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CDOM > SEC Filings for CDOM > Form 10-Q on 8-Nov-2012All Recent SEC Filings

Show all filings for TIGER X MEDICAL, INC.

Form 10-Q for TIGER X MEDICAL, INC.


8-Nov-2012

Quarterly Report


ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The discussion and analysis of our financial condition and results of operations are based on our financial statements, which we have prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported revenues and expenses during the reporting periods. On an ongoing basis, we evaluate estimates and judgments, including those described in greater detail below. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

As used in this "Management's Discussion and Analysis of Financial Condition and Results of Operation," except where the context otherwise requires, the term "we," "us," "our" or "Tiger X" refers to the business of Tiger X Medical, Inc.

The following discussion should be read together with the information contained in the unaudited condensed consolidated financial statements and related notes included in Item 1, "Financial Statements," in this Form 10-Q. All dollar amounts are in thousands unless otherwise specified.

Overview

Tiger X Medical, Inc. ("Tiger X" or the "Company"), formerly known as Cardo Medical, Inc., previously operated as an orthopedic medical device company specializing in designing, developing and marketing high performance reconstructive joint devices and spinal surgical devices. As discussed below, in January 2011 we entered into an asset purchase agreement to sell substantially all of our assets in the Reconstructive Division to Arthrex. We completed the sale of the Reconstructive Division assets during the second quarter of 2011. Additionally, we completed the sale of substantially all of the assets in the Spine Division in April 2011. Our continuing operations include the collection and management of our royalty income earned in connection with the Asset Purchase Agreement with Arthrex, as well as continuing to promote our former products sold to Arthrex and seek a joint venture partner or buyer for the remaining intellectual property owned by the Company. The Company will also be evaluating future investment opportunities and uses for its cash.

We are headquartered in Los Angeles, California. Our common stock is quoted on the National Association of Securities Dealers, Inc.'s, Over-the-Counter Bulletin Board, or the OTC Bulletin Board with a trading symbol of CDOM.OB.


Critical Accounting Policies

Use of Estimates

Financial statements prepared in accordance with United States generally accepted accounting principles ("U.S. GAAP") require management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Among other things, management makes estimates relating to allowances for doubtful accounts, share-based payments, and deferred income tax assets. Given the short operating history of Tiger X since discontinuing its operations, actual results could differ from those estimates.

Discontinued Operations

On October 7, 2010, the Company's management and Board of Directors decided to put substantially all of its assets up for sale. The assets determined to be held for sale were inventories, intellectual properties, and property and equipment of its reconstructive products line (the "Reconstructive Division") and spine products line (the "Spine Division"). The Company decided to put the assets of its Reconstructive and Spine Divisions up for sale primarily because it did not have sufficient working capital, and was not able to procure such financial resources through equity or debt financing, in order to fully execute a profitable sales strategy.

On January 24, 2011, the Company entered into an Asset Purchase Agreement with Arthrex, Inc. ("Arthrex") (the agreement being the "Arthrex Asset Purchase Agreement"), pursuant to which the Company agreed to sell the assets of the Reconstructive Division to Arthrex. The Arthrex Asset Purchase Agreement also provides for the Company to receive royalty payments equal to 5% of net sales of the Company's products made by Arthrex on a quarterly basis for a term up to and including the 20th anniversary of the closing date. During the three and nine months ended September 30, 2012, the Company received total royalty payments of $19,000 and $47,000 from Arthrex and reflected this payment as revenue on the accompanying condensed consolidated statements of operations.

The Company completed the sale of the Reconstructive Division on June 10, 2011. The total cash consideration received by the Company from Arthrex amounted to $14,586,000, which was comprised of $9,960,000 plus inventory with a value of $2,908,000 and property and equipment with a value of $1,718,000. From this amount, $1,159,000 was deposited with an escrow agent to be held for twelve months for any potential adjustments to the purchase price relating to future adjustments to the value of the inventory and property and equipment and other unasserted claims. The total gain on the sale of the Reconstructive Division assets as of September 30, 2011 amounted to $10,356,000.

On April 4, 2011, the Company entered into and closed an Asset Purchase Agreement with Altus Partners, LLC, a Delaware limited liability company ("Altus"), pursuant to which the Company sold substantially all of the assets of the Spine Division in exchange for cash consideration of $3,000,000 (the "Altus Asset Purchase Agreement"). Pursuant to the terms of the Altus Asset Purchase Agreement, $2,700,000 of the purchase price was paid at the closing and $300,000 was deposited into escrow with an escrow agent for a period of 90 days from the closing date (assuming there are no disputes) to be used for any adjustments to the closing value of the Company's inventory and property and equipment. The total gain on the sale of the Spine Division assets as of September 30, 2011 amounted to $2,046,000.

