**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 September 30,
              2007**


****


**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: 000-22419**





**CARDIMA,
      INC.**


**(Exact
      name of registrant as specified in its charter)**




**Delaware**
            **94-3177883**(State
                or Other Jurisdiction mof 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**





Copies
      to:





Richard
      A. Friedman, Esq.


Sichenzia
      Ross Friedman Ference LLP


61
      Broadway, 32nd
      Floor


New
      York,
      N.Y. 10006





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
      November 16, 2007, there were 98,316,311 shares (post-split) of the Registrant’s
      Common Stock outstanding.





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


1




**CARDIMA,
      INC**.




**TABLE
      OF CONTENTS**




**PART
      I.  Financial Information**







**Description**
            **Page**Item
                1.
            Financial
                Statements (unaudited)
            3Condensed
                Balance Sheets as of September 30, 2007 and December 31,
                2006
            3Condensed
                Statement of Operations for the Three Months and Nine Months Ended
                September 30, 2007 and 2006
            4Condensed
                Statement of Cash Flows for the Nine Months Ended September 30, 2007
                and
                2006
            5Notes
                to Condensed Financial Statements
            6Item
                2.
            Management’s
                Discussion and Analysis and Results of Operations
            14Item
                3.
            Controls
                and Procedures
            18





**PART
      II.  Other Information**







**Description**
            **Page**Item
                1.
            Legal
                Proceedings
            18Item
                2.
            Unregistered
                Sales of Equity Securities and Use of Proceeds
            18Item
                3.
            Defaults
                Upon Senior Securities
            19Item
                4.
            Submission
                of Matters to a Vote of Security Holders
            19Item
                5.
            Other
                Information
            19Item
                6.
            Exhibits
            19Signatures
            20





2




**PART
      I.**


**ITEM
      1.  Financial Statements**


**CARDIMA,
      INC.**


**BALANCE
      SHEETS**


**(In
      thousands, except per share amounts)**








September
                30, 2007 (Unaudited)
            
            
            December
                31, 2006 (Restated)**ASSETS**Current
                assets:Cash
                and cash equivalent
            
            $
            487
            
            
            $
            942Accounts
                receivable, net of allowances for doubtful accounts of $40 for September
                30, 2007 and $14 for December 31, 2006
            
            
            166
            
            
            
            415Inventories
                (Note 4)
            
            
            479
            
            
            
            324Prepaid
                expenses
            
            
            43
            
            
            
            123Deferred
                expenses
            
            
            55
            
            
            
            -Other
                current assets
            
            
            151
            
            
            
            62Total
                current assets
            
            $
            1,381
            
            
            $
            1,866Property
                and equipment, net (Note 5)
            
            
            294
            
            
            
            280Other
                assets
            
            
            61
            
            
            
            71TOTAL
                ASSETS
            
            $
            1,736
            
            
            $
            2,217**LIABILITIES
                AND STOCKHOLDERS' DEFICIENCY**Current
                liabilities:Accounts
                payable
            
            $
            884
            
            
            $
            971Accrued
                compensation
            
            
            397
            
            
            
            402Loans
                payable - Apix (Note 6)
            
            
            11,880
            
            
            
            8,160Loans
                payable - Others (Note 7)
            
            
            1,000
            
            
            
            -Warrant
                liabilities
            
            
            -
            
            
            
            3,044Conversion
                feature liabilities
            
            
            400
            
            
            
            400Notes
                payable to related parties - current portion (Note 8)
            
            
            8
            
            
            
            8Capital
                lease - current portion (Note 10)
            
            
            34
            
            
            
            21Accrued
                interest and fee (Note 9)
            
            
            5,781
            
            
            
            2,308Other
                current liabilities
            
            
            38
            
            
            
            96Total
                current liabilities
            
            $
            20,422
            
            
            $
            15,410Capital
                lease - noncurrent portion (Note 10)
            
            
            11
            
            
            
            22Notes
                payable to related parties - noncurrent portion (Note 8)
            
            
            57
            
            
            
            62Commitments
                and contingencies (see note 10)TOTAL
                LIABILITIES
            
            $
            20,490
            
            
            $
            15,494Stockholders'
                deficiency:Common
                stock, $0.001 par value, 300,000,000 shares authorized, 10,316,311
                and
                10,235,468 shares issued and outstanding at September 30, 2007 and
                December 31, 2006, respectively (post-split)
            
            
            10
            
            
            
            10Preferred
                stock, $0.001 par value, 10,000,000 shares authorized, 5,000,000
                and none
                issued and outstanding at September 30, 2007 and December 31, 2006,
                respectively
            
            
            5
            
            
            
            -Additional
                Paid-In-Capital
            
            
            125,557
            
            
            
            118,408Accumulated
                deficit
            
            
            (144,326
            )
            
            
            (131,695
            )Total
                stockholders' deficiency
            
            
            (18,754
            )
            
            
            (13,277
            )TOTAL
                LIABILITIES AND STOCKHOLDERS' DEFICIENCY
            
            $
            1,736
            
            
            $
            2,217


The
        accompanying notes are an integral part of these condensed financial
        statements.
  3




**CARDIMA,
      INC.**


**STATEMENTS
      OF OPERATIONS**


**(In
      thousands, except per share amounts)**


**(Unaudited)**








Three
                Months Ended September 30, 2007
            
            
            Three
                Months Ended September 30, 2006
            
            
            Nine
                Months Ended September 30, 2007 (Restated)
            
            
            Nine
                Months Ended September 30, 2006 (Restated)Net
                sales
            
            $
            311
            
            
            $
            254
            
            
            $
            889
            
            
            $
            972Cost
                of goods sold
            
            
            523
            
            
            
            447
            
            
            
            1,477
            
            
            
            1,384Gross
                losses
            
            
            (212
            )
            
            
            (193
            )
            
            
            (588
            )
            
            
            (412
            )Operating
                expenses:Research
                and development
            
            
            388
            
            
            
            451
            
            
            
            2,083
            
            
            
            1,242Selling,
                general and administrative
            
            
            859
            
            
            
            748
            
            
            
            2,607
            
            
            
            2,126Total
                operating expenses
            
            
            1,247
            
            
            
            1,199
            
            
            
            4,690
            
            
            
            3,368Operating
                loss
            
            
            (1,459
            )
            
            
            (1,392
            )
            
            
            (5,278
            )
            
            
            (3,780
            )Interest
                expense
            
            
            (2,314
            )
            
            
            (159
            )
            
            
            (9,651
            )
            
            
            (3,721
            )Other
                income /(expense)
            
            
            9
            
            
            
            2,586
            
            
            
