<PAGE>

                                 UNITED STATES
                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D. C. 20549

                                   FORM 10-Q

[X]  Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
     Act of 1934.
     For the quarterly period ended September 30, 1999

                                      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.   X   Yes  ______ No
                                   -----

As of  October 29, 1999, there were 16,283,211 shares of Registrant's Common
Stock outstanding.

                                       1
<PAGE>

                                 CARDIMA, INC.

                                     INDEX

<TABLE>
<S>                                                                                           <C>
PART I. FINANCIAL INFORMATION...............................................................   3

 ITEM  1. FINANCIAL STATEMENTS..............................................................   3
  BALANCE SHEETS AS OF SEPTEMBER 30, 1999 AND DECEMBER 31, 1998.............................   3
  STATEMENTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998..   4
  STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998............   5
  NOTES TO FINANCIAL STATEMENTS.............................................................   6
 ITEM  2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
  OPERATIONS................................................................................   9
 ITEM  3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT THE MARKET RISK....................  18

PART II. OTHER INFORMATION..................................................................  19

 ITEM 1. EXHIBITS AND REPORTS ON FORM 8-K...................................................  19

SIGNATURES..................................................................................  20

INDEX TO EXHIBITS FOR FORM 10-Q.............................................................  21

 EXHIBIT 27.1...............................................................................  22
</TABLE>

                                       2
<PAGE>


                                 CARDIMA, INC.
                                BALANCE SHEETS
              (In thousands, except share and per share amounts)

<TABLE>
<CAPTION>
                                                                                                  September 30,   December 31,
                                                                                                      1999           1998
                                                                                                  -------------   ------------
ASSETS                                                                                             (unaudited)        (1)
<S>                                                                                               <C>             <C>
Current assets:
    Cash and cash equivalents                                                                      $     2,260     $      645
    Short-term investments                                                                               1,987              -
    Restricted cash                                                                                         55            105
    Accounts receivable, net of allowances for doubtful accounts
        of $64 at September 30, 1999 and $41 at December 31, 1998                                          618            512
    Inventories                                                                                          1,580          1,977
    Other current assets                                                                                   300            366
                                                                                                  -------------   ------------

        Total current assets                                                                             6,800          3,605

Property and equipment, net                                                                              2,720          2,998
Other assets                                                                                               472            680
                                                                                                  -------------   ------------

Total assets                                                                                       $     9,992     $    7,283
                                                                                                  =============   ============

Liabilities and stockholders' equity (net capital deficiency)
Current liabilities:
    Accounts payable                                                                               $     1,153     $    2,286
    Accrued compensation                                                                                   915          1,032
    Other current liabilities                                                                               86             76
    Capital lease obligation - current portion                                                             909            903
    Line of credit obligation - current portion                                                          1,058            817
    Deferred rent                                                                                            5             42
                                                                                                  -------------   ------------

                                                                                                         4,126          5,156

Capital lease obligation - noncurrent portion                                                            1,050          1,120
Line of credit obligation - noncurrent portion                                                           1,379          2,183

Stockholders' equity (net capital deficiency)
    Common stock, $0.001 par value; 25,000,000 shares authorized, 16,283,211 shares issued
    and outstanding at September 30, 1999, 8,352,296 at December 31, 1998; at amount paid in            60,350         45,910
    Deferred compensation                                                                                 (288)          (478)
    Accumulated deficit                                                                                (56,625)       (46,608)
                                                                                                  -------------   ------------
       Total stockholders' equity (net capital deficiency)                                               3,437         (1,176)
                                                                                                  -------------   ------------
                                                                                                   $     9,992     $   7,283
                                                                                                  =============   ============
</TABLE>

(1)  The information in this column was derived from the Company's audited
     financial statements as of December 31, 1998. See accompanying notes to
     financial statements.

                                       3
<PAGE>

                                 CARDIMA, INC.

                           STATEMENTS OF OPERATIONS
                   (In thousands, except per share amounts)
                                  (Unaudited)

<TABLE>
<CAPTION>
                                                               Three months ended                   Nine months ended
                                                                 September 30,                        September 30,
                                                        ---------------------------------    ---------------------------------
                                                            1999               1998              1999               1998
                                                        --------------    ---------------    --------------     --------------
<S>                                                     <C>               <C>                <C>                <C>
Net sales                                               $         913     $          643     $       2,544      $       1,769
Cost of goods sold                                                731                586             1,984              1,929
                                                        --------------    ---------------    --------------     --------------

    Gross profit                                                  182                 57               560               (160)

Operating expenses:
    Research and development                                    1,415              1,874             4,609              5,445
    Selling, general and administrative                         1,897              2,155             5,804              6,182
                                                        --------------    ---------------    --------------     --------------

