<PAGE>

                                  UNITED STATES

                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                                    FORM 10-K

   [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
       ACT OF 1934. For the fiscal year ended December 31, 1999 or

    [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
  EXCHANGE ACT OF 1934. For the transition period from _________ to _________.

                         COMMISSION FILE NUMBER: 0-22419

                                  CARDIMA, INC.

             (Exact name of registrant as specified in its charter)


              DELAWARE                                 94-3177883
-------------------------------------        ----------------------------------
   (State or Other Jurisdiction of                  (I.R.S. Employer
    Incorporation or Organization)                 Identification No.)

  47266 BENICIA STREET, FREMONT, CA                    94538-7330
-------------------------------------        ----------------------------------
(Address of Principal Executive Offices)               (Zip Code)

Registrant's telephone number, including area code:  (510) 354-0300

        SECURITIES REGISTERED PURSUANT TO SECTION 12 (B) OF THE ACT: NONE

          SECURITIES REGISTERED PURSUANT TO SECTION 12 (G) OF THE ACT:
                          Common Stock, $.001 par value

Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  Registrant  was
required  to file  such  reports),  and  (2) had  been  subject  to such  filing
requirements for the past 90 days.  X  Yes      No
                                  ----     ----

Indicate by check mark if disclosure of delinquent  filers  pursuant to item 405
of Regulation  S-K is not contained  herein,  and will not be contained,  to the
best  of  the  registrant's   knowledge,  in  definitive  proxy  or  information
statements  incorporated  by  reference  in Part  III of this  Form  10-K or any
amendment to this Form 10-K. [X]

The  aggregate  market value of the voting stock held by  non-affiliates  of the
registrant was $77,825,589  based on the last reported sales price of the Common
Stock on the Nasdaq National Market on March 13, 2000.

As of March 13, 2000, there were 21,233,587 shares of Registrant's  Common Stock
outstanding.

                       DOCUMENTS INCORPORATED BY REFERENCE

The  Registrant  has  incorporated  by reference into Part III of this Form 10-K
portions of its Proxy  Statement for the Annual  Meeting of  Stockholders  to be
held May 25, 2000.

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<CAPTION>

                                  CARDIMA, INC.

                                    FORM 10-K

                   For the Fiscal Year Ended December 31, 2000

                                      INDEX

                                                                                                                     PAGE NO.
<S>                                                                                                                   <C>

PART I......................................................................................................................3

   ITEM 1.  BUSINESS........................................................................................................3
   ITEM 2.  PROPERTIES.....................................................................................................29
   ITEM 3.  LEGAL PROCEEDINGS..............................................................................................29
   ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS............................................................29

PART II....................................................................................................................30

   ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS..........................................30
   ITEM 6.  SELECTED FINANCIAL DATA........................................................................................31
   ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS..........................32
   ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.....................................................41
   ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA....................................................................41
   ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE...........................41

PART III...................................................................................................................42

   ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT............................................................42
   ITEM 11.  EXECUTIVE COMPENSATION........................................................................................43
   ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT................................................43
   ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS................................................................43

PART IV....................................................................................................................44

   ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K..............................................44

SIGNATURES.................................................................................................................46

</TABLE>

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                                     PART I

ITEM 1.  BUSINESS

Overview

Cardima, Inc., (the "Company" or "Cardima"), designs, develops, manufactures and
markets  minimally  invasive,  single-use,  microcatheter-based  systems for the
mapping and ablation of the two most common forms of cardiac arrhythmias: atrial
fibrillation ("AF") and ventricular tachycardia ("VT"). Arrhythmias are abnormal
electrical heart rhythms that adversely affect the mechanical  activities of the
heart and can  potentially  be fatal.  The Company is  developing  microcatheter
systems  designed to provide  enhanced access to arrhythmia  causing tissue,  to
diagnose the arrhythmia by locating its origin ("mapping") and to restore normal
heart  rhythms  by  isolating  and  destroying  the  arrhythmia   causing  sites
("ablation") using  radiofrequency  ("RF") energy. The Company's  microcatheters
incorporate  multiple  electrodes  at the  distal end of the  catheter  that are
designed  to record  electrical  signals  for mapping  purposes  and,  with some
products,  to emit RF energy for ablation;  thereby allowing  physicians to both
map and ablate using the same catheter.  Cardima's  microcatheters  are designed
with  variable  stiffness  and a highly  flexible  distal tip to allow  enhanced
access to the  vasculature  of the heart.  In addition,  they are designed to be
compatible with existing  signal display systems and RF generators,  eliminating
the need for  significant  new  investment in capital  equipment.  The Company's
microcatheter  technology  was originally  conceived at Advanced  Cardiovascular
Systems, Inc. ("ACS," now a division of Guidant Corporation), from 1979 to 1982.
Target  Therapeutics,  Inc.  ("Target,"  now a  division  of  Boston  Scientific
Corporation  ("Boston  Scientific"))  purchased this technology in 1985 from ACS
for use in  neurological  applications.  In  1993,  Target  granted  Cardima  an
exclusive,  royalty-free  license  to use the  microcatheter  technology  in the
treatment  of  electrophysiological  diseases  affecting  areas  other  than the
central nervous system.

The  Company  marketed  its  diagnostic  microcatheter  system  for VT  and  AF,
including  the  Pathfinder,   Tracer  (approved  in  May  1999)  and  Revelation
microcatheters,  along with the Naviport,  Vueport and Venaport lines of guiding
catheters in the U.S. through January 31, 2000. On January 26, 2000, the Company
signed an  exclusive  three year  distribution  agreement  with St. Jude Medical
Corporation  ("St.  Jude")  whereby St.  Jude's Daig  Division  will  distribute
Cardima's diagnostic products in the U.S. The distribution agreement included an
equity  investment  by St.  Jude.  The Company  retains the rights for all other
geographic areas and maintains  worldwide  control of its therapeutic  products.
The Company continues to market its diagnostic  microcatheter  system for VT and
AF in Europe, Japan, Australia, Canada and other countries throughout the world.
The  Company  currently   continues  to  increase  patient   enrollment  in  two
therapeutic  clinical trials: For AF, the Revelation Tx microcatheter system and
for VT, the Therastream  microcatheter system. The Revelation Tx, along with the
Revelation, are both approved in the European Union (EU) for treating AF.

Discussion of the Heart and Arrhythmic Disorders

The heart is an electromechanical pump that relies on self-generated  electrical
signals to contract its muscle fibers and pump blood  throughout the body. It is
divided into four chambers: the two upper chambers called the atria, and the two
lower chambers  called the  ventricles.  The heart consists of two pumps working
side by side, each with its own atrium and ventricle. The pump on the right side
collects  venous blood from the body and sends it to the lungs for  oxygenation.
The pump on the left side receives


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the  oxygenated  blood from the lungs and pumps it through the body. The process
is repeated as venous blood returns to the right side of the heart.

The heart,  as with any other organ,  requires oxygen and nutrients to function.
Because  the heart  has large  oxygen  and  nutrient  demands,  it  requires  an
extensive,  well  developed  vascular  network to bring blood to and carry blood
away from its tissue.  This coronary vascular network is located  throughout the
majority of the heart's walls to nourish the heart tissue directly. This network
is comprised of an arterial system and a venous system,  both of which originate
on the  epicardium,  or outer surface,  of the ventricles and penetrate into the
tissues of the ventricular  walls.  Thus, the anatomy of the  ventricular  walls
consists  of a thick  mass of  contracting  muscle  cells  with a  framework  of
coronary blood vessels.

The heart's  pumping  action is controlled by an  electrical  conduction  system
comprised of a specialized network of cells within the heart muscle tissue. This
conduction system allows electrical  signals to propagate through the heart in a
systematic  and organized  way. These  specialized  conduction  cells are placed
throughout  the  walls of the  chambers,  from just  underneath  the  inner,  or
endocardial,  surface of the heart to the outer,  or epicardial,  surface.  In a
systematically timed sequence, this conduction system carries electrical signals
to the muscle cells  throughout  the heart.  This  electrical  conduction  cycle
results in a normal heart beat that  originates in the right atrium,  commencing
in a specialized group of cells called the Sino-Atrial ("SA") node.

The SA  node  is the  heart's  "natural  pacemaker,"  regularly  discharging  an
electrical signal that, under normal  circumstances,  is responsible for setting
the heart rate,  usually 60 to 100 beats per minute. The signal generated in the
SA node is propagated  through the atria until it reaches the  Atrio-Ventricular
("AV") node and is delayed  momentarily.  This momentary  delay provides  enough
time for the atria to fill the ventricles with blood before they contract.

Once the electrical  signal exits the AV node, it is rapidly  conducted down the
His  Bundle,  and is  distributed  widely  throughout  both  ventricles  via the
Purkinje Fibers, delivering the electrical signal to both ventricles at the same
time, causing them to contract in unison. Since the ventricles pump blood to the
lungs  and the  rest of the  body  (while  the  atria  only  pump  blood  to the
ventricles),  the  ventricles  are surrounded bya larger amount of muscle tissue
than the atria.  The left ventricle,  in particular,  is the stronger of the two
ventricles,  generating  higher  pressure  and  working  harder in order to pump
oxygenated blood through the entire body against a high vascular resistance.  In
the normal heart, the four chambers work  rhythmically with each other to ensure
that properly oxygenated blood is delivered throughout the body.

ARRHYTHMIAS

Arrhythmias  are abnormal  electrical  heart rhythms that  adversely  affect the
mechanical  activities of the heart.  Arrhythmias  result in insufficient  blood
flow, which may cause dizziness,  inadequate function of important organs in the
body,  stroke  or  even  death.  Arrhythmias  have  numerous  causes,  including
congenital  defects,  tissue damage from heart attacks or  arteriosclerosis  and
other conditions that accelerate,  delay or redirect the normal  transmission of
electrical activity,  thereby disrupting the normal coordinated  contractions of
heart muscle cells. There are two general types of arrhythmias:  tachycardia,  a
fast  resting  heart  rate,  typically  more  than 100  beats  per  minute,  and
bradycardia, a slow resting heart rate, typically less than 60 beats per minute.
Tachycardias fall into one of two major categories:


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supraventricular  tachycardia ("SVT"), which has its origin above the ventricles
(typically  in the atria)  with AF being the most  common  form of SVT,  and VT,
which  has its  origin  in the wall of the  ventricles.  Generally,  arrhythmias
degenerate and worsen over time.

ATRIAL FIBRILLATION

AF is  characterized  by the  irregular  and very rapid beating of the heart and
results when the normal electrical  conduction system of the atria malfunctions,
leading to  irregular  and chaotic  electrical  signals.  During AF, the regular
pumping action of the atria is replaced by irregular, disorganized and quivering
spasms of atrial tissue.  Symptoms of AF typically include a rapid and irregular
heartbeat,  palpitations,  discomfort and dizziness. This malfunction results in
the failure of the atria to fill the ventricles  completely  and,  consequently,
the failure of the heart to pump adequate  amounts of blood to the body. Once AF
becomes  symptomatic,  it is typically  associated  with  significant  morbidity
related to reduced blood flow.  Often,  the greatest concern is that the reduced
cardiac output can lead to blood pooling in the atria and the formation of blood
clots.  Blood  clots in the left  atrium can  dislodge  and travel  through  the
bloodstream to the brain, resulting in stroke and even death.

In the  United  States,  AF  affects  an  estimated  two  million  people,  with
approximately  160,000 new cases being diagnosed each year. It is estimated that
about 1.5 million  outpatient  hospital visits per year in the United States are
associated  with AF and there are more than 200,000  admissions to hospitals for
AF each year.  The American Heart  Association  estimates that AF is responsible
for over 70,000  strokes each year in the United States.  The Company  estimates
that the cost of treating these patients is more than $3.6 billion annually. The
cost of drug treatment for AF alone is estimated to be in excess of $400 million
worldwide each year.

AF is routinely  diagnosed using an  electrocardiogram,  in which electrodes are
placed  on the skin to record  the  irregular  beating  of the  heart.  However,
electrocardiograms are unable to locate the origin, or focus, of the AF. Another
diagnostic  method,  called mapping,  involves placing catheters with electrodes
inside the chambers of the heart to record the electrical  signals  generated by
the  heart in order  to  locate  the  focus  of the  arrhythmia.  Since AF is an
arrhythmia  that can affect both the right and left atria at the same time,  the
Company believes that optimal mapping of AF requires the simultaneous evaluation
of  electrophysiological  information  from both  atria.  The  Company  believes
electrophysiologists  do not  routinely  map all forms of AF  because  currently
available competitor's catheters are inadequate to map the right and left atrium
simultaneously.

Current AF treatments are directed at trying to  reestablish a normal  heartbeat
and prevent stroke, and are primarily supportive and palliative.  Antiarrhythmic
and anticoagulant drugs, the most common treatment for AF, are typically used to
attempt to control AF by  restoring  the heart's  natural  rhythm,  limiting the
pooling action of the blood  therefore  reducing or eliminating the potential of
the  natural  clotting   mechanism  of  the  blood  to  take  effect.   However,
antiarrhythmic  drug  therapy  often  becomes  less  effective  over time,  with
approximately  half of the  patients  eventually  developing  resistance  to the
drugs. In addition,  antiarrhythmic  drugs have potentially severe side effects,
including  pulmonary  fibrosis and impaired liver function.  Another  palliative
procedure  for AF is  external  cardioversion,  or  the  application  of  strong
electrical  current  under general  anesthesia  attempting  to  re-organize  the
heart's electrical  activity.  This treatment is usually effective for a limited
period of time as well.  Implantable atrial  defibrillators  ("IAD's") are being
investigated to detect the onset of AF internally and then deliver an

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electrical  shock to  convert  the heart  back to normal  rhythm.  Although  the
preliminary  results of clinical  studies  indicate  that this  approach  may be
feasible,  AF is not cured with this approach.  There are  significant  problems
with IAD's  including  pain  tolerance,  reversion to AF and creation of VT as a
result of the electrical shock. Another alternative  treatment is the purposeful
destruction  of the AV node  followed by  implantation  of a pacemaker  which is
typically  considered a treatment  of last resort for AF patients,  but does not
cure or treat the AF itself.  The patient also is dependent on the pacemaker for
life.  Pacemakers are battery-powered  devices and typically require replacement
approximately every seven to ten years depending on manufacturer, type of device
and amount of electrical  energy  delivered.  Since atrial function remains poor
following the procedure,  chronic anticoagulant therapy, which increases risk of
hemorraghic stroke, is generally required.

The Company believes that the only curative therapy for AF used today is an open
heart,  open chest operation  commonly known as the "maze"  procedure  whereby a
surgeon makes several  slices  through the wall of the atrium with a scalpel and
then sews the cuts back together creating a scar pattern.  The scars isolate and
contain the chaotic  electrical  impulses to control and channel the  electrical
signal  emanating from the SA node.  This open heart  operation is expensive and
associated  with long hospital stays and high morbidity and mortality.  Although
this approach is not commonly used because it is highly invasive, containing the
chaotic  impulses in the atrium  through scar  creation is generally  considered
effective in controlling AF.

Electrophysiologists   are   also   experimenting   with   minimally   invasive,
catheter-based ablation procedures that attempt to mimic the results of the maze
procedure.  Although  catheters  offer  the  benefit  of  a  minimally  invasive
approach, the procedures can be difficult to perform because of the shortcomings
of a majority of existing  catheter  technology and some appear unable to create
lesions  that  effectively  isolate  portions of the atria where the  arrhythmia
causing tissue is located.

VENTRICULAR TACHYCARDIA

VT is a life-threatening  condition in which heartbeats are improperly initiated
from within the ventricular  wall,  rather than from the SA node, thus bypassing
the heart's normal conduction  system.  The typical VT patient has experienced a
myocardial infarction,  or heart disease, which can result in the formation of a
scar or electrical  barrier  inside the  ventricular  wall,  leading to improper
electrical  conduction  in the cells  immediately  bordering  the  scar.  During
episodes of VT, the ventricles  beat at such an abnormally  rapid rate that they
are unable to fill completely with blood, thus reducing the amount of oxygenated
blood  pumped  throughout  the body.  The  resulting  reduction in the amount of
oxygen transported to the tissues and organs of the body can cause dizziness and
loss of  consciousness.  VT can often  progress  into  ventricular  fibrillation
("VF"),  which is an extrememly  irregular,  chaotic and ineffective spasming of
the  ventricles.  VF is fatal  within a few  minutes of its  occurrence,  unless
orderly  contractions of the ventricles are restored through immediate  external
electrical cardioversion or defibrillation.

It is estimated  that more than 300,000  people in the United States suffer from
sudden cardiac death each year. Of these,  approximately  50,000 people survive,
primarily  through  emergency  defibrillation.  These  survivors  are at risk of
developing  VT or  subsequently  VF. The Company  estimates  that each year over
100,000  people in the United  States who have never  suffered VF are  diagnosed
with symptomatic VT. The American Heart Association estimates that approximately
1.5 million people in the United States suffer myocardial infarctions each year,
of which  approximately one million survive.  Approximately 30%

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of the survivors of a myocardial  infarction  suffer an episode of VT within the
following  year.  The Company  believes all of these  individuals  are potential
candidates for a safe and cost-effective mapping and ablation procedure.

VT may be diagnosed  using a standard  electrocardiogram  in a manner similar to
the diagnosis of AF. The cardiac  electrophysiologist  typically attempts to map
VT to locate the focus of the arrhythmia within the heart's structure.  However,
locating  the  arrhythmia  causing  tissue,  which can occur at any point in the
thickness of the ventricular wall, from the endocardium, or inner surface of the
heart wall,  to the  intramyocardium,  inside of the heart wall  itself,  to the
epicardium, or outer surface of the heart wall, can be difficult.

Similar  to  AF,  current  treatments  for  VT  are  primarily   supportive  and
palliative.  Antiarrhythmic drugs are the most common treatment,  although these
drugs have been shown to have a number of  unwanted  side  effects,  and in some
circumstances  may actually induce VT. The Multicenter  Automatic  Defibrillator
Implantation  Trial  ("MADIT") has  demonstrated  that the  implantable  cardiac
defibrillator  ("ICD") is a more effective  treatment for VT than antiarrhythmic
drugs, but it also is a palliative  treatment and is associated with a number of
undesirable  characteristics,  such as patient reliance on an implantable device
with a limited battery life, the high cost of the  implantation  procedure,  the
risks associated with implanting  foreign objects in the body and  significantly
impaired  quality  of  life  for  the  patient.  In  addition,  the  ICD is only
palliative and does not cure the VT or destroy the arrhythmia causing tissue.

Similar to the treatment of AF, electrophysiologists are also experimenting with
less invasive,  catheter-based  ablation  procedures for the treatment of VT and
there is a competitive  product  approved to treat VT's in the U.S. that has had
limited acceptance in the market that the Company believes is due to its ability
to access VT sites  endocardially  and the  requirement  to  deliver  high power
levels to attempt to ablate the tissue deep in the ventricular walls. Therefore,
the Company  believes  current  catheter size  limitations  and  shortcomings of
existing  endocardial  catheter  technology for ablation have limited the use of
catheter technology to treat VT.

LIMITATIONS OF CURRENT CATHETER-BASED DIAGNOSIS AND THERAPY

The  demonstrated  medical  benefits and cost  efficiency of minimally  invasive
surgical  procedures  have  encouraged  electrophysiologists  to seek a means of
employing new, minimally invasive  techniques for the diagnosis and treatment of
arrhythmias.  In the case of AF,  electrophysiologists  are experimenting with a
treatment  technique,  often  referred to as the "drag and burn  procedure,"  in
which conventional RF ablation catheters are dragged along the inside surface of
an atrium  while  applying  RF energy.  However,  creating  continuous,  linear,
transmural  lesions to isolate  portions  of the atria  using this  experimental
procedure  with  standard  catheters has proven time  consuming  and  difficult.
Endocardial  catheter  technology  is also being tested for the treatment of VT.
The Company  believes that an  endocardial  approach is  suboptimal  because the
muscle tissue of the ventricles is significantly  thicker than the muscle tissue
in the atria, sometimes requiring the use of large amounts of RF energy to reach
the arrhythmogenic  foci. As a consequence,  the endocardial  approach generates
larger,  less  focused  lesions,  increasing  the amount of  ventricular  tissue
destroyed in the procedure and potentially reducing heart muscle function.

The  Company  believes  that  the   disadvantages  of  existing  catheter  based
approaches for AF and VT are attributable not to the minimally invasive approach
of the procedure,  but instead to existing  catheter

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technology.  The catheters currently used are relatively large, typically six to
eight French (French is a medical term used to denote catheter size;  i.e., 1 mm
= 1 French in diameter),  and stiff,  increasing the risk of trauma to the heart
during the procedure,  and restricting  access  primarily to the chambers of the
heart. When attempting to diagnose and treat VT using standard electrophysiology
catheters,  the  electrophysiologist  is unable to access  smaller blood vessels
within the  ventricular  wall.  As a result,  generally  only signals  generated
within one to two  millimeters  adjacent to the inner wall can be recorded.  The
current  technology is inadequate because the normal ventricular wall is five to
20 millimeters thick, and arrhythmia  causing tissue,  especially tissue causing
VT, can reside  anywhere  within that  thickness.  In addition,  the information
generated  by  the  endocardial   diagnostic   procedure  is  limited,   as  the
electrophysiologist can observe and evaluate only a limited number of signals in
a confined  area.  In order to observe  more  signals and ablate  closest to the
foci, the user must mechanically  manipulate the catheter within the rapid blood
flow  of a  heart  in VT at up to 300  beats  per  minute,  which  can  be  very
difficult.  As a result,  an endocardial  electrophysiology  procedure with this
existing  technology is extremely  laborious and time  consuming,  in some cases
requiring up to 15 or more RF energy  deliveries per  treatment.  Although there
are   endocardial   basket-type   catheters  in  development   that  enable  the
electrophysiologist  to record information from multiple points in the ventricle
at once,  the  Company  believes  that these  catheters  suffer the same  access
limitations  to arrhythmia  causing tissue  located in the  intramyocardium  and
epicardium as standard endocardial catheters and require significant  additional
investment in that competitor's proprietary capital equipment.