            3,058
            
            
            
            (120
            )Loss
                on debt restructuring
            
            
            -
            
            
            
            -
            
            
            
            (760
            )
            
            
            -Net
                loss
            
            $
            (3,764
            )
            
            $
            1,035
            
            
            $
            (12,631
            )
            
            $
            (7,621
            )Basic
                and diluted net loss per share
            
            $
            (0.37
            )
            
            $
            0.10
            
            
            $
            (1.23
            )
            
            $
            (0.75
            )Shares
                used in computing basic and diluted net loss per share
                (post-split)
            
            
            10,300
            
            
            
            10,191
            
            
            
            10,267
            
            
            
            10,168





The
        accompanying notes are an integral part of these condensed financial
        statements.
  4
  **CARDIMA,
      INC.**


**STATEMENTS
      OF CASH FLOWS**


**(In
      thousands)**


**(Unaudited)**





Nine
                Months Ended September 30, 2007
            
            
            Nine
                Months Ended September 30, 2006**CASH
                FLOWS FROM OPERATING ACTIVITIES:**Net
                loss
            
            $
            (12,631
            )
            
            $
            (7,621
            )Adjustments
                to reconcile net loss to net cash used in operating activities provided
                by
                operations:Depreciation
                and amortization
            
            
            69
            
            
            
            95Non-cash
                stock-based compensation
            
            
            145
            
            
            
            320Non-cash
                interest expense
            
            
            6,213
            
            
            
            -Loss
                on debt restructuring
            
            
            760
            
            
            
            -Warrant
                liability valuation
            
            
            (3,044
            )
            
            
            1,541Excess
                and obsolete inventory
            
            
            129
            
            
            
            90Allowance
                for doubtful accounts
            
            
            26
            
            
            
            (13
            )Changes
                in operating assets and liabilities:Accounts
                receivable
            
            
            223
            
            
            
            95Inventories
            
            
            (284
            )
            
            
            (7
            )Prepaid
                and other assets
            
            
            (54
            )
            
            
            330Accounts
                payable, accrued compensation and other liabilities
            
            
            (128
            )
            
            
            40Accrued
                interest and fees
            
            
            3,473
            
            
            
            1,945Net
                cash used in operating activities
            
            
            (5,103
            )
            
            
            (3,185
            )**CASH
                FLOWS FROM INVESTING ACTIVITIES**Purchase
                of property and equipment
            
            
            (83
            )
            
            
            (76
            )Net
                cash used in investing activities
            
            
            (83
            )
            
            
            (76
            )**CASH
                FLOWS FROM FINANCING ACTIVITIES**Principal
                payments under capital leases and credit facility
            
            
            (25
            )
            
            
            (15
            )Net
                proceeds from loan financing
            
            
            4,720
            
            
            
            3,885Net
                proceeds from sale of common stock
            
            
            36
            
            
            
            27Net
                cash provided by financing activities
            
            
            4,731
            
            
            
            3,897Change
                in cash and cash equivalents
            
            
            (455
            )
            
            
            636Beginning
                cash and cash equivalents
            
            
            942
            
            
            
            124Ending
                cash and equivalents
            
            $
            487
            
            
            $
            760**SUPPLEMENTAL
                DISCLOSURE OF CASH FLOWS INFORMATION**Cash
                paid for interest
            
            $
            16
            
            
            $
            3**SUPPLEMENTAL
                SCHEDULE OF NON-CASH INVESTING AND FINANCING
                ACTIVITIES**Property
                and equipment acquired via capital lease obligations
            
            $
            23
            
            
            $
            37Issuance
                of preferred stock to pay for accrued fees
            
            $
            500
            
            
            $
            -


The
        accompanying notes are an integral part of these condensed financial
        statements.
  5




**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-KSB for the year ended
      December 31, 2006.  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 nine months ended September 30, 2007 are not
      necessarily indicative of results of operations to be expected for the full
      year.





*Restatement*




On
      November 16, 2007, the management of the Company in consultation with the
      Company’s Audit Committee, concluded that its previously issued financial
      statements as of and for the three-month period ended June 30, 2007, as included
      in its Quarterly Report on Form 10-QSB as filed with the Securities and Exchange
      Commission on August 30 , 2007 (the “Q2 2007 Form 10-QSB”), should no longer be
      relied upon as a result of the Company's determination that it had incorrectly
      accounted for the non-cash deemed dividend resulting from the inducements
      provided to the provider of the company’s credit facility. The misstatement had
      the effect of understating the Company's Net Loss Attributable to Common
      Stockholders by approximately $6.2 million or $0.60 per share. As originally
      stated for the three and six months ended June 30, 2007, Net Income (loss)
      and
      Net Income (loss) per share were $4,367,000, $0.42  and $(2,657,000),
      $(0.26) respectively.  As restated for the three and six months ended
      June 30, 2007, Net (loss) and Net (loss) per share were $(1,845,000), $(0.18)
      and $(8,869,000), $(0.86) respectively. The $6.2 million charge
      included:





·
            The
                price adjustment to existing
                warrant and new warrants - pursuant to the Prior Facilities, the
                Company
                agreed to issue to Apix warrants to purchase 11,880,000 shares
                (post-split) of the Company's common stock at an exercise price of
                $0.60
                per share (post-split) (the “Existing Warrants”). Pursuant to the New
                Facility, the exercise price of the Existing Warrants has been adjusted
                to
                $0.40 per share (post-split). In addition, the Company has agreed
                to issue
                to Apix additional warrants to purchase 2,000,000 shares (post-split)
                of
                the Company’s common stock at an exercise price of $0.30 per share
                (post-split) (the “New Warrants”). The price adjustment to the existing
                warrants resulted in a loss in debt restructuring charge
                of approximately $800,000 and a beneficial conversion charge of
                approximately $3,100,000.





·
            The
                issuance of the new warrants
                created a beneficial conversion charge of approximately
                $2,300,00.




6




*Stock
      Options Expensed*




In
      January 2006, the Company adopted the expense recognition provisions of FASB
      No.
      123 (R).  For the nine months ended September 30, 2007 and 2006, the
      Company recorded approximately $145,000 and $320,000, respectively in stock
      compensation expense.