          Total operating expenses                              3,312              4,029            10,413             11,627
                                                        --------------    ---------------    --------------     --------------

Operating loss                                                 (3,130)            (3,972)           (9,853)           (11,787)

Interest and other income                                          53                 30               236                284
Interest expense                                                 (129)               (80)             (400)              (156)
                                                        --------------    ---------------    --------------     --------------

Net loss                                                $      (3,206)    $       (4,022)    $     (10,017)     $     (11,659)
                                                        ==============    ===============    ==============     ==============

Net loss per share                                      $       (0.20)     $       (0.49)    $       (0.64)     $       (1.42)
                                                        ==============    ===============    ==============     ==============

Shares used in computing net loss per share                    16,272              8,286            15,566              8,204
                                                        ==============    ===============    ==============     ==============
</TABLE>

                See accompanying notes to financial statements

                                       4
<PAGE>

                                 CARDIMA, INC.
                           STATEMENTS OF CASH FLOWS
                                (In thousands)

<TABLE>
<CAPTION>
                                                                                              Nine months ended September 30,
                                                                                            ----------------------------------
                                                                                                1999                   1998
                                                                                            ------------            ----------
<S>                                                                                         <C>                     <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net loss                                                                                    ($10,017)              ($11,659)

  Adjustments to reconcile net loss to net cash provided by operations:
     Depreciation and amortization                                                                 907                    647
     Amortization of deferred compensation                                                         190                    190
     Loss on disposal of assets                                                                      7                     12
  Changes in operating assets and liabilities:
     Accounts receivable                                                                          (106)                  (126)
     Inventories                                                                                   397                 (1,296)
     Other current assets                                                                           66                   (111)
     Restricted cash                                                                                50                     87
     Notes receivable                                                                              (40)                   (15)
     Other assets                                                                                 (423)                   (91)
     Accounts payable                                                                           (1,133)                   642
     Accrued employee compensation                                                                (117)                   247
     Other current liabilities                                                                      10                    (42)
     Deferred rent                                                                                 (37)                   (36)
                                                                                            ------------          ------------
           Net cash used in operating activities                                               (10,246)               (11,551)

CASH FLOWS FROM INVESTING ACTIVITIES:
     Purchases of short-term investments                                                       (19,044)                  (517)
     Maturities and sales of short-term investments                                             17,057                  4,786
     Capital expenditures                                                                          102                   (192)
     Proceeds from disposal of assets                                                                2                      -
                                                                                            ------------          ------------
        Net cash (used in) provided by investing activities                                     (1,883)                 4,077

CASH FLOWS FROM FINANCING ACTIVITIES:
     Principal payments under capital leases                                                      (760)                  (525)
     Payments under notes payments                                                                   -                     (7)
     (Payments) proceeds under line of credit                                                     (563)                 3,000
     Net proceeds from sale of common stock                                                     14,440                    265
     Proceeds from sale/leaseback of capital equipment                                             627                    603
                                                                                            ------------          ------------
        Net cash provided by financing activities                                               13,744                  3,336
                                                                                            ------------          ------------

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                                             1,615                 (4,138)

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                                                     645                  8,578
                                                                                            ------------          ------------

CASH AND CASH EQUIVALENTS, END OF PERIOD                                                    $    2,260            $     4,440
                                                                                            ============          ============
</TABLE>

                                       5
<PAGE>

                                 CARDIMA, INC.

                         NOTES TO FINANCIAL STATEMENTS
                              SEPTEMBER 30, 1999
                                  (Unaudited)

1. BASIS OF PRESENTATION

The accompanying unaudited financial statements have been prepared by the
Company according to the rules and regulations of the Securities and Exchange
Commission for interim financial information and in accordance with the
instructions to Form 10-Q and Article 10 of Regulation S-X.  Accordingly, they
do not include all of the financial information and footnotes required by
generally accepted accounting principles for complete financial statements.  In
the opinion of management, all adjustments (consisting of normal recurring
adjustments) considered necessary for a fair presentation have been included.

The operating results for the three and nine month periods ended September 30,
1999 are not necessarily indicative of the results that may be expected for the
fiscal year ending December 31, 1999 or for future operating results.  The
accompanying financial statements should be read in conjunction with the audited
financial statements and notes thereto included in the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1998.

2. MANAGEMENT'S PLANS

As of September 30, 1999 the Company has approximately $4,200,000 in cash, cash
equivalents and marketable securities, working capital of $2,674,000 and
accumulated losses of $56,600,000.  In the course of its development activities,
the Company expects such losses to continue over the next several quarters.
Management plans to continue to finance operations with a combination of revenue
from product sales, funds from equity or debt offerings, funds from potential
corporate alliances and technology licenses.  The Company expects its existing
capital resources will permit it to meet its capital and operational
requirements through the end of 1999.

