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UNITED STATES SECURITIES AND
    EXCHANGE COMMISSION
 Washington, D.C.
    20549
  Form 10-K
  (Mark One)þ

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended June
    30, 2007ORo

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For the transition period
    from          to          .   Commission file number
    000-51772
      CARDICA, INC.
 (Exact Name of Registrant as
    Specified in its Charter)
      Delaware

94-3287832(State of
    Incorporation)

(I.R.S. Employer
    Identification No.)   900 Saginaw Drive
 Redwood City, California 94063
 (Address of Principal Executive
    Offices, including Zip Code)
  (650) 364-9975
 (Registrants telephone
    number, including area code)
  Securities registered pursuant to Section 12(b) of the
    Act:
 None.
  Securities registered pursuant to Section 12(g) of the
    Act:
 Common Stock, $0.001 par value
 (Title of Class)
      o þ
  o þ
  þ o
  Regulation S-K Form 10-K Form 10-K. þ
  Rule 12b-2
 o o þ
  Rule 12b-2).  YES o þ
    þ o
    DOCUMENTS
    INCORPORATED BY REFERENCE




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##### 



CARDICA,
    INC.
  ANNUAL
    REPORT ON
    FORM 10-K
 For the
    Year Ended June 30, 2007
  
  TABLE OF
    CONTENTS
  PagePART IItem 1.


Business


1Item 1A.


Risk
    Factors


25Item 1B.


Unresolved Staff
    Comments


42Item 2


Properties


42Item 3


Legal
    Proceedings


42Item 4


Submission of
    Matters to a Vote of Security Holders


42PART IIItem 5.


Market for
    Registrants Common Equity, Related Stockholders Matters
    and Issuer Purchases of Equity Securities


42Item 6.


Selected Financial
    Data


45Item 7.


Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations


46Item 7A.


Quantitative and
    Qualitative Disclosures About Market Risk


54Item 8.


Financial
    Statements and Supplementary Data


54Item 9.


Changes and
    Disagreements with Accountants on Accounting and Financial
    Disclosure


55Item 9A.


Controls and
    Procedures


55Item 9B.


Other
    Information


56PART IIIItem 10.


Directors and
    Executive Officers of the Registrant


56Item 11.


Executive
    Compensation


56Item 12.


Security Ownership
    of Certain Beneficial Owners and Management and Related
    Stockholder Matters


56Item 13.


Certain
    Relationships and Related Transactions


56Item 14.


Principal
    Accounting Fees and Services


57PART IVItem 15.


Exhibits and
    Financial Statement Schedules


57Signatures


82EXHIBIT 23.1EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1




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PART I
  Item 1.
    Business  Overview
  ® ®
    ® ®
    Industry
    Background
  Coronary
    Artery Disease
   1




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build-up
  Current
    Treatment Alternatives for Coronary Artery Disease
    Medical
    Treatment with Pharmaceuticals
    Interventional
    Cardiology Techniques
  Coronary Angioplasty.
  Stents.
  70-80%.
   2




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Bypass Surgery.
  
       3




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Types of
    CABG Procedures
    Conventional On-Pump CABG
    Procedures.
  Off-Pump CABG Procedures.
    Minimally Invasive Endoscopic
    Procedures.
  Surgical
    Techniques for Anastomoses
   4




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Our
    Solutions
    
    Physiological features.  Our clips use medical
    grade stainless steel that is identical to that used in
    conventional coronary stents, which is known to be compatible
    with the human body (in the absence of allergies to certain
    components of medical grade stainless steel). Our products
    minimize trauma to both the graft and target vessel during
    loading and deployment, thereby reducing the risk of scar
    formation and associated narrowings or occlusions. Additionally,
    our PAS-Port system can be used without clamping the aorta,
    which has been shown to be a cause of adverse events, including
    neurological complications. In addition, our C-Port system
    creates compliant anastomoses, which potentially allow the shape
    and size of the anastomosis to adapt to changes in flow and
    blood pressure.
    Handling features.  Our anastomotic systems can
    create anastomoses more rapidly than hand suturing, resulting in
    a surgical procedure that can be performed more quickly. For
    example the PAS-Port system can be
    set-up and
    deployed in approximately three minutes compared with
    approximately ten to 25 minutes for a hand-sewn anastomosis. In
    addition, the system is easy to use, typically requiring only a
    few hours of training to become technically proficient in the
    technique. The C-Port system is compatible with coronary
    arteries as small as 1.3 millimeters in internal diameter, which
    is typically the lower limit of target vessels considered to be
    candidates for revascularization. The C-Port system can also be
    deployed at various angles, allowing access to all coronary
    targets during both on- and off-pump procedures. Both the C-Port
    system and the PAS-Port system are designed as integrated
    products, where all steps necessary to create an anastomosis are
    performed by a single tool, with one user interface. The need
    for target vessel preparation is minimal for the PAS-Port
    system, a feature that is especially important in patients
    undergoing a second or third coronary bypass procedure with the
    presence of significant scarring in and around the heart and
    aorta.
    Standardized results.  Our products enable
    consistent, reproducible anastomoses, largely independent of
    surgical technique and skill set, using a wide range in quality
    of graft tissues. In comparison with hand-sewn sutures, our
    systems offer mechanically-governed repeatability and reduced
    procedural complexity.
    Reduced costs.  Because our products can help
    to expedite the CABG procedure, we believe that they may
    contribute to reduced operating room time and associated
    expenses, partially offset by the increased cost of our products
    compared to current alternatives, such as sutures. Additionally,
    our C-Port system creates anastomoses rapidly and does not
    require the interruption of blood flow. It may reduce some of
    the technical challenges inherent in performing anastomosis in
    off-pump procedures, which may advance adoption of the 5




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off-pump approach. By helping more surgeons perform off-pump
    CABG, the need for a costly pump may also be reduced or
    eliminated, thereby potentially reducing the total costs of the
    procedure. The C-Port Flex A allows the surgeon to perform
    coronary revascularization through small openings in the chest
    wall, thereby reducing the trauma and morbidity associated with
    the CABG procedure which therefore may help reduce costs by
    reducing the time to patient discharge. Finally, to the extent
    complications such as strokes or injury to the heart muscle
    decrease, post-operative costs of a CABG procedure may be
    significantly reduced.  Our
    Strategy
    step-by-step
    
    Driving market adoption of the C-Port and PAS-Port
    systems.  We intend to drive commercial adoption
    of our C-Port systems, our PAS-Port system and future products
    by marketing them as integrated anastomotic tools for use in
    both on- and off-pump CABG procedures. We believe clinical data
    from our product trials and evidence of the cost-effective
    nature of our systems compared with alternatives will be key
    factors in driving physician adoption of our products. We intend
    to continue to seek to obtain persuasive clinical data on
    patient outcomes, procedure times and costs and quality of
    outcome through post-marketing studies, registry trials and
    physician-initiated studies to further drive market adoption.
    Expanding our sales and marketing effort.  We
    are building a direct sales force to market and sell the C-Port
    system in the United States. Our U.S. sales force is
    initially targeting selected influential surgeons in high volume
    cardiac surgery centers. Through this effort, we will seek to
    increase both confidence in and demand for our products. If we
    obtain FDA clearance or approval of the PAS-Port system or other
    products in the field of cardiac surgery, the same sales force
    will be responsible for selling these products. We also intend
    to increase the number of distributors carrying our products in
    Europe and Asia.
    Capitalizing on our proprietary technology to develop
    next-generation products for endoscopic cardiac
    procedures.  We believe that the evolution of
    endoscopic CABG procedures, which would offer faster
    post-operative patient recovery times, long-term graft patency
    and a low incidence of adverse outcomes, could increase the
    number of CABG procedures performed. To help propel the effort
    toward more viable cardiac endoscopic procedures, we plan to
    develop flexible, next-generation automated anastomotic systems
    designed to facilitate minimally invasive endoscopic CABG. We
    have received a grant from the National Institutes of Health, or
    NIH, which will, in part, support us in our efforts to reach the
    goal of developing products for use in endoscopic surgery. 6




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
    Establishing a strong proprietary position.  As
    of June 30, 2007, we had 50 issued U.S. patents, 62
    additional patent applications in the United States, four issued
    foreign patents and another six patent applications filed in
    selected international markets. We plan to continue to invest in
    building our intellectual property portfolio.
    Leveraging our core competency to develop innovative products
    for other surgical applications.  We believe that
    our core technology, which comprises extensive technological
    innovations, can be adapted for a variety of surgical
    applications and disease indications. For example, we are
    currently developing products for use in other applications,
    such as vascular and patent foramen ovale, or PFO, closure. We
    plan to continue to seek market opportunities in related fields
    to develop additional products that leverage our core strengths
    in surgical stapling and closure.  Our
    Products
    C-Port®
    Distal Anastomosis System
    
    perform an end-to-side anastomosis without interruption of
    native coronary blood flow, which is not possible in a
    conventional hand-sewn anastomosis during off-pump surgery
    without the use of a temporarily placed vascular shunt;
    be compatible with vein grafts of diameters between 4
    millimeters and 6 millimeters and wall thicknesses less than 1.4
    millimeters;
    achieve nearly complete alignment of the natural blood lining
    surfaces of the coronary artery and the vein graft to minimize
    scarring and potential occlusion of the anastomosis; and
    minimize the amount of foreign material in the blood stream that
    may cause clotting and subsequent graft failure.    C-Port®
    xA Distal Anastomosis System
   7