*Net
      Income (Loss) Per Common Share*




Net
      income (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 net loss per share because all such securities are anti-dilutive for
      the
      periods presented. Excluded common stock equivalent shares included the
      following:





**September
                30,**
            
            
            **December
                31,****2007**
            
            
            **2006**Warrants
                (post-split)
            
            
            21,325,493
            
            
            
            7,579,352Stock
                Options (post-split)
            
            
            6,765,819
            
            
            
            510,863Total
                Warrants and Options (post-split)
            
            
            28,091,312
            
            
            
            8,090,215





*Recent
      Accounting Pronouncements*





In
      September 2006, the Financial
      Accounting Standards Board (“FASB”) issued Statement of Financial Accounting
      Standards No. 157 (“SFAS 157”), “Fair Value


Measurements.”  This
      Statement provides a single definition for fair value, a framework for measuring
      fair value and expanded disclosure concerning fair value.  SFAS 157
      applies to other pronouncements that require or permit fair value measurements;
      it does not require any new fair value measurements. This pronouncement is
      effective for fiscal years beginning after November 15, 2007. The Company is
      currently assessing the impact of adopting SFAS 157.





In
      December 2006, the FASB issued FSP EITF 00-19-2, *Accounting for Registration
      Payment Arrangements* (“FSP 00-19-2”), which addresses accounting for
      registration payment arrangements. FSP 00-19-2 specifies that the contingent
      obligation to make future payment or otherwise transfer consideration under
      a
      registration payment arrangement, whether issued as a separate agreement or
      included as a provision of a financial instrument or other agreement, should
      be
      separately recognized and measured in accordance with FASB Statement No. 5,
      *Accounting for Contingencies*. FSP 00-19-2 further clarifies that a
      financial instrument subject to a registration payment arrangement should be
      accounted for in accordance with other applicable generally accepted accounting
      principles without regard to the contingent obligation to transfer consideration
      pursuant to the registration payment arrangement. For registration payment
      arrangements and financial instruments subject to those arrangements that were
      entered into prior to the issuance of EITF 00-19-2, this guidance shall be
      effective for financial statements issued for fiscal years beginning after
      December 15, 2006 and interim periods within those fiscal years. The Company
      has
      not yet determined the impact that the adoption of FSP 00-19-2 will have on
      its
      financial statements.





In
      February 2007, the FASB issued SFAS 159 (“SFAS 159”), “The Fair Value Option for
      Financial Assets and Financial Liabilities – Including an Amendment of FASB
      Statement No. 115”. This Statement provides companies with an option to measure,
      at specified election dates, many financial instruments and certain other items
      at fair value that are not currently measured at fair value.  A
      company that adopts SFAS 159 will report unrealized gains and losses on items
      for which the fair value option has been elected in earnings at each subsequent
      reporting date. This Statement also establishes presentation and disclosure
      requirements designed to facilitate comparisons between entities that choose
      different measurement attributes for similar types of assets and
      liabilities.  This Statement is effective for fiscal years beginning
      after November 15, 2007. The Company is currently assessing the impact of
      adopting SFAS 159.




7




In
      June 2007, the FASB ratified Emerging Issues Task Force (EITF) Issue No. 06-11,
      "Accounting for Income Tax Benefits of Dividends on Share-Based Payment Awards."
      EITF 06-11 provides for the recognition and classification of deferred taxes
      associated with dividends or dividend equivalents on non-vested equity shares
      or
      non-vested equity share units (including restricted stock units (RSUs)) that
      are
      paid to employees and charged to retained earnings. This issue is effective
      for
      annual periods beginning after September 15, 2007. Also in June 2007, the FASB
      ratified EITF Issue No. 07-3, "Accounting for Advance Payments for Goods or
      Services to Be Used in Future Research and Development Activities." EITF 07-3
      provides that nonrefundable advance payments made for goods or services to
      be
      used in future research and development activities should be deferred and
      capitalized until such time as the related goods or services are delivered
      or
      are performed, at which point the amounts would be recognized as an expense.
      This issue is effective for fiscal years beginning after December 15,
      2007.  The Company has evaluated the potential impact of these issues
      and anticipates that they will have no material impact on its financial position
      and results of operations.





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-KSB for
      the year ended December 31, 2006.  The accounting policies used in
      preparing the Company’s interim 2007 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, derivative valuation and valuation of inventory.





3.
      GOING
      CONCERN





The
      accompanying financial statements
      have been prepared on a going concern basis, which contemplates the realization
      of assets and the settlement of liabilities and commitments in the normal course
      of business.  As reflected in the accompanying financial statements,
      as of September 30, 2007, the Company has cash on hand of $487,000, negative
      working capital of approximately $19.0 million, and an accumulated deficit
      of
      approximately $144.3 million.  On October 3, 2007, we entered into a
      debt settlement agreement with our lender, Apix International Limited (“Apix”),
      which required us to issue an aggregate of 88,000,000 million shares of our
      common stock to Apix in settlement of an outstanding balance of $17,661,055
      and
      20,340,000 warrants owed to Apix by us, Moreover we received several
      advances of $1,000,000 during the third quarter of 2007 and $3,000,000 in
      October 2007, from investors who have agreed to participate in the next round
      of
      financing which currently is still in process and which is still under
      negotiation.





Our
      ability to continue operations is largely dependent on the finalization of
      the
      terms of the next round of financing and the total amount of fund
      raised.   If we are unable to do so, we could be forced to seek
      bankruptcy protection or could be forced to sell assets on unfavorable terms
      in
      exchange for proceeds that would likely be insufficient to satisfy our
      obligations. (See Item 2. Management’s Discussion and Analysis of Financial
      Conditions and Results of Operations – “Liquidity and Capital
      Resources”).





4.  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):





September
                30, 2007
            
            
            December
                31, 2006Raw
                Materials
            
            $
            146
            
            
            $
            139Work-In-Process
            
            
            135
            
            
            
            86Finished
                Goods
            
            
            198
            
            
            
            99$
            479
            
            
            $
            324




8




Inventories
      shown above are computed using the FIFO cost method and are adjusted to the
      lower of cost or market.  The Company had allowances for excess and
      obsolete inventory of $708,000 and $579,000 at September 30, 2007 and December
      31, 2006, respectively.  As of September 30, 2007, the Company has
      approximately: (i) $47,000 of inventories located in its warehouse facility
      in
      Netherlands, (ii) $17,000 on loan inventories in United Kingdom, and (iii)
      $17,000 on loan inventories in Germany.  For the nine months ended
      September 30, 2007, net inventory increased by $155,000 which primarily due
      to
      the Company’s plan to increase sales both in the surgical and EP diagnostic
      areas in the upcoming quarters.





