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, 2006

                                       or

[ ]  Transition  report  pursuant  to Section  13 or 15(d) of the  Securities
     Exchange Act of 1934. For the transition period from  _________________  to
     _____________________.

                        Commission File Number: 000-22419

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

                                   Copies to:

                            Richard A. Friedman, Esq.
                       Sichenzia Ross Friedman Ference LLP
                     1065 Avenue of the Americas, 21st Floor
                              New York, N.Y. 10018

     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 10, 2006, there were 102,354,679  shares of the Registrant's
Common Stock outstanding.

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

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


<PAGE>
                                  CARDIMA, INC.

                                TABLE OF CONTENTS



                          PART I. Financial Information
<TABLE>
<CAPTION>


                                Description                                                                 Page
                                -----------                                                                 -----
<S>  <C>                                                                                                       <C>
Item 1.      Financial Statements (unaudited)                                                                  3
             --------------------------------
             Condensed Balance Sheets as of September 30, 2006 and December 31, 2005                           3
             -----------------------------------------------------------------------
             Condensed Statements of Operations for the Three and Nine Months Ended September 30, 2006         4
             ------------------------------------------------------------------------------------------
             and 2005
             --------

             Condensed Statement of Cash Flows for the Nine Months Ended September 30, 2006 and 2005          5-6
             ---------------------------------------------------------------------------------------

             Notes to Condensed Financial Statements                                                           7
             ---------------------------------------

Item 2.      Management's Discussion and Analysis and Results of Operations                                   11
             ---------------------------------------------------------------

Item 3.      Controls and Procedures                                                                          14
             -----------------------

                           PART II. Other Information
                           --------------------------

                                Description                                                                  Page
                                ------------                                                                 ----
Item 1.      Legal Proceedings                                                                                15
             -----------------
Item 2.      Unregistered Sales of Equity Securities and Use of Proceeds                                      16
             -----------------------------------------------------------
Item 3.      Defaults Upon Senior Securities                                                                  16
             -------------------------------
Item 4.      Submission of Matters to a Vote of Security Holders                                              16
             ---------------------------------------------------
Item 5.      Other Information                                                                                17
             -----------------
Item 6.      Exhibits                                                                                         17
             --------

Signatures                                                                                                    18
</TABLE>


                                       2
<PAGE>



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

                                                                                       September 30,         December 31
                                                                                           2006                 2005
                                                                                        (Unaudited)              (1)
                                                                                     ------------------   ------------------
<S>                                                                                         <C>                 <C>
ASSETS

Current assets:
          Cash and cash equivalents.............................................     $              760   $              124

          Accounts  receivable, net of allowances for doubtful accounts of $13
                    for September 30, 2006 and $26 December 31, 2005............                    183                  265
          Notes receivable, net of reserve for notes receivable
                    of $575 for September 30, 2006 and December 31, 2005........                      -                    -
          Inventories...........................................................                    304                  387
          Prepaid expenses......................................................                    239                  285
          Deferred charges......................................................                      -                  304
          Other current assets..................................................                     12                   28
                                                                                     ------------------   ------------------
Total current assets                                                                              1,498                1,393

Property and equipment, net.....................................................                    298                  318
Other assets....................................................................                     71                   35
                                                                                     ------------------   ------------------
Total assets                                                                         $            1,867   $            1,746
                                                                                     ==================   ==================

LIABILITIES AND STOCKHOLDERS' DEFICIENCY

Current liabilities:
          Accounts payable......................................................     $              952   $              956

          Accrued compensation..................................................                    402                  351
          Warrant liabilities...................................................                  2,741                1,200
          Credit Obligation.....................................................                  8,720                2,890
          Deferred rent.........................................................                     10                   18
          Capital lease - current portion.......................................                     21                   24
          Other current liabilities.............................................                     31                   42
                                                                                     ------------------   ------------------
Total current liabilities                                                                        12,877                5,481

Capital lease - non-current portion.............................................                     28                   28

Commitments and contingencies (see note 9)

Stockholders' deficiency:
          Common stock, $0.001 par value, 300,000,000 shares authorized,
          102,354,679 and 101,613,658 shares issued and outstanding at September
          30, 2006 and December 31, 2005, respectively..........................                118,346              117,999
          Accumulated deficit...................................................               (129,384)            (121,762)
                                                                                     ------------------   ------------------
Total stockholders' deficiency                                                                  (11,038)              (3,763)
                                                                                     ------------------   ------------------
Total liabilities and stockholders' deficiency                                       $            1,867   $            1,746
                                                                                     ==================   ==================
</TABLE>

