UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D. C. 20549
                                -----------------
                                   FORM 10-QSB

[X]  Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
     Act of 1934. For the quarterly period ended June 30, 2006

                                       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. Yes [X] No [ ]

     Indicate  by check mark  whether  the  registrant  is a shell  company  (as
defined in Rule 12b-2 of the Securities Exchange Act of 1934). Yes [ ] No [X]

     As of August 10, 2006, there were 101,694,503 shares of Registrant's Common
Stock outstanding.

     Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X]

--------------------------------------------------------------------------------

<PAGE>
<TABLE>
<CAPTION>
                                  CARDIMA, INC.

                                TABLE OF CONTENTS



                          PART I. Financial Information


                                Description                                                                  Page

<S>          <C>                                                                                              <C>
Item 1.      Financial Statements (unaudited)                                                                  3

             Condensed Balance Sheets as of June 30, 2006 and December 31, 2005                                3

             Condensed Statements of Operations for the Three and Six Months Ended June 30, 2006 and 2005     4-5

             Condensed Statements of Cash Flows for the Six Months Ended  June 30, 2006 and 2005               6

             Notes to Condensed Financial Statements                                                           7

Item 2.      Management's Discussion and Analysis and Results of Operations                                   12

Item 3.      Controls and Procedures                                                                          16

                           PART II. Other Information


                                Description                                                                  Page

Item 1.      Legal Proceedings                                                                                17

Item 2.      Unregistered Sales of Equity Securities and Use of Proceeds                                      17

Item 3.      Defaults Upon Senior Securities                                                                  17

Item 4.      Submission of Matters to a Vote of Security Holders                                              17

Item 5.      Other Information                                                                                17

Item 6.      Exhibits                                                                                         17


Signatures                                                                                                    18
</TABLE>

                                       2
<PAGE>

<TABLE>
<CAPTION>
PART I.
ITEM 1.  Financial Statements
                                  CARDIMA, INC.
                                 BALANCE SHEETS
                    (In thousands, except per share amounts)

                                                                                                   June 30,       December 31
                                                                                                     2006            2005
                                                                                                 (Unaudited)       (Audited)
                                                                                               -------------    --------------
<S>                                                                                            <C>              <C>
ASSETS
Current assets:
          Cash and cash equivalents.............................................               $         692    $          124
          Accounts receivable, net of allowances for doubtful accounts
                    of $13 for June 30, 2006 and $26 December 31, 2005..........                         163               265
          Inventories...........................................................                         201               387
          Prepaid expenses......................................................                         125               285
          Deferred charges......................................................                           -               304
          Other current assets..................................................                          10                28
                                                                                               -------------    --------------
Total current assets                                                                                   1,191             1,393

Property and equipment, net.....................................................                         279               318
Other assets.....................................................................                         35                35
                                                                                               -------------    --------------
Total assets                                                                                   $       1,505    $        1,746
                                                                                               =============    ==============

LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current liabilities:
          Accounts payable......................................................               $         710    $          956
          Accrued compensation..................................................                         351               351
          Warrant liabilities...................................................                       5,327             1,200
          Credit Obligation.....................................................                       7,214             2,890
          Deferred rent.........................................................                          13                18
          Capital lease - current portion.......................................                          20                24
          Other current liabilities.............................................                          40                42
                                                                                               -------------    --------------
Total current liabilities                                                                             13,675             5,481


Capital lease - noncurrent portion..............................................                          33                28

Commitments and contingencies

Stockholders' deficiency:
          Common stock, $0.001 par value, 300,000,000 shares authorized,
          101,694,503 and 101,613,658 shares issued and outstanding at
          June 30, 2006 and December 31, 2005, respectively.....................                     118,216           117,999
          Accumulated deficit...................................................                    (130,419)         (121,762)
                                                                                               -------------    --------------
Total stockholders' deficiency                                                                       (12,203)           (3,763)
                                                                                               -------------    ---------------
Total liabilities and stockholders' deficiency                                                 $       1,505    $        1,746
                                                                                               =============    ==============

</TABLE>
                 See accompanying notes to financial statements.

                                       3
<PAGE>
<TABLE>
<CAPTION>
                                  CARDIMA, INC.
                            STATEMENTS OF OPERATIONS
                    (In thousands, except per share amounts)
                                   (Unaudited)

                                                                                           Three months
                                                                                           ended June 30,
                                                                                       2006            2005
                                                                                       ----            ----
<S>                                                                                <C>               <C>
Net sales.......................................................................   $     335         $     510

Cost of goods sold..............................................................         440               744
                                                                                  ----------       -----------
          Gross loss                                                               $    (105)        $    (234)
                                                                                  ----------       -----------

Operating expenses:

          Research and development..........................................             374               758
          Selling, general and administrative................................            709             1,319

          Impairment of long-lived assets....................................              -                46
                                                                                  ----------       -----------

Total operating expenses                                                               1,083             2,123
                                                                                  ----------       -----------


Operating loss                                                                        (1,188)           (2,357)


Interest expense................................................................      (1,412)             (497)

Interest income.................................................................           -                 4

Other income and (expense)......................................................      (2,481)                -
                                                                                  ----------       -----------
Net loss                                                                           $  (5,081)        $  (2,850)
                                                                                  ==========       ===========


Basic and diluted net loss per share                                               $   (0.05)        $   (0.03)


Shares used in computing basic and diluted net loss per share                        101,688           101,438

</TABLE>
                 See accompanying notes to financial statements.

