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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, 2006ORo

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, 2006
  TABLE OF CONTENTS
  
  PagePART IItem 1.

Business


1Item 1A.

Risk
    Factors


24Item 1B.

Unresolved Staff
    Comments


40Item 2

Properties


40Item 3

Legal
    Proceedings


40Item 4

Submission of
    Matters to a Vote of Security Holders


41PART IIItem 5.

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


41Item 6.

Selected Financial
    Data


43Item 7.

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


44Item 7A.

Quantitative and
    Qualitative Disclosures About Market Risk


51Item 8.

Financial
    Statements and Supplementary Data


53Item 9.

Changes in and
    Disagreements with Accountants on Accounting and Financial
    Disclosure


54Item 9A.

Controls and
    Procedures


54Item 9B.

Other
    Information


54PART IIIItem 10.

Directors and
    Executive Officers of the Registrant


54Item 11.

Executive
    Compensation


55Item 12.

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


55Item 13.

Certain
    Relationships and Related Transactions


55Item 14.

Principal
    Accounting Fees and Services


55PART IVItem 15.

Exhibits and
    Financial Statement Schedules


55Signatures


80EXHIBIT 23.1EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1




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PART I  Item 1.
    Business  Overview
  ® ® easy-to-use
  easy-to-use,
  C-Port C-Port
  PAS-Port
  Industry
    Background
  Coronary
    Artery Disease
  build-up
 1




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Current
    Treatment Alternatives for Coronary Artery Disease
    Medical
    Treatment with Pharmaceuticals
    Interventional
    Cardiology Techniques
  Coronary Angioplasty.
  Stents.
     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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easy-to-use,
  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 one millimeter 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 5




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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 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. 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 system and, if cleared or approved by the FDA, 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. We also
    intend to increase the number of distributors carrying our
    products in Europe and Asia. 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.
    Capitalizing on our proprietary technology to develop
    next-iteration 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-iteration automated anastomotic systems
    designed to facilitate minimally invasive endoscopic CABG. We
    have received a grant from the National Institute 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, 2006, we had 43 issued U.S. patents,
    61 additional patent applications in the United States 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 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
  end-to-side
  
    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-PorttmxA Anastomosis System
   7




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PAS-Port®
    Proximal Anastomosis System
  end-to-side
      Future
    Product Programs
    Endoscopic
    Anastomosis System (C-Port Flex A System)
  C-Port
  X-PorttmVascular Access Closure Device
  tm
   8




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
    a simple user interface;
    placement through the same introducer sheath used for the
    interventional procedure;
    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.    Agreement
    with Cook Incorporated
       9




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and/or
  Regulatory
    Status and Clinical Trial Summary
  Regulatory
    Status
  International
  C-Port
  United
    States
   10




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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 Europe
 IDE conditionally approved in United StatesPAS- 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 months     Sales and
    Marketing
     11




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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.       12




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Manufacturing
          Third-Party
    Reimbursement
   13




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14




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Research
    and Development
    Patents
    and Intellectual Property
         15




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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.
 16




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510(k) Clearance Pathway. and/or and/or
  Premarket Approval Pathway.
    Clinical Trials.
 17




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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. 18




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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.
   19




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International Regulation.
           20




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Strategic
    Agreements
      Employees
    Corporate
    Information
  (650) 364-9975. cardica.com .
 21




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MANAGEMENT
  Executive
    Officers and Directors
    Name

Age

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


46


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


58


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


43


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


46


Vice President, Research and
    DevelopmentJ. Michael Egan(1)(2)


52


Chairman of the BoardKevin T. Larkin(3)


56


DirectorRichard P. Powers(1)(2)(3)


61


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


48


DirectorJeffrey L. Purvin


54


DirectorJohn Simon, Ph.D.


62


DirectorStephen A. Yencho, Ph.D.


44


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


56


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
 22




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J. Michael Egan
  Kevin T. Larkin
  Richard P. Powers
  Robert C. Robbins, M.D.
  Jeffrey L. Purvin
  John Simon, Ph.D.
  Stephen A. Yencho, Ph.D.
 23




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William H. Younger, Jr.
  Availability
    of Reports filed with the SEC
  Form 10-K, 10-Q, Form 8-K www.cardica.com
  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 system 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 system, 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.
      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 and PAS-Port systems.
   24




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Lack
    of third-party coverage and reimbursement for our products could
    delay or limit their adoption.
        We
    have limited data regarding the safety and efficacy of the
    PAS-Port and C-Port and have only recently begun training
    physicians in the United States to use the C-Port system. 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.
   25




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Even
    though our C-Port product has 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.   26