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C-Port®
    Flex A Anastomosis System
      PAS-Port®
    Proximal Anastomosis System
        Collaborations
    and Future Product Programs
    Cook
    Vascular Closure Device
   8




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
    a simple user interface;
    placement through the same introducer sheath used for the
    interventional procedure, thereby eliminating the need for the
    exchange of the introducer sheath as typically required in many
    of the competitive devices;
    minimal amount of foreign material in the vessel wall with only
    a fraction of this material exposed to blood;
    a low manufactured cost; and
    scalable to various sizes of introducer sheaths.    Agreements
    with Cook Incorporated
     9




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and/or
    12-18 months.
 10




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and/or
  Regulatory
    Status and Clinical Trial Summary
  Regulatory
    Status
  International
    United
    States
  PAS-Port.
 11




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C-Port.
    International
    Clinical Studies
  Number and

EnrollmentLocation of

Completion

Number of




Length of

RegulatoryStudy

Sites

Date

Patients


Objective

Follow-up

StatusC-Port Pivotal Trial

5 European Sites

February 2004


133


Determine safety and efficacy of
    distal anastomotic device

12 months

   CE Mark
    received in Europe
       510(k) clearance obtained in
    United StatesPAS-Port European Pivotal Trial

3 European Sites

September 2002


55


Determine safety and efficacy of
    proximal anastomotic device

24 months

   CE Mark
    received in EuropePAS-Port II Trial

4 European Sites

February 2004


54


Increase data pool for study of
    safety and efficacy with an improved PAS-Port device

12 monthsPAS-Port

4 European Sites and 8 U.S. Sites

Ongoing


220


510(k) clearance from U.S. FDA

9 months

   IDE approvalC-Port xA

5 European Sites

Ongoing


170


Obtain results for use with
    arterial grafts

12 months

   CE Mark
    received in Europe     Sales and
    Marketing
   12




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Competition
    
    improved patient outcomes;
    access to and acceptance by leading physicians;
    product quality and reliability;
    ease of use;
    device cost-effectiveness;
    training and support;
    novelty;
    physician relationships; and
    sales and marketing capabilities.     13




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Manufacturing
      PAS-Port
   14




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Third-Party
    Reimbursement
               15




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Research
    and Development
    Patents
    and Intellectual Property
         16




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Government
    Regulation
      
    product design, development and manufacture;
    product safety, testing, labeling and storage;
    pre-clinical testing in animals and in the laboratory;
    clinical investigations in humans;
    marketing applications, such as 510(k) notifications and PMA
    applications;
    record keeping and document retention procedures;
    advertising and promotion;
    product marketing, distribution and recalls; and
    post-marketing surveillance and medical device reporting,
    including reporting of deaths, serious injuries, device
    malfunctions or other adverse events.  FDAs Premarket Clearance and Approval
    Requirements.
 17




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510(k) Clearance Pathway. and/or and/or
  Premarket Approval Pathway.
    Clinical Trials.
 18




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Pervasive and Continuing Regulation.
  
    product listing and establishment registration, which helps
    facilitate FDA inspections and other regulatory action;
    QSR, which requires manufacturers, including third-party
    manufacturers, to follow stringent design, testing, control,
    documentation and other quality assurance procedures during all
    aspects of the manufacturing process;
    labeling regulations and FDA prohibitions against the promotion
    of products for uncleared, unapproved or off-label use or
    indication;
    clearance or approval of product modifications that could
    significantly affect safety or efficacy or that would constitute
    a major change in intended use;
    medical device reporting regulations, which require that
    manufacturers comply with FDA requirements to report if their
    device may have caused or contributed to an adverse event, a
    death or serious injury or malfunctioned in a way that would
    likely cause or contribute to a death or serious injury if the
    malfunction were to recur;
    post-approval restrictions or conditions, including
    post-approval study commitments;
    post-market surveillance regulations, which apply when necessary
    to protect the public health or to provide additional safety and
    effectiveness data for the device; and
    notices of correction or removal and recall regulations.     19




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
    warning letters, fines, injunctions, consent decrees and civil
    penalties;
    customer notifications, repair, replacement, refunds, recall or
    seizure of our products;
    operating restrictions, partial suspension or total shutdown of
    production;
    delay in processing marketing applications for new products or
    modifications to existing products;
    mandatory product recalls;
    withdrawing approvals that have already been granted; and
    criminal prosecution.  Fraud and Abuse and False Claims.
       20




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International Regulation.
           21




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Employees
    Corporate
    Information
  (650) 364-9975. www.cardica.com
 22




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MANAGEMENT
  Executive
    Officers and Directors
    Name

Age

PositionBernard A.
    Hausen, M.D., Ph.D.


47


President, Chief Executive
    Officer, Chief Medical Officer and DirectorRobert Y. Newell


59


Vice President, Finance &
    Operations, Chief Financial OfficerDouglas T. Ellison


44


Vice President, Sales and MarketingBryan D. Knodel, Ph.D.


47


Vice President, Research and
    DevelopmentRichard M. Ruedy


40


Vice President of Regulatory,
    Clinical and Quality AffairsKevin T. Larkin(2)(3)


58


Chairman of the BoardJ. Michael Egan(1)


54


DirectorRichard P. Powers(1)


63


DirectorJeffrey Purvin(2)(3)


55


DirectorRobert C. Robbins, M.D.(2)


49


DirectorJohn Simon, Ph.D.


64


DirectorStephen A. Yencho, Ph.D.


46


DirectorWilliam H. Younger, Jr.(1)(3)


57


Director     (1)
    
    Member of the Audit Committee(2)
    
    Member of the Compensation Committee(3)
    
    Member of the Nominating Committee  Executive
    Officers and Directors
  Bernard A. Hausen, M.D., Ph.D.
  Robert Y. Newell
  Douglas T. Ellison
  Bryan D. Knodel
 23




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Richard M. Ruedy
  Kevin T. Larkin
  J. Michael Egan
  Richard P. Powers
  Jeffrey Purvin
  Robert C. Robbins, M.D.
 24




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John Simon, Ph.D.
  Stephen A. Yencho, Ph.D.
  William H. Younger, Jr.
  ITEM 1A.
    Risk
    Factors  Our
    business is subject to the risks set forth below.
  Risks
    Related to Our Business
  We are
    dependent upon the success of our current products, and we have
    U.S. regulatory clearance for our C-Port, C-Port xA and C-Port
    Flex A systems only. We cannot be certain that any of our other
    products will receive regulatory clearance or approval or that
    any of our products, including the
    C-Port,
    C-Port xA or C-port Flex A systems, will be commercialized in
    the United States. If we are unable to commercialize our
    products in the United States, or experience significant delays
    in doing so, our ability to generate revenue will be
    significantly delayed or halted, and our business will be
    harmed.
     25




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A
    prior automated cardiac proximal anastomosis system was
    introduced by another manufacturer but was withdrawn from the
    market, and, as a result, we may experience difficulty in
    commercializing our C-Port, C-Port xA, C-Port Flex A and
    PAS-Port systems.
    Lack
    of third-party coverage and reimbursement for our products could
    delay or limit their adoption.
       26




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We
    have limited data regarding the safety and efficacy of the
    PAS-Port, C-Port, C-Port xA and C-Port Flex A systems and have
    only recently begun training physicians in the United States to
    use the C-Port, C-Port xA and C-Port Flex A systems. Any data
    that is generated in the future may not be positive or
    consistent with our existing data, which would affect market
    acceptance and the rate at which our devices are
    adopted.
        Our
    current and planned clinical trials may not begin on time, or at
    all, and may not be completed on schedule, or at
    all.
    
    the FDA or other regulatory authorities suspend or place on hold
    a clinical trial, or do not approve a clinical trial protocol or
    a clinical trial; 27




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
    the data and safety monitoring committee of a clinical trial
    recommends that a trial be placed on hold or suspended;
    patients do not enroll in clinical trials at the rate we expect;
    patients are not
    followed-up
    at the rate we expect;
    clinical trial sites decide not to participate or cease
    participation in a clinical trial;
    patients experience adverse side effects or events related to
    our products;
    patients die or suffer adverse medical effects during a clinical
    trial for a variety of reasons, which may not be related to our
    product candidates, including the advanced stage of their
    disease and medical problems,;
    third-party clinical investigators do not perform our clinical
    trials on our anticipated schedule or consistent with the
    clinical trial protocol and good clinical practices, or other
    third-party organizations do not perform data collection and
    analysis in a timely or accurate manner;
    regulatory inspections of our clinical trials or manufacturing
    facilities may, among other things, require us to undertake
    corrective action or suspend or terminate our clinical trials if
    investigators find us not to be in compliance with regulatory
    requirements;
    third-party suppliers fail to provide us with critical
    components that conform to design and performance specifications;
    the failure of our manufacturing process to produce finished
    products that conform to design and performance specifications;
    changes in governmental regulations or administrative actions;
    the interim results of the clinical trial are inconclusive or
    negative;
    pre-clinical or clinical data is interpreted by third parties in
    different ways; or
    our trial design, although approved, is inadequate to
    demonstrate safety
    and/or
    efficacy.    follow-up
    If the
    third parties on whom we rely to conduct our clinical trials do
    not perform as contractually required or expected, we may not be
    able to obtain regulatory approval for or commercialize our
    product candidates.
   28