5.
      PROPERTY AND EQUIPMENT





Property
      and equipment, including equipment under capital leases, are carried at cost
      less accumulated depreciation and amortization.  Property and
      equipment are depreciated using the straight-line method over the estimated
      useful lives, generally three to five years.  Leasehold improvements
      are amortized using the straight-line method over the shorter of the estimated
      useful life of the asset or the remaining term of the
      lease.  Depreciation expense includes amortization of capital leases
      and leasehold improvements. Depreciation expense was $21,000 and $32,000 for
      the
      three months ended September 30, 2007 and 2006, respectively. Depreciated
      expense was $69,000 and $95,000 for the nine months ended September 30, 2007
      and
      2006, respectively. For the nine months ended September 30, 2007, a total of
      $2,000 fully depreciated equipments were disposed.





Property
      and equipment consist of the following (in thousands):





September
                30, 2007
            
            
            December
                31, 2006Equipment
            
            $
            1,964
            
            
            $
            1,888Leasehold
                improvements
            
            
            264
            
            
            
            259$
            2,228
            
            
            $
            2,147Less:
                accumulated depreciation and amortization
            
            
            (1,934
            )
            
            
            (1,867
            )$
            294
            
            
            $
            280Idle
                Equipment
            
            $
            1,290
            
            
            $
            1,290Less:
                accumulated depreciation and amortization
            
            
            (1,290
            )
            
            
            (1,290
            )$
            -
            
            
            $
            -




6.
      LOAN
      PAYABLE - APIX





On
      August
      28, 2005, the Company entered into a $3,000,000 Secured Loan Agreement with
      Apix
      International Limited (Apix), an entity that Mr. Rob Cheney, the Company’s Chief
      Executive Officer, was a principal. The term of the loan was six
      months.  All the loan-related fees were amortized over the period from
      August 2005 to February 2006. 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.  The term of
      this new loan facility was three months.  All the additional new
      facility-related fees were amortized over the period from February 2006 to
      May
      2006.  On May 18, 2006, the Company was not able to repay this Apix
      loan.  The Company had not received a notice of default from Apix, nor
      has Apix indicated to the Company that it intended 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 31, 2006, Apix has made advances
      to
      the Company in the amount of $4,500,000 from April 1, 2006 through December
      31,
      2006.




9




On
      January 15, 2007, the Company entered into a new term sheet with Apix, with
      the
      final financing agreements being executed on June 7, 2007, which provided,
      among
      other things, for the rollover of prior loan facilities and subsequent advances
      and an additional loan facility between the parties in the amount of $5,625,000.
      It also provided for the entire facility to mature on the earlier of (a)
      December 31, 2007 or (b) the date that Apix makes a demand for
      payment.





On
      June
      7, 2007, the Company issued to Apix 5,000,000 shares of its Series A Preferred
      Stock (the “Series A Preferred”) in payment of a facility fee of $500,000 in
      connection with the execution of a Loan Agreement between the Company and Apix
      on June 7, 2007.  Each share of Series A Preferred is convertible into
      0.2 shares of common stock (post-split) at the option of the holder
      thereof.  The Series A Preferred Stock may be redeemed by the Company
      at any time at $0.10 per share.  Each share of Series A Preferred may
      be voted as a single class with the common stock on 2.8 votes per shares basis
      (post-split).





As
      of
      September 30, 2007, the Company borrowed $11,880,000 from Apix and issued
      20,340,000 warrants (post-split) to Apix with strike prices ranging from $0.30
      to $0.40. On October 3, 2007, the Company entered into a Debt Settlement
      Agreement (the “Settlement Agreement”), with Apix. Under the terms of the
      Settlement Agreement, the Company issued 58,870,183 shares of the Company’s
      common stock to Apix in settlement of the outstanding balance of $17,661,055
      and
      29,129,817 shares in settlement of 20,340,000 warrants. Under the Settlement
      Agreement, Apix also released the Company of and from all and all manner or
      actions, suits, debts, sums of money, contracts, agreement, claims and demands
      at law or in equity that Apix had, or may have arising from the outstanding
      balance and warrants. The settlement shares were issued to Apix nominees on
      October 24, 2007.





7.
      LOAN
      PAYABLE – OTHERS





On
      August 23, 2007 and September 20,
      2007, the Company received advances of $500,000 on each of these two dates
      from
      an investor as an interest-free loan for its daily operating
      needs.  The investor agreed to participate in its next round of
      financing which currently is still in process and which is still under
      negotiation.





8.
      NOTE
      PAYABLE TO RELATED PARTIES





In
      December 2006, a settlement
      agreement was reached in concept between the Company and its former President
      and Chief Operating Officer, Mr. William K. Wheeler, in which his severance
      claim would be offset by his repayment obligation on the loan that he had
      received from the Company. The final agreement was signed in late April 2007,
      in
      which the Company offset Mr. Wheeler's loan plus various additional amounts
      against all his claims against the Company, including a release for all unknown
      claims, over a 59 months period. The Company agreed to pay the following
      additional amounts to Mr. Wheeler or on his behalf in addition to the settlement
      of the loan amount: (i) the employer taxes relating to this settlement agreement
      during the offset period, (ii) an initial payment of $10,000 to Mr. Wheeler,
      and
      (iii) two additional payments of $5,000 each to Mr. Wheeler in months 58 and
      59.





In
      accordance with the Accounting Principle Board (“APB”) No. 21, “Interest on
      Receivables and Payables”, the $295,000 note payable is discounted at 10% (same
      as the interest rate on the current loan financing) and the $192,500 note
      receivable is discounted at 6% (the original note’s interest
      rate).  The discounted value of the note payable and note receivable
      as of September 30, 2007 is $213,515 and $147,547, respectively.  As
      the receivable and the payable are ‘nettable’ that is subject to offset, they
      are considered as one ‘net loan payable’ under state law and accounted as
      such.





9.
      ACCRUED INTEREST AND FEE





In
      conjunction with the Apix loan
      financings in August 2005, February 2006, and June 2007, the Company had accrued
      loan interest and fees with balance of $5,781,000 and $2,308,000 as of September
      30, 2007 and December 31, 2006, respectively.  The accrued interest
      and fees were converted into the Company’s common stock pursuant to the debt
      settlement agreement on October 3, 2007.




10




10.
      COMMITMENTS AND CONTINGENCIES





*Commitments*





The
      Company leases facilities under an operating lease, which has been extended
      through May 2010.  The Company also leases certain equipment under
      non-cancelable capital leases, which bear interest at the rate of 10% per annum.
      Following is a schedule of future minimum lease payments under both operating
      and capital leases (in thousands):





Fiscal
                Year
            
            Operating
                Leases
            
            
            Capital
                Leases2007
            
            $
            65
            
            
            $
            142008
            
            
            265
            
            
            
            242009
            
            
            272
            
            
            
            102010
            
            
            115
            
            
            
            -Total
                minimum lease payments
            
            $
            717
            
            
            $
            48Less
                amounts representing interest
            
            N/A
            
            
            
            3Present
                value of net minimum lease payments
            
            $
            717
            
            
            $
            45





*Contingencies*





On
      August 31, 2007, our Board of
      Directors terminated the employment of our Chief Executive Officer and Acting
      Chief Financial Officer, Mr. Gabriel Vegh.  Mr. Vegh remains as a
      Director and his severance package has not been finalized. If the Company and
      Mr. Vegh do not agree on the terms of the severance package, the Company may
      face potential lawsuit arising from Mr. Vegh’s termination.





