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SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

FORM 10-Q

For the quarterly period ended March 31, 2005

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 April 30, 2005, there were 101,437,889 shares of Registrant’s Common Stock outstanding.

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CARDIMA, INC.

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PART I. Financial Information

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PART I.

Item 1. Financial Statements

CARDIMA, INC.

BALANCE SHEETS

(In thousands, except per share amounts)

See accompanying notes to financial statements

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CARDIMA, INC.

STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

(Unaudited)

See accompanying notes to financial statements

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CARDIMA, INC.

STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

See accompanying summary of accounting policies and notes to financial statements.

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CARDIMA, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

March 31, 2005

(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 month period ended March 31, 2005 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2005 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, 2004. The accompanying balance sheet at December 31, 2004 has been derived from those audited financial statements.

Certain reclassifications have been made to prior period amounts to conform to the current period presentation. These reclassifications had no effect on prior reported results of operations or accumulated deficit.

2. MANAGEMENT’S PLANS

As of March 31, 2005 Cardima, Inc. had approximately $1,718,000 in cash and cash equivalents, working capital of $2,200,000 and an accumulated deficit of $115,763,000. Management expects the Company to continue to incur additional losses in the foreseeable future as we work 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 March 31, 2005, will be sufficient to fund planned expenditures only for a very limited period of time, likely not extending beyond early June 2005 and possibly earlier, and will not be sufficient to fund planned expenditures into the third quarter of 2005. However the actual amount of our expenditures is inherently uncertain and our cash resources may be exhausted sooner than currently anticipated. 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. Our financing which closed on November 24, 2004 contains terms which substantially restrict our ability to raise the further funding that we will need to continue our operations. For example, if we issue common stock or securities convertible into or exercisable for common stock at a price per share below

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$0.2733 before July 12, 2005, we will be contractually obligated to issue additional common stock to certain investors in our November 2004 financing. We are also contractually prohibited from issuing certain kinds of convertible securities without the consent of some of our investors. We are evaluating various courses of action including selling or licensing some of our proprietary technologies. If we fail to obtain additional funding in the immediate future, our business will fail and our stockholders will likely lose the entire value of their investment. Our independent registered public accountants have stated in their opinion on our December 31, 2004 financial statements that there is substantial doubt as to our ability to continue as a going concern.

On May 6, 2005, we received a Nasdaq Staff Determination indicating that we had not regained compliance with the requirements for continued listing set forth in Marketplace Rule 4310(c)(4), which we refer to as the “Rule” for purposes of this discussion, and that our securities are, therefore, subject to delisting from The Nasdaq SmallCap Market at the opening of business on May 17, 2005. The Rule provides that if the closing bid price of a company’s stock is below $1.00 for more than thirty consecutive trading days, the company faces possible delisting.

We may appeal the Nasdaq Staff’s Determination to a Listing Qualification Panel, pursuant to the procedures set forth in the Nasdaq Marketplace Rule 4800 Series. There can be no assurance that we will appeal the Nasdaq Staff’s Determination or, if we do appeal the Nasdaq Staff’s Determination, that such appeal will be successful.

See “Our stock may be delisted from Nasdaq as soon as the opening of business on May 17, 2005, which would make it more difficult for investors to sell their shares and may lead to costly claims by investors” for more information regarding Nasdaq related matters.

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.

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Revenue Recognition

We recognize revenue from two types of customers, end users and distributors. Revenue is recognized in accordance with Staff Accounting Bulletin 104, “Revenue Recognition in Financial Statements,” when all of the following criteria are met: a) Persuasive evidence that an arrangement exists (purchase orders from customers); b) Prices are fixed and determinable (purchase orders from customers and our invoices); c) Shipment of the product has occurred and title of products transferred at the point of shipment (shipping documents); and d) Payment of the product is reasonably assured and no substantive obligations to the customer remain (collectability is reasonable assured by the Company, making sure that credit is extended to worthy customers). Revenue is presented net of discounts, allowances, and returns. Customers are not entitled to any rights of product return. Payment terms are either open trade or cash. We have distributors in Asia and Europe and we record as revenue the wholesale price we charge our distributors. Title and risk of loss are assumed by the distributors and end users at shipping point.

Allowance for Doubtful Accounts

We establish estimates of the uncollectability of accounts receivable. Our management analyzes accounts receivable, historical write-offs as bad debts, customer concentrations, current economic trends and changes in customer payment terms when evaluating the adequacy of the allowance for doubtful accounts. We maintain an allowance for doubtful accounts at an amount that we estimate to be sufficient to provide adequate protection against losses resulting from collecting less than full payment on receivables. We have not experienced significant bad debt expense and we believe our reserve for doubtful accounts of $35,000 is adequate for any exposure to loss in our March 31, 2005 accounts receivable.

Allowance for Excess and Slow-Moving Inventory

Inventories, which are composed of purchased parts and subassemblies, work in process and finished goods, are valued at the lower of cost or market with cost being determined by the first-in, first-out method. We have analyzed the level of inventory on hand, its cost in relation to market value and estimated customer requirements to determine whether write-downs for excess or slow-moving inventory are required. Actual customer requirements in any future periods are inherently uncertain and thus may differ from estimates. If actual or expected requirements were significantly greater or lower than the established reserves, a reduction or increase to the obsolescence allowance would be recorded in the period in which such a determination was made. We have established reserves for excess and slow-moving inventories and believe the reserve of $655,000 at March 31, 2005 is adequate.

Stock-Based Compensation

The Company has elected to follow Accounting Principles Board Opinion No. (“APB”) 25, “Accounting for Stock Issued to Employees” and related interpretations in accounting for its 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.

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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 (“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.

The following information regarding pro forma net loss and net loss per share has been determined as if we had accounted for our employee stock options and employee stock plan under the fair value method prescribed by SFAS 123. The resulting effect on net loss and net loss per share pursuant to SFAS 123 is not likely to be representative of the effects on net loss and loss per share pursuant to SFAS 123 in future periods, due to subsequent periods including additional grants and periods of vesting.

The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options, which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because our employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management’s opinion the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options.

For purposes of disclosures pursuant to SFAS 123 as amended by FAS 148, the estimated fair value of options is amortized to expense over the options’ vesting period.

The following table illustrates the effect on reported net loss per share if we had applied the fair value recognition provisions of SFAS 123 to stock-based employee compensation (in thousands, except per share amounts):