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Even
    though our C-Port, C-Port xA and C-Port Flex A products have
    received U.S. regulatory clearance, our PAS-Port system, as well
    as our future products, may still face future development and
    regulatory difficulties.
    
    warning letters, fines, injunctions, consent decrees and civil
    penalties;
    customer notifications, repair, replacement, refunds, recall or
    seizure of our products;
    operating restrictions, partial suspension or total shutdown of
    production;
    delay in processing marketing applications for new products or
    modifications to existing products;
    withdrawing approvals that have already been granted; and
    criminal prosecution.  follow-up
  If we
    do not achieve our projected development goals in the time
    frames we announce and expect, the commercialization of our
    product candidates may be delayed and, as a result, our stock
    price may decline.
   29




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Our
    products may never gain any significant degree of market
    acceptance, and a lack of market acceptance would have a
    material adverse effect on our business.
          Because
    one customer accounts for a substantial portion of our product
    revenue, the loss of this significant customer would cause a
    substantial decline in our revenue.
   30




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If our
    competitors have products that are approved in advance of ours,
    marketed more effectively or demonstrated to be more effective
    than ours, our commercial opportunity will be reduced or
    eliminated and our business will be harmed.
      
    improved patient outcomes;
    access to and acceptance by leading physicians;
    product quality and reliability;
    ease of use;
    device cost-effectiveness;
    training and support;
    novelty;
    physician relationships; and
    sales and marketing capabilities.       31




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We
    have limited manufacturing experience and may encounter
    difficulties in increasing production to provide an adequate
    supply to customers.
    
    maintaining product yields;
    maintaining quality control and assurance;
    providing component and service availability;
    maintaining adequate control policies and procedures; and
    hiring and retaining qualified personnel.        Our
    manufacturing facilities, and those of our suppliers, must
    comply with applicable regulatory requirements. Failure to
    obtain regulatory approval of our manufacturing facilities would
    harm our business and our results of operations.
     32




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If we
    are unable to establish sales and marketing capabilities or
    enter into and maintain arrangements with third parties to
    market and sell our products, our business may be
    harmed.
    We
    will need to increase the size of our organization, and we may
    experience difficulties in managing this growth.
    We are
    dependent upon a number of key suppliers, including single
    source suppliers, the loss of which would materially harm our
    business.
     33




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We may
    in the future be a party to patent litigation and administrative
    proceedings that could be costly and could interfere with our
    ability to sell our products.
      Intellectual
    property rights may not provide adequate protection, which may
    permit third parties to compete against us more
    effectively.
     34




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Our
    products face the risk of technological obsolescence, which, if
    realized, could have a material adverse effect on our
    business.
    We may
    not be successful in our efforts to expand our product
    portfolio, and our failure to do so could cause our business and
    prospects to suffer.
  C-Port, C-Port
  We may
    be subject, directly or indirectly, to federal and state
    healthcare fraud and abuse laws and regulations and, if we are
    unable to fully comply with such laws, could face substantial
    penalties.
    We
    could be exposed to significant product liability claims, which
    could be time consuming and costly to defend, divert management
    attention, and adversely impact our ability to obtain and
    maintain insurance coverage. The expense and potential
    unavailability of insurance coverage for our company or our
    customers could adversely affect our ability to sell our
    products, which would adversely affect our
    business.
   35




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We
    sell our systems internationally and are subject to various
    risks relating to these international activities, which could
    adversely affect our revenue.
    
    export restrictions and controls relating to technology;
    the availability and level of reimbursement within prevailing
    foreign healthcare payment systems;
    pricing pressure that we may experience internationally;
    required compliance with existing and changing foreign
    regulatory requirements and laws;
    laws and business practices favoring local companies;
    longer payment cycles;
    difficulties in enforcing agreements and collecting receivables
    through certain foreign legal systems;
    political and economic instability;
    potentially adverse tax consequences, tariffs and other trade
    barriers;
    international terrorism and
    anti-American
    sentiment;
    difficulties and costs of staffing and managing foreign
    operations; and
    difficulties in enforcing intellectual property rights.    We are
    dependent upon key personnel, the loss of any of which could
    have a material adverse affect on our business.
   36




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Our
    operations are currently conducted at a single location that may
    be at risk from earthquakes, terror attacks or other
    disasters.
    If we
    use hazardous materials in a manner that causes injury, we may
    be liable for damages.
    We may
    be subject to fines, penalties or injunctions if we are
    determined to be promoting the use of our products for
    unapproved or off-label uses.
    Risks
    Related to Our Finances and Capital Requirements
  We
    have a history of net losses, which we expect to continue for
    the foreseeable future, and we are unable to predict the extent
    of future losses or when we will become profitable, if at
    all.
   37




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We
    currently lack a significant source of product revenue, and we
    may not become or remain profitable.
    
    achievement of U.S. regulatory clearance or approval for
    our additional products;
    successful completion of ongoing clinical trials for our
    products; and
    successful sales, manufacturing, marketing and distribution of
    our products.      We
    will need substantial additional funding and may be unable to
    raise capital when needed, which would force us to delay, reduce
    or eliminate our research and development programs or
    commercialization efforts.
    
    market acceptance and adoption of our products;
    our revenue growth;
    costs associated with our sales and marketing initiatives and
    manufacturing activities;
    costs of obtaining and maintaining FDA and other regulatory
    clearances and approvals for our products;
    securing, maintaining and enforcing intellectual property rights;
    the costs of developing marketing and distribution capabilities;
    the extent of our ongoing research and development programs;
    the progress of clinical trials; and
    effects of competing technological and market developments.   38




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If we
    do not generate sufficient cash flow through increased revenue
    or raising additional capital, then we may not be able to meet
    our debt obligation that becomes due in 2010.
    
    making it more difficult to obtain additional financing; and
    constraining our ability to react quickly in an unfavorable
    economic climate.    Existing
    creditors have rights to our assets that are senior to our
    stockholders.
    Our
    quarterly operating results and stock price may fluctuate
    significantly.
    
    the rate of physician adoption of our products;
    the results of clinical trials related to our products;
    the introduction by us or our competitors, and market acceptance
    of, new products;
    the results of regulatory and reimbursement actions;
    the timing of orders by distributors or customers;
    the expenditures incurred in the research and development of new
    products; and
    competitive pricing.   39




---



##### Table of Contents



Risks
    Related to Our Common Stock
  The
    price of our common stock may continue to be volatile, and the
    value of an investment in our common stock may
    decline.
    
    market acceptance and adoption of our products;
    regulatory clearance or approvals of our products;
    volume and timing of orders for our products;
    changes in earnings estimates, investors perceptions,
    recommendations by securities analysts or our failure to achieve
    analysts earning estimates;
    quarterly variations in our or our competitors results of
    operations;
    general market conditions and other factors unrelated to our
    operating performance or the operating performance of our
    competitors;
    the announcement of new products or product enhancements by us
    or our competitors;
    announcements related to patents issued to us or our competitors
    and to litigation; and
    developments in our industry.    The
    ownership of our common stock is highly concentrated, and your
    interests may conflict with the interests of our existing
    stockholders.
    Evolving
    regulation of corporate governance and public disclosure will
    result in additional expenses and continuing
    uncertainty.
   40




---



##### Table of Contents



If we
    sell shares of our common stock in future financings, common
    stockholders may experience immediate dilution and, as a result,
    our stock price may decline.
    Our
    future operating results may be below securities analysts
    or investors expectations, which could cause our stock
    price to decline.
    
    FDA or other regulatory clearance or approval of our PAS-Port
    system, future generations of our C-Port system or our other
    products;
    demand for our products;
    the performance of third-party contract manufacturers and
    component suppliers;
    our ability to develop sales and marketing capabilities;
    our ability to develop, introduce and market new or enhanced
    versions of our products on a timely basis; and
    our ability to obtain and protect proprietary rights.    Anti-takeover
    defenses that we have in place could prevent or frustrate
    attempts to change our direction or management.
    
    limit who may call a special meeting of stockholders;
    establish advance notice requirements for nominations for
    election to our board of directors or for proposing matters that
    can be acted upon at stockholder meetings;
    prohibit cumulative voting in the election of our directors,
    which would otherwise permit less than a majority of
    stockholders to elect directors;
    prohibit stockholder action by written consent, thereby
    requiring all stockholder actions to be taken at a meeting of
    our stockholders; and
    provide our board of directors with the ability to designate the
    terms of and issue a new series of preferred stock without
    stockholder approval.   41




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##### Table of Contents



We may
    become involved in securities class action litigation that could
    divert managements attention and harm our
    business.
    We
    have never paid dividends on our capital stock, and we do not
    anticipate paying any cash dividends in the foreseeable
    future.
    Item 1B.
    Unresolved
    Staff comments    Item 2.
    Properties    Item 3.
    Legal
    Proceedings    Item 4.
    Submission
    of Matters to a Vote of Security Holders    PART II
  Item 5.
    Market
    for Registrants Common Equity, Related Stockholder Matters
    and Issuer Purchases of Equity Securities  Market
    for Common Equity
    High