3. PRIVATE PLACEMENT

In January and February 1999, the Company sold a total of 7,500,000 shares of
common stock at $2.00 per share in a private placement transaction to accredited
investors yielding net proceeds of approximately $14,300,000 after commissions
and other expenses of the offering.  As compensation to the placement agent for
this transaction, the Company paid $490,388 in commissions, issued 354,806
shares of its common stock and issued warrants to purchase 750,000 shares of
common stock at an exercise price of $2.20 per share.

4. COMPANY RESTRUCTURING

On January 14, 1999, the Company reduced its workforce by approximately 30%.
The reductions affected all functional areas of the Company.  As a result of the
reduced workforce and normal attrition, the Company had 84 full-time employees
at September 30, 1999, 11 of whom were engaged directly in research and new
product development, 10 in regulatory affairs, quality assurance and clinical
activities, 33 in manufacturing, 17 in sales and marketing and 13 in finance and
administration.

                                       6
<PAGE>

                   NOTES TO FINANCIAL STATEMENTS (continued)
                                  (Unaudited)


5. CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS

The Company considers investments in highly liquid instruments purchased with an
original maturity of three months or less to be cash equivalents.  All of the
Company's cash equivalents and short-term investments, consisting principally of
commercial paper and government securities, are classified as available-for-sale
as of September 30, 1999.  There were no realized gains or losses experienced in
the nine months ended September 30, 1999.  The fair value of investments is
based on quoted market prices at September 30, 1999. The fair value of these
securities approximated the amortized cost at September 30, 1999.  Cash, cash
equivalents and short-term investments at September 30, 1999 consist of the
following (in thousands):


<TABLE>
                   <S>                                 <C>
                   Cash and cash equivalents:
                     Cash............................        $  955
                     Money market funds..............           807
                                                       ------------
                                                              1,762
                   Available-for-sale securities:
                    Commercial paper.................           498

                                                       ------------
                     Total cash and cash equivalents.        $2,260
                                                       ============
                   Short-term investments:
                   Commercial paper..................        $  984
                   Auction securities................         1,003
                                                       ------------
                                                              1,987
                     Available-for-sale securities...
                   Certificate of deposit............             -
                     Total short-term investments....        $1,987
                                                       ============

                   Restricted investments:
                   Restricted certificate of
                      deposit........................        $   55
                                                       ============
</TABLE>

The restricted certificate of deposit is being held as collateral by a financial
institution against a letter of credit for the Company's primary facilities in
Fremont, California.

                                       7
<PAGE>

                   NOTES TO FINANCIAL STATEMENTS (continued)
                                  (Unaudited)


6. BALANCE SHEET COMPONENTS

Certain balance sheet components are as follows (in thousands):

<TABLE>
<CAPTION>
                                                    September  30,                December 31,
                                                        1999                        1998/1/
                                                 -------------------          -------------------
<S>                                              <C>                          <C>
Inventories:
       Raw materials                             $               558          $               502
       Work-in-process                                           143                          217
       Finished goods                                            879                        1,258
                                                 -------------------          -------------------
                                                 $             1,580          $             1,977
                                                 ===================          ===================

Property and equipment:
       Equipment                                               5,544                        5,054
       Leasehold improvements                                    108                          107
                                                 -------------------          -------------------
                                                 $             5,652          $             5,161
       Less accumulated depreciation and
       amortization                                           (2,932)                      (2,163)
                                                 -------------------          -------------------
                                                 $             2,720          $             2,998
                                                 ===================          ===================
</TABLE>


7. NET LOSS PER SHARE

Basic 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 diluted earnings per
share because all such securities are anti-dilutive for all periods presented.

8. COMPREHENSIVE LOSS

The Company has no components of other comprehensive loss and, accordingly, the
comprehensive loss is the same as net loss for all periods presented.


_________________
/1/ The information in this column was derived from the Company's audited
    financial statements as of December 31, 1998.

                                       8
<PAGE>

ITEM  2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
          RESULTS OF OPERATIONS

This Form 10-Q, including management's discussion and analysis of financial
condition and results of operations, contains "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, including,
without limitation, statements regarding regulatory approvals, operating results
and capital requirements.  Except for historical information, the matters
discussed in this Form 10-Q, are forward-looking statements that are subject to
risks and uncertainties that could cause actual results to differ materially
from those projected.  Some of these factors include the Company's ability to
conduct successful clinical trials, obtain timely regulatory approvals and gain
acceptance from the marketplace for its products, as well as the risk factors
discussed below in "Factors Affecting Future Results" and those listed from time
to time in the Company's SEC reports.  The Company assumes no obligation to
update the forward-looking statements included in this Form 10-Q.