On
      October 31, 2007, the Company received a letter from the law firm representing
      its former Director of Operations, Mr. Larry Stevens. Mr. Stevens claimed for
      damages for wrongful termination in violation of public policy, breach of
      contract and related claims.  The Company determined that Mr. Stevens’
termination was “with cause” thus the severance provision of his employment
      agreement did not apply. The Company will defend itself vigorously against
      Mr.
      Stevens’ claims.





In
      addition, the Company is subject to numerous risks and uncertainties because
      of
      the nature and status of its operations and could be subject to claims and
      legal
      actions arising in the ordinary course of business. The Company maintains
      insurance coverage for events in amounts that it deems appropriate. Management
      believes that uninsured losses, if any, will not be materially adverse to the
      Company’s financial position or results of operations.





11.
      INTEREST EXPENSE





The
      Company reported interest expense of $2,314,000 for the quarter ended September
      30, 2007.  The interest expense is primarily attributable to the
      amortization of the additional loan fees associated with the June 2007 Apix
      financing, which were affected by the loan settlement agreement on October
      3,
      2007 between the Company and Apix.





12.
      INCOME TAXES





On
      July
      13, 2006, the Financial Accounting Standards Board (“FASB”) issued Financial
      Interpretation No. 48 (“FIN 48”), “Accounting for Uncertainty in Income Taxes -
      An Interpretation of FASB Statement No. 109.” FIN 48 clarifies the accounting
      for uncertainty in income taxes recognized in an entity’s financial statements
      in accordance with SFAS No. 109 (“SFAS 109”), “Accounting for Income Taxes,” and
      prescribes a recognition threshold and measurement attributes for financial
      statement disclosure of tax positions taken or expected to be taken on a tax
      return. Under FIN 48, the impact of an uncertain income tax position on the
      income tax return must be recognized at the largest amount that is
      more-likely-than-not to be sustained upon audit by the relevant taxing
      authority. An uncertain income tax position will not be recognized if it has
      less than a 50% likelihood of being sustained. Additionally, FIN 48 provides
      guidance on de-recognition, classification, interest and penalties, accounting
      in interim periods, disclosure, and transition. FIN 48 is effective for fiscal
      years beginning after December 15, 2006.




11




The
      Company adopted the provisions of FIN 48 on January 1, 2007. The implementation
      of FIN 48 did not result in a cumulative effect adjustment to retained earnings.
      At January 1, 2007, the Company did not have unrecognized tax
      liabilities.  During the first three quarters of 2007, no additional
      income tax expense was recorded as a result of FIN 48
      implementation.





In
      addition, the debt settlement agreement signed on October 3, 2007 between the
      Company and Apix will create a limitation upon the future use of the Company’s
      net operating loss carryovers pursuant to Section 382 of the US Internal Revenue
      Code.





13.
      CONCENTRATIONS OF RISK





To
      date,
      product sales have been direct to customers in the United States and to
      distributors primarily in Europe and Japan. The geographic distribution of
      net
      sales was as follows (in thousands):





Three
                Months Ended September 30,2007
            
            
            2006United
                States
            
            $
            228
            
            
            
            73
            %
            
            $
            112
            
            
            
            44
            %Europe
            
            
            69
            
            
            
            22
            %
            
            
            20
            
            
            
            8
            %Asia
                -- Japan
            
            
            0
            
            
            
            0
            %
            
            
            122
            
            
            
            48
            %Others
            
            
            14
            
            
            
            5
            %
            
            
            -
            
            
            
            0
            %Total
                Net Sales
            
            $
            311
            
            
            
            
            
            
            $
            254Nine
                Months Ended September 30,2007
            
            
            2006United
                States
            
            $
            703
            
            
            
            79
            %
            
            $
            447
            
            
            
            46
            %Europe
            
            
            257
            
            
            
            29
            %
            
            
            156
            
            
            
            16
            %Asia
                -- Japan
            
            
            (85
            )
            
            
            -10
            %
            
            
            360
            
            
            
            37
            %Others
            
            
            14
            
            
            
            2
            %
            
            
            9
            
            
            
            1
            %Total
                Net Sales
            
            $
            889
            
            
            
            
            
            
            $
            972





During
      the first quarter of 2007, the Company’s Japanese distributor notified the
      Company of its failure to maintain the legal documentation standard required
      to
      sell its PATHFINDER® in Japan.  As a result, the Company had no sales
      in Japan during the first three quarters of 2007.  In addition, in
      compliance with the local import rules, the Japanese distributor returned a
      total of $85,000 of products during the second quarter of 2007. The Company
      understands that the reapplication process takes approximately nine to twelve
      months.  The Company is currently exploring its options with regard to
      selling the PATHFINDER® in Japan.  During the reapplication process,
      the Company may have limited or no sales in Japan.  The Company
      anticipates resuming commercial sales before the fourth quarter of
      2008.  However, there can be no assurance that it will be able to
      resume sales by that time.  Furthermore, the Company entered into a
      distribution agreement with Robert Reid Inc. in Japan to be its exclusive
      distributor in the country effective August 1, 2007 with an initial term of
      five
      (5) years. Robert Reid Inc. will not be able to start importing and selling
      our
      products until the reapplication process is complete.




12




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





The
      Company receives payments from its customers and deposits them in federally
      insured financial institutions during its normal course of
      business.  From time to time, the balances with these deposit accounts
      may exceed the federally insured maximum limit, $100,000.  As of
      September 30, 2007, the Company had cash of $487,000.





14.  STOCK-BASED
      COMPENSATION





On
      September 26, 2007, the Company granted a total of 6,370,000 stock options
      to
      its employees, Board of Directors and consultants.  These stock
      options have a life of ten (10) years with a three (3) years annual vesting
      schedule.  The exercise price for these options is $0.44 per share.
      The fair value of the options using the Black Scholes method resulted in a
      current period charge of approximately $10,000 assuming a tax free interest
      rate
      of 4.52% and a volatility of 162% with an expected life to conversion of 10
      years.