LowFiscal year 2007First Quarter ended
    September 30, 2006

$
7.95


$
3.95Second Quarter ended
    December 31, 2006

$
9.62


$
3.84Third Quarter ended March 31,
    2007

$
6.10


$
4.10Fourth Quarter ended June 30,
    2007

$
6.45


$
4.80Fiscal year 2006Third Quarter ended March 31,
    2006 (From February 3, 2006)

$
11.00


$
7.75Fourth Quarter ended June 30,
    2006

$
8.59


$
5.75  42




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##### Table of Contents



Dividend
    Policy
    Equity
    Compensation Plan Information
    Recent
    Sales of Unregistered Securities
            Issuer
    Purchases of Equity Securities
   43




---



##### Table of Contents



Performance
    Graph
  16-month
  COMPARISON
    OF 16 MONTH CUMULATIVE TOTAL RETURN*
  Among Cardica, Inc., The NASDAQ Composite Index
 And The NASDAQ Medical Equipment Index
  
    *
    
    $100 invested on February 3, 2006 in stock or on
    January 31, 2006 in index-including reinvestment of
    dividends.   The stock price performance included in this graph is not
    necessarily indicative of future stock price performance.
 44




---



##### Table of Contents



ITEM 6.
    Selected
    Financial Data      Fiscal Year Ended June 30,2007


2006


2005


2004


2003(In thousands, except per share data)Statements of Operation
    Data:Net revenue:Product revenue, net

$
2,103


$
1,028


$
719


$
212


$
Development revenue


1,370



1,000











Product and royalty revenue from
    related party, net


56



31



1,027



401



Development revenue from related
    party










310



223



Total net revenue


3,529



2,059



2,056



836



Operating costs and expenses:Cost of product revenue (includes
    related-party costs of $1,180 and $1,377 in fiscal years 2005
    and 2004, respectively)


2,880



2,102



2,478



2,105



Research and development


7,014



6,459



6,289



5,826



6,698Selling, general and administrative


9,057



5,645



3,753



1,809



1,936Total operating costs and Expenses


18,951



14,206



12,520



9,740



8,634Loss from operations


(15,422
)


(12,147
)


(10,464
)


(8,904
)


(8,634
)Interest income


1,113



782



305



209



294Interest expense (includes
    related-party interest expense of $320, $897, $897 and $539 in
    fiscal years 2007, 2006, 2005 and 2004, respectively)


(458
)


(1,047
)


(1,048
)


(2,001
)


(885
)Other income (expense), net
    (includes $250 income from related-party in fiscal year 2005)


2



(4
)


257



(14
)


Gain on early retirement of notes
    payable to related-party


1,183















Net loss

$
(13,582
)

$
(12,416
)

$
(10,950
)

$
(10,710
)

$
(9,225
)Basic and diluted net loss per
    common share

$
(1.25
)

$
(2.58
)

$
(7.82
)

$
(8.24
)

$
(7.84
)Shares used in computing basic and
    diluted net loss per common share


10,878



4,817



1,401



1,299



1,176   As of June 30,2007


2006


2005


2004


2003Balance Sheet Data:Cash, cash equivalents and
    short-term investments

$
23,434


$
32,080


$
8,951


$
17,224


$
17,680Working capital


22,049



31,602



9,032



16,402



13,396Total assets


27,324



35,158



12,146



20,231



19,763Long-term liabilities


2,020



15,836



15,156



14,359



5,129Convertible preferred stock










39,683



39,683



35,038Total stockholders equity
    (deficit)


21,989



17,677



(43,685
)


(35,430
)


(25,103
)  45




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##### Table of Contents



Item 7.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations  The following discussion and analysis of our financial
    condition and results of operations should be read in
    conjunction with our financial statements and the related notes
    to those statements included elsewhere in this report. In
    addition to historical financial information, the following
    discussion and analysis contains forward-looking statements that
    involve risks, uncertainties and assumptions. Our actual results
    and timing of selected events may differ materially from those
    anticipated in these forward-looking statements as a result of
    many factors, including those discussed under Risk
    Factors and elsewhere in this Report.
  Overview
  ® ® ®
    tm
   46




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##### Table of Contents



Critical
    Accounting Policies and Significant Judgments and
    Estimates
      Revenue Recognition. Revenue Recognition,
      Inventory. first-in,
 47




---



##### Table of Contents



Clinical Trial Accounting.
  Stock-Based Compensation. Share-Based Payments Accounting for Stock-Based
    Compensation Accounting for Stock Issued to Employees , Accounting for Certain Transactions
    Involving Stock Compensation, an Interpretation of APB
    No. 25
       48




---



##### Table of Contents



No. 96-18, Accounting for Equity Instruments that Are Issued to
    Other than Employees for Acquiring, or in Conjunction with
    Selling, Goods or Services
  Results
    of Operations
  Fiscal
    Years ended June 30, 2007 and 2006
  Net revenue.
    Cost of product revenue.
    Research and development expense.
    Selling, general and administrative
    expense.
 49




---



##### Table of Contents



Interest income.
  Interest expense.
  Gain on early retirement of notes payable to related
    party.
  Fiscal
    Years ended June 30, 2006 and 2005
  Net revenue.
    Cost of product revenue.
  Research and development expense.
 50




---



##### Table of Contents



start-up
  Selling, general and administrative
    expense.
    Interest income.
  Interest expense.
  Other income (expense).
  Income
    Taxes
      Liquidity
    and Capital Resources
   51




---



##### Table of Contents



Less Than


1-3


More ThanContractual Obligations

Total


1 Year


Years


3 Years(In thousands)Operating lease  real
    estate

$
518


$
478


$
40


$
Notes payable, including interest


2,353



100



2,253



Total

$
2,871


$
578


$
2,293


$
           Fiscal Year Ended June 30,2007


2006


2005(In thousands)Net cash used in operating
    activities

$
(14,952
)

$
(8,997
)

$
(7,417
)Net cash provided by (used in)
    investing activities


18,291



(21,593
)


7,129Net cash provided by financing
    activities


7,098



32,741



14      52




---



##### Table of Contents




    market acceptance and adoption of our products;
    our revenue growth;
    costs associated with our sales and marketing initiatives and
    manufacturing activities;
    costs of obtaining and maintaining FDA and other regulatory
    clearances and approvals for our products;
    securing, maintaining and enforcing intellectual property rights;
    costs of developing marketing and distribution capabilities;
    the extent of our ongoing research and development programs;
    the progress of clinical trials; and
    the effects of competing technological and market developments.    Recent
    Accounting Pronouncements
  The Fair Value Option for
    Financial Assets and Financial Liabilities Including an
    Amendment of FASB Statement No. 115
 53




---



##### Table of Contents



Considering the Effects
    of Prior Year Misstatements when Quantifying Misstatements in
    Current Year Financial Statements, Materiality
  Fair Value Measurements
  Accounting for Uncertainty in Income Taxes, Accounting for Income Taxes
  Off-Balance
    Sheet Arrangements
    ITEM 7A.
    Quantitative
    and Qualitative Disclosures About Market Risk          DurationLess than 1 year


1 to 2 years


TotalPrincipal amount

$
8,897


$



$
8,897Fair value

$
8,895


$



$
8,895Average interest rate


5.20
%






5.20
%   ITEM 8.
    Financial
    Statements and Supplemental Data   54




---



##### Table of Contents



Quarterly
    Financial Data
  Fiscal
    year 2007:
  1st Quarter


2nd Quarter


3rd Quarter


4th Quarter(Unaudited, in thousands, except per share data)Total net revenue

$
471


$
928


$
1,125


$
1,005Gain on early retirement of notes
    payable to related-party






1,183







Net loss


(3,641
)


(2,471
)


(3,459
)


(4,011
)Basic and diluted net loss per
    share

$
(0.37
)

$
(0.23
)

$
(0.31
)

$
(0.34
)Shares used in computing basic and
    diluted net loss per share


9,778



10,642



11,265



11,826   Fiscal
    year 2006:
  1st Quarter


2nd Quarter


3rd Quarter


4th Quarter(Unaudited, in thousands, except per share data)Total net revenue

$
168


$
199


$
803


$
889Net loss


(3,044
)


(2,712
)


(2,934
)


(3,726
)Basic and diluted net loss per
    share

$
(2.13
)

$
(1.70
)

$
(0.45
)

$
(0.39
)Shares used in computing basic and
    diluted net loss per share


1,430



1,595



6,587



9,660   ITEM 9.
    Changes
    in and Disagreements with Accountants on Accounting and
    Financial Disclosure    ITEM 9A.
    Controls
    and Procedures  Evaluation
    of disclosure controls and procedures.
  Form 10-K
  Changes
    in internal controls.
    Limitations
    on the effectiveness of controls.
   55




---



##### Table of Contents



ITEM 9B.
    Other
    Information    PART III
  ITEM 10.
    Directors
    and Executive Officers of the Registrant    Form 10-K
  ITEM 11.
    Executive
    Compensation    ITEM 12.
    Security
    Ownership of Certain Beneficial Owners and
    Management  Security
    Ownership
    Equity
    Compensation Plan Information
    ITEM 13.
    Certain
    Relationships and Related Transactions   56