Based on experience with standard  endocardial  catheters,  electrophysiologists
recognize  the need to  record  and  evaluate  a greater  amount  of  electrical
information  from  various  areas in the  heart  simultaneously  during AF or VT
procedures.  In the  case  of AF,  the  Company  believes  there  is a need  for
catheters  that are able to map both right and left  atria at the same time,  if
warranted,  and then immediately and appropriately ablate the tissue causing the
AF. In the case of VT, the Company  believes  there is a need for catheters that
are able to map safely the entire  thickness of the  ventricular  wall, not just
the endocardial surface, and appropriately ablate the tissue causing the VT with
minimal trauma to normal rhythm-conduction of the heart's tissue.

THE CARDIMA MICROCATHETER SYSTEM SOLUTION

The primary clinical goal in the diagnosis and treatment of AF and VT is precise
mapping  and  effective,   less  destructive  ablation.  To  achieve  this,  the
electrophysiologist must be able to access areas of the heart that are currently
inaccessible, using techniques that are easy to perform and that do not increase
the trauma to the  patient.  The  Company  is  working  to achieve  this goal by
designing  microcatheter systems which provide enhanced access to the arrhythmia
causing tissue,  by mapping the location of the arrhythmia and then ablating the
arrhythmia  causing  tissue  using RF  energy  to cure the  patient,  all in one
procedure  using the same  catheter.  The  Company's  microcatheter  systems are
designed to offer the following advantages:

o     MINIMALLY  INVASIVE  APPROACH.   The  Cardima  microcatheter  systems  are
      designed to provide  better  access in a minimally  invasive  procedure to
      treat both AF and VT. This increased access results in decreased procedure
      time,   shorter   hospital   stays,   lower   procedure  costs  and  fewer
      complications than the surgical procedures currently in use.

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o     SINGLE CATHETER FOR RAPID MAPPING AND ABLATION. Initially, the Company has
      developed  microcathers which are capable of only diagnosing  arrhythmias.
      The  next  generation  microcatheters,  including  the  Revelation  Tx and
      Therastream   are  capable  of  both  mapping  and   ablating.   By  using
      microcatheters  that can map, as well as ablate,  the Company believes the
      electrophysiologist need only access the arrhythmia causing tissue once in
      order to map it, verify that it is causing the arrhythmia and then,  using
      the same  device,  ablate  the  tissue to cure the  patient.  The  Company
      believes  this  single  catheter,  dual  function  characteristic  of  its
      microcatheter  systems will decrease procedure times and improve treatment
      of both AF and VT.

o     ENHANCED ACCESS TO THE VASCULATURE OF THE HEART. Cardima's  microcatheters
      feature a significantly smaller diameter,  approximately one half the size
      of standard  electrophysiology  catheters, and incorporate Target variable
      stiffness  technology  utilizing  a central  core  guidewire  and a highly
      flexible distal tip. As a result,  the Company's  microcatheters  are more
      torqueable and flexible than standard electrophysiology catheters and have
      varying  degrees of  flexibility  at the distal end to allow  enhanced and
      less traumatic  access to the  vasculature of the heart, to conform easily
      to the  contours  of the heart wall and to  maintain  controlled,  regular
      contact even in a fast beating heart.

o     ABILITY TO GATHER MORE  INFORMATION.  The Company's  microcatheter  system
      designs  include a large  number  (up to 16) of narrow  electrodes,  while
      maintaining a high degree of flexibility.  The Company  believes that this
      design  permits the  electrophysiologist  to acquire and evaluate far more
      information  in a  mapping  procedure  than is  available  using  standard
      electrophysiology catheters, which typically incorporate fewer electrodes.
      The  increased  amount of  information  recorded  using the  microcatheter
      approach  should enable the  electrophysiologist  to target the arrhythmia
      causing  tissue  with  greater  precision,  in order to  permit  effective
      ablation.

o    CURATIVE  TREATMENT FOR AF. The Cardima  Revelation and Revelation Tx
     microcatheter  systems are  designed to treat AF by  creating  long,  thin,
     continuous,  linear, transmural lesions in both the right and left atria to
     isolate and contain the arrhythmia causing tissue, thereby restoring normal
     electrical  function by controlling and  reorganizing  the random,  chaotic
     electrical activity that characterizes AF. In animal studies, the Company's
     microcatheter   systems   have   required   less  RF  energy  and   created
     significantly  thinner lesions than standard  electrophysiology  catheters,
     preserving a greater amount of atrial tissue  following the procedure.  The
     Company  believes  these  thinner  lesions  will  result  in a  significant
     improvement  in  atrial  function  and a  reduction  in the  risk of  blood
     clotting,   reducing   or  possibly   eliminating   the  need  for  chronic
     anticoagulant  therapy.  The Company has also  designed the  Revelation  Tx
     microcatheter  with  temperature-sensing  bands between each electrode that
     are designed to be in direct  contact with the atrial tissue thereby giving
     a more accurate  temperature  reading during ablation.  Competitive systems
     utilize  temperature sensors positioned under their electrodes that are not
     in direct contact with the tissue.  The Company believes the direct contact
     design and more accurate  temperature  monitoring  during an ablation is an
     important  competitive  feature  due to the  concern of  creating  coagulum
     during an ablation  procedure.  The Company  believes this approach has the
     potential to offer the  effectiveness  of the open heart  surgical cure for
     AF, but with significantly less trauma, fewer complications,  reduced pain,
     shorter hospital stays and lower procedure costs.

o    CURATIVE APPROACH FOR VT. The Company's  Pathfinder,  Pathfinder mini and
     Tracer   microcatheter   systems  for   mapping  VT  and  the   Therastream
     microcatheter  system for both  mapping and ablation of


                                       9
<PAGE>

     VT  are  designed  for  use  inside  the  vasculature  of the  heart  wall,
     facilitating access to arrhythmia causing tissue through the venous system.
     Cardima  believes  that  at  least  half  of VT  foci  are  located  in the
     intramyocardium and the epicardium,  areas that are ineffectively  accessed
     using   standard   endocardial   catheters  or  basket  type  catheters  in
     development.  The  intravascular  approach to VT ablation should permit the
     microcatheters  to be  positioned  in  close  proximity  to the  arrhythmia
     causing tissue, facilitating the creation of smaller, more focused lesions.
     The  Company  believes  that this  approach  has the  potential  to be more
     effective  than  standard  endocardial  ablation  procedures,  with reduced
     destruction of surrounding  healthy tissue,  thus maximizing and optimizing
     the normal function of the heart after the procedure.  The Company is aware
     of at least  one other  epicardial  mapping  catheter  in  addition  to the
     Cardima   Pathfinder,   Pathfinder  mini,   Tracer  and  Therastream  under
     development.

o     COMPATIBLE WITH EXISTING CAPITAL  EQUIPMENT.  The Company's  microcatheter
      systems  are  designed to be  compatible  with  leading  electrophysiology
      signal display  systems and RF generators,  in order to eliminate the need
      for  significant  new  investment  in  additional  capital  equipment.  By
      facilitating  the rapid and  precise  location of the  arrhythmia  causing
      tissues  with  a  system  that  is  compatible  with  standard  laboratory
      equipment,  the Company  believes its products will be rapidly  adopted by
      electrophysiologists.

o    REDUCED PROCEDURE AND RADIATION EXPOSURE TIMES. The Company believes that
     its microcatheter  systems will reduce procedure times and thereby decrease
     cumulative  x-ray  exposure to both  patients and lab  personnel.  Standard
     electrophysiology  procedures,  in many cases,  expose both the patient and
     the lab  personnel  to over  one  hour of  accumulated  x-ray  time  during
     fluoroscopy, which is used to visualize the placement of the catheters. The
     Company  believes that the total procedure and fluoroscopy  time associated
     with the use of its microcatheter systems are less due to shorter procedure
     times  than  those  using  standard  electrophysiology  catheters,  thereby
     reducing  procedure  costs and the risk of disease  resulting from extended
     exposure to x-ray fluoroscopy.

STRATEGY

Cardima's objective is to establish its microcatheter systems as the standard of
electrophysiological  care for  mapping  and  ablating AF and VT. To achieve its
objective, the Company is pursuing the following strategies:

DEVELOP  MICROCATHETER  TECHNOLOGY  TO  ADDRESS  UNMET  CLINICAL  NEEDS FOR BOTH
MAPPING AND  ABLATION.  Cardima is developing  microcatheter  systems to address
clinical needs that are not adequately addressed by current technology.  Cardima
is focused on both endocardial  access for AF and  intravascular  access for VT,
and provides a microcatheter  systems  approach to addressing AF and VT. Cardima
is designing systems which incorporate variable stiffness technology  originally
developed at Target,  including guiding catheters,  fixed-wire and over-the-wire
systems,  in order to optimize  the  physician's  ability to access the areas of
interest in the heart easily and safely. By using microcatheters that can map as
well as ablate,  the Company believes the  electrophysiologist  need only access
the arrhythmia causing tissue once in order to map it, verify that it is causing
the arrhythmia and then ablate the tissue using the same catheter.

PROVIDE    MICROCATHETER    SYSTEMS    THAT   LOWER   THE   COST   OF   TREATING
ELECTROPHYSIOLOGICAL DISORDERS. The Company's microcatheter systems are designed
to reduce the average time  required for AF and VT

                                       10
<PAGE>

diagnostic and therapeutic procedures significantly. As a result,
time spent in high cost electrophysiology  laboratories should be
reduced,  lowering the overall cost of AF or VT  treatments.  The
shorter procedure time that the Company believes will result from
the use of its microcatheter  systems should enable physicians to
perform a greater  number of AF or VT  procedures  and reduce the
overall cost per procedure.  In addition,  the Company intends to
use  data  derived   from  its  clinical   studies  to  establish
reimbursement  for AF  and  VT  procedures  using  the  Company's
microcatheter    systems.   The   Company   believes   that   its
microcatheter  systems  will appeal to  patients  and third party
payors  seeking a  cost-effective  solution to the  diagnosis and
treatment of AF and VT.

ACCELERATE  ACCEPTANCE  AND ADOPTION OF THE COMPANY'S  MICROCATHETER  SYSTEMS BY
LEADING ELECTROPHYSIOLOGISTS.  The Company has formed relationships with leading
medical  centers in the United  States,  and is  developing  relationships  with
medical  centers  in  Europe  and  Japan,  to  perform  clinical  trials  of its
microcatheter systems for the diagnosis and treatment of AF and VT. Based on the
initial  feasibility  results,  Cardima has obtained FDA approval to expand to a
larger multi-center trial with nine investigative centers. Cardima believes that
successful acceptance and adoption of these systems by widely recognized experts
in the field of  electrophysiology  is a  critical  step in the  overall  market
acceptance of its microcatheter systems. The Company intends to continue to work
with leading  physicians and medical centers and to initiate  clinical trials to
demonstrate  the safety  and  effectiveness  of its  microcatheter  systems  and
ultimately to establish broad market acceptance. In addition, Cardima intends to
accelerate physician education and adoption through  peer-reviewed  publications
concerning the clinical trials of the Company's microcatheter systems.

STRATEGIC  PARTNERING  WITH ST. JUDE MEDICAL  CORPORATION  FOR  DISTRIBUTION  OF
CARDIMA'S  DIAGNOSTIC PRODUCTS IN THE U.S. AND CONTINUED PROGRESS ON THERAPEUTIC
TRIALS IN THE U.S. On January 26, 2000,  the Company  signed an exclusive  three
year  distribution  agreement  with St. Jude Medical  Corporation  ("St.  Jude")
whereby St. Jude's Daig Division will distribute  Cardima's  diagnostic products
in the U.S. The  distribution  agreement  included an equity  investment  by St.
Jude.  The  Company  retains  the  rights  for all  other  geographic  areas and
maintains worldwide control of its therapeutic  products.  The Company continues
to enroll  patients in its AF study and intends to further expand the study into
a  pivotal  study  and use the  data as the  basis  for the  Premarket  Approval
application ("PMA") submission with the FDA.

INCREASE SALES BY FURTHER PENETRATING INTERNATIONAL MARKETS. The Company intends
to continue to increase  international sales through expansion of its network of
international  distributors to further penetrate  international  markets,  given
their substantial size and the relatively lower regulatory barriers. The Company
received ISO 9001 (EN 46001) Quality Systems certification, as well as the right
to  affix  the CE  Mark  to a  number  of its  products.  The  Company  received
regulatory approval in the United States,  Europe,  Japan,  Australia and Canada
for the Cardima Pathfinder  microcatheter system for mapping VT and has received
regulatory  approval in the United States,  Europe,  Japan and Australia for the
Cardima  Revelation  microcatheter  system for mapping AF. In addition,  Cardima
received CE mark  approval  for  marketing  the  Revelation  and  Revelation  Tx
ablation  microcatheter  systems to treat AF in the European Union in August and
December 1998, respectively.

                                       11
<PAGE>

PRODUCTS

Cardima is developing  microcatheter  systems for the diagnosis and treatment of
AF and VT.  These  systems are  designed,  in the case of AF, to access both the
right  and left  atria  and,  in the case of VT,  to be  positioned  within  the
coronary  vasculature  using a guiding catheter in a system similar to that used
in angioplasty  procedures.  Cardima's  microcatheter systems are designed to be
used  endocardially  in the atria to map and then ablate AF through the creation
of long, thin, continuous, linear, transmural lesions. For VT, these systems are
designed to provide  intravascular  access to the heart to map and ablate within
the wall of the ventricles.  All of the Company's  microcatheters  are available
with a variety of electrode numbers,  electrode spacing configurations and outer
diameters.  The series of  electrodes  at the distal ends can,  depending on the
particular product,  may both receive electrical signals for mapping and emit RF
energy for ablation.  In addition,  these  microcatheter  systems are smaller in
diameter  and are  designed to be more  flexible and  torqueable  than  standard
electrophysiology    catheters,    providing   better   steerability   for   the
electrophysiologist.  The Company's  microcatheters are designed for single use.
The Company is designing its products to be used with existing electrophysiology
recording systems and RF ablation generators.  The Company's ancillary products,
including guiding catheters, guidewires,  electrical switch boxes and connecting
cables, support these microcatheter systems.

The  following  table  describes  the  Company's  products  and  their  intended
indications and regulatory status:


<TABLE>
<CAPTION>

                                                                                                         INTERNATIONAL
   AF PRODUCTS                DESCRIPTION             INDICATION      U.S. REGULATORY STATUS(1)       REGULATORY STATUS(1)
-------------------  ------------------------------ ---------------- -----------------------------  -------------------------
<S>                  <C>                            <C>              <C>                            <C>

Revelation           Fixed-wire multi-electrode     Mapping          510(k) clearance obtained.     Approved in European
                     microcatheter system                                                           Union (CE Mark) and
                     designed to map in both                                                        Japan.
                     right and left atria.
                     Also can be used for           Ablation                                        Approved in the
                     ablation in approved markets.                                                  European Union (CE
                                                                                                    Mark) for ablation.

Revelation Tx        Fixed-wire multi-electrode     Mapping and      Phase II IDE approved;         Approved in European
                     microcatheter system with      Ablation         clinical trial in progress.    Union (CE Mark).
                     temperature sensors designed
                     to map and create long, thin,
                     continuous, linear, transmural
                     lesions inthe right atrium.

Revelation T-Flex    Steerable fixed-wire multi-    Mapping and                                     Approved in European
                     electrode microcatheter        Ablation
                     system with temperature
                     sensors designed to map and
                     create long, thin, continous,
                     linear, transmural lesions in
                     the right atrium.


   VT PRODUCTS
-------------------
Cardima Pathfinder   Fixed-wire multi-electrode     Mapping          510(k) clearance obtained.     Approved in European
                     microcatheter system                                                           Union (CE Mark) and
                     designed for accessing                                                         Japan.
                     coronary sinus vasculature
                     to locate arrhythmia causing
                     tissue.

 Pathfinder MINI     Smallest Cardima Pathfinder    Mapping          510(k) clearance obtained.     Approved in European
                     microcatheter (1.5 French)                                                     Union (CE Mark) and
                     designed to provide access                                                     Japan.
                     to more distal, smaller
                     coronary veins

</TABLE>

                                       12

<PAGE>
<TABLE>
                                                                                                         INTERNATIONAL
   VT PRODUCTS                DESCRIPTION             INDICATION      U.S. REGULATORY STATUS(1)       REGULATORY STATUS(1)
-------------------  ------------------------------ ---------------- -----------------------------  -------------------------
<S>                  <C>                            <C>              <C>                            <C>

Tracer               Over-the-wire                  Mapping          510(k) clearance obtained.     Approved in European
                     multi-electrode                                                                Union (CE Mark) and
                     microcatheter system                                                           Japan.
                     designed to be used in the
                     veins of the heart wall over
                     a guidewire.

Therastream          Over-the-wire multi-electrode  Ablation         IDE approved for feasibility   Study Planned for at least
                     microcatheter system designed                   trial. Expected completion Q1  one center in European
                     for mapping and ablation from                   2000                           Union.
                     within the veins of the heart
                     hall.


 SUPPORT
PRODUCTS
-------------------
Venaport             Coronary sinus guiding         Venous access    510(k) clearance obtained.     Approved in European
                     catheters with a family of                                                     Union (CE Mark) and
                     curve shapes and lengths.                                                      Japan.
                     Designed to deliver Cardima
                     microcatheters.

Vueport              Balloon-tipped coronary sinus  Venous access    510(k) clearance obtained      Approved in European
                     guiding catheter designed to   delivery of EP                                  Union (CE Mark).
                     facilitate delivery of         catheters,
                     electrophysiology (EP)         venography
                     catheters and provide occlusive
                     venography.

Naviport             Deflectable guiding catheter   EP catheter      510(k) clearance obtained      Approved in European
                     designed to facilitate         delivery and                                    Union (CE Mark).
                     delivery of EP catheters.      support

EP Select            Switch box designed to         Connectivity     510(k) clearance obtained.     Approved in European
                     interface with existing        for pacing and                                  Union (CE Mark).
                     electrophysiology lab          eletrophysiol-
                     equipment and multi-electrode  ogy recording.
                     catheters.

Tx Select            Switch box designed to         Connectivity                                    Approved in European
                     interface with existing        for pacing,                                     Union (CE Mark).
                     electrophysiology lab          electrophysiol-ogy
                     equipment and multi-electrode  recording and
                     catheters.                     radio
                                                    frequency
                                                    ablation.

</TABLE>

(1)  The regulatory status of the Company's microcatheter systems reflects the
     Company's current estimates of the timing of regulatory submission in the
     United States, Europe and Japan. See "--Government Regulation." The actual
     submission times could differ materially from those anticipated in these
     forward-looking statements as a result of certain factors, including
     failure to complete development of microcatheter systems or to demonstrate
     safety or effectiveness in clinical studies, as well as the other factors
     set forth under the Company's "Management's Discussion and Analysis of
     Financial Condition and Results of Operations - Factors Affecting Future
     Results" and elsewhere in this Annual Report on Form 10-K.



                                       14
<PAGE>

PRODUCTS DESIGNED FOR MAPPING AND ABLATING AF

The Company  believes  its  microcatheter  systems can access the right and left
atria in a minimally  invasive  procedure and are designed to effectively ablate
AF by creating long, thin, continuous, linear, transmural lesions in the atria.

CARDIMA  REVELATION  FOR AF  MAPPING.  The  Revelation  microcatheter  system is
designed to facilitate mapping of the atria. The Revelation is a thin, flexible,
eight  electrode  microcatheter.  The Revelation  microcatheter  system is a 3.3
French diameter  microcatheter that incorporates  variable stiffness  technology
that  permits  access to any area of the atria  and has  three  millimeter  long
platinum coil electrodes for added flexibility to enhance contact to surrounding
heart  tissue.  This  microcatheter  system is being sold for  mapping AF in the
United States,  Europe and Japan.  The Revelation is also approved for treatment
of AF in the European Union.

The Company  believes  that mapping  prior to ablation may be useful to identify
different  segments of the AF population,  each of which could require  slightly
different ablation procedures.  For example, some  electrophysiologists  believe
most AF  patients  will need to be mapped and ablated in both the left and right
atria,  while others believe only right atrial  intervention  is warranted.  The
Company believes that its products will have clinical utility in either of these
situations.

CARDIMA  REVELATION TX FOR AF ABLATION.  The Revelation Tx is a thin,  flexible,
eight electrode  microcatheter.  The Revelation Tx microcatheter system is a 3.7
French diameter  microcatheter that incorporates  variable stiffness  technology
that  permits  access  to any  area of the  atria  and has six  millimeter  long
platinum coil electrodes for added flexibility to enhance contact to surrounding
heart tissue.  The Company's animal studies have demonstrated the ability of the
Revelation Tx to create these thin continuous  transmural  linear  lesions.  The
Revelation Tx also has  temperature  sensing  thermocouples  placed between each
coiled  electrode  to monitor  tissue  temperature  during  ablation.  The eight
electrodes  are closely  grouped and can be used to create a  continuous  lesion
that extends through the thickness of the atrial wall. The Company believes that
the  electrophysiologist  will be able to use the  Revelation  Tx  microcatheter
system to create long, thin, continuous,  linear, transmural lesions in both the
right and left atria,  thereby restoring normal electrical function in the atria
by isolating the arrhythmia causing tissue in a manner similar to the open heart
surgical maze  procedure,  without the  associated  risk and at a  significantly
reduced expense.  Unlike other catheter-based  ablation techniques,  such as the
"drag and burn" approach,  the Cardima  approach does not involve  resetting the
catheter  position  during  the  linear  ablation  procedure.  As a result,  the
Revelation Tx may have the ability to more  effectively  and rapidly isolate the
arrhythmia causing tissue.

