Business context and reporting period
Entity and period: The supplied filing is Tiger X Medical, Inc.’s Form 10-K for the fiscal year ended December 31, 2012—not a BioCardia, Inc. filing or a standalone fourth-quarter report. The filing says the company was formerly Cardo Medical, Inc.; its stock traded under CDOM.OB.
Tiger X had sold substantially all of its reconstructive and spine businesses in 2011. Its remaining operations centered on collecting royalties from Arthrex, promoting the former products, seeking a partner or buyer for remaining intellectual property, and evaluating uses for its cash. It reported five retained patents related to intervertebral stabilizers.
Financial results and position
| Metric | 2012 | 2011 |
|---|---|---|
| Revenue | $62,000 | $12,000 |
| Gross profit | $62,000 | $12,000 |
| General and administrative expense | $401,000 | $630,000 |
| Loss from continuing operations | $(331,000) | $(632,000) |
| Net income | $305,000 | $9.662 million |
| Net cash used in operating activities | $(310,000) | $(3.087 million) |
| Cash at year-end | $13.268 million | $12.678 million |
Revenue was royalty income under the Arthrex agreement, which provides for 5% of net sales of the acquired reconstructive products. The increase in 2012 reflected a full year of royalties versus a partial year in 2011. The filing reports no cost of revenue, so reported gross profit equaled revenue; the apparent 100% gross margin is on a very small revenue base.
2012 net income included a $532,000 tax benefit associated with the prior asset sales and a $104,000 pretax gain from discontinued operations, including liability relief net of receivables written off. In 2011, net income primarily reflected the $11.846 million after-tax gain on the division sales, partly offset by a $1.552 million loss from discontinued operations. Thus, the year-over-year decline in net income principally reflects the absence of the large 2011 sale gain, not a comparable change in ongoing operating performance.
At December 31, 2012, total assets were $13.301 million, including $13.268 million cash; total liabilities were $12,000, and stockholders’ equity was $13.289 million. The filing reports no debt outstanding at year-end and no 2012 financing cash flows. Management said cash was adequate for needs for the next 12 months and beyond. Operating cash use was $310,000 in 2012; investing cash inflow of $900,000 came from release of sale-related escrow funds. The filing reports no off-balance-sheet financing arrangements.
Material changes, outlook, and risks
- G&A expense fell by $229,000, which management attributed mainly to lower insurance costs and reduced legal and accounting fees after the 2011 asset-sale transactions.
- The company received $62,000 in Arthrex royalties in 2012 versus $12,000 in 2011. The filing provides no quantified royalty forecast or other formal earnings guidance.
- Management planned to evaluate investment opportunities and uses for cash, and to seek a joint-venture partner or buyer for retained intellectual property. These plans were subject to execution and financing risks.
- Royalty collections could be lower than expected or difficult to verify or enforce. Arthrex may set off certain qualifying intellectual-property claim costs against royalties.
- Product-liability claims relating to previously sold devices remain a potential exposure. The company maintained tail insurance, but warned that coverage, limits, retentions, or deductibles might not cover all losses; it also disclosed potential future self-insurance exposure after the tail policy term.
- The company had one full-time employee, CEO and acting CFO Andrew Brooks, who received no salary. Disclosure controls and internal control over financial reporting were both reported ineffective at December 31, 2012, citing the former CFO’s departure, elimination of the accounting department, and insufficient segregation of duties. The external auditor did not attest to internal control effectiveness.
- Cash balances exceeded FDIC-insured amounts by approximately $12.969 million at year-end. The company also highlighted thin trading, penny-stock rules, potential dilution, concentrated ownership, and the absence of anticipated cash dividends.
Important facts for investors to verify
- Confirm the issuer identity: the provided filing is for Tiger X Medical, Inc., not BioCardia, Inc.
- Review the Arthrex agreement, royalty calculation and sales reporting, any set-offs, and the duration and collectability of expected payments.
- Assess cash burn, remaining public-company costs, and the basis for management’s claim that cash would cover needs beyond 12 months.
- Review the ineffective-control disclosures and any subsequent remediation, given the company’s very limited staffing.
- Evaluate potential product-liability exposure and the terms, limits, and remaining duration of tail insurance.
- Check current share count, ownership concentration, potential dilution, and the liquidity of the OTC-traded stock; the filing reported 230,293,141 shares outstanding at March 22, 2013.