  The accompanying notes are an integral part of these condensed consolidated
                             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,

                                                    2006        2005               2006       2005
                                                ------------------------      ------------------------

<S>                                             <C>           <C>             <C>           <C>
Net sales                                       $      254    $      346      $      972    $    1,411

Cost of goods sold                                     447           483           1,384         1,671
                                                ------------------------      ------------------------
               Gross loss                       $     (193)   $     (137)     $     (412)   $     (260)


Operating expenses:
          Research and development                      451          198           1,242         1,598
          Selling, general and administrative           748          613           2,126         3,629
          Impairment of long-lived assets                 -            -               -           404
                                                ------------------------      ------------------------
               Total operating expenses               1,199          811           3,368         5,631

Operating loss                                       (1,392)        (948)         (3,780)       (5,891)

Interest expense                                       (159)        (785)         (3,721)       (1,284)
Interest income                                           -            4               -           267
Other income and (expense)                            2,586          600            (120)          600
                                                ------------------------      ------------------------
Net income (loss)                               $     1,035   $   (1,129)     $   (7,621)   $   (6,308)
                                                ========================      ========================

Net income (loss) per share:
     Basic                                      $      0.01   $    (0.01)     $    (0.07)   $    (0.06)
                                                ========================      ========================
     Diluted                                    $      0.01   $    (0.01)     $    (0.07)   $    (0.06)
                                                ========================      ========================

Weighted average shares:
     Basic                                          101,915      101,440         101,675       101,440
                                                ========================      ========================
     Diluted                                        185,781      101,440         101,675       101,440
                                                ========================      ========================
</TABLE>

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

                                       4
<PAGE>
                                  CARDIMA, INC.
                            STATEMENTS OF CASH FLOWS
                                 (In thousands)
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                                 Nine Months  Ended
                                                                                    September 30,
                                                                    ----------------------------------------------
                                                                          2006                         2005
                                                                    -----------------            -----------------
<S>                                                                        <C>                         <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss                                                            $          (7,621)           $          (6,308)

Adjustments to reconcile net loss to net cash used in operations:
     Depreciation and amortization                                                 95                           63
     Non-cash stock-based compensation                                            320                            3
     Non-cash deferred charges                                                      -                          306
     Impairment of long-lived assets                                                -                          404
     Write-off of payroll tax refund liability                                      -                         (245)
     Allowance for excess and obsolete inventory                                   90                          186
     Allowance for doubtful accounts                                              (13)                           -
     Non-cash interest (income) charge on notes receivable from
      officers                                                                      -                          (11)
     Reserve on notes receivable from officers                                      -                          300

     Changes in operating assets and liabilities:

          Accounts receivable                                                      95                          140
          Inventories                                                              (7)                         264
          Prepaid expenses                                                         46                         (139)
          Deferred charges                                                        304                            -
          Other current assets                                                     16                            -
          Other assets                                                            (36)                      (3,276)
          Accounts payable                                                         (4)                         430
          Accrued compensation                                                     51                         (239)
          Warrant Liabilities                                                   1,541                            -
          Credit Obligation                                                     1,945                            -
          Deferred rent                                                            (8)                         (21)
          Capital Lease                                                            12                            -
          Other current liabilities                                               (11)                       3,445
                                                                    -----------------            -----------------
Net cash used in operating activities                                          (3,185)                      (4,698)
                                                                    -----------------            -----------------

CASH FLOWS FROM INVESTING ACTIVITIES
Property and equipment                                                            (76)                        (124)
                                                                    -----------------            -----------------

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from Apix loan                                                         3,885                        1,500
Principal payments under capital leases                                           (15)                        (269)
Proceeds from Agility loan and accrual of exit fee                                  -                          771
Payment of Agility loan and partial exit fee                                        -                         (773)
Net proceeds from sale of common stock                                             27                           10
                                                                    -----------------            -----------------
Net cash provided by financing activities                                       3,897                        1,239
                                                                    -----------------            -----------------

NET INCREASE/ (DECREASE) IN CASH AND CASH EQUIVALENTS                             636                       (3,583)

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                                    124                        3,854
                                                                    -----------------            -----------------
CASH AND CASH EQUIVALENTS, END OF PERIOD                            $             760            $             271
                                                                    =================            =================

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
     Cash paid for Interest                                         $               3            $               2
                                                                    =================            =================

NON-CASH INVESTING AND FINANCING ACTIVITY
     Property and equipment acquired via capital lease obligations  $              37            $               -
                                                                    =================            =================
</TABLE>



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


                                       5
<PAGE>


                                  CARDIMA, INC.