OVERVIEW

Since its incorporation, Cardima has been engaged in the design, research,
development, manufacturing and testing of microcatheter systems for the mapping
(diagnosis) and ablation (treatment) of cardiac arrhythmias. Cardima has
generated revenues of approximately $7.4 million from inception to September 30,
1999. Until January 1997, these revenues were primarily in Europe and Japan from
sales of the Cardima Pathfinder(TM) and Tracer(TM) microcatheter systems for
diagnosing ventricular tachycardia (VT) and the Revelation(TM) microcatheter
system for diagnosing atrial fibrillation (AF), as well as ancillary products
such as the Venaport(TM) guiding catheters. In January 1997, the Company
received 510(k) clearance in the United States and began to market and sell the
Cardima Pathfinder system for diagnosing VT. In November 1997, the Company
received a 510(k) clearance in the United States and began to market and sell
the Revelation microcatheter for diagnosing AF. The Company derived a majority
of its revenues in 1997 and 1998 in the United States from sales of the Cardima
Pathfinder for diagnosis of VT. The United States sales have been made through a
direct sales force. Beginning in 1997, Cardima began to supplement its
distributor organization in Europe with a direct sales organization in Germany,
France, Austria and Switzerland. This sales force sells the Company's products
directly to physicians and hospitals.

The Company has obtained the right to affix the CE Mark to its Cardima
Pathfinder, Pathfinder mini and Tracer microcatheter systems for mapping VT, its
Vueport(TM) and Naviport(TM) guiding catheters, and its Revelation and
Revelation Tx microcatheter systems for both mapping and ablation of AF,
permitting the Company to market these products in the member countries of the
EU. In July 1998, the Company received 510(k) clearance to market the Vueport
balloon guiding catheter and the Pathfinder mini in the United States. The
Company received 510(k) clearance for its Tracer hollow lumen mapping
microcatheter in May 1999 and 510(k) clearance for its Naviport deflectable tip
guiding catheter in August 1999. The Company will be required to conduct
clinical trials, demonstrate safety and effectiveness and obtain PMA approval
from the FDA in order to sell any of the Company's products designed for the
treatment of AF or VT in the United States. Specifically, PMA approval will be
required prior to the introduction in the United States of the Revelation Tx
microcatheter system for treatment of AF and Therastream microcatheter system
for treatment of VT.

                                       9
<PAGE>

The Company has a limited history of operations and has experienced significant
operating losses since inception.  The Company expects that its operating losses
will continue for the foreseeable future as the Company continues to invest
substantial resources in product development, preclinical and clinical trials,
obtaining regulatory approvals, sales and marketing, and manufacturing.

RESULTS OF OPERATIONS - THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998

Net Sales

Net sales for the quarter ended September 30, 1999 increased 42% to $913,000
from $643,000 for the same period in 1998.  Net sales for the nine month period
ended September 30, 1999 increased 44% to $2,544,000 from $1,769,000 for the
same period in 1998.  The increase in net sales was primarily due to
international sales of the Revelation and Revelation Tx products, which received
CE Mark approval in August and December of 1998, respectively.  International
sales for the quarter ended September 30, 1999 increased 98% to $384,000 from
$194,000 in the same period in 1998. International sales for the nine month
period ended September 30, 1999 increased 148% to $1,214,000 from $490,000 in
the same period in 1998. United States sales for the quarter ended September 30,
1999 increased 18% to $529,000 from $449,000 in the same period in 1998. The
increase in sales was primarily due to the sales of the Pathfinder microcatheter
for mapping arrhythmias.  United States sales for the nine month period ended
September 30, 1999 increased only 4% to $1,330,000 from $1,279,000 in the same
period in 1998 as the Company focused its sales efforts in Europe for its
approved therapeutic products.

Cost of Goods Sold

Cost of goods sold primarily includes raw materials costs, catheter fabrication
costs, system assembly, test costs and manufacturing overhead.  Cost of goods
sold for the quarter ended September 30, 1999 increased  to $731,000 from
$586,000 for the same period in 1998 due to increased sales volume and decreased
from 91% to 80% of sales.  Cost of goods sold for the nine month period ended
September 30, 1999 increased  to $1,984,000 from $1,929,000 for the same period
in 1998 due to increased sales volume and decreased from 109% to 78% of sales.
The decreases in percentage of sales in both periods was due to reduced
expenses as a result of the reduction in workforce in January 1999 and higher
sales volumes.

Research and Development Expenses

Research and development expenses include product development, clinical testing
and regulatory expenses.  Research and development expenses for the quarter
ended September 30, 1999 decreased 24% to $1,415,000 from $1,874,000 for the
same period in 1998.  Research and development expenses for the nine month
period ended September 30, 1999 decreased 15% to $4,609,000 from $5,445,000 for
the same period in 1998. The decrease was due primarily to the reduction in
workforce in January 1999 and the Company's efforts to focus on key research and
development projects.