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follow-up
  If we
    do not achieve our projected development goals in the time
    frames we announce or expect, the commercialization of our
    product candidates may be delayed and, as a result, our stock
    price may decline.
    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.
       27




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Because
    one customer accounts for substantially all of our product
    revenue, the loss of this significant customer could cause a
    substantial decline in our revenue.
    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.       28




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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.
   29




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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.
   30




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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.
       31




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Intellectual
    property rights may not provide adequate protection, which may
    permit third parties to compete against us more
    effectively.
    assignment-of-inventions
  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.
   32




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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.
       33




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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, loss of any of which could have a
    material adverse affect on our business.
    Our
    operations are currently conducted at a single location that may
    be at risk from earthquakes, terror attacks or other
    disasters.
   34




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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.
     35




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We
    currently lack a significant source of product revenue, and
    prior agreements with Guidant, which represented 75% of our
    revenue in fiscal year 2004 and 65% of our revenue in fiscal
    year 2005, have been terminated. 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.   36




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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 substantial debt obligations that become due in
    2008.
    
    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.   37




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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.
   38




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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 decrease.
    A
    significant portion of our total outstanding shares have been
    restricted from immediate resale subsequent to our initial
    public offering in February 2006, but these shares are now
    tradable subject to Rule 144. If there are substantial
    sales of our common stock, the price of our common stock could
    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 iterations 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; 39




---



##### Table of Contents




    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.    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     40




---



##### Table of Contents



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

LowThird Quarter ended March 31,
    2006 (From February 3, 2006)

$
10.35


$
7.87Fourth Quarter ended June 30,
    2006

$
8.10


$
5.80     Dividend
    Policy
    Equity
    Compensation Plan Information
    Recent
    Sales of Unregistered Securities
  1-for-3
 41




---



##### Table of Contents



Use of
    Proceeds From Registered Securities
  Form S-1 No. 333-129497)
      Issuer
    Purchases of Equity Securities
   42




---



##### Table of Contents



ITEM 6.
    Selected
    Financial Data      one-for-three
  Fiscal Year Ended June 30,2006


2005


2004


2003


2002(In thousands, except per share data)Statements of Operation Data:Net revenue:Product revenue, net

$
1,028


$
719


$
212


$



$
Development revenue


1,000















Product and royalty revenue from
    related party, net


31



1,027



401







Development revenue from related
    party






310



223







Total net revenue


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 2005 and
    2004, respectively)


2,102



2,478



2,105







Research and development


6,459



6,289



5,826



6,698



5,765Selling, general and administrative


5,645



3,753



1,809



1,936



1,635Total operating costs and expenses


14,206



12,520



9,740



8,634



7,400Loss from operations


(12,147
)


(10,464
)


(8,904
)


(8,634
)


(7,400
)Interest income


782



305



209



294



210Interest expense (includes
    related-party interest expense of $897, $897 and $539 in fiscal
    2006, 2005 and 2004, respectively)


(1,047
)


(1,048
)


(2,001
)


(885
)


(675
)Other income (expense), net
    (includes $250 income from related-party in fiscal 2005)


(4
)


257



(14
)






Net loss

$
(12,416
)

$
(10,950
)

$
(10,710
)

$
(9,225
)

$
(7,865
)Basic and diluted net loss per
    common share

$
(2.58
)

$
(7.82
)

$
(8.24
)

$
(7.84
)


(7.53
)Shares used in computing basic and
    diluted net loss per common share


4,817



1,401



1,299



1,176



1,045   As of June 30,2006


2005


2004


2003


2002Balance Sheet Data:Cash, cash equivalents and
    short-term investments

$
32,080


$
8,951


$
17,224


$
17,680


$
21,822Working capital


31,602



9,032



16,402



13,396



18,730Total assets


35,158



12,146



20,231



19,763



23,095Long-term liabilities


15,836



15,156



14,359



5,129



1,984Convertible preferred stock






39,683



39,683



35,038



35,038Total stockholders equity
    (deficit)


17,677



(43,685
)


(35,430
)


(25,103
)


(17,110
)  43




---



##### 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
  easy-to-use ® ®
  tm
     44




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##### Table of Contents



Critical
    Accounting Policies and Significant Judgments and
    Estimates
      Revenue Recognition. Revenue Recognition.
    Inventory. first-in,
  Clinical Trial Accounting.
  Stock-Based Compensation. Form S-1, Share-Based Payments Accounting for Stock-Based
    Compensation. Accounting for Stock
    Issued to Employees
 45




---



##### Table of Contents



, Accounting for Certain Transactions
    Involving Stock Compensation, an Interpretation of APB
    No. 25.
        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, 2006 and 2005
  Net revenue.
    Cost of product revenue.
 46