---



##### Table of Contents



ITEM 14.
    Principal
    Accountant Fees and Services    PART IV
  ITEM 15.
    Exhibits,
    Financial Statement Schedules    1. Financial Statements
  Cardica,
    Inc.
    Index to Financial Statements
  PageReport of
    Independent Registered Public Accounting Firm


58Balance
    Sheets


59Statements of
    Operations


60Statements of
    Convertible Preferred Stock and Stockholders
    Deficit


61Statements of Cash
    Flows


62Notes to Financial
    Statements


63  57




---



##### Table of Contents



Report
    of Independent Registered Public Accounting Firm
                 58




---



##### Table of Contents



Cardica,
    Inc.
  BALANCE
    SHEETS
  June 30,2007


2006(In thousands, except share and per share data)ASSETSCurrent assets:Cash and cash equivalents

$
14,539


$
4,102Short-term investments


8,895



27,978Accounts receivable


283



164Inventories


1,229



432Prepaid expenses and other current
    assets


418



571Total current assets


25,364



33,247Property and equipment, net


1,450



1,401Restricted cash


510



510Total assets

$
27,324


$
35,158LIABILITIES AND
    STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable

$
758


$
629Accrued compensation


516



236Other accrued liabilities


926



565Current portion of leasehold
    improvement obligation


122



122Deferred development revenue


882



Deferred rent


111



93Total current liabilities


3,315



1,645Deferred rent


9



120Notes payable to related party






10,250Interest payable to related party






2,333Note payable


2,000



3,000Leasehold improvement obligation


11



133Commitments and contingenciesStockholders equity:Preferred stock, $0.001 par
    value: 5,000,000 shares authorized, no shares issued and
    outstanding at June 30, 2007 or 2006






Common stock, $0.001 par
    value, 45,000,000 shares authorized, 13,606,333 and
    9,795,833 shares issued and outstanding at June 30,
    2007 and 2006, respectively


14



10Additional paid-in capital


97,171



79,843Treasury stock at cost;
    (66,227 shares at June 30, 2007 and 2006)


(596
)


(596
)Deferred stock compensation


(591
)


(1,029
)Receivable from stock option
    exercises






(79
)Accumulated other comprehensive
    loss


(2
)


(47
)Accumulated deficit


(74,007
)


(60,425
)Total stockholders equity


21,989



17,677Total liabilities and
    stockholders equity

$
27,324


$
35,158    59




---



##### Table of Contents



Cardica,
    Inc.
  STATEMENTS OF OPERATIONS
  Fiscal Year Ended June 30,2007


2006


2005(In thousands, except per share data)Net revenue:Product revenue, net

$
2,103


$
1,028


$
719Development revenue


1,370



1,000



Product and royalty revenue from
    related party, net


56



31



1,027Development revenue from related
    party










310Total net revenue


3,529



2,059



2,056Operating costs and expenses:Cost of product revenue (includes
    related-party costs of $1,180 in fiscal year 2005)


2,880



2,102



2,478Research and development


7,014



6,459



6,289Selling, general and administrative


9,057



5,645



3,753Total operating costs and expenses


18,951



14,206



12,520Loss from operations


(15,422
)


(12,147
)


(10,464
)Interest income


1,113



782



305Interest expense (includes
    related-party interest expense of $320, $897 and $897 in fiscal
    years 2007, 2006 and 2005, respectively)


(458
)


(1,047
)


(1,048
)Other income (expense) (includes
    $250 income from related- party in fiscal year 2005)


2



(4
)


257Gain on early retirement of notes
    payable to related-party


1,183







Net loss

$
(13,582
)

$
(12,416
)

$
(10,950
)Basic and diluted net loss per
    common share

$
(1.25
)

$
(2.58
)

$
(7.82
)Shares used in computing basic and
    diluted net loss per common share


10,878



4,817



1,401    60




---



##### Table of Contents



Cardica,
    Inc.
  Statements of Convertible Preferred Stock and Stockholders
    Equity (Deficit)
  Deferred


Notes


Receivable


Accumulated





TotalAdditional





Stock-


Receivable


from Stock


Other





StockholdersConvertible Preferred Stock



Common Stock


Paid-in


Treasury


Based


from


Option


Comprehensive


Accumulated


EquityShares


Amount



Shares


Amount


Capital


Stock


Compensation


Stockholders


Exercises


Loss


Deficit


(Deficit)(In thousands, except share data)Balance at June 30, 2004


4,259,328


$
39,683




1,739,989


$
2


$
2,055


$



$



$
(428
)

$



$



$
(37,059
)

$
(35,430
)Issuance of common stock upon
    exercise of stock options for promissory notes



















21











(21
)














Issuance of common stock upon
    exercise of employee stock options for cash











8,971







14



























14Stock-based compensation expense
    related to variable accounting of certain employee stock options



















2,009



























2,009Stock-based compensation expense
    related to modifications of certain employee stock options



















590



























590Issuance of stock options to
    non-employees through for services



















25



























25Early exercise of stock options no
    longer subject to repurchase



















35



























35Deferred stock-based compensation



















453







(453
)


















Amortization of deferred
    stock-based compensation



























22



















22Net loss and comprehensive loss











































(10,950
)


(10,950
)Balance at June 30, 2005


4,259,328



39,683




1,748,960



2



5,202







(431
)


(449
)










(48,009
)


(43,685
)Issuance of common stock upon
    exercise of stock options for promissory note



















7











(7
)














Issuance of common stock upon
    exercise of employee stock options for cash











135,057







237















(79
)










158Repurchase of common stock











(4,618
)






(6
)


























(6
)Stock-based compensation expense
    related to accounting of certain employee stock options



















583



























583Issuance of stock options to
    non-employees for services



















55



























55Conversion of preferred stock to
    common stock


(5,112
)


(25
)



5,112







25



























25Repayment of stockholders
    notes with common stock











(66,227
)










(596
)






456















(140
)Issuance of common stock to
    preferred stockholders in connection with the automatic
    conversion upon the initial public offering


(4,254,216
)


(39,658
)



4,254,216



4



39,654



























39,658Issuance of common stock upon
    Initial public offering, net of offering expenses











3,700,000



4



32,585



























32,589Issuance of common stock to a
    director for services











3,333







30



























30Issuance of restricted stock award











20,000



































Stock-based compensation expense
    accounted for under FAS 123(R)



















392



























392Early exercise of stock options no
    longer subject to repurchase



















39



























39Deferred stock-based compensation,
    net of forfeitures



















1,040







(1,040
)


















Amortization of deferred
    stock-based compensation



























442



















442Comprehensive loss:Net loss











































(12,416
)


(12,416
)Net change in unrealized loss on
    marketable securities







































(47
)






(47
)Comprehensive loss















































(12,463
)Balance at June 30, 2006











9,795,833



10



79,843



(596
)


(1,029
)






(79
)


(47
)


(60,425
)


17,677Issuance of common stock upon
    exercise of employee stock options for cash











76,613







161



























161Discount received on initial public
    offering expenses



















(38
)


























(38
)Issuance of common stock upon
    exercise of stock options for promissory note



















18



























18Payment of receivable from
    stockholder



































79











79Common stock issued to
    related-party for cancellation of notes Payable











1,432,550



2



5,727



























5,729Sale of common stock, net of
    financing costs of $932











2,301,337



2



10,942



























10,944Issuance of stock options to
    non-employees for services



















3



























3Issuance of stock options to
    employees for services



















38



























38Stock-based compensation expense
    accounted for under FAS 123(R)



















561



























561Early exercise of stock options no
    longer subject to repurchase



















1



























1Reversal of deferred stock-based
    compensation for terminated employees



















(85
)






85



















Amortization of deferred
    stock-based compensation



























353



















353Comprehensive loss:Net loss











































(13,582
)


(13,582
)Net change in unrealized loss on
    marketable securities







































45







45Comprehensive loss















































(13,537
)Balance at June 30, 2007





$





13,606,333


$
14


$
97,171


$
(596
)

$
(591
)

$



$



$
(2
)

$
(74,007
)

$
21,989    61




---



##### Table of Contents



Cardica,
    Inc.
  CONDENSED STATEMENTS OF CASH FLOWS
  Fiscal Year Ended June 30,2007


2006


2005(In thousands)Operating activities:Net loss

$
(13,582
)

$
(12,416
)

$
(10,950
)Adjustments to reconcile net loss
    to net cash used in operating activities:Depreciation and amortization


763



750



850Loss on disposal of property and
    equipment


25



28



24Amortization of deferred
    stock-based compensation expense


353



442



22Gain on early retirement of notes
    payable to related party


(1,433
)






Stock-based compensation on grants
    of stock options to non-employees


2



45



25Stock-based compensation related to
    issuance of stock to a director for services






30



Stock-based compensation on grants
    of stock options to employees


599



1,006



2,599Changes in assets and liabilities:Accounts receivable


(119
)


(60
)


(46
)Accounts receivable from related
    party






5



126Prepaid expenses and other current
    assets


153



(226
)


(207
)Inventories


(797
)


94



(56
)Interest receivable from
    shareholders






(3
)


(9
)Accounts payable and other accrued
    liabilities


470



493



(419
)Accrued compensation


280



103



(7
)Deferred rent


(93
)


(63
)