                                       4
<PAGE>
<TABLE>
<CAPTION>
                                  CARDIMA, INC.
                        STATEMENTS OF OPERATIONS (Con't)
                         (In thousands, except per share
                                    amounts)
                                   (Unaudited)

                                                                                                Six Months
                                                                                               ended June 30,

                                                                                           2006                  2005
                                                                                           ----                  ----
<S>                                                                                      <C>                   <C>
Net sales...................................................................             $    719              $  1,065

Cost of goods sold..........................................................                  938                 1,188
                                                                                         --------              --------
          Gross loss                                                                     $   (219)             $   (123)
                                                                                         --------              --------
Operating expenses:

          Research and development..........................................                  790                 1,400

          Selling, general and administrative...............................                1,379                 3,016

          Impairment of long-lived assets...................................                    -                   404
                                                                                         --------              --------
Total operating expenses                                                                    2,169                 4,820
                                                                                         --------              --------

Operating loss                                                                             (2,388)               (4,943)


Interest expense................................................................           (3,563)                 (499)

Interest income..................................................................               -                   263

Other income and (expense)..................................................               (2,706)                    -
                                                                                         --------              --------
Net loss                                                                               $   (8,657)             $ (5,179)
                                                                                       ==========              ========


Basic and diluted net loss per share                                                   $    (0.09)             $  (0.05)

Shares used in computing basic and diluted net loss per share                             101,666               101,438

                 See accompanying notes to financial statements.
</TABLE>

                                       5
<PAGE>
<TABLE>
<CAPTION>
                                  CARDIMA, INC.
                            STATEMENTS OF CASH FLOWS
                                 (In thousands)
                                   (Unaudited)
                                                                                                Six months
                                                                                                  ended
                                                                                                 June 30,
                                                                                        2006                  2005
                                                                                      ----------           ----------
<S>                                                                                    <C>                  <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss                                                                               $  (8,657)           $  (5,179)
Adjustments to reconcile net loss to net cash used in operations:

     Depreciation and amortization                                                            62                   61
     Non-cash stock-based compensation                                                       215                    1
     Impairment of long-lived assets                                                           -                  404
     Warrant liability valuation                                                           4,127                    -
     Write-off of payroll tax refund liability                                                 -                 (245)
     Allowance for excess and obsolete inventory                                              97                  133
     Allowance for doubtful accounts                                                         (13)                   -
     Loss on disposal of assets                                                                7                    -
     Non-cash interest (income) charge on notes receivable from officers                       -                   (7)
     Reserve on notes receivable from officers                                                 -                  300
     Changes in operating assets and liabilities:
          Accounts receivable                                                                115                  110
          Inventories                                                                         89                    9
          Prepaid expenses                                                                   160                   (5)
          Deferred charges                                                                   304                    -
          Other assets                                                                        18                   32
          Accounts payable                                                                  (246)                 604
          Accrued compensation                                                                 -                  (41)
          Accrued interest and loan fees                                                   1,789                    -
          Other current liabilities                                                           (2)                  (1)
          Deferred rent                                                                       (5)                 (23)
                                                                                      ----------           ----------

Net cash used in operating activities                                                     (1,940)              (3,847)
                                                                                      ----------           ----------

CASH FLOWS FROM INVESTING ACTIVITIES

Property and equipment                                                                       (18)                (103)
                                                                                      ----------           ----------

CASH FLOWS FROM FINANCING ACTIVITIES

Proceeds from Apix loan                                                                    2,535                    -
Principal payments under capital leases                                                      (11)                (185)
Proceeds from Agility loan and accrual of exit fee                                             -                  750
Payment of Agility loan and partial exit fee                                                   -                 (456)
Payments of issuance costs                                                                     -                  (31)
Net proceeds from sale of common stock                                                         2                   41
                                                                                      ----------           ----------
Net cash provided by financing activities                                                  2,526                  119
                                                                                      ----------           ----------
NET INCREASE/ (DECREASE) IN CASH AND CASH EQUIVALENTS                                        568
                                                                                                               (3,831)

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                                               124                3,854
                                                                                      ----------           ----------
CASH AND CASH EQUIVALENTS, END OF PERIOD                                               $     692            $      23
                                                                                      ==========           ==========



SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
     Cash paid for Interest                                                            $       2            $      2
                                                                                      ==========           ==========
NON-CASH INVESTING AND FINANCING ACTIVITY
     Property and equipment acquired via capital lease obligations                     $      37            $      -
                                                                                      ==========           ==========
</TABLE>
                See accompanying notes to financial statements.


                                       6
<PAGE>
                                  CARDIMA, INC.

                     NOTES TO CONDENSED FINANCIAL STATEMENTS
                                   (Unaudited)

1. INTERIM FINANCIAL INFORMATION

     Basis of Presentation

     The accompanying  unaudited interim financial statements have been prepared
by the Company in accordance with accounting  principles  generally  accepted in
the United States of America  pursuant to Regulation  S-B of the  Securities and
Exchange  Commission.  Certain  information  and footnote  disclosures  normally
included  in  financial   statements  prepared  in  accordance  with  accounting
principles  generally  accepted  in the  United  States  of  America  have  been
condensed or omitted. Accordingly,  these interim financial statements should be
read in conjunction with the Company's audited financial  statements and related
notes as contained in the  Company's  Form 10-K for the year ended  December 31,
2005. In the opinion of management, the interim financial statements reflect all
adjustments,   including  normal  recurring  adjustments,   necessary  for  fair
presentation of the interim periods presented. The results of operations for the
three and six  months  ended June 30,  2006 are not  necessarily  indicative  of
results of operations to be expected for the full year.

