BioCardia, Inc. (then Tiger X Medical, Inc.) — Q3 2016 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2016. The filing is by Tiger X Medical, which had agreed to merge with BioCardia; it expected the transaction to close in October 2016. Financial amounts below are in U.S. dollars; statement amounts are generally in thousands.
Business context and financial performance
Tiger X had discontinued its orthopedic-device operations and, through July 1, 2016, primarily collected royalties under an agreement with Arthrex. The company received a one-time $5.642 million settlement that extinguished its rights to future royalties. Of that amount, $142,302 was recorded as royalty income through June 30, and $5.5 million was recognized when the settlement became effective on July 1.
- Revenue: Royalty income was $5.500 million for Q3 2016 versus $121,000 in Q3 2015; for the nine months, it was $5.791 million versus $382,000.
- Profit: Q3 net income was $5.121 million versus $83,000; nine-month net income was $5.278 million versus $232,000. No income tax provision was recorded. Basic and diluted earnings per share were $0.02 for both 2016 periods, versus zero as reported for 2015.
- Expenses and margins: General and administrative expenses were $379,000 in Q3 and $515,000 for nine months, up from $38,000 and $152,000, respectively. Operating margin was approximately 93% for Q3 and 91% for the nine-month period, but results were largely driven by the nonrecurring royalty settlement.
- Cash flow: Net cash provided by operations was $5.597 million for the nine months, compared with $217,000 in 2015. No investing or financing cash flows were reported for either period. The cash-flow statement labels the periods “six months ended,” although the balance-sheet and income-statement dates and MD&A refer to nine months; the filing text does not resolve this inconsistency.
- Liquidity and debt: Cash was $19.437 million at September 30, 2016, up from $13.840 million at December 31, 2015. Current assets were $19.483 million and current liabilities were $330,000. Total liabilities were $330,000; no debt is reported. Management said cash was adequate for needs over the next twelve months and beyond.
Changes, outlook, and risks
- The sharp year-over-year improvement in revenue, earnings, and operating cash flow principally reflects the $5.5 million settlement of future royalties, not recurring growth. The company stated it would have no further royalty income under the Arthrex agreement.
- General and administrative expense increased primarily because of legal and professional costs related to the Arthrex settlement and proposed BioCardia merger.
- The merger agreement was signed August 22, 2016. The filing expected closing in October; it provides no operating or financial guidance for the combined company.
- Cash balances exceeded FDIC-insured limits by $19.187 million at September 30, 2016. The filing reports no material pending legal proceedings and no material changes in internal control over financial reporting; management assessed disclosure controls as effective.
- Unusual equity items included 450,000 restricted shares granted to directors and a consultant, with approximately $9,000 of compensation expense recognized and $54,000 of unrecognized expense. Stock options outstanding fell from 385,000 to 80,000 after forfeitures.
Key facts for investors to verify
- Whether and when the BioCardia merger closed, and the resulting ownership, capitalization, and financial statements of the combined company.
- The nonrecurring nature and accounting treatment of the $5.5 million future-royalty settlement, and the absence of further Arthrex royalty income.
- The cash-flow statement’s “six months ended” label versus the filing’s nine-month reporting period.
- Cash availability and exposure to uninsured bank deposits, as well as the combined company’s subsequent liquidity and operating outlook.