---



##### Table of Contents



Research and development expense.
  start-up
    Selling, general and administrative
    expense.
        Interest income.
  Interest expense.
  Other income (expense).
 47




---



##### Table of Contents



Fiscal
    Years ended June 30, 2005 and 2004
  Net revenue.
    Cost of product revenue.
  Research and development expense.
  Selling, general and administrative
    expense.
  Interest income.
  Interest expense.
 48




---



##### Table of Contents



Other income.
  Income
    Taxes
      Liquidity
    and Capital Resources
        Less Than


1-3


More ThanContractual Obligations

Total


1 Year


Years


3 Years(In thousands)Operating lease  real
    estate

$
979


$
460


$
519


$
Convertible notes payable,
    Including interest


3,320



150



3,170



Notes payable and accrued interest


14,496







14,496



Total

$
18,795


$
610


$
18,185


$
        49




---



##### Table of Contents



Fiscal Year Ended June 30,2006


2005


2004(In thousands)Net cash used in operating
    activities

$
(8,997
)

$
(7,417
)

$
(7,776
)Net cash provided by (used in)
    investing activities


(21,593
)


7,129



(1,795
)Net cash provided by financing
    activities


32,741



14



8,116     available-for-sale available-for-sale available-for-sale
      
    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; 50




---



##### Table of Contents




    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
  FAS 115-1 FAS 124-1, The Meaning of
    Other-Than-Temporary
    Impairment and Its Application to Certain Investments FAS 115-1), other-than-temporary, FAS 115-1 other-than-temporary other-than-temporary FAS 115-1
    Off-Balance
    Sheet Arrangements
    ITEM 7A.
    Quantitative
    and Qualitative Disclosures About Market Risk   51




---



##### Table of Contents



Year



Total FairEnding



Value atJune 30,



June 30,2007

Thereafter

2006Short-term investments

$
26,240


$
1,738


$
27,978Average interest rate


4.92
%


5.15
%


4.96
%  52




---



##### Table of Contents



ITEM 8.
    Financial
    Statements and Supplemental Data    Quarterly
    Financial Data
  1st Quarter


2nd Quarter


3rd Quarter


4th Quarter(Unaudited, in thousands, except per share data)Fiscal 2006: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   1st Quarter


2nd Quarter


3rd Quarter


4th QuarterFiscal 2005:Total net revenue

$
1,177


$
294


$
369


$
216Net loss


(1,752
)


(2,142
)


(3,238
)


(3,818
)Basic and diluted net loss per
    share

$
(1.27
)

$
(1.53
)

$
(2.30
)

$
(2.70
)Shares used in computing basic and
    diluted net loss per share


1,384



1,398



1,408



1,415  53




---



##### Table of Contents



ITEM 9.
    Changes
    in and Disagreements with Accountants on Accounting and
    Financial Disclosure    ITEM 9A.
    Controls
    and Procedures  Evaluation
    of disclosure controls and procedures.
  Rules 13a-15(e) 15d-15(e) Form 10-K
  Changes
    in internal controls.
    Limitations
    on the effectiveness of controls.
    ITEM 9B.
    Other
    Information   PART III  ITEM 10.
    Directors
    and Executive Officers of the Registrant   54




---



##### Table of Contents



ITEM 11.
    Executive
    Compensation    ITEM 12.
    Security
    Ownership of Certain Beneficial Owners and
    Management    ITEM 13.
    Certain
    Relationships and Related Transactions    ITEM 14.
    Principal
    Accountant Fees and Services   PART IV  ITEM 15.
    Exhibits
    and Financial Statement Schedules    Financial Statements
  Cardica,
    Inc.
    Index to Financial Statements
  PageReport of
    Independent Registered Public Accounting Firm


56Balance
    Sheets


57Statements of
    Operations


58Statements of
    Convertible Preferred Stock and Stockholders
    Deficit


59Statements of Cash
    Flows


60Notes to Financial
    Statements


61  55




---



##### Table of Contents



Report of
    Independent Registered Public Accounting Firm             
    56




---



##### Table of Contents



Cardica,
    Inc.
  BALANCE
    SHEETS
  June 30,2006


2005(In thousands, except share and per share data)ASSETSCurrent assets:Cash and cash equivalents

$
4,102


$
1,951Short-term investments


27,978



7,000Accounts receivable


164



104Accounts receivable from related
    party






5Inventories


432



526Shareholder note receivable






73Interest receivable from
    stockholders






20Prepaid expenses and other current
    assets


571



345Total current assets


33,247



10,024Property and equipment, net


1,401



1,611Interest receivable from
    stockholders






1Restricted cash


510



510Total assets

$
35,158


$
12,146LIABILITIES, CONVERTIBLE
    PREFERRED STOCK ANDSTOCKHOLDERS EQUITY (DEFICIT)Current liabilities:Accounts payable