15.
      STOCKHOLDERS’ EQUITY





On
      July
      31, 2007, the Company’s Board of Directors declared a reverse stock split, at a
      1 for 10 ratio effective immediately.With this reverse stock
      split, the Company re-classed approximately $93,000 from common stock at par
      value to additional paid-in capital.   In addition, as the result
      of a restatement of previously issued financial statements, approximately
      $6,200,000 was added to additional paid-in capital.





16.
      SUBSEQUENT EVENTS





On
      October 3, 2007, the Company entered into a Debt Settlement Agreement (the
      “Settlement Agreement”), with Apix. Under the terms of the Settlement Agreement,
      the Company issued 58,870,183 shares of the Company’s common stock to Apix in
      settlement of the outstanding balance of $17,661,055 and 29,129,817 shares
      in
      settlement of 20,340,000 warrants. Under the Settlement Agreement, Apix also
      released the Company of and from all and all manner or actions, suits, debts,
      sums of money, contracts, agreement, claims and demands at law or in equity
      that
      Apix had, or may have arising from the outstanding balance and warrants. The
      settlement shares were issued to Apix nominees on October 24,
      2007.   Under Section 382 of the US Internal Revenue Code, the
      Settlement Agreement will create a limitation upon the future use of the
      Company’s net operating loss carryovers.





On
      October 5, 2007, the Company announced that Ms. Tina Sim and Mr. Andrew Lee
      resigned as members of the Board of Directors (“Board”) of Cardima, Inc. and the
      Board appointed Dr. Richard Gaston and Dr. Eric Chan to fill the
      vacancies.





On
      October 19, 2007, the Company announced that Marc Lumer &
Company  resigned as its auditors. On the same day, the Company’s
      Board of Directors approved the engagement of PMB+Helin Donovan LLP as its
      independent certified public accountant.




13




**ITEM
      2. Management’s Discussion and Analysis and Results of
      Operations**




***Cautionary
      Statement Regarding 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***





Since
      2001, our efforts have primarily focused on developing differentiated products
      that diagnose and treat AF, including our REVELATION® Tx micro-catheter for use
      in the electrophysiology (EP) market, and our Surgical Ablation System (SAS)
      for
      use in the surgical market.  Our EP products allow for the mapping
      (diagnosis) and ablation (treatment) of the two most common forms of cardiac
      arrhythmias: atrial fibrillation and ventricular tachycardia.





We
      have
      experienced significant operating losses since inception.  We expect
      that our operating losses will continue for the foreseeable future as we
      continue to invest substantial resources in product development, pre-clinical
      and clinical trials, seeking regulatory approval, sales and marketing and
      manufacturing. Because our cash resources are extremely limited, we must raise
      additional capital in the immediate future in order to continue to pursue FDA
      approval for our REVELATION® Tx micro-catheter system, seek to sell or otherwise
      consummate a strategic transaction involving our SAS, and otherwise continue
      operations.





On
      April
      19, 2007, the FDA’s Medical Devices Dispute Resolution Panel (MDDRP) recommended
      to not approve our REVELATION® Tx Microcatheter System’s PMA.  We will
      consider our options regarding this decision in the U.S. In addition, we will
      continue to market our next generation ablation EP systems, which include the
      REVELATION® T-Flex and the INTELLITEMP®, in the European Union and the rest of
      the world where we are licensed to promote and sell these products.





On
      July
      31, 2007, we announced that our Board of Directors declared a reverse stock
      split, at a 1 for 10 ratio, effective at the opening of trading on July 31,
      2007.  Following the split, our common stock is traded under a new
      ticker symbol, “CADM”.  Our Board declared this reverse stock split
      pursuant to the discretionary authority granted by the vote of a majority of
      our
      outstanding shares at the 2007 Annual Shareholders Meeting held June 28,
      2007.




On
      August
      31, 2007, our Board of Directors terminated the employment of our Chief
      Executive Officer and Acting Chief Financial Officer, Mr. Gabriel
      Vegh.  Mr. Vegh remains as a Director and his severance package has
      not been finalized.  On the same date, the Board appointed Mr. Robert
      Cheney to be our Chief Executive Officer.  Mr. Cheney has been our
      Director since February 2006.  Mr. Cheney is also a Director and
      shareholder of Apix International Limited, a principal stockholder of the
      Company.  In addition, the Board appointed Mr. Tony Shum, one of our
      directors, as the Chairman of the Board.  The Board further appointed
      Mr. Chris Mak to be our Chief Financial Officer and Corporate
      Secretary.





Currently
      our primary focus is to execute our business plan to generate revenue from
      our
      surgical devices, which have FDA- approval in the United States and to increase
      our EP diagnostic sales world-wide.  Moreover, we have signed up new
      distributors in the United States to sell both our Surgical and EP Diagnostic
      products. We will need to raise additional capital to implement our marketing
      strategy relating to the sale of surgical devices.




14




We
      had
      cash and cash equivalents of approximately $487,000 as of September 30, 2007.
      During 2005, we entered into a Loan Facility Term Sheet with Apix International
      Limited (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.





On
      January 15, 2007, the Company entered into a new term sheet with Apix, with
      the
      final financing agreements being executed on June 7, 2007, which provided,
      among
      other things, for the rollover of prior loan facilities and subsequent advances
      and an additional loan facility between the parties in the amount of $5,625,000.
      It also provided for the entire facility to mature on the earlier of (a)
      December 31, 2007 or (b) the date that Apix makes a demand for
      payment.





On
      October 3, 2007, the Company entered into a Debt Settlement Agreement (the
      “Settlement Agreement”), with Apix. Under the terms of the Settlement Agreement,
      the Company issued 58,870,183 shares of the Company’s common stock to Apix in
      settlement of the outstanding balance of $17,661,055 and 29,129,817 shares
      in
      settlement of 20,340,000 warrants. Under the Settlement Agreement, Apix also
      released the Company of and from all and all manner or actions, suits, debts,
      sums of money, contracts, agreement, claims and demands at law or in equity
      that
      Apix had, or may have arising from the outstanding balance and warrants. The
      settlement shares were issued to Apix nominees on October 24, 2007.





In
      addition, we received several advances totaling $1,000,000 during the third
      quarter of 2007 and $3,000,000 in October 2007, from investors who have agreed
      to participate in the next round of financing which currently is still in
      process and which is still under negotiation.





***Results
      of Operations – Three and Nine Months Ended September 30, 2007 and 2006***





*Net
      Sales*





Net
      sales
      for the quarter ended September 30, 2007 increased 22% to $311,000 from $254,000
      for the same period in 2006. The increase in net sales was primarily
      attributable to our increased sales and marketing efforts in the United States
      and European countries even though there is no revenue generated from Japan
      due
      to our former Japanese distributor’s failure to maintain the legal documentation
      standard required to sell our PATHFINDER® in Japan.  We are continuing
      to explore ways to market our products in Japan and other
      countries.





