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CDOM > SEC Filings for CDOM > Form 10-K on 22-Mar-2013All Recent SEC Filings

Show all filings for TIGER X MEDICAL, INC. | Request a Trial to NEW EDGAR Online Pro

Form 10-K for TIGER X MEDICAL, INC.


22-Mar-2013

Annual Report


Item 7. 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," "Tiger X," or "Cardo" refers to the business of Tiger X Medical, Inc.

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 and Estimates

Our significant accounting policies are more fully described in the notes to our consolidated financial statements. Those material accounting estimates that we believe are the most critical to an investor's understanding of our financial results and condition are discussed immediately below and are particularly important to the portrayal of our financial position and results of operations and require the application of significant judgment by our management to determine the appropriate assumptions to be used in the determination of certain estimates.

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, net realizable value of assets, share- based payment, and deferred income tax assets. 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 years ended December 31, 2012 and 2011, the Company received total royalty payments of $62,000 and $12,000, respectively, 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 December 31, 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. In September 2011, $240,000 of the escrow amount was released to Altus and $60,000 was released to the Company to settle the adjustments relating to the closing value of the Company's inventory and property and equipment. The Company recorded $240,000 as a reduction of the gain on sale during the year ended December 31, 2011. The total gain on the sale of the Spine Division assets as of December 31, 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 $11,846,000, which is presented net of the income tax expense effect of $556,000. During the year ended December 31, 2012, the Company filed its tax return and received an income tax refund of approximately $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 a component of the gain on the sale of discontinued Reconstructive and Spine divisions on the accompanying condensed consolidated statements of operations during the year ended December 31, 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 December 31, 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 year ended December 31, 2012 and 2011, were $0 and $746,000, respectively. The total pretax gain (loss) associated with the discontinued Reconstructive and Spine Divisions, including the discontinued corporate support for those activities, reported as discontinued operations for the years ended December 31, 2012 and 2011 were $104,000 and ($1,552,000), respectively. The pretax gain associated with discontinued operations during the year ended December 31, 2012 resulted from the relief of liabilities associated with the discontinued divisions, net of the write off of remaining accounts receivables believed to be uncollectible. The continuing operations reflected are expenses associated with business insurance, legal and accounting fees that the Company will continue to incur.

Revenue Recognition

We recognize revenue when it is realizable and earned. Management considers revenue to be realizable and earned when the following criteria are met:
persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the seller's price to the buyer is fixed or determinable, and collectability is reasonably assured.

Subsequent to the sale of the Reconstructive Division and the Spine Division, revenue consists of royalty revenue, which is recorded as the amount becomes known and collectability is reasonably assured.

Income Taxes

Deferred income tax assets and liabilities are recognized to reflect the estimated future tax effects, calculated at currently effective tax rates, of future deductible or taxable amounts attributable to events that have been recognized on a cumulative basis in the financial statements. A valuation allowance related to a deferred income tax asset is recorded when it is more likely than not that some portion of the deferred income tax asset will not be realized. Deferred income tax assets and liabilities are adjusted for the effects of the changes in tax laws and rates on the date of enactment.

The Company recognizes all material tax positions, including all significant uncertain tax positions, in which it is more likely than not that the position will be sustained based on its technical merits and if challenged by the relevant taxing authorities. At each balance sheet date, unresolved uncertain tax positions are reassessed to determine whether subsequent developments require a change in the amount of recognized tax benefit.

Recent Accounting Pronouncements

There are no recently issued accounting pronouncements or standards 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 and Financial Condition for the Year Ended December 31, 2012 as Compared to the Year Ended December 31, 2011

The following are the consolidated results of our operations for the year ended December 31, 2012 compared to the year ended December 31, 2011. As discussed above, our Reconstructive Division and Spine Division were discontinued during 2010.