$
629


$
244Accrued compensation


236



133Other accrued liabilities


565



431Current portion of leasehold
    improvement obligation


122



122Deferred rent


93



62Total current liabilities


1,645



992Deferred rent


120



214Notes payable to related party


10,250



10,250Interest payable to related party


2,333



1,436Subordinated convertible note


3,000



3,000Leasehold improvement obligation


133



255Other non-current liabilities






1Commitments and contingenciesConvertible preferred stock,
    $0.001 par value: no shares authorized, issued and
    outstanding at June 30, 2006; 4,259,328 shares issued
    and outstanding at June 30, 2005






39,683Stockholders equity (deficit):Preferred stock, $0.001 par
    value: 5,000,000 shares authorized, no shares issued and
    outstanding at June 30, 2006






Common stock, $0.001 par
    value, 45,000,000 shares authorized, 9,795,833 shares
    issued and outstanding at June 30, 2006;
    1,748,960 shares issued and outstanding at June 30,
    2005


10



2Additional paid-in capital


79,843



5,202Treasury stock at cost;
    (66,227 shares at June 30, 2006 and none at
    June 30, 2005)


(596
)


Deferred stock compensation


(1,029
)


(431
)Notes receivable from stockholders






(449
)Receivable from stock option
    exercises


(79
)


Accumulated other comprehensive loss


(47
)


Accumulated deficit


(60,425
)


(48,009
)Total stockholders equity
    (deficit)


17,677



(43,685
)Total liabilities and
    stockholders equity (deficit)

$
35,158


$
12,146    57




---



##### Table of Contents



Cardica,
    Inc.
  STATEMENTS
    OF OPERATIONS
  Fiscal Year Ended June 30,2006


2005


2004(In thousands, except per share data)Net revenue:Product revenue, net

$
1,028


$
719


$
212Development revenue


1,000







Product and royalty revenue from
    related party, net


31



1,027



401Development revenue from related
    party






310



223Total net revenue


2,059



2,056



836Operating costs and expenses:Cost of product revenue (includes
    related-party costs of $1,180 and $1,377 in fiscal 2005 and
    2004, respectively)


2,102



2,478



2,105Research and development


6,459



6,289



5,826Selling, general and administrative


5,645



3,753



1,809Total operating costs and expenses


14,206



12,520



9,740Loss from operations


(12,147
)


(10,464
)


(8,904
)Interest income


782



305



209Interest expense (includes
    related-party interest expense of $897, $897 and $539 in fiscal
    2006, 2005 and 2004, respectively)


(1,047
)


(1,048
)


(2,001
)Other income (expense) (includes
    $250 income from related-party in fiscal 2005)


(4
)


257



(14
)Net loss

$
(12,416
)

$
(10,950
)

$
(10,710
)Basic and diluted net loss per
    common share

$
(2.58
)

$
(7.82
)

$
(8.24
)Shares used in computing basic and
    diluted net loss per common share


4,817



1,401



1,299    58




---



##### Table of Contents



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


Notes


from


Accumulated





TotalConvertible Preferred









Additional





Stock-


Receivable


Stock


Other





Stockholders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, 2003


3,929,895


$
35,038




1,556,825


$
2


$
1,663


$



$



$
(420
)

$



$



$
(26,349
)

$
(25,104
)Issuance of common stock upon
    exercise of employee stock options for cash











160,960







200



























200Issuance of common stock upon
    exercise of stock options for promissory notes











16,666







12











(12
)














Issuance of common stock to
    non-employees for services











8,142







22



























22Issuance of stock options to non-
    employees for services



















127



























127Issuance of Series E
    convertible to related party for cash, including issuance costs
    of $50


283,688



4,000












(50
)


























(50
)Issuance of Series E
    convertible preferred stock for prepayment of interest due on
    notes payable


45,745



645








































Repurchase of common stock











(2,604
)






(4
)










4















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



















85



























85Net loss and comprehensive loss











































(10,710
)


(10,710
)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
)

$
17,677    59




---



##### Table of Contents



Cardica,
    Inc.
  CONDENSED
    STATEMENTS OF CASH FLOWS
  Fiscal Year Ended June 30,2006


2005


2004(In thousands)Operating activities:Net loss

$
(12,416
)

$
(10,950
)

$
(10,710
)Adjustments to reconcile net loss
    to net cash used in operating activities:Depreciation and amortization


750



850



672Amortization of debt discount










460Loss on disposal of property and
    equipment


28



24



205Amortization of deferred
    stock-based compensation expense


442



22



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


45



25



127Stock-based compensation related to
    issuance of common shares for consulting services rendered