Net
      sales
      in the United States and Canada increased by 104% to $228,000 in the third
      quarter of 2007 from $112,000 for the same period in
      2006.   There were no sales in Japan/Asia region in the third
      quarter of 2007, compared with net sales of $122,000 for the same period in
      2006.  Net sales in our European region increased 245% to $69,000 in
      the third quarter of 2007, from $20,000 in the comparable period of
      2006.  The increase was due to the increased sales and marketing
      efforts and the signup of new distributor in Germany.  Net sales in
      other regions increased to $14,000 in the third quarter of 2007, from none
      in
      the comparable period of 2006.





Net
      sales
      for the nine months ended September 30, 2007 decreased 9% to $889,000 from
      $972,000 for the same period in 2006. The decrease in net sales was primarily
      attributable to the total revenue loss from Japan due to our Japanese
      distributor’s failure to maintain the legal documentation standard required to
      sell our PATHFINDER® in Japan.  In addition, the Japanese distributor
      returned $85,000 of products in order to be in compliance of local import
      rules.





Net
      sales
      in the United States and Canada increased by 57% to $703,000 in the nine months
      ended September 30, 2007 from $447,000 for the same period in
      2006.   Due to the loss of sales in Japan and our Japanese
      distributor’s product return in the first six months of 2007, net returns in our
      Japan/Asia region was $85,000 in the nine months ended September 30, 2007,
      compared with net sales of $360,000 for the same period in 2006.  Net
      sales in our European region increased 65% to $257,000 in the nine months ended
      September 30, 2007, from $156,000 in the comparable period of
      2006.  The increase was due to the increased sales and marketing
      efforts and the signup of new distributors.  Net sales in other
      regions increased to $14,000 in the nine months ended September 30, 2007, from
      $9,000 in the comparable period of 2006.




15




*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 September 30, 2007 increased to $523,000 from $447,000 for the same period
      in 2006.





Cost
      of
      goods sold as a percentage of net sales decreased from 176% to 168% for the
      three months ended September 30, 2007 as compared to the same period of the
      prior year.  The decrease in the cost of goods sold as a percentage of
      net sales for the three months ended September 30, 2007 was primarily related
      to
      the increased sales in the United States which had a better markup, compared
      with other regions.





Cost
      of
      goods sold for the nine months ended September 30, 2007 increased to $1,477,000
      from $1,384,000 for the same period in 2006.  Cost of goods sold as a
      percentage of net sales increased from 142% to 166% for the nine months ended
      September 30, 2007 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 nine months ended September 30, 2007 was primarily related to
      approximately $85,000 of returned goods and an increase of manufacturing staff
      and inventory reserve in the first nine months of 2007, as compared to the
      same
      period in 2006.  The increase of manufacturing staff is directly
      related to our plan to increase sales from the surgical and EP diagnostic areas
      in the upcoming quarters.





*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 September 30, 2007 decreased to $388,000 from $451,000, for the same
      period in 2006.  Total research and development expenses for the nine
      months ended September 30, 2007 increased to $2,083,000 from $1,242,000, for
      the
      same period in 2006.  The increase was primarily related to the
      expenses associated with the FDA’s MDDRP meeting on April 19, 2007.





*Selling,
      Marketing, General and Administrative Expenses*





Total
      selling, marketing, general and administrative expenses for the quarter ended
      September 30, 2007 increased to $849,000 from $748,000 for the same period
      in
      2006.  Selling expenses for the three months ended September 30, 2007
      increased to $123,000 from $78,000 for the same period in 2006. Marketing
      expenses for the three months ended September 30, 2007 also increased to
      $126,000 from $32,000 for the same period in 2006. These increases were
      primarily related to the increased sales, marketing, and promotional activities
      during the third quarter of 2007 in order to stimulate the sales in the U.S.
      and
      European Union.  General and administrative expenses for the quarter
      ended September 30, 2007 decreased to $600,000 from $636,000 for the same period
      in 2006. The decrease was primarily attributable to the departure of the former
      executive in August 2007.





Total
      selling, marketing, general and administrative expenses for the nine months
      ended September 30, 2007 increased to $2,597,000 from $2,126,000 for the same
      period in 2006.  Selling expenses for the nine months ended September
      30, 2007 increased to $331,000 from $206,000 for the same period in 2006.
      Marketing expenses for the nine months ended September 30, 2007 also increased
      to $356,000 from $119,000 for the same period in 2006. These increases were
      primarily related to the increased sales, marketing, and promotional activities
      during the first nine months of 2007 in order to stimulate the sales in the
      U.S.
      and European Union.  General and administrative expenses for the nine
      months ended September 30, 2007 increased to $1,910,000 from $1,799,000 for
      the
      same period in 2006. The increase was primarily attributable to the increase
      in
      the IT consulting services.





*Interest
      Expense*





Interest
      expense increased to
      $2,314,000 in the third quarter of 2007 from $159,000 in the third quarter
      of
      2006. Interest expense for the nine months ended September 30, 2007 increased
      to
      $9,651,000 from $3,721,000 for the same period in 2006.  The increase
      was related to: (i) the Apix loan fee and accrued interest during the third
      quarter and the first nine months of 2007 and (ii) the deemed dividend resulting
      from the inducements provided to Apix during the June 2007
      financing.  With the debt settlement agreement with Apix signed on
      October 3, 2007, the outstanding loan balance was converted into the Company’s
      common stock.  Interest expense in the future will be decreased
      significantly.




16




*Other
      Income/(Expense)*





Other
      income for the quarter ended September 30, 2007 was $9,000 as compared to other
      income of $2,586,000 for the same period in 2006.  Other income for
      the nine months ended September 30, 2007 was $3,058,000 as compared to other
      expenses of $120,000 for the same period in 2006. The change was primarily
      attributable to the June 2007 Apix financing which no longer required the
      treatment of the Apix warrants as a liability as described in EITF 00-19,
“Accounting for Derivative Financial Instruments Indexed to, and Potentially
      Settled in, a Company’s Own Stock”.





*Net
      Income/(Loss)*





Net
      loss
      for the quarter ended September 30, 2007 was $3,764,000 as compared to a net
      income of $1,035,000 for the same period in 2006.  Net loss for the
      nine months ended September 30, 2007 was $12,631,000 as compared to a net loss
      of $7,621,000 for the same period in 2006. The change or increase was primarily
      attributable to the June 2007 Apix financing which: (i) no longer required
      the
      treatment of the Apix warrants as a liability as described in EITF 00-19,
“Accounting for Derivative Financial Instruments Indexed to, and Potentially
      Settled in, a Company’s Own Stock”, (ii) resulted in deemed dividend charge from
      the inducements provided to Apix, and (iii) incurred additional loan fees being
      amortized.





