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FILED PURSUANT TO RULE 424(b)(4)
REGISTRATION NO. 333-36026
CARDIMA, INC.
6,066,596 SHARES
COMMON STOCK
The securities offered in this prospectus involve a high degree of risk. See
"Risk Factors" beginning on page 4 of this prospectus for information that you
should consider before purchasing these securities. Our common stock is quoted
on the Nasdaq Smallcap Market under the symbol "CRDM". On June 9, 2000, the
closing price of our common stock on the Nasdaq was $1.0625 per share.
This prospectus relates to 6,066,596 shares of Cardima, Inc. common stock which
may be offered for sale by selling stockholders from time to time and will not
be underwritten.
Neither the Securities and Exchange Commission nor any State Securities
Commission has approved or disapproved these securities, or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
The date of this Prospectus is June 12, 2000
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TABLE OF CONTENTS
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About Cardima.............................................................. 3
Risk Factors............................................................... 4
Issuance of Common Stock to Selling Stockholders........................... 15
Use of Proceeds............................................................ 15
Selling Stockholders....................................................... 16
Plan of Distribution....................................................... 17
Indemnification of Officers and Directors.................................. 18
Legal Matters.............................................................. 18
Experts.................................................................... 19
Where You Can Find More Information........................................ 19
Information Incorporated by Reference...................................... 19
Additional Information..................................................... 20
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SPECIAL NOTE: The following discussion contains certain forward-looking
statements that involve risks and uncertainties. Actual results or events may
differ materially from those projected in such forward-looking statements.
Potential risks and uncertainties include those factors below under the heading
"Risk Factors."
ABOUT CARDIMA
Since our inception, we have focused on the diagnosis and treatment of
tachycardias, or very fast heartbeats. Tachycardias break down in to many
categories, with the most significant being Atrial Fibrillation, or AF, and
Ventricular Tachycardia, or VT. Both conditions require the precise diagnostic
location and/or the subsequent destruction of the cells producing the
arrhythmia. We develop, manufacture and commercialize our microcatheter-based
systems for the diagnosis and treatment of these arrhythmias. Our microcatheters
are being designed with a dual functionality to address the difficulty in and
added costs associated with placing a diagnostic catheter into the heart to
locate the arrhythmia, removing the catheter, replacing it with a catheter
designed to treat the arrhythmia, finding the correct location again and then
treating the site.
Our microcatheters are about one-third to one-fourth the size of existing
catheters. This smaller size allows our microcatheters to access sites within
the wall of the heart using the venous system. The variable stiffness
characteristic makes accessing the veins easier for VT diagnosis and treatment
and allows them to conform to the surfaces of the heart's atrial wall for
diagnosing and treating AF.
Our microcatheters are being developed as disposable, single use products
that can be adapted to and used with virtually any electrophysiology system and
most radio frequency generators available today.
To date, we have only received regulatory approvals in Europe to sell our
ablation products.
Our Strategy
Our strategy is to successfully diagnose and ultimately cure patients with
AF and VT using our microcatheter systems. This strategy is being accomplished
by:
developing state-of-the-art microcatheter systems, using unique proprietary
technology to provide disposable dual purpose microcatheters with flexible
coiled electrodes designed to interface with existing EP lab equipment systems;
proving the clinical utility of these products for the treatment of AF and VT;
and marketing these products throughout the world.
Distribution Agreement with St. Jude Medical, Inc.
On January 26, 2000, we announced that we had signed an exclusive three-
year distribution agreement with St. Jude Medical, Inc. for distribution of our
diagnostic electrophysiology products in the United States.
Our Operations
Cardima, Inc. was incorporated in the State of Delaware in November 1992.
Our principal executive offices are located at 47266 Benicia Street, Fremont,
California 94538-7330 and our telephone number is 510/354-0300. As of March 31,
2000, we had 82 full-time employees. Our operations are carried out in a 44,000
square foot facility containing clean room production, research and development,
and administrative offices.
The "Cardima" logo (used above and with our name) "Revelation," "Revelation
Tx," "Revelation T-Flex," "Pathfinder," "Pathfinder mini," "Tracer,"
"Therastream," "Vueport," "Venaport," "Naviport," "EP Select," and "Tx Select"
are trademarks of Cardima, Inc. All other trade names and trademarks appearing
in this prospectus are the property of their respective holders.
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RISK FACTORS
Investing in us entails substantial risk. You should purchase shares only
if you can afford a complete loss. You should carefully consider the risks of
your investment in the "risk factors" section below, as well as other
information contained in this prospectus, information incorporated by reference,
and information which we file with the Securities and Exchange Commission from
time to time. The information in this prospectus is complete and accurate as of
this date, but the information may change after the date on this prospectus.
We have sold a limited number of our microcatheter systems and we will
continue to incur substantial costs in bringing our microcatheter products to
market.
In addition, we will continue to incur substantial losses into the
foreseeable future as a result of research and product development, clinical
trials, manufacturing, sales, marketing and other expenses as we seek to bring
our microcatheters to market. Since our inception we have experienced losses and
we expect to experience substantial net losses into the foreseeable future.
Our net losses were approximately $14.0 million, $16.2 million and $12.3
million for 1999, 1998 and 1997. As of December 31, 1999, our accumulated
deficit was approximately $60.6 million. Our limited sales history makes it
difficult to assess our future results. We cannot be certain that we will ever
generate substantial revenue or achieve profitability. Our failure to generate
substantial revenues would harm our business.
We will need to raise capital in the future that could have a dilutive
effect on your investment.
In order to commercialize our products, we will need to raise additional
capital by December 31, 2000. One possibility for raising additional capital
would be the public or private sale of our shares of stock. Any sale by us of
additional shares of stock will dilute your percentage ownership in us.
Our failure to raise additional capital to develop and market our
microcatheter systems will cause our business to suffer.