     Reclassification of Previously Reported Financial Results

     Certain  reclassifications  have  been  made  to  our  previously  reported
quarterly  financial  statements in order to conform to the  presentation of our
audited annual  financial  statements.  After analysis studies were performed to
properly reflect our costs of goods sold, the impairment of inventory charge was
reclassified   from   operating   expenses   to  costs  of   goods   sold.   The
reclassifications  had the  following  effects  on  prior  reported  results  of
operations:

                                    Three months ended    Six months ended
                                        30-Jun-05            30-Jun-05

Costs of goods sold

Original filing                      $         611        $         1,055
Change                                         133                    133
                                    ---------------     ------------------
Restated cost of goods sold          $         744        $         1,188

Impairment of inventory

Original filing                      $         133        $           133
Change                                        (133)                  (133)
                                    ---------------     ------------------
Restated impairment of inventory     $           1        $             1


                                       7
<PAGE>

     Stock Options Expensed

     Prior to January 2006, the Company used  Statement of Financial  Accounting
Standards No. 148  "Accounting  for  Stock-Based  Compensation  - Transition and
Disclosure"  (SFAS  No.  148)  to  account  for  our  stock  based  compensation
arrangements.  This statement amended the disclosure provision of FASB statement
No. 123 to require prominent disclosure about the effects on reported net income
of an entity's accounting policy decisions with respect to stock-based  employee
compensation.  As  permitted  by SFAS No. 123 and amended by SFAS No.  148,  the
Company   continued  to  apply  the  intrinsic  value  method  under  Accounting
Principles  Board  ("APB")  Opinion  No.  25,  "Accounting  for Stock  Issued to
Employees," to account for its stock-based employee compensation arrangements.

     In December 2004, the Financial Accounting Standards Board issued Statement
Number 123 ("FASB 123 (R)"),  Share-Based  Payments,  which is effective for the
reporting  period  beginning on January 1, 2006.  The  statement  required us to
recognize  compensation  expense  in an  amount  equal  to  the  fair  value  of
share-based  payments such as stock options  granted to employees.  The Company,
which has the  option to either  apply  FASB 123 (R) on a  modified  prospective
method or to  restate  previously  issued  financial  statements,  has chosen to
utilize the  modified  prospective  method.  Under this  method,  the Company is
required to record  compensation  expense (as previous  awards continue to vest)
for the unvested portion of previously granted awards that remain outstanding at
the date of adoption.

     In January 2006, the Company adopted the expense recognition  provisions of
FASB  No.  123  (R),  and  for the six  months  ended  June  30,  2006  recorded
approximately  $213,000  in  stock  compensation  expense.  If the  Company  had
expensed  stock  options  for the six  months  ended  June 30,  2005,  the stock
compensation expense would have been approximately $398,000.

     Net Loss Per Common Share

     Net loss per share has been computed  using the weighted  average number of
shares of common stock outstanding  during the period.  The Company has excluded
all  warrants  and stock  options  from the  computation  of basic  and  diluted
earnings per share because all such securities are anti-dilutive for all periods
presented. Excluded common stock equivalent shares included the following:

                                         June 30,          December 31,
                                           2006                2005
                                      ----------------    -----------------

  Warrants............................      80,944,168           49,369,168
  Stock Options.......................       6,150,772            7,557,035
                                      ----------------    -----------------

  Total Warrants and Options..........      87,094,940           56,926,203
                                      ----------------    -----------------

                                       8
<PAGE>

2. CRITICAL ACCOUNTING POLICIES AND ESTIMATES

     The Company's  significant  accounting  policies are described in Note 1 to
the Financial  Statements  included in the Company's  annual report on Form 10-K
for the year ended December 31, 2005. The accounting  policies used in preparing
the Company's interim 2006 condensed financial  statements are the same as those
described in the Company's  annual  report.  The Company's  critical  accounting
policies are those both having the most impact to the reporting of the Company's
financial  condition  and  results,  and  requiring  significant  judgments  and
estimates.  The Company's critical  accounting policies include those related to
revenue recognition, stock-based compensation and valuation of inventories.

3. DEBT FINANCING TRANSACTIONS

     In  August  2005,  the  Company  entered  into a  $3,000,000  Secured  Loan
Agreement with Apix International  Limited (Apix),  which has been fully funded.
On February 14, 2006,  the Company  entered into a new loan  facility term sheet
with Apix,  which  provided for the rollover of the original loan  agreement and
the  grant of an  additional  loan  facility  in the  amount of  $660,000  at an
interest rate of 10% per annum. In addition, the Company and Apix have agreed to
the  following  terms:  (i) the maturity  date of the original  loan facility is
extended from February 28, 2006 to May 18, 2006;  (ii) the exercise price of the
original warrant has been adjusted to $0.06 per share. Moreover, the Company has
granted Apix a new warrant to purchase  23,800,000 shares of our common stock at
an exercise price of $0.06 per share for a term of ten years. Furthermore,  upon
completion  of the full  funding  under the new loan  facility,  the Company has
granted Apix warrants to purchase an additional  8,000,000  shares of its common
stock at an exercise price of $0.06 per share for a term of ten years; (iii) the
Company has  granted  Apix the right to convert  the loan  principal,  interest,
facility  fees and exit fees into  shares of its  common  stock at a  conversion
price of $0.06 per share;  (iv) the facility fee has been increased from $60,000
to  $80,000.  In  addition,  the exit fee has been  increased  from  $900,000 to
$1,300,000; (v) upon completion of the full funding under the new loan facility,
the exit fee would be increased by $260,000; (vi) the Company agrees to register
the shares  underlying  the loan  principal,  facility  fees,  and warrants on a
registration  statement  as soon as  practicable  after the date of issuing  the
warrant,  but in any event no later  than May 31,  2006.  The  Company  received
funding  under this  agreement  of $200,000  and  $460,000 in February and March
2006, respectively.