The Revelation Tx microcatheter is designed with narrow electrodes that are able
to deliver  ablation  energy to the atrial  tissue at much lower power  settings
than  documented  with  standard  electrophysiology  catheters.  The Company has
designed its Revelation Tx microcatheter  system to be used with leading cardiac
electrophysiology RF generators and electrophysiology mapping computer systems.

The Company  submitted an IDE for an expanded  feasibility  study to treat AF in
the United States and received  approval in December 1998. The Company  believes
that PMA  approval  will be  required  before the Cardima  Revelation  Tx can be
marketed in the United States to treat AF. See "--Government Regulation."

                                       15
<PAGE>

PRODUCTS DESIGNED FOR MAPPING AND ABLATING VT

The Company's  intravascular approach allows its microcatheters to be positioned
in close  proximity  to the VT causing  tissue and provides  stable  positioning
within the vascular  system.  The Company  believes this approach will result in
greater accuracy of diagnosis and more effective  treatment.  The Company is not
aware of any other epicardial mapping catheters in development.

CARDIMA  PATHFINDER,  PATHFINDER  MINI AND TRACER FOR VT MAPPING.  The Company's
microcatheter  systems  used for  diagnosing  VT are  designed to be  positioned
within the coronary  vasculature using a guiding catheter or guidewire,  similar
to those used in angioplasty  procedures,  and which have a series of electrodes
at their  distal ends in order to perform as  electrophysiology  catheters.  The
Cardima  Pathfinder  and Tracer  microcatheter  systems can be used to subselect
vessels and even  access the small veins  located at the apex (lower tip) of the
heart. The Cardima  Pathfinder and Tracer  microcatheter  systems are configured
with either four, eight or 16 electrodes,  which enable the physician to perform
a narrow focus  evaluation  using a smaller  number of  electrodes,  if there is
reason to believe  the VT causing  tissue is  located in a specific  area,  or a
wider focus  evaluation  using larger number of  electrodes,  if there is little
indication regarding the location of the VT causing tissue. The Pathfinder MINI,
the Company's smallest microcatheter system, was developed for VT mapping in the
venous  system.  The  Pathfinder  MINI is 1.5 French in  diameter  (the  typical
catheter is six to eight  French)  and  provides  more distal  access to smaller
vasculature  of  the  heart.  Similar  to  the  Pathfinder  microcatheter,   the
Pathfinder MINI microcatheter is constructed around a finely ground core-wire to
provide the steerability necessary to access distal vasculature.  The Pathfinder
MINI  microcatheter  has a flexible  platinum  tip coil and  contains a variable
number of electrodes with different spacing options.

In July,  1998, The Company  received 510(k)  clearance and CE Mark approval for
the Cardima  Pathfinder  microcatheter  system for mapping VT. The Company sells
the  Cardima  Pathfinder  for  VT  mapping  in the  United  States  through  its
Distribution Agreement with St. Jude which commenced on February 1, 2000, and in
Europe  through  a  small  direct  sales  force  and  an  expanding  network  of
distributors.  Products  in Japan,  Australia  and Canada are sold  through  the
Company's  distributor  networks in each  country.  The Cardima  Pathfinder  can
safely map VT via the  coronary  veins and up to four Cardima  Pathfinders  have
been placed in various  vessels of the coronary system  simultaneously,  thereby
aiding in the diagnosis of VT.

THERASTREAM FOR VT ABLATION. The Company's epicardial approach to VT ablation is
intended to address the shortcomings of standard endocardial ablation catheters.
Once a VT focus has been identified as being epicardial or intramyocardial,  the
electrophysiologist  must decide  whether or not to attempt to ablate that focus
from the endocardial side of the heart wall.  Physicians using existing ablation
systems are faced with a fundamental  problem:  the further the VT focus is from
the endocardial  side of the heart wall, the larger the lesion size necessary to
cure  the  condition.  Traditionally,   electrophysiologists  have  had  to  use
catheters and  generators  capable of making larger  lesions since they can only
ablate the arrhythmia  causing tissue from the endocardial  side. A large number
of VT ablation cases required  multiple  endocardial RF energy deliveries (up to
30 or more in one electrophysiology  study). Increased endocardial RF energy, if
delivered in the left side of the heart's  ventricles may result in greater risk
that the patient will develop blood clots,  which may dislodge and travel to the
brain  causing  stroke and decreased  cardiac  output.  Cardima's  microcatheter
systems  are  intended  to offer an  alternative  approach  to current  ablation
techniques by facilitating access to the arrhythmia causing tissue and providing
greater

                                       16
<PAGE>

ablation accuracy using less RF energy.  The Company is not aware of any
epicardial  RF  ablation  catheter  to  treat  VT  other  than  its  Therastream
microcatheter system under development.

The Therastream  microcatheter tracks over a guidewire in the coronary veins and
can access the important distal vasculature  regions of the heart and deliver RF
energy in the epicardium.  The Therastream is designed to map, locate and ablate
the VT focus using RF energy directly applied through the veins. The Company has
completed animal studies to demonstrate the ability of the Therastream to access
the distal  venous  system and  safely  deliver RF energy  with no damage to the
adjacent   arteries.   In  these   experiments   the  Therastream  has  required
significantly less energy to ablate VT than standard endocardial catheters.

The Company has received  approval of an IDE for the  Therastream  microcatheter
system  in the  second  half of 1999  and has  begun a  preliminary  feasibility
clinical trial. The Company must receive PMA approval before the Therastream can
be marketed in the United States for VT ablation. See "--Government Regulation."

The Company's intravascular electrophysiology  microcatheters,  exclusive of the
guiding catheters,  are coated with a hydrophilic coating. This coating has been
used on  Target's  products  designed  to access the  vessels of the brain.  The
Company believes the coating significantly improves product  functionality.  The
Company has an exclusive  license to use the hydrophilic  coating  technology in
products designed to map and ablate cardiac  arrhythmias while positioned within
coronary vasculature.

The Cardima  Pathfinder and  Pathfinder  MINI  microcatheter  systems for venous
mapping  of VT have  received  510(k)  clearances  from the FDA,  as well as the
Venaport,  Vueport and Naviport  families of guiding  catheters.  The  Company's
other microcatheter  systems for mapping or ablation of VT have not received FDA
clearance or approval for marketing and  distribution in the United States.  The
Company's  microcatheter  systems for ablation are at an early stage of testing.
There can be no  assurance  that the  results of the  Company's  human  clinical
ablation  studies will validate the results of its animal  studies.  The Company
has received approval to begin an IDE feasibility  clinical trial.  There can be
no assurance that this trial will be completed  with the desired  results for VT
treatment,  that the FDA will allow any further  trials or that the  Therastream
product  will  ever  be  approved  for VT  ablation.  See  "-- No  Assurance  of
Obtaining, Required Regulatory Approvals; Government Regulation."

RESEARCH AND NEW PRODUCT DEVELOPMENT

The Company believes its future success will depend in large part on its ability
to develop and introduce  clinically advanced diagnostic and therapeutic systems
that are effective,  easy to use, safe and reliable.  The Company's research and
new product  development  department  focuses on the continued  development  and
refinement of its existing diagnostic devices,  systems and procedures,  as well
as on the  development  of new  devices,  systems and  procedures  for  treating
cardiac  arrhythmias.  The Company's  primary research and development  programs
involve  completing  the  development  of  microcatheter  systems  for AF and VT
ablation.

Research and  development  expenses for the years ended December 31, 1999,  1998
and 1997,  were $5.7 million $7.2 million and $5.3  million,  respectively.  The
Company  announced a workforce  reduction in January  1999,  which  affected all
functional  areas,  including  research  and  development.  The Company  focused
efforts on  specific  projects,  which have  reduced  research  and  development
expenses for 1999.

                                       17
<PAGE>

MARKETING AND DISTRIBUTION

The Company has marketed  and sold its  microcatheter  systems  through a direct
sales  force in the  United  States,  France and  Germany,  and  medical  device
distributors  in other countries  throughout  1999. In January 2000, the Company
signed an  exclusive  three year  Distribution  Agreement  with St. Jude Medical
Corporation to distribute the Company's diagnostic products in the United States
through its Daig Division sales force.

The Company has maintained direct sales rights in one specific territory and has
two field  managers to interface  and assist the Daig sales force in its efforts
to sell the Company's products.  In December 1999, the Company  restructured its
European sales force, specifically in France, the Mediterranean area and Germany
to  reduce  expenditures  in line  with  sales in those  particularregions.  The
Company is in the process of  selecting  a  distributor  in France.  The Company
still  maintains a sales manager and a Clinical  Specialist in Europe,  where we
have products approved for ablation.  The Company believes there are between 500
and  600  hospitals  in the  United  States  and  an  additional  600  hospitals
internationally  that perform  electrophysiology  procedures on a routine basis.
Further,   the   Company   believes   there   are  over  600   board   certified
electrophysiologists  in the United  States,  and an equal number of  practicing
electrophysiologists  internationally.  However,  there can be no assurance that
the  Distribution  Agreement  with St. Jude will result in successful  growth or
commercialization of the Company's products.

The  Company  currently  has a limited  international  sales  organization.  The
Company currently has one sales manager/representative in Germany. The Company's
Vice President of World Wide Sales,  in conjunction  with the European  Manager,
manage distributor relationships on a worldwide basis.

To date, the Company has not established all of the  international  distribution
alliances  necessary to fully market these  products on a worldwide  basis,  nor
does  the  Company  have  written  distribution   agreements  with  all  of  its
international  distributors.  There can be no assurance the Company will be able
to enter into written  agreements  with existing  distributors  or that any such
distributors will devote adequate resources to selling the Company's products.

MANUFACTURING

The Company  fabricates  certain  proprietary  components  of its  products  and
assembles,  inspects, tests and packages most components into finished products.
Designing and  manufacturing  its products from raw materials allows the Company
to maintain greater control of quality and manufacturing process changes and the
ability to limit outside access to its proprietary technology.

The Company believes its  custom-designed,  proprietary  process equipment is an
important  component of its manufacturing  strategy.  In some cases, the Company
has developed  proprietary  enhancements  for existing  production  machinery to
facilitate the  manufacture of its products to exacting  standards.  The Company
has also  developed core  manufacturing  technologies  and processes,  including
proprietary extrusion techniques and equipment, polymer processing capabilities,
including composite lamination, welding of dissimilar materials, balloon forming
and proprietary  precision guidewire grinding techniques enabling fabrication of
a  large  variety  of  guidewire  core  profiles.   Furthermore,  the  Company's
technological  expertise  includes  braiding,   hydrophilic  coating,   material
cleaning and surface preparation.

                                       18
<PAGE>

Catheter  manufacturing  involves  complex  operations with a number of separate
processes  and  components.  Catheters  are  assembled and tested by the Company
prior to  sterilization.  The  manufacturing  process for the  connecting  cable
consists  primarily of testing and  packaging  purchased  units.  If the Company
receives additional FDA clearance or approval for its products,  it will need to
expend  significant  capital  resources  and  develop  additional  manufacturing
expertise to establish large-scale manufacturing  capabilities.  The Company has
no experience  manufacturing  its products in the volumes that will be necessary
for the Company to achieve  significant  commercial  sales,  and there can be no
assurance that reliable,  high-volume  manufacturing capacity can be established
or maintained at commercially reasonable costs.

Components and raw materials are purchased from various qualified  suppliers and
subjected to stringent  quality  specifications.  The Company expects to conduct
supplier quality audits and is establishing a supplier  certification program. A
number of the components such as laminate tubing, core wire mandrels,  connector
components and hydrophilic  coating are provided by sole source  suppliers.  For
certain of these  components,  there are relatively few  alternative  sources of
supply,   and  establishing   additional  or  replacement   suppliers  for  such
components,  particularly  laminate tubing,  could not be accomplished  quickly,
which  would  have a  material  adverse  effect  on  the  Company's  ability  to
manufacture  products and  therefore on its  business,  financial  condition and
ability to test or market its products on a timely  basis.  The Company plans to
qualify  additional  suppliers  if and as future  production  volumes  increase.
Because of the long lead time for some components which are currently  available
from a single  source,  a supplier's  inability to supply such  components  in a
timely manner could have a material  adverse effect on the Company's  ability to
manufacture  products and  therefore on its  business,  financial  condition and
ability to test or market its products on a timely basis.

The Company's  manufacturing  facilities are subject to periodic inspection from
regulatory  authorities,  and its  operations  must undergo QSR and ISO 9001 (EN
46001) compliance  inspections  conducted by the FDA and TUV, a notified body (a
regulatory agency) in the European Union ("EU"),  respectively.  The Company has
obtained  ISO 9001 (EN 46001)  Quality  Systems  certification  from TUV and has
obtained  the right to affix  the CE Mark to  certain  of its  electrophysiology
mapping  and  ablation  catheters  and  accessories.  The  Company is subject to
periodic inspections by the FDA and California Department of Heath Services. The
Company's  facilities  and  manufacturing  processes  have recently  undergone a
successful annual recertification  inspection by TUV in December 1998. There can
be no  assurance  that the  Company's  manufacturing  facilities  will meet such
compliance  standards or if met,  maintain  such  standards.  See  "--Government
Regulation."

PATENTS AND PROPRIETARY RIGHTS

The  Company's  success will depend in part on its ability to obtain  patent and
copyright  protection  for its  products  and  processes,  to preserve its trade
secrets and to operate without infringing or violating the proprietary rights of
third parties. The Company's strategy is to actively pursue patent protection in
the United  States and foreign  jurisdictions  for  technology it believes to be
proprietary and which offers a potential competitive advantage for its products.
The Company has filed and intends to continue to file patent applications,  both
in the United States and selected  international markets, to seek protection for
proprietary aspects of the technology. The Company holds 21 issued United States
patents and has filed 10 pending United States patent applications, of which two
have been allowed.  The Company has also filed 45 patent  applications  in major
international  markets. No assurance can be given that these patent

                                       19
<PAGE>

applications will provide  competitive  advantages for the Company's products or
that any patent  application  filed by the  Company  will issue as a patent.  In
addition,  there can be no  assurance  any of the  Company's  patents  or patent
applications will not be challenged, invalidated, or circumvented in the future.
There can also be no  assurance  that  competitors,  many of whom  have  greater
resources  than  the  Company  and have  substantial  investments  in  competing
technologies, will not apply for and obtain patents which will prevent, limit or
interfere with the Company's  ability to make,  use, or sell its products either
in the United States or internationally.

The Company has also  obtained  rights to certain  technology  by entering  into
license arrangements.  Pursuant to a license agreement with Target (the "License
Agreement"), the Company obtained an exclusive, royalty-free,  worldwide license
under  certain   patents   issued  in  the  United   States  and   corresponding
international  patents to use Target's  technology  and to make, use and sell or
otherwise   distribute   products   for   the   diagnosis   and   treatment   of
electrophysiological  diseases in the body,  other than in the  central  nervous
system,  including  the  brain.  The  exclusive  license  applies  to any Target
technology  developed through May 1996 and will terminate on April 23, 2013, the
expiration date of the  last-to-issue  licensed  patents issued prior to May 21,
1996.  In addition  to this  exclusive  license to use  Target's  technology  to
develop products for  electrophysiological  diseases, the Company has obtained a
non-exclusive  license  to use  Target's  technology,  provided  it  has  made a
substantial  improvement on such  technology,  for the diagnosis or treatment of
diseases  of the heart  other  than by  balloon  angioplasty.  As defined in the
License Agreement, a substantial improvement is any modification, improvement or
enhancement  of Target  technology  that  results  in a  material  change in the
function,  purpose or application of a particular product  incorporating  Target
technology.  The Company  believes that the  incorporation  of electrodes in its
microcatheter  systems,   together  with  other  modifications,   satisfies  the
substantial improvement requirement, although the Company has not confirmed this
belief in writing with Target.

Under the  License  Agreement,  Cardima  granted  back to  Target an  exclusive,
royalty-free,  worldwide license to use technology  developed by Cardima through
May  1996  in  the   fields   of   neurology,   interventional   neuroradiology,
interventional  radiology,  reproductive  disorders and vascular prostheses (the
"Target  Field").  In  addition,  the  Company  agreed not to  conduct  material
research and development, acquire corporate entities or make or sell products in
the Target Field or to sell  products,  other than products  utilizing  Target's
technology,  for use in  diagnosis  or  treatment  of  diseases  related  to the
production  of electrical  current in tissue  located in areas of the body other
than the heart,  without first  notifying  Target and negotiating a distribution
agreement.  Cardima  also  agreed  that it  would  not sell  products  utilizing
Target's technology for use in diagnosis or treatment of diseases related to the
production  of electrical  current in tissue  located in areas of the body other
than the heart without, if selling to a distributor,  first notifying Target and
offering  Target  the right of first  refusal  with  respect to the terms of the
distribution, or if selling directly to the consumer, paying to Target an amount
equal to 40% of the gross profit for such product.

Target is a subsidiary of Boston Scientific and, as a result of the acquisition,
Boston  Scientific  exercises control over  approximately  4.7% of the Company's
outstanding Common Stock as of December 31, 1999. Accordingly, Boston Scientific
may be able to exercise influence over the business and financial affairs of the
Company. Boston Scientific develops, markets and sells cardiac electrophysiology
products that compete directly with the  microcatheter  products being developed
by the Company.  There can be no assurance that Boston  Scientific will not take
actions or engage in activities that could have a material adverse effect on the
Company's business, financial condition or results of operations.

                                       20
<PAGE>

The Company obtained rights to its  biocompatible  hydrophilic  coating material
and process through an exclusive, royalty bearing license to use the hydrophilic
coating  technology in products  designed to map and ablate cardiac  arrhythmias
while  positioned  within the coronary  arteries and coronary veins. The license
will  terminate  upon the  later  of 15  years  from  first  commercial  sale of
catheters   treated  with  the  coating   material  or  the  expiration  of  the
last-to-issue licensed patent, unless terminated earlier for material breach.

In addition to patents and licenses, the Company also relies upon trade secrets,
technical know-how and continuing  technical  innovation to develop and maintain
its  competitive  position.   The  Company  typically  requires  its  employees,
consultants, and advisors to execute confidentiality and assignment of invention
agreements  in  connection  with  their   employment,   consulting  or  advisory
relationships  with the Company.  There can be no assurance,  however,  that the
agreements will not be breached or that the Company will have adequate  remedies
for any breach. Furthermore, no assurance can be given that competitors will not
independently  develop  substantially  equivalent  proprietary  information  and
techniques or otherwise gain access to the Company's proprietary  knowledge,  or
that the Company can meaningfully  protect its rights in unpatented  proprietary
technology.

Patent  applications  are  maintained  in secrecy until patents issue or, in the
case of patent  applications in foreign countries for a period of 18 months from
the priority  date.  Publication  of  discoveries  in the  scientific  or patent
literature   tend  to  lag  behind  actual   discoveries   and  related   patent
applications,  and the large  number of patents and  applications  and the fluid
state of the Company's development activities make comprehensive patent searches
and analysis  impractical or not  cost-effective.  Although the Company has made
patent and publication searches in the United States and in foreign countries to
determine  whether  materials,  processes or designs used by it or its potential
products infringe or will infringe third-party  patents,  such searches have not
been  comprehensive.  Patents issued and patent  applications  filed relating to
medical  devices are  voluminous  and there can be no assurance that current and
potential  competitors  and other third  parties have not filed or will not file
applications for, or have not received or will not receive, patents and will not
obtain  additional  proprietary  rights  relating  to  products,   materials  or
processes used or proposed to be used by the Company.

The medical  device  industry has been  characterized  by  extensive  litigation
regarding patents and other  intellectual  property rights, and companies in the
medical device industry have employed intellectual property litigation to gain a
competitive  advantage.  Although there are no claims  against the Company,  any
such claims,  with or without merit,  could be  time-consuming  and expensive to
respond to and could divert the Company's technical and management personnel. If
any third  party  patent  claims  are  upheld as valid  and  enforceable  in any
litigation or  administrative  proceeding,  the Company could be prevented  from
practicing the subject  matter claimed in such patents,  or could be required to
obtain licenses from the patent owners of each patent,  or redesign its products
or processes to avoid infringement. There can be no assurance such licenses will
be available  or, if  available,  will be available on terms  acceptable  to the
Company or that the Company  will be  successful  in any attempt to redesign its
products  or  processes   to  avoid   infringement.   Accordingly,   an  adverse
determination  in a judicial or  administrative  proceeding or failure to obtain
necessary  licenses could prevent the Company from manufacturing and selling its
products,  which would have a material adverse effect on the Company's business,
financial  condition,  and  results  of  operations.   The  Company  intends  to
vigorously   protect   and  defend  its   intellectual   property.   Costly  and
time-consuming  litigation  brought by the Company may be  necessary  to enforce
patents issued

                                       21
<PAGE>

to the Company,  to protect trade secrets or know-how owned by the Company or to
determine the  enforceability,  scope and validity of the proprietary  rights of
others.