The total gain associated with the above sales of the assets of the Reconstructive and Spine divisions amounted to $11,842,000, which is presented net of the income tax expense effect of $560,000. During the quarter ended September 30, 2012, the Company filed its tax return and expects to receive an income tax refund of $532,000 relating to the income tax paid on the gain on the sale of the discontinued divisions. As a result, the associated income tax benefit was recorded as an income tax receivable on the condensed consolidated balance sheet as of September 30, 2012, as well as a component of the gain on the sale of discontinued Reconstructive and Spine divisions on the accompanying condensed consolidated statements of operations during the quarter ended September 30, 2012.


Pursuant to the sale transaction with Arthrex, the total aggregate amount remaining in escrow accounts as of December 31, 2011 was $900,000, which is reflected as restricted cash on the accompanying condensed consolidated balance sheets. As of September 30, 2012, there were no amounts remaining in the escrow accounts relating to the sales transaction with Arthrex or Altus.

Total sales associated with the discontinued Reconstructive and Spine Divisions reported as discontinued operations for the three months ended September 30, 2012 and 2011, were $0. Total sales associated with the discontinued Reconstructive and Spine Divisions reported as discontinued operations for the nine months ended September 30, 2012 and 2011, were $0 and $761,000, respectively. The total pretax loss associated with the discontinued Reconstructive and Spine Divisions, including the discontinued corporate support for those activities, reported as discontinued operations for the three months ended September 30, 2012 and 2011, were $0 and $52,000, respectively. The total pretax loss associated with the discontinued Reconstructive and Spine Divisions, including the discontinued corporate support for those activities, reported as discontinued operations for the nine months ended September 30, 2012 and 2011, were $0 and $1,418,000, respectively. The continuing operations reflected are expenses associated with business insurance, legal and accounting fees that the Company will continue to incur.

Revenue Recognition

The Company's revenue consists of royalty revenue from the Arthrex Asset Purchase Agreement, which is recognized as the amount becomes known and collectability is reasonably assured.

Recent Accounting Updates

There are no recently issued accounting updates that we have yet to adopt that are expected to have a material effect on our financial position, results of operations, or cash flows.

Results of Operations for the Three Months Ended September 30, 2012 as Compared to the Three Months Ended September 30, 2011.

The following is a comparison of the consolidated results of operations for Tiger X for the three months ended September 30, 2012 and 2011. As discussed above, our Reconstructive Division and Spine Division were discontinued during 2011.

                                                       Three Months Ended
                                                          September, 30
                                                      2012           2011        $ Change

Revenue                                            $     19      $       -     $      19
Cost of revenue                                          -               -            -
Gross profit                                             19              -            19
General and administrative expenses                     102             110           (8)
Loss from operations                                    (83)           (110)          27
Interest (expense) income, net                            2               5           (3)
Loss from continuing operations before income
tax provision                                           (81)           (105)          24
Provision for income taxes                                -               -           -
Loss from continuing operations                         (81)           (105)          24
Discontinued operations
Gain (loss) from sale of discontinued
Reconstructive and Spine Divisions, net of
income taxes                                            532            (404)         936
Loss from operations of discontinued                      -             (52)          52
Reconstructive and Spine Divisions, net of
income taxes
Net income (loss)                                  $    451      $     (561)   $   1,012


Revenues

Revenues from continuing operations amounted to $19,000 for the quarter ended September 30, 2012 compared with $0 for the same period in 2011. Revenues from continuing operations represented royalties received from Arthrex in connection with the Arthrex Asset Purchase Agreement. In the future, we expect our primary source of revenue to be royalty payments under the Arthrex Asset Purchase Agreement.

General and Administrative Expenses

General and administrative expenses for the quarter ended September 30, 2012 decreased by $8,000 as compared to the same period in 2011. General and administrative expenses represent our continuing operating expenses associated with remaining a public company, including business insurance expense and professional fees such as legal, accounting and audit services. We had completed the sale of our Reconstructive and Spine divisions in the second quarter of 2011, after which point our general and administrative expenses were lower. As a result, our expenses for the quarters ended September 30, 2012 and 2011 remained consistent. In the future, we expect our general and administrative expenses to remain at a reduced level.

Interest Income/(Expense)

During the quarter ended September 30, 2012, we had interest income of $2,000, as compared to $5,000 in 2011. We had no interest expense during the quarters ended September 30, 2012 or 2011, as there was no debt outstanding during this timeframe.

Results of Operations for the Nine Months Ended September 30, 2012 as Compared to the Nine Months Ended September 30, 2011.

The following is a comparison of the consolidated results of operations for Tiger X for the nine months ended September 30, 2012 and 2011. As discussed above, our Reconstructive Division and Spine Division were discontinued during 2011.