We will need to raise additional capital in order to market our
microcatheter systems. In addition, we may have to spend additional funds 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 cannot be certain that additional
funding will be available to us when needed, if at all, or, if available, 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 microcatheter products, or
to license to third parties the rights to commercialize products or technologies
that we would otherwise try to develop and market ourselves. Our failure to
raise this additional capital when needed would harm our business.
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, equipment
lease lines and loan-facilities. As of March 31, 2000, cash, cash equivalents,
short-term investments and long-term restricted cash totaled $8.4 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.
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We rely on our contractual rights to access third-party data. Our inability
to either access this data or the FDA's refusal to accept it in a filing, will
delay the commercialization of our products and cause our business results to
suffer.
We often rely on our contractual rights to access data collected by others
in phases of our clinical trials. We depend on the continued performance by
these third-parties parties of their contractual obligations to provide access
and cooperate with us in completing filings with the FDA. We cannot be certain
that the FDA will permit our reliance on these parties. If we are unable to rely
on clinical data collected by others, or if these parties do not perform their
contractual duties, we may be required to repeat clinical trials; which could
significantly delay commercialization of our products, require us to spend more
money on our clinical trials and cause our business results to suffer.
We cannot assure the safety or effectiveness of our products. We are in an
early stage of our product development.
To date, we have completed two clinical trials and have received 510(k)
pre-market clearances from the FDA with respect to our Cardima Pathfinder,
Pathfinder mini and Tracer microcatheter systems for venous mapping of VT, and
our Revelation microcatheter system for mapping and pacing of the atria. We also
received FDA 510(k) clearance for the Venaport fixed-curve guiding catheter,
Vueport balloon-tipped fixed curve guiding catheter, and for our Naviport
deflectable tip guiding catheter. Our inability to timely obtain clearances for
our other diagnostic products and therapeutic catheters under development would
have a material adverse effect on our business, financial condition and results
of operations.
We are in the early stage of developing, testing and obtaining regulatory
approval for our microcatheter systems designed for ablation of AF and VT. We
are currently developing the Revelation Tx microcatheter system for ablation of
AF and the Therastream microcatheter system for ablation of VT. We are required
to obtain an Investigational Device Exemption, or IDE, from the FDA prior to
conducting human clinical trials of our microcatheter systems for ablation. We
completed the mapping phase of this feasibility study in August 1997 and the AF
ablation feasibility study in December 1998. We received approval of an IDE
supplement on December 1998 allowing us to expand the AF study. We received
approval for an IDE to begin clinical testing of our Therastream microcatheter
system for VT ablation in December 1999. We must complete these clinical trials
and a pivotal trial for both AF and VT indications, if initiated, in order to
gather data for the submission of a pre-market approval, or PMA, application to
the FDA for our ablation products. We must receive PMA approval prior to
marketing such products for ablation in the United States. Clinical trials of
our microcatheter systems will require substantial financial and management
resources and the completion of such trials will take several years. There can
be no assurance that:
. necessary IDEs will be granted by the FDA,
. human clinical trials, if initiated, will be completed,
. human clinical studies will validate the results of our pre-clinical
studies, or
. human clinical trials will demonstrate that our products are safe and
effective.
In addition, the clinical trials may identify significant technical or
other obstacles to be overcome prior to obtaining necessary regulatory approvals
or market acceptance. Our failure to initiate and complete clinical trials,
demonstrate product safety and clinical effectiveness, and obtain regulatory
approval for the use of our microcatheter systems for the ablation of AF or VT
would have a material adverse effect on our business, financial condition and
results of operations.
Our microcatheter products and their related procedures are novel to the
market and will require the special training of physicians. If the market does
not accept our products and procedures, our revenues will decline.
Our microcatheter systems represent a novel approach to diagnosing and
treating atrial fibrillation and ventricular tachycardia. Acceptance of our
products and procedures by physicians, patients and health care payors will be
necessary in order for us to be successful. If our products and procedures are
not accepted by the market, our business could be harmed and our revenues would
decline.
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Our microcatheter products must be safe, effective and cost efficient in
order for them to effectively compete against more established treatments. If we
cannot compete with these treatments, our revenues will decline.
The market for catheters to diagnose or treat AF and VT is highly
competitive. Our microcatheter systems for the mapping and ablation of AF and VT
are new technologies. Safety, cost efficiency and effectiveness are the primary
competitive elements in our market. In addition, the length of time required for
products to be developed and to receive regulatory and, in some cases,
reimbursement approval are important competitive factors. Existing treatments
with which we must compete include:
. drugs,
. external electrical cardioversion and defibrillation,
. implantable defibrillators,
. purposeful destruction of the Atrio-Ventricular, or AV, node followed by
implantation of a pacemaker, and
. open heart surgery and the "maze" procedure.
Physicians will not recommend the use of our microcatheter systems unless
they can conclude that our systems provide a safe, effective and cost-efficient
alternative to current technologies for the mapping and ablation of AF or VT.
If our clinical data and other studies do not show that our products are safe
and effective, our products will not effectively compete against establish
treatments and our revenues will decline.
None of our ablation products has received regulatory approval in the
United States. Our failure to receive these approvals will harm our business and
cause the value of your investment to decline.
None of our products currently being developed for the ablation of AF and
VT has received regulatory approval in the United States. If we cannot gain U.S.
regulatory approval, our business will be harmed. Even if our ablation products
are successfully developed and the required regulatory approvals are obtained,
we cannot be certain that our products and the associated procedures will
ultimately gain any significant degree of market acceptance. Since our sole
product focus is to design and market microcatheter systems to map and ablate AF
and VT, our failure to successfully commercialize these systems would harm our
business and cause the value of your investment to decline.
The mapping and ablation of AF in the left atrium may cause blood clots
that could lead to a stroke. These adverse results from the use of our products
would cause our revenues to decline.