                     NOTES TO CONDENSED FINANCIAL STATEMENTS
                                   (Unaudited)

1.   INTERIM FINANCIAL INFORMATION

     Basis of Presentation

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

     Reclassification of Previously Reported Financial Results

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

                                                     Three months ended            Six months ended
                                                         30-Jun-05                     30-Jun-05
                                                  -------------------------     ------------------------
<S>                                                        <C>                            <C>
Costs of goods sold

Original filing                                   $                     611     $                  1,055

Change                                                                  133                          133
                                                  -------------------------     ------------------------
Restated cost of goods sold                       $                     744     $                  1,188


Impairment of inventory

Original filing                                   $                     133     $                    133

Change                                                                 (133)                        (133)
                                                  -------------------------     ------------------------
Restated impairment of inventory                  $                       -     $                      -
</TABLE>


     Stock Options Expensed

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

                                       6
<PAGE>

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

     In January 2006, the Company adopted the expense recognition  provisions of
FASB No. 123 (R),  and for the nine months  ended  September  30, 2006  recorded
approximately  $320,000  in  stock  compensation  expense.  If the  Company  had
expensed  stock options for the nine months ended  September 30, 2005, the stock
compensation expense would have been approximately $587,000.

     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:
<TABLE>
<CAPTION>

                                                       September 30, December 31,
                                                 2006                            2005
                                          -------------------             --------------------
<S>                                               <C>                              <C>
Warrants                                          78,161,525                       49,369,168
Stock Options                                      5,705,001                        7,557,035
                                          -------------------             --------------------
Total Warrants and Options                        83,866,526                       56,926,203
                                          ===================             ====================
</TABLE>

2.   CRITICAL ACCOUNTING POLICIES AND ESTIMATES

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

3.   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, 2006, the Company has
cash on hand of $760,000,  negative  working  capital of $11.3  million,  and an
accumulated  deficit  of  approximately  $129.4  million.  These  factors  raise
substantial doubt about its ability to continue as a going concern.  The ability
of the Company to  continue as a going  concern is  dependent  on the  Company's
ability to raise additional funds and implement its business plan.


                                       7
<PAGE>

4.   DEBT FINANCING TRANSACTIONS

     In  August  2005,  the  Company  entered  into a  $3,000,000  Secured  Loan
Agreement with Apix International  Limited (Apix),  which has been fully funded.
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. In addition,  the Company and Apix have agreed to the following terms: (i)
the maturity  date of the original  loan  facility is extended from February 28,
2006 to May 18, 2006;  (ii) the exercise price of the original  warrant has been
adjusted  to $0.06 per share.  Moreover,  the  Company  has  granted  Apix a new
warrant to purchase  23,800,000  shares of our common stock at an exercise price
of $0.06 per share for a term of ten years. Furthermore,  upon completion of the
full funding under the new loan facility,  the Company has granted Apix warrants
to purchase an  additional  8,000,000  shares of its common stock at an exercise
price of $0.06 per share for a term of ten years;  (iii) the Company has granted
Apix the right to convert the loan principal,  interest,  facility fees and exit
fees into shares of its common stock at a  conversion  price of $0.06 per share;
(iv) the facility fee has been increased  from $60,000 to $80,000.  In addition,
the exit fee has been increased from $900,000 to $1,300,000; (v) upon completion
of the full funding under the new loan facility, the exit fee would be increased
by $260,000;  (vi) the Company agrees to register the shares underlying the loan
principal,  facility fees,  and warrants on a registration  statement as soon as
practicable  after the date of issuing  the  warrant,  but in any event no later
than May 31, 2006. The Company filed a  registration  statement Form SB-2 on May
31, 2006 and it was withdrawn on October 26, 2006. The Company used the straight
line method to amortize all the loan fees over the life of the loan. The Company
received  funding under this  agreement of $200,000 and $460,000 in February and
March 2006, respectively.