                                      10

<PAGE>

Selling, General and Administrative Expenses

Selling, general and administrative expenses for the quarter ended September 30,
1999 decreased 12% to $1,897,000 from $2,155,000 for the same period in 1998.
Selling, general and administrative expenses for the nine month period ended
September 30, 1999 decreased 6% to $5,804,000 from $6,182,000 for the same
period in 1998.  Selling expenses for the quarter ended September 30, 1999
increased 10% to $1,002,000 from $910,000 for the same period in 1998.  Selling
expenses for the nine month period ended September 30, 1999 increased 12% to
$3,016,000 from $2,703,000 for the same period in 1998. These increases were
primarily higher promotional program and material expenses. General and
administrative expenses for the quarter ended September 30, 1999 increased 3% to
$729,000 from $708,000 for the same period in 1998.  General and administrative
expenses for the nine month period ended September 30, 1999 increased 4% to
$2,077,000 from $1,995,000 for the same period in 1998. The increase was due
primarily to General and Administrative involvement in the European launch of
the Revelation Tx.  Marketing expenses for the quarter ended September 30, 1999
decreased 69% to $166,000 from $537,000 for the same period in 1998.  Marketing
expenses for the nine month period ended September 30, 1999 decreased 52% to
$710,000 from $1,484,000 for the same period in 1998.  The decrease was due
primarily to the reduction in workforce in January 1999 and decreased expenses
for trade shows.

Interest and Other Income

Interest and other income for the quarter ended September 30, 1999 increased to
$53,000 from $30,000 in the same period in 1998.  The increase was due primarily
to the interest income from short-term securities investments.  Interest and
other income for the nine month period ended September 30, 1999 decreased to
$236,000 from $284,000 in the same period in 1998. The decrease was due
primarily to a lower balance in short term investments for the nine month
period.

Interest Expense

Interest expense for the quarter ended September 30, 1999 increased to $129,000
from $80,000 in the same period in 1998.  Interest expense for the nine month
period ended September 30, 1999 increased to $400,000 from $156,000 in the same
period in 1998.  The increase in both periods is due primarily to higher
borrowing levels for purchases of capital equipment and payments on the $3.0
million line of credit obtained in September 1998.

LIQUIDITY AND CAPITAL RESOURCES

The Company has financed its operations to date principally through private
placements of equity securities, which had yielded net proceeds of $46,700,000
as of September 30, 1999, an initial public offering of Common Stock in June
1997, which resulted in net proceeds of approximately $13,600,000, together with
interest income on such proceeds and equipment leases to finance acquisition of
certain capital equipment which have provided proceeds in the amount of
$4,100,000.  As of September 30, 1999, the Company had approximately $4,200,000
in cash, cash equivalents and short-term investments.

Net cash used in operating activities was approximately $10,200,000 and
$11,600,000 for the nine months  ended September 30, 1999 and 1998,
respectively, the decrease was primarily due to the decrease in net loss in the
nine months ended September 30, 1999.  Net cash used in investing activities of
$1,900,000, for the nine months ended September 30, 1999, was used primarily for
purchases of short-term investments.  Net cash provided by investing activities
was $4,100,000 for the nine months ended September 30, 1998, which was
attributable primarily to the maturity of short-term investments. Net cash

                                      11
<PAGE>

provided by financing activities was approximately $13,700,000 and $3,300,000
for the nine months ended September 30, 1999 and 1998, respectively, resulting
primarily from the sale of equity securities in private placement transactions
and proceeds from bridge loans and the line of credit during such periods.

In February 1998, the Company entered into an equipment lease agreement that
permits the Company up to $1,500,000 of financing for the purchase of office and
manufacturing equipment, software and custom-built equipment.  In June 1998, the
Company secured a $3,000,000 line of credit which may be used for general
working capital purposes.  In January and February 1999, the Company sold a
total of 7,500,000 shares of common stock at $2.00 per share in a private
placement transaction to accredited investors yielding net proceeds of
approximately $14,300,000 after commissions and other expenses of the offering.
As compensation to the placement agent for this transaction, the Company paid
$490,388 in commissions, issued 354,806 shares of its common stock and issued
warrants to purchase 750,000 shares of common stock at an exercise price of
$2.20 per share.

The Company's future liquidity and capital requirements will depend upon
numerous factors, including sales and marketing activities, the progress of the
Company's product development efforts, the progress of the Company's clinical
trials, actions relating to regulatory matters, the costs and timing of
expansion of product development and manufacturing, the extent to which the
Company's products gain market acceptance, and competitive developments.  The
Company believes that available cash and investments will be sufficient to meet
the Company's cash requirements  through the end of 1999. The Company will
require additional financing. The Company may seek to raise additional funds
through public or private financing, collaborative relationships or other
arrangements. Additional capital may not be available on terms acceptable to the
Company, or at all.  Furthermore, any additional equity financing is expected to
be dilutive to stockholders, and debt financing, if available, may involve
restrictive covenants.  Collaborative arrangements, if necessary to raise
additional funds, may require the Company to relinquish its rights to certain of
its technologies, products or marketing territories.  The failure of the Company
to raise capital when needed will have a material adverse effect on the
Company's business, financial condition and results of operations.