102Deferred other income from related
    party










(250
)Deferred development revenue


882







Leasehold improvement obligation


(122
)


(122
)


(118
)Interest payable to related party


(2,333
)


897



897Net cash used in operating
    activities


(14,952
)


(8,997
)


(7,417
)Investing activities:Purchases of property and equipment


(837
)


(574
)


(882
)Proceeds from sale of equipment






6



12Purchases of short-term investments


(17,712
)


(32,625
)


(13,076
)Proceeds from sales and maturities
    of short-term investments


36,300



11,610



21,075Net cash provided (used in) by
    investing activities


18,291



(21,593
)


7,129Financing activities:Proceeds from sales of common
    stock, net of issuance costs


10,945



32,589



Payment of notes payable to
    related-party


(3,087
)






Payment of note payable


(1,000
)






Proceeds from issuance of common
    stock pursuant to the exercise of stock options


161



158



14Proceeds from payment of receivable
    from stock option exercises


79







Repurchase of common stock






(6
)


Net cash provided by financing
    activities


7,098



32,741



14Net increase (decrease) in cash and
    cash equivalents


10,437



2,151



(274
)Cash and cash equivalents at
    beginning of period


4,102



1,951



2,225Cash and cash equivalents at end of
    period

$
14,539


$
4,102


$
1,951Supplemental disclosure of cash
    flow information:Cash paid for interest (related
    party of $2,652 in fiscal year 2007)

$
2,799


$
150


$
150Supplemental disclosure of non-cash
    activities:Issuance of common stock to
    related-party for early retirement of notes payable

$
7,163


$



$
Deferred stock-based compensation,
    (reversal) net of forfeitures

$
(85
)

$
1,039


$
453Repayment of shareholders notes
    payable with common stock

$



$
596


$
Vesting of shares issued upon early
    exercise of stock options

$
18


$
46


$
56Automatic conversion of preferred
    stock into common stock

$



$
39,658


$
    62




---



##### Table of Contents



Cardica,
    Inc.
  Notes to Financial Statements
  Note 1.
    Organization
    and Summary of Significant Accounting Policies  Organization
    Use of
    Estimates
    Cash
    and Cash Equivalents
    Available-for-Sale
    Securities
        Restricted
    Cash
      Fair
    Value of Financial Instruments
   63




---



##### Table of Contents



Cardica,
    Inc.
  Notes to
    Financial Statements  (Continued)
    Concentrations
    of Credit Risk and Certain Other Risks
        Fiscal Year Ended June 30,2007


2006


2005United States


71
%


64
%


65
%Japan


25
%


32
%


33
%Europe


4
%


4
%


2
%     Percent of Total


Percent of TotalRevenue for


Accounts ReceivableFiscal Year Ended June 30,


as of June 30,2007


2006


2005


2007


2006


2005Guidant, a related party


2
%


2
%


65
%










4
%Century Medical


25
%


32
%


33
%


15
%


51
%


79
%Cook


39
%


49
%














     Inventories
  first-in, work-in-process
  Property
    and Equipment
   64




---



##### Table of Contents



Cardica,
    Inc.
  Notes to
    Financial Statements  (Continued)
  Impairment
    of Long-Lived Assets
    Revenue
    Recognition
  Revenue Recognition
      Research
    and Development
    Clinical
    Trials
    Income
    Taxes
   65




---



##### Table of Contents



Cardica,
    Inc.
  Notes to
    Financial Statements  (Continued)
    Segments
    Comprehensive
    Loss
    Fiscal Year Ended June 30,2007


2006


2005Net loss

$
(13,582
)

$
(12,416
)

$
(10,950
)Unrealized gain (loss) on
    marketable securities


45



(47
)


Comprehensive loss

$
(13,537
)

$
(12,463
)

$
(10,950
)     Net
    Loss per Share
    Fiscal Year Ended June 30,2007


2006


2005Numerator:Net loss

$
(13,582
)

$
(12,416
)

$
(10,950
)Denominator:Weighted-average common shares
    outstanding


10,901



4,940



1,747Less: Weighted-average common
    non-vested common shares subject to repurchase


(6
)


(22
)


(73
)Less: Vested common shares
    outstanding exercised with Promissory notes subject to variable
    accounting






(96
)


(273
)Less: Non-vested restricted stock
    award


(17
)


(5
)


Denominator for basic and diluted
    net loss per share


10,878



4,817



1,401Basic and diluted net loss per
    share

$
(1.25
)

$
(2.58
)

$
(7.82
)  66




---



##### Table of Contents



Cardica,
    Inc.
  Notes to
    Financial Statements  (Continued)
  Outstanding
    securities not included in diluted net loss per share
    calculation
  Fiscal Year Ended June 30,2007


2006


2005(In thousands)Convertible preferred stock










4,259Options to purchase common stock


1,316



1,018



766Non-vested restricted stock award


13



20



Vested common shares outstanding
    exercised with promissory notes subject to variable accounting










273Warrants


732



157



1572,061



1,195



5,455   Stock-Based
    Compensation
  Share-Based Payments Accounting for Stock-Based
    Compensation Accounting for Stock
    Issued to Employees Accounting for Certain
    Transactions Involving Stock Compensation, an Interpretation of
    APB No. 25
    Fiscal Year Ended June 30,2007

2006Risk-free interest rate

4.51%-5.02%

4.67%Dividend yield



Weighted-average expected life

4.8 years

6 yearsVolatility

70%

70%      67




---



##### Table of Contents



Cardica,
    Inc.
  Notes to
    Financial Statements  (Continued)
      Fiscal Year Ended June 30,2007


2006


2005Cost of product revenue

$
61


$
30


$
52Research and development


129



413



583Selling, general and administrative


765



1,055



2,010Total

$
955


$
1,498


$
2,645   No. 96-18, Accounting for Equity Instruments That Are Issued to
    Other than Employees for Acquiring, or in Conjunction with
    Selling, Goods or Services
      Fiscal year ending June 30,2008


3072009


2632010


21$
591   Recent
    Accounting Pronouncements
  The Fair Value Option for Financial Assets and
    Financial Liabilities Including an Amendment of FASB Statement
    No. 115
 68




---



##### Table of Contents



Cardica,
    Inc.
  Notes to
    Financial Statements  (Continued)
    Considering the Effects of Prior
    Year Misstatements when Quantifying Misstatements in Current
    Year Financial Statements
  Fair Value Measurements
  Accounting
    for Uncertainty in Income Taxes Accounting for Income
    Taxes
  Note 2.
    Short-Term
    Investments    June 30, 2007Gross


GrossAmortized


Unrealized


UnrealizedCost


Gains


Losses


Fair ValueAvailable-for-sale
    securities:Auction rate preferred

$
5,850


$



$



$
5,850Commercial paper


1,298







(1
)


1,297Federal agency bonds


1,749







(1
)


1,748Total

$
8,897






$
(2
)

$
8,895   June 30, 2006Gross


GrossAmortized


Unrealized


UnrealizedCost


Gains


Losses


Fair ValueAvailable-for-sale
    securities:Corporate bonds

$
3,838


$



$
(11
)

$
3,827Auction rate preferred


9,000











9,000Commercial paper


8,413







(9
)


8,404Federal agency bonds


6,774







(27
)


6,747Total

$
28,025






$
(47
)

$
27,978   69




---



##### Table of Contents



Cardica,
    Inc.
  Notes to
    Financial Statements  (Continued)
  June 30, 2007


June 30, 2006Amortized





AmortizedCost


Fair Value


Cost


Fair ValueRemaining contractual
    maturity:Maturing in one year or less

$
8,897


$
8,895


$
26,278


$
26,240Maturing after one year through
    two years










1,747



1,738Total

$
8,897


$
8,895


$
28,025


$
27,978       Note 3.
    Inventories    June 30,2007


2006Raw materials

$
405


$
122Work in progress


296



155Finished goods


528



155$
1,229


$
432   Note 4.
    Property
    and Equipment    June 30,2007


2006Computer hardware and software

$
416


$
409Office furniture and equipment


210



154Machinery and equipment


3,688



3,104Leasehold improvements


541



470Construction in process


248



1875,103



4,324Less: accumulated depreciation and
    amortization


(3,653
)


(2,923
)$
1,450


$
1,401    70




---



##### Table of Contents



Cardica,
    Inc.
  Notes to
    Financial Statements  (Continued)
   Note 5.
    Leases
    and Commitments      OperatingLeasesFiscal years ending June 30,2008

$
4782009


40Total minimum lease payments

$
518     Note 6.
    License,
    Development and Commercialization Agreement      Note 7.
    Related
    Party Transactions  Financing
    Activities
   71




---



##### Table of Contents



Cardica,
    Inc.
  Notes to
    Financial Statements  (Continued)
    Loan
    and Strategic Agreements
      Development
    and Supply Agreement
      Distribution
    Agreement Termination
     72




---



##### Table of Contents



Cardica,
    Inc.
  Notes to
    Financial Statements  (Continued)
    Note 8.
    Note
    Payable    Note 9.
    Stockholders
    Equity    Initial
    Public Offering
    Private
    Placement Offering
    Common
    Stock
    Preferred
    Stock
   73




---



##### Table of Contents



Cardica,
    Inc.
  Notes to
    Financial Statements  (Continued)
    Notes
    Receivable from Stockholders
        Shares
    Reserved
    June 30,2007Stock options outstanding