The validity and breadth of claims in medical technology patents involve complex
legal and factual questions and, therefore,  may be highly uncertain.  There can
be no  assurance  that any  issued  patent or patents  based on  pending  patent
applications  or any future  patent  application  will  exclude  competitors  or
provide competitive  advantages to the Company, that any of the Company's patent
or patents in which it has  licensed  rights will be held valid if  subsequently
challenged  or that others will not claim  rights in or ownership of the patents
and other  proprietary  rights held or licensed by the Company.  There can be no
assurance that others have not developed or will not develop  similar  products,
duplicate any of the Company's  products or design around any patents  issued to
or licensed  by the Company or that may be issued in the future to the  Company.
Since patent  applications  in the United States are maintained in secrecy until
the patent issues,  the Company also cannot be certain that others did not first
file  applications  for  inventions  covered  by the  Company's  pending  patent
applications,  nor can the  Company be  certain  that it will not  infringe  any
patents that may issue to others on such applications.  The Company periodically
reviews the scope of patents of which it is aware. Although the Company does not
believe  that  it  infringes  patents  known  to  it,  the  question  of  patent
infringement  involves  complex  legal and  factual  issues  and there can be no
assurance that any conclusion reached by the Company regarding infringement will
be consistent with the resolution of any such issues by a court.

In addition,  the United States  patent laws exempt  medical  practitioners  and
related  health  care  entities  from  infringement  liability  for  medical and
surgical procedures in certain circumstances. The Company cannot predict whether
this exception might have a material adverse effect on the Company's  ability to
protect its proprietary methods and procedures.

COMPETITION

The  Company  believes  it  currently  has the only  intravascular  approach  to
diagnosing and treating VT. The Company considers its primary  competitors to be
companies engaged in the development and marketing of more established,  but the
Company believes,  less effective therapies for the treatment of AF and VT, such
as drugs,  external  electrical  cardioversion and  defibrillation,  implantable
defibrillators,  open heart surgery and  purposeful  destruction of the AV node,
followed by implantation of a pacemaker. Several competitors are also developing
new approaches and new products for the mapping and ablation of AF and VT. These
approaches include mapping systems using contact mapping,  single-point  spacial
mapping and non-contact, multi-site electrical mapping technologies and ablation
systems using ultrasound,  microwave,  laser and cryoablation  technologies.  In
addition, companies are developing surgical procedures that could potentially be
used by  physicians  to perform  the open heart  surgical  maze  procedure  in a
minimally  invasive manner. If any of these new approaches or new products prove
to be safe and effective, the Company's products could be rendered uncompetitive
or  obsolete,  which  could  have a  material  adverse  effect on the  Company's
business, financial condition and results of operations.

Many of the Company's  competitors have an established  presence in the field of
interventional  cardiology and  electrophysiology,  including Boston Scientific,
C.R. Bard, Inc.,  Johnson & Johnson,  through its Cordis division and Medtronic,
Inc. These competitors have substantially  greater financial and other resources
than the Company,  including  larger  research and  development  staffs and more
experience and capabilities in conducting  research and development  activities,
testing  products  in  clinical  trials,  obtaining

                                       22
<PAGE>

regulatory approvals,  and manufacturing,  marketing and distributing  products.
The Company has entered into an exclusive three-year distribution agreement with
St.  Jude  Medical,  Inc.,  through  its Daig  division,  whereby  St. Jude will
distribute the Company's line of diagnostic products in the U.S. Other companies
are  developing  proprietary  systems for the diagnosis and treatment of cardiac
arrhythmias,  including Biosense, Inc., a division of Johnson & Johnson, Cardiac
Pathways,  Inc. and Endocardial Solutions,  Inc. Other companies develop, market
and  sell  alternative  approaches  to the  treatment  of AF and  VT,  including
Guidant,  Medtronic,  Inc., and Ventritex Inc., a subsidiary of St. Jude Medical
Inc.,  manufacturers  of implantable  defibrillators.  There can be no assurance
that the Company will  succeed in  developing  and  marketing  technologies  and
products that are more  clinically  effective and  cost-effective  than the more
established  treatments or the new approaches  and products being  developed and
marketed by its  competitors.  Furthermore,  there can be no assurance  that the
Company will  succeed in  developing  new  technologies  and  products  that are
available  prior  to  its  competitors'  products.  Failure  of the  Company  to
demonstrate  the  competitive  advantages of its products  would have a material
adverse  effect on the Company's  business,  financial  condition and results of
operations.

In the market for cardiac  mapping and ablation  devices,  the Company  believes
that the primary competitive factors are safety, clinical effectiveness, ease of
use and overall cost to the health care system. In addition,  the length of time
required  for products to be developed  and to receive  regulatory  and, in some
cases,  reimbursement  approval is an important  competitive factor. The medical
device industry is characterized by rapid and significant  technological change.
Accordingly, the Company's success will depend in part on its ability to respond
quickly to  medical  and  technological  changes  through  the  development  and
introduction of new products. Product development involves a high degree of risk
and there can be no assurance that the Company's new product development efforts
will result in any  commercially  successful  products.  The Company believes it
competes favorably with respect to these factors, although there is no assurance
that it will be able to continue to do so.

GOVERNMENT REGULATION

The preclinical and clinical testing, manufacturing,  labeling, distribution and
promotion  of the  Company's  products  are subject to  extensive  and  rigorous
government  regulation in the United States and other  countries.  Noncompliance
with  applicable  requirements  can result in  enforcement  action by the FDA or
comparable  foreign  regulatory  bodies  including,  among other things,  fines,
injunctions,  civil penalties,  recall or seizure of products,  refusal to grant
premarket  clearances  or  approvals,  withdrawal  of  marketing  approvals  and
criminal prosecution.

UNITED STATES

A medical  device may be marketed in the United States only with the FDA's prior
authorization.  Devices  classified  by the FDA as posing  less risk are  placed
either in Class I or II.  All class II and some class I devices  require  510(k)
clearance from the FDA prior to marketing.  Such clearance  generally is granted
when submitted information  establishes that a proposed device is "substantially
equivalent"  in  intended  use and safety and  effectiveness  to a Class I or II
device already  legally on the market or to a  "pre-amendment"  Class III device
(i.e., one that has been in commercial  distribution  since before May 28, 1976)
for which the FDA has not called for PMA applications. The FDA recently has been
requiring a more rigorous  demonstration of substantial  equivalence than in the
past,  including  in some cases  requiring  clinical  trial  data.  During  this
process,  the FDA may determine that it needs  additional  information or that

                                       23
<PAGE>

a  proposed  device is  precluded  from  receiving  clearance  because it is not
substantially  equivalent to a legally  marketed  Class I or II device.  After a
device receives 510(k)  clearance,  any  modification  that could  significantly
affect its safety or  effectiveness,  or would  constitute a major change in the
intended use of the device,  will require a new 510(k)  submission.  The Company
believes  that  it  usually  takes  from  four to 12  months  from  the  date of
submission to obtain 510(k) clearance,  but it may take longer, and there can be
no assurance that 510(k) clearance will ever be obtained.

To date, the Company has received 510(k) clearances from the FDA for its Cardima
Pathfinder,  Pathfinder MINI and Tracer over-the-wire  microcatheter systems for
mapping VT and  Revelation  microcatheter  system for mapping  AF. In  addition,
510(k)  clearance has been received for marketing its line of Venaport,  Vueport
and Naviport guiding catheters used for introducing  electrophysiology catheters
into the heart.

A device  that does not  qualify  for 510(k)  clearance  is placed in Class III,
which is reserved for devices  classified by the FDA as posing the greatest risk
(e.g., life-sustaining,  life-supporting or implantable devices, or devices that
are not  substantially  equivalent  to a  legally  marketed  Class I or Class II
device). A Class III device generally must receive PMA approval,  which requires
the manufacturer to establish the safety and  effectiveness of the device to the
FDA's  satisfaction.  A PMA application must provide  extensive  preclinical and
clinical  trial  data and also  include  information  about the  device  and its
components regarding, among other things, manufacturing, labeling and promotion.
As part of the PMA review,  the FDA will inspect the  manufacturer's  facilities
for  compliance  with the Quality  System  Regulation  ("QSR"),  which  includes
elaborate  testing,  design control,  documentation  and other quality assurance
procedures.

Upon  submission,  the FDA  determines if the PMA  application  is  sufficiently
complete to permit a substantive review, and, if so, the application is accepted
for filing.  The FDA then commences an in-depth  review of the PMA  application,
which the Company  believes  typically  takes one to three  years,  but may take
longer. The review time is often  significantly  extended as a result of the FDA
asking for more information or clarification  of information  already  provided.
The  FDA  also  may  respond  with a "not  approvable"  determination  based  on
deficiencies in the application and require additional  clinical trials that are
often  expensive and time  consuming  and can delay  approval for months or even
years.  Recently,  the FDA has  heightened  its scrutiny of clinical  trial data
submitted  in support of PMA  applications.  During the review,  an FDA advisory
committee,  typically a panel of  clinicians,  likely will be convened to review
the application and recommend to the FDA whether,  or upon what conditions,  the
device should be approved.  Although the FDA is not bound by the advisory  panel
decision,  the panel's recommendation is important to the FDA's overall decision
making process.

If the FDA's  evaluation of the PMA application is favorable,  the FDA typically
issues an "approvable letter" requiring the applicant's agreement to comply with
specific conditions (e.g., changes in labeling) or to supply specific additional
data (e.g., longer patient follow up) or information (e.g.,  submission of final
labeling) in order to secure  final  approval of the PMA  application.  Once the
approvable  letter  conditions are  satisfied,  the FDA will issue a PMA for the
approved indications,  which can be more limited than those originally sought by
the  manufacturer.  The PMA can include post  approval  conditions  that the FDA
believes  necessary  to  ensure  the  safety  and  effectiveness  of the  device
including,  among other things,  restrictions on labeling,  promotion,  sale and
distribution.  Failure to comply with the  conditions  of approval can result in
enforcement action,  including  withdrawal of the approval,  which in turn would
have

                                       24
<PAGE>

a material adverse effect on the Company.  The PMA process can be expensive
and lengthy, and no assurance can be given that any PMA application will ever be
approved  for  marketing.  Even  after  approval  of a  PMA,  a new  PMA  or PMA
supplement  generally  is  required  for any  modification  to the  device,  its
labeling or its manufacturing process.

The  Company  anticipates  that its  ablation  products,  including  the Cardima
Revelation Tx and Therastream, will be Class III devices requiring PMA approval.
There can be no assurance that a PMA application  will be submitted for any such
products or that,  once  submitted,  the PMA  application  will be accepted  for
filing,  found approvable,  or, if found  approvable,  will not take longer than
expected to obtain, or will not include unfavorable restrictions.

A clinical trial in support of a 510(k) submission or PMA application  generally
requires an IDE application approved in advance by the FDA for a specific number
of patients.  The IDE application must be supported by appropriate data, such as
animal and  laboratory  testing  results.  Clinical  trials may begin if the IDE
application is approved by the FDA and by the appropriate  institutional  review
boards at the clinical trial sites.  During a clinical trial,  the Company would
be  permitted  to sell  products  used in the study for an amount  that does not
exceed recovery of the costs of manufacture, research, development and handling.
The Company's failure to adhere to regulatory  requirements generally applicable
to clinical  trials and to the  conditions of an IDE approval  could result in a
material adverse effect on the Company,  including termination of the IDE and an
inability to obtain marketing clearance or approval for its products.

The Company  received 510(k) clearance for Revelation  microcatheter  system for
mapping of AF. The Company also received  approval to begin  various  phases for
its expanded clinical trial in May and December 1998, and in June 1999, with the
Cardima  Revelation  Tx  product.   An  IDE  for  its  Therastream  VT  ablation
microcatheter system was approved by the FDA in November 1999. These studies are
not expected to supply  pivotal  evidence of safety and  effectiveness;  rather,
they are intended to generate  data to help  finalize  the  device's  design and
determine its potential for further  development,  if any.  Additional  clinical
trials will be necessary to support PMA  applications by the Company.  There can
be no assurance that any clinical study proposed by the Company will be approved
by the  FDA,  will  be  completed  or,  if  completed,  will  provide  data  and
information that supports PMA approval or additional clinical  investigations of
the type necessary to obtain PMA approval.

Any  devices  manufactured  or  distributed  by  the  Company  pursuant  to  FDA
clearances or approvals will be subject to pervasive and  continuing  regulation
by the FDA and certain state  agencies.  The Company is subject to inspection by
the FDA and the California  Department of Health Services and has to comply with
various other  regulatory  requirements  that usually  apply to medical  devices
marketed in the United  States,  including  labeling  regulations,  the QSR, the
Medical Device Reporting ("MDR")  regulation (which requires that a manufacturer
report to the FDA certain types of adverse events  involving its products),  and
the FDA's  prohibitions  against  promoting  approved  products  for  unapproved
("off-label") uses. In addition, Class II devices, such as the Company's mapping
products,  can be subject to  additional  special  controls  (e.g.,  performance
standards, postmarket surveillance, patient registries, and FDA guidelines) that
do not apply to Class I devices. The Company's failure to comply with applicable
regulatory  requirements  could result in  enforcement  action by the FDA, which
could have a material adverse effect on the Company.

                                       25
<PAGE>

Unanticipated  changes  in  existing  regulatory  requirements,  failure  of the
Company to comply with such  requirements or adoption of new requirements  could
have a material  adverse  effect on the Company.  The Company also is subject to
numerous federal,  state and local laws relating to such matters as safe working
conditions, good manufacturing practices,  environmental protection, fire hazard
control and hazardous substance disposal.  There can be no assurance the Company
will not be  required  to incur  significant  costs to comply with such laws and
regulations  in the  future  or that such  laws or  regulations  will not have a
material  adverse effect upon the Company's  business,  financial  condition and
results of operations.

INTERNATIONAL

In order for the  Company to market its  products  in Europe and  certain  other
foreign jurisdictions, the Company must obtain required regulatory approvals and
clearances and otherwise comply with extensive  regulations regarding safety and
manufacturing   processes  and  quality.   These   regulations,   including  the
requirements  for  approvals or  clearance  to market and the time  required for
regulatory  review,  vary from  country to country.  In  addition,  there may be
foreign  regulatory  barriers  other than  premarket  approval.  There can be no
assurance the Company will obtain regulatory approvals in such countries or that
it will not be required to incur  significant  costs in obtaining or maintaining
its foreign regulatory approvals.  Under certain circumstances,  FDA approval is
required for the Company to export its products.  Delays in receipt of approvals
to market the Company's products,  failure to receive these approvals or loss of
previously  received  approvals  could  have a  material  adverse  effect on the
Company's business, financial condition and results of operations.

The EU has promulgated  rules that require medical  products to bear the CE Mark
by  mid-1998.  The CE Mark is  recognized  by the EU as a symbol of adherence to
strict quality systems requirements set forth in the ISO 9001 (EN 46001) quality
standards, as well as compliance with 93/42/EEC, the Medical Device Directive. A
CE Mark allows the Company to avoid the costly and  cumbersome  requirements  to
obtain  approvals in each EU country.  The Company  received ISO 9001 (EN 46001)
Quality  Systems  certification  for its  manufacturing  facilities  in Fremont,
California.  In December 1998, the Company  received ISO 9001  re-certification.
This  certification  is  required  in order to affix  the CE Mark to  applicable
products.

The  Company  has  received  CE  Mark  for  the  Revelation  and  Revelation  Tx
microcatheters  for treatment of AF. The Company  intends to seek  international
approvals for its other ablation  products,  however,  there can be no assurance
the Company will be successful in obtaining such  approvals.  Failure to receive
approval to affix the CE Mark would  prohibit  the Company  from  selling  these
products in member countries of the EU, and would require  significant delays in
obtaining  individual  country  approvals.  There can be no assurance  that such
approvals will ever be obtained.  In such event, the Company would be materially
and adversely affected.

THIRD-PARTY REIMBURSEMENT

In the United States, health care providers, including hospitals and physicians,
that purchase medical  products for treatment of their patients,  generally rely
on third-party payors,  principally federal Medicare, state Medicaid and private
health  insurance  plans,  to  reimburse  all or a part of the  costs  and  fees
associated with the procedures  performed  using these  products.  The Company's
success will be dependent upon,  among other things,  the ability of health care
providers  to obtain  satisfactory

                                       26
<PAGE>

reimbursement  from  third-party  payors  for  medical  procedures  in which the
Company's  products are used.  Third-party payors may deny reimbursement if they
determine  that a  prescribed  device has not  received  appropriate  regulatory
clearances or approvals, is not used in accordance with cost-effective treatment
methods  as  determined  by  the  payor,   or  is   experimental,   unnecessary,
inappropriate or used for a nonapproved indication. If FDA clearance or approval
is received,  third-party  reimbursement would also depend upon decisions by the
United States Health Care  Financing  Administration  ("HCFA") for Medicare,  as
well as by individual  health  maintenance  organizations,  private insurers and
other payors.  Government agencies,  private insurers and other payors determine
whether to provide  coverage  for a  particular  procedure  based on its medical
necessity for the patient in question.  The Federal Medicare Program, many state
Medicaid  programs and other payors  reimburse health care providers for medical
treatment at a fixed rate based on, or adapted from the diagnosis-related  group
("DRG")  established by the HCFA. The fixed rate of  reimbursement  is typically
based on the patient's diagnosis and the procedure  performed,  and unrelated to
the  specific  type or number of devices  used in a  procedure.  There can be no
assurance  that  reimbursement  for the Company's  products will be available in
sufficient amounts if, at all, or that future  reimbursement  policies of payors
will not  adversely  affect  the  Company's  ability to sell its  products  on a
profitable basis.

In addition,  Medicare  traditionally has considered items or services involving
devices  that have not been  approved  or  cleared  for  marketing  by FDA to be
precluded  from  Medicare  coverage.  However,  under a policy which has been in
effect since November 1, 1995, Medicare coverage will not be precluded for items
and related  services  involving  devices  that have been  classified  by FDA as
"non-experimental / investigational" (Category B) devices and that are furnished
in accordance with the  FDA-approved IDE governing  clinical  trials.  Even with
items or services involving Category B devices,  however,  Medicare coverage may
be denied if any other  coverage  requirements  are not met,  for example if the
treatment  is not  medically  needed for the specific  patient.  There can be no
assurance  that the  Company's  systems  will be  covered  when they are used in
clinical trials and, if covered,  whether the payment amounts for their use will
be considered to be adequate by hospitals and physicians. If the devices are not
covered or the payments are considered to be inadequate, the Company may need to
bear  additional  costs to sponsor  such  trials,  and such  costs  could have a
material  adverse  effect on the  Company's  business,  financial  condition and
results of operations.

There is also proposed  federal  legislation  that would change the  traditional
Medicare  payment  system by creating a new  visit-based  payment  system called
ambulatory  patient groups ("APG") that establishes  fixed payments for specific
medical  procedures that are performed on an outpatient  basis. If the Company's
products  increase  the cost per  procedure  above the fixed  rate under the APG
system, market acceptance of such products could be impaired, which would have a
material  adverse  effect on the  Company's  business,  financial  condition and
results of operations.

Reimbursement systems in international markets vary significantly by country and
by region within some countries, and reimbursement approvals must be obtained on
a country-by-country  basis. Many international  markets have government managed
health care systems that control  reimbursement for new products and procedures.
In most  markets,  there are  private  insurance  systems as well as  government
managed systems.  Market acceptance of the Company's products will depend on the
availability and level of reimbursement in international markets targeted by the
Company. There can be no assurance that the Company will obtain reimbursement in
any country within a particular  time,  for a particular  time, for a particular
amount, or at all.

                                       27
<PAGE>

Regardless  of the type of  reimbursement  system,  the  Company  believes  that
physician  advocacy  of the  Company's  products  will  be  required  to  obtain
reimbursement.  The Company  believes  that less invasive  procedures  generally
provide less costly overall therapies as compared to conventional  drug, surgery
and other  treatments.  In  addition,  the  Company  believes  that a  patient's
underlying  arrhythmia  should  typically  not recur  after  treatment  with the
Company's procedures.  The Company anticipates that hospital  administrators and
physicians would justify the use of the Company's products by the attendant cost
savings and clinical  benefits that the Company  believes  would be derived from
the use of its  products.  However,  there can be no assurance  this will be the
case. There can be no assurance reimbursement for the Company's products will be
available  in  the  United  States  or in  international  markets  under  either
government or private reimbursement systems, or that physicians will support and
advocate  reimbursement for procedures using the Company's products.  Failure by
hospitals and other users of the Company's products to obtain reimbursement from
third-party  payors,  or changes in government and private  third-party  payors'
policies toward  reimbursement for procedures  employing the Company's products,
would  have a  material  adverse  effect on the  Company's  business,  financial
condition and results of operations.