22Stock-based compensation related to
    issuance of stock to a director for services


30







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


1,006



2,599



85Conversion of interest to preferred
    stock on prepayment of note payable










645Changes in assets and liabilities:Accounts receivable


(60
)


(46
)


(58
)Accounts receivable from related
    party


5



126



(131
)Prepaid expenses and other current
    assets


(226
)


(207
)


42Inventories


94



(56
)


(310
)Interest receivable from
    shareholders


(3
)


(9
)


(9
)Other non-current assets










3Restricted cash










72Accounts payable and other accrued
    liabilities


493



(419
)


258Accrued compensation


103



(7
)


5Deferred rent


(63
)


102



174Deferred other income from related
    party






(250
)


250Leasehold improvement obligation


(122
)


(118
)


(117
)Interest payable to related party


897



897



539Net cash used in operating
    activities


(8,997
)


(7,417
)


(7,776
)Investing activities:Purchases of property and equipment


(574
)


(882
)


(914
)Leasehold improvements
    reimbursement by landlord










118Proceeds from sale of equipment


6



12



Purchases of short-term investments


(32,635
)


(13,076
)


(3,089
)Proceeds from sales and maturities
    of short-term investments


11,610



21,075



2,090Net cash provided (used in) by
    investing activities


(21,593
)


7,129



(1,795
)Financing activities:Proceeds from initial public
    offering, net of issuance costs


32,589







Proceeds from issuance of
    convertible preferred stock, net of issuance costs










3,950Proceeds from issuance of common
    stock pursuant to the exercise of stock options


158



14



198Repurchase of common stock


(6
)






Proceeds from early exercise of
    stock options










63Issuance of stockholder promissory
    note










(73
)Proceeds from notes payable from
    related party










10,250Repayment of principal on notes
    payable










(6,272
)Net cash provided by financing
    activities


32,741



14



8,116Net increase (decrease) in cash and
    cash equivalents


2,151



(274
)


(1,455
)Cash and cash equivalents at
    beginning of period


1,951



2,225



3,680Cash and cash equivalents at end of
    period

$
4,102


$
1,951


$
2,225Supplemental disclosure of cash
    flow information:Cash paid for interest

$
150


$
150


$
328Supplemental disclosure of non-cash
    activities:Deferred stock-based compensation,
    net of forfeitures

$
1,039


$
453


$
Repayment of shareholders notes
    payable with common stock

$
596


$



$
Notes receivable from exercise of
    stock options

$



$



$
47Leasehold improvements paid for
    directly by landlord

$



$



$
422Vesting of shares issued upon early
    exercise of stock options

$
46


$
56


$
12Conversion of preferred stock into
    common stock

$
39,658


$



$
    60




---



##### 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
  available-for-sale. available-for-sale available-for-sale
  available-for-sale
  Available-for-sale
  Restricted
    Cash
     61




---



##### Table of Contents



Cardica,
    Inc.
  Notes to Financial Statements  (Continued)
   Fair
    Value of Financial Instruments
    Concentrations
    of Credit Risk and Certain Other Risks
  available-for-sale available-for-sale available-for-sale
      Fiscal Year Ended June 30,2006


2005


2004United States


64
%


65
%


75
%Japan


32
%


33
%


25
%Europe


4
%


2
%


     Percent of Total


Percent of TotalRevenue for


Accounts ReceivableFiscal Year Ended June 30,


as of June 30,2006


2005


2004


2006


2005


2004Guidant, a related party


2
%


65
%


75
%






4
%


69
%Century Medical


32
%


33
%


25
%


51
%


79
%


29
%Cook


49
%


















     Inventories
  first-in, work-in-process
 62




---



##### Table of Contents



Cardica,
    Inc.
  Notes to Financial Statements  (Continued)
   Property
    and Equipment
    Impairment
    of Long-Lived Assets
    Revenue
    Recognition
  Revenue Recognition
      Research
    and Development
    Clinical
    Trials
   63




---



##### Table of Contents



Cardica,
    Inc.
  Notes to Financial Statements  (Continued)
    Income
    Taxes
    Segments
    Comprehensive
    Loss
  available-for-sale
  Fiscal Year Ended June 30,2006


2005


2004Net loss

$
(12,416
)

$
(10,950
)

$
(10,710
)Unrealized loss on marketable
    securities


(47
)






Comprehensive loss

$
(12,463
)

$
(10,950
)

$
(10,710
)     Net
    Loss per Common Share
    64




---



##### Table of Contents



Cardica,
    Inc.
  Notes to Financial Statements  (Continued)
  Fiscal Year Ended June 30,2006


2005


2004Numerator:Net loss

$
(12,416
)

