Cardiogenesis Corp /CA

     The accompanying unaudited condensed consolidated financial statements have been prepared by the Company in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information, and pursuant to the instructions to Form 10-Q and Article 8 of Regulation S-X promulgated by the SEC. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statement presentation. In the opinion of management, all adjustments (consisting primarily of normal recurring accruals) considered necessary for a fair presentation have been included. The Company has evaluated subsequent events through the filing date of this Form 10-Q, and determined that no subsequent events have occurred that would require recognition in the condensed consolidated financial statements or disclosure in the notes thereto other than as disclosed in the accompanying notes. These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto for the year ended December 31, 2010, contained in the Company’s Annual Report on Form 10-K, as filed with the SEC.

     Cardiogenesis as previously reported has also filed four (4) further reexamination requests seeking to invalidate the remaining claims of the ‘780 Patent and ‘073 Patent being asserted against Cardiogenesis. Two (2) of the reexamination requests were filed on June 30, 2010, and two (2) others were filed on October 15, 2010. These further reexamination requests are based, in part, on newly identified prior art not previously considered by the USPTO and on March 16, 2011, the USPTO issued Office Actions rejecting the three (3) remaining claims in view of multiple combinations of prior art. In light of the rejection of the three (3) remaining claims being asserted and because a final ruling that such claims are invalid would be potentially dispositive of the entire litigation, the parties requested and the Court granted a stay of the litigation pending the outcome of Cardiogenesis’ reexaminations. The stay was ordered in effect on March 24, 2011 and all dates previously set, including the claim construction hearing, have been suspended. The parties are to provide the Court with a Joint Status Report by September 30, 2011.

     On April 7, 2011, two plaintiffs filed purported class actions against the Company, its directors, and Parent and Merger Sub, in connection with the proposed Offer and Merger. These suits were filed in California Superior Court for Orange County and allege that the defendants breached and/or aided and abetted the breach of their fiduciary duties to the Company by seeking to sell the Company through an allegedly unfair process and for an unfair price and on unfair terms. The suits seek various equitable relief that would delay or enjoin the Merger based on allegations regarding the process by which offers or potential offers were evaluated by the Company, as well as fees and expenses of the plaintiffs’ attorneys and experts.

     As contemplated by the terms of the Merger Agreement, Parent expects to acquire the remaining Shares in a second-step merger in which each outstanding Share that was not acquired by Merger Sub in the Offer (and other than Shares as to which dissenters’ rights under California law are properly exercised) will be converted into the right to receive the Offer Price, net to the holder thereof in cash, without interest and subject to any applicable withholding taxes, and we will become a wholly-owned subsidiary of Parent, which we refer to as the Merger. The Merger will be completed following its approval at a special meeting of our shareholders to be held on May 16, 2011. Merger Sub will vote all of the Shares it acquired in the Offer in favor of approving and adopting the Merger Agreement, and such vote, when combined with the vote of parties to the Support Agreement, is sufficient to assure approval and adoption of the Merger Agreement at the special meeting. As a result, the affirmative vote of our other shareholders is not required to approve and adopt the Merger Agreement. After the Merger is completed, (i) our shareholders (other than Parent and its affiliates) will no longer have any interest in, and no longer be our shareholders and will not participate in any of our future earnings or growth, (ii) the Shares will no longer be quoted on the OTCBB and price quotations with respect to the Shares in the public market will no longer be available; and (iii) the registration of the Shares under the Securities Exchange Act of 1934, as amended, will be terminated.

     The preparation of our financial statements requires that we make estimates and assumptions that affect the reported amounts of assets and liabilities and related disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. On an ongoing basis, we evaluate these estimates and assumptions, which are based on historical experience and on other assumptions that we believe to be reasonable. In the event that any of our estimates and assumptions are inaccurate in any material respect, it could have a material adverse effect on our reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. A summary of our critical accounting policies is included in Item 7 (Management’s Discussion and Analysis of Financial Condition and Results of Operations) of Part II, of our Annual Report on Form 10-K for the fiscal year ended December 31, 2010. There have been no material changes to the critical accounting policies disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2010.