                                                   Years Ended
                                                  December 31,
(In thousands)                                  2012       2011       $ Change       % Change

Revenues                                      $   62    $     12    $      50          416.7%
Cost of revenue                                    -           -            -            0.0%
Gross profit                                      62          12           50          416.7%
General and administrative expenses              401         630         (229)         -36.3%
Loss from operations                            (339)       (618)         279          -45.1%
Other income (expense), net                        8         (14)          22         -157.1%
Loss from continuing operations before
income tax provision                            (331)       (632)         301          -47.6%
Provision for income taxes                         -           -            -            0.0%
Loss from continuing operations                 (331)       (632)         301          -47.6%
Discontinued operations, net of income
taxes
Gain from sale of discontinued
Reconstructive and Spine Divisions,
net of income taxes (benefit) of ($532) and
$556, respectively                               532      11,846      (11,314)         -95.5%
Gain (loss) from operations of discontinued      104      (1,552)       1,656         -106.7%
Reconstructive and Spine Divisions
Net income                                    $  305    $  9,662    $  (9,357)         -96.8%

Revenues

Revenues from continuing operations amounted to $62,000 for the year ended December 31, 2012 compared with $12,000 for 2011. Revenues from continuing operations represented royalties received from Arthrex in connection with the Arthrex Asset Purchase Agreement. The amounts increased during 2012 due to a full year's worth of royalties being collected in 2012, whereas 2011 only reflected a partial year.

General and Administrative Expenses

General and administrative expenses for the year ended December 31, 2012 decreased by $229,000 as compared to the year ended December 31, 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 a decrease in insurance expense of approximately $150,000 due to increased product liability insurance limits we were required to maintain during 2011 in conjunction with the sale of the Reconstructive and Spine assets. In addition, outside accounting and legal fees decreased by $173,000 during 2012 as we had higher expenses in 2011 due to the closing of the Arthrex and Altus sales transactions. In the future, we expect our legal and other professional fees to remain at a reduced level.

Other Income (Expense)

During the year ended December 31, 2011, we had interest expense of $25,000, which was primarily the result of interest accrued on $500,000 of notes payable outstanding as of December 31, 2010 which were repaid in 2011. This was offset by $11,000 of interest income earned during 2011. Our interest income during 2012 amounted to approximately $8,000. We had no interest expense during 2012 as there were no notes payables outstanding during the year. Going forward, we expect to generate interest income from the cash we have on hand.


Liquidity and Capital Resources

As discussed previously, 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 year ended December 31, 2011 of $16,138,000, which included gross proceeds from the sale of the assets of $17,175,000, less $900,000 of the funds placed in restricted cash escrow accounts, less purchases of equipment of $137,000. During 2012, we had net cash provided from investing activities of $900,000, which represented the restrictions being removed from the escrow account.

Net cash used in operating activities was $3,087,000 for the year ended December 31, 2011 compared to $310,000 in 2012. Our overall operating costs were higher in 2011 as we had a period of operations prior to the sale of the Reconstructive and Spine Divisions during the second quarter of 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, 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.

Net cash used in financing activities was $500,000 in 2011. This consisted of $1,224,000 in borrowings under the Arthrex Note, offset by the repayment of the Arthrex Note balances, as well as repayment of the $500,000 of notes payable outstanding from the prior year. We had no financing activities during 2012.

We believe our cash balances of $13,268,000 as of December 31, 2012 are adequate to meet our cash needs for the next twelve months and beyond.

Off-Balance Sheet Arrangements

We have no off-balance sheet financing arrangements.

Contractual Obligations

We lease our office space in Los Angeles, California under a 12 month lease extending through March 2013 at a monthly rate of approximately $1,200 in Los Angeles, California. Rent expense for the year ended December 31, 2012 and 2011 amounted to approximately $16,000 and $112,000, respectively.

Forward Looking Statements

Our business, financial condition, results of operations, cash flows and prospects, and the prevailing market price and performance of our common stock, may be adversely affected by a number of factors, including the matters discussed in "Risk Factors". Certain statements and information set forth in this Annual Report on Form 10-K, as well as other written or oral statements made from time to time by us or by our authorized executive officers on our behalf, constitute "forward-looking statements." You should note that our forward-looking statements speak only as of the date of this Annual Report on Form 10-K or when made and we undertake no duty or obligation to update or revise our forward- looking statements, whether as a result of new information, future events or otherwise. Although we believe that the expectations, plans, intentions and projections reflected in our forward-looking statements are reasonable, such statements are subject to known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. The risks, uncertainties and other factors that should be considered are included in "Risk Factors" in Item 1A.

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