     On May 18,  2006,  the  Company  was not able to repay this Apix loan.  The
Company's  failure to repay the  principal  and  interest by the  maturity  date
constituted an event of default  pursuant to the loan  agreement.  To secure the
repayment  of  principal  and  interest  to Apix under the loan  agreement,  the
Company  entered  into  a  (i)  Security  Agreement,   (ii)  Trademark  Security
Agreement,  (iii) Patent  Security  Agreement,  and (iv) Patent,  Trademark  and
Copyright Security Agreement with Apix,  granting Apix a first priority security
interest in all of the Company's assets and  intellectual  property now owned or
hereafter  acquired.  Apix's remedies upon default of the loan agreement include
taking  possession  and selling the  collateral,  the  occurrence of which would
cause the Company to cease its operations indefinitely.

                                       9
<PAGE>
     The Company has not  received a notice of default  from Apix,  nor has Apix
indicated to the Company  that it intends to place the Company in default  under
the loan agreement.  In addition to the $3,660,000 loaned to the Company by Apix
through  March of 2006,  Apix has made  additional  advances  in the  amount  of
$1,575,000 through June 30, 2006 and $675,000 through August 10, 2006. The terms
of these advances have not been finalized yet.

4. CONCENTRATIONS OF RISK

     During the quarter ended June 30, 2006,  the Company's net sales to foreign
customers decreased to 53% of total, with 36% to Asia (Japan), 16% to Europe and
1% to others.  During the  quarter  ended  June 30,  2005,  net sales to foreign
customers were 59%, with 47% to Asia (Japan),  12% to Europe.  The Company's net
sales by country in the  quarter  ending  June 30, 2006 was 47% to US and 36% to
Japan and for the same quarter in 2005, the net sales by country were 41% to US,
47% to Japan.

     During the first six  months of 2006,  the  Company's  net sales to foreign
customers  slightly  decreased  to 54% of  total  net  sales,  with  34% to Asia
(Japan),  19% to Europe and 1% to others.  During the six months  ended June 30,
2005, net sales to foreign  customers  were 55% of total net sales,  with 43% to
Asia (Japan) and 12% to Europe. The Company's net sales by the top two countries
in the first six months ending June 30, 2006 were 46% to US and 34% to Japan and
for the same six months in 2005, the net sales by the top two countries were 45%
to US and 43% to Japan.

     During the  quarter  ended June 30,  2006,  net  revenues  to one  customer
comprised  36% of the  Company's  total net  product  sales.  During the quarter
ending June 30, 2005,  one customer  comprised  47% of the  Company's  total net
product sales.

     During the first six months of 2006, net revenues to one customer comprised
34% of the Company's total net product sales.  This is a decrease from the first
six months of 2005 when one customer  comprised 43% of the  Company's  total net
product sales.

5.  INVENTORIES

     Inventories  are  stated at the lower of cost or  market.  Cost is based on
actual costs computed on a first-in, first-out basis. Inventories consist of the
following (in thousands):

                                     June 30,                 December 31,
                                       2006                       2005
                                --------------------       --------------------
         Raw materials             $        121               $        90
         Work-in-process                    42                        101
         Finished goods                     38                        196
                                --------------------       --------------------
                                   $       201                $       387
                                ====================       ====================

                                       10
<PAGE>
     Inventories  shown  above are net of  allowances  for excess  and  obsolete
inventory  of $760,000  and  $663,000 at June 30, 2006 and  December  31,  2005,
respectively.  The Company provides  allowances for: (i) inventory which is slow
moving,  (ii) inventory  with expiring shelf life, and (iii)  inventory that has
become  obsolete as a result of  technological  advancements.  The Company  also
adjusts inventory to the lower of cost or market.


6. SHORT-TERM CREDIT OBLIGATIONS

     The Company had the following short-term credit obligations outstanding:

                                      June 30, 2006      December 31, 2005
                                      -------------      -----------------

Apix Loan                              $ 5,235,000         $ 2,700,000

Apix Loan Fees                           1,715,000           1,035,000

Apix Loan Accrued Interest                 263,534              70,014

Insurance Financing                              -              47,475
                                       -----------         -----------
                                       $ 7,213,534         $ 3,852,488

Less: Notes Discount                             -            (961,957)
                                       -----------         -----------
                                       $ 7,213,534         $ 2,890,532
                                       ===========         ===========

7. WARRANT LIABILITIES
<TABLE>
<CAPTION>
     The Company had the following warrant liabilities outstanding:

                             Total             Value at          Value at          Value at
                             -----             ---------         --------          --------
                         Warrant Shares        Inception       June 30, 2006    December 31, 2005
                         --------------     --------------     --------------    --------------
<S>    <C>                  <C>             <C>                <C>               <C>
August 2005 Loan            30,000,000      $    3,000,000     $    2,583,000    $    1,200,000


