filed with the SEC in connection with this placement.
 
4.    Inventory
 
Inventories consists of the following (in thousands):
 
    
June 30,
2002
   
December 31,
2001
    
(Unaudited)
   
(Unaudited)
Inventories:
              
Raw materials
   
$
502
   
$
653
Work-in-process
   
 
130
   
 
50
Finished goods
   
 
1,060