PRODUCT LIABILITY AND INSURANCE

The development, manufacture and sale of the Company's microcatheter systems may
expose the Company to product  liability  claims.  Two claims were filed against
the Company in 1999. The Company is pursuing  voluntary  dismissal of one claim,
while the second claim is still under  investigation  with a $30,000  settlement
requested.  Although the Company currently has general liability  insurance with
coverage in the amount of $1.0 million per occurrence, subject to a $2.0 million
annual limitation,  and product liability  insurance with coverage in the amount
of $5.0 million per  occurrence,  subject to a $5.0 million  annual  limitation,
there can be no assurance that such coverage will be available to the Company in
the  future  on  reasonable  terms,  if at all.  In  addition,  there  can be no
assurance that all of the activities  encompassed  within the Company's business
are or will be  covered  under the  Company's  policies.  Although  the  Cardima
Pathfinder  and Tracer  products are labeled for single use only, the Company is
aware that some physicians are reusing such products. Moreover, despite labeling
of the Company's  microcatheters  for diagnostic use only, the Company  believes
physicians are using such mapping  microcatheters for ablation.  Multiple use or
"off-label"  use of the  Company's  microcatheters  could subject the Company to
increased  exposure  to product  liability  claims,  which could have a material
adverse  effect on the Company's  business,  financial  condition and results of
operations. The Company may require additional product liability coverage if the
Company significantly expands commercialization of its products. Such additional
coverage  is  expensive,  difficult  to obtain and may not be  available  in the
future on acceptable  terms,  if at all. Any claims or series of claims  against
the  Company,  regardless  of their  merit or  eventual  outcome,  could  have a
material  adverse  effect on the  Company's  business,  financial  condition and
results of operations.

EMPLOYEES

At December  31,  1999,  the Company had 85  employees,  11 of whom were engaged
directly in research  and new product  development,  10 in  regulatory  affairs,
quality assurance and clinical activities, 37 in manufacturing,  15 in sales and
marketing and 12 in finance and administration.

                                       28
<PAGE>

The Company maintains  compensation,  benefits,  equity participation,  and work
environment  policies  intended to assist in attracting and retaining  qualified
personnel.  The Company  believes  the success of its business  will depend,  in
significant  part,  on its  ability to attract  and retain  such  personnel.  No
employee of the Company is represented by a collective bargaining agreement, nor
has the  Company  experienced  any work  stoppage.  The  Company  considers  its
relations  with its  employees  to be good.  See  "Management's  Discussion  and
Analysis of Financial  Condition  and Results of  Operations - We are  dependent
upon our key  personnel  and will need to hire  additional  key personnel in the
future."

ITEM 2.  PROPERTIES

The Company leases approximately 44,000 square feet in Fremont,  California. The
Company's  facility  includes a 4,000 square foot cleanroom,  a machine shop for
prototyping  and tooling,  extrusion  and  braiding  capability,  wire  grinding
operations,  general  assembly / test / inspection  areas, and a materials area.
The facility master lease expired in November 1999. In November 1999, the master
lease was amended to allow for an additional three year facility lease, expiring
in November  2002.  The Company  believes this facility will be adequate to meet
its requirements for the foreseeable future.

ITEM 3.  LEGAL PROCEEDINGS

The Company is not a party to any material legal proceedings.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of security holders of the Company,  through
solicitation  of proxies or otherwise,  during the last quarter of the Company's
fiscal year ended December 31, 1999.

                                       29
<PAGE>

                                     PART II

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

The Common  Stock of the Company has been traded on the Nasdaq  National  Market
under the symbol CRDM since the Company's  initial public offering in June 1997.
Prior to that  time  there  was no  public  market  for the  Common  Stock.  The
following  table  sets  forth for the  periods  indicated  the high and low sale
prices of the Common Stock.

<TABLE>
<CAPTION>

                                                                                      HIGH              LOW
                                                                                   -------          -------
<S>                                                                                <C>              <C>
           YEAR ENDED DECEMBER 31, 1999
           First Quarter ........................................................    $4.750           $2.031
           Second Quarter .......................................................     3.375            1.938
           Third Quarter.........................................................     2.750            1.281
           Fourth Quarter........................................................     2.703            0.781

                                                                                      HIGH              LOW
                                                                                   -------          -------
           YEAR ENDED DECEMBER 31, 1998
           First Quarter ........................................................   $5.875           $3.125
           Second Quarter......................................................      5.750            2.500
           Third Quarter.........................................................   10.875            2.125
           Fourth Quarter........................................................    6.500            1.750

</TABLE>


As of March 10,  2000,  there were  approximately  237  holders of record of the
Common Stock.

The Company has never declared or paid cash dividends on its capital stock.  The
Company currently expects to retain its future earnings for use in the operation
and expansion of its business and does not anticipate  paying any cash dividends
in the foreseeable future.

                                       30
<PAGE>

ITEM 6.  SELECTED FINANCIAL DATA

The data set  forth  below  should  be read in  conjunction  with the  financial
statements  and related notes  attached to this report on Form 10-K as pages F-1
through F-18.


<TABLE>
<CAPTION>

                                                                                  YEAR ENDED DECEMBER 31,
                                                       -----------------------------------------------------------------------------

                                                            1999           1998            1997          1996             1995
                                                       --------------- --------------  ------------- -------------  ----------------

                                                                          (In thousands except per share amounts)
<S>                                                     <C>             <C>             <C>          <C>               <C>
STATEMENTS OF OPERATIONS DATA:

Net sales                                                $  3,495        $  2,499        $  1,261     $     593         $     362
Cost of goods sold                                          3,384           2,962           2,011         1,413               830
                                                       --------------- --------------  ------------- -------------  ----------------

         Gross profit (loss)                                  111            (463)           (750)         (820)             (468)

Operating expenses:
         Research and development                           5,694           7,230           5,320         3,319             2,581
         Selling, general and administrative                8,173           8,556           6,656         3,690             2,046
                                                       --------------- --------------  ------------- -------------  ----------------

                  Total operating expenses                 13,867          15,786          11,976         7,009             4,627
                                                       --------------- --------------  ------------- -------------  ----------------

Operating loss                                            (13,756)        (16,249)        (12,726)       (7,829)           (5,095)
Interest and other income                                     250             359             602           132                12
Interest expense                                            (522)            (296)           (148)          (57)             (117)
                                                       --------------- --------------  ------------- -------------  ----------------

Net loss                                                 $(14,028)       $(16,186)       $(12,272)    $  (7,754)         $ (5,200)
                                                       =============== ==============  ============= =============  ================

Basic and diluted net loss per share                       $(0.89)         $(1.96)         $(2.64)     $(107.69)         $ (83.87)
                                                       =============== ==============  ============= =============  ================

Shares  used in  computing  basic and diluted net loss
per share                                                  15,746            8,239          4,642            72                62
                                                       =============== ==============  ============= =============  ================




                                                                                        DECEMBER 31,
                                                           ------------------------------------------------------------------------
                                                             1999(1)        1998          1997          1996            1995
                                                           ------------  ------------  ------------  ------------  ----------------
                                                                                       (In thousands)
<S>                                                           <C>           <C>          <C>           <C>              <C>
BALANCE SHEETS DATA:
Cash, cash equivalents and short-term investments                $920          $645       $12,848          $907           $2,993
Working capital (deficit)                                      (1,293)       (1,614)       11,609        (2,150)           2,647
Total assets                                                    6,089         7,283        17,674         3,964            4,735
Capital lease obligation, noncurrent portion                    1,012         1,120           840           722              317
Line of credit obligation, noncurrent portion                   1,095         2,183            --            --               --
Accumulated deficit                                           (60,636)      (46,608)      (30,422)      (18,150)         (10,396)
Total stockholders' equity (net capital deficiency)              (420)       (1,176)      (14,444)      (10,368)          (2,675)




(1)  In February  2000,  the Company sold a total of 4,666,611  shares of common stock at $2.25 per share in a private  placement
     transaction  resulting in net  proceeds  of  approximately  $10.0  million.  See  Note 7 of  Notes to Financial  Statements
     for related  proforma  information as of December 31, 1999.


</TABLE>

                                       31
<PAGE>

ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS

THIS DISCUSSION AND ANALYSIS  CONTAINS  STATEMENTS OF A  FORWARD-LOOKING  NATURE
RELATING TO FUTURE EVENTS OR THE FUTURE  FINANCIAL  PERFORMANCE  OF THE COMPANY.
SUCH STATEMENTS ARE ONLY PREDICTIONS AND THE ACTUAL EVENTS OR RESULTS MAY DIFFER
MATERIALLY FROM THE RESULTS DISCUSSED IN THE FORWARD-LOOKING STATEMENTS. FACTORS
THAT COULD CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES  INCLUDE, BUT ARE NOT LIMITED
TO, THOSE  DISCUSSED IN "--FACTORS  AFFECTING  FUTURE  RESULTS" AS WELL AS THOSE
DISCUSSED  ELSEWHERE IN THIS ANNUAL REPORT ON FORM 10-K. THE HISTORICAL  RESULTS
SET FORTH IN THIS  DISCUSSION  AND ANALYSIS ARE NOT  NECESSARILY  INDICATIVE  OF
TRENDS WITH RESPECT TO ANY ACTUAL OR PROJECTED FUTURE  FINANCIAL  PERFORMANCE OF
THE COMPANY. THIS DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION WITH THE
FINANCIAL  STATEMENTS  AND THE RELATED NOTES THERETO  INCLUDED  ELSEWHERE IN THE
ANNUAL REPORT ON FORM 10-K.

OVERVIEW

Since its  incorporation  in  November  1992,  Cardima  has been  engaged in the
design,  research,  development,  manufacturing  and  testing  of  microcatheter
systems  for  the  mapping  (diagnosis)  and  ablation  (treatment)  of  cardiac
arrhythmias.  Cardima has generated  revenues of approximately $8.3 million from
inception  to December  31,  1999.  Until  January  1997,  these  revenues  were
primarily  in Europe and Japan from sales of the Cardima  Pathfinder  and Tracer
microcatheter systems for diagnosing VT and the Revelation  microcatheter system
for  diagnosing AF, as well as ancillary  products such as the Venaport  guiding
catheters.  Subsequent  to 1997,  United  States  sales  consists  primarily  of
Pathfinder and  Revelation  lines of  microcatheters  for diagnosis of VT and AF
following FDA 510(k) clearance.  To date, the Company's international sales have
been made  primarily  through  distributors  who sell the Company's  products to
physicians and hospitals. European sales consist primarily of the Revelation and
Revelation Tx microcatheters for treatment of AF following receipt of CE Marking
in August 1998.

Revenues  are  recognized  when  products  are shipped.  In December  1999,  the
Securities and Exchange  Commission  issued Staff  Accounting  Bulletin No. 101,
"Revenue Recognition in Financial Statements" ("SAB 101"). We are all evaluating
the  effects,  if any,  that the  adoption of SAB 101, in the second  quarter of
2000, may have on the results of our operations or our financial position.

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

The Company has a limited history of operations and has experienced  significant
operating losses since inception.  The Company expects that its operating losses
will  continue  for the  foreseeable  future as the

                                       32
<PAGE>

Company  continues  to invest  substantial  resources  in  product  development,
preclinical  and  clinical  trials,  obtaining  regulatory  approval,  sales and
marketing and manufacturing.

RESULTS OF OPERATIONS - YEARS ENDED 1999 AND 1998

Net Sales

Net sales for 1999  increased 40% to $3,495,000  from  $2,499,000  for 1998. The
majority of the increase in sales in 1999 is attributable to sales in the United
States and Europe. United States sales for 1999 increased 11% to $1,915,000 from
$1,722,000 in 1998.  The increase in United States sales is due primarily to the
sales of Pathfinder and Revelation lines of  microcatheters  for diagnosis of VT
and AF  following  FDA  510(k).  European  sales  for  1999  increased  103%  to
$1,127,000  from  $554,000  for 1998.  The  increase  in  European  sales is due
primarily  to sales of the  Revelation  and  Revelation  Tx  microcatheters  for
treatment of AF following receipt of CE Marking in August 1998.

Cost of Goods Sold

Cost of goods sold primarily includes raw materials costs,  catheter fabrication
costs,  system assembly,  test costs and manufacturing  overhead.  Cost of goods
sold for 1999 increased 14% to $3,384,000 from $2,962,000 for 1998. The decrease
of cost of goods  sold as a  percent  of net  revenue  is due  primarily  to the
purchase of several pieces of capital  equipment to manufacture  some components
in-house,  rather than purchase the components  from outside  vendors.  Although
this  equipment  was not fully  functional  until the second  half of 1999,  the
Company  expects costs per unit to continue to decrease as it  transitions  from
outside vendors to its internal production. In addition, the internal production
will provide greater flexibility in production of its microcatheter systems.

Research and Development Expenses

Research and  development  expenses for 1999  decreased 21% to  $5,694,000  from
$7,230,000  in 1998.  The decrease in research and  development  expenses is due
primarily to staff  reductions  in research and  development  as a result of the
Company  restructuring  in January 1999 and the transition of all animal studies
from out of state to a local firm which significantly reduced costs for research
and development product testing.

Selling, General and Administrative Expenses

Selling, general and administrative expenses for 1999 decreased 4% to $8,173,000
from $8,556,000 in 1998.  Selling  expenses for 1999 increased 16% to $4,376,000
from $3,788,000 in 1998. The increase is due primarily to costs  associated with
the  expansion  of  the  Company's   United  States  sales  force,  the  ongoing
establishment of a direct sales force in several major markets in Europe and the
commencement  of clinical  trials,  which  requires  training  of  participating
physicians  by  sales  and  clinical  specialists.  General  and  administrative
expenses for 1999 increased 1% to $2,878,000 from $2,844,000 in 1998.  Marketing
expenses  for 1999  decreased  52% to  $919,000  from  $1,924,000  in 1998.  The
decrease in marketing expenses is due primarily to staffing  reductions from the
Company's  restructuring in January 1999, the development of marketing materials
and programs in-house, and fewer exhibits attended in 1999.

                                       33
<PAGE>

Interest and Other Income, Interest Expense

Interest  and other  income for 1999  decreased  by $109,000  to  $250,000  from
$359,000 in 1998. The decrease is due primarily to lower cash,  cash  equivalent
and  short-term  investment  balances.  Interest  expense for 1999  increased by
$226,000 to $522,000  from  $296,000 in 1998.  The increase is due  primarily to
higher borrowing levels for purchases of capital  equipment and interest expense
associated with borrowings under the Company's $3.0 million line of credit.

RESULTS OF OPERATIONS - YEARS ENDED 1998 AND 1997

Net Sales

Net sales for 1998  increased 98% to $2,499,000  from  $1,261,000  for 1997. The
increase  in sales in 1998 is  attributable  to sales in the  United  States and
Europe.  United States sales for 1998 increased 91% to $1,722,000  from $902,000
in 1997.  The increase in United  States sales is due  primarily to the sales of
Cardima  Pathfinder and Revelation lines of  microcatheters  for diagnosis of VT
and AF  following  FDA  510(k)  clearance  and  sales of two new  products,  the
Vueport,   a  balloon   occlusion  guiding  catheter  and  the  Pathfinder  MINI
microcatheter  for diagnosis of VT following FDA 510(k)  clearance in July 1998.
European  sales for 1998  increased 147% to $554,000 from $224,000 for 1997. The
increase in European  sales is due primarily to sales of the Cardima  Revelation
microcatheter  for  treatment  of AF  following  receipt of CE Marking in August
1998.

Cost of Goods Sold

Cost of goods sold primarily includes raw materials costs,  catheter fabrication
costs,  system assembly,  test costs and manufacturing  overhead.  Cost of goods
sold for 1998 increased 47% to $2,962,000 from $2,011,000 for 1997. The increase
in cost of goods sold is due primarily to the growth of the Company's  sales and
associated manufacturing staff additions. In addition, product costs were higher
due to training  personnel on new products and installation of new equipment and
related  depreciation.  During 1998,  the Company  purchased  several  pieces of
capital equipment to manufacture some components in-house,  rather than purchase
from outside  vendors.  The benefit of this new  equipment  in reducing  cost of
goods sold as a percent of net revenue was realized in the second half of 1999.

Research and Development Expenses

Research and  development  expenses for 1998  increased 36% to  $7,230,000  from
$5,320,000  in 1997.  The increase in research and  development  expenses is due
primarily  to  expenses   associated   with  staff  additions  in  research  and
development and clinical and regulatory  areas for product testing and approvals
which were  incurred  as the  Company  increased  expenses  to meet  development
program  goals and  increased  clinical  trial  activity  in both Europe and the
United States.

                                       34
<PAGE>

Selling, General and Administrative Expenses

Selling,   general  and  administrative  expenses  for  1998  increased  29%  to
$8,556,000 from $6,656,000 in 1997.  Selling  expenses for 1998 increased 46% to
$3,788,000  from  $2,600,000  in 1997.  The  increase is due  primarily to costs
associated  with the expansion of the Company's  United States sales force,  the
ongoing establishment of a direct sales force in several major markets in Europe
and  the   commencement  of  clinical   trials,   which  requires   training  of
participating  physicians  by  sales  and  clinical  specialists.   General  and
administrative  expenses for 1998 increased 20% to $2,844,000 from $2,370,000 in
1997. The increase is due primarily to additional  staff and expenses related to
the requirements of a public company.  Marketing expenses for 1998 increased 14%
to $1,924,000 from $1,686,000 in 1997. The increase is due primarily to expenses
related to the  development  of marketing  materials and programs to address new
product introductions.

Interest and Other Income, Interest Expense

Interest  and other  income for 1998  decreased  by $243,000  to  $359,000  from
$602,000 in 1997. The decrease is due primarily to lower cash,  cash  equivalent
and  short-term  investment  balances.  Interest  expense for 1998  increased by
$148,000 to $296,000  from  $148,000 in 1997.  The increase is due  primarily to
higher borrowing levels for purchases of capital  equipment and interest expense
associated with borrowings under the Company's $3.0 million line of credit.

LIQUIDITY AND CAPITAL RESOURCES

The Company has financed its operations to date principally through private
placements of equity securities, which had yielded net proceeds of $46,800,000
through December 31, 1999, an initial public offering of Common Stock in June
1997, which resulted in net proceeds of approximately $13,600,000, together
with interest income on such proceeds, borrowings under a $3,000,000 line of
credit, and equipment leases to finance certain capital equipment which have
provided proceeds in the amount of $4,500,000. As of December 31, 1999, the
Company had approximately $920,000 in cash, cash equivalents and short-term
investments.

Net cash used in operating activities was approximately $12,800,000, $16,000,000
and  $12,500,000  for  the  years  ended  December  31,  1999,  1998  and  1997,
respectively,  resulting  primarily from operating losses incurred.  Net cash of
$731,000  and  $5,150,000  used in  investing  activities  for the  years  ended
December  31, 1999 and 1997,  respectively,  is  attributable  primarily  to the
purchases of short-term  investments.  Net cash provided by investing activities
of $4,249,000 for the year ended December 31, 1998 is attributable  primarily to
the  maturities  of  short-term  investments.  Net cash  provided  by  financing
activities was  approximately  $13,300,000,  $3,800,000 and  $25,300,000 for the
years ended December 31, 1999, 1998 and 1997, respectively,  resulting primarily
from the Company's  initial public  offering,  the sale of equity  securities in
private  placement  transactions  and proceeds from bridge loans and  borrowings
under the line of credit during such periods.

In June 1998, the Company secured a $3,000,000 line of credit which may be
used for general working capital purposes. As of December 31, 1998, the
Company had drawn the entire $3,000,000 line of credit. In May 1999, the
Company entered into an equipment lease that permits the Company to borrow up
to $1,000,000 for the purchase of office and manufacturing equipment,

                                       35
<PAGE>

software and custom-built equipment. As of December 31, 1999, the Company has
drawn $541,000 against the equipment leaseline. In January and February 1999,
the Company sold a total of 7,500,000 shares of common stock at $2.00 per
share in a private placement transaction to accredited investors. As
commission, the Company issued 354,806 shares of its common stock to the
placement agent and paid $490,388. In addition the Company issued 750,000
warrants, exercisable for 750,000 shares of common stock at an exercise price
of $2.20 as a commission for the transaction. The Company's net proceeds,
after expenses of the placement, were $14,300,000. In February 2000, the
Company sold a total of 4,666,611 shares of common stock at $2.25 per share in
a private placement transaction to accredited investors. The transaction
included warrants to investors exercisable for 933,322 shares of common stock
at an exercise price of $2.48 per share. As commission for the transaction,
the Company paid $524,891 in cash. In addition, the Company issued warrants,
exercisable for 233,329 shares of common stock at an exercise price of $2.48
per share as commission for the transaction. The Company's net proceeds, after
expenses of the placement, were approximately $10,000,000.

The  Company's  future  liquidity  and  capital  requirements  will  depend upon
numerous factors,  including sales and marketing activities, the progress of the
Company's product  development  efforts,  the progress of the Company's clinical
trials,  actions  relating  to  regulatory  matters,  the  costs  and  timing of
expansion  of  product  development,  manufacturing,  the  extent  to which  the
Company's products gain market  acceptance,  and competitive  developments.  The
Company  believes  that  available  cash along with  proceeds  from the  private
placement  completed in February  2000 will be  sufficient to meet the Company's
cash  requirements  at least through 2000.  There can be no assurance,  however,
that the Company will not require  additional  financing during that period,  or
that  if  required,  such  additional  financing  will  be  available  on  terms
acceptable to the Company,  if at all. The Company may seek to raise  additional
funds through public or private financing,  collaborative relationships or other
arrangements.  There can be no assurance  that such  additional  capital will be
available  on terms  acceptable  to the  Company,  or at all.  Furthermore,  any
additional equity financing is expected to be dilutive to stockholders, and debt
financing,  if  available,  may  involve  restrictive  covenants.  Collaborative
arrangements, if necessary to raise additional funds, may require the Company to
relinquish  its rights to certain of its  technologies,  products  or  marketing
territories. The failure of the Company to raise capital when needed will have a
material  adverse  effect on the  Company's  business,  financial  condition and
results of operations.