Impact of the Year 2000 Issue on the Company's Operations

Many existing computer programs and devices with imbedded date/time chips use
only two digits to identify a year in the date field.  These programs and
devices were designed and developed without considering the impact of the
upcoming change in the century.  If not corrected, many computer applications
could fail or create erroneous results by or at the Year 2000 (the "Year 2000
Issue").  The Company has completed an assessment of the potential impact of the
Year 2000 Issue on its operations and concluded they are not materially affected
by the Year 2000 Issue. The Company has evaluated its financial, accounting and
inventory tracking systems and concluded that they are not materially affected
by the Year 2000 Issue.  A corporate-wide inventory of computer applications has
been performed by the Company and the Company has remedied any issues.  The
Company's facilities manager has determined that there is no impact on building
security and related equipment.  There can be no assurance that all third
parties will address the Year 2000 Issue in a timely fashion, if at all.  The
Company has sent out surveys to all third parties and has received responses
from approximately 75% of them.  Not all third parties are compliant as of yet
and the Company has sent out follow-up letters with a response deadline of
November 30, 1999 to those third parties.  Any Year 2000 Issue compliance
problems of either the Company, its business partners or its customers could
have a material adverse effect on the Company's business, operating results and
financial condition.

                                      12
<PAGE>

The Company has utilized only internal resources to test and replace software
for Year 2000 modifications.  All of the replacement software were upgrades
already purchased for other reasons.  Therefore, the Company has not incurred
any additional costs in researching and resolving any Year 2000 issues.

The Company currently has no contingency plans in the event it does not complete
all phases of the Year 2000 program.  The Company plans to evaluate the status
of completion in September 1999 and determine whether such a plan is necessary.

Year 2000 Disclosure Chart

                               Resolution Phases

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------------
                                 Assessment                     Remediation                     Testing         Implementation
----------------------------------------------------------------------------------------------------------------------------------
<S>                            <C>                            <C>                           <C>                 <C>
Information Technology         100% Complete                  100% Complete                 100% Complete       100% Complete

----------------------------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------------------
Operating Equipment with
Embedded Chips or Software     100% Complete                  100% Complete                 100% Complete       100% Complete
----------------------------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------------------

Products                       Not Applicable                 Not Applicable                Not Applicable      Not Applicable
----------------------------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------------------
3/rd/ Party
                               100% Complete for system       100% Complete for system      100% Complete for   100% Complete for
                               interface; approximately 75%             interface           system interface    system interface
                               complete for all other
                               material exposures.

                               Expected completion date for
                               surveying all third parties,
                               November 1999
----------------------------------------------------------------------------------------------------------------------------------
</TABLE>

                                      13
<PAGE>

ADDITIONAL FACTORS AFFECTING FUTURE RESULTS

We have a history of losses.  Our ability to achieve or, if achieved, sustain
profitability, is highly uncertain.

We have experienced losses since we began our operations and we expect to
experience substantial net losses for the foreseeable future. We had net losses
of approximately $16.2 million, $12.3 million and $7.8 million for the fiscal
years ended 1998, 1997 and 1996, respectively.  As of September 30, 1999, we had
an accumulated deficit of approximately $56.6 million.  We expect to incur
substantial net operating losses for the foreseeable future as a result of
research and product development, clinical trials, manufacturing, sales,
marketing and other expenses expected to be incurred as we further develop, seek
regulatory approvals, test and distribute our products.  Our limited operating
history makes accurate prediction of future operating results difficult or
impossible.  There can be no assurance that we will ever generate substantial
revenue or achieve profitability on a sustained basis.  Our failure to generate
substantial revenues would have a material adverse effect on our business,
results of operations and financial condition.

We will need to raise capital in the future.  Future financings could have a
dilutive effect on our stockholders.

Our future capital uses and requirements will depend on numerous factors,
including:

     .  the progress of our clinical research and product development programs,

     .  the time required to obtain regulatory clearances and approvals,

     .  the costs and timing of product development, manufacturing and sales and
        marketing activities,

     .  the extent to which our products gain market acceptance,

     .  our ability to establish collaborative arrangements,

     .  the possible acquisition of new products and technologies,

     .  competitive developments, and

     .  the cost of filing, prosecuting, and enforcing patent claims and other
        intellectual property rights.