February 2006 Loan            31,800,000    $    1,421,740     $    2,744,340    $            -
                                                               --------------------------------
                                                               $    5,327,340    $    1,200,000
                                                               ================================
</TABLE>
8. OTHER EXPENSES

     The  other  expenses  were  related  to the  re-valuation  of  the  warrant
liability from the Apix loan. The Company used the Black-Scholes valuation model
to re-value the  warrants at each  balance  sheet date and recorded the expenses
based on the following:
<TABLE>
<CAPTION>
                   Warrant Granted      FMV     Strike Price Life (years)  Interest Rate Volatility  Change in Value

<S>                     <C>          <C>        <C>                   <C>           <C>        <C>  <C>
Q1 2006          August 2005         $   0.048  $     0.060           9.92          4.73%      128% $          47,420
                 February 2006       $   0.048  $     0.060           9.42          4.73%      128% $         177,000
                 ------------------------------------------------------------------------------------------------------
Q1 2006 Total                                                                                       $         224,420

Q2 2006          August 2005         $   0.087  $     0.060           9.67          5.08%      160% $      1,275,180
                 February 2006       $   0.087  $     0.060           9.17          5.08%      160% $      1,206,000
                 ------------------------------------------------------------------------------------------------------
Q2 2006 Total                                                                                       $      2,481,180

                 ------------------------------------------------------------------------------------------------------
YTD Total                                                                                           $      2,705,600
                                                                                                   ====================
</TABLE>

                                       11
<PAGE>
ITEM 2. Management's Discussion and Analysis and Results of Operations

Forward Looking Statements

     The information in this discussion may contain  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.  These
forward-looking statements involve risks and uncertainties, including statements
regarding our capital needs, business strategy and expectations.  Any statements
that are not of historical fact may be deemed to be forward-looking  statements.
These forward-looking statements involve substantial risks and uncertainties. In
some cases you can identify  forward-looking  statements by terminology  such as
"may," "will," "should,"  "expect," "plan," "intend,"  "anticipate,"  "believe,"
"estimate," "predict," "potential," or "continue",  the negative of the terms or
other comparable terminology. Forward-looking statements in this Report may also
include  references to  anticipated  sales volume and product  margins,  efforts
aimed at establishing new or improving  existing  relationships  with customers,
other  business  development  activities,   anticipated  financial  performance,
business  prospects  and similar  matters.  Actual  events or results may differ
materially from the anticipated  results or other expectations  expressed in the
forward-looking  statements. In evaluating these statements, you should consider
various factors, including the risks included from time to time in other reports
or registration  statements filed with the United States Securities and Exchange
Commission. These factors may cause our actual results to differ materially from
any  forward-looking  statements.  We disclaim any obligation to publicly update
these  statements,  or disclose any difference  between actual results and those
reflected in these statements.

Overview

     We are a publicly traded company headquartered in Fremont,  California. Our
stock is quoted on the Over-The-Counter  Bulletin Board under the symbol "CRDM".
Since our incorporation in November 1992, we have developed, produced and sold a
variety of  micro-catheters  designed for the diagnosis and treatment of the two
most  common  forms  of  cardiac  arrhythmias:   atrial  fibrillation  (AF)  and
ventricular  tachycardia (VT). Since 2001,  however,  our efforts have primarily
focused  on  developing  differentiated  products  that  diagnose  and treat AF,
including our  REVELATION(R) Tx microcatheter  for use in the  Electrophysiology
(EP)  market,  and our  Surgical  Ablation  System (SAS) for use in the surgical
market.

     In January 2003,  the US Food and Drug  Administration  (FDA)  approved the
commercialization  of our SAS for use in ablating  cardiac tissue during cardiac
surgery.  Currently we do not plan to market the SAS ourselves,  and are seeking
to sell or otherwise consummate a strategic transaction for this system.

     In May 2004,  we received a letter from the FDA,  stating  that our amended
Pre-Market  Approval (PMA)  application for the REVELATION(R) Tx linear ablation
micro-catheter system was not approvable based on the requirements of applicable
regulations.

     In June 2005,  we met with the FDA's  Center for Devices  and  Radiological
Health to continue the process towards seeking approval for the REVELATION(R) Tx
ablation catheter for treatment of AF.

     On June 16, 2005, our lender,  Agility Capital LLC, notified us that in its
view,  an event of default had  occurred and that all amounts  outstanding  were
then due and payable. The lender then swept our bank accounts. On June 17, 2005,
our cash  balances  were  insufficient  to  continue  operations  and all of our
employees  were placed on  indefinite  furlough in order to  conserve  cash.  On
August  12,  2005,  we  entered  into a  Loan  Facility  Term  Sheet  with  Apix
International Limited (Apix). On August 15, 2005, we re-hired certain furloughed
employees and resumed operations in a reduced capacity.

     In May 2006, the FDA granted 510(k) marketing clearance for the new Cardima
Ablation  System,  which ablates cardiac tissue during heart surgery using radio
frequency  (RF) energy.  The system is expected to be used primarily by surgeons
performing  cardiac  surgery using  standard  hospital  laparoscopic  as well as
thorascopic techniques.

     In July 2006, the FDA granted a review of the scientific dispute underlying
the FDA's  refusal to approve our PMA for the  REVELATION(R)  Tx  micro-catheter
System.  The review  will be  conducted  by the FDA's  Medical  Devices  Dispute
Resolution  Panel and is expected to take place in either the fourth  quarter of
this  fiscal  year or the first  quarter  of fiscal  year  2007.  Obtaining  FDA
approval in the United States of the REVELATION(R) Tx micro-catheter  system for
the treatment of AF remains one of our highest priorities.