FACTORS AFFECTING FUTURE RESULTS

WE HAVE A HISTORY OF LOSSES.  OUR  ABILITY TO ACHIEVE OR, IF  ACHIEVED,  SUSTAIN
PROFITABILITY, IS HIGHLY UNCERTAIN.

We have  experienced  losses  since we began  our  operations  and we  expect to
experience  substantial net losses for the foreseeable future. To date, sales of
our microcatheter  systems have been limited. We had net losses of approximately
$14.0 million,  $16.2 million and $12.3 million for the fiscal years ended 1999,
1998 and 1997,  respectively.  As of December  31, 1999,  we had an  accumulated
deficit of  approximately  $60.6  million.  We expect to incur  substantial  net
operating losses for the foreseeable  future as a result of research and product
development, clinical trials, manufacturing, sales, marketing and other expenses
expected to be incurred as we further develop, seek regulatory  approvals,  test
and  distribute  our products.  Our limited  operating  history  makes  accurate
prediction of future operating

                                       36
<PAGE>

results difficult or impossible.  There can be no assurance   that  we  will
ever   generate   substantial  revenue  or  achieve profitability on a sustained
basis. Our failure to generate substantial revenues would have a material
adverse effect on our business,  results of operations and financial condition.

WE WILL NEED TO RAISE  CAPITAL IN THE  FUTURE.  FUTURE  FINANCINGS  COULD HAVE A
DILUTIVE EFFECT ON OUR STOCKHOLDERS.

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

          o  the  progress of our  clinical  research  and  product  development
             programs,
          o  the  time   required  to  obtain  and  the  receipt  of  regulatory
             clearances and approvals,
          o  the costs and  timing of  product  development,  manufacturing  and
             sales and marketing activities,
          o  the extent to which our products gain market acceptance,
          o  competitive developments, and
          o  the cost of filing,  prosecuting,  and enforcing  patent claims and
             other intellectual property rights.

In order to commercialize our products,  we will require additional capital that
may not be  available  on terms  acceptable  to us, or at all. In  addition,  if
unforeseen  difficulties  arise  in  the  course  of  developing  our  products,
performing  clinical  trials,  obtaining  necessary  regulatory  clearances  and
approvals  or  other  aspects  of our  business,  we may be  required  to  spend
greater-than-anticipated  funds. As a consequence,  we will be required to raise
additional  capital  through  public  or  private  equity  or  debt  financings,
collaborative relationships, bank facilities or other arrangements. There can be
no assurance that such additional  capital will be available on terms acceptable
to us, or at all. Any additional  equity financing is expected to be dilutive to
stockholders,   and  debt  financing,  if  available,  may  involve  restrictive
covenants.  We have financed our  operations to date primarily  through  private
sales of equity  securities,  proceeds from our initial public  offering in June
1997, and  loan-facilities.  As of February 29, 2000, cash, cash equivalents and
short-term  investments totaled $9.3 million. We believe that our existing cash,
cash equivalents and short-term  investments  along with cash generated from the
sales  of our  products  and from  financings,  will be  sufficient  to fund our
operating expenses,  debt obligations and capital  requirements through December
31, 2000.

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

          o  our ability to establish collaborative arrangements,
          o  the level of product revenues,
          o  the possible acquisition of new products and technologies, and
          o  the development of commercialization activities.

There can be no assurance  that  additional  funding will be available for us to
finance  our  ongoing  operations  when  needed or that  adequate  funds for our
operations,  whether from financial markets, collaborative or other arrangements
with corporate partners or from other sources, will be available when needed, if
at all, or on terms  attractive to us. Our inability to obtain  sufficient funds
may require us to delay, scale back or eliminate some or all of our research and
product  development  programs,  to limit the marketing of our  products,  or to
license to third parties the rights to  commercialize  products or

                                       37
<PAGE>

technologies that we would otherwise seek to develop and market ourselves.  This
would have a material  adverse effect on our business,  financial  condition and
results of operations.

OUR STOCK PRICE MAY BE VOLATILE.

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

          o  announcements regarding the results of regulatory approval filings,
          o  our clinical studies or other testing,
          o  our technological  innovations or new commercial  products or those
             of our competitors,
          o  government regulations, developments concerning proprietary rights,
          o  public concern as to safety of technology, and
          o  variations in operating results.

WE DO NOT INTEND TO PAY CASH DIVIDENDS ON OUR STOCK.

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

OUR OPERATING RESULTS MAY FLUCTUATE FROM PERIOD TO PERIOD IN THE FUTURE.

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

          o  actions relating to regulatory matters,
          o  progress of pre-clinical and clinical trials,
          o  the extent to which our products gain market acceptance,
          o  the scale-up of manufacturing capabilities,
          o  the expansion of sales and marketing activities,
          o  competition,
          o  the timing of new product introductions by us or our competitors,
          o  our  ability  to  successfully  market our  products  in the United
             States and internationally, and
          o  general economic conditions and economic conditions specific to the
             biotechnology field.

                                       39
<PAGE>

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

THERE ARE RISKS ASSOCIATED WITH INTERNATIONAL SALES OF OUR PRODUCTS.

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

          o  the imposition of government product or currency controls,
          o  export license requirements,
          o  economic or political instability,
          o  domestic or international trade restrictions,
          o  changes in tariffs,
          o  exchange rate fluctuation, or
          o  difficulties in staffing and management.

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

THE ADOPTION OF THE EURO PRESENTS UNCERTAINTIES FOR OUR INTERNATIONAL BUSINESS.

In January 1999,  the new "Euro"  currency was  introduced  in certain  European
countries that are part of the European  Monetary  Union  ("EMU").  Beginning in
2003,  all EMU  countries  are expected to be  operating  with the Euro as their
single currency. A significant amount of uncertainty exists as to the effect the
Euro will have on the marketplace  generally.  In particular,  the participating
countries'  adoption of a single  currency  may likely  result in greater  price
transparency, making the EMU a more competitive environment for our products. In
addition,  some of the rules and  regulations  relating to the governance of

                                       40
<PAGE>

the currency  have not yet been defined and  finalized.  As a result,  companies
operating  in or  conducting  business  in Europe will need to ensure that their
financial and other software systems are capable of processing  transactions and
properly handling the Euro.

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

WE ARE DEPENDENT  UPON OUR KEY PERSONNEL  AND WILL NEED TO HIRE  ADDITIONAL  KEY
PERSONNEL IN THE FUTURE.

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

IMPACT OF THE YEAR 2000 ISSUE ON THE COMPANY'S OPERATIONS

In prior years,  the Company  discussed  the nature and progress of its plans to
become Year 2000 ready. In late 1999, the Company  completed its remediation and
testing of systems.  As a result of those planning and  implementation  efforts,
the  Company   experienced  no  significant   disruptions  in  mission  critical
information technology and non-information technology systems and believes those
systems  successfully  responded  to the Year  2000  date  change.  The  Company
estimates that it expensed  approximately $10,000 during 1999 in connection with
remediating  its  systems.  The  Company is not aware of any  material  problems
resulting from Year 2000 issues, either with its products, its internal systems,
or the  products  and services of third  parties.  The Company will  continue to
monitor its mission  critical  computer  applications and those of its suppliers
and vendors throughout the year 2000 to ensure that any latent Year 2000 matters
that may arise are addressed promptly.

ITEM 7a.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Since the Company had minimal  short-term  investments and a fixed interest rate
line of credit obligation as of December 31, 1999, the Company does not have any
material quantitative or qualitative disclosures about market risk.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The Company's financial statements and the report of independent auditors appear
on pages F-1 through F-18 of this report.

ITEM  9.  CHANGES  IN AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
FINANCIAL DISCLOSURE

Not applicable.

                                       41
<PAGE>

                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The  response  to this item is  contained  in part  below and the  remainder  is
contained  in  the  Company's   Proxy   Statement  for  the  Annual  Meeting  of
Stockholders to be held on May 25, 2000 (the "1999 Proxy  Statement")  under the
caption "Election of Directors" and is incorporated herein by reference.

The  executive  officers of the  Company  are  elected  annually by the Board of
Directors of the Company (the "Board") and serve at the discretion of the Board.

MR. PHILLIP RADLICK, PH.D. (age 62) has been the President, Chief Executive
Officer and a Director of Cardima since November 1994. Prior to joining the
Company, from November 1992 until October 1994, Mr. Radlick was the President
and Chief Executive Officer of Hepatix, Inc., a start-up medical device company.
From November 1986 until November 1992, Mr. Radlick was the President of Edwards
Cardiovascular Surgery Division, a division of Baxter Healthcare responsible for
the development, manufacture and sale of cardiovascular products. Mr. Radlick
received a B.S. in Chemistry and a Ph.D. in Organic Chemistry from University of
California, Los Angeles.

MR.  GABRIEL VEGH (age 60),  the founder of the Company,  has been a Director of
Cardima since November 1992.  Mr. Vegh has been the Chief  Operating  Officer of
Cardima since November  1994,  and the Executive  Vice  President  since January
1995.  From May 1993 until November 1994, Mr. Vegh was the Company's  President,
and from May 1993 until July 1996,  he served as the Company's  Chief  Financial
Officer. Prior to joining the Company, from August 1985 until May 1993, Mr. Vegh
was the Vice  President,  Operations  of Target,  and from  February  1983 until
August  1985,  Mr.  Vegh was  General  Manager,  Pilot  Operations  of  Advanced
Cardiovascular  Systems. Mr. Vegh received a B.S. in Mechanical Engineering from
the New Jersey Institute of Technology.

MR. ALLAN ABATI, PH.D. (age 55) has been the Vice President, Regulatory Affairs,
Clinical Programs and Quality Assurance of Cardima since February 1996. Prior to
joining the Company,  from February 1992 until  February 1996, Mr. Abati was the
Vice President,  Regulatory  Affairs and Quality  Assurance of Johnson & Johnson
Professional,  Inc., a manufacturer  of  neurosurgical  and  orthopedic  medical
devices.  From August 1989 until  February  1992,  Mr.  Abati was the  Director,
Regulatory   and  Clinical   Affairs  of  Shiley  Inc.,  a  Pfizer  company  and
manufacturer of interventional  cardiology products. From June 1986 until August
1989, Mr. Abati was the Manager,  Regulatory Affairs and Clinical Programs,  and
from November 1982 until June 1986 he was Senior Regulatory and Clinical Affairs
Specialist,  of Edwards Critical-Care  Division, a division of Baxter Healthcare
responsible  for the  development,  manufacture  and sale of  critical  care and
interventional  cardiology products. Mr. Abati received a B.S. in Zoology and an
M.A. in Biology from  California  State  University,  Long Beach and a Ph.D.  in
Physiology from Rutgers University.

MR.  VICTOR J. BARAJAS (age 36) has been the Vice  President  of  Operations  of
Cardima  since  August  1997  and  is   responsible   for  all   operations  and
manufacturing  activity.  From September 1995 until August 1997, Mr. Barajas was
the Director of Operations,  from May 1994 until September 1995, Mr. Barajas was
the Manager of Operations,  and from June 1993 until May 1994, Mr. Barajas was a
senior engineer for Cardima.  Prior to joining the company, from 1990 until June
1993, Mr. Barajas was Process

                                       42
<PAGE>

Development  Engineer  and then  Project  Leader and Manager of the  Engineering
Department for Target  Therapeutics,  Inc. From 1988 until 1990, Mr. Barajas was
employed  by  Critikon,  Inc.  as an  R&D/Manufacturing  Engineer in the medical
disposables area. Mr. Barajas received his B.S. degree in Industrial  Technology
from San Jose State University.

MR.  RONALD  BOURQUIN (age 49) has been the Vice  President and Chief  Financial
Officer of Cardima since July 1996. Prior to joining the Company, from July 1993
until July 1996, Mr. Bourquin was the Corporate  Controller of EP  Technologies,
Inc. ("EPT"), an  electrophysiology  catheter  manufacturer that was acquired by
Boston Scientific in January 1996. From April 1993 until July 1993, Mr. Bourquin
served as a consultant  to EPT.  From December  1991 until  February  1993,  Mr.
Bourquin was the Controller of the Endoscopy Division of Stryker Corporation,  a
medical instrument company.  From January 1979 until December 1991, Mr. Bourquin
held  various  positions  of  increasing  responsibility  at  Coherent,  Inc., a
manufacturer  of lasers,  ultimately  serving as the  Director of Finance of the
Medical Group from November 1985 to December 1991.  Mr.  Bourquin is a Certified
Management  Accountant and received a B.A. in Accounting and a M.B.A. in Finance
from Golden Gate University.

MR. ERIC CHAN, PH.D. (age 42) has been the Vice President of Product Development
of Cardima  since June 1998.  Prior to joining the Company,  from August 1991 to
March 1993, Mr. Chan was the Director of Engineering  and from April 1993 to May
1998,  Vice  President of Engineering at Arrhythmia  Research  Technology,  Inc.
where he  coordinated  and  directed the  development  of  computerized  cardiac
electrophysiology,  high resolution ECG and cathlab  systems.  Mr. Chan received
his B.S.E.E. from Purdue University,  his M.S.E. in Biomedical  Engineering from
the University of Texas at Austin, and his Ph.D. in Biomedical  Engineering from
the University of Texas at Austin.

MR.  DAVID  SMITH  (age 46) has been the Vice  President,  World  Wide  Sales of
Cardima since March 1996. Prior to joining the Company,  from January 1994 until
December  1995,  Mr. Smith was the  Director of Marketing of Baxter  Healthcare,
International   Cardiology   Division,   a  manufacturer   and   distributor  of
interventional  cardiology  products.  From June 1991 until  December  1993, Mr.
Smith was the  Business  Unit  Manager,  Germany,  and from April 1990 until May
1991,  he was the  National  Sales  Manager,  Endovascular  Products,  of Baxter
Healthcare,  Less Invasive  Surgery  Division.  Mr. Smith has a B.S. in Business
Administration from Michigan State University.

ITEM 11.  EXECUTIVE COMPENSATION

The response to this item is contained in the Proxy  Statement under the caption
"Compensation  of Directors" and  "Compensation  of Executive  Officers," and is
incorporated herein by reference.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The  response to this item is contained  in the 1999 Proxy  Statement  under the
caption "Common Stock Ownership of Certain  Beneficial  Owners and  Management,"
and is incorporated herein by reference.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The  response to this item is contained  in the 1999 Proxy  Statement  under the
caption "Transactions with Management," and is incorporated herein by reference.

                                       43
<PAGE>

                                     PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

         (a)  1. FINANCIAL STATEMENTS

                  The Company's financial statements are indexed on page F-1.

         (a)  2. FINANCIAL STATEMENT SCHEDULES

                  All applicable  information is readily  determinable  from the
                  notes to the Company's financial statements or the schedule is
                  not applicable, therefore, the schedules have been omitted.

         (a)  3. LISTING OF EXHIBITS

<TABLE>
<CAPTION>

EXHIBIT #         DESCRIPTION

<S>                  <C>
     3.1 (1)         Certificate of Incorporation, as amended, of the
                     Registrant.
     3.2 (1)         Bylaws of Registrant.
     3.3 (1)         Form of Amended and Restated Certificate of Incorporation
                     of Registrant.

     4.1 (1)         Form of Common Stock Certificate.

    10.1             1993 Stock Option Plan, as amended.
    10.2 (1)         1997 Directors' Stock Option Plan.
    10.3 (1)         1997 Employee Stock Purchase Plan.
    10.4 (1)         Form of Indemnification Agreement.
    10.5 (1)         Fourth Amended and Restated Stockholders' Rights
                     Agreement dated March 7, 1997, between Registrant and
                     certain stockholders of Registrant.
    10.6 (1)         License Agreement dated May 21, 1993, between Registrant
                     and Target Therapeutics, Inc.
    10.7 (1)         Lease dated April 25, 1994, between Registrant and State
                     of California Public Employees' Retirement System.
    10.8 (1)         Sublease dated November 14, 1996, between Registrant and
                     Target Therapeutics, Inc.
    10.9 (2)         Master Lease Agreement dated January 26, 1996, between
                     Registrant and Comdisco, Inc., together with Equipment
                     schedules VL-1, VL-2 and VL-3.
    10.10 (1)        Warrant Purchase Agreement dated December 9, 1993,
                     between Registrant and Target Therapeutics, Inc.,
                     together with the series A Preferred Stock Warrant.
    10.11 (1)        Series A Preferred Stock Warrant dated June 10, 1994,
                     issued to Silicon Valley Bank.
    10.12 (1)        Warrant Purchase Agreement dated July 1, 1994, between
                     Registrant and California Public Employees' Retirement
                     System, together with the Common Stock Warrant.
    10.13 (1)        Series A Preferred Stock Warrant dated October 26, 1994,
                     issued to Silicon Valley Bank.
    10.14 (1)        Form of Series A Preferred Stock Warrant issued to
                     certain investors in December 1994.
    10.15 (1)        Series D Preferred Stock Warrant dated October 31, 1995,
                     issued to Silicon Valley Bank.
    10.16 (1)        Form of Common Stock Warrant issued to certain investors
                     from April 1995 to December 1995.

</TABLE>
                                       44

<PAGE>

    10.17 (1)        Warrant Agreement dated January 23, 1996, between
                     Registrant and Comdisco, Inc., together with the Series D
                     Preferred Stock Warrant.
    10.18 (1)        Electrophysiology Catheter License Agreement dated May
                     17, 1994, between Registrant and BSI Corporation,
                     together with the Credit Pool Agreement of same date.
    10.19 (1)        Distribution Agreement dated June 15, 1995, between
                     Registrant and Paramedic Co., Ltd.
    10.20 (1)        Distribution Agreement dated July 14, 1995, between
                     Registrant and Werfen Distribution AG, together with the
                     May 15, 1996 letter amendment.
    10.21 (1)        Employment Agreement dated May 21, 1993, between
                     Registrant and Gabriel B. Vegh.
    10.22 (1)        Employment Letter Agreement dated October 31, 1994,
                     between Registrant and Phillip C. Radlick, Ph.D.
    10.23 (1)        Warrant Agreement dated April 7, 1997, between Registrant
                     and Comdisco, Inc.
    10.24 (1)        Distribution Agreement dated April 1, 1997, between
                     Registrant and Cardiologic, GmbH.
    10.25 (3)        Master Loan and Security Agreement dated June, 1998,
                     between Registrant and Transamerica Business Credit Corp.
    10.26 (4)        (10.1) Form of Subscription Agreement between Registrant
                     and certain investors
    10.27 (4)        (4.1) Form of Share Purchase Warrant issued to Sunrise
                     Securities, Inc.
    23.1             Consent of Ernst & Young LLP, Independent Auditors.
    27.1             Financial Data Schedule.

(1)  Incorporated by reference to the same exhibits filed with the
     Registrant's Registration Statement on Form S-1 (File No. 33-23209)
     declared effective on June 5, 1997.
(2)  Equipment Schedule VL-3 dated February 13, 1998 to the Master Lease
     Agreement dated January 23, 1996 is filed with this Annual Report on Form
     10-K.
(3)  Incorporated by reference to the same exhibit filed with the Registrant's
     Statement on Form 10-Q for the Quarter ended June 30, 1998 (File No. 000-
     22419).
(4)  Incorporated by reference to Exhibits noted in parentheticals which were
     filed with the Registrant's Report on Form 8-K filed with the Commission
     on February 2, 1999.


                                       45
<PAGE>

                                   SIGNATURES

                                  for Form 10-K

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

DATE:    March 30, 2000          CARDIMA, INC.

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

         Pursuant to the  requirements  of the Securities  Exchange Act of 1934,
this  report has been  signed  below by the  following  persons on behalf of the
registrant and in the capacities and on the dates indicated.

<TABLE>
<CAPTION>


NAME                                               TITLE                                                               DATE
<S>                                                <C>                                                              <C>

/s/ Phillip C. Radlick, Ph.D.                      President, Chief Executive Officer and Director                   03/30/00
-----------------------------------------------                                                                    --------------
Phillip C. Radlick, Ph.D.                          (Principal Executive Officer)


/s/ Ronald E. Bourquin                             Vice President and Chief Financial Officer                        03/30/00
-----------------------------------------------                                                                    --------------
Ronald E. Bourquin                                 (Principal Financial and Accounting Officer)

/s/ Neville J. Jeharajah                           Director                                                          03/30/00
-----------------------------------------------                                                                    --------------
Neville J. Jeharajah

/s/ Rudolfo C. Quijano                             Director                                                          03/30/00
-----------------------------------------------                                                                    --------------
Rudolfo C. Quijano

                                                   Executive Vice President, Chief Operating Officer
/s/ Gabriel B. Vegh                                and Director                                                      03/30/00
-----------------------------------------------                                                                    --------------
Gabriel B. Vegh
</TABLE>

                                       45
<PAGE>

<TABLE>
<CAPTION>

                                  CARDIMA, INC.

                          INDEX TO FINANCIAL STATEMENTS
                                                                                                          PAGE

<S>                                                                                                         <C>
Report of Ernst & Young LLP, Independent Auditors............................................................F-2
Balance Sheets at December 31, 1999 and 1998.................................................................F-3
Statements of Operations for the years ended December 31, 1999, 1998, and 1997...............................F-4
Statements of Changes in Redeemable Convertible Preferred Stock and Stockholders' Equity
     (Net Capital Deficiency) for the years ended December 31, 1999, 1998, and 1997..........................F-5
Statements of Cash Flows for the years ended December 31, 1999, 1998, and 1997...............................F-6
Notes to Financial Statements................................................................................F-7

</TABLE>


                                      F-1
<PAGE>

                REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

The Board of Directors and Stockholders
Cardima, Inc.