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

     The Company has not  received a notice of default  from Apix,  nor has Apix
indicated to the Company  that it intends to place the Company in default  under
the loan agreement.  In addition to the $3,660,000 loaned to the Company by Apix
through  March 31, 2006,  Apix has made advances to the Company in the amount of
$2,925,000  through  September  30,  2006  and an  additional  $675,000  through
November 10, 2006. Apix has indicated to the Company that it intends to continue
to make  advances at the current level while working with the Company in finding
strategic  partners  to  increase  the  funding  level.  Although  the terms and
conditions of the additional  advances have not been  finalized,  we expect that
they will be on similar terms as the previous advances

     The table below summarizes the Company's credit obligations to Apix:
<TABLE>
<CAPTION>

                                                         30-Sep-06                     31-Dec-05
                                                  -------------------------     -------------------------
<S>                                                          <C>                           <C>
Apix Loan and Advance                             $               6,585,000     $               2,700,000

Apix Loan Accrued Fees                                            1,715,000                     1,035,000
Apix Loan Accrued Interest                                          420,000                        70,014
                                                  -------------------------     -------------------------
                                                  $               8,720,000     $               3,805,014
                                                  =========================     =========================
</TABLE>
                                      8
<PAGE>
     The loan fees as shown in the schedule  below were charged to expense using
the straight line method, which is not GAAP. The schedule below shows the period
in which the fees were charged the amount that would have been charged under the
interest method and the difference:


                   Total Fees  Interest Charged    Interest Method    Difference
                   ----------  ----------------    ---------------    ----------
August 2005       $  1,035,000


Q3 2005                            $ 257,462           $ 254,115      $   3,347
Q4 2005                            $ 473,731           $ 517,463      $ (43,732)
Q1 2006                            $ 303,807           $ 263,422      $  40,385
                                   ---------------------------------------------
                                   1,035,000          1,035,000               -

February 2006     $   680,000


Q1 2006                            $ 303,805           $ 338,119      $ (34,314)
Q2 2006                            $ 376,195           $ 341,881      $  34,314
                                   ---------------------------------------------
                                   $ 680,000           $ 680,000      $       -



5.   CONCENTRATIONS OF RISK

     During the quarter  ended  September  30, 2006,  the Company's net sales to
foreign customers  decreased to 56% of total, with 48% to Asia (Japan) and 8% to
Europe.  During the  quarter  ended  September  30,  2005,  net sales to foreign
customers were 66%, with 42% to Asia (Japan),  24% to Europe.  The Company's net
sales by country in the quarter  ending  September 30, 2006 was 48% to Japan and
44% to US and for the same quarter in 2005, the net sales by country were 42% to
Japan and 34% to US.

     During the first nine months of 2006,  the  Company's  net sales to foreign
customers  slightly  decreased  to 54% of  total  net  sales,  with  37% to Asia
(Japan),  16% to Europe and 1% to others.  During the nine months ended June 30,
2005, net sales to foreign  customers  were 58% of total net sales,  with 43% to
Asia (Japan) and 15% to Europe. The Company's net sales by the top two countries
in the first nine  months  ending  September  30, 2006 were 46% to US and 37% to
Japan  and for the  same  nine  months  in  2005,  the net  sales by the top two
countries were 43% to Japan and 42% to US.

     During the quarter ended  September 30, 2006,  net revenues to one customer
comprised  48% of the  Company's  total net  product  sales.  During the quarter
ending September 30, 2005, one customer comprised 42% of the Company's total net
product sales.

     During  the  first  nine  months  of 2006,  net  revenues  to one  customer
comprised 37% of the Company's total net product sales.  This is a decrease from
the first nine months of 2005 when one customer  comprised  43% of the Company's
total net product sales.

6.   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,                 December 31,
                                  2006                          2005
                           --------------------          --------------------
 Raw materials             $                137          $                 90
 Work-in-process                             93                           101
 Finished goods                              74                           196
                           --------------------          --------------------
                                            304                           387
                           ====================          ====================

     Inventories  shown  above are net of  allowances  for excess  and  obsolete
inventory of $753,000 and $663,000 at September  30, 2006 and December 31, 2005,
respectively.  The Company provides  allowances for: (i) inventory which is slow
moving,  (ii) inventory  with expiring shelf life, and (iii)  inventory that has
become  obsolete as a result of  technological  advancements.  The Company  also
adjusts inventory to the lower of cost or market.