1,316,006Shares available for grant under
    stock option plan


117,967Warrants for common stock


731,8602,165,833   Stock
    Options
   74




---



##### Table of Contents



Cardica,
    Inc.
  Notes to
    Financial Statements  (Continued)
      EITF 00-23,
 75




---



##### Table of Contents



Cardica,
    Inc.
  Notes to
    Financial Statements  (Continued)
    Outstanding OptionsShares





Weighted-AverageAvailable for





Exercise Price PerGrant


Number of Shares


ShareBalance at June 30, 2004


31,740



654,921



2.01Shares reserved


333,333







Options granted


(148,264
)


148,264



2.85Options exercised






(8,972
)


1.62Options forfeited


27,962



(27,962
)


2.19Balance at June 30, 2005


244,771



766,251



2.16Shares reserved


400,000







Options granted


(508,193
)


508,193



6.37Restricted stock award


(20,000
)


Options exercised






(135,054
)


1.75Options forfeited


121,651



(121,651
)


2.14Unvested stock options repurchased


4,618







1.35Balance at June 30, 2006


242,847



1,017,739


$
4.32Shares reserved


250,000







Options granted


(498,783
)


498,783



5.77Options exercised






(76,613
)


2.08Options forfeited


123,903



(123,903
)


7.87Balance at June 30, 2007


117,967



1,316,006


$
4.67     Options Outstanding


Options ExercisableWeighted-Average


WeightedRemaining


Average





WeightedNumber


Contractual Life


Exercise


Number


AverageRange of Exercise Prices

Outstanding


(years)


Price


Exercisable


Exercise Price$0.30 - $2.25


206,049



4.72


$
1.76



206,049


$
1.76$2.85


402,389



7.41



2.85



254,575



2.85$4.38 - $6.00


186,183



6.50



5.20



25,380



4.59$6.03


276,300



6.99



6.03







$6.75 - 9.75


245,085



8.65



8.16



71,992



8.30Total outstanding


1,316,006



7.00


$
4.67



557,996


$
3.23Options vested and expected to vest


1,020,237



6.84


$
4.38    76




---



##### Table of Contents



Cardica,
    Inc.
  Notes to
    Financial Statements  (Continued)
    EITF 96-18,
  Fiscal Year Ended June 30,2007

2006


2005Volatility

100%


100
%


100
%Risk-free interest rate

4.53% - 4.95%


4.71
%


4.23
%Contractual expected life in years

3-8.2


4-6



6-10Dividend yield








   Common
    Stock Subject to Repurchase
    Warrants
    ExerciseShares




Price Per Share


Expiration12,270




$
4.89



March 2010575,345





5.65



June 201252,082





8.40



July 200832,146





11.58



June 200960,017





11.58



October 2010731,860   Note 10.
    Income
    Taxes   77




---



##### Table of Contents



Cardica,
    Inc.
  Notes to
    Financial Statements  (Continued)
    June 30,2007


2006Net operating loss carry-forwards

$
26,289


$
21,513Research credits


2,417



1,391Capitalized research and
    development expenses


166



217Other


159



392Total deferred tax assets


29,031



23,513Valuation allowance


(29,031
)


(23,513
)Net deferred tax assets

$



$
         Fiscal Year Ended June 30,2007


2006


2005Tax benefit at U.S. statutory rate

$
(4,624
)

$
(4,222
)

$
(3,723
)Loss for which no tax benefit is
    currently recognizable


4,298



4,010



2,893Other, net


326



212



830$



$



$
     Note 11.
    Employee
    Benefit Plan    Note 12.
    Indemnification   78




---



##### Table of Contents



Cardica,
    Inc.
  Notes to
    Financial Statements  (Continued)
    Form 10-K,
 79




---



##### Table of Contents



Financial Statement Schedules
    The following exhibits are included herein or
    incorporated herein by reference:
  ITEM 15.
    Exhibits
    and Financial Statement Schedules.    ExhibitNumber

Description3
.1(1)

Amended and Restated Certificate
    of Incorporation of the Registrant as currently in effect.3
.2(1)

Bylaws of the Registrant as
    currently in effect.3
.3(2)

Specimen Common Stock certificate
    of the Registrant.4
.1(1)

Warrant dated March 17, 2000
    exercisable for 36,810 shares of common stock (on a
    pre-split basis).4
.2(1)

Warrant dated July 5, 2001
    exercisable for 31,251 shares of common stock (on a
    pre-split basis).4
.3(1)

Warrant dated July 5, 2001
    exercisable for 124,999 shares of common stock (on a
    pre-split basis).4
.4(1)

Warrant dated June 13, 2002
    exercisable for 96,439 shares of common stock (on a
    pre-split basis).4
.5(1)

Warrant dated October 31,
    2002 exercisable for 180,052 shares of common stock (on a
    pre-split basis).4
.6(3)

Form of Warrant dated June 2007.4
.7(10)

Securities Purchase Agreement,
    dated June 7, 2007, by and among Cardica, Inc. and the
    purchasers listed on the signature pages thereto.10
.1(1)

1997 Equity Incentive Plan and
    forms of related agreements and documents.10
.2(4)

2005 Equity Incentive Plan and
    forms of related agreements and documents.10
.3(1)

Amended and Restated Investor
    Rights Agreement, dated August 19, 2003, by and among the
    Registrant and certain stockholders.10
.4(2)

Benefit Agreement with Bernard
    Hausen, M.D., Ph.D.+10
.5(1)

Office Lease Agreement dated
    April 25, 2003, and First Amendment to Office Lease
    Agreement dated January 21, 2004.10
.6(5)

Distribution Agreement by and
    between Cardica, Inc. and Century Medical, Inc. dated
    June 16, 2003.10
.6.1(7)

First Amendment to Distribution
    Agreement, dated March 30, 2007, by and between Cardica,
    Inc. and Century Medical, Inc.10
.7(6)

Subordinated Convertible Note
    Agreement with Century Medical, Inc. dated June 16, 2003,
    and Amendment No. 1 thereto, dated August 6,
    2003.10
.7.1(7)

Amendment No. 2 to
    Subordinated Convertible Note Agreement, dated March 30,
    2007, by and between Cardica, Inc. and Century Medical, Inc.10
.8(1)

Note issued pursuant to
    Subordinated Convertible Note Agreement with Century Medical,
    Inc.10
.8.1(7)

Amended and Restated Note issued
    pursuant to Amendment No. 2 to Subordinated Convertible
    Note Agreement with Century Medical, Inc.10
.9(6)

Agreement by and between the
    Company and the Guidant Investment Corporation, dated
    August 19, 2003.10
.10(1)

Allen & Company LLC
    letter of intent dated September 12, 2005.10
.11(2)

License, Development and
    Commercialization Agreement by and between Cardica, Inc. and
    Cook Incorporated, dated December 9, 2005.10
.12(8)

Note Conversion Agreement, dated
    November 7, 2006, by and between Cardica, Inc. and Guidant
    Investment Corporation.10
.13(8)

Registration Rights Agreement,
    dated November 7, 2006, by and between Cardica, Inc. and
    Guidant Investment Corporation.10
.14(8)

Consent to Grant of Registration
    Rights and Amendment to Amended and Restated Investor Rights
    Agreement, dated November 7, 2006, by and between Cardica,
    Inc. and the investors set forth therein.10
.15(9)

Cardica, Inc. Non-Employee
    Director Compensation.+ 80




---



##### Table of Contents



ExhibitNumber

Description10
.16(10)

Registration Rights Agreement,
    dated June 7, 2007, by and among Cardica, Inc., and the
    purchasers listed on the signature pages thereto.10
.17(11)

License, Development and
    Commercialization Agreement by and between the Company and Cook
    Incorporated, dated June 12, 2007.10
.18(12)

Bonus arrangement for Vice
    President of Worldwide Sales and Marketing, effective
    June 27, 2007.+10
.19(12)

Additional Compensation
    Information for named executive officers.+21
.1(1)

Subsidiaries of Registrant.23
.1

Consent of Independent Registered
    Public Accounting Firm.24
.1

Power of Attorney (see
    page 82).31
.1

Certification of chief executive
    officer.31
.2

Certification of chief financial
    officer.32
.1

Section 1350 Certification     
    
    Portions of this exhibit (indicated by asterisks) have been
    omitted pursuant to a request for confidential treatment and
    this exhibit has been filed separately with the SEC.+
    
    Indicates management contract or compensatory plan.(1)
    
    Filed as an exhibit to the Registrants Registration
    Statement on
    Form S-1
    on November 4, 2005 and incorporated herein by reference.(2)
    
    Filed as an exhibit to the Registrants Registration
    Statement on
    Form S-1/A
    on February 1, 2006 and incorporated herein by reference.(3)
    
    Filed as an exhibit to the Companys Current Report on
    Form 8-K
    filed with the Securities and Exchange Commission on
    June 13, 2007, excluding Item 3.02 and incorporated herein
    by reference.(4)
    
    Filed as an exhibit to the Companys Current Report on
    Form 8-K
    filed with the Securities and Exchange Commission on
    November 14, 2006 and incorporated herein by reference.(5)
    