$
(10,950
)

$
(10,710
)Denominator:Weighted-average common shares
    outstanding


4,940



1,747



1,640Less: Weighted-average common
    unvested common shares subject to repurchase


(22
)


(73
)


(119
)Less: Vested common shares
    outstanding exercised with promissory notes subject to variable
    accounting


(96
)


(273
)


(222
)Less: Unvested restricted stock
    award


(5
)






Denominator for basic and diluted
    net loss per share


4,817



1,401



1,299Basic and diluted net loss per
    share

$
(2.58
)

$
(7.82
)

$
(8.24
)   Outstanding
    securities not included in diluted net loss per share
    calculation
  Fiscal Year Ended June 30,2006


2005


2004(In thousands)Convertible preferred stock






4,259



4,259Options to purchase common stock


1,018



766



655Unvested restricted stock award


20







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






273



222Warrants


157



157



1571,195



5,455



5,293   Stock-Based
    Compensation
  Form S-1, 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.
 65




---



##### Table of Contents



Cardica,
    Inc.
  Notes to Financial Statements  (Continued)
     Fiscal YearEnded June 30,2006Risk-free interest rate


4.67
%Dividend yield


0.00
%Weighted-average expected life


6 yearsVolatility


70
%         Fiscal Year Ended June 30,2006


2005


2004Cost of product revenue

$
30


$
52


$
Research and development


413



583



67Selling, general and administrative


1,055



2,010



145Total

$
1,498


$
2,645


$
212   No. 96-18, Accounting for Equity Instruments That Are Issued to
    Other than Employees for Acquiring, or in Conjunction with
    Selling, Goods or Services.
   66




---



##### Table of Contents



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

$
3672008


3412009


2982010


23$
1,029   Recent
    Accounting Pronouncements
  FAS 115-1 FAS 124-1, The Meaning of
    Other-Than-Temporary
    Impairment and Its Application to Certain Investments FAS 115-1), other-than-temporary, FAS 115-1 other-than-temporary other-than-temporary FAS 115-1
  Accounting
    Changes and Error Corrections-a replacement of APB Opinion
    No. 20 and FASB Statement No. 3
  Note 2.
    Short-Term
    Investments    June 30, 2006Gross


GrossAmortized


Unrealized


UnrealizedAvailable-for-sale
    securities:

Cost


Gains


Losses


Fair ValueCorporate 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   available-for-sale
 67




---



##### Table of Contents



Cardica,
    Inc.
  Notes to Financial Statements  (Continued)
   June 30, 2006


June 30, 2005Amortized





AmortizedRemaining contractual maturity:

Cost


Fair Value


Cost


Fair ValueMaturing in one year or less

$
26,278


$
26,240


$
7,000


$
7,000Maturing after one year through
    two years


1,747



1,738







Total

$
28,025


$
27,978


$
7,000


$
7,000   available-for-sale
    Note 3.
    Inventories    June 30,2006


2005Raw materials

$
122


$
280Work in progress


155



194Finished goods


155



52$
432


$
526   Note 4.
    Property
    and Equipment    June 30,2006


2005Computer hardware and software

$
409


$
375Office furniture and equipment


154



154Machinery and equipment


3,104



2,832Leasehold improvements


470



461Construction in process


187



114,324



3,833Less: accumulated depreciation and
    amortization


(2,923
)


(2,222
)$
1,401


$
1,611  68




---



##### Table of Contents



Cardica,
    Inc.
  Notes to Financial Statements  (Continued)
     Note 5.
    Leases
    and Commitments      OperatingLeasesFiscal Year ending June 30,2007

$
4602008


4782009


41Total minimum lease payments

$
979     Note 6.
    License,
    Development and Commercialization Agreement    Note 7.
    Related
    Party Transactions  Financing
    Activities
      Loan
    and Strategic Agreements
   69




---



##### Table of Contents



Cardica,
    Inc.
  Notes to Financial Statements  (Continued)
        Development
    and Supply Agreement
      Distribution
    Agreement Termination
    Note 8.
    Subordinated
    Convertible Note   70




---



##### Table of Contents



Cardica,
    Inc.
  Notes to Financial Statements  (Continued)
    Note 9.
    Notes Payable      Note 10.
    Stockholders
    Equity (Deficit)    Reverse
    Stock Split and Initial Public Offering
  one-for-three
  one-for-one
  Common
    Stock
   71




---



##### Table of Contents



Cardica,
    Inc.
  Notes to Financial Statements  (Continued)
   Preferred
    Stock
    Notes Receivable
    from Stockholders
        Shares Reserved
    June 30,2006Stock options outstanding