In order to commercialize our products, we will require additional capital that
may not be available on terms acceptable to us, or at all.  In addition, if
unforeseen difficulties arise in the course of developing our products,
performing clinical trials, obtaining necessary regulatory clearances and
approvals or other aspects of our business, we may be required to spend greater-
than-anticipated funds.  As a consequence, we will be required to raise
additional capital through public or private equity or debt financings,
collaborative relationships, bank facilities or other arrangements.  There can
be no assurance that such additional capital will be available on terms
acceptable to us, or at all. Any additional equity financing is expected to be
dilutive to stockholders, and debt financing, if available, may involve
restrictive covenants.  We have financed our operations to date primarily
through private sales of equity securities, proceeds from our initial public
offering in June 1997, and loan-facilities.  As of September 30, 1999, cash,
cash equivalents and short-term investments totaled $4.2 million.  We believe
that our existing cash, cash

                                      14
<PAGE>

equivalents and short-term investments along with cash generated from the sales
of our products, will be sufficient to fund our operating expenses, debt
obligations and capital requirements through 1999.

Our inability to obtain sufficient funds may require us to delay, scale back or
eliminate some or all of our research and product development programs, to limit
the marketing of our products, or to license to third parties the rights to
commercialize products or technologies that we would otherwise seek to develop
and market ourselves.  This would have a material adverse effect on our
business, financial condition and results of operations.

Our stock price may be volatile.


There can be no assurance that there will be an active trading market for our
common stock or that the market price of the common stock will not decline below
its present market price.  The market prices for securities of biotechnology
companies have been, and are likely to continue to be, highly volatile.  Factors
that have had, and are expected to continue to have, a significant impact on the
market price of our common stock include:

     .  announcements regarding the results of regulatory approval filings,

     .  our clinical studies or other testing,

     .  our technological innovations or new commercial products or those of our
        competitors,

     .  government regulations, developments concerning proprietary rights,

     .  public concern as to safety of technology, and

     .  variations in operating results.

We do not intend to pay cash dividends on our stock.

We have never paid cash dividends on our capital stock and do not anticipate
paying cash dividends in the foreseeable future.  Instead, we intend to retain
future earnings, if any, for reinvestment in our business.  Our credit agreement
requires the approval of our bank to declare or pay cash dividends.

Our operating results may fluctuate from period to period in the future.

We believe that a quarter to quarter or annual comparison of our operating
results is not a good indication of our future performance.  It is likely that
at some future time our results will be below market expectations.  As a result,
our common stock price will likely fall.  Our results of operations have
fluctuated significantly in the past and we expect them to vary significantly
from quarter to quarter or year to year depending upon a number of factors,
including:

     .  actions relating to regulatory matters,

     .  progress of pre-clinical and clinical trials,

     .  the extent to which our products gain market acceptance,

     .  the scale-up of manufacturing capabilities,

     .  the expansion of sales and marketing activities,

                                      15
<PAGE>

     .  competition,

     .  the timing of new product introductions by us or our competitors,

     .  our ability to successfully market our products in the United States and
        internationally, and

     .  general economic conditions and economic conditions specific to the
        biotechnology field.

Although all microcatheter systems are labeled for single use only, we are aware
that some physicians are reusing these products.  Reuse of our microcatheter
systems would reduce revenues from product sales and could have a material
adverse effect on our future performance and periodic operating results.  Due to
such fluctuations in operating results, period to period comparisons of our
revenues and operating results are not necessarily meaningful and should not be
relied upon as indicators of likely future performance or annual operating
results.

There are risks associated with international sales of our products.

A number of risks are inherent in international transactions.  International
sales may be limited or disrupted by

     .  the imposition of government product or currency controls,

     .  export license requirements,

     .  economic or political instability,

     .  domestic or international trade restrictions,

     .  changes in tariffs,

     .  exchange rate fluctuation, or

     .  difficulties in staffing and management.

The financial condition, expertise and performance of our international
distributors and any future international distributors could affect sales of our
products internationally and could have a material adverse effect on our
business, financial condition and results of operations. The regulation of
medical devices in a number of such jurisdictions, particularly in the EU,
continues to develop, and there can be no assurance that new laws or regulations
will not have a material adverse effect on our business, financial condition and
results of operations.  Foreign regulatory agencies often establish product
standards different from those in the United States and any inability to obtain
foreign regulatory approvals on a timely basis could have a material adverse
effect on our international business and our financial condition and results of
operations.  In addition, the laws of certain foreign countries do not protect
our intellectual property rights to the same extent as do the laws of the United
States.  There can be no assurance that we will be able to successfully manage a
remote sales force, comply with such foreign laws or regulations, or protect our
intellectual property.  There also can be no assurance that we will be able to
successfully commercialize any of our current microcatheter products, including
the Cardima Pathfinder, Pathfinder mini, Revelation, Revelation Tx and Tracer
microcatheter systems, or any future products in any foreign market, which could
have a material adverse effect on our business, financial condition and results
of operations.