                                                         Nine Months Ended
                                                           September 30,
                                                         2012         2011       $ Change

Revenue                                               $     47     $     -     $      47
Cost of revenue                                             -            -            -
Gross profit                                                47           -            47
General and administrative expenses                        320          460         (140)
Loss from operations                                      (273)        (460)         187
Interest (expense) income, net                               8          (17)          25
Loss from continuing operations before income tax
provision                                                 (265)        (477)         212
Provision for income taxes                                   -            -           -
Loss from continuing operations                           (265)        (477)         212
Discontinued operations
Gain from sale of discontinued Reconstructive and
Spine Divisions, net of income taxes                       532       11,842      (11,310)
Loss from operations of discontinued Reconstructive          -       (1,418)       1,418
and Spine Divisions, net of income taxes
Net income                                            $    267     $  9,947    $  (9,680)


Revenues

Revenues from continuing operations amounted to $47,000 for the nine months ended September 30, 2012 compared with $0 for the same period in 2011. Revenues from continuing operations represented royalties received from Arthrex in connection with the Arthrex Asset Purchase Agreement. In the future, we expect our primary source of revenue to be royalty payments under the Arthrex Asset Purchase Agreement.

General and Administrative Expenses

General and administrative expenses for the nine months ended September 30, 2012 decreased by $140,000 as compared to the same period in 2011. General and administrative expenses represent our continuing operating expenses associated with remaining a public company, including business insurance expense and professional fees such as legal, accounting and audit services. The primary reason for the decrease in 2012 relates to higher legal and professional fees incurred in 2011 relating to the sale of our Reconstruction and Spine Divisions. In the future, we expect our general and administrative expenses to remain at a reduced level.

Interest Income/(Expense)

During the nine months ended September 30, 2011, we had net interest expense of $24,000, which was primarily the result of $500,000 in notes payable outstanding as of December 31, 2010 which were repaid in March 2011, offset by interest income of $7,000. During the nine months ended September 30, 2012, we had interest income of $8,000. We had no interest expense in 2012, as there was no debt outstanding during this timeframe.

Liquidity and Capital Resources

Net cash used in operating activities was $755,000 for the nine months ended September 30, 2012 compared to $2,278,000 for the same period in 2011. Our overall operating costs were lower in 2012 due to our current operations being primarily collection and management of our royalty income earned in connection with the Asset Purchase Agreement with Arthrex. The Company will also be evaluating future investment opportunities and uses for its cash.

As discussed above, during the quarter ended June 30, 2011, we sold substantially all of our assets relating to the Spine and Reconstructive Divisions, which were discontinued during the fourth quarter of 2010. This resulted in net cash provided by investing activities for the nine months ended September 30, 2011 of $15,259,000, which included gross proceeds from the sale of the assets of $16,615,000, less $1,219,000 of the funds placed in restricted cash escrow accounts, less purchases of equipment of $137,000. During the nine months ended September 30, 2012, we had cash provided by investing activities of $900,000, which represented a decrease in restricted cash from the restrictions being removed on the cash held in escrow associated with the sale of the Reconstructive Division.

Net cash used in financing activities was $0 for the nine months ended September 30, 2012 compared to $500,000 for the nine months ended September 30, 2011. The net cash used in 2011 consisted of $1,224,000 in short-term borrowings related to the sale of the Reconstructive Division, offset by the repayment of these borrowings, as well as $500,000 in previously outstanding notes payable. There was no cash provided by or used in financing activities during the nine months ended September 30, 2012, as we have no further debt outstanding.

We believe our cash and cash equivalents as of September 30, 2012 are adequate to meet our cash needs for the next twelve months and beyond.


Forward-Looking Statements

Some of the statements in this Quarterly Report on Form 10-Q are "forward-looking statements," as that term is defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements may be identified by the use of words such as "may," "will," "should," "anticipate," "estimate," "expect," "plan," "believe," "predict," "potential," "project," "target," "forecast," "intend," "assume," "guide," "seek" and similar expressions. Forward-looking statements do not relate strictly to historical or current matters. Rather, forward-looking statements are predictive in nature and may depend upon or refer to future events, activities or conditions. Although we believe that these statements are based upon reasonable assumptions, we cannot provide any assurances regarding future results. We undertake no obligation to revise or update any forward-looking statements, or to make any other forward-looking statements, whether as a result of new information, future events or otherwise.

Because forward-looking statements relate to matters that have not yet occurred, these statements are inherently subject to risks and uncertainties. Many factors could cause our actual activities or results to differ materially from the activities and results anticipated in forward-looking statements. Information regarding our risk factors appears in Part I, Item 1A, "Risk Factors," in our Annual Report on Form 10-K for the year ended December 31, 2011 filed on March 29, 2012.

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