We have audited the accompanying balance sheets of Cardima,  Inc. as of December
31,  1999 and  1998,  and the  related  statements  of  operations,  changes  in
redeemable  convertible  preferred stock and  stockholders'  equity (net capital
deficiency),  and cash  flows for each of the three  years in the  period  ended
December 31, 1999.  These  financial  statements are the  responsibility  of the
Company's  management.  Our  responsibility  is to  express  an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable  assurance about whether the financial  statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting  the amounts and  disclosures in the financial  statements.  An audit
also includes assessing the accounting principles used and significant estimates
made by  management,  as well as  evaluating  the  overall  financial  statement
presentation.  We believe  that our audits  provide a  reasonable  basis for our
opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects,  the financial position of Cardima,  Inc. as December 31,
1999 and 1998,  and the results of its operations and its cash flows for each of
the three years in the period  ended  December  31,  1999,  in  conformity  with
accounting principles generally accepted in the United States.

                                                          /s/  ERNST & YOUNG LLP

Palo Alto,  California
February 2, 2000, except for note 7,
as to which date is February 18, 2000


                                      F-2
<PAGE>

<TABLE>
<CAPTION>

                                  CARDIMA, INC.

                                 BALANCE SHEETS

                     (In thousands except per share amounts)


                                                                                              December 31,
                                                                                   ------------------------------------
ASSETS                                                                                 1999                  1998
                                                                                   --------------        --------------
<S>                                                                                <C>                    <C>
Current assets:
     Cash and cash equivalents...........................................          $         423           $       645
     Short-term investments..............................................                    497                   ---
     Accounts receivable, net of allowances for doubtful accounts
        of $92 and $41 at December 31, 1999 and 1998, respectively                           669                   512
     Inventories.........................................................                  1,268                 1,977
     Other current assets................................................                    251                   366
                                                                                   --------------        --------------
         Total current assets............................................                  3,108                 3,500
Property and equipment, net..............................................                  2,512                 2,998
Restricted cash..........................................................                    ---                   105
Notes receivable.........................................................                    365                   320
Other assets.............................................................                    104                   360
                                                                                   --------------        --------------
                                                                                    $      6,089         $       7,283
                                                                                   ==============        ==============
LIABILITIES AND STOCKHOLDERS' EQUITY (NET CAPITAL DEFICIENCY)
Current liabilities:
     Accounts payable....................................................           $      1,436         $       2,286
     Accrued compensation................................................                  1,041                 1,032
     Other current liabilities...........................................                     60                    76
     Capital lease obligation - current portion..........................                    776                   903
     Line of credit obligation - current portion.........................                  1,088                   817
                                                                                   --------------        --------------
             Total current liabilities...................................                  4,401                 5,114

Deferred rent............................................................                      1                    42
Capital lease obligation - noncurrent portion............................                  1,012                 1,120
Line of credit obligation - noncurrent portion...........................                  1,095                 2,183

Commitments

Stockholders' equity (net capital deficiency):
     Common stock, $0.001 par value; 25,000,000 shares authorized,
     16,356,355 shares issued and outstanding at December 31, 1999,
     8,352,296 as of December 31, 1998; at amount paid in                                 60,441                45,910
Deferred compensation....................................................                   (225)                 (478)
Accumulated deficit......................................................                (60,636)              (46,608)
                                                                                   --------------        --------------
     Total stockholders' equity (net capital deficiency).................                   (420)               (1,176)
                                                                                   --------------        --------------
                                                                                    $      6,089          $      7,283
                                                                                   ==============        ==============

</TABLE>

                                      F-3
<PAGE>

<TABLE>
<CAPTION>

                                  CARDIMA, INC.

                            STATEMENTS OF OPERATIONS

                    (In thousands, except per share amounts)


                                                                                          YEAR ENDED DECEMBER 31,
                                                                         ----------------------------------------------------------
                                                                              1999                 1998                 1997
                                                                         ----------------     ----------------     ----------------

<S>                                                                       <C>                  <C>                  <C>
Net sales                                                                 $      3,495         $    2,499           $     1,261
Cost of goods sold                                                               3,384              2,962                 2,011
                                                                         ----------------     ----------------     ----------------
         Gross profit (loss)                                                       111               (463)                 (750)
Operating expenses:
         Research and development                                                5,694              7,230                 5,320
         Selling, general and administrative                                     8,173              8,556                 6,656
                                                                         ----------------     ----------------     ----------------
         .........Total operating expenses                                      13,867             15,786                11,976
                                                                         ----------------     ----------------     ----------------
Operating loss                                                                 (13,756)           (16,249)              (12,726)

Interest and other income                                                          250                359                   602
Interest expense                                                                  (522)              (296)                 (148)
                                                                         ----------------     ----------------     ----------------
Net loss                                                                   $   (14,028)         $ (16,186)           $  (12,272)
                                                                         ================     ================     ================
Basic and diluted net loss per share                                     $       (0.89)       $     (1.96)             $(2.64)
                                                                         ================     ================     ================
Shares used in computing basic and diluted net loss per
share                                                                           15,746              8,239                4,642
                                                                         ================     ================     ================

                 See accompanying notes to financial statements

</TABLE>


                                      F-4
<PAGE>

<TABLE>
<CAPTION>

                                  CARDIMA, INC.

 Statements of Changes in Redeemable Convertible Preferred Stock and Stockholders' Equity (Net Capital Deficiency)
                                (In thousands, except share and per share amounts)
                                                                                                  STOCKHOLDERS' EQUITY
                                                                                                (NET CAPITAL DEFICIENCY)
                                                                                          -------------------------------------
                                                                           SERIES D      SERIES E
                                                                          REDEEMABLE    REDEEMABLE   SERIES A      SERIES B
                                                                          CONVERTIBLE  CONVERTIBLE  CONVERTIBLE  CONVERTIBLE
                                                                           PREFERRED    PREFERRED    PREFERRED    PREFERRED
                                                                             STOCK        STOCK        STOCK        STOCK
                                                                          ------------ ------------- ------------ -------------
<S>                                                                           <C>         <C>         <C>        <C>
Balances at December 31, 1996 ...........................................      $  9,740    $   --      $  2,949   $   --
Issuance of 2,356,741 share of Series E redeemable
   preferred stock to investors for cash and conversion of
   bridge loans at $5.74 per share in March 1997, net of
   issuance costs of $90 ................................................          --        13,442        --         --
Issuance of 2,275,000 shares of common stock at $7.00 per
   share through the initial public offering, net of commissions
   and issuance costs of $2,286 .........................................          --          --          --         --
Conversion of redeemable convertible and convertible preferred
   stock in connection with the Company's initial public offering (9,740)       (13,342)     (2,949)       --       (4,764)
Issuance of 27,338 shares of common stock for cash upon exercise
   of employee stock option at $0.56 - $1.75 per share ..................          --          --          --         --
Deferred compensation related to grant of stock options .................          --          --          --         --
Amortization of deferred compensation ...................................          --          --          --         --
Net loss ................................................................          --          --          --         --
                                                                               --------    --------    --------   --------
Balances at December 31, 1997 ...........................................          --          --          --         --
Issuance of 78,409 shares of common stock for net issuance
   exercise of warrants at $1.05 per share ..............................          --          --          --         --
Issuance of 37,301 shares of common stock for exercise of warrants
   at$1.05 per share ....................................................          --          --          --         --
Issuance of 94,289 shares of common stock for cash upon exercise of
   employee stock options at $0.56 - $1.75 per share ....................          --          --          --         --
Issuance of 38,423 shares of common stock for cash in employee stock
   purchase plan at $4.24 and $3.56 per share ...........................          --          --          --         --
Amortization of deferred compensation ...................................          --          --          --         --
Net loss ................................................................          --          --          --         --
                                                                               --------    --------    --------   --------
Balances at December 31, 1998 ...........................................          --          --          --         --
Issuance of 7,500,000 shares of common stock at $2.00 per share in
   January and February 1999 through private placement, and 354,806
   shares issued in lieu of commissions, net of issuance costs
   of $686 ..............................................................          --          --          --         --
Issuance of 91,834 shares of common  stock,  net of 45 repurchased
   shares, for cash upon exercise of employee stock options
   at $0.56 - $1.75 per share ...........................................          --          --          --         --
Issuance of 57,419 shares of common stock for cash in employee
   stock Purchase plan at $2.24 and $1.49 per share .....................          --          --          --         --
Amortization of deferred compensation ...................................          --          --          --         --
Net loss ................................................................          --          --          --         --
                                                                               --------    --------    --------   --------
Balances at December 31, 1999 ...........................................      $   --      $   --      $   --     $   --
                                                                               ========    ========    ========   ========



                                                                                STOCKHOLDERS' EQUITY (NET OF CAPITAL DEFICIENCY)
                                                                           --------------------------------------------------------

                                                                                                                         TOTAL

                                                                            SERIES C                                  STOCKHOLDERS'

                                                                           CONVERTIBLE             DEFERRED   ACCUMU-  EQUITY (NET

                                                                            PREFERRED    COMMON     COMPEN-   LATED     CAPITAL

                                                                              STOCK       STOCK     SATION    DEFICIT  DEFICIENCY)

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


<S>                                                                        <C>        <C>        <C>         <C>         <C>
Balances at December 31, 1996 ...........................................   $  4,764   $    595   $   (526)   $(18,150)   $(10,368)
Issuance of 2,356,741 share of Series E redeemable
   preferred stock to investors for cash and conversion of
   bridge loans at $5.74 per share in March 1997, net of
   issuance costs of $90 ................................................       --         --         --          --          --
Issuance of 2,275,000 shares of common stock at $7.00 per
   share through the initial public offering, net of commissions
   and issuance costs of $2,286 .........................................       --       13,639       --          --        13,639
Conversion of redeemable convertible and convertible preferred
   stock in connection with the Company's initial public offering (9,740)     30,895       --         --        23,182
Issuance of 27,338 shares of common stock for cash upon exercise
   of employee stock option at $0.56 - $1.75 per share ..................       --           36       --          --            36
Deferred compensation related to grant of stock options .................       --          432       (432)       --          --
Amortization of deferred compensation ...................................       --         --          227        --           227
Net loss ................................................................       --         --         --       (12,272)    (12,272)
                                                                            --------   --------   --------    --------    --------
Balances at December 31, 1997 ...........................................       --       45,597       (731)    (30,422)     14,444
Issuance of 78,409 shares of common stock for net issuance
   exercise of warrants at $1.05 per share ..............................       --         --         --          --          --
Issuance of 37,301 shares of common stock for exercise of warrants
   at$1.05 per share ....................................................       --           39       --          --            39
Issuance of 94,289 shares of common stock for cash upon exercise of
   employee stock options at $0.56 - $1.75 per share ....................       --          121       --          --           121
Issuance of 38,423 shares of common stock for cash in employee stock
   purchase plan at $4.24 and $3.56 per share ...........................       --          153       --          --           153
Amortization of deferred compensation ...................................       --         --          253        --           253
Net loss ................................................................       --         --         --       (16,186)    (16,186)
                                                                            --------   --------   --------    --------    --------
Balances at December 31, 1998 ...........................................       --       45,910       (478)    (46,608)     (1,176)
Issuance of 7,500,000 shares of common stock at $2.00 per share in
   January and February 1999 through private placement, and 354,806
   shares issued in lieu of commissions, net of issuance costs
   of $686 ..............................................................       --       14,314       --          --        14,314
Issuance of 91,834 shares of common  stock,  net of 45 repurchased
   shares, for cash upon exercise of employee stock options
   at $0.56 - $1.75 per share ...........................................       --          114       --          --           114
Issuance of 57,419 shares of common stock for cash in employee
   stock Purchase plan at $2.24 and $1.49 per share .....................       --          103       --          --           103
Amortization of deferred compensation ...................................       --         --          253        --           253
Net loss ................................................................       --         --         --       (14,028)    (14,028)
                                                                            --------   --------   --------    --------    --------
Balances at December 31, 1999 ...........................................   $   --     $ 60,441   $   (225)   $(60,636)   $   (420)
                                                                            ========   ========   ========    ========    ========

</TABLE>

                                      F-5
<PAGE>

<TABLE>
<CAPTION>

                                  CARDIMA, INC.

                            STATEMENTS OF CASH FLOWS

                                 (In thousands)

                                                                                            YEAR ENDED DECEMBER 31,
                                                                                  --------------------------------------------
                                                                                      1999           1998            1997
                                                                                  ------------    ------------    ------------
<S>                                                                               <C>              <C>             <C>

CASH FLOWS FROM OPERATING ACTIVITIES:

Net loss                                                                          $ (14,028)       $(16,186)       $(12,272)
Adjustments to reconcile net loss to net cash provided by operations:
     Depreciation and amortization                                                    1,196             928             703
     Amortization of deferred compensation                                              253             253             227
     Loss on disposal of assets                                                          15               6              --
     Changes in operating assets and liabilities:
         Accounts receivable                                                           (157)           (244)           (200)
         Inventories                                                                    709          (1,445)           (155)
         Other current assets                                                           115            (105)            (32)
         Restricted cash                                                                105              87              83
         Notes receivable                                                               (45)            (19)           (301)
         Other assets                                                                  (104)           (905)           (446)
         Accounts payable                                                              (850)          1,388            (257)
         Accrued employee compensation                                                    9             279             240
         Other current liabilities                                                      (16)             21               3
         Deferred rent                                                                  (41)            (48)            (49)
                                                                                  ------------    ------------    ------------
                  Net cash used in operating activities                             (12,839)        (15,990)        (12,456)

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of short-term investments                                                 (19,057)           (517)         (4,270)
Maturities and sales of short-term investments                                       18,560           4,786              --
Capital expenditures                                                                   (248)            (45)           (883)
Proceeds from disposal of assets                                                         14              25               3
                                                                                  ------------    ------------    ------------
         Net cash (used) provided in investing activities                              (731)          4,249          (5,150)

CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of preferred stock                                            --              --          10,158
Proceeds from issuance of bridge loans                                                   --              --           1,610
Principal payments under capital leases                                                (993)           (745)           (469)
Principal payments under credit line                                                   (817)             --              --
Payments under notes payable                                                             --              (7)             --
Proceeds under line of credit                                                            --           3,000              --
Net proceeds from sale of common stock                                               14,531             313          13,675
Proceeds from sale/leaseback of capital equipment                                       627           1,247             303
                                                                                  ------------    ------------    ------------
         Net cash provided by financing activities                                   13,348           3,808          25,277
                                                                                  ------------    ------------    ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                                   (222)         (7,933)          7,671

CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR                                            645           8,578             907
                                                                                  ------------    ------------    ------------
CASH AND CASH EQUIVALENTS, END OF YEAR                                             $    423        $    645        $  8,578
                                                                                  ============    ============    ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION

Cash paid during the year for interest                                             $    211        $    298       $     122
                                                                                  ============    ============    ============
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES

Equipment acquired under capital leases                                            $    771         $ 1,341        $    845
                                                                                  ============    ============    ============

</TABLE>
                                      F-6
<PAGE>

                                  CARDIMA, INC.

                          NOTES TO FINANCIAL STATEMENTS

1.  NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NATURE OF BUSINESS

The Company was  incorporated in the State of Delaware on November 12, 1992. The
Company designs,  develops,  manufactures and markets minimally invasive, single
use,  microcatheter-based  systems for the mapping and  ablation of the two most
common  forms  of  cardiac  arrhythmias:  atrial  fibrillation  and  ventricular
tachycardia.  The Company has licensed its  microcatheter  technology for use in
the treatment of  electrophysiological  diseases  affecting areas other than the
central nervous system from a stockholder, Target Therapeutics.

The Company has incurred continuing operating losses and expects such losses
to continue over the next several years. Management plans to continue to
finance the operations with a combination of stock sales, product revenue and
other financing facilities. In February 2000, the Company sold a total of
4,666,611 shares of common stock at $2.25 per share in a private placement
transaction to accredited investors. The transaction included warrants to
investors exercisable for 933,322 shares of common stock at an exercise price
of $2.48 per share. As commission for the transaction, the Company paid
$524,891 in cash. In addition, the Company issued warrants, exercisable for
233,329 shares of common stock at an exercise price of $2.48 per share, as
commission for the transaction. The Company's net proceeds, after expenses of
the placement, were approximately $10,000,000.

USE OF ESTIMATES

The preparation of financial  statements in conformity  with generally  accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial  statements and accompanying notes.
Actual results could differ from those estimates.

REVENUE RECOGNITION

Revenues  are  recognized  when  products  are shipped.  In December  1999,  the
Securities and Exchange  Commission  issued Staff  Accounting  Bulletin No. 101,
"Revenue Recognition in Financial Statements" ("SAB 101"). We are all evaluating
the  effects,  if any,  that the  adoption of SAB 101, in the second  quarter of
2000, may have on the results of our operations or our financial position.

RESEARCH AND DEVELOPMENT

Research and development costs, which include clinical and regulatory costs, are
charged to expense as incurred.

                                      F-7
<PAGE>

NET LOSS PER SHARE

Basic  and  diluted  net loss per  share has been  computed  using the  weighted
average  number of shares of common  stock  outstanding  during the period.  The
Company  has  excluded  all  convertible  debt,   convertible  preferred  stock,
warrants,  and stock options from the computation of diluted  earnings per share
because all such securities are anti-dilutive for all periods presented.

Pro forma net loss per share for 1997 has been  computed as described  above and
also  gives  effect,  pursuant  to  SEC  staff  policy,  to  the  conversion  of
convertible  preferred  shares  not  included  above  that were  converted  upon
completion of the Company's  initial public  offering  (using the "if converted"
method) from the original date of issuance.

Pro forma  basic and diluted  net loss per share  information  is as follows (in
thousands except per share data):

<TABLE>
<CAPTION>
                                                                                                      Year Ended
                                                                                                   December 31, 1997
                                                                                               --------------------------
<S>                                                                                            <C>

Shares used in computing basic and diluted net loss per share.............................               4,642
Adjusted to reflect assumed  conversion of preferred stock from the date of
   issuance  through the initial public offering in June 1997.............................               1,454
                                                                                               --------------------------
                                                                                                         6,096

Shares used in computing pro forma basic and diluted loss per share.......................
                                                                                               ==========================
Pro forma basic and diluted net loss per share............................................             $ (2.01)
                                                                                               ==========================

</TABLE>

CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS

The Company considers investments in highly liquid instruments purchased with an
original  maturity  of three  months or less to be cash  equivalents.  All other
liquid  investments  are  classified  as  short-term  investments.  All  of  the
Company's cash equivalents and short-term investments, consisting principally of
commercial paper, are classified as  available-for-sale as of December 31, 1999.
Available-for-sale  securities were carried at fair value with unrealized  gains
and losses reported as a separate  component of stockholders'  equity.  To date,
the Company has not experienced any  significant  unrealized  gains or losses on
available-for-sale  securities and accordingly, no adjustments have been made to
other comprehensive  income or stockholders'  equity.  Realized gains and losses
and  declines in value judged to be other than  temporary on  available-for-sale
securities are included in investment  income.  The fair value of investments is
based on quoted  market  prices at December  31,  1999.  The fair value of these
securities  approximated  the amortized  cost at December 31, 1999.  Cash,  cash
equivalents  and  short-term  investments  at December  31, 1999  consist of the
following (in thousands):

<TABLE>
<CAPTION>

<S>                                                 <C>       <C>                                                 <C>

Cash and cash equivalents:                                    Short-term investments:
   Cash...................................          $ 254     Commercial paper..........................          $ 497
   Money market funds.....................            169     Total short-term investments..............          $ 497
                                              ------------                                                  ============
  Total cash and cash equivalents.........          $ 423
                                              ============

</TABLE>

                                      F-8
<PAGE>

INVENTORIES

Inventories  are stated at the lower of cost or market.  Cost is based on actual
costs  computed  on a  first-in,  first-out  basis.  Inventories  consist of the
following (in thousands):

<TABLE>
<CAPTION>

                                                              December 31,
                                                  --------------------------------------
                                                        1999                 1998
                                                  -----------------    -----------------
<S>                                               <C>                <C>

Raw materials..............................         $   616               $   502
Work-in-process............................             107                   217
Finished goods.............................             545                 1,258
                                                  -----------------    -----------------
                                                    $ 1,268               $ 1,977
                                                  =================    =================
</TABLE>

PROPERTY AND EQUIPMENT

Property and equipment, including equipment under capital leases, are carried at
cost less accumulated depreciation and amortization.  Property and equipment are
depreciated  using the  straight-line  method over the  estimated  useful lives,
generally three to five years.  Leasehold  improvements  are amortized using the
straight-line  method over the shorter of the estimated useful life of the asset
or the remaining term of the lease.  Depreciation expense includes  amortization
of capital leases and leasehold improvements.

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

<TABLE>
<CAPTION>

                                                               December 31,
                                                   ----------------------------------------
                                                         1999                  1998
                                                   -----------------      -----------------
<S>                                                <C>              <C>
Equipment.....................................      $   5,492             $      5,054
Leasehold improvements........................            109                      107
                                                    -----------------     -----------------
                                                        5,601                    5,161
Less accumulated depreciation.................         (3,089)                  (2,163)
                                                    -----------------     -----------------
                                                    $   2,512             $      2,998
                                                    =================     =================

</TABLE>

Property and  equipment  financed  under a capital  leases were  $4,205,000  and
$3,660,000 at December 31, 1999 and 1998, respectively. Accumulated amortization
related to leased assets was  $2,476,000 and $1,764,000 at December 31, 1999 and
1998, respectively.