We developed our Revelation and Revelation Tx microcatheter systems to both
map and ablate AF. The Revelation Tx microcatheter is capable of delivering
radio frequency, or RF, energy in both the right and left atria to produce
lesions. In general, the use of RF energy in the left atrium has the potential
to create blood clots, which could travel through the body to the brain, and
which could possibly cause a stroke. Because of this risk, physicians may not
recommend this procedure, in which event the Revelation Tx would be unlikely to
gain market acceptance or be successfully commercialized, which would cause our
revenues to decline.
Our Therastream microcatheter system is being developed to ablate VT using
RF energy. Using RF energy could cause damage to the arteries of the heart and
potentially lead to a heart attack and even death. Because of this risk,
physicians may not recommend this procedure, making it unlikely that Therastream
would gain market acceptance. The failure of the Therastream system to gain
market acceptance or be successfully commercialized would harm our business.
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Significant increases in operating expenses in the future may adversely
affect our operating results and financial condition.
We plan to significantly increase our operating expenses to expand our
clinical trials to complete the necessary number of patients to submit data for
a PMA for our ablation products. Our Phase II AF ablation trial is near
completion and the data has been submitted to the FDA. Our operating expenses,
which include sales and marketing, research and development and general and
administrative expenses, are based on our expectations of future revenues and
are relatively fixed in the short term. If revenues fall below our expectations,
we will not be able to quickly reduce our spending in response, which would
materially affect our operating results and financial condition.
Reuse of our single-use products could cause our revenues to decline.
Although all of our microcatheter systems are labeled for single use only,
we are aware that some physicians are reusing these products. Reuse of our
microcatheter systems could reduce revenues from product sales and could cause
our revenues to decline.
We must obtain governmental approvals or clearances before we can sell our
products.
Our products are considered to be medical devices and will be subject to
extensive regulation in the United States and internationally. These regulations
are wide ranging and govern, among other things:
. product design and development,
. product testing,
. product labeling,
. product storage,
. premarket clearance and approval,
. advertising and promotion, and
. product sales and distribution.
Before we can market any of our products in the United States or Europe, we
must demonstrate that our products are safe and effective and obtain approval or
clearance from applicable governmental authorities, which cannot be guaranteed.
In the United States, we must obtain 510(k) premarket notification clearance or
premarket approval, or PMA, from the FDA in order to market a product. We have
received 510(k) premarket notification clearances for both the Cardima
Pathfinder, Pathfinder mini and Tracer microcatheter systems for mapping VT and
for the Revelation) microcatheter system for mapping AF. Currently, the timing
to receive 510(k) clearance is approximately 120 days and PMA approval is at
least 12 months, but timing can be uncertain and the process may be
significantly longer. We cannot guarantee either the timing or receipt of
approval or clearance. These products may require a PMA and extensive clinical
data may be requested to support either 510(k) clearance or PMA approval.
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We will be required to seek PMA approval for our ablation products, including
the Revelation Tx and the Therastream microcatheters for ablation. The process
of obtaining PMA approval is much more expensive, lengthy and uncertain than the
510(k) premarket notification clearance process. In order to prepare a PMA
application, we will be required to complete clinical trials to demonstrate the
safety and effectiveness of these products. We submitted an IDE application for
the Revelation microcatheter system for mapping and ablation of AF in January
1997. We completed a mapping study at Stanford University Hospital and
Massachusetts General Hospital in September 1997. In addition, we received
conditional IDE approval in January 1998 and full approval in March 1998 for a
feasibility clinical study for AF ablation using the Revelation Tx microcatheter
system. We completed a 10-patient AF ablation feasibility study and submitted to
the FDA a supplement to our IDE, requesting expansion of the study in November
1998. We filed an additional feasibility IDE application for the Therastream
microcatheter system in December 1998 and completed a 10 patient feasability
trial in April 2000. There can be no assurance that any clinical study that we
propose will be permitted by the FDA, will be completed or, if completed, will
provide data and information that supports PMA approval. We expect that a PMA
application will not be submitted for up to one year, if at all. No assurance
can be given that we will ever be able to obtain PMA approval for any of our
ablation products. Our failure to complete clinical testing or to obtain timely
PMA approval would have a material adverse effect on our business, financial
condition and results of operations.
Regulatory agencies may limit the indications for which any of our products
are approved or cleared. Further, the FDA may restrict or withdraw approval or
clearance of a product if additional information becomes available to support
such action. Delays in the approval or clearance process, limitation of our
labeling claims or denial of our applications or notifications would cause our
business to be materially and adversely affected.
Pre-clinical and clinical trials are inherently unpredictable. If we do not
successfully conduct these trials, we may be unable to market our products and
our revenues may decline.
Through pre-clinical studies and clinical trials, we must demonstrate that
our products are safe and effective for their indicated uses. Results from pre-
clinical studies and early clinical trials may not allow us to predict results
in later-stage testing. We cannot be certain that our future clinical trials
will demonstrate the safety and effectiveness of any of our products or will
result in approval to market our products. As a result, if we are unable to
commence clinical trials as planned, complete clinical trials or demonstrate the
safety and effectiveness of our products, our business will be harmed. We also
cannot be certain that we can begin any future clinical trials or successfully
complete these trials once started. In addition, we may never meet our
development schedule for any of our products in development. Even if a product
is successfully developed and clinically tested, we cannot be certain that it
will be approved by the FDA on a timely basis or at all. If our products are not
approved for commercial sales by the FDA, our business will be harmed.
Delays in enrolling patients in our trials could increase our expenses and
harm our business.
The rate at which we may complete our pre-clinical and clinical trials is
dependent upon the rate of patient enrollment. Patient enrollment depends on
many factors, including the size of the patient population, the nature of the
procedure, how close patients reside to clinical sites and the eligibility
criteria for the study. Delays in planned patient enrollment may result in
increased costs and delays, which could cause our business results to suffer.
After obtaining approvals or clearances, we must continue to comply with
applicable laws and regulations. If we do not comply, our business results may
suffer.