                                      16
<PAGE>

The adoption of the Euro presents uncertainties for our international business.

In January 1999, the new "Euro" currency was introduced in certain European
countries that are part of the European Monetary Union ("EMU"). Beginning in
2003, all EMU countries are expected to be operating with the Euro as their
single currency. A significant amount of uncertainty exists as to the effect the
Euro will have on the marketplace generally.  In particular, the participating
countries' adoption of a single currency may likely result in greater price
transparency, making the EMU a more competitive environment for our products.
In addition, some of the rules and regulations relating to the governance of the
currency have not yet been defined and finalized. As a result, companies
operating in or conducting business in Europe will need to ensure that their
financial and other software systems are capable of processing transactions and
properly handling the Euro.

We are currently assessing the effect the introduction of the Euro will have on
our internal accounting systems and the potential sales of our products. We will
take appropriate corrective actions based on the results of such assessment. We
have not yet determined the costs related to addressing this issue. This issue
and its related costs could have a material adverse effect on our business,
financial condition and results of operations.

We are dependent upon our key personnel and will need to hire additional key
personnel in the future.

Our ability to operate successfully depends in significant part upon the
continued service of key scientific, technical, clinical, regulatory and
managerial personnel, and our continuing ability to attract and retain
additional highly qualified personnel in these areas. Competition for such
personnel is intense, especially in the San Francisco Bay Area.  There can be no
assurance that we can retain such personnel or that we can attract or retain
other highly qualified scientific, technical, clinical, regulatory and
managerial personnel in the future, including key sales and marketing personnel.

                                      17
<PAGE>

ITEM 3   Quantitative and Qualitative Disclosures about the Market Risk

Interest Rate Risk

     The Company's exposure to market risk for changes in interest rates relates
primarily to the Company's investment portfolio and long-term debt obligations.
The Company does not use derivative financial instruments in its investment
portfolio.  The Company places its investments with high credit quality issuers
and, by policy, limits the amount of credit exposure to any one issuer.  As
stated in its policy, the Company is averse to principal loss and seeks to
ensure the safety and preservation of its invested funds by limiting default
risk, market risk, and reinvestment risk.

     The Company mitigates default risk by investing in safe and high credit
quality securities.  The portfolio includes only marketable securities with
active secondary or resale markets to ensure portfolio liquidity.

     The Company has no cash flow exposure due to rate changes for long-term
debt obligations.  The Company primarily enters into debt obligations to support
general corporate purposes including capital expenditures and working capital
needs.

     The table below presents principal amounts and related weighted average
interest rates by year of maturity for the Company's investment portfolio and
debt obligations.  All investments mature, by policy, in one year or less.


<TABLE>
<CAPTION>
                                                                                                                    Fair Value
(in thousands)                        1999          2000          2001          2002          2003        Total      9/30/99
<S>                                  <C>          <C>           <C>           <C>           <C>          <C>        <C>
Assets:
Cash equivalents
Fixed rate                           $1,762       $    --       $    --       $    --       $    --      $1,762      $  1,762
  Average interest rate                3.63%
Available-for-sale securities
  Fixed rate                            498            --            --            --            --         498           498
  Average interest rate                5.39%

Total investments
  Securities                          1,497           490            --            --            --       1,987         1,987
  Average interest rate                5.44%         5.89%

Long-Term Debt:
  Fixed rate                            400         1,799         1,725           368           104       4,396         4,396
  Average interest rate               10.15%         9.26%         9.54%        10.13%        12.09%
</TABLE>


                                      18
<PAGE>

PART II.  OTHER INFORMATION

ITEM 1.   Exhibits and Reports on Form 8-K

          (a) Exhibits - See Index to Exhibits.
          (b) No reports on Form 8-K were filed by the Registrant during the
              quarter ended September 30, 1999.

                                      19
<PAGE>

                                 CARDIMA, INC.

                                  SIGNATURES

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:  November 12, 1999          CARDIMA, INC.



                                 /s/ Phillip C. Radlick, Ph.D.
                                ------------------------------------------------
                                 PHILLIP C. RADLICK, Ph.D.
                                 President, Chief Executive Officer and Director



                                 /s/ Ronald E. Bourquin
                                ------------------------------------------------
                                 RONALD E. BOURQUIN
                                 Vice President, Chief Financial Officer and
                                 Secretary

                                      20
<PAGE>

                                 CARDIMA, INC.

                        INDEX TO EXHIBITS FOR FORM 10-Q

                     FOR QUARTER ENDED SEPTEMBER 30, 1999


EXHIBIT NO.   EXHIBIT DESCRIPTION
-----------   -------------------

   27.1       Financial Data Schedule

                                      21