                                       12
<PAGE>

Results Of Operations - Three and Six Months Ended June 30, 2006 and 2005

Net Sales

     Net sales for the  quarter  ended June 30, 2006  decreased  34% to $335,000
from  $510,000  for the  same  period  in 2005.  The  decrease  in net  sales is
primarily  attributable  to the  limited  manufacturing  capacity  caused by the
company-wide  furlough  instituted from June 2005 until August 15, 2005, when we
re-hired  certain  furloughed  employees  and  resumed  operations  in a reduced
capacity.  Regionally,  net sales in the North America decreased 24% to $164,000
in the first quarter of 2006 from $208,000 for the same period in 2005. This was
due primarily to the  termination  of our U.S.  sales force in August 2005.  Net
sales in our Japan/Asia  region  decreased 50% to $119,000 in the second quarter
of 2006  from  $239,000  for the same  period  in 2005  while  net  sales in our
European  region  decreased 17% to $52,000 in the second  quarter of 2006,  from
$63,000  in the  comparable  period  of 2005.  These  decreases  were due to the
limited manufacturing capacity discussed above.

     Net sales for the six months ended June 30, 2006  decreased 33% to $719,000
from  $1,065,000 for the same period in 2005. By region,  net sales in the North
America  decreased  30% to $341,000  for the six months ended June 30, 2006 from
$476,000 for the same period in 2005.  European net sales slightly  increased by
3% to $135,000 for the six months ended June 30, 2006 from $131,000 for the same
period in 2005. Net sales in our Japan/Asia region decreased 47% to $243,000 for
the six months  ended June 30, 2006 from  $458,000  for the same period in 2005.
All these  decreases  were  primarily the result of: (i) the  termination of our
U.S. sales force in 2005 and (ii) the limited  manufacturing  capacity caused by
the June 2005 furlough.

Cost of Goods Sold

     Cost of  goods  sold  primarily  includes  raw  materials  costs,  catheter
fabrication  costs,  system  assembly and testing  costs,  shipping and handling
costs, and manufacturing labor and overhead.  Cost of goods sold for the quarter
ended June 30, 2006  decreased 41% to $440,000 from $744,000 for the same period
in 2005. Cost of goods sold for the six months ended June 30, 2006 decreased 21%
to $938,000 from $1,188,000 for the same period in 2005.

     Cost of goods sold as a percentage of net sales decreased by 10%, from 146%
to 131%, for the three months ended June 30, 2006 as compared to the same period
of the prior year.  Cost of goods sold as a percentage of net sales increased by
17%,  from 112% to 131%,  for the six months  ended June 30, 2006 as compared to
the same period of the prior year.  The  increase in the cost of goods sold as a
percentage of net sales for the six months ended June 30, 2006 was primarily due
to some products being sold at low and below cost margins.

Research and Development Expenses

     Research and development  expenses  include product  development,  clinical
testing and regulatory expenses. Total research and development expenses for the
quarter ended June 30, 2006 decreased  51%, to $374,000 from  $758,000,  for the
same period in 2005. Total research and development  expenses for the six months
ended June 30, 2006  decreased  44%, to $790,000  from  $1,400,000  for the same
period in 2005.  These  decreases were primarily  attributable  to the headcount
reduction in August 2005. The Company's research and development staff decreased
from eleven employees at June 30, 2005 to four employees at June 30, 2006.

Selling, Marketing, General and Administrative Expenses

     Total  selling,  marketing,  general and  administrative  expenses  for the
quarter ended June 30, 2006 decreased  46%, to $709,000 from  $1,319,000 for the
same period in 2005.  Selling  expenses for the three months ended June 30, 2006
decreased  69%, to $60,000 from $192,000 for the same period in 2005.  Marketing
expenses for the three months ended June 30, 2006 also decreased 52%, to $49,000
from $103,000 for the same period in 2005. General and  administrative  expenses
for the  quarter  ended  June  30,  2006  decreased  by 62%,  to  $600,000  from
$1,024,000  for the same  period in 2005.  This  decrease  was mainly due to the
headcount  reduction in August 2005 and  offsetting  partially  the  stock-based
compensation  expense of $94,000 for the three  months  ended June 30, 2006 with
the adoption of FASB 123(R) in fiscal year 2006.

                                       13
<PAGE>
     Total selling,  marketing,  general and administrative expenses for the six
months ended June 30, 2006 decreased 54%, to $1,379,000  from $3,016,000 for the
same period in 2005.  Selling  expenses  for the six months  ended June 30, 2006
decreased 70%, to $128,000 from $421,000 for the same period in 2005.  Marketing
expenses for the six months ended June 30, 2006 also  decreased  60%, to $87,000
from $220,000 for the same period in 2005. General and  administrative  expenses
for the six  months  ended  June  30,  2006  decreased  51%,  to  $1,163,000  to
$2,375,000  for the same period in 2005.  The decrease was  primarily due to the
company-wide  furlough  instituted  in June 2005 and  offsetting  partially  the
stock-based  compensation  expense of $213,000 for the six months ended June 30,
2006 with the adoption of FASB 123(R) in fiscal year 2006.  In  addition,  there
was a $255,000 charge relating to the  implementation  of a  Sarbanes-Oxley  Act
compliance  program in the first six months in 2005. There was no such charge in
the same period in 2006.