1,017,739Shares available for grant under
    stock option plan


242,847Warrants for common stock


156,5151,417,101  72




---



##### Table of Contents



Cardica,
    Inc.
  Notes to Financial Statements  (Continued)
   Stock
    Options
        EITF 00-23,
 73




---



##### Table of Contents



Cardica,
    Inc.
  Notes to Financial Statements  (Continued)
     Outstanding OptionsWeighted-AverageShares Available





Exercise Price Perfor Grant


Number of shares


ShareBalance at June 30, 2003


179,889



689,943


$
1.68Options granted


(218,467
)


218,467



2.85Options exercised






(185,775
)


1.77Options forfeited


67,714



(67,714
)


1.92Unvested stock options forfeited


2,604







Balance 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 awards


(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


$
4.32     Options Outstanding


Options ExercisableWeighted-AverageRemaining


Weighted





WeightedNumber


Contractual Life


Average


Number


AverageRange of Exercise Prices

Outstanding


(years)


Exercise Price


Exercisable


Exercise Price$0.30 - $2.25


259,513



5.71


$
1.75



225,682


$
1.67$2.85


448,971



8.54



2.85



180,177



2.85$7.45 - $9.00


202,695



9.73



8.03



10,223



8.22$9.75


106,560



9.46



9.75



1,944



9.75Total outstanding


1,017,739



8.15


$
4.32



418,026


$
2.38Options vested and expected to vest


962,924



7.94


$
4.08      74




---



##### Table of Contents



Cardica,
    Inc.
  Notes to Financial Statements  (Continued)
     Fiscal Year Ended June 30,2006


2005


2004Volatility


100
%


100
%


100
%Risk-free interest rate


4.71
%


4.23
%


4.28
%Contractual expected life in years


4-6



6-10



7-10Dividend yield


0.00
%


0.00
%


0.00
%   Common
    Stock Subject to Repurchase
    Warrants
    ExerciseShares




Price Per Share


Expiration12,270




$
4.89



March 201052,082





8.40



July 200832,146





11.58



June 200960,017





11.58



October 2010156,515  75




---



##### Table of Contents



Cardica,
    Inc.
  Notes to Financial Statements  (Continued)
   Note 11.
    Income
    Taxes    June 30,2006


2005Net operating loss carry-forwards

$
21,513


$
17,149Research credits


1,391



1,203Capitalized research and
    development expenses


217



548Other


392



559Total deferred tax assets


23,513



19,459Valuation allowance


(23,513
)


(19,459
)Net deferred tax assets

$



$
         Fiscal Year Ended June 30,2006


2005


2004Tax benefit at U.S. statutory
    rate

$
(4,221
)

$
(3,723
)

$
(3,641
)Loss for which no tax benefit is
    currently recognizable


4,010



2,893



3,262Other, net


212



830



379$



$



$
     Note 12.
    Employee
    Benefit Plan   76




---



##### Table of Contents



Cardica,
    Inc.
  Notes to Financial Statements  (Continued)
   Note 13.
    Indemnification    Legal
    matters
       77




---



##### Table of Contents



Financial Statement Schedules
      ExhibitNumber

Description3
.1(4)

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

Bylaws of the Registrant as
    currently in effect.3
.5(5)

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

Warrant dated March 17, 2000
    exercisable for 12,270 shares of common stock.4
.2(1)

Warrant dated July 5, 2001
    exercisable for 10,417 shares of common stock.4
.3(1)

Warrant dated July 5, 2001
    exercisable for 41,665 shares of common stock.4
.4(1)

Warrant dated June 13, 2002
    exercisable for 32,146 shares of common stock.4
.5(1)

Warrant dated October 31,
    2002 exercisable for 60,017 shares of common stock.10
.1(1)

1997 Equity Incentive Plan and
    forms of related agreements and documents.10
.2(3)

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(5)

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(6)

Distribution Agreement by and
    between Cardica, Inc. and Century Medical, Inc. dated
    June 16, 2003.10
.7(2)

Subordinated Convertible
    Note Agreement with Century Medical, Inc. dated
    June 16, 2003, and Amendment No. 1 thereto, dated
    August 6, 2003.10
.8(1)

Note issued pursuant to
    Subordinated Convertible Note Agreement with Century
    Medical, Inc.10
.9(2)

Agreement by and between the
    Company and the Guidant Investment Corporation, dated
    August 19, 2003.10
.10(2)

Intellectual Property Security
    Agreement by the Company in favor of Guidant, dated
    August 19, 2003.10
.11(1)

Notes issued pursuant to Omnibus
    Agreement.10
.12(1)

Allen & Company LLC
    letter of intent dated September 12, 2005.10
.13(5)

License, Development and
    Commercialization Agreement by and between Cardica, Inc. and
    Cook Incorporated, dated December 9, 2005.21
.1(1)