7.   WARRANT LIABILITIES

     The Company had the following warrant liabilities outstanding:
<TABLE>
<CAPTION>

                              Total            Value at            Value at                Value at
                          Warrant Shares       Inception      September 30, 2006      December 31, 2005
                          ----------------   -------------  --------------------      ------------------
<S>    <C>                      <C>                  <C>            <C>                       <C>
August 2005 Loan                30,000,000   $   3,000,000  $          1,329,000      $        1,200,000
February 2006 Loan              31,800,000   $   1,421,740  $          1,411,920      $                -
                                                            --------------------      ------------------
                                                            $          2,740,920      $        1,200,000
                                                            ====================      ==================
</TABLE>


                                       9
<PAGE>

8.   OTHER INCOME AND EXPENSE

     The other income and expense was related to the re-valuation of the warrant
liability from the Apix loan. The Company used the Black-Scholes valuation model
to re-value the warrants at each balance sheet date and recorded the  respective
income or expense based on the following:
<TABLE>
<CAPTION>

                                                   Strike                Interest               Change
                Warrant Granted     FMV             Price   Life (years)    Rate   Volatility  in Value
                 ----------------------------------------------------------------------------------------
<S>                     <C>       <C>              <C>          <C>        <C>       <C>      <C>
Q1 2006          August 2005      $ 0.048          $0.060       9.42       4.73%     128%     $    47,420

                 February 2006    $ 0.048          $0.060       9.92       4.73%     128%     $   177,000
                 ----------------------------------------------------------------------------------------
Q1 2006 Total                                                                                 $   224,420


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


Q3 2006          August 2005      $0.045           $0.060       8.92       4.68%     160%     $(1,254,000)
                 February 2006   $0.045            $0.060       9.42       4.68%     160%     $(1,332,420)
                 ----------------------------------------------------------------------------------------
Q3 2006 Total                                                                                 $(2,586,420)
                                                                                              -----------
                                                                                              $   119,180
YTD Total                                                                                     ===========
</TABLE>

9.   COMMITMENTS AND CONTINGENCIES

     The Company's former President and Chief Operating Officer,  Mr. William K.
Wheeler,  has  threatened  to sue the Company for the recovery of $375,000  plus
interest,  which  Mr.  Wheeler  claims  that he is owed  under  the terms of his
amended  Executive  Agreement.  Mr.  Wheeler  contended  that he was  terminated
without  cause by the Company on June 17, 2005 when the Company had to shut down
its operations  and placed all employees on furlough due to lack of funding.  In
addition,  Mr. Wheeler has included in his demand  additional  money for alleged
penalties, interest and attorney's fees.

     Mr.  Wheeler  has made a  settlement  proposal,  which if  accepted  by the
Company, would extinguish Mr. Wheeler's repayment obligation on the loan that he
received  from the  Company  in June 2000 and May 2001,  in the total  principal
amount of $192,500 plus accrued interest. Both parties have engaged in extensive
negotiations in an effort to resolve this dispute.

ITEM 2. Management's Discussion and Analysis and Results of Operations

Forward Looking Statements

     The information in this discussion may contain  forward-looking  statements
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section  21E  of  the  Securities  Exchange  Act  of  1934,  as  amended.  These
forward-looking statements involve risks and uncertainties, including statements
regarding our capital needs, business strategy and expectations.  Any statements
that are not of historical fact may be deemed to be forward-looking  statements.
These forward-looking statements involve substantial risks and uncertainties. In
some cases you can identify  forward-looking  statements by terminology  such as
"may," "will," "should,"  "expect," "plan," "intend,"  "anticipate,"  "believe,"
"estimate," "predict," "potential," or "continue",  the negative of the terms or
other comparable terminology. Forward-looking statements in this Report may also
include  references to  anticipated  sales volume and product  margins,  efforts
aimed at establishing new or improving  existing  relationships  with customers,
other  business  development  activities,   anticipated  financial  performance,
business  prospects  and similar  matters.  Actual  events or results may differ
materially from the anticipated  results or other expectations  expressed in the
forward-looking  statements. In evaluating these statements, you should consider
various factors, including the risks included from time to time in other reports


                                       10
<PAGE>

or registration  statements filed with the United States Securities and Exchange
Commission. These factors may cause our actual results to differ materially from
any  forward-looking  statements.  We disclaim any obligation to publicly update
these  statements,  or disclose any difference  between actual results and those
reflected in these statements.

Overview

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

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

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

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

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

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

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


Results Of Operations - Three and Nine Months Ended September 30, 2006 and 2005

Net Sales

     Net sales  for the  quarter  ended  September  30,  2006  decreased  27% to
$254,000  from  $346,000 for the same period in 2005.  The decrease in net sales
was  primarily  attributable  to: (i)  material  shortage,  and (ii) the limited
manufacturing  capacity caused by the company-wide furlough instituted from June
2005 until August 15, 2005, when we re-hired  certain  furloughed  employees and
resumed  operations in a reduced capacity.  Regionally,  net sales in the United
States and Canada  decreased  slightly by 4% to $111,000 in the third quarter of
2006 from  $116,000  for the same  period in 2005.  Net sales in our  Japan/Asia
region  decreased 17% to $122,000 in the third quarter of 2006 from $147,000 for
the same period in 2005 while net sales in our European region  decreased 75% to
$21,000 in the third quarter of 2006,  from $83,000 in the comparable  period of
2005.  These  decreases  were  due to the  material  shortage  and  the  limited
manufacturing capacity discussed above.