After approval or clearance, we will continue to be subject to extensive
regulatory requirements. Our failure to comply with applicable regulatory
requirements can result in enforcement actions by the FDA, including, but not
limited to:
. fines,
. injunctions,
. recall or seizure of products,
. withdrawal of marketing approvals or clearances,
. refusal of the FDA to grant clearances or approvals, and
. civil and criminal penalties.
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We are also required to demonstrate and maintain compliance with the
Quality System regulations, or QSR, for all of our products. The FDA enforces
the QSR through periodic inspections, including a preapproval inspection for PMA
products. The QSR relates to product testing and quality assurance, as well as
the maintenance of records and documentation. If we or any third-party
manufacturer of our products does not conform to the QSR and cannot be brought
up to such a standard, we will be required to find alternative manufacturers
that do conform. Identifying and qualifying alternative manufacturers may be a
long and difficult process. We are also required to provide information to the
FDA on deaths or serious injuries alleged to have been associated with the use
of our medical devices, as well as product malfunctions that could contribute to
death or serious injury. If we fail to comply with these applicable laws, our
business results may suffer.
If we do not comply with foreign regulatory requirements to market our
products outside the United States, our business will be harmed. Sales of
medical devices outside the United States are subject to international
regulatory requirements that vary from country to country. The time required for
approval varies from country to country and may be longer or shorter than the
time required in the United States. In order to market any of our devices in the
member countries of the European Union, or the EU, we are required to obtain CE
mark certification. CE mark certification is an international symbol of
adherence to quality assurance standards and compliance with the European
Medical Device Directives. We have received CE mark certification to sell the
Cardima Pathfinder, Pathfinder mini, Revelation, Revelation Tx and Tracer for
mapping in the EU. We have received CE mark to sell the Venaport, Vueport and
Naviport guiding catheters in the EU. We also received approval to sell the
Cardima Pathfinder, Pathfinder mini, Tracer, Revelation, Revelation Tx, and in
Japan and Australia, and to sell the Cardima Pathfinder, Tracer, Vueport and
Naviport in Canada. The Company also received CE mark certification in August
1998, December 1998 and November 1999 to sell the Revelation, Revelation Tx
and Revelation T-Flex microcatheters, respectively, for ablation of AF in the
EU. We intend to submit data in support of additional CE mark applications.
There can be no assurance we will be successful in obtaining or maintaining
the CE mark for these products, as the case may be. Failure to receive
approval to affix the CE mark would prohibit us from selling these products in
member countries of the EU, and would require significant delays in obtaining
individual country approvals. No assurance can be given that such approvals
will ever be obtained. If these approvals are not obtained, our business could
be harmed.
Difficulties presented by international factors could negatively affect our
business.
A component of our strategy is to expand our international sales revenues.
We believe that we will face risks in doing business abroad that we do not face
domestically. Among the international risks we believe are most likely to affect
us are:
. export license requirements for our products,
. exchange rate fluctuations or currency controls,
. changes in the regulation of medical products by the European Union or
other international regulatory agencies,
. the difficulty in managing a direct sales force from abroad,
. the financial condition, expertise and performance of our international
distributors and any future international distributors,
. domestic or international trade restrictions, or
. changes in tariffs.
Any of these factors here could damage our business results.
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We derive a significant portion of our revenues from the sale of
microcatheters in the European Union. The adoption of the Euro presents
uncertainties for our international business.
In January 1999, the new "Euro" currency was introduced and adopted by some
European countries that are part of the European Monetary Union, or 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 as a
significant amount of our sales revenue is derived from sales to EMU countries,
these participating countries' adoption of a single currency may likely result
in greater price transparency, making the EMU a more competitive environment for
our microcatheter products. In addition, some of the rules and regulations
relating to the governance of the currency have not yet been defined and
finalized. As a result, companies operating in or conducting business in Europe
will need to ensure that their financial and other software systems are capable
of processing transactions and properly handling the Euro.
We are currently assessing the effect the introduction of the Euro will
have on our internal accounting systems and the potential sales of our products.
We will take appropriate corrective actions based on the results of such
assessment. We have not yet determined the costs related to addressing this
issue. This issue and its related costs could have a material adverse effect on
our business, financial condition and results of operations. We may be unable
to successfully commercialize our microcatheter products as the industry for
them is highly competitive.
The market for catheters to map and/or ablate AF and VT is highly
competitive. Several of our competitors are developing new approaches and
products for these procedures. These approaches include mapping systems using
contact mapping, single-point spatial mapping and non-contact, multi-site
electrical mapping technologies, and ablation systems using RF, ultrasound,
microwave, laser and cryoablation technologies. Other companies are also
developing surgical procedures that could potentially be used by physicians to
perform the open-heart surgical maze procedure for the treatment of AF in a
minimally invasive manner. If any of these new approaches or products prove to
be safe, effective and cost effective, our products could be rendered
noncompetitive or obsolete, which would cause our business results to suffer.
Many of our competitors have an established presence in the field of
interventional cardiology and electrophysiology. These competitors include
Boston Scientific, C.R. Bard, Inc., Johnson & Johnson, through its Cordis
division, St. Jude Medical, Inc., through its Daig division, and Medtronic, Inc.
These competitors have substantially greater financial and other resources than
we do, including larger research and development staffs and greater experience
and capabilities in conducting research and development activities, testing
products in clinical trials, obtaining regulatory approvals, and manufacturing,
marketing and distributing products. In addition, other companies are developing
proprietary systems for the diagnosis and treatment of cardiac arrhythmias.
These companies include Biosense, Inc. a division of Johnson and Johnson,
Cardiac Pathways, Inc. and Endocardial Solutions, Inc. Other companies develop,
market and sell alternative approaches to the treatment of AF and VT. These
companies include Guidant Corporation, Medtronic, Inc., and Ventritex, Inc., a
subsidiary of St. Jude, Inc., manufacturers of implantable defibrillators. We
cannot be certain that we will succeed in developing and marketing technologies
and products that are safer, more clinically effective and cost-effective than
the more established treatments or the new approaches and products being
developed and marketed by our competitors. Furthermore, there can be no
assurance that we will succeed in developing new technologies and products that
are available prior to our competitors' products. Our failure to demonstrate the
competitive advantages and achieve market acceptance of our products would harm
our business.