Interest Expense

     Interest  expense for the quarter  ended June 30, 2006  increased  284%, to
$1,412,000  from  $497,000  for  the  same  period  in  2005.  The  expense  was
attributable  to: (i) Capital lease interest of $1,000,  (ii) Apix loan interest
of  $116,000,  (iii)  Apix loan fees  amortization  of  $347,000,  and (iv) Apix
warrant-related loan discount amortization of $948,000.

     Interest  expense for the six months ended June 30, 2006 increased 714%, to
$3,563,000  from  $499,000  for  the  same  period  in  2005.  The  expense  was
attributable  to: (i) Capital lease interest of $2,000,  (ii) Apix loan interest
of  $193,000,  (iii)  Apix loan fees  amortization  of  $984,000,  and (iv) Apix
warrant-related loan discount amortization of $2,384,000.

Other Expenses

     Other  expenses  for the quarter and for the six months ended June 30, 2006
was $2,481,000 and $2,706,000,  respectively. These expenses were related to the
revaluation of the Apix  warrants.  There was no such charge in the same periods
in 2005.

Liquidity and Capital Resources

     We had cash of  approximately  $692,000 as of June 30, 2006. Our management
estimates  that our  financial  resources  will be  sufficient  to  sustain  our
operations until August 31, 2006. Although our management recognizes the need to
raise funds in the immediate future,  there can be no assurances that we will be
successful  in doing so, or, if we do consummate a financing  transaction,  that
its  terms  and  conditions  will not be  favorable  to us. 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.  In its
opinion accompanying our December 31, 2005 financial statements, our independent
registered public accounting firm expressed  substantial doubt as to our ability
to continue as a going concern for a reasonable  period of time, and provided an
explanatory  paragraph  describing  the  events  that  have  given  rise to this
uncertainty.

                                       14
<PAGE>
     Net cash used in operating  activities for the first six months of 2006 was
approximately  $1,940,000,  compared to the net cash used of $3,847,000  for the
first six months of 2005.  The decrease  was  primarily  due to lower  operating
expenses. Net cash used in investing activities was approximately $18,000 in the
first six months of 2006  related to the capital  expenditures  of property  and
equipment,  as  compared  to  $103,000  for the same  period  in 2005.  Net cash
provided by financing activities was approximately  $2,526,000 for the first six
months of 2006, compared to net cash provided of $119,000 for the same period in
2005.  This change was primarily due to the loan proceeds and advances  received
from Apix.

     We have financed our operations to date  principally  through:  (i) private
placements of equity securities,  (ii) the initial public offering of our common
stock in June  1997,  (iii)  borrowings  under a line of  credit,  (iv)  sale of
certain of our non-core patents to Medtronic,  Inc., and (v) equipment leases to
finance certain capital equipments.

     During 2005, we entered into a loan  facility  term sheet with Apix,  which
provided us a $3 million loan financing. On February 14, 2006, we entered into a
new loan facility term sheet with Apix,  which  provided for the rollover of the
original  loan  agreement  and the grant of an  additional  loan facility in the
amount of  $660,000  at a stated  interest  rate of 10% per annum.  We  received
funding  under this  agreement  of $200,000  and  $460,000 in February and March
2006,  respectively.  Even  though we were not able to repay the loan at the due
date, Apix continues to provide  additional advance to the Company in the amount
of $1,575,000 through June 30, 2006 and $675,000 through August 10, 2006.


                                       15
<PAGE>
ITEM 3.       CONTROLS AND PROCEDURES

(a)      Evaluation of disclosure controls and procedures.

     We maintain  "disclosure  controls and procedures," as such term is defined
in Rules 13a-15(e) and 15d-15(e) under the Securities  Exchange Act of 1934 (the
"Exchange  Act"),  that are designed to ensure that  information  required to be
disclosed  by us in reports  that we file or submit  under the  Exchange  Act is
recorded, processed,  summarized, and reported within the time periods specified
in Securities and Exchange Commission rules and forms, and that such information
is accumulated and communicated to our management, including our Chief Executive
Officer and Chief Financial Officer,  as appropriate,  to allow timely decisions
regarding  required  disclosure.  In designing  and  evaluating  our  disclosure
controls and procedures,  management  recognized  that  disclosure  controls and
procedures,  no  matter  how well  conceived  and  operated,  can  provide  only
reasonable,  not  absolute,  assurance  that the  objectives  of the  disclosure
controls and procedures are met. Additionally,  in designing disclosure controls
and procedures, our management necessarily was required to apply its judgment in
evaluating the  cost-benefit  relationship of possible  disclosure  controls and
procedures.  The design of any disclosure  controls and procedures also is based
in part upon certain  assumptions  about the  likelihood of future  events,  and
there can be no assurance  that any design will succeed in achieving  its stated
goals under all potential future conditions.

     As of the  end of the  period  covered  by this  report,  we  conducted  an
evaluation,  under  the  supervision  and with the  participation  of our  chief
executive  officer and chief  financial  officer of our disclosure  controls and
procedures  (as defined in Rule  13a-15(e)  and Rule  15d-15(e)  of the Exchange
Act).  Based  upon  this  evaluation,  our  chief  executive  officer  and chief
financial officer concluded that our disclosure  controls and procedures are not
effective  to ensure  that  information  required to be  disclosed  by us in the
reports that we file or submit  under the  Exchange Act is recorded,  processed,
summarized and reported,  within the time periods  specified in the Commission's
rules and forms. This conclusion is based on the following development:

     o    The  existence  of  comments  issued  by the  reviewing  staff  of the
          Securities  and  Exchange   Commission   relating  to  disclosure  and
          classification  issues in the Company's  Annual and Periodic  filings,
          which comments have not been fully resolved

     Notwithstanding  the foregoing,  as previously  disclosed,  the Company has
taken the following steps to improve its disclosure controls and procedures:

     o    In  October,  2005,  the  Company  hired Chris Mak to serve as its new
          Controller;
     o    In October,  2005,  the Company hired Jim Pardee to serve as a finance
          and accounting consultant.