                                       11
<PAGE>


     Net sales for the nine months ended  September  30, 2006  decreased  31% to
$972,000 from  $1,411,000  for the same period in 2005. By region,  net sales in
the United States and Canada decreased 24% to $452,000 for the nine months ended
September 30, 2006 from $592,000 for the same period in 2005. European net sales
decreased by 28% to $155,000 for the nine months ended  September  30, 2006 from
$214,000  for the same  period  in 2005.  Net  sales  in our  Japan/Asia  region
decreased  40% to $365,000  for the nine months  ended  September  30, 2006 from
$605,000 for the same period in 2005.  All these  decreases  were  primarily the
result  of: (i) the  termination  of our U.S.  sales  force in 2005 and (ii) the
limited manufacturing capacity caused by the June 2005 furlough.

Cost of Goods Sold

     Cost of  goods  sold  primarily  includes  raw  materials  costs,  catheter
fabrication  costs,  system  assembly and testing  costs,  shipping and handling
costs, and manufacturing labor and overhead.  Cost of goods sold for the quarter
ended September 30, 2006 decreased to $447,000 from $483,000 for the same period
in  2005.  Cost of goods  sold for the nine  months  ended  September  30,  2006
decreased to $1,384,000 from $1,671,000 for the same period in 2005.

     Cost of goods sold as a percentage of net sales increased from 140% to 176%
for the three months ended  September 30, 2006 as compared to the same period of
the prior year.  Cost of goods sold as a percentage of net sales  increased from
118% to 142% for the nine  months  ended  September  30, 2006 as compared to the
same  period of the prior  year.  The  increase  in the cost of goods  sold as a
percentage  of net  sales  for the nine  months  ended  September  30,  2006 was
primarily  due to: (i) $90,000  increase to the reserve for excess and  obsolete
inventory and (ii) some products being sold at low and below cost margins.

Net Income (Loss)

     Net income for the  quarter  ended  September  30, 2006 was  $1,035,000  as
compared to a net loss of $1,129,000 for the same period in 2005. The change was
primarily  attributable  to the  re-valuation  of the Apix  warrants and related
liability.  Net loss for the nine months ended  September 30, 2006  increased to
$7,621,000 from $6,308,000 as compared to the same period of the prior year. The
increase was primarily  attributable  to the  amortization  of the loan fees and
discounts related to the Apix financing in February 2006.

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, 2006 increased to $451,000 from  $198,000,  for the
same  period in 2005.  The  increase  was  primarily  related  to the  temporary
shutdown in the third quarter of 2005.  Total research and development  expenses
for the nine months  ended  September  30, 2006  decreased  to  $1,242,000  from
$1,598,000 for the same period in 2005. The decrease was primarily  attributable
to declining revenue and headcount reduction in August 2005.

Selling, Marketing, General and Administrative Expenses

     Total  selling,  marketing,  general and  administrative  expenses  for the
quarter  ended  September  30, 2006  increased to $746,000 from $613,000 for the
same period in 2005.  Selling  expenses for the three months ended September 30,
2006  increased to $78,000  from $27,000 for the same period in 2005.  Marketing
expenses for the three months ended September 30, 2006 also increased to $32,000
from $17,000 for the same period in 2005.  General and  administrative  expenses
for the quarter ended September 30, 2006 increased to $636,000 from $569,000 for
the same period in 2005. These increases were primarily attributable to: (i) the
temporary  shutdown during the first half of the third quarter in 2005, and (ii)
the  stock-based  compensation  expense of $105,000  for the three  months ended
September 30, 2006 with the adoption of FASB 123(R) in fiscal year 2006.