    Filed as an exhibit to the Registrants Registration
    Statement on
    Form S-1/A
    on February 2, 2006 and incorporated herein by reference.(6)
    
    Filed as an exhibit to the Registrants Registration
    Statement on
    Form S-1/A
    on December 20, 2005 and incorporated herein by reference.(7)
    
    Filed as exhibits to the Companys Current Report on
    Form 8-K
    filed with the Securities and Exchange Commission on
    April 5, 2007 and incorporated herein by reference.(8)
    
    Filed as exhibits to the Companys Current Report on
    Form 8-K
    filed with the Securities and Exchange Commission on
    November 8, 2006 and incorporated herein by reference.(9)
    
    Filed as an exhibit to the Companys Quarterly Report on
    Form 10-Q for the quarterly period ended December 31,
    2006.(10)
    
    Filed as an exhibit to the Companys Current Report on
    Form 8-K
    filed with the Securities and Exchange Commission on
    June 13, 2007 and incorporated by reference herein.(11)
    
    Filed as exhibits to the Companys Current Report on
    Form 8-K
    filed with the Securities and Exchange Commission on
    June 21, 2007, excluding Items 3.01 and incorporated herein
    by reference.(12)
    
    Described in the Companys Current Report on
    Form 8-K
    filed with the Securities and Exchange Commission on
    July 2, 2007.     81




---



##### Table of Contents



SIGNATURES
         Date September 18,
    2007
    /s/  Robert
    Y. Newell       POWER OF
    ATTORNEY
  Form 10-K,
    Name and Signature

Title

Date/s/  Bernard
    A. HausenBernard
    A. Hausen, M.D., Ph.D.

President, Chief Executive Officer
    and Director (Principal Executive Officer)

September 18, 2007/s/  Robert
    Y. NewellRobert
    Y. Newell

Chief Financial Officer (Principal Financial and Accounting Officer)

September 18, 2007/s/  J.
    Michael EganJ.
    Michael Egan

Director

September 18, 2007/s/  Kevin
    T. LarkinKevin
    T. Larkin

Director

September 18, 2007/s/  Jeffrey
    L. PurvinJeffrey
    L. Purvin

Director

September 18, 2007/s/  Richard
    P. PowersRichard
    P. Powers

Director

September 18, 2007/s/  Robert
    C. RobbinsRobert
    C. Robbins, M.D.

Director

September 18, 2007/s/  John
    SimonJohn
    Simon, Ph.D.

Director

September 18, 2007 82




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##### Table of Contents



Name and Signature

Title

Date/s/  Stephen
    A. YenchoStephen
    A. Yencho, Ph.D.

Director

September 18, 2007/s/  William
    H. Younger, Jr.William
    H. Younger, Jr.

Director

September 18, 2007  83




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##### Table of Contents



Exhibit
    Index
  ExhibitNumber

Description3
.1(1)

Amended and Restated Certificate
    of Incorporation of the Registrant as currently in effect.3
.2(1)

Bylaws of the Registrant as
    currently in effect.3
.3(2)

Specimen Common Stock certificate
    of the Registrant.4
.1(1)

Warrant dated March 17, 2000
    exercisable for 36,810 shares of common stock (on a
    pre-split basis).4
.2(1)

Warrant dated July 5, 2001
    exercisable for 31,251 shares of common stock (on a
    pre-split basis).4
.3(1)

Warrant dated July 5, 2001
    exercisable for 124,999 shares of common stock (on a
    pre-split basis).4
.4(1)

Warrant dated June 13, 2002
    exercisable for 96,439 shares of common stock (on a
    pre-split basis).4
.5(1)

Warrant dated October 31,
    2002 exercisable for 180,052 shares of common stock (on a
    pre-split basis).4
.6(3)

Form of Warrant dated June 2007.4
.7(10)

Securities Purchase Agreement,
    dated June 7, 2007, by and among Cardica, Inc. and the
    purchasers listed on the signature pages thereto.10
.1(1)

1997 Equity Incentive Plan and
    forms of related agreements and documents.10
.2(4)

2005 Equity Incentive Plan and
    forms of related agreements and documents.10
.3(1)

Amended and Restated Investor
    Rights Agreement, dated August 19, 2003, by and among the
    Registrant and certain stockholders.10
.4(2)

Benefit Agreement with Bernard
    Hausen, M.D., Ph.D.+10
.5(1)

Office Lease Agreement dated
    April 25, 2003, and First Amendment to Office Lease
    Agreement dated January 21, 2004.10
.6(5)

Distribution Agreement by and
    between Cardica, Inc. and Century Medical, Inc. dated
    June 16, 2003.10
.6.1(7)

First Amendment to Distribution
    Agreement, dated March 30, 2007, by and between Cardica,
    Inc. and Century Medical, Inc.10
.7(6)

Subordinated Convertible Note
    Agreement with Century Medical, Inc. dated June 16, 2003,
    and Amendment No. 1 thereto, dated August 6,
    2003.10
.7.1(7)

Amendment No. 2 to
    Subordinated Convertible Note Agreement, dated March 30,
    2007, by and between Cardica, Inc. and Century Medical, Inc.10
.8(1)

Note issued pursuant to
    Subordinated Convertible Note Agreement with Century Medical,
    Inc.10
.8.1(7)

Amended and Restated Note issued
    pursuant to Amendment No. 2 to Subordinated Convertible
    Note Agreement with Century Medical, Inc.10
.9(6)

Agreement by and between the
    Company and the Guidant Investment Corporation, dated
    August 19, 2003.10
.10(1)

Allen & Company LLC
    letter of intent dated September 12, 2005.10
.11(2)

License, Development and
    Commercialization Agreement by and between Cardica, Inc. and
    Cook Incorporated, dated December 9, 2005.10
.12(8)

Note Conversion Agreement, dated
    November 7, 2006, by and between Cardica, Inc. and Guidant
    Investment Corporation.10
.13(8)

Registration Rights Agreement,
    dated November 7, 2006, by and between Cardica, Inc. and
    Guidant Investment Corporation.10
.14(8)

Consent to Grant of Registration
    Rights and Amendment to Amended and Restated Investor Rights
    Agreement, dated November 7, 2006, by and between Cardica,
    Inc. and the investors set forth therein.10
.15(9)

Cardica, Inc. Non-Employee
    Director Compensation.+10
.16(10)

Registration Rights Agreement,
    dated June 7, 2007, by and among Cardica, Inc., and the
    purchasers listed on the signature pages thereto.10
.17(11)

License, Development and
    Commercialization Agreement by and between the Company and Cook
    Incorporated, dated June 12, 2007.10
.18(12)

Bonus arrangement for Vice
    President of Worldwide Sales and Marketing, effective
    June 27, 2007.+10
.19(12)

Additional Compensation
    Information for named executive officers.+21
.1(1)

Subsidiaries of Registrant.




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##### Table of Contents



ExhibitNumber

Description23
.1

Consent of Independent Registered
    Public Accounting Firm.24
.1

Power of Attorney (see
    page 82).31
.1

Certification of chief executive
    officer.31
.2

Certification of chief financial
    officer.32
.1

Section 1350 Certification.     
    
    Portions of this exhibit (indicated by asterisks) have been
    omitted pursuant to a request for confidential treatment and
    this exhibit has been filed separately with the SEC.+
    
    Indicates management contract or compensatory plan.(1)
    
    Filed as an exhibit to the Registrants Registration
    Statement on
    Form S-1
    on November 4, 2005 and incorporated herein by reference.(2)
    
    Filed as an exhibit to the Registrants Registration
    Statement on
    Form S-1/A
    on February 1, 2006 and incorporated herein by reference.(3)
    
    Filed as an exhibit to the Companys Current Report on
    Form 8-K
    filed with the Securities and Exchange Commission on
    June 13, 2007, excluding Item 3.02 and incorporated herein
    by reference.(4)
    
    Filed as an exhibit to the Companys Current Report on
    Form 8-K
    filed with the Securities and Exchange Commission on
    November 14, 2006 and incorporated herein by reference.(5)
    
    Filed as an exhibit to the Registrants Registration
    Statement on
    Form S-1/A
    on February 2, 2006 and incorporated herein by reference.(6)
    
    Filed as an exhibit to the Registrants Registration
    Statement on
    Form S-1/A
    on December 20, 2005 and incorporated herein by reference.(7)
    
    Filed as exhibits to the Companys Current Report on
    Form 8-K
    filed with the Securities and Exchange Commission on
    April 5, 2007 and incorporated herein by reference.(8)
    
    Filed as exhibits to the Companys Current Report on
    Form 8-K
    filed with the Securities and Exchange Commission on
    November 8, 2006 and incorporated herein by reference.(9)
    
    Filed as an exhibit to the Companys Quarterly Report on
    Form 10-Q for the quarterly period ended December 31,
    2006.(10)
    
    Filed as an exhibit to the Companys Current Report on
    Form 8-K
    filed with the Securities and Exchange Commission on
    June 13, 2007 and incorporated by reference herein.(11)
    
    Filed as exhibits to the Companys Current Report on
    Form 8-K
    filed with the Securities and Exchange Commission on
    June 21, 2007, excluding Items 3.01 and incorporated herein
    by reference.(12)
    
    Described in the Companys Current Report on
    Form 8-K
    filed with the Securities and Exchange Commission on
    July 2, 2007.