***Liquidity
      and Capital Resources***





Net
      cash
      used in operating activities for the first nine months of 2007 was approximately
      $5,103,000, compared to the net cash used of $3,185,000 for the first nine
      months of 2006. The increase was primarily due to expenses related to the FDA’s
      MDDRP meeting in April 2007 and the headcount increase in 2007.  Net
      cash used in investing activities was approximately $83,000 in the first nine
      months of 2007 related to the capital expenditures of property and equipment,
      as
      compared to $76,000 for the same period in 2006.  Net cash provided by
      financing activities was approximately $4,731,000 for the first nine months
      of
      2007, compared to net cash provided of $3,897,000 for the same period in
      2006.  This change was primarily due to the loan proceeds
      received from Apix and the advances from investor in August and September
      2007.





In
      its
      opinion accompanying our December 31, 2006 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.  We had cash of approximately $487,000 as of September
      30, 2007.  On October 3, 2007, we entered into a debt settlement
      agreement with our lender, Apix International Limited (“Apix”), required us to
      issue an aggregate of 88,000,000 million shares of our common stock to Apix
      in
      settlement of an outstanding balance of $17,661,055 and 20,340,000 warrants
      owed
      to Apix by us.  Moreover, we received several
      advances totaling $1,000,000 during the third quarter of 2007 and
      $3,000,000 in October 2007 from investors who have agreed to participate in
      the
      next round of financing which currently is still in process and which is still
      under negotiation.





Our
      ability to continue operations is largely dependent on the finalization of
      the
      terms of the next round of financing and the total amount of fund
      raised.   If we are unable to do so, we could be forced to seek
      bankruptcy protection or could be forced to sell assets on unfavorable terms
      in
      exchange for proceeds that would likely be insufficient to satisfy our
      obligations.  Although our management recognizes the need to raise
      funds in the immediate future, there can be no assurance that we will be
      successful in doing so, or, if we do consummate a financing transaction, that
      its terms and conditions may 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.




17




**ITEM
      3. Controls and Procedures**





***Evaluation
      of Disclosure Controls and Procedures***





As
      of September 30, 2007, we carried
      out an evaluation, under the supervision and with the participation of our
      Chief
      Executive Officer and Chief Financial Officer, of the effectiveness of the
      design and operation of our disclosure controls and procedures. Based on this
      evaluation, our Chief Executive Officer and Chief Financial Officer concluded
      that our disclosure controls and procedures were not effective in ensuring
      that
      information required to be disclosed by us in our periodic reports is recorded,
      processed, summarized and reported, within the time periods specified for each
      report and that such information is accumulated and communicated to our
      management, including our principal executive and principal financial officers,
      or persons performing similar functions, as appropriate to allow timely
      decisions regarding required disclosure.  Specifically, our Chief
      Executive Officer and Chief Financial Officer concluded that:





·
            We
                will have to restate prior period financial statements, in particular
                with
                respect to the loan financing with Apix International Limited in
                June 2007
                that we had incorrectly accounted for the non-cash deemed dividend
                resulting from the inducements provided to
                Apix.


·
            We
                have to make material adjusting entries related to the issuance of
                warrants to Apix’s bi-weekly funding in this reporting
                period.





Our
      independent registered public accounting firm, PMB Helin Donovan LLP, concluded
      that these significant deficiencies constituted a material weakness in our
      internal controls.  Our management also determined that these
      deficiencies constituted a material weakness that impacted our disclosure
      controls and procedures. The material weakness is due to lack of
      sufficient personnel with appropriate knowledge, experience and training in
      U.S.
      GAAP and lack of sufficient analysis and documentation of the application of
      U.S. GAAP to transactions, including, but not limited to, derivative accounting
      in complex financing arrangements.





We
      believe that due to lack of sufficient financial resources, we currently do
      not
      have sufficient systems and expertise to effectively and efficiently manage
      all
      of our financial transactions and financial reporting.   We have embarked
      on a plan to hire additional personnel and during the fourth quarter of 2007,
      we
      retained consulting assistance to remediate the weaknesses noted above, and
      bring the Company into compliance with Sarbanes Oxley Section 404 (b) by
      December 31, 2007





***Changes
      in Internal Controls***





There
      were no changes to the internal controls during the quarter ended September
      30,
      2007, that have materially affected or that are reasonably likely to affect
      the
      internal controls.





***Limitations
      on the Effectiveness of Controls***





A
      control
      system, no matter how well conceived and operated, can provide only reasonable,
      not absolute, assurance that the objectives of the control system are met.
      Because of the inherent limitations in all control systems, no evaluation of
      controls can provide absolute assurance that all control issues and instances
      of
      fraud, if any, within a company have been detected.  Our disclosure
      controls and procedures are designed to provide reasonable assurance of
      achieving its objectives.





**PART
      II.                      OTHER
      INFORMATION**




**ITEM
      1.                      Legal
      Proceedings**





None.




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





None.




18




**ITEM
      3.                      Defaults
      Upon Senior Securities**





None.




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


****


None.




**ITEM
      5.                      
Other Information**





On
      October 19, 2007, Marc Lumer and Company resigned as the independent registered
      public accounting firm for Cardima, Inc.  The Company engaged
      PMB+Helin Donovan LLP as its new independent registered public accounting
      firm.  The Company’s decision to engage the new accountant was
      approved by its Board of Directors on October 19, 2007.  The reports
      from Marc Lumer and Company on the financial statements of the Company for
      each
      of the two most recent fiscal years, did not contain an adverse opinion or
      disclaimer of opinion and was not qualified or modified as to uncertainty,
      audit
      scope or accounting principles for the two most recent fiscal years, except
      that
      Marc Lumer and Company’s opinion in its report on the Company’s financial
      statements for each of the last two fiscal years expressed substantial doubt
      with respect to the Company’s ability to continue as a going
      concern.




**ITEM
      6.                      
Exhibits**







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


31.2  Certification
      of the 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 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.


32.2
      Certification of the 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.





19




**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.




Cardima,
              Inc./s/Chris
                Mak
            
            
            /s/
                Rob
                CheneyChris
                Mak
            
            
            Rob
                  CheneyChief
                Financial Officer (Principal Financial Officer)
            
            
            Chief
                Executive Officer (Principal
                Executive Officer)




November
        19, 2007




20