Subsidiaries of Registrant.23
.1

Consent of Independent Registered
    Public Accounting Firm.24
.1

Power of Attorney (see
    page II-5).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 December 20, 2005 and incorporated herein by reference. 78




---



##### Table of Contents



(3)
    
    Filed as an exhibit to the Registrants Registration
    Statement on
    Form S-1/A
    on January 4, 2006 and incorporated herein by reference.(4)
    
    Filed as an exhibit to the Registrants Registration
    Statement on
    Form S-1/A
    on January 13, 2006 and incorporated herein by reference.(5)
    
    Filed as an exhibit to the Registrants Registration
    Statement on
    Form S-1/A
    on February 1, 2006 and incorporated herein by reference.(6)
    
    Filed as an exhibit to the Registrants Registration
    Statement on
    Form S-1/A
    on February 2, 2006 and incorporated herein by reference.     79




---



##### Table of Contents



SIGNATURES         September 14,
    2006
    /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 14, 2006/s/  Robert
    Y. NewellRobert
    Y. Newell

Chief Financial Officer (Principal Financial and Accounting Officer)

September 14, 2006/s/  J.
    Michael EganJ.
    Michael Egan

Director

September 14, 2006/s/  Kevin
    T. LarkinKevin
    T. Larkin

Director

September 14, 2006/s/  Jeffrey
    L. PurvinJeffrey
    L. Purvin

Director

September 14, 2006/s/  Richard
    P. PowersRichard
    P. Powers

Director

September 14, 2006/s/  Robert
    C. RobbinsRobert
    C. Robbins, M.D.

Director

September 14, 2006 80




---



##### Table of Contents



Name and Signature

Title

Date/s/  John
    SimonJohn
    Simon, Ph.D.

Director

September 14, 2006/s/  Stephen
    A. YenchoStephen
    A. Yencho, Ph.D.

Director

September 14, 2006/s/  William
    H. Younger, Jr.William
    H. Younger, Jr.

Director

September 14, 2006  81




---



##### Table of Contents



Exhibit Index
  ExhibitNumber

Description3
.1(4)

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

Bylaws of the Registrant as
    currently in effect.3
.5(5)

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

Warrant dated March 17, 2000
    exercisable for 12,270 shares of common stock.4
.2(1)

Warrant dated July 5, 2001
    exercisable for 10,417 shares of common stock.4
.3(1)

Warrant dated July 5, 2001
    exercisable for 41,665 shares of common stock.4
.4(1)

Warrant dated June 13, 2002
    exercisable for 32,146 shares of common stock.4
.5(1)

Warrant dated October 31,
    2002 exercisable for 60,017 shares of common stock.10
.1(1)

1997 Equity Incentive Plan and
    forms of related agreements and documents.10
.2(3)

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(5)

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(6)

Distribution Agreement by and
    between Cardica, Inc. and Century Medical, Inc. dated
    June 16, 2003.10
.7(2)

Subordinated Convertible
    Note Agreement with Century Medical, Inc. dated
    June 16, 2003, and Amendment No. 1 thereto, dated
    August 6, 2003.10
.8(1)

Note issued pursuant to
    Subordinated Convertible Note Agreement with Century
    Medical, Inc.10
.9(2)

Agreement by and between the
    Company and the Guidant Investment Corporation, dated
    August 19, 2003.10
.10(2)

Intellectual Property Security
    Agreement by the Company in favor of Guidant, dated
    August 19, 2003.10
.11(1)

Notes issued pursuant to Omnibus
    Agreement.10
.12(1)

Allen & Company LLC
    letter of intent dated September 12, 2005.10
.13(5)

License, Development and
    Commercialization Agreement by and between Cardica, Inc. and
    Cook Incorporated, dated December 9, 2005.21
.1(1)

Subsidiaries of Registrant.23
.1

Consent of Independent Registered
    Public Accounting Firm.24
.1

Power of Attorney (see
    page II-5).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 December 20, 2005 and incorporated herein by reference.




---



##### Table of Contents



(3)
    
    Filed as an exhibit to the Registrants Registration
    Statement on
    Form S-1/A
    on January 4, 2006 and incorporated herein by reference.(4)
    
    Filed as an exhibit to the Registrants Registration
    Statement on
    Form S-1/A
    on January 13, 2006 and incorporated herein by reference.(5)
    
    Filed as an exhibit to the Registrants Registration
    Statement on
    Form S-1/A
    on February 1, 2006 and incorporated herein by reference.(6)
    
    Filed as an exhibit to the Registrants Registration
    Statement on
    Form S-1/A
    on February 2, 2006 and incorporated herein by reference.