We are dependent on St. Jude to commercialize our diagnostic products in
the U. S.
On January 26, 2000, we announced that we had signed an exclusive three-
year distribution agreement for our diagnostic products in the United States
with St. Jude, which included an investment by St. Jude. If St. Jude fails to
successfully commercialize our diagnostic products, we may have to restructure
or significantly curtail our business.
We license portions of our products technology. In particular, our microcatheter
products rely on a license granted by Target Therapeutics. The termination of
any of these licenses would harm our business.
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We rely on license agreements for some of our products technology. A
license from Target Therapeutics, Inc., a subsidiary of Boston Scientific
Corporation, as the technological basis for our microcatheter systems for
mapping and ablation. Under the Target license agreement, we have an exclusive
license under specific issued United States patents. The exclusive license
from Target covers the diagnosis and treatment of electrophysiological
disorders in areas other than the central nervous system. In addition, we have
obtained a non-exclusive license to use Target's technology, provided it has
made a substantial improvement of such technology, for the diagnosis or
treatment of diseases of the heart, other than by balloon angioplasty. The
license will terminate upon the expiration or invalidation of all claims under
the underlying patents. In addition, this license may terminate if we fail to
comply with various commercialization, sublicensing, insurance, royalty,
product liability, indemnification, non-competition and other obligations on
us. The license can also be terminated by either party upon a material breach
that remains uncured for thirty days or if either party ceases to be actively
engaged in its present business for a period of twelve months. The loss of our
exclusive rights to the Target-based microcatheter technology would harm our
business.
We have also licensed a proprietary surface coating material used on
certain of our microcatheters. We cannot be certain that these licenses will
continue to be available to us or will be available to us on reasonable terms.
The loss of or inability to maintain any of these licenses could result in
delays in commercial shipments until equivalent technology could be developed
internally or identified, licensed and integrated. These delays would have a
material adverse effect on our business, financial condition and results of
operations.
We may not be able to commercialize our products under development if they
infringe existing patents or patents that have not yet issued.
We have conducted searches to determine whether our patent applications
interfere with existing patents. Based upon these searches, we believe that our
patent applications and products do not interfere with existing patents.
However, we cannot be sure that relevant patents have not been issued that could
block our ability to obtain patents or commercialize our products. Moreover,
since U.S. patent applications are not a matter of public record, a patent
application could currently be on file that would stand in our way of obtaining
an issued patent. In addition, the United States patent laws were recently
amended to exempt physicians, other health care professionals and affiliated
entities from infringement liability for medical and surgical procedures
performed on patients. The issuance of any potentially competing patent could
harm our business.
Although we have not received any letters from others threatening to
enforce intellectual property rights against us, we cannot be certain that we
will not become subject to patent infringement claims or litigation,
interference proceedings in the USPTO to determine the priority of inventions,
or oppositions to patent grants in foreign countries. An adverse determination
in litigation, interference or opposition proceedings could subject us to
significant liabilities to third parties, require us to cease using such
technology, or require us to license disputed rights from third parties.
However, we are not certain that any licenses will be available to us, or if
available, on commercially reasonable terms. Our inability to license any
disputed technology could delay the commercialization of our products and harm
our business. Under our license with Target, we are not indemnified against
claims brought by third parties alleging infringement of patent rights.
Consequently, we could bear the liability resulting from such claims. We cannot
be certain that we will have the financial resources to protect and defend our
intellectual property, as such defense is often costly and time-consuming. Our
failure to protect our patent rights, trade secrets, know-how or other
intellectual property would harm our business.
If healthcare providers do not receive adequate reimbursement for
procedures using our products, the market may not accept our products and our
revenues may decline.
U. S. healthcare providers, including hospitals and physicians, that
purchase microcatheter products 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 our products. The success of our products will depend upon the
ability of health care providers to obtain satisfactory reimbursement for
medical procedures in which our microcatheter systems and the novel
procedures in which they are used. If these health care providers are unable to
obtain reimbursement from third-party payors, the market may not accept our
products and our revenues may decline.
11
<PAGE>
Third-party payors may deny reimbursement if they determine that (1) a
prescribed device has not received appropriate regulatory clearances or
approvals, (2) is not used in accordance with cost-effective treatment methods
as determined by the payor, or (3) is experimental, unnecessary or
inappropriate. If FDA clearance or approval is received, third-party
reimbursement would also depend upon decisions by the United States Health Care
Financing Administration for Medicare, as well as by individual health
maintenance organizations, private insurers and other payors. Reimbursement
systems in international markets vary significantly by country and by region
within some countries, and reimbursement approvals may be obtained on a country-
by-country basis. Many international markets have government managed health care
systems that control reimbursement for new devices and procedures. In most
markets, there are private insurance systems as well as government-managed
systems. There can be no assurance that (1) reimbursement for our products will
be available domestically or internationally, (2) if available, that such
reimbursement will be available in sufficient amounts in the United States or in
international markets under either government or private reimbursement systems,
or (3) that physicians will support and advocate reimbursement for procedures
using our products. Failure by hospitals and other users of our products to
obtain reimbursement from third-party payors or changes in government and
private third-party payor policies toward reimbursement for procedures employing
our products would have a material adverse effect on our business, financial
condition and results of operations. Moreover, we are unable to predict what
additional legislation or regulation, if any, relating to the heath care
industry or third-party coverage and reimbursement may be enacted in the future,
or what effect such legislation or regulation would have on our business.
We cannot be certain that we will be able to manufacture our products in
high volumes at commercially reasonable costs.