     Total selling, marketing,  general and administrative expenses for the nine
months ended  September 30, 2006 decreased to $2,124,000 from $3,629,000 for the
same period in 2005.  Selling  expenses for the nine months ended  September 30,
2006 decreased to $206,000 from $448,000 for the same period in 2005.  Marketing
expenses for the nine months ended September 30, 2006 also decreased to $119,000
from $237,000 for the same period in 2005. General and  administrative  expenses

                                       12
<PAGE>


for the nine  months  ended  September  30,  2006  decreased  to  $1,799,000  to
$2,944,000  for  the  same  period  in  2005.  These  decreases  were  primarily
attributable  to the  company-wide  furlough  instituted  in June  2005  and the
subsequent   headcount   reduction  in  August  2005  offset  partially  by  the
stock-based compensation expense of $320,000 for the nine months ended September
30, 2006 with the  adoption of FASB  123(R) in fiscal  year 2006.  In  addition,
there was a $255,000 charge relating to the  implementation  of a Sarbanes-Oxley
Act  compliance  program  in the first  nine  months in 2005.  There was no such
charge in the same period in 2006.

Interest Expense

     Interest  expense  decreased to $159,000 in the third  quarter of 2006 from
$785,000 in the third quarter of 2005 primarily as a result of the  amortization
of the loan fee and warrant-related  loan discount associated with the Apix loan
financing  in  August  2005.  We had  interest  expense  of  $3,721,000  for the
nine-month  period  ended  September  30, 2006  compared to interest  expense of
$1,284,000 for the nine-month  period ended  September 30, 2005. The increase in
interest expense in the nine-month period ended September 30, 2006 was primarily
the result of the amortization of the loan fee and warrant-related loan discount
associated with the Apix loan financing in August 2005 and February 2006.

Other Income and Expense

     We had other income of $2,586,000 for the quarter ended  September 30, 2006
compared to other income of $600,000 for the quarter  ended  September 30, 2005.
We had other expense of $120,000 for the nine-month  period ended  September 30,
2006  compared  to other  income of $600,000  for the  nine-month  period  ended
September  30,  2005.  These other  incomes  and  expenses  were  related to the
re-valuation of the Apix warrants and related liability.

Liquidity and Capital Resources

     In its opinion accompanying our December 31, 2005 financial statements, our
independent  registered public accounting firm expressed substantial doubt as to
our ability to continue as a going concern for a reasonable  period of time, and
provided an explanatory  paragraph describing the events that have given rise to
this  uncertainty.  We had cash of  approximately  $760,000 as of September  30,
2006. Our management  estimates that our financial  resources will be sufficient
to sustain our  operations  until  November  30, 2006.  Although our  management
recognizes  the need to raise  funds in the  immediate  future,  there can be no
assurances  that we will be  successful  in doing so, or, if we do  consummate a
financing transaction, that its terms and conditions 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.

     Net cash used in operating activities for the first nine months of 2006 was
approximately  $3,185,000,  compared to the net cash used of $4,698,000  for the
first nine months of 2005.  The decrease was  primarily  due to lower  operating
expenses. Net cash used in investing activities was approximately $76,000 in the
first nine months of 2006  related to the capital  expenditures  of property and
equipment,  as  compared  to  $124,000  for the same  period  in 2005.  Net cash
provided by financing activities was approximately $3,897,000 for the first nine
months of 2006,  compared to net cash provided of $1,239,000 for the same period
in 2005.  This  change  was  primarily  due to the loan  proceeds  and  advances
received from Apix.

     During 2005, we entered into a loan  facility  term sheet with Apix,  which
provided us a $3,000,000 loan financing. On February 14, 2006, we entered into a
new loan facility term sheet with Apix,  which  provided for the rollover of the
original  loan  agreement  and the grant of an  additional  loan facility in the
amount of  $660,000  at a stated  interest  rate of 10% per annum.  We  received
funding  under this  agreement  of $200,000  and  $460,000 in February and March
2006,  respectively.  Even  though we were not able to repay the loan at the due
date, Apix continues to provide additional advances to the Company in the amount
of $2,925,000  through  September 30, 2006 and an  additional  $675,000  through
November 10, 2006. Apix has indicated to the Company that it intends to continue
to make  advances at the current level while working with the Company in finding
strategic  partners  to  increase  the  funding  level.  Although  the terms and
conditions of the additional  advances have not been  finalized,  we expect that
they will be on similar terms as the previous advances.


                                       13
<PAGE>


ITEM 3.       CONTROLS AND PROCEDURES

(a)  Evaluation of disclosure controls and procedures.

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

     As of the  end of the  period  covered  by this  report,  we  conducted  an
evaluation,  under  the  supervision  and with the  participation  of our  Chief
Executive  Officer and Chief  Financial  Officer of our disclosure  controls and
procedures  (as defined in Rule  13a-15(e)  and Rule  15d-15(e)  of the Exchange
Act).  Based  upon  this  evaluation,  our  Chief  Executive  Officer  and Chief
Financial  Officer  concluded  that our  disclosure  controls and procedures are
effective  to ensure  that  information  required to be  disclosed  by us in the
reports that we file or submit  under the  Exchange Act is recorded,  processed,
summarized and reported,  within the time periods  specified in the Commission's
rules and forms.