     While  management  believes  progress  has been made with  respect to these
issues, it nevertheless believes that there continues to exist material weakness
in this area. We believe additional  progress in this area will continue through
the fiscal year of 2006.

     In addition,  the Company has adopted a procedure,  not implemented yet, to
ensure that new accounting  standards are reviewed and applied correctly.  Under
this  procedure,  the  Company's  Controller  will  monitor  the  release of new
accounting  standards.  Once the  Controller  becomes aware of a new  accounting
standard, he will present the new standard to members of the Audit Committee and
schedule  a  meeting  with  members  of  the  Audit  Committee  to  discuss  the
application of the new standard to the Company. Thereafter, once a determination
concerning  the  application  of a new standard has been made,  the Company will
present its determination to its auditor for review and comment.

     (b) Limitations on Effectiveness of Disclosure Controls and Procedures.

     Disclosure  controls and procedures  cannot provide  absolute  assurance of
achieving financial reporting objectives because of their inherent  limitations.
Disclosure  controls and procedures is a process that involves  human  diligence
and  compliance  and is subject to lapses in judgment and  breakdowns  resulting
from human failures. Disclosure controls and procedures also can be circumvented
by collusion or improper management override. Because of such limitations, there
is a risk that  material  misstatements  may not be  prevented  or detected on a
timely basis by disclosure  controls and  procedures.  However,  these  inherent
limitations are known features of the financial reporting process. Therefore, it
is  possible  to design  into the  process  safeguards  to  reduce,  though  not
eliminate, this risk.

                                       16
<PAGE>
PART II. OTHER INFORMATION

ITEM 1.     Legal Proceedings

     The Company has been subject to certain legal  proceedings  and claims that
arose in the ordinary  course of business.  The Company  currently is a party to
various legal proceedings and claims.  While the Company currently believes that
the ultimate outcome of these proceedings will not have a material adverse event
on our results of operations,  litigation is subject to inherent  uncertainties,
and  unfavorable  rulings  could occur.  Depending on the amount and timing,  an
unfavorable  outcome  of some or all of  these  matters  could  have a  material
adverse effect on the Company's cash flows,  business,  results of operations or
financial  position.  An estimate of  potential  loss from  pending  proceedings
cannot  be made  at this  time.  However,  in May  2006,  the  Company  received
notification  from  the  Labor  Commissioner  of the  State of  California  that
penalties of $24,000 to be former  employees  pursuant to California  Labor Code
Section 203 have been  assessed  against the Company.  The Company  disputed the
penalties and has filed an appeal to the Superior Court,  Alameda County,  State
of California on May 19, 2006.

ITEM 2.     Unregistered Sales of Equity Securities and Use of Proceeds

         None.

ITEM 3.     Defaults Upon Senior Securities

     Pursuant to the Company's secured loan agreement with Apix, the Company was
required to repay the  principal  and  interest  underlying  the loan by May 18,
2006. The Company's  failure to repay the principal and interest by the maturity
date constitutes an event of default pursuant to the loan agreement.

     To secure the  repayment of  principal  and interest to Apix under the loan
agreement,  the Company  entered into a (i) Security  Agreement,  (ii) Trademark
Security Agreement,  (iii) Patent Security Agreement, and (iv) Patent, Trademark
and Copyright  Security  Agreement  with Apix,  granting  Apix a first  priority
security  interest in all of the Company's assets and intellectual  property now
owned or hereafter acquired.  Apix's remedies upon default of the loan agreement
include taking  possession and selling the  collateral,  the occurrence of which
would cause the Company to cease its operations indefinitely.

     The Company has not  received a notice of default  from Apix,  nor has Apix
indicated to the Company  that it intends to place the Company in default  under
the loan agreement.  In addition to the $3,660,000 loaned to the Company by Apix
through  March of 2006,  Apix has made  additional  advances  in the  amount  of
$1,575,000 through June 30, 2006 and $675,000 through August 10, 2006. The terms
of these advances have not been finalized yet.

ITEM 4.     Submission of Matters to a Vote of the Security Holders

         None.

ITEM 5.     Other Information

         None.

ITEM 6.     Exhibits

  31.1    Certification  of the Chief  Executive  Officer  and  Chief  Financial
          Officer  of  Cardima,  Inc.,  pursuant  to Rule  13a-14(a)  under  the
          Securities Exchange Act of 1934.

  32.1    Certification  of the Chief  Executive  Officer  and  Chief  Financial
          Officer of Cardima furnished pursuant to Section 1350 of Chapter 63 of
          18 U.S.C. as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
          of 2002


                                       17
<PAGE>
                                  CARDIMA, INC.

                                    SIGNATURE

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 14, 2006               CARDIMA, INC.



                                     /s/ Gabriel B. Vegh
                                     -------------------
                                     Gabriel B. Vegh
                                     Chairman, Chief Executive Officer and
                                     Acting Chief Financial Officer
                                    (Principal Executive and Financial Officer)




                                       18