We currently manufacture our microcatheter systems in limited quantities
for United States and international sales and for pre-clinical and clinical
trials. However, we have no experience manufacturing our products under
development in the amounts necessary to achieve significant commercial sales. We
currently believe that our manufacturing capacity will be sufficient through
December 1999. We expect that, if U.S. sales for the Pathfinder and Revelation
microcatheter systems increase, or if we receive FDA clearance or approvals for
other products, we will need to expend significant capital resources and develop
manufacturing expertise to establish large-scale manufacturing capabilities.
However, we could encounter problems related to:
. capacity constraints,
. production yields,
. quality control, and
. shortages of qualified personnel.
Such problems could affect our ability to adequately scale-up production of our
products and fulfill customer orders on a timely basis, which could harm our
business.
Our manufacturing facilities are subject to periodic inspection by
regulatory authorities. Our operations must either undergo QSR compliance
inspections conducted by the FDA or receive an FDA exemption from such
compliance inspections in order for us to be permitted to produce products for
sale in the United States. Our facilities and manufacturing processes are
subject to inspections from time to time by the FDA, State of California and
European Notified Bodies. We have demonstrated compliance with ISO 9001 (EN
46001) quality standards, as well as compliance with 93/42/EEC, the Medical
Device Directive. We are in compliance with procedures to produce products for
sale in Europe. Any failure by Cardima to comply with QSR requirements or to
maintain our compliance with ISO 9001 (EN 46001) standards and 93/42/EEC, the
Medical Device Directive, will require us to take corrective actions, such as
modification of our policies and procedures.
12
<PAGE>
In addition, we may be required to cease all or part of our operations for
some period of time until we can demonstrate that appropriate steps have been
taken to comply with QSR or ISO 9001 (EN 46001) standards. There can be no
assurance that we will be found in compliance with QSR by regulatory
authorities, or that we will maintain compliance with ISO 9001 (EN 46001)
standards in future audits. Our failure to comply with state or FDA QSR
requirements, maintain compliance with ISO 9001 (EN 46001) standards, or develop
our manufacturing capability in compliance with such standards, would have a
material adverse effect on our business, financial condition and results of
operations.
If our sole-source suppliers are unable to meet our demands, our business
results will suffer.
We purchase laminated tubing and hydrophilic coating, key components for
some of our products, from sole, single or limited source suppliers. For some of
these components, there are relatively few alternative sources of supply.
Establishing additional or replacement suppliers for any of the numerous
components used in our products, if required, may not be accomplished quickly
and could involve significant additional costs. Any supply interruption from
vendors or failure to obtain alternative vendors for any of the numerous
components used to manufacture our products would limit our ability to
manufacture our products. Any such limitation on our ability to manufacture our
products would cause our business results to suffer.
We have limited sales and limited experience in the sale, marketing and
distribution of our products. Our failure to establish an effective direct or
indirect sales and marketing force will cause our revenues to decline.
We have only limited experience marketing and selling our products in
commercial quantities. Expanding our marketing and sales capability to
adequately support sales in commercial quantities will require substantial
effort and require significant management and financial resources. Our failure
to establish an effective sales and marketing force will cause our revenues to
decline. We have terminated several distribution arrangements in Europe. Our
ability to effectively operate a remote sales force will require additional
resources, time and expense which could have a material adverse effect on our
business, financial condition and results of operations. We cannot be certain
that we will be able to build a European direct business, that it will be cost-
effective or that its efforts will be successful. Failure to establish an
adequate business in Europe would harm our business.
Currently, sales and marketing of the Cardima Pathfinder, Pathfinder mini,
Revelation, Revelation Tx and Tracer microcatheter systems is primarily
conducted through a number of exclusive distributors in certain European
countries and Japan. We have sold only a limited number of Pathfinder,
Revelation, Revelation, Tx, and Tracer microcatheter systems through these
distributors. Because we do not have written agreements with certain of our
exclusive distributors, the terms of such arrangements, such as length of
arrangements and minimum purchase obligations, are uncertain. In addition, the
laws in certain international jurisdictions may make it difficult and costly for
us to terminate such distribution arrangements without specific written
termination terms. We cannot be certain that we will be able to enter into
written distribution agreements with these distributors or that these
distributors will be able to effectively market and sell our products in these
markets. In addition, we can not assure you that we will be able to enter into
additional agreements with desired distributors on a timely basis or at all, or
that these distributors will devote adequate resources to selling our products.
Our failure to establish and maintain appropriate distribution relationships
would harm our business.
13
<PAGE>
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. We cannot be
certain 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.
We may face product liability claims related to the use or misuse of
our products.
We face an inherent business risk of product liability claims in the event
that the use or misuse of our products results in personal injury or death. We
cannot be certain, however, in particular after commercial introduction of our
products, that we will not experience losses due to product liability claims. We
currently have general liability insurance with coverage in the amount of $1.0
million per occurrence, subject to a $2.0 million annual limitation. We have
product liability insurance with coverage in the amount of $5.0 million per
occurrence, subject to a $5.0 million annual limitation. We cannot be certain
that coverage will continue to be available to us on reasonable terms, if at
all. In addition, there can be no assurance that all of the activities
encompassed within our business are or will be covered under our policies.
Although our microcatheter products are labeled for single use only, we are
aware that some physicians are reusing such products. Moreover, despite labeling
of our microcatheters for diagnostic use only, we believe that physicians are
using such mapping microcatheters for ablation. Multiple use or "off-label" use
of our microcatheters could subject us to increased exposure to product
liability claims, which could have a material adverse effect on our business,
financial condition and results of operations. We may require additional product
liability coverage if we significantly expand commercialization of our 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 us, regardless of their merit or eventual outcome, could have a
material adverse effect on our business, financial condition and results of
operations.
Trading in our shares could be subject to extreme price fluctuations which
could adversely affect your investment.
Prior to June 1997, there was no public market for our common stock. The
market price of our common stock has fluctuated widely in the past and is likely
to fluctuate in the future. The stock prices of medical device companies over
the last few years have been volatile and difficult to predict.
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 stock may become subject to penny stock rules, which may make it more
difficult for you to sell your shares
14
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We are currently listed on the Nasdaq Smallcap Market. If we are delisted
from the Nasdaq Smallcap Market, our common stock will be considered a penny
stock under regulations of the Securities and Exchange Commission and would
therefore be subject to rules that impose additional sales practice requirements
on broker-dealers who sell our securities. The additional burdens imposed upon
broker-dealers by these requirements could discourage broker-dealers from
effecting transactions in our common stock, which could severely limit the
market liquidity of the common stock and your ability to sell our securities in
the secondary market. We cannot assure you that we will be able to maintain our
listing on the Nasdaq Smallcap Market.
CAUTIONARY NOTE ON FORWARD LOOKING STATEMENTS
This prospectus and the documents referred to in this prospectus contain
forwarding-looking statements that are based on current expectations and are
subject to substantial risks and uncertainties. You can identify these forward-
looking statements by words such as "anticipates," "expects," "intends,"
"plans" "believes," "seeks," "estimates" and similar words. You should read
statements that contain these words carefully because they: (1) discuss our
future expectations; (2) contain projections of our future results of operations
or financial condition; or (3) state other "forward-looking" information. These
statements are not guarantees of future performance. There may be events in the
future that we are not able to predict accurately or over which we have no
control. The risk factors listed in this section, as well as any cautionary
language in this prospectus, provide examples of risks, uncertainties and
events that may cause our actual results to differ materially from the
expectations we describe and may cause our stock price to fall.
ISSUANCE OF COMMON STOCK TO SELLING STOCKHOLDERS
On February 18, 2000, we entered into agreements with investors
(collectively the "Investors"), to sell an aggregate of 4,666,611 shares of our
Common Stock at a price of $2.25 per share, for an aggregate purchase price of
approximately $10,500,000. In addition, we issued warrants to purchase 933,323
shares of our common stock at an exercise price of $2.48 per share. These
shares and warrants were issued to the Investors on that date. In connection
with this transaction, certain principals of the placement agent in our private
placement purchased 233,333 shares of our common stock and the placement agent
was issued warrants to purchase 233,329 shares of our common stock at an
exercise price of $2.48 per share.
We issued all of the securities under an exemption from the registration
requirements of the Securities Act of 1933. All of the securities are restricted
securities until we register them under this prospectus.
USE OF PROCEEDS
While we may receive proceeds from the exercise of warrants issued to the
selling stockholders, we will not receive any proceeds from the sale of our
common stock by the selling stockholders.
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<PAGE>
SELLING STOCKHOLDERS
The following table sets forth the number of Common shares owned by each of
the selling stockholders and the number of Warrants to purchase Common shares
exercisable within 60 days of March 31, 2000 owned by each of the selling
stockholders. Beneficial ownership is determined in accordance with the rules
and regulations of the Commission and generally includes voting or investment
power with respect to securities. Information with respect to beneficial
ownership is based on information as of March 10, 2000 and assumes that there is
outstanding an aggregate of 21,470,420 shares of Common Stock (not including
treasury shares). No options have been issued to the Selling Stockholders named
in this Prospectus. Other than the employees of Sunrise Securities, Corp. which
served as placement agent in the private placement, none of the selling
stockholders has had a material relationship with Cardima within the past three
years other than as a result of the ownership of the shares or other securities
of the Cardima. No estimate can be given as to the amount of shares that will be
held by the selling stockholders after completion of this offering because the
selling stockholders may offer all or some of the shares and because there
currently are no agreements, arrangements or understandings with respect to the
sale of any of the shares. The shares offered by this prospectus may be offered
from time-to-time by the selling stockholders named below.
<TABLE>
<CAPTION>
Number of
Number of Common Number of Warrant Percent of Shares
Name of Selling Shares Shares Outstanding Registered
Stockholder Beneficially Owned Beneficially Owned Shares Owned for Sale
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Jay's Twelve 300,000 60,000 1.7% 360,000
-------------------------------------------------------------------------------------------------
Prism Partners 140,000 28,000 * 168,000
-------------------------------------------------------------------------------------------------
Rebel Investments 100,000 20,000 * 120,000
-------------------------------------------------------------------------------------------------
Robert Swisher 100,000 20,000 * 120,000
-------------------------------------------------------------------------------------------------
Porter Partners 80,000 16,000 * 96,000
-------------------------------------------------------------------------------------------------
Ben Joseph 80,000 16,000 * 96,000
Partners
-------------------------------------------------------------------------------------------------
EDJ Limited 80,000 16,000 * 96,000
-------------------------------------------------------------------------------------------------
Prism Partners 40,000 8,000 * 48,000
II Offshore
-------------------------------------------------------------------------------------------------
Prism Partners 20,000 8,000 * 28,000
Offshore Fund
-------------------------------------------------------------------------------------------------
Special 770,833 154,167 4.3% 925,000
Situations Fund III
-------------------------------------------------------------------------------------------------
Special 750,000 150,000 4.1% 900,000
Situations
Private Equity Fund
-------------------------------------------------------------------------------------------------
Special 256,944 51,389 1.4% 308,333
Situations Cayman Fund
-------------------------------------------------------------------------------------------------
Ursus 50,000 10,000 * 60,000
Capital/Evan Sturza
-------------------------------------------------------------------------------------------------
St. Jude 1,333,333 266,667 7.4% 1,600,000
Medical, Inc.