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

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

PART II. OTHER INFORMATION

ITEM 1.  Legal Proceedings

     The Company has been subject to certain legal  proceedings  and claims that
arose in the ordinary  course of business.  The Company  currently is a party to
various legal proceedings and claims.  While the Company currently believes that
the ultimate outcome of these proceedings will not have a material adverse event
on our results of operations,  litigation is subject to inherent  uncertainties,
and  unfavorable  rulings  could occur.  Depending on the amount and timing,  an
unfavorable  outcome  of some or all of  these  matters  could  have a  material
adverse effect on the Company's cash flows,  business,  results of operations or
financial  position.  An estimate of  potential  loss from  pending  proceedings
cannot be made at this time.

     In May 2006, the Company received  notification from the Labor Commissioner
of the State of  California  that  penalties  of $24,000 to be former  employees
pursuant to  California  Labor Code Section 203 have been  assessed  against the
Company.  The Company disputes the penalties and filed an appeal in the Superior
Court, Alameda County, State of California on May 19, 2006.

                                       14
<PAGE>

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

         None.

ITEM 3.  Defaults Upon Senior Securities

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

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

     The Company has not  received a notice of default  from Apix,  nor has Apix
indicated to the Company  that it intends to place the Company in default  under
the loan agreement.  In addition to the $3,660,000 loaned to the Company by Apix
through  March of 2006,  Apix has made  advances  in the  amount  of  $2,925,000
through September 30, 2006 and an additional $675,000 through November 10, 2006.
Apix has  indicated to the Company that it intends to continue to make  advances
at the  current  level  while  working  with the  Company in  finding  strategic
partners to increase the funding level. Although the terms and conditions of the
additional  advances  have not been  finalized,  we expect  that they will be on
similar terms as the previous advances.

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

     The Company's  annual meeting of shareholders was held on July 27, 2006. At
the meeting the following matters were acted upon.

     There were present in person or by proxy 89,942,665 shares of Common Stock,
of a total of 101,694,503 shares of Common Stock entitled to vote.

     The following four proposals were presented to the  shareholders  for their
approval.




A.   Election of Directors.  The number of shares voted in favor of the election
     of the following nominees for director is set forth opposite each nominee's
     name. The election of each nominee was approved by the shareholders:  Votes
     for Votes withheld

        Gabriel B. Vegh                      86,253,400           3,689,265
        Phillip Radlick, Ph. D.              86,095,816           3,846,849
        John R. Cheney                       86,620,666           3,321,999
        Tony K. Shum                         86,642,306           3,300,359
        Tina Sim                             86,640,066           3,302,599
        Andrew K. Lee                        86,647,066           3,295,599




B.   To  increase  the  number of  authorized  shares of common  stock  issuable
     pursuant  to the 1997  Employee  Stock  Purchase  Plan  from  1,750,000  to
     2,500,000  shares.  This proposal was approved by the  shareholders.  . For
     16,740,104 Against 4,325,071 Abstain 2,832,717 Broker Non-Vote 66,044,773

                                       15
<PAGE>


C.   To ratify  appointment  of Marc Lumer & Company as  independent  registered
     public accounting firm. This proposal was approved by the shareholders.

     For                                  87,407,516

     Against                                 556,050
     Abstain                               1,979,099

D.   To  authorize  our  Board of  Directors,  in its  discretion,  to amend our
     Certificate of Incorporation to effect a non-for-ten reverse stock split of
     the  issued  and  outstanding  shares of the  common  stock of the  Company
     without  further  approval  from our  stockholders.  This  proposal was not
     approved by the shareholders because we did not receive a sufficient number
     of votes "for" the proposal from a majority of the shares entitled to vote.

     For                                  16,120,127
     Against                               5,887,572
     Abstain                               1,890,193
     Broker Non-Vote                      66,044,773




ITEM 5.   Other Information

     Effective  as of  October 9,  2006,  Mr.  Victor  Barajas  resigned  as the
Company's Senior Vice President of Operations.

ITEM 6.   Exhibits

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

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


                                       16
<PAGE>



                                  CARDIMA, INC.

                                    SIGNATURE

Pursuant  to the  requirements  of the  Securities  Exchange  Act of  1934,  the
Registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.


DATE: November 14, 2006       CARDIMA, INC.



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



                                       17