Biocardia, Inc. annual report, FY2011

BioCardia, Inc. — filing identity and reporting period

Important identity mismatch: The supplied filing is Tiger X Medical, Inc.’s Form 10-K for the fiscal year ended December 31, 2011—not a BioCardia filing. The company was formerly Cardo Medical, Inc. and changed its name to Tiger X Medical, Inc. in June 2011. This is an annual report; it does not provide standalone fourth-quarter results.

Business context

Tiger X sold substantially all assets of its Reconstructive Division to Arthrex, completing the sale on June 10, 2011, and sold substantially all Spine Division assets to Altus Partners on April 4, 2011. Its remaining activity is collecting and managing Arthrex royalties and evaluating future uses of its cash. The company reported five remaining issued patents related to intervertebral stabilizers and had no full-time employees at year-end other than its CEO/acting CFO, who received no 2011 salary.

Financial results and liquidity

Amounts below are in U.S. dollars; financial statement figures are in thousands unless otherwise noted.

• 2011 net income included an $11,846 after-tax gain on the division sales and a $1,552 loss from discontinued operations. The gain, rather than ongoing business activity, drove the year’s profit.
• Reported discontinued-operations sales were $746 in 2011 versus $3,312 in 2010. The company reported pretax discontinued-operations losses of $1,552 and $10,953, respectively.
• Investing activities provided $16,138 net cash in 2011, including $17,175 of sale proceeds, offset by $900 placed in restricted escrow and $137 of equipment purchases. Financing activities used $500 net; all notes payable were repaid, leaving no outstanding notes at year-end.
• Year-end current assets were $13,734, including $900 restricted cash; current liabilities were $756. Stockholders’ equity was $12,978. The filing states that cash was sufficient to fund operations and other activities for at least the next 12 months and that prior going-concern doubts had been alleviated.
• Gross profit was $12 on $12 of continuing revenue; the filing does not present a meaningful ongoing operating margin for the royalty-only business.

Material changes and unusual items

• Arthrex agreed to pay royalties equal to 5% of net sales of acquired Reconstructive products, quarterly, for up to 20 years. Tiger X received $12 in royalties in 2011.
• Arthrex transaction consideration was reported as $14,586, comprising $9,960 plus inventory valued at $2,908 and property and equipment valued at $1,718. After escrow adjustments, the company reported a $10,356 gain on the Reconstructive asset sale. Altus paid $3,000 for Spine assets; after a $240 adjustment, the reported gain was $2,046. The combined gain was presented net of $556 income tax expense.
• At December 31, $900 remained restricted in escrow, principally for potential post-closing indemnification claims to Arthrex through June 10, 2012. Product liability tail insurance remained in place, but the company warned that coverage may be inadequate and that it would be self-insured after the tail policy term.
• General and administrative expenses rose $47 year over year. Increased insurance expense and transaction-related accounting fees were partly offset by lower legal fees. Management expected reduced legal and professional fees, interest income on cash, and royalty payments as the principal future revenue source; no quantified revenue or earnings guidance was provided.
• Disclosure controls and internal control over financial reporting were both deemed ineffective at year-end, citing the former CFO’s departure, elimination of the internal accounting department, and insufficient segregation of duties. The financial statement audit was unqualified, but the auditor did not attest to internal control effectiveness.

Outlook, risks, and contingencies

• Future results depend substantially on Arthrex product sales and the company’s ability to monitor and collect royalties. Tiger X warned that it may lack resources to verify reported sales and that royalty payments could be reduced by permitted intellectual-property claim cost offsets.
• The company had no operating business apart from royalty administration and was evaluating investments or acquisitions. It cautioned that future financing might be unavailable or dilutive and that it might not secure staff or resources for a new business.
• Other disclosed risks include legacy product-liability claims and litigation, limited remaining resources to defend or enforce patents, thin OTC trading and penny-stock restrictions, concentrated ownership, potential dilution, and limited internal controls. The filing reported no material pending or threatened legal proceedings.
• The company reported no off-balance-sheet financing arrangements and no expected material effect from accounting standards not yet adopted. It did not anticipate cash dividends in the foreseeable future.

Most important facts for investors to verify

• Confirm the issuer and filing: the source is Tiger X Medical, Inc.’s 2011 Form 10-K, not BioCardia’s.
• Review Arthrex’s reported net sales, royalty calculations, payment history, and any contractual offsets; 2011 royalties were only $12.
• Confirm the release or disposition of the $900 escrow balance and any remaining indemnification exposure.
• Assess cash burn and continuing public-company costs against cash available, given the lack of an operating business and the stated control deficiencies.
• Reconcile ownership disclosures: the risk discussion cites approximately 61% ownership for directors, officers, principal holders, and affiliates, while the beneficial-ownership table reports 46.92% for directors and executive officers as a group.