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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

FORM 10-Q

For the quarterly period ended September 30, 2004

or

For the transition period from              to             .

Commission File Number: 0-22419

CARDIMA, INC.

(Exact name of registrant as specified in its charter)

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

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Securities Exchange Act of 1934).    ¨  Yes    x  No

As of October 31, 2004, there were 84,840,174 shares of Registrant’s Common Stock outstanding.

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CARDIMA, INC.

TABLE OF CONTENTS

PART I. Financial Information

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PART I.

Item 1. Financial Statements

CARDIMA, INC.

CONDENSED BALANCE SHEETS

(In thousands, except share amounts)

See accompanying notes to condensed financial statements

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CARDIMA, INC.

CONDENSED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

(Unaudited)

See accompanying notes to condensed financial statements

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CARDIMA, INC.

STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

See accompanying notes to condensed financial statements

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CARDIMA, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

September 30, 2004

(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 nine month periods ended September 30, 2004 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2004 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, 2003. The accompanying balance sheet at December 31, 2003 has been derived from those audited financial statements.

Certain reclassifications have been made to prior year amounts to conform to the current year presentation. These reclassifications had no effect on prior reported results of operations or retained earnings.

2. MANAGEMENT’S PLANS

As of September 30, 2004 Cardima, Inc. had approximately $2,081,000 in cash and cash equivalents, working capital of $1,525,000 and an accumulated deficit of $111,423,000. Management expects the Company to continue to incur additional losses in the foreseeable future as the Company works towards regulatory approval and commercialization of the REVELATION^® Tx in the United States, commercialization of the Cardima Surgical Ablation System and the commercialization of the REVELATION^® Helix in Europe. We currently estimate that our cash balances as of September 30, 2004, will be sufficient to fund planned expenditures only for a very limited period of time, but this cannot be predicted with certainty. Although our management recognizes the need to raise funds in the immediate future, there can be no assurance that we will be successful in consummating any fundraising transaction, or, if we do consummate such a transaction, that its terms and conditions will not be unfavorable to us. Any failure by us to obtain additional funding will have a material adverse effect upon us and will likely result in our inability to continue as a going concern. Our independent auditors have stated in their opinion on our December 31, 2003 financial statements that there is substantial doubt as to our ability to continue as a going concern.

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Cardima, Inc., continues to pursue regulatory approvals and distribution relationships in significant market opportunities worldwide. We currently have distribution agreements for various products covering eight countries with an emphasis on Europe and the Pacific Rim, and we are currently seeking a strategic transaction for our Surgical Ablation System, which received United States Food and Drug Administration 510(k) clearance for use in ablating cardiac tissue in 2003. We have arranged for warehousing capacity in Europe to support both distribution and direct customer sales. Securing FDA approval of the REVELATION^® Tx remains one of our primary goals. On May 28, 2004 we received a letter, dated May 21, 2004, from the FDA, stating that our pre-market approval application, or PMA, for the REVELATION Tx linear ablation microcatheter system was not approvable based on the requirements of applicable regulations. At a meeting with the FDA on June 18, 2004, the FDA reiterated its view, as stated in its “not approvable” letter that data from an additional study would be necessary to demonstrate the effectiveness of the REVELATION Tx for atrial fibrillation, and that the nature of the trial’s primary goal would be to require a randomized clinical trial design. We plan to continue to pursue U.S. regulatory approvals for the REVELATION Tx, as well as other therapeutic products already approved in Europe and in other markets which we believe have both the clinical potential and adequate medical support structure to accept a developing technology application. We are continuing to develop broader applications of our Surgical Ablation System as a minimally invasive, stand-alone surgical procedure to treat atrial fibrillation. We cannot assure you that we will be able to obtain or maintain any necessary regulatory approvals or that, if such regulatory approvals are obtained, that we will be able to successfully market our products, or that we will be able to establish a successful distribution channel for our Surgical Ablation System.

3. CRITICAL ACCOUNTING POLICIES

Use of Estimates

We have prepared our financial statements in conformity with generally accepted accounting principles in the United States, which requires management to make estimates and assumptions that effect the amounts reported in financial statement and accompanying notes. Actual results could differ from these estimates. Significant estimates made by us include those related to accounts receivable and inventory reserves.

Stock-Based Compensation

We have elected to follow Accounting Principles Board Opinion No. (“APB”) 25, “Accounting for Stock Issued to Employees” and related interpretations in accounting for our employee stock options, including Financial Accounting Standard Board Interpretation (“FIN”) 44, “Accounting for Certain Transactions Involving Stock Compensation.”

Compensation expense is based on the difference, if any, between the fair value of our common stock and the exercise price of the option or share right on the measurement date, which is typically the grant date. This amount is recordable as “deferred stock compensation” in the Balance Sheets and amortized as a charge to operations over the vesting period of the applicable options or share rights. In accordance with Statement of Financial Accounting Standards

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(“SFAS”) No. 123, “Accounting for Stock-Based Compensation,” as amended by SFAS 148, “Accounting for Stock-Based Compensation – Transition and Disclosure,” we have provided below the pro forma disclosures of the effect on net loss and loss per share as if SFAS 123 had been applied in measuring compensation expense for all periods presented.