CONCENTRATIONS OF RISK

To date, product sales have been direct to customers in the United States and to
distributors primarily in Europe, Japan and South America. No one distributor or
direct

                                      F-9
<PAGE>

customer accounted for more than 10% of the Company's net sales and export sales
represented 45% of net sales for the year ended December 31, 1999. Of the export
sales in 1999, 22% were to Japan,  71% were to Europe and 7% were to the rest of
the world.  Provisions  for doubtful  accounts  were $55,000 and $29,000 for the
years ended December 31, 1999 and 1998, respectively.  When necessary, estimated
provisions for product returns are recorded. The geographic  distribution of net
sales was as follows:

<TABLE>
<CAPTION>

                                                              YEAR ENDED DECEMBER 31,
                                                                  (IN THOUSANDS)
                                 ----------------------------------------------------------------------------------
                                           1999                        1998                        1997
                                 --------------------------  --------------------------  --------------------------
<S>                                     <C>            <C>         <C>             <C>          <C>            <C>

United States                           $1,915         55%         $  1,722        69%          $   902        71%
Europe                                   1,127         32%              554        22%              224        18%
Japan                                      341         10%              177         7%              123        10%
Rest of World                              112          3%               46         2%               12         1%
                                 --------------              ---------------             ---------------
TOTAL NET SALES:                        $3,495                      $ 2,499                    $  1,261
                                 ==============              ===============             ===============

</TABLE>

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

PATENTS

Patent costs deemed to have future  benefits are capitalized and amortized using
the straight-line  method over estimated useful lives of seven years,  beginning
at their  effective  dates or over the  remainder of such periods from the dates
acquired.

The Company  examines  the carrying  value of its patents to  determine  whether
there are any  impairment  losses.  If indicators  of impairment  are present in
these assets used in  operations,  and future cash flows were not  sufficient to
recover the assets'  carrying  amount,  an  impairment  loss would be charged to
expenses  in the  period  identified.  No event has been  identified  that would
impair the value of patents recorded in the accompanying financial statements.

RECENT ACCOUNTING PRONOUNCEMENTS

In June 1998,  the  Financial  Accounting  Standards  Board issued  Statement of
Financial  Accounting  Standards  ("SFAS") No. 133,  Accounting  for  Derivative
Financial

                                      F-10
<PAGE>

Instruments  and for Hedging  Activities,  which  provides a  comprehensive  and
consistent  standard for the  recognition  and  measurement of  derivatives  and
hedging  activities.  SFAS No. 133, as delayed by SFAS No. 137, is effective for
years  beginning  after  June  15,  2000,  and  is  not  anticipated  to  have a
significant impact on the Company's results of operations or financial condition
when adopted.

2.   COMMITMENTS

The Company  leases  facilities  under an  operating  lease which  commenced  in
November  1999 and  expires  November  2002.  The Company  also  leases  certain
equipment  under  noncancelable  capital  leases  (see Note 6).  Following  is a
schedule of future  minimum  lease  payments  under both  operating  and capital
leases at December 31, 1999 (in thousands):

<TABLE>
<CAPTION>

                                                                                  Operating             Capital
                                                                                    Lease               Leases
                                                                                --------------       --------------
<S>                                                                                  <C>                    <C>

Year ending December 31:

         2000..............................................................          $  567                 $ 900
         2001..............................................................             590                   643
         2002..............................................................             533                   419
         2003..............................................................             ---                   131
                                                                                --------------       --------------
Total minimum payments required............................................          $1,690                 2,093
                                                                                ==============
Less amount representing interest..........................................                                  (305)
                                                                                                     --------------
Present value of future lease payments.....................................                                 1,788
Less current portion.......................................................                                  (776)
                                                                                                     --------------
Noncurrent portion.........................................................                               $ 1,012
                                                                                                     ==============
</TABLE>

Rent expense, net of rental income, was approximately $391,000 in 1999, $363,000
in  1998  and  $316,000  in  1997.  In  connection  with  its  facilities  lease
arrangements,  the Company issued letters of credit to lessors collateralized by
certificates  of deposit  which totaled  approximately  $105,000 at December 31,
1998.  In  November  of 1999,  these  letters  of credit  and  their  respective
certificates of deposits expired.

3.   STOCKHOLDERS' EQUITY

COMMON STOCK

In June 1997,  the Company  completed  its initial  public  offering  and issued
2,275,000  shares of its Common Stock at a price of $7.00 per share. The Company
received  approximately  $13.6 million in cash, net of  underwriting  discounts,
commission and other offering costs.

                                      F-11
<PAGE>

1993 STOCK OPTION PLAN

During  1993,  the board of  directors  adopted the 1993 Stock  Option Plan (the
"Plan")  and, as amended,  has  reserved  1,300,000  shares of common  stock for
issuance under the Plan.  The Plan provides for both incentive and  nonstatutory
stock   options  to  be  granted  to  employees,   directors  and   consultants.
Exercisability,  option price,  fair value and other terms are determined by the
board of directors;  however,  the exercise price of each incentive stock option
shall be not less than 100% of the fair market value of the stock  issuable upon
exercise of the option on the date the option is granted.  The exercise price of
each  nonstatutory  stock  option  shall be not less than 85% of the fair market
value of the stock subject to the option on the date the option is granted.  All
options  granted  prior to the initial  public  offering  shares were  generally
exercisable  upon grant,  but shares received upon exercise prior to vesting are
subject  to  repurchase  upon the  stockholder's  termination  of service to the
Company. Subsequent to the initial public offering, only fully vested shares are
exercisable.  Shares  purchased  upon exercise of options  generally vest at the
rate of 12.5%  after six months from the date of grant,  and monthly  thereafter
over the  following 42 months.  No option shall have a maximum term in excess of
ten years from the grant date and no option granted to a 10%  stockholder  shall
have a maximum term in excess of five years from the grant date.

Activity under the Plan is as follows:

<TABLE>
<CAPTION>

                                                                                          Outstanding Options
                                                                    ----------------------------------------------------------------

                                                       Shares           Number of            Price              Weighted-Average
                                                     Available           Shares            Per Share             Exercise Price
                                                   ---------------  ------------------  --------------------------------------------

<S>                                                   <C>               <C>                <C>                           <C>

Balance at December 31, 1996......................      84,156          810,690            $0.56 - $2.10                 $1.25
Additional shares reserved........................     396,825              ---                                            ---
Options granted...................................    (438,162)         438,162            $1.75 - $7.00                 $4.25
Options exercised.................................         ---          (27,338)           $0.56 - $7.00                 $2.39
Options forfeited.................................      80,899          (80,899)           $0.56 - $5.88                 $2.37
                                                        ------          --------

Balance at December 31, 1997                           123,718        1,140,615            $0.56 - $5.88                 $2.37
Additional shares reserved........................     243,117              ---                      ---                   ---
Options granted...................................    (290,508)         290,508            $2.88 - $5.56                 $4.38
Options exercised.................................         ---          (94,289)           $0.56 - $1.75                 $1.28
Options forfeited.................................      59,742          (59,742)           $0.56 - $7.00                 $3.59
                                                        ------          --------

Balance at December 31, 1998                           136,069        1,277,092            $0.56 - $7.00                 $2.87
Additional shares reserved........................   2,250,569              ---                      ---                   ---
Options granted...................................    (715,239)         715,239            $1.41 - $2.56                 $1.99
Options repurchased...............................          45              ---            $0.56 - $0.56                 $0.56
Options exercised.................................         ---          (91,879)           $0.56 - $1.75                 $1.24
Options forfeited.................................     139,601         (139,601)           $0.56 - $7.00                 $4.79
                                                       -------         ---------

Balance at December 31, 1999......................   1,811,045        1,760,851            $0.56 - $7.00                 $2.44
                                                     ---------        ---------

</TABLE>

>From April 1996 to April 1997, options to purchase a total of 835,928 shares
were granted at prices ranging from $0.56 to $5.74 per share. Deferred
compensation of approximately

                                      F-12
<PAGE>

$1,012,000  was recorded for these option  grants based on the deemed fair value
of common stock (ranging from $1.00 to $8.00 per share).

At December 31, 1999, 1998 and 1997 approximately  920,665,  881,606 and 827,920
options,  respectively,  were exercisable under the Plan. All options granted in
1999 were granted at fair value.  The weighted  average  exercise  price for all
options granted in 1999 is $2.00.

1997 DIRECTORS' STOCK OPTION PLAN

In March 1997, the board of directors  adopted the 1997 Directors'  Stock Option
Plan. A total of 200,000  shares of common stock have been reserved for issuance
under this plan. This Plan provides for the grant of nonstatutory  stock options
to  nonemployee  directors  of the Company.  At December  31,  1999,  options to
purchase  86,000  shares were granted at prices  ranging from $1.91 to $2.13 per
share, with an average exercise price of $2.07. All options granted in 1999 were
granted at fair value. A total of 86,000 shares are outstanding under this plan.

1997 EMPLOYEE STOCK PURCHASE PLAN

In March 1997,  the board of directors  adopted the 1997 Employee Stock Purchase
Plan (the "Purchase  Plan").  A total of 250,000 shares of common stock has been
reserved for issuance under the Purchase  Plan. As of December 31, 1999,  95,842
shares had been issued under this purchase plan.

WARRANTS

At  December  31,  1999,  the Company had the  following  warrants  outstanding:
warrants to purchase 308,512 shares of common stock at $1.05 per share issued to
certain  investors in connection  with bridge loans;  warrants to purchase 1,428
shares of common stock at $7.00 per share issued in connection with the facility
lease;  warrants to purchase 1,905 shares of common stock at $7.00 per share and
2,142  shares of common  stock at $5.11 per share  issued in  connection  with a
letter of credit;  warrants to purchase  23,776  shares of common stock at $5.11
per share,  13,937 shares of common stock at $5.74 per share,  and 19,513 shares
of common stock at $2.56 issued in connection with a capital lease;  warrants to
purchase  17,543  shares of common  stock at $7.00 per share  issued to  certain
investors in connection  with bridge  financings and warrants to purchase 75,000
shares of common  stock at $4.00 per share issued in  connection  with a line of
credit. These warrants are exercisable immediately and expire at the earliest of
(i)  between 3 to 10 years  after the date of grant or (ii) the  closing  of the
Company's  sale  of  all  or  substantially  all  of its  assets  or  (iii)  the
acquisition  of the  Company  by  another  entity  by means of a merger or other
transaction.

In January and February  1999,  the Company sold a total of 7,500,000  shares of
common stock at $2.00 per share in a private placement transaction to accredited
investors.  The

                                      F-13
<PAGE>

Company issued 750,000 warrants,  exercisable for 750,000 shares of common stock
at an exercise  price of $2.20 as a commission for the transaction.

In December 1994, the Company also issued  warrants to Target to purchase 24,610
shares  of the  Company's  Series C  preferred  stock  at  $10.50  per  share in
connection with a guarantee of a letter of credit. These warrants were exercised
in March 1995 for cash.  Also in connection with a capital lease line agreement,
the  Company  issued to Target in  December  1993 a warrant for $766 to purchase
10,427  shares of the  Company's  common stock at $7.00 per share.  This warrant
expired on December 9, 1998.

The Company has reserved  1,213,756  shares of common  stock for  issuance  upon
exercise of the warrants described above.

ACCOUNTING FOR STOCK-BASED COMPENSATION

The Company has elected to follow  Accounting  Principles  Board Opinion No. 25,
"Accounting   for  Stock   Issued  to   Employees"   ("APB   25")  and   related
interpretations  in  accounting  for its  employee  stock  options  because,  as
discussed below, the alternative  fair-value  accounting provided for under FASB
Statement No. 123, ("Statement 123") "Accounting for Stock-Based  Compensation,"
requires  use of option  valuation  models  that were not  developed  for use in
valuing employee stock options.  Under APB 25, because the exercise price of the
Company's employee stock options equals the market price of the underlying stock
on the date of grant as  determined  by the  Company's  Board of  Directors,  no
compensation expense is recognized.

Pro  forma  information  regarding  net loss and loss per share is  required  by
Statement 123, which also requires that the  information be determined as if the
Company had  accounted  for its employee  stock  options  granted  subsequent to
December 31, 1994 under the fair value method of that Statement.  The fair value
for these  options was  estimated  at the date of grant using the Black  Scholes
option pricing model for 1997, 1998 and 1999 with the following weighted-average
assumptions for 1999, 1998 and 1997,  respectively;  risk-free interest rates of
approximately 6.0%, 6.0% and 6.0%;  dividend yields of 0.0%,  volatility factors
of the expected market price of the Company's  common stock of 0.6, 0.6 and 0.6;
and a weighted-average expected life of the options of four years.

The option  valuation models were developed for use in estimating the fair value
of traded options which have no vesting restrictions and are fully transferable.
In addition,  option  valuation  models  require the input of highly  subjective
assumptions including the expected stock price volatility. Because the Company's
employee stock options have characteristics  significantly  different from those
of traded options,  and because changes in the subjective input  assumptions can
materially affect the fair value estimate, in management's opinion, the existing
models do not necessarily provide a reliable single measure of the fair value of
its employee stock options.

                                      F-14
<PAGE>

For purposes of pro forma  disclosures,  the estimated fair value of the options
is amortized to expense over the options'  vesting  period.  The  Company's  pro
forma information follows:

<TABLE>
<CAPTION>
                                                                                 Year Ended December 31,
                                                                -----------------------------------------------------------
                                                                      1999                 1998                 1997
                                                                -----------------    -----------------    -----------------
                                                                          (In thousands, except per share data)
<S>                                                                <C>                   <C>                <C>
Net loss - as reported.......................................      $ (14,028)            $ (16,186)         $  (12,272)
                                                                =================    =================    =================
Net loss - pro forma.........................................      $ (14,269)            $ (16,439)         $  (12,526)
                                                                =================    =================    =================
Net loss per share - as reported.............................      $   (0.89)            $   (1.96)         $    (2.64)
                                                                =================    =================    =================
Net loss per share - pro forma...............................      $   (0.91)            $   (2.00)         $    (2.70)
                                                                =================    =================    =================
</TABLE>

The following table summarizes  information  about stock options  outstanding at
December 31, 1999:

<TABLE>
<CAPTION>
                                                    Options Outstanding                           Options Exercisable
                                      ------------------------------------------------    ------------------------------------
                                                          Weighted
                                                           Average        Weighted                               Weighted-
                                         Number of        Remaining       Average         Number of               Average
                                          shares         Contractual      Exercise         shares                Exercise
    Range of Exercise Prices            Outstanding         Life          Price          Exercisable               Price
---------------------------------     ---------------- --------------- ---------------   -----------------    ---------------
<S>                                        <C>              <C>           <C>                  <C>                 <C>
   $0.56  -          $1.05                 177,376          5.62          $0.78                177,376             $0.78
    1.40  -           1.40                 327,684          6.41           1.40                327,684              1.40
    1.41  -           1.75                 332,136          9.04           1.49                 91,636              1.69
    1.91  -           2.56                 453,778          9.30           2.31                 53,065              2.49
    2.88  -           5.00                 365,513          8.01           4.33                220,321              4.39
    5.25  -           7.00                 104,364          8.37           5.53                 46,518              5.52
                                      ----------------                                    -----------------
   $0.56  -          $7.00               1,760,851          8.09          $2.44                916,600             $2.30
                                      ================                                    =================
</TABLE>

                                      F-15
<PAGE>

4.    NOTES RECEIVABLE

In December 1997, the Company entered into a $300,000 note receivable  agreement
with Phillip C. Radlick,  Ph.D.,  its President and Chief  Executive  Officer to
facilitate the purchase of a principal residence in the Bay Area. The note bears
interest at the minimum  Applicable  Federal  Rate of 6.45% at the time the note
was issued and is due and payable in a single lump sum  forty-eight  months from
the note date. As security for the note, Dr. Radlick  granted Cardima a security
interest in his vested stock  options and his principal  residence.  At December
31, 1999, approximately $39,000 of interest has accrued. The note receivable and
accrued interest are included in the accompanying balance sheet.

In August 1999,  the Company  entered into a $25,000 note  receivable  agreement
with David Carner,  its Director of AF Systems to  facilitate  the purchase of a
principal  residence  in the Bay Area.  The note bears  interest  at the minimum
Applicable  Federal Rate of 5.30% at the time the note was issued and is due and
payable in a single lump sum twenty-four  months from the note date. At December
31, 1999,  approximately  $400 of interest has accrued.  The note receivable and
accrued interest are included in the accompanying balance sheet.

5.    INCOME TAXES

As  of  December  31,  1999,   the  Company  had  federal  net  operating   loss
carryforwards  of  approximately  $57,300,000.  The  Company  also  had  federal
research and development tax credit  carryforwards of approximately  $600,000 as
of December 31,  1999.  The net

                                      F-16
<PAGE>

operating loss and credit  carryforwards  will expire  beginning in 2008 through
2019, if not utilized.

Utilization  of the  net  operating  losses  and  credits  may be  subject  to a
substantial annual limitation due to the "change in ownership" provisions of the
Internal  Revenue  Code  of  1986  and  similar  state  provisions.  The  annual
limitation  may result in the  expiration  of net  operating  losses and credits
before utilization.

Significant  components  of the  Company's  deferred  tax assets for federal and
state income taxes as of December 31 are as follows (in thousands):

<TABLE>
<CAPTION>

                                                                                    1999                 1998
                                                                               --------------       --------------
<S>                                                                                 <C>                 <C>

         Net operating loss carryforwards..................................         $20,800             $  16,100
         Research credits carryforwards (federal and state)................             900                   800
         Manufacturing investment credit carryforwards.....................             100                   100
         Capitalized research and development..............................             700                   500
         Other, net........................................................             900                   600
                                                                                -----------          ------------
         Total deferred tax assets                                                   23,400                18,100
         Valuation allowance for deferred tax assets                                (23,400)              (18,100)
                                                                                ------------         -------------
                                                                                $     -----          $      -----
                                                                                -------------        -------------

</TABLE>

The net valuation allowance  increased by $5,300,000,  $6,200,000 and $4,400,000
during the years ended December 31, 1999, 1998 and 1997, respectively.


6.   RELATED PARTY TRANSACTIONS

LICENSE RIGHTS

In May 1993, in exchange for an equity  interest in the Company,  Target granted
the  Company  an  exclusive  royalty-free  worldwide  license  to  use  Target's
technology  and to make, use and sell or otherwise  distribute  products for the
diagnosis and treatment of electrophysiological diseases in the body, other than
in the central nervous system,  including the brain. The exclusive license grant
applied to any Target technology developed through May 1996 and will expire upon
the  expiration  of the last of the patents  relating to the Target  technology.
Under the  License  Agreement,  Cardima  granted  back to  Target  an  exclusive
royalty-free  license to use technology developed through May 1996 in the fields
of   neurology,   interventional   neuroradiology,   interventional   radiology,
reproductive  disorders  and  vascular  prostheses  (the "Target  Field").  Such
license will expire upon the  expiration of the last of the patents  relating to
the Target technology.  Target granted the Company a nonexclusive,  royalty-free
license to use Target  technology to make, use and sell or otherwise  distribute
the  Company's  products  for use  within the  cardiology  field,  provided  the
Company's   products   represent  a  substantial   improvement.   A  substantial
improvement  is any  modification,  improvement or enhancement by the Company of
Target  technology in a particular  product that results in a material change in
the function,  purpose or application of such product. The Company

                                      F-17
<PAGE>

believes that the  incorporation  of electrodes  in its  microcatheter  systems,
together  with  other  modifications,   satisfies  the  substantial  improvement
requirements.  As part of the same  agreement,  the Company granted to Target an
exclusive,  royalty-free  license to use the Company's  technology to make, have
made, use and sell or otherwise distribute products within the Target Field.

In  addition,   the  Company  agreed  not  to  conduct  material   research  and
development,  acquire corporate  entities or make or sell products in the Target
Field or to sell products,  other than products utilizing  Target's  technology,
for use in  diagnosis  or treatment  of diseases  related to the  production  of
electrical  current in tissue located in areas of the body other than the heart,
without first notifying Target and negotiating a distribution agreement. Cardima
also agreed that it would not sell products  utilizing  Target's  technology for
use  in  diagnosis  or  treatment  of  diseases  related  to the  production  of
electrical  current in tissue  located in areas of the body other than the heart
without, if selling to a distributor, first notifying Target and offering Target
the right of first refusal with respect to the terms of the distribution,  or if
selling directly to the consumer, paying to Target an amount equal to 40% of the
gross profit for such product.

7.    SUBSEQUENT EVENTS

In February 2000, the Company sold a total of 4,666,611 shares of common stock
at $2.25 per share in a private placement transaction to accredited investors.
The transaction included warrants to investors exercisable for 933,322 shares
of common stock at an exercise price of $2.48 per share. As commission for the
transaction, the Company paid $524,891 in cash. In addition, the Company
issued warrants, exercisable for 233,329 shares of common stock at an exercise
price of $2.48 per share, as commission for the transaction. The Company's net
proceeds, after expenses of the placement, were approximately $10.0 million.
Unaudited proforma information, assuming the private placement had been
completed on December 31, 1999, is as follows:

<TABLE>
<CAPTION>

                                                                     December 31, 1999
                                                                     -----------------
                                                                                   Proforma
                                                                  Actual          (unaudited)
                                                                  ------          -----------
<S>                                                                <C>           <C>

Cash and cash equivalents.................................       $   423            $10,378
             Total assets: ...............................         6,089             16,044

Common Stock..............................................        60,441             70,396
     Total stockholders' equity (net capital deficiency)..         (420)              9,535
</TABLE>

                                      F-18