1178104--9/19/2007--CARDICA

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{product, candidate, development}

{product, liability, claim}

{stock, price, operating}

{customer, product, revenue}

{debt, indebtedness, cash}

{property, intellectual, protect}

{stock, price, share}

{product, market, service}

{provision, law, control}

{control, financial, internal}

{regulation, change, law}

{cost, operation, labor}

{operation, natural, condition}

{personnel, key, retain}

{cost, regulation, environmental}

{regulation, government, change}

{operation, international, foreign}

A prior automated cardiac proximal anastomosis system was introduced by another manufacturer but was withdrawn from the market, and, as a result, we may experience difficulty in commercializing our C-Port, C-Port xA, C-Port Flex A and PAS-Port systems. Lack of third-party coverage and reimbursement for our products could delay or limit their adoption. We have limited data regarding the safety and efficacy of the PAS-Port, C-Port, C-Port xA and C-Port Flex A systems and have only recently begun training physicians in the United States to use the C-Port, C-Port xA and C-Port Flex A systems. Any data that is generated in the future may not be positive or consistent with our existing data, which would affect market acceptance and the rate at which our devices are adopted. Our current and planned clinical trials may not begin on time, or at all, and may not be completed on schedule, or at all. If the third parties on whom we rely to conduct our clinical trials do not perform as contractually required or expected, we may not be able to obtain regulatory approval for or commercialize our product candidates. Even though our C-Port, C-Port xA and C-Port Flex A products have received U.S. regulatory clearance, our PAS-Port system, as well as our future products, may still face future development and regulatory difficulties. If we do not achieve our projected development goals in the time frames we announce and expect, the commercialization of our product candidates may be delayed and, as a result, our stock price may decline. Our products may never gain any significant degree of market acceptance, and a lack of market acceptance would have a material adverse effect on our business. Because one customer accounts for a substantial portion of our product revenue, the loss of this significant customer would cause a substantial decline in our revenue. If our competitors have products that are approved in advance of ours, marketed more effectively or demonstrated to be more effective than ours, our commercial opportunity will be reduced or eliminated and our business will be harmed. We have limited manufacturing experience and may encounter difficulties in increasing production to provide an adequate supply to customers. Our manufacturing facilities, and those of our suppliers, must comply with applicable regulatory requirements. Failure to obtain regulatory approval of our manufacturing facilities would harm our business and our results of operations. If we are unable to establish sales and marketing capabilities or enter into and maintain arrangements with third parties to market and sell our products, our business may be harmed. We will need to increase the size of our organization, and we may experience difficulties in managing this growth. We are dependent upon a number of key suppliers, including single source suppliers, the loss of which would materially harm our business. We may in the future be a party to patent litigation and administrative proceedings that could be costly and could interfere with our ability to sell our products. Intellectual property rights may not provide adequate protection, which may permit third parties to compete against us more effectively. Our products face the risk of technological obsolescence, which, if realized, could have a material adverse effect on our business. We may not be successful in our efforts to expand our product portfolio, and our failure to do so could cause our business and prospects to suffer. We may be subject, directly or indirectly, to federal and state healthcare fraud and abuse laws and regulations and, if we are unable to fully comply with such laws, could face substantial penalties. We could be exposed to significant product liability claims, which could be time consuming and costly to defend, divert management attention, and adversely impact our ability to obtain and maintain insurance coverage. The expense and potential unavailability of insurance coverage for our company or our customers could adversely affect our ability to sell our products, which would adversely affect our business. We sell our systems internationally and are subject to various risks relating to these international activities, which could adversely affect our revenue. We are dependent upon key personnel, the loss of any of which could have a material adverse affect on our business. Our operations are currently conducted at a single location that may be at risk from earthquakes, terror attacks or other disasters. If we use hazardous materials in a manner that causes injury, we may be liable for damages. We may be subject to fines, penalties or injunctions if we are determined to be promoting the use of our products for unapproved or off-label uses. Risks Related to Our Finances and Capital Requirements We have a history of net losses, which we expect to continue for the foreseeable future, and we are unable to predict the extent of future losses or when we will become profitable, if at all. We currently lack a significant source of product revenue, and we may not become or remain profitable. We will need substantial additional funding and may be unable to raise capital when needed, which would force us to delay, reduce or eliminate our research and development programs or commercialization efforts. If we do not generate sufficient cash flow through increased revenue or raising additional capital, then we may not be able to meet our debt obligation that becomes due in 2010. Existing creditors have rights to our assets that are senior to our stockholders. Our quarterly operating results and stock price may fluctuate significantly. Risks Related to Our Common Stock The price of our common stock may continue to be volatile, and the value of an investment in our common stock may decline. The ownership of our common stock is highly concentrated, and your interests may conflict with the interests of our existing stockholders. Evolving regulation of corporate governance and public disclosure will result in additional expenses and continuing uncertainty. If we sell shares of our common stock in future financings, common stockholders may experience immediate dilution and, as a result, our stock price may decline. Our future operating results may be below securities analysts or investors expectations, which could cause our stock price to decline. Anti-takeover defenses that we have in place could prevent or frustrate attempts to change our direction or management.

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1178104--9/19/2007--CARDICA_INC