-------------------------------------------------------------------------------------------------
Talkot Crossover 350,000 70,000 2.0% 420,000
Fund
-------------------------------------------------------------------------------------------------
Rock Associates 40,500 8,100 * 48,600
-------------------------------------------------------------------------------------------------
Robert Fishel 25,000 5,000 * 30,000
-------------------------------------------------------------------------------------------------
Thomas Akin 150,000 30,000 * 180,000
-------------------------------------------------------------------------------------------------
Paul Scharfer 120,000 * 120,000
-------------------------------------------------------------------------------------------------
Nathan Low 113,333 361,907 2.2% 180,000
-------------------------------------------------------------------------------------------------
</TABLE>
* Less than 1%
16
<PAGE>
PLAN OF DISTRIBUTION
The selling stockholders may sell the securities in whole or in part, from
time to time on the over-the-counter market at prices and on terms prevailing at
the time of any such sale. Any such sale may be made in broker's transactions
through broker-dealers acting as agents, in transactions directly with market
makers or in privately negotiated transactions where no broker or other third
party (other than the purchaser) is involved. The selling stockholders will pay
selling commissions or brokerage fees, if any, with respect to the sale of the
securities in amounts customary for the type of transaction effected. The
selling stockholders will also pay all applicable transfer taxes and all fees
and disbursements of counsel for the selling stockholders incurred in connection
with the sale of shares. We will pay the costs relating to registration of the
common stock to be sold under this prospectus.
The selling stockholders have advised us that during such time as the
selling stockholders may be engaged in the attempt to sell shares registered
under this prospectus, that they will:
(i) not engage in any stabilization activity in connection with any of the
Company's securities;
(ii) cause to be furnished to each person to whom securities included in this
prospectus may be offered, and to each broker-dealer, if any, through whom
securities are offered, such copies of this prospectus, as supplemented or
amended, as may be required by such person; and
(iii) not bid for or purchase any of our securities or any rights to acquire our
securities, or attempt to induce any person to purchase any of our
securities or rights to acquire the Company's securities other than as
permitted under the Exchange Act.
The selling stockholders, and any other persons who participate in the sale
of the shares, may be deemed to be "Underwriters" as defined in the Securities
Act. Any commissions paid or any discounts or concessions allowed to any such
persons, and any profits received on resale of the Securities, may be deemed to
be underwriting discounts and commissions under the Securities Act.
With regard to the securities, we have agreed to maintain the effectiveness
of this registration statement until such time as the selling stockholders
became eligible to resell the Securities pursuant to Rule 144 of the Securities
Act.
We have agreed to indemnify the selling stockholders against certain
liabilities, including liabilities under the Securities Act and the Exchange
Act.
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INDEMNIFICATION OF OFFICERS AND DIRECTORS
Section 145 of the Delaware General Corporation Law authorizes a court to
award, or a corporation's Board of Directors to grant, indemnity to directors
and officers in terms sufficiently broad to permit such indemnification under
certain circumstances for liabilities (including reimbursement for expenses
incurred) arising under the Securities Act of 1933, as amended (the "Securities
Act"). Our Amended and Restated Certificate of Incorporation and Bylaws provide
for indemnification of its directors, officers, employees and other agents to
the maximum extent permitted by law. In addition, we have entered into
Indemnification Agreements with our officers and directors and maintain director
and officer liability insurance. Insofar as indemnification for liabilities
arising under the Securities Act may be permitted to directors, officers and
controlling persons of the Company, we have been advised that in the opinion of
the Commission, such indemnification is against public policy, as stated by the
Commission, and is, therefore, unenforceable.
LEGAL MATTERS
Certain legal matters with respect to the legality of the issuance of the
common stock offered hereby will be passed upon for us by Pillsbury Madison &
Sutro LLP, San Francisco, California.
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EXPERTS
Ernst & Young LLP, independent auditors, have audited our financial
statements included in our Annual Report (Form 10-K) for the year ended December
31, 1999, as set forth in their report, which is incorporated in this prospectus
by reference. Our financial statements are incorporated herein by reference in
reliance on their report, given on their authority as experts in accounting and
auditing.
WHERE YOU CAN FIND MORE INFORMATION
We are subject to the informational requirements of the Securities Exchange
Act of 1934, as amended, and in accordance with the Exchange Act, file Annual
and quarterly reports, proxy statements, and other information with the
Securities and Exchange Commission. This filed material can be inspected and
copied at regional offices of the Commission located at Citicorp Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661-2511 and 7 World Trade
Center, Suite 1300, New York, New York 10048; and at the Public Reference
Office of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549.
Copies of such material can be obtained from the Public Reference Section of the
Commission, 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates.
The Commission also maintains a World Wide Web site on the Internet at
http://www.sec.gov that contains our reports, proxy and information statements
and other information about us and other companies that file electronically with
the Commission.
INFORMATION INCORPORATED BY REFERENCE
The Commission allows us to "incorporate by reference" the information we
file with them, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
considered to be part of this prospectus, and later information filed with the
Commission will update and supersede that information. We incorporate by
reference the documents listed below and any future filings made with the SEC
under Section 13a, 13(c), 14, or 15(d) of the Securities Exchange Act of 1934
until our offering is completed.
You can request a copy of any or all of the documents incorporated by
reference, other than exhibits to the documents, by writing or telephoning us at
the following address: Cardima, Inc., 47266 Benicia Street, Fremont, California
94538, telephone: (510) 354-0300, attention Ronald E. Bourquin, Chief Financial
Officer.
1. Our Annual Report on Form 10-K, as amended, for the year ended December 31,
1999.
2. Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31,
2000.
3. The description of our Common Stock set forth in our Registration Statement
on Form 8-A filed with the Commission on April 23, 1997, including any
amendment thereto or report filed for the purpose of updating such
description.
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<PAGE>
ADDITIONAL INFORMATION
This prospectus constitutes a part of a Registration Statement on Form S-3
(referred to, together with all amendments and exhibits, as the "Registration
Statement") filed by the Cardima with the Securities and Exchange Commission
(the "Commission") under the Securities Act. This prospectus does not contain
all of the information set forth in the Registration Statement, certain parts of
which are omitted in accordance with the rules and regulations of the
Commission. For further information with respect to Cardima and the shares of
Common Stock offered hereby, reference is hereby made to the Registration
Statement. Statements contained herein concerning the provisions of any document
are not necessarily complete, and each such statement is qualified in its
entirety by reference to the copy